Insurers set off a fight on replacement parts
When a pickup slammed into Beth Dailey’s 2006 Mercedes last summer, her insurer readily agreed to pay for the repairs. But there was a catch: Her insurer would pay only for a used door, salvaged from another car, to replace the one that was smashed.
The salvaged door was installed but the car was never quite the same, Dailey said. The door rattled. It didn’t line up properly. Finally, when the car needed mechanical repairs, Dailey threw in the towel and traded it in for a newer model.
“It was a great car,” laments Dailey, a Boston real estate broker. “I loved it.” Had it not been for the door, she said, “I would have kept it.”
Auto repair shops, customers, and regulators across the country are taking aim at some insurers for insisting on using salvaged parts, or copies made by independent manufacturers, to reduce the cost of fixing vehicles damaged in accidents or storms. Using such parts can result in unsatisfactory fixes, and they may not be covered under the vehicle’s original warranties.
In December, a West Virginia court ordered Boston insurance giant Liberty Mutual to stop using parts salvaged from junkyards to fix newer cars. California regulators tightened their rules for using knockoff parts last month. And Massachusetts repair shops are considering lobbying state regulators to require insurers to pay for new parts for vehicles that are still under warranty, or with less than 36,000 miles: Current regulations require companies to use new, original parts on cars with less than 20,000 miles.
Many automakers, including Ford and General Motors, discourage customers from using salvaged parts or generic copies, and some repair shop owners and consumer advocates argue that alternative parts don’t always fit correctly or match the performance of new licensed parts.
Bob Collins, a consultant who helps customers ensure cars are properly repaired, said vehicles are often worth an average of about 10 percent less, or more vulnerable to failure, when shops install generic parts.
“It’s a big problem,” said Collins, owner of Wreck Check Assessments of Boston LLC in Mansfield. “It’s pretty widespread.”
Regulations in Massachusetts and many other states require insurance companies to tell customers what type of parts are being used in repairs — though critics say the information is sometimes buried in stacks of paperwork. Roughly one-third of the parts used to repair vehicles at auto body shops across the country involve used parts, copies by independent vendors, or remanufactured parts (old parts that are cleaned, repaired, and tested), according to the Property Casualty Insurers Association of America, a trade group in Chicago.
Robert Passmore, a senior director with the group, said such parts typically cost 20 to 60 percent less than new parts, helping to reduce the cost of repairs. The insurers association estimates that US insurance companies would spend an additional $2.4 billion a year if they had to rely exclusively on new parts made by automakers — which would force them to increase premiums by about 3 percent.
In addition, insurers argue that alternative parts are typically just as good as the original components and covered by warranties offered by insurers or the parts makers. “Nobody is advocating for bad parts to be put on cars,” Passmore said.
Repair shops and automakers also have economic interests in wanting insurers to pay for new parts made by original manufacturers, he said. In many cases, pricier parts are more profitable for repair shops because they typically pocket a percentage of the sales. Parts also provide revenue for automakers long after they sell the original car.
But regulators in some states say customers suffer when insurers require used or generic parts for repairs. After complaints from customers and repair shops, the California Department of Insurance last month toughened regulations to require insurers to spell out the warranties on generic parts; bear the cost of returning and replacing defective parts; and pay the full amount needed to bring cars back to their previous condition.
In West Virginia, the state attorney general sued Liberty Mutual a little more than a year ago, claiming the company violated state law by using “junkyard” parts to repair late model vehicles without customers’ permission. A state court judge ruled in December that Liberty Mutual violated West Virginia law by using salvaged parts without customers’ permission on vehicles less than three years old and ordered the company to halt the practice
Liberty Mutual spokesman Glenn Greenberg said the company is still considering its legal options, but has stopped requiring the use of old parts in West Virginia. He said Liberty Mutual requires that all parts are in good condition and offers its own warranty on the parts for the life of the car.
“We never use any part that would compromise customers’ safety or the warranty,” Greenberg said.
Liberty Mutual has not faced similar allegations in other states, Greenberg said. In Massachusetts, insurance regulators say they don’t receive many customer complaints about the issue. The Division of Standards, the state agency that oversees repair shops, estimated it has received 15 to 20 complaints about used or generic parts since 2009.
In Massachusetts, a group representing repair shops, the Alliance of Automotive Service Providers, is considering asking regulators to stop insurers from requiring old or generic parts to fix cars that are still under warranty or that have less than 36,000 miles.
Rick Starbard, the owner of Rick’s Auto Collision Inc. in Revere and past president of the alliance, said repair shops may have to clean or fix salvaged parts, and often wind up returning used or generic parts because they are shoddy or won’t fit. That can delay repairs — annoying repair shops and customers alike.
“Usually we address the problem before the car hits the road,” Starbard said, “but it’s putting a burden on the repair shops.”