Identifying Parts Sales Opportunities for Lightweight Substrates

Jul 1, 2021 | Industry

By Ryan Mandell – Report from Mitchell International

Over the past 20 years, auto manufacturers have been utilizing a larger volume of lightweight materials as a more significant percentage of an assembled vehicle’s dry weight in order to increase fuel economy and improve crash worthiness. Automakers are relying on high strength and ultra-high strength steels, aluminum, composites, carbon fiber, and magnesium to take the place of traditional mild steels to accomplish these goals. IHS Markit forecasts that high strength steels will eclipse mild steel by the year 2031 and that overall steel utilization based on tonnage will contract at a rate of -0.71% CAGR (Compound Annual Growth Rate) during that same time period1.

This shift in OEM materials strategies means that recyclers must be ready to understand shifting market dynamics surrounding replacement crash parts and be prepared to both price parts competitively and care for their inventory in a more rigorous fashion. 

For recyclers, the most common parts in inventory where the shift toward lighter substrates is most evident are fenders, hoods, doors, and deck lids (includes tailgates, liftgates, etc.). Each of these major component part types has seen a growth in the percentage of replacement parts that are identified as lightweight substrates (Figure 1). We expect to see this trend continue if not accelerate due not only to increasing usage by OEMs but also due to the fact that such materials are inherently less repairable and in many instances not repairable at all. When analyzing the rate of repair for each of these part types over the past 18 months, we found that the mild steel parts had a higher repair percentage than those classified as being constructed of lightweight materials (Figure 2).

The replacement of more parts means more potential sales opportunities for recyclers and in many cases, at a premium when compared to mild steel parts. While the average price for new OEM mild steel replacement parts is often comparable to lightweight substrates, deck lids are an example of one specific part type where manufacturers are charging a premium when an alternative to mild steel is applied (Figure 3). A prime example of this behavior is the second generation Nissan Rogue (2014-19) that employed composite for the construction of the liftgate compared to the mild steel composition of the first generation (2008-2013) liftgate. This shift in materials resulted in a single part weight savings of 30% but with double the price tag.

A closer analysis of deck lids in particular shows that the same price gap between mild steel and lightweight material parts that exists in the OEM channel (37%) is not equaled in the recycled channel (24%) suggesting that recyclers are potentially leaving some profits on the table for deck lids constructed of materials such as aluminum and composites to be more in line with manufacturer pricing structures (Figure 4).

Deck lids and door shells represent a more captive alternative parts market for recyclers, as very little competition exists from the aftermarket. However, the same is not true for fenders and hoods where aftermarket parts tend to be the replacement of choice often due to wider availability and higher profit margins for repairers. That being said, aftermarket part utilization for lightweight substrate fenders in particular is lagging that of mild steel fenders for the last 18 months, yet the selection of recycled fenders is at parody for both mild steel and lightweight materials (Figure 5). The data suggests an opportunity to fill the gap left by the aftermarket where replacement fenders either are not yet available or are not cost effective.

In order to capitalize on these opportunities, recyclers must first be able to identify the material composition of major component parts to be able to properly care for them and to commoditize unsold or damaged parts at end of life, such as in the case of aluminum. Many lightweight substrates such as aluminum, carbon fiber, and composites are much less repairable (as seen above) and thus must be treated with additional care during dismantling, order fulfillment, quality control and delivery than components constructed of mild steel. These materials have very different properties than mild steel which help them absorb crash energy more efficiently but also means that they are more prone to cracks rather than deformations or dents, inherently limiting repair potential. Parts made of magnesium and UHSS must be especially cared for since ANY damage to such components is not considered repairable and would ultimately deem such part to be considered “Not Insurance Quality” (NIQ).

Recyclers have an important role to play in the collision repair ecosystem, especially as automotive complexity continues to increase and vehicle construction trends toward lighter weight, mixed materials strategies. Understanding the material composition of parts in inventory will help businesses better price and protect parts constructed of advanced lightweight materials and achieve healthier downstream profits through appropriate commodity compensation. As mild steel slowly fades into the background of automotive construction, awareness of the suite of materials utilized in modern vehicles will necessarily take a more central role in automotive recycling.

Footnotes:

1 Pope, Edwin (June 14, 2021).  US Automotive Lightweight Materials.  Automotive Lightweight Materials USA Conference 2021, Detroit, Michigan.

2 Lightweight substrates (materials) refers to parts categorized in the Mitchell Estimating database as Aluminum, HSS, UHSS, Composite, Magnesium, Dual Phase Steel, Laminated Sheet Metal, and Carbon Fiber.

Ryan Mandell is Director of Performance Consulting at Mitchell International. He engages with auto insurance carriers to analyze claims data and identify opportunities for performance improvement. He also works with claims executives to develop action plans to optimize such opportunities and see them through to fruition, and provides continuing consultation to insurance carriers on the most up-to-date trends in the automotive industry. Prior, he worked at Autowrecking.com/B&R Auto Wrecking and with Precision Collision Auto Body.

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