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The NSW Government will today launch a parliamentary inquiry into the relationship between insurance companies and smash repairers - and the lucrative industry that repairs more than half-a-million cars each year.
It follows complaints that some insurance companies are trying to muscle-in on the crash repair industry - driving smaller repairers out of business - and are cutting corners by using mostly non-genuine parts, which car makers say can compromise a vehicle's safety.
The inquiry is also believed to be investigating alleged links between some small independent smash repair shops and organised crime, including motorcycle gangs and car-rebirthing rings.
In North America insurance companies are banned from owning smash repair businesses because of concerns that the focus on cost could lead to compromises in safety and the quality of vehicle repairs.
Australia's largest vehicle insurer by market share, Suncorp - which also operates under AAMI, GIO, Just Cars and Shannons - owns 23 smash repair shops across Australia, including nine in NSW.
Suncorp began acquiring majority shareholdings across its stable of smash repair shops three years ago.
Suncorp owns 60 per cent of 'Q Plus' at Riverwood, which is said to be the biggest crash repair shop in Australia and among the largest in the world, with up to 120 cars repaired each week.
Suncorp also owns up to 90 per cent of the 'Capital Smart Repairs' chain and has a 51 per cent share in the Australian division of US parts supply giant, LKQ, that specialises in non-genuine replacement parts to the crash trade.
Australia's second-largest insurer, NRMA, bought into two crash repair shops in Melbourne in December 1999 but sold them in July 2013.
NRMA Insurance owned a handful of smash repair businesses in NSW in the 1980s and 1990s but sold them more than 10 years ago.
"The US doesn't allow insurers to own smash repair shops because it's deemed there is a conflict of interest: cost versus what's best for the customer," said James McCall, the former CEO of the Motor Traders Association in NSW and who is now the Chairman of the Motor Industry Advisory Council established by the state government.
A spokesman for Suncorp, Chris Newlan, said: "We wouldn't support the US model. The US has significantly higher (car insurance) premiums than we have in Australia. We wouldn't want an inquiry having unintended consequences such as pushing up cost-of-living pressures with dearer insurance premiums."
Mr Newlan said modern motor vehicles are "more complex" to repair than older vehicles "with up to nine different types of steel and up to 70 computer systems".
When asked why Suncorp predominantly used non-genuine parts in the repair of its vehicles, Mr Newlan said "we're transparent about it, it's in the product disclosure statement that we use genuine and non-genuine parts, or a combination of both".
NRMA Insurance says it uses brand-new genuine parts on all cars that are less than three years old, and genuine new or used parts on older vehicles. Windscreens and radiators are the only non-genuine parts used, a spokesman said.
"The increasing complexity of all modern motor vehicles, in the metal materials and computer systems, which guarantee crash safety, make it absolutely vital that genuine parts are used in crash repairs," said Mercedes-Benz Australia spokesman David McCarthy, who suggested a car repaired with non-genuine parts should be crash-tested to highlight the differences.
Both Suncorp and NRMA Insurance say they offer lifetime guarantees on their smash repairs. NRMA Insurance randomly audits about 10 per cent of repairs.
"Cars are becoming more complex which is why we partner with expert small business smash repairers to fix cars to manufacturer standards," said NRMA Insurance spokesman Mark Gold.
When asked about Suncorp's investment in parts supplier LKQ, Mr Newlan said: "This is a separate deal. We cannot and do not force repairers to source parts from LKQ. We're simply introducing competition into the market."
Mr Newlan said genuine parts had a "400 per cent mark up by the time it gets to us", adding that a $20,000 car would cost close to $118,000 if made from separately-purchased spare parts.
This reporter is on Twitter: @JoshuaDowling