BILL ANALYSIS Ó
AB 2505
Page 1
Date of Hearing: April 24, 2012
ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER
PROTECTION
Mary Hayashi, Chair
AB 2505 (Ma) - As Amended: April 16, 2012
SUBJECT : Motor vehicle replacement parts.
SUMMARY : Requires an automotive repair dealer's (ARD's)
written estimate and invoice to list any certifying entity of
non-original equipment manufacturer (non-OEM) aftermarket crash
parts.
EXISTING LAW :
1)Establishes the Bureau of Automotive Repair (BAR) and provides
for the licensing and regulation of ARDs.
2)Requires an ARD's written estimate and invoice to list
original equipment manufacturer (OEM) and non-OEM crash parts.
3)Prohibits an insurer from requiring the use of non-OEM
aftermarket crash parts in the repair of an insured's motor
vehicle, unless the consumer is advised in a written estimate
of the use of non-OEM aftermarket crash parts before repairs
are made. In all instances where non-OEM aftermarket crash
parts are intended for use by an insurer:
a) The written estimate shall clearly identify each such
part with the name of its non-OEM manufacturer or
distributor; and,
b) A disclosure document containing the following
information in 10-point type or larger type shall be
attached to the insured's copy of the estimate: "This
estimate has been prepared based on the use of crash parts
supplied by a source other than the manufacturer of your
motor vehicle. Any warranties applicable to these
replacement parts are provided by the manufacturer or
distributor of the parts, rather than by the original
manufacturer of your vehicle."
4)Provides that no insurer shall require the use of non-OEM
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replacement crash parts in the repair of an automobile,
unless:
a) The insurer warrants that the parts are at least equal
to the OEM parts in terms of kind, quality, safety, fit,
and performance;
b) Insurers specifying the use of non-OEM replacement crash
parts pay the cost of any modifications to the parts
necessary for the repair; and,
c) All OEM and non-OEM replacement crash parts, when
supplied by repair shops, carry sufficient permanent,
non-removable identification so as to identify the
manufacturer. The identification must be accessible to the
greatest extent possible after installation.
5)Defines "aftermarket crash part" to mean a replacement for any
of the non-mechanical sheet metal or plastic parts which
generally constitute the exterior of a motor vehicle,
including inner and outer panels.
6)Defines "Non-OEM aftermarket crash part" to mean aftermarket
crash parts not made for or by the manufacturer of the motor
vehicle.
FISCAL EFFECT : Unknown. This bill is keyed non-fiscal.
COMMENTS :
Purpose of this bill . According to the author's office,
"Certified Non-OEM collision parts are marketed, and insurance
policies are written within the stream of commerce, and have
been for over 20 years. These parts are identified and
distributed to auto repair shops for the repair of the
consumer's damaged automobile, and are priced differently from
other aftermarket crash parts. Some insurance companies, such
as State Farm for example, sell aftermarket crash parts they
call "certified non-OEM" parts to their consumers. Consumers
need to know that the parts they pay for have been supplied as
part of the repair of their automobile. AB 2505 will provide
the BAR with statutory authority as part of their Car Inspection
Program to ascertain whether an ARD supplied and installed the
collision part called for by the insurer and approved by the
consumer. AB 2505 will do this by requiring that if the auto
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repair shop uses a certified aftermarket crash part, that it be
listed on the invoice, along with the name of the certifying
entity.
Background . "Collision replacement parts," "crash parts," or
"body parts" are parts generally made of sheet metal, plastic,
or glass that constitute the exterior of a motor vehicle and
tend to serve a cosmetic function. Examples of collision
replacement parts include bumper reinforcements and absorbers,
hoods, fenders, door shells, rear outer panels, deck and trunk
lids, quarter panels, truck beds and box sides, body side
panels, tailgates, and lift gates. Typically, a collision
replacement part is only replaced after being damaged in an
automotive collision.
Collision replacement parts are distinct from another category
of automotive replacement parts known as "hard parts," "wear
parts," or "mechanical parts." Hard parts serve a mechanical
purpose and include items such as spark plugs, piston rings,
shock absorbers, oil filters, chassis parts, fuel pumps,
carburetors, etc. Hard parts must be replaced regularly
throughout the life of a motor vehicle because they are subject
to normal wear and tear.
Along with the distinction between collision replacement parts
and hard parts, the automotive parts market can be further
divided into two segments: OEM crash parts and non-OEM
aftermarket crash parts. OEM crash parts are replacement parts
designed by the motor vehicle manufacturer for use on the
manufacturer's vehicle (e.g., a hood to be used on a given Ford
vehicle that is made by Ford). Non-OEM aftermarket crash parts,
on the other hand, are imitation auto parts made by an
independent manufacturer that is generally not affiliated with
the manufacturer of the motor vehicle for which the part is
intended. Non-OEMs must "reverse-engineer" the replacement
parts because they do not have access to the OEM's proprietary
specifications. The non-OEM segment of the automotive parts
market is often referred to as "aftermarket."
