One only has to look at the astronomical growth of import vehicles on today’s roadways to determine how vast the import parts and accessories market must be.
Though it’s hard to find any up-to-date statistical information that clarifies just how enormous it is, interviews with import specialists confirm that business is good, changes are common and challenges are many — the most important of which could be the aggressive “invasion” of traditional aftermarket players into this ever-growing niche.
The fact that we’ve had a hard time finding statistics on just import vehicle parts and accessories “in and of itself is a barometer of the segment being consumed by the traditional side of the market,” says Hank Allessio, managing director of Walden Consultants.
Information provided by Beck/Arnley, however, gives a good indication of where the market is headed. The registration of import vehicles grew from 41.7 million to 64.5 million between 1992 and 2003 — a 56.8-percent increase. “In that same time period, domestic vehicles grew at a rate of only 9 percent,” says Max Dull, company president and CEO.
In 2004, Toyota sold 140,000 more passenger cars than Ford; Hyundai sold almost 80,000 more vehicles than Buick; Mercedes-Benz sold more cars than Cadillac; Volvo sold more cars than Lincoln; and Nissan outsold Chrysler by about a quarter million vehicles.
Estimates suggest that by the end of 2005, almost 70 million imports will be registered. “More foreign nameplate vehicles in the U.S. car parc means sales growth for replacement parts on these vehicles,” says Dull, who adds that sales of import parts grew 5.5 percent annually between 1997 and 2001, which is 2.5-percent higher than sales for domestic vehicle parts.
And so the story unfolds as the aftermarket twists and turns from being a predominantly domestic player in the automotive video game to increasing its stockpile on the import-side so it may one day serve a harmonious galaxy.
But the popularity of various top-selling nameplates, along with the fact that some imports are now being manufactured in the states, is beginning to obscure the line between what is domestic and what is import.
“There is a huge blur as to what’s an import,” says Marty Gold, past chairman of Auto International Association (a segment of AAIA) and one of the owners of S-G Imported Car Parts, Inc., located in Farmington Hills, Mich. “What we consider an import is when the original nameplate came from overseas.”
Being in the backyard of the Big Three for almost 30 years, Gold’s shop was import when import wasn’t cool. The big foreign OEs back then were the German and British car companies, but now Asian and European names have taken the prominent positions.
Gold, who is a member of Auto Parts Associates, Inc., recalled a roundtable he participated in years ago, where many key industry players agreed that the import parts specialist would not survive for long, so he challenged them to just take his keys. Fast-forward to a few decades later, and Gold is holding more than one set — he actually has seven, for all his locations. He is proof that the import parts market has withstood the test of time.
“I talk to a number of guys in our industry who are really thriving. Our sales are up, profitability is up,” confirms Gold, who adds that on the domestic side, “you hear all these struggles. While it’s not easy to continue growing the business, we are having record years.”
But this aftermarket business sector hasn’t always been peachy. According to Allessio, who has served 20 years on the AIA board, the import parts market has ebbed and flowed. “Expanded capacity to supply has eased product availability problems” which were prevalent in the formative days, he says. And, “a generation ago, the import sector was at its peak.” But then a competitive market dynamic shook out all but the fittest, and “some import specialists are flat better than their traditional rivals” because of it, and Gold’s shop is no exception to this, says Allessio.
It seems that the shakeout Allessio refers to had an impact on more than just the parts specialists. Years ago, one supplier could provide a full line of import products, but that business model has drastically changed. It may in fact be the biggest change there’s been in the import marketplace.
Allessio says the key to understanding the state of the market and its metamorphosis is recognizing the disappearance of full-line import distributors. There were several companies that used to supply import specialty jobbers that are no longer around in the same capacity. “Beck/ Arnley is a shadow of its peak years,” claims Allessio. Through various transitions and buyouts, it lost its clout with the import parts specialists and gravitated to traditional market sectors in concert with its then corporate owners. And there are dozens of other suppliers just like Beck/Arnley, points out Allessio. “The lesson is that full-line specialists no longer broadly support the business.”
Most import parts makers now just focus on a niche: a particular vehicle make or a specific product line. So, parts are out there, specialists just have to be extremely resourceful finding them.
“It’s wire sets from this guy, suspension from that guy. You have to go all over the place to get your parts,” says Swede Farling, vice president of M&C Foreign Car Parts, a jobbing location in Mechanicsburg, Pa. “You cannot buy all your oil filters from one source” and that’s not how it is on the domestic side.
“Certainly there are some full-line specialists still succeeding at the generation ago business model — most of which lean toward ‘high-line’ European applications. Make no mistake though: The market has changed and will continue to change,” Allessio speculates.
Worldpac is probably as close as it gets to being a full-line supplier, reveals Chuck Hartogh, vice president and co-founder of C&M Auto, a two-location shop in the Chicago area with a 50/50 mix of domestic and import vehicle customers.
Any jobber or parts distributor knows that business administration gets more complex as suppliers are added to the source list.
