Battleground: Showing the way in San Jos

People here are universally polite, friendly and business-like and they don't display obvious signs of behind-the-counter chaos. Instead there appears to be a strong focus on simply getting the job correctly done in an efficient manner.

They’re good at returning telephone calls, and nobody hung up on us.   

This being the Silicon Valley and all, most area aftermarket operations have well-crafted Internet sites and are fully computerized, yet they consider customer service and the resulting word-of-mouth referrals to be the best advertising.

As one aftermarket executive puts it, “This is California — we set trends for the entire country — so we have to be on the edge all the time.”

Talk about being on the edge, scenes from Alfred Hitchcock’s “Vertigo” were filmed in San Benito County, and the cost of living here can make anyone dizzy as it presents a good news-bad news scenario: The good news is that a lot of people have lot of money to spend (28 percent earn more than $100,000 a year), the bad news is that everything is more expensive.

The residents of this multicultural region tend to be highly educated and prosperous, though some are out of work because of a down period relating to hits taken by the technology industry coinciding with the events of 9/11.

Last year, San José, the 11th largest American city, had 355,000 jobs within its borders and an unemployment rate approaching 9 percent.

A sprawling population base has expansion-minded aftermarket entrepreneurs doing the dance of determining the most desirable locations amid heart-stopping real estate prices.

In a sophisticated setting heavily populated with those belonging to the “creative class,” aftermarket businesses that fail to adequately serve their customers — be they retail or wholesale — find themselves seeking a buyout or going bust.

“The strong are getting stronger and the weak are going away,” explains Frank Kohlweiss, president of Kohlweiss Auto Parts Inc., a Pronto program group member with a retail outlet in Redwood City and four warehouses throughout the region. Just this summer, he purchased the One-Stop Peninsula Auto Parts store in Sunnyvale, headquarters for Yahoo, an Internet search engine company founded by Stanford University students.

“We’ve certainly seen our share of bankruptcy notices in the paper for other shops,” reports Larry Moore, president of the full-service Larry’s Auto Works in Mountain View, hometown of Google, another Internet search engine company founded by Stanford University students.

“We’re smack dab in the middle of the Silicon Valley,” says Moore, “and with the shops around here, those who are sitting around waiting for cars to fix are starving. Those who are pursuing preventative maintenance work are doing well.”

With 15 bays and 14 employees, Larry’s brings in more than $2 million in business each year. The average technician at this high-end shop annually earns more than $70,000, with some technicians topping the $100,000 mark.

“We pay very well because we have a stable situation and a stable clientele,” says Moore, who shares ownership with his wife and daughter. “Many of my customers have been coming here for 20 years,” he points out. “I have to have the cream of the crop” when selecting an employee.

Throughout the San José Battleground, enthusiasm, politeness and friendliness are frequently deemed to be more important than raw mechanical ability. “We hire and train based on attitude and willingness to serve the customer,” Moore explains.

First call for parts goes to CARQUEST, followed by RDC Auto Parts, a Parts Plus member two miles away in Sunnyvale. World Pac of Oakland, 32 miles away, is another top choice.

Larry’s has six or seven warehouse distributors within an hour’s drive, and in a single week the company patronizes about 25 vendors.

Moore expects top-notch service from his suppliers. “We don’t order from three different places and hope that one of them gets here,” he says. “We get most of our cars out in a day, so accuracy with the parts is critical. We don’t shop based on price because we’re going to markup the part anyway.”

If a jobber or WD is lax in service, “We look very closely at whether we want to do business with them.”

Lay of the land

Founded as California’s first civilian community in 1777 to supply crops for the Spanish presidios and missions throughout the region, El Pueblo de San José de Guadalupe has evolved from its immensely productive agricultural roots into a newer role as “The Capital of Silicon Valley.”

Blessed with an adequate water supply and nearly perfect weather (300 sunny days a year with an average summer temperature of 70º F) free of San Francisco’s blustery fog and the Central Valley’s searing desert heat, for hundreds of years the fertile micro-climates within the peaks and valleys of the San José area have been providing bountiful harvests of commercially viable cash crops.

Wineries bearing names such as Montebello and Paul Masson have flourished here ever since pioneer mission priests first cultivated vineyards along El Camino Real (The King’s Highway).

In 1912 the first regularly scheduled radio broadcasts were aired in San José through Stanford University research. The area’s connection to high technology gained altitude in the early 1930s when the U.S. Navy began testing dirigibles in a hangar so large that fog formed among the trusses.

Stanford, an esteemed engineering institution in Palo Alto, continued to nurture the entrepreneurial visions of students such as William Hewlett and David Packard, who in 1939 founded Hewlett-Packard.

The pleasant climate and laid-back lifestyle prompted many servicemen to settle here following World War II. The 1960s spawned a myriad of companies based on computers, electronics components, software, research, venture capital and various other aspects of the technology industry’s infrastructure. The term “Silicon Valley” came online in 1971 when the Santa Clara-based editor of Microelectronics News began using the phrase in journal articles.

The Silicon Valley’s borders are informal and generally considered to stretch from San Mateo to the north, the Santa Cruz Mountains to the west, the San Francisco Bay and Diablo Mountains to the east, and Morgan Hill to the south of San José.

Dozens of technology industry stalwarts such as Adobe, Cisco Systems, Hewlett-Packard, Apple, Intel and National Semiconductor call the area home.

Pro-growth and pro-conservation