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Auto Parts Issues and Concerns

Generic car parts are far cheaper than those from the Original Equipment Manufacturer (OEM). The American Insurance Association estimates that generic parts save consumers up to $2.4 billion every year. A study comparing individual parts by the Quality Parts Coalition showed variances between OEM and alternatives as high as 50 percent, for a Nissan Altima front bumper cover, or 41 percent on a front air dam for a Dodge Pickup. Consumers don’t always recognize this, as their insurers pick up the tab, but they feel it eventually in higher premiums. The Property Casualty Insurers Association of America estimates that this patenting practice, if applied to every car part, would cost insurers an extra $1.5 billion a year.

The auto industry claims that OEM aftermarket parts are more reliable. Opponents disagree. There are plenty of studies on each side. But it’s telling that a lot of the parts come off the same assembly line, and one’s labeled OEM and the other is not.

Independent suppliers manufacture the clear majority of a car’s internal systems and parts today, as the automakers outsource development work on their vehicles. And the supplier market is quite concentrated; the top ten suppliers capture 60 percent of the total revenue. So Ford or Toyota don’t typically create these allegedly “OEM” parts; they just hold profitable patents on parts which are all coming out of the same plants and are virtually indistinguishable.

Concentrated suppliers are becoming as lucrative as the carmakers themselves, so the patents represent an additional revenue stream. It’s part of a continuing effort to generate more money from every car over its lifespan. Companies are increasingly able to spread the cost of a car over the usual lifetime in very creative ways that actually hide the real cost. They can, for instance, engineer a couple key components to fail in year five, just after the warranty fails. This allows makers to sell cars for less, knowing they will pick up the revenue when parts fail or are damaged in an accident.

Planned obsolescence of car parts has long been a suspicion for motorists, but automakers monopolizing the aftermarket ranks as a new concern. Due in part to patent protections, automakers control 73 percent of the market for replacement parts, according to the Consumer Federation of America. Automakers have even tried to use the Digital Millennium Copyright Act to bar owners from modifying their own cars.

A bipartisan coalition has proposed legislation to deal with restrictive auto design patents. The Promoting Automotive Repair, Trade and Sales (PARTS) Act, from California Representatives along with gov’t. officials, would reduce design patents on collision repair parts to 30 months, during which time alternative suppliers could test and develop their parts before bringing them to market. There is no reason why Americans should have to pay unreasonably high prices just to repair their cars, has said in a statement upon releasing the legislation.

The PARTS Act would still preclude carmakers from copying another company’s design models, but encourage competition in the parts aftermarket. Similar regulations are in effect in the United Kingdom, Australia, and the European Union.

Versions of the PARTS Act haven’t gone very far since first being introduced in 2013. The Quality Parts Coalition, which includes consumer, automotive repair and insurance groups, recently expanded their outreach campaign, and have been contacting offices on Capitol Hill.

Having moneyed interests like auto insurers on its side gives the PARTS Act at least a chance. But the bigger opportunity comes from the bipartisan coalition on the Hill.

There’s a clear free market rationale for patent reform, and a consumer protection rationale, it’s a place where we can all meet. In such a partisan period, any opportunity to find common ground, both sides relish it.