“We had to find another 20 suppliers” when full-line suppliers began to disband, says Mike Brown, current chairman of AIA, owner of Olympus Auto and APA member. But even though the increase in vendors made business more difficult, “we got a lot more competitive because we cut out a step in the distribution as a two-stepper. We are able to source the finest quality that is available out there,” he contends, by buying from import-specific companies like Akebono, Denso, Hitachi and Tokico.
The manufacturers and suppliers that Brown works with “either make the parts originally for a wide variety of cars (OEM) or they supply the dealer with the parts afterward (OES).”
It seems as if the parts proliferation problem may be a slightly different animal for the import segment. Whereas it is a bear for the domestic parts distributors, it is a snarling beast for import specialists. “We carry 28 nameplates of product in our company,” Gold told us, which means a tremendous amount of import parts are needed to cover those vehicles, since the number of new parts in the import market is “massively huge.”
Gold suggests that more parts are needed to cover an import product line than a comparable domestic line, referencing companies like Standard Ignition and Fel-Pro, which, he says, clearly have more SKUs and part numbers on their import product lines compared to their domestic offerings.
It’s tough to “get your arms around what to stock, what parts to sell, which cars go through brakes faster than others, which cars sell a left axle where the right axle never needs replacement.”
But all this doesn’t mean Gold equates parts proliferation to a problem. “To me, it’s a great situation.” Parts proliferation has always existed on the import side — OEMs have always been known for mid-year line changes on imports, making it increasingly difficult to secure the right components, explains Gold, but for those who’ve been specializing for a while, it’s all part of a normal day’s work. “I have already dealt with it and it’s what we handle every single day.”
He believes the domestic parts distributors have, in the past few years, begun dealing with some of the same inventory management problems the import specialists have always been faced with.
“Proliferation for us has been there since the early ’80s,” agrees Brown, who explains when Japanese cars started arriving in the states, there were many different makes and models and multi-year product runs.
“We can’t sell a part correctly without getting a production date and in some cases, a VIN,” he says. “On import cars, you can have three different brake master cylinders in a given year.”
Farling concurs that keeping up with the plethora of new SKUs is a constant challenge. “It takes a lot more to look up parts,” says Farling. “I can tell you we learn something new every day.”
So, the import parts specialist is doing an admirable job juggling the number of suppliers he or she works with, but the import technicians may soon begin experiencing hunger pangs for the parts they need, that’s if they haven’t already.
Mac McGovern, owner of Precision Engine in the northwest suburbs of Chicago, says that parts proliferation has been “kept captive” from shop owners and technicians. When he attends group meetings with other shop owners, the ones who complain about problems with availability just don’t understand the impact parts proliferation has had on the industry. “The service center has no clue what parts proliferation means,” reveals McGovern, who adds that the techs have to do a lot more work to get the part and aren’t sure why, which only makes matters worse.
Hartogh believes that it is harder to secure parts for imports in some cases, but not all. “By vehicle line, there are certain applications that are more difficult to get parts for, like Range Rover, Jaguars, Daewoo and Kia.”
So, there is proof that the proliferation of import parts has created a quandary for some shops, forcing them to work with as many jobbers as necessary to get the parts they need. “We as a group have gone from buying from two or three jobbers to as many as four to seven. That trend is particularly due to availability and branding,” claims McGovern.
The OE obsession
“There is a stronger preference for parts with exact OE match in the import market,” says Dull, hence the obsession with original equipment FFF — fit, form and function.
“The form and fit have to look the same as the part the tech is taking off the car. The function, though, that’s the key part. It has to be as good as or better than OE,” says Gold.
Farling agrees that his customers buzz about FFF, but he offers them a different perspective. “My theory is that OE is what went bad, don’t you want something better?”
“The aftermarket needs its own marketing ladder,” advises McGovern, since right now, it is forced to use OE as the benchmark. “Certain technology and engineering allow aftermarket parts to work better…but it doesn’t matter if it isn’t communicated to us. If a tech pulls it out of the box and it doesn’t look like OE, then the tech thinks it’s cheap” and the OE gains market share because they are the next phone call made, he argues.
“The aftermarket has done a poor job staking their ground on why they manufacture the product the way they do (rather) than touting the fact the products are more suitable for the vehicles we are working on,” continues McGovern. “We rarely know why there is a design change. They create an ambiguous component so the only thing we can compare it to is OE.”
Other sources agree. “There is a lack of confidence by the technicians today in our aftermarket products for import cars. This is especially true for higher end car models such as BMW, Mercedes or Lexus,” says one parts distributor. Forever branded
Because of this obsession with OE match among import specialists and technicians, brand names are somewhat like tattoos in their warehouses and bays: they are permanent fixtures.
“People do get married to brand names” in the import business, claims Gold. “Everyone reading this is going to know someone who swears that only one oil will work for them.”
Most would agree that the use of quality brands is crucial in the aftermarket in general, but for the import specialists, it’s pretty much the golden rule to carry mostly premium lines.
