If you were to hang around the inventory area of any major independent auto repair shop, you’d hear the statement, “Parts are parts.” In short, generic, also called aftermarket, parts will be perfect clones of those from the automaker, or original equipment manufacturer (OEM).
The initial introduction of aftermarket parts undercut the OEM prices by 30 percent. Even the Insurance Institute for Highway Safety believed that the only place it might matter whether a part was OEM or aftermarket was the hood. So many insurers decided using aftermarket parts was one way to keep costs, and premiums, down. Even so, the use of aftermarket parts reportedly never rose above 15 percent of the market, despite the efforts of the Certified Automobile Parts Association (CAPA).
CAPA was established in 1987, through the efforts of the Auto Body Parts Association (ABPA) in order to improve public confidence in aftermarket parts. Although CAPA gets significant funding from the insurance industry, collision repair experts also sit on the 14-member Board of Directors and provide substantive advice.
Despite all this, in recent years, several class action lawsuits have substantially eliminated the use of aftermarket crash parts.
The first major setback for aftermarket parts happened in 1999. In the case of Avery vs. State Farm, a jury in southern Illinois found State Farm liable for $456 million in damages and an additional $730 million in punitive damages in a class action suit involving use of aftermarket auto parts. The plaintiffs claimed State Farm Mutual Auto Insurance Co. had failed to tell policyholders about the use of aftermarket parts in auto repairs, violating consumer fraud laws and that, further, using those parts did not restore the automobile to its pre-crash condition, resulting in a breach of contract. Although the award was reduced to $1.05 billion, the appellate court left the decision in favor of the plaintiffs standing.
Such rulings have caused most insurers to avoid aftermarket parts, allowing the automakers to regain a captive market, and also eliminating an opportunity for insurers to save money and pass those savings on to the policyholders.
Not long after the State Farm verdict, Public Citizen, a consumer advocacy group founded by Ralph Nader, condemned the ruling: with no basis in fact, the courts had created a virtual monopoly for OEMs in crash parts. Worse, that monopoly was not going to serve, but rather cost, the consumer.
Still, there are a few bright spots.
In February 2003, three class action suits involving aftermarket parts-one each in Ohio, Washington state and Florida-were overturned or dismissed.
The Institute for Highway Safety did further studies, too, and, in March 2000, concluded again that the source of cosmetic crash parts has nothing to do with the car’s subsequent crashworthiness. The test involved a 40-mph crash with identical 1997 Toyota Camry’s one with OEM cosmetic parts and one with a CAPA-certified hood (the only part originally thought to possibly require OEM replacement). The CAPA-certified parts performed identically to the automaker parts in every significant way, reports the Insurance Information Institute. As a result, CAPA is hoping its new term-“functionally equivalent”-will be more effective in explaining the parts’ performance than the old term used in state and local laws, “of like kind and quality.”
It is likely, however, that insurers will be wary of using aftermarket parts in the near future, unless more judgments are overturned. Or until there is legislation clearing the way for aftermarket parts.
CAPA has produced model legislation that was introduced by the National Council of Insurance Legislators in 2002. However, it was tabled until winter, 2005, meaning the status quo will remain at least until then. Were it to be passed, CAPA says, the public would be protected both from an expensive monopoly and any chance of substandard parts.