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Motor industry braces itself for unreasonable government ruling

03 July 2013 Jonathan Faurie
Jonathan Faurie, FAnews Journalist

Jonathan Faurie, FAnews Journalist

The foundations of the motor insurance industry could be shaken to the core if the government goes ahead with plans to ban the sale of second hand car parts which will be used as replacement parts on damaged vehicles. The general public and used parts de

The issue first came to light on the weekend of June 29 and 30 when the Weekend Argus in Cape Town reported the matter. Although this ruling has not been set in stone, it seems that there is more to the story than mere rumours.

The South African Insurance Association(SAIA) held a meeting on Monday July 1 to debate the issue, and speaking to the FAnews, Viviene Pearson, General Manager responsible for Motor Insurance at SAIA, said that if the ruling is implemented it will damage the industry.

“The proposed regulation that the parts of a Code 4 vehicle (vehicles which are permanently unfit for use – write offs or vehicles with major structural damage) may not be used to build or repair other motor vehicles, will have severe unintended consequences to both the insurance industry and its customers,” said Pearson.

Industry Consultation

SAIA is meeting with the Department of Transport (DOT) to discuss this issue. “We have forwarded our Code of Motor Vehicle Salvage to the DOT, which addresses quite a few of the gaps identified by them and hope that this will assist in convincing the DOT that we are just as committed as they are to combat vehicle crime and to ensure that only safe and roadworthy vehicles are put back onto the roads,”

“Our members have agreed to provide the DOT with as much information as possible in order to enable them to make an informed decision regarding this topic. We have also agreed that our Code of Motor Vehicle Salvage must be used to address any potential outstanding gaps, but must also be vigorously implemented by our members in order to make sure that we address the issues that are of concern to all role players involved in the fight against vehicle crime,” she said. But are we fully aware of the effects on the industry?

Consumer Pinch

Pearson pointed that if undamaged parts of a permanently demolished vehicle may not be used again, it will result in a loss of revenue (for salvage) to insurers. “In addition, if the usable parts of demolished vehicles cannot be used as second hand parts, the unintended consequence will be an increase in the cost of repairs as insurers will have to use new, much more expensive parts to repair older accident damaged vehicles. Insurers may have to declare vehicles as uneconomical to be repaired more frequently due to the unavailability of second hand parts which will further increase the repair costs. These factors will ultimately result in an increase in motor insurance premiums.”

SAIA believes that this proposed change could also unintentionally lead to an increase in vehicle crime as used parts will become scarce and sought after. This could further add to increases in motor insurance premiums. The SAIA strongly supports the fight against vehicle crime, but suggests that other processes should be explored to effectively prevent vehicle crime.

Industry Effects

Apart from the consumer, the second hand parts industry will be significantly affected by the ruling. A Durban based dealer of spare vehicle parts reported to the media that the government has no idea of the marketplace.

“We are stripping 2012, 2013 model vehicles. One side may be damaged, the other three not, so those parts are in excellent condition. They have clearly not consulted the industry, insurance companies or other players in the market,” he said.

In the same report, Andrew Ensor-Smith of ES Brokers said banning the sale of second-hand car spares would be something the government needed to consider very carefully, “The ripple effect is enormous and reaches out to many legitimate businesses.”

Editors Thoughts
Although this ruling has not been passed yet, it is clear that government has not undertaken proper due diligence and have not thought through the effects that this ruling would have on the industry. Would the South African consumer be happy with these increases? Consumers are already forking out a lot of money every year for insurance and any unnecessary increase would be viewed as a grudge purchase which makes it even more difficult for the brokers to sell. And then there is the issue of legitimate businesses suffering at the hands of this ruling. While government is struggling to fight against unemployment, can it afford to cause more? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughtsjonathan@fanews.co.za.

Comments

Added by Deon, 03 Jul 2013
Clearly a case once again of government ( was going to use a capital G but thought better of it ) throwing legislation at a problem instead of addressing the root causes.
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Added by Humphrey, 03 Jul 2013
I only see negatives (including increased crime) as follows: 1) More unemployment (a whole industry dries up) with resulting increase in crime 2) Increased cost to the public of insurance and or vehicle parts for vehicles not insured or uninsured events (with more crime as some use crime to make up the shortfall of income) 3) Increased trade deficit (more money going offshore to purchase imported parts) 4) Destruction of the planet (factories need to manufacture more new parts – more electricity and pollution). Clearly the existing government is intent on creating more unemployment and destroying our economy (or they are just plain idiot for not thinking too far before coming up with these crazy ideas)
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Added by Peter, 03 Jul 2013
It is sad that those who govern are not required to comply with the same levels of diligence as they expect from financial service providers. (FSP's) The individuals implementing bad economic policy decisions should be liable for these in exactly the same way as an FSP is liable for the consequences of bad advice. Why should public office bearers be allowed to act with impunity because they represent the public? They should be held to a higher standard.
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Added by Sparesboyz, 03 Jul 2013
Hi Peter Well done on the article. We are seriously concerned. The fight needs to be fought on another angle as well, as touched on in your article. JOB LOSSES- at a time we are looking to decrease unemployment, this legislation will have dire consequences on the job market. A survey needs to be done on this area, by some competent authority, to add clout to our opppsition to the proposed bill.
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Added by BOYZ SPARES, 03 Jul 2013
An important fact to consider: Would Government please identify the main problem.E.G Roadworthiness. As a 27+ year veteran of the used parts business+ hundreds of other players in the industry would be more than willing to assist in finding the ultimate "solution” to their problem. This solution is absolute nonsence.No thought process has been applied, it’s really quite embarrassing. 2013 and our government is taking this type of action. Actions speak louder than words. This is a "Banana republic" action. Really people of S.A. it’s time we stood up to this nonsence.Egypt might be an example to us all. If the government does not do what the people want (we put them into government) It’s now time we took the bad eggs out of Government. Hold more roadblocks and remove all unroadworthy cars (without corruption/backhands/bribery) JUST GOOD POLICING.
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