Each year, the
Counterman magazine staff
takes a look at program distribution in a special issue. This year
seems more appropriate than ever, for a number of reasons. Program
distribution experienced a wave of consolidation in the last several
months, more so than in recent history. The aftermarket in general
emerged from the economic doldrums of 2008-2009 as strong as ever.
In
interviews with the heads of the top program groups in the country,
there’s a sense of a strong future for program distribution. It’s going
to be one where technology assists the members of the program groups to
go up against any competition thrown their way. And it’s going to be
one where there may be future consolidation, though it’s not readily
apparent when or where that consolidation would occur. Consolidation
really has come late to the program groups and the aftermarket as a
whole. Many other industries consolidated their ranks years ago.
CONSOLIDATION
“I
think it’s logical that we’re going to continue to see consolidation in
the aftermarket,” said John Washbish, president and CEO of San Antonio,
Texas-based Aftermarket Auto Parts Alliance. “I’m not going to say per
se on the program distribution side, but I think we’ll see distributors
consolidate, we’ll see jobbers consolidate, and in some cases,
installers consolidate. We expect that to continue.”
The Alliance
itself has been quiet on the consolidation front. “We have a good solid
base of distributors to begin with and we don’t have to solicit new
people just to say we’ve got new members,” Washbish said.
In the
last several months, both Auto Pride and CMB joined the Network and AIM
joined Uni-Select. “There has been a lot of consolidation,” Mike
Lambert, president of the Network, told Counterman’s sister
publication, aftermarketNews.com. “Putting NAPA and CARQUEST
aside, when you look at the groups that are remaining, you’ve got us,
you’ve got the Alliance, you’ve got Pronto, Federated, APA, TruStar …
and there has been some group consolidation that happened as well. As
we get closer to fewer numbers, it gets a little more difficult, but I
think in the past nine months there has been a remarkable amount of
consolidation, more than has happened in any other period.”
“Yes, the consolidation has happened. Is it going to continue? Only the future will tell, I guess,” Lambert said.
Bill
Maggs, president of Grapevine, Texas-based National Pronto
Association, is cautious as well about forecasting future
consolidation. “There could be more consolidation. I don’t necessarily
see it, but it could be there,” he said. “A focus for Pronto is that we
exist solely for the benefit of our members. Nothing is done out of our
headquarters for the benefit of headquarters. In the past, people have
said why don’t you go out and add a division that’s not related to what
we do. Well, we probably could. We’d probably be very successful at
that. But that’s not our goal.”
THE BUSINESS ENVIRONMENT
While
the period of 2008-2009 was a pretty rocky time, economically, there
are signs that things are looking up with 2010 half-over. Maggs said in
most bases, overall business is strong right now. But he cautions: “We
don’t want to get overconfident. But if we keeping going at the same
click we’re going, we’re going to have a fantastic year.”
It’s
pretty well known that many suppliers, especially those who conduct
much OE business, slowed production, sometimes drastically, to respond
to the fact fewer Americans were buying cars during the height of the
recession.
“Some of our suppliers that do a lot with OE that are
smart suppliers saw the recession coming on the new car side and really
trimmed back their manufacturing, prior to the horrible news about the
car dealers,” Washbish said. “I think that was smart for them to do,
but when our business needed parts, they had trouble shipping and that
was last year when business wasn’t so good. We had some real fill-rate
issue in the first six months of 2009 that I’m going to say were
created by manufacturers that were trying to downsize their capacity
because of what happened on the OE side.”
The aftermarket suppliers
without OE business had a pretty steady stream of parts arriving,
Washbish said. “No gripes there,” he said.
For some vendors, order
fill is a concern, according to Dan Freeman, president and CEO of
Lenexa, Kan.-based Automotive Parts Associates (APA). “We just had a
(potential) vendor in and that was one of the first questions about was
fill rate and lead time,” Freeman said. “We’re seeing that as an
enormous issue. We’re also very interested to make sure that these
suppliers have enough distribution centers strategically located where
they can service both the east and west coasts and the middle of the
country and southern regions as well.”
