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Automotive Aftermarket Overview

Want to increase your business? Sell specialty parts and accessories.
Sunday, July 1, 2007 - 00:00

Want to increase your business? Sell specialty parts and accessories.

Every year, our sister publication, Aftermarket Business, conducts a State of the Industry report based on the automotive aftermarket. Results of the most recent study appeared in the February 2007 issue. In the study, 1,701 respondents were polled, including 50 parts manufacturers, 345 resellers (WDs, jobbers, retailers, and program groups), 813 service representatives, and 493 consumers.

Respondents were asked about returns, sales information, online habits, training, and inventory control. Major industry concerns for 2007 turned out to be inventory and returns. Parts Depot Chairman Rollie Olson says his company is putting an emphasis on improving inventory. He says it's a huge job deciding what to stock, but using programs that help determine which platforms and part numbers are important has helped their business.

Topline results: Each company must find what works best for their business. For some, this might mean branching off in a new direction, such as selling and/or installing specialty parts. For others, it may be as simple as getting back to the basics of business.

Fletcher Lord Jr., president of Replacement Parts, sums it up. "There will be fewer and fewer jobbers, fewer and fewer distributors. It's a nuts-and-bolts business... it's down to the fundamentals—having the right people, getting them trained, and serving your customers."

Specifically, Lord says his company puts a great deal of emphasis on category management. He says the aftermarket is finally catching up to this business necessity. Taking the long view, Lord also mentions that major issues will continue to be healthcare costs and finding qualified people to staff stores.

Prices always seem to be an issue. "With costs, you have just two choices," says Olson. "You can make less money or you can raise prices and enhance margins. When we talk about raising prices, many [technicians] have said to us, 'You deserve it.' They understand that the whole supply chain has to be profitable or the chain isn't going to make it. If we don't make money, we can't be there to supply parts."

Returns were also an important issue. Frank Ordonez, president of Delphi Product and Service Solutions and vice president of Delphi, says the aftermarket industry has to be more efficient in managing returns. As parts get passed back from the tech to the distributor, someone is absorbing costs all the way. Typically, it's the supplier.

"We need to sell a part and have it be sold forever," he says. "With the right quality, fit, and cataloging, it can be done."

What about brand-name parts? In the study, one in five shops always specified a brand when ordering parts. More and more technicians who specialize in import nameplate vehicles say they are increasing their purchase from OE service dealers. Why? Because they feel their traditional aftermarket supplier carries only traditional aftermarket brands they think might not be appropriate for import nameplate vehicles.

"Made in America" is no longer of the highest importance when ordering parts. It used to be that parts from China were considered inferior. "Now technicians are telling us they are having success with some of these offshore parts," says Dennis Welvaert, president of the North American Aftermarket Division of Dayco Products.

MANUFACTURERS

Manufacturer survey respondents indicated sales of traditional replacement parts and accessories increased by 30 percent last year, with the average increase hitting 14 percent. Six percent reported an increase in profit margins and 32 percent said their margins remained steady.

Three in five manufacturers said they sold specialty parts; 22 percent of whom reported increased specialty-parts sales last year. Ten percent said margins increased last year by 20 percent and 20 percent predicted margins would increase again this year.

Returns, including cores, were at the 2-percent level last year. Also, 39 percent of parts were from offshore sources. Some 30 percent of manufacturers changed business strategies last year and 28 percent planned to change strategies in 2007.

WAREHOUSE DISTRIBUTORS

In the survey, warehouse distributors indicated three issues topped their list of major concerns: adequate profit margins, finding and keeping qualified employees, and potential customer losses. Other major concerns included: the U.S. economy and gas prices, finding quality parts, and dealing with supply-chain management issues.

Here is some good news. Three out of five warehouse distributors reported selling specialty parts and accessories in 2006; 46 percent of whom reported average increased sales of 9 percent. Most WDs (53 percent) expected specialty parts and accessories sales to continue to grow.

Interesting fact: the major reason warehouse distributors didn't sell specialty parts and accessories was due to "lack of expertise." Styling & Performance plans to change that by educating readers about specialty parts and accessories.

WDs also reported Internet sales of traditional replacement parts and accessories increased in 2006. They expected such sales in 2007 to increase as well.

PROGRAM GROUPS

Major concerns of program groups mirrored the concerns of warehouse distributors—loss of customers, adequate profit margins, and supply-chain management issues. In addition, program groups were concerned about competition from new-car dealerships, gas prices, and OBDII access. Plans for 2007 include growing their membership and finding and keeping qualified employees.

Of the program groups responding, 71 percent reported sales of traditional replacement parts and accessories increased last year.

Interesting fact: 71 percent of program groups reported selling specialty parts. One-quarter said they increased their specialty-parts inventory last year by an average of 6 percent. Those program groups not selling specialty parts and accessories cited "inventory difficulties" as the reason.

Ninety percent of program groups had a Web site, but only 43 percent reported selling parts online. Those who sold online said online sales accounted for only 13 percent of sales.

Program groups said they spent an average of 12 hours per week online in job-related activities.

JOBBERS

Seventy-five percent of jobbers reported being members of a program group, with an average membership length of 16 years. Jobbers spent more time in 2006 sourcing inventory and planned to spend even more time sourcing manufacturers, WDs, and dealerships in 2007.