Since non-OEM aftermarket crash parts are "reverse-engineered"
and are intended to function equivalent to an OEM crash part, an
ARD may still have to modify a non-OEM part to install it in a
vehicle, resulting in increased labor costs to the consumer.
In a 2003 study, BAR reported that, "Auto body repair facilities
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and auto body technicians have told BAR that they feel they are
pressured by the insurance companies into using aftermarket
crash parts. Additionally, they have told BAR that many of
these parts, require modification by the auto body repair
technician to get the part to fit, and that this added labor
increases their repair cycle time and labor costs. A few repair
facilities have commented that the use of aftermarket crash
parts (CAPA-certified or not) is only saving the insurance
companies money, with the auto repair facility having to absorb
the cost of part modification."
This situation is one of the reasons leading to the ongoing
debate over the quality, safety, and fit of non-OEM aftermarket
crash parts.
OEMs enjoyed a complete monopoly on the supply of collision
replacement parts until the 1970's when non-OEMs began offering
imitation collision replacement parts at substantially lower
prices than their OEM counterparts (non-OEM aftermarket parts
can be 20% to 65% less expensive than OEM crash parts),
resulting in more competitive pricing for crash parts. The
imitation parts cost less than OEM crash parts because non-OEMs
use different materials and focus on selling a limited selection
of crash parts, but in greater quantity. According to Consumer
Reports (CR), "It costs more to package, inventory, ship, and
sell individual parts. Automakers also must stock every
replacement part, while aftermarket makers cherry-pick the most
profitable ones."
Certification of Non-OEM Parts . According to CR, "In an effort
to assure the quality of imitation body parts, the insurance
industry established the non-profit, Certified Automotive Parts
Association (CAPA), in 1987? After it was established in 1987,
CAPA compiled a manual that spells out quality controls, test
procedures, and other steps required for manufacturers to get
its seal. In the crash parts market (and based on 1999 data)
CAPA parts account for 3% or less of the units sold, OEM parts
account for 72%, salvage parts, 10%. Non-CAPA imitation parts
make up the remaining 15%."
Independently assessing and certifying whether or not collision
replacement parts meet quality standards for fit, component
materials, and corrosion resistance has been one of the primary
goals of CAPA. CAPA contracts with Intertek ETL Entela, an
independent test laboratory in Grand Rapids, MI, to determine
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whether or not non-OEM parts are "functionally equivalent" to
their OEM counterparts and, therefore, can be certified by CAPA.
Another of CAPA's stated goals is "to promote price and quality
competition in the collision part industry." CAPA has a
12-member board of directors composed of representatives of auto
body shops, consumer groups, insurance companies, and parts
distributors.
Another certifier is the Manufacturers' Qualification and
Validation Program (MQVP). MQVP operates a program to evaluate
manufacturing companies that supply the collision repair
industry. The program requires initial qualification and
perpetual monitoring to determine if the parts produced are
functionally equivalent in performance to the parts they were
designed to replace in terms of fit, form, function, durability
and appearance.
The American National Standards Institute (ANSI) is a private,
non-profit organization that administers and coordinates the
United States voluntary standards and conformity assessment
system. ANSI is not itself a standards developing organization,
but rather, ANSI oversees the creation, promulgation, and use of
thousands of standards, guidelines, and conformity assessment
activities that directly impact businesses and consumers in
numerous industries and product lines.
CR . In February 1999, CR released a report entitled, "Shoddy
Auto Parts," which reviewed the performance of OEM and non-OEM
crash parts in response to the controversy over the price and
quality of collision repair parts. CR's investigation revealed
that "most auto insurers endorse imitation parts because they
can be 20-65% less expensive than the OEM, but the companies
surveyed provided no evidence that those savings were passed
onto policyholders." In addition, "the imitation bumpers and
fenders tested were inferior to OEM parts. The bumpers fit
badly and gave poor low-speed crash protection."
BAR report . SB 1178 (Burton), Chapter 303, Statues of 2001,
required the Department of Consumer Affairs (DCA) to do a study
on aftermarket crash parts and their certification. BAR met
with interested parties, including representatives from state
agencies and departments, insurance companies, auto body repair
shops, auto dealers, and CAPA, and sent out surveys to 1,300
randomly selected auto body repair facilities regulated by BAR.
On January 1, 2003, BAR released the report and concluded, among
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other things, that "certification does not protect consumers
from poor quality parts"; "there is a lack of control, by CAPA,
over distributors of their certified aftermarket parts"; and,
"there is no need for any state agency to oversee the
certification of non-OEM crash parts. There are safeguards in
statute and regulation that require a customer to be informed on
a written estimate if non-OEM crash parts are to be used, and
repair dealers are required to obtain the customer's
authorization prior to the work being started. Additionally, if
an insurer requires the use of non-OEM crash parts, they must
warrant that such parts are of like kind, quality, safety, fit
and performance as OEM parts."
