Why Are We Seeing Inflation in New and Used Parts, but Not the Aftermarket?
When I joined PartsTrader nearly six years ago, one of the first data reports I set up was designed to track a market basket of high volume collision parts to accurately measure parts pricing. I found that the various data providers in the collision space simply tracked the monthly average part price by part type, and that average varies based on the monthly vehicle mix. For example, if one month 10 percent more F Series trucks were repaired than Honda Civics, the average price would increase simply because those parts are more expensive. Choosing to evaluate a defined market basket of parts across three year old, high volume vehicle models allows for a much more accurate measure of true inflation.
In April of last year, President Trump announced sweeping tariffs that affected a large number of imported collision auto parts. Initial thinking was that aftermarket parts, primarily made in Taiwan, would be the most impacted. However, we found that new OEM parts experienced the greatest price inflation, with recycled parts following a very similar trajectory. Aftermarket parts, by contrast, did not see an increase until a small uptick in November.
Why is this?
Interestingly, an estimated 44 percent of new OEM collision parts are produced outside of the U.S., making them subject to tariffs. Recycled parts have seen nearly identical inflationary rates, which makes sense given that recycled part pricing is tied to the corresponding OEM part list price. Additional pricing pressure on recycled parts has also come from a weakened dollar exchange rate. A weaker dollar increases the likelihood that total loss vehicles are exported, and those that remain in the U.S. for parts harvesting can become more expensive, as domestic buyers may need to outbid foreign purchasers.
So why are aftermarket parts prices not climbing at a similar rate? During my travels to Taiwan last year, before the tariffs were signed into law, I noticed that many U.S. parts distributors were purchasing significantly larger quantities in advance of Liberation Day to lock in lower costs. Many bought roughly a year’s worth of inventory at that time. Now that this stock has been depleted, replacement inventory includes the tariff cost. Initially set at 25 percent and later reduced to 20 percent, the administration further lowered the tariff to 15 percent on January 16 of this year.
It is important to note that the 15 percent tariff is applied to the acquisition cost of the part, not the list price. For example, a 200 dollar list price aftermarket part may have an acquisition cost of 60 dollars, resulting in a tariff of 9 dollars. That added cost, especially within the PartsTrader marketplace where multiple aftermarket suppliers compete in a live auction, may not be passed on to the collision repairer at all, even if a price increase appears in the parts catalog.
The PartsTrader model of competitive tension remains the most effective way to limit the impact of tariff driven price increases.
