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All Resources / Industry Insights

May 12, 2022

Environmental considerations for vehicle parts

By Atul Vohra and Susan Holliday

Solera’s Regional Managing Director, Atul Vohra, spoke with Susan Holliday to get her thoughts on the intersection between vehicle parts and the environment. Ms. Holliday has over thirty years’ experience in global financial services, with a concentration on insurance and financial technology. Ms. Holliday has served on several boards, including the advisory board of Solera, Inc., and is a non-resident scholar for the Insurance Information Institute.

Given your access to many corporate board members, to what extent do you think supply chain challenges are at the forefront of concerns today?

Obviously, these are challenging times for corporate management teams and boards around the world. Boards of directors are grappling with geopolitical events, but, yes, the supply chain issue has truly risen to the fore in the last couple of years in connection to Environmental, Social, and Governance (ESG) considerations as well as geopolitical developments.

In what ways do you see the environment relating to supply chain issues?

Many companies have made net zero commitments, and there are increasing disclosure requirements for listed companies in the UK and EU with similar developments proposed by the SEC in the US. Investors and customers are also asking a lot more questions around the environment and sustainability. One area of increasing importance is recycling and the “circular economy” when it comes to vehicle parts. Starting in Europe, there has been a lot more discussion of how to reuse parts.

Facilitating the reuse of vehicle parts is something we’ve been focused on at Solera as well. Salvage yards using our Hollander Powerlink Yard Management System sell about 46 million used parts per year. What is your view of the benefits of recycling parts and Alternative Parts Utilization (APU) more broadly?

Reusing parts offers dual benefits: reducing supply chain issues and cutting down on emissions. By “supply chain issues,” I mean that parts availability is an increasing issue. And for many drivers, convenience is more important than price. Because of recent supply chain challenges triggered by the emergence of COVID, everything has gone up in price. So now, recycling and aftermarket products may be more readily available. A survey was conducted five years ago by the insurance industry. They asked, “If your car will be a total loss, would you be willing to take used parts?” A very high percentage (75-80%) said yes – they’d rather leverage used parts than lose the vehicle. There’s been a huge drive recently to save power and to cut down on waste. These initiatives continue to promote reuse or recycling of second-hand parts. If we were to conduct the same survey now, the results might be even more compelling.

Who are the main parties involved in this supply chain for recycled parts and what are their concerns?

The primary parties involved are OEM vehicle manufacturers, repair shops, salvage yards, and insurance carriers. Bear in mind that there are three sources for parts: OEM, aftermarket, and salvage. New/OEM parts are more difficult to find and more expensive, plus the timelines on receiving them are much longer. Meanwhile, there’s a definite desire on the part of insurance companies to find alternative sources for vehicle parts to reduce expenses. I’ve seen estimates that recycled parts cost an average of 75% less than OEM. The savings are huge, it’s more environmentally friendly, and with next-day delivery, it can even be quicker, which benefits the insurance company and the end customer. Insurance companies are spending a lot of money on courtesy vehicles if repairs take a long time, when customers would prefer to get their own car back.

That sounds encouraging. Why is this not happening more?

It’s challenging to measure how many cars are actually repaired with used parts, but I’ve heard numbers from 1% to 10%, so there’s definitely potential to better leverage recycled parts. However, there are some challenges. For example, matching required parts to available parts. Not many new cars are total losses, so there are not many second-hand parts available for newer cars. Parts are becoming more specialized with automobiles becoming more technically advanced and diverse, so there needs to be an efficient system to locate the right parts. At the moment, there is no centralized database.

There is also no standard system to certify used parts, so their use on a new car may have an adverse impact on the vehicle’s warranty. On the one hand, the OEMs profit from selling new vehicle parts, but they are also under pressure from supply chains and to reduce emissions, so there should be a role for them to authenticate used parts in the same way that dealers offer quality assurance for used cars.

Yes, our Pinnacle solution solves some of these challenges around identifying all the vehicle parts in the market, but it’s a complex challenge with imperfect and siloed data. How do you see it playing out?

I think various parts of the industry need to come together to address this: OEMs, insurers, dealers, repair shops, and salvage yards. Such collaboration would definitely cut down on emissions (because new parts are often transported across continents). This would also reduce the time and cost associated with settling claims. The key is to build out an industry-wide framework. It needs to be a solution with benefits for everyone involved in the value chain. And, given the complexity of this challenge, it would likely be an opportunity to leverage emerging technologies across AI and Machine Learning (ML).

Even if some of the current supply chain issues driven by COVID and geopolitical conflict are resolved, companies will still be looking at ways to shorten supply chains and to reduce their environmental footprint. Public commitments to reduce emissions are out there, and regulatory and investor pressure on environmental topics will mean that companies need to be creative when it comes to making their businesses more sustainable. Persuading the many parties involved (OEMs, repair shops, salvage yards, and insurance carriers) to work together toward this greater good is a significant challenge still in need of creative solutions, but the urgency and reward associated with succeeding will only grow for the foreseeable future.