In regard to whether aftermarket crash parts fit the vehicle
they are intended for, the 461 surveys returned to BAR indicated
that 12% of the time OEM crash parts did not fit, 56% of the
time non-OEM parts did not fit, and 19% of the time recycled
parts did not fit. Auto body shops expressed that when a part
did not fit, they had to spend extra time and money to customize
the part and, usually, they were not compensated for doing so.
BAR performed its own field test on 5 non-OEM aftermarket crash
parts and found that 4 of them were inferior to OEM crash parts;
"the non-OEM parts did not have proper fit; body line alignment
and/or needed additional modification to be properly installed
on the vehicles." BAR concluded that "it appears OEM crash
parts have an edge over non-OEM and certified non-OEM
aftermarket crash parts when it comes to fit and quality," and
that "the market should drive acceptability of aftermarket crash
parts, similar to the way mechanical aftermarket parts have
evolved."
CAPA's response to the BAR report . In August 2003, CAPA issued
a report in response to the BAR report in which CAPA disputed
virtually all of BAR's conclusions and recommendations. CAPA
argued that BAR's report actually made "a strong case for the
fact that the market has not resolved the concerns about the
quality of aftermarket crash parts and that independent
certification, if used by the various parties in the industry,
would protect consumers from poor quality."
Insurance Coverage . The sponsors contend that automobile
insurers offer policies that guarantee the use of "all non-OEM
parts certified by CAPA." Under California law, an insurer
cannot require the use of non-OEM aftermarket crash parts in the
repair of the insured's vehicle unless the use is clearly
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disclosed in a written estimate to the insured. The disclosure
must be in 10-point, or larger, type and reads: "This estimate
has been prepared based on the use of crash parts supplied by a
source other than the manufacturer of your motor vehicle. Any
warranties applicable to these parts are provided by the
manufacturer or distributor of the parts, rather than by the
original manufacturer of your vehicle" ÝBusiness and Professions
Code, Section 9875.1 (b)].
In addition, under insurance code regulations, an insurer may
not require the use of non-OEM replacement crash parts unless
the parts are at least equal to the OEM parts in terms of kind,
quality, safety, fit, and performance. Furthermore, insurers
requiring the use of non-OEM parts must cover the cost of any
modification to the part necessary to effect the repair and must
warrant that the non-OEM parts "are of like kind, quality,
safety, fit, and performance" as OEM replacement crash parts
ÝCalifornia Code of Regulations, Title 10, Chapter 5, Section
2695.8 (g)].
A consumer who has an automobile insurance policy that
guarantees CAPA-certified non-OEM aftermarket crash parts and
does not receive that guarantee, may contact the insurer to
enforce that provision. An insurer may, at its discretion,
remove an ARD from its direct repair program, who does not
comply with its policy provisions to install CAPA-certified
non-OEM aftermarket crash parts.
Support . According to the sponsor, CAPA, "While insurance
companies, auto repair shops, and distributors distinguish the
Ýaftermarket crash] parts by description in the open market,
California law leaves the BAR unable to distinguish between
'certified' and 'non-certified' in their vehicle inspection
program.
"Certified aftermarket crash parts have been in the stream of
commerce for more than 25 years. They are not the same as parts
simply labeled as 'aftermarket.' In fact, automotive dealers
identify and sell 'certified aftermarket crash parts';
distributors specifically wholesale them; auto body repair shops
install them; insurance companies explicitly authorize them on
claims; consumers request them; and, even electronic estimators
list them on repair estimates.
"Under current California law, both certified and non-certified
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non-OEM parts are covered by one definition of an 'aftermarket
crash part,' despite the fact that certified aftermarket crash
parts are specifically designated by estimators used in
collision repair and included in insurance contracts with policy
holders. Consumers are currently being denied the right to know
if they received the proper parts or not, when their vehicle is
inspected by a BAR inspector. Consumers deserve full
disclosure.
"CAPA was established in 1987 to protect consumers from poor
quality parts and overpriced parts. CAPA oversees a testing and
inspection program that certifies the quality of crash repair
parts used in collision repair. As a non-profit organization,
CAPA's goal is to promote quality and competition in the
aftermarket crash replacement parts industry, thereby reducing
the cost of repairs to the consumer without sacrificing quality.
We do that by enabling the market to identify high-quality,
independently-tested, and fairly-priced replacement parts."