Some manufacturers that were not doing well in 2009 are still not doing well in 2010, Freeman said.
But
some other vendors seem as strong as ever. “We just talked to a
manufacturer and their fill rate has been really good — 97 percent and
they have, at the most, a seven-day turnaround, which we feel is a
really good industry standard,” Freeman said. “They said business is
really good. They’re starting to get people who didn’t buy from them
before or bought very little who now want him to fill in part numbers
they can’t get from other people.”
“In 2010, business is obviously
much improved,” Washbish said. “We at the Alliance had a great year
last year, but we’re having a fantastic year this year, so we’ve had a
lot of fill-rate issues. The fill-rate issues this year, we can’t blame
on the OEs. We’re just going to say that the aftermarket has picked up
a lot more quickly than what most of our suppliers expected.”
COMPRESSION OF MARGINS
One
of the issues APA’s members are dealing with is that there are many
technicians connected electronically to their distributors and when a
vehicle comes in for a repair, they can search and buy parts from
perhaps three different suppliers for that one job, Freeman said. “Just
because they can get a better price,” he said. “Everybody is fighting
for the same sale and that really does compress the margins.”
Federated
CEO Rusty Bishop told aftermarketNews.com that the aftermarket is going
to need to work harder to win consumers’ business. “There is no doubt
that we are in a period of uncertainty and change,” Bishop said.
“Vehicles last longer and there is tremendous competition for
consumers’ dollars. We have to work harder to make sure that repair and
maintenance stay top-of-mind and ensure that shops are communicating
effectively with motorists about the importance of maintaining their
vehicles.”
Federated has increased its support for the Federated Car
Care Center Program, which is a nationwide network of independently
owned repair facilities. “We increased our support for the Car Care
program by more than 25 percent this year, providing shops with
programs like roadside assistance and their own website because we know
that they have to compete for consumers’ business,” Bishop said. “There
are going to be vehicles that need repaired for a long time to come,
but the real questions are: how often, how well and where. Ultimately,
that is our challenge.”
USE OF TECHNOLOGY
According to the
chief executives of the program groups interviewed, effective use of
technology will be an important component for success in the
aftermarket.
Dick Morgan, the previous president and CEO of the
Alliance, was responsible for launching the group data warehouse
project 10 years ago, according to Washbish. “This data warehouse is
fully populated now and because of that population of information,
we’ve been able to develop a number of tools that assist our
shareholders in managing their inventory all the way through the
channel,” Washbish said. “The information that the individual members
can harvest from this on a daily basis is incredible.”
The most
popular tool used by members is an inventory optimization tool that
helps the distributor and the jobber level and the installer level get
the right mix of parts on their shelf, Washbish said. “We’re just
having great success with that. It’s a homemade, homegrown tool that
uses lots of other information, like Experian data, Polk data,
manufacturer’s data, warranty data, etc., to help us design our stocks.”
He
said the data warehouse and related electronic tools are what win over
potential Alliance members. “I watch as I go through the pitch,”
Washbish said. “I can show them sales, I can show them marketing. I can
show them how we buy better, but when I get into the IT stuff, they
really start taking notes. So there’s lots of benefits in what we do in
the IT area.”
For Bishop, the biggest challenge he sees will be
using technology in an effective manner, and technology will also be
the biggest opportunity. “There are so many areas impacted by
technology: technical data and electronic catalog information for the
technician; telematics and e-commerce for business and consumers;
Internet and social marketing; data warehousing; and everything in
between,” Bishop said.
“We are on the edge of so many breakthroughs in
many of these areas and there is little doubt that technology will be a
game changer in the future. We have never had so much data and
information available as we do today. The challenge is to make it work
for us in an effective and efficient manner going forward. It is going
to be fun, and I am looking forward to being part of it.”