Car parts: Overcharged insurers source their own

"There's not a huge amount of money made in car sales": Stephen Longley.
"There's not a huge amount of money made in car sales": Stephen Longley.

The high price of automotive spare parts has pushed a major insurance company to go into the business itself.

Fairfax Media has been told commonly replaced parts have a mark-up of more than 500 per cent when sold at retail, and that building a $21,000 hatchback from new spare parts would cost more than $114,081.

The Suncorp Group spends about $450 million each year on spare parts for insurance businesses such as AAMI, GIO, Apia , Shannons, Just Car Insurance and Suncorp.

It moved to cut its spare parts costs by linking with US component specialist LKQ Corporation to start ACM Parts, a joint venture that now owns salvage business Frank's Auto Parts with sites in Smithfield and Queanbeyan.

Suncorp spokesman Stephen Bell said ACM Parts this week struck an agreement with US parts certifier NSF International to ensure ''that the parts are of the highest quality''.

''With parts making up half of the cost of a repair, and supply issues causing regular delays, we believe the Australian market needs a better parts service to reduce consumer vehicle repair costs and turnaround times,'' he said.

Bob Frayer, director of NSF International's automotive certification programs, promised ''the highest quality collision replacement parts are available in Australia''.

The move could ruffle feathers within Australia's car industry.

Lexus after-sales manager Chris Williams said non-genuine parts could put a customer's warranty at risk if the component was later proved to cause problems within a vehicle.

Increased competition surrounding spare parts could put pressure on manufacturers' and dealers' thick margins. Mitsubishi marketing boss Tony Principe recently said the company made less than $100 on entry-level models, and that profits were found in parts and servicing.

Automotive industry analyst and PPB Advisory partner Stephen Longley agreed that "parts and service is a significant proportion of the profit in a dealership … there's not a huge amount of money made in car sales".

Parts selling for $500 or more often cost carmakers about $100, and industry insiders say parts such as locking mechanisms cost $50 but retail for closer to $850.

That drive for profits has resulted in major price-fixing penalties for parts providers. The Australian Competition and Consumer Commission is pursuing suppliers Australian Arrow and NSK Australia. Last year Koyo Australia was fined $2 million by the Federal Court. Overseas, Japanese suppliers have been fined more than $US1 billion in the past year.

This story Car parts: Overcharged insurers source their own first appeared on The Sydney Morning Herald.