Opposition . According to the California New Car Dealers
Association, "The Automotive Repair Act requires any person in
the business of repairing vehicles (including collision repair
facilities) to register with BAR, and to meet very specific
vehicle repair estimating and invoicing requirements. Existing
law requires collision repair facilities to denote on both the
written repair estimate and any subsequent invoice a description
of each part, indicating whether the replacement part is new,
used, rebuilt, or reconditioned. Crucially, the law requires
that each crash part also be identified and to "indicate whether
the crash part is an OEM crash part or a non-OEM aftermarket
crash part." OEM crash parts (automaker crash parts) are built
by or for the automaker of the vehicle itself-designed and
manufactured to the same specifications as the parts originally
installed on the vehicle. Non-OEM aftermarket crash parts
(imitation crash parts) are parts designed and manufactured by
different entities pursuant to standards different than those
established by the automaker. ÝBAR] has previously studied
whether a third category of crash part should be
recognized-"certified non-OEM aftermarket crash parts," but
concluded Ýin its 2003 study] that doing so would be
inappropriate.
"Since the 2003 BAR Study was released, similar bills have been
introduced. In 2005 and 2006 the Legislature heard AB 1163
(Yee), which would have declared by law that certain imitation
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crash parts are of 'like kind and quality' to automaker parts.
In 2006, AB 1852 (Yee) sought to create a state-sanctioned
imitation parts certification program without much oversight
whereby 'licensed certifiers' would submit 'reports' to the
state about their certification. In 2010, SB 350 (Yee) sought
to add additional requirements for non-OEM crash parts. Each
proposal was held in the Assembly Business, Professions, and
Consumer Protection Committee.
"Despite BAR's 2003 report concluding that state-sanctioned
certification is inappropriate and better left to the market,
and despite three failed similar proposals in recent years, CAPA
is back this year with legislation to grant state recognition of
imitation crash parts certification without state oversight."
Related Legislation . SB 1460(Yee) of 2012, revises and recasts
the motor vehicle replacement parts law, defining certain terms
related to crash parts. This bill specifies that certified
non-OEM crash parts shall be presumed sufficient to return the
motor vehicle to its pre-loss condition. This bill requires a
supplier who supplies a certified new non-OEM crash part to
provide a written consumer warranty, as specified. This bill
requires crash parts to have an identification number and an
electronic tracking system, and revises the invoice and estimate
requirements for ARDs. This bill is currently pending in the
Senate Judiciary Committee.
Previous Legislation . SB 350 (Yee) of 2009, would have
prohibited an automobile insurer from requiring the use of
non-OEM aftermarket crash parts in the repair of an insured's
motor vehicle, unless certain conditions are met. This bill was
held in the Assembly Business, Professions and Consumer
Protection Committee.
AB 1852 (Yee) of 2006, would have required that a written
estimate or invoice prepared by a collision repair facility, as
defined, or an insurer, or both, include a specified disclosure
of each collision repair part to be used in the repair as well
as a specified notification which, among other things, states
that the estimate or invoice has been prepared based on the use
of aftermarket collision repair parts. This bill would have
also required the manufacturer or distributor of a car company
collision repair part or a certified collision repair part and,
in certain cases, an insurer, to make specified warranties with
respect to those parts. This bill was amended to address an
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unrelated issue.
AB 1163 (Yee) of 2005, provides that a non-OEM aftermarket crash
part is of like kind and quality to an OEM aftermarket crash
part if the part is certified by an independent certifying
entity recognized by the State of California. Also, requires
manufacturers or distributors of the non-OEM part, and insurers,
to warrant non-OEM certified aftermarket crash parts. AB 1163
was held in the Assembly Business and Professions Committee.
SB 1178 (Burton), Statutes of 2001, Chapter 303, required DCA to
consult with the Department of Insurance and other interested
parties and conduct a study in order to determine the best
process for certifying crash parts.
AB 1120 (Areias), Chapter 817, Statutes of 1989, enacted
existing law in regards to aftermarket crash parts. This bill
required an estimate for the repair of a vehicle to disclose to
the consumer whether or not the repair estimate was based on the
use of non-OEM aftermarket crash parts. The author's reasons
for introducing AB 1120 were stated in the committee analysis as
"consumers are unaware of the kinds of crash parts that are
being used to repair their vehicles and that 'imitation' or non
OEM crash parts are being used without the consumer's knowledge.
In many cases, the consumer is not receiving a quality product
when imported imitation crash parts are being used to repair
their vehicles. The practice of installing non OEM parts has
resulted in complaints and problems involving the fit, finish,
or corrosion protection of the non OEM part, and may invalidate
the vehicle manufacturer's warranty on the use of any non-OEM
part."
REGISTERED SUPPORT / OPPOSITION :
Support
Certified Automotive Parts Association (sponsor)
Advocates for Highway and Safety
Center for Auto Safety
Opposition
California Autobody Association
California New Car Dealers Association
Consumer Federation of California
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Analysis Prepared by : Joanna Gin / B.,P. & C.P. / (916)
319-3301