What was the number-one purchase decision? Jobbers said it was parts availability. Jobbers' business concerns mirrored other aftermarket segments—adequate profit margins and finding qualified employees and quality parts. Jobbers reported that product updates came from trade magazines, manufacturers, and WDs. The survey also indicated 79 percent of jobbers sold specialty parts and accessories sourced from specialty warehouses, manufacturers, and online. One-third reported a sales increase in specialty parts last year, and 23 percent said their specialty-parts and accessories inventory increased last year.

Jobbers reported they spent about eight hours per week in job-related online activities; 58 percent had a Web site and 36 percent reported selling products over the Internet, which was a slight increase when compared to last year's results. Of jobbers surveyed, 20 percent said they expected Internet sales to increase again in 2007. As far as Internet training was concerned, 75 percent said they were satisfied with current online tech and counterperson training programs.

How did jobbers communicate with their customers? They said they used the Yellow Pages, outdoor signage, sales calls, event sponsorship, and direct mail; 22 percent reported using the Internet to reach customers.

Jobbers said they wanted more communication from WDs and manufacturers and improved tech support. Inventory management was very important; 28 percent used a category inventory management system. Why? Better turns and increased product availability. Their main complaint with electronic catalog systems (E-Cat) was a lack of frequent updates.

Sourcing inventory was very important and jobbers reported spending 14 hours a week sourcing inventory either on the phone or via the Internet. Lastly, 62 percent of jobbers expected customer losses would affect their business this year.

REPAIR SHOPS

As motor vehicles become more and more complex, one of the major concerns of vehicle-repair shops is access to repair information from manufacturers. Independent repair shops realize they must improve their skills to remain successful. Trying to find the correct approach, shops are using employee training and serving a particular niche as methods of staying abreast of the new vehicles and technologies involved.

Three out of five repair shops reported performing more maintenance work last year and the maintenance-to-repair ratio has shifted. In 2006, shops reported a 63-percent repair to 37-percent maintenance ratio; for 2007, they predicted even more maintenance work.

Jobbers acknowledged there were some serious challenges to face; more-complex vehicles required more training, and 72 percent reported having trouble obtaining repair information. There was also some good news to report: Repair shops were not losing business to OEM dealers.

Seventy percent of repair shops reported using more products from China and other offshore sources than one year ago. Where do repair shops get their parts? According to the survey, the average was three jobbers, three retailers, and four manufacturers. Some 72 percent used one to three WDs. Only one in five always requested a specific brand when ordering parts from a supplier.

Returns are always a challenge for repair shops. Fortunately, most shops only reported a 1-2-percent return rate, but 5 percent of shops surveyed reported having return rates of 10 percent or more. Ouch! There were two key reasons for the returns—either the part was defective or it was delivered was for the wrong vehicle.

Specialty parts were a bright spot and could potentially become an added profit center. Eight of 10 repair shops reported installing specialty parts (engine kits, suspensions, etc.) last year. Most parts (81 percent) were brought in by the customer. Here is the good news: repair shops can now use Search-Autoparts.com and CatalogRack.com to find and sell specialty parts and accessories. This way, shops can add high-margin sales invoices to their high-margin labor invoices.

NEW CAR/TRUCK DEALERS

New-car and new-truck buyers are getting the message—their new cars and trucks will provide longer, trouble-free service if they follow the manufacturer's recommended maintenance schedule. Partially as a result of this consumer awareness, new-car and truck dealerships increased their maintenance work by 10 percent in 2006. Dealers reported it was getting harder to find good technicians. They also reported their repair-to-maintenance ratio was changing. Last year, it was 55-percent repair and 45-percent maintenance.

Where do dealers get their parts? Dealers reported that, in addition to their factory, they bought parts from four jobbers, four retail stores, seven WDs, and four parts manufacturers.

They also reported hard parts prices increased in 2006 by 9 percent and three of five dealers increased their service and labor prices in 2006 and expected to do it again in 2007.

Most dealers (four of five) reported having a parts-and-service Web site up and running and 59 percent reported actually using the Internet to order parts. Dealers said they spent up to 10 hours per week online and 30 percent said they planned to use Internet programs in 2007 for training purposes.

CONSUMERS

Consumers reported purchasing specialty parts and accessories from many different sources, including dealers, retail chains, and online. They also reported spending an average of $449 online for specialty parts. The big question is, who installs the specialty parts?

It turns out 3 percent of consumers who bought specialty parts and accessories were do-it-yourselfers—they installed parts themselves with a friend or a family member. However, the good news is another 36 percent had independent repair shops install parts, presenting a real opportunity for them to sell and then install.

Most consumers reported changing oil every 3,962 miles and 44 percent said an oil-change chain handled the job for them. Consumers who performed their own auto repairs and maintenance rose to 10 percent (an increase of 4 percent) in 2006. The reason—to save money.

Three of five consumers reported visiting an automotive-related Web site in 2006. They searched for vehicle prices, parts, and repair information. Fifty-five percent reported they did not purchase anything online last year. However, those who did purchase auto parts and accessories online spent an average of $186 for parts.

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