“We carry brands we can hang our hat on,” says Gold. “We can say, ‘this came on a Toyota’,” which is a reason it’s almost necessary for manufacturers to have OE and aftermarket experience.
In fact, if the manufacturer didn’t make the part originally or doesn’t specialize in import products, an import distributor likely won’t stock it because a tech, more times than not, doesn’t want to use it.
“Import technicians don’t want product from domestic suppliers,” claims Farling. “They don’t want to use a FRAM oil filter on a VW. They want a German oil filter to go on a German car.” FRAM is one of the leading brands in the industry and extremely common with domestic distributors, but an import tech wants the products that come OE on a specific import vehicle, he maintains.
Shop owner McGovern says the reason import technicians have become so brand specific is because the combination of small sales forces and clinic designs “leave us in the dark about suitability of the component, so we become very brand specific when we have found a brand with higher success that is fairly priced and works well.”
Because of this, strong brand names are exactly what the import distributors are supplying. Farling stocks product from mainstays like Bosch, Karlyn Industries, Centric and CMW, a caliper supplier he learned about after joining the Auto Parts Associates program group. “APA is helping find appropriate suppliers for imports.” And CMW has been one of their best suppliers. “They have a great product and we have almost a zero return rate.”
Gold stocks items from Bosch, Akebono and Denso, to name a few. He gets together with other import parts specialists a few times a year and says, “we don’t talk about price…we talk about the quality and what customers are asking for.”
But as much as quality and availability scream imperative, price still plays a role, says Dull at Beck/Arnley. “The distribution channel, in large part, remains focused on selling based on lowest price. It creates a real quandary for a supplier when market research says the technician wants quality parts with the same fit, form and function as OE, but the distribution channel in the middle tends to buy and sell on lowest price.”
The tragedy in all this, he points out, is that this “dichotomy is pushing many technicians back to the OE service dealer for their parts needs.”
He says that the universal shift in the past five years from premium to value line parts “hurts us all.”
McGovern strongly agrees, adding that the distribution channel needs to truly explain what is in the box and why it’s different, beyond the price. If the value of the product isn’t justified to a tech, then the price wins every time. “The ignorance at the counter is forcing us to buy the value line that we are now dissatisfied with, so the brand gets a black eye for us using the wrong product.”
Hartogh, however, says that since technicians are striving to get OE parts or as close as possible, they are “very aware of who made the products” and what they are putting on the car. “They interact to find out what works best,” he says.
Making it mainstream?
As many Asian and European import model vehicles have gained in popularity, a door has gone from being cracked to wide open for several mainstream traditional manufacturers, suppliers and parts sellers wanting to enter through.
“And they, the bigger traditional folk, have so much more scale economies that it makes it very difficult for the import specialist to maintain and retain
business,” says Allessio. “Hardened specialists can argue that
suppliers like AutoZone aren’t skilled in the nuances of the import market and applications, but there are millions of mass market Toyotas and Hondas adequately served by the mainstream parts market,” meaning the import specialty sector will continue to be under pressure from the more traditional sector.
As a way to discuss these challenges and share strategies for growth with other like members of the aftermarket, a group of specialists formed SIPS, which stands for Survival of Import Parts Specialists. Most folks we spoke to are members of this organization. Some even say that the word “survival” truly represents what the import parts market stands for. “I like the survivor portion myself,” shares Gold, “because that is what we are.”
Vehicle popularity has definitely made it easier for domestic parts suppliers to provide parts to the techs, says Farling, adding, however, that most domestic suppliers don’t have import sources. “Whereas I would be selling the Japanese product, they would be selling the American.”
Dull expounds on this concept further. “A part that fits a Toyota but comes in a box with a brand name strongly associated with domestic cars is not always acceptable to the technician.”
For domestics that continue to dip their toes in the import pool, specialists wish to send counsel. “All the main brand names have the import listing, but do they have them accurately listed? We don’t think so. Do they have them priced properly? We don’t think so,” one interviewee challenges. “They flow all their parts, and that is a problem.” As a group, import parts specialists prefer to stick with companies that are predominately import-focused.
Dull says for domestic manufacturers with a growing interest in the import market, “they will need an import-oriented brand to have significant success. They also will need to put extensive effort into making sure the products in their import line are an exact OE match.”
If you are a traditional parts jobber and you want to expand into the import market, you’ve got your work cut out for you. “The difference is just knowing the makes/models. Our guys have to be fully aware of every new make and model that comes out on the import side,” says Gold, adding that it includes line changes in a particular model year.
“The import specialty merchant historically has been attuned to that much better than a traditional person,” says Allessio. “The parts counter guy in the specialty house is closer to the technical changes almost in real time.”
Because there is a major difference in the types and numbers of suppliers, parts and vehicles you work with, specific contacts and details learned on the domestic side are useless, some suggest.
“It’s a hostile competitive environment from making parts all the way down the chain to distribution,” warns Allessio, but import specialists “will not shrink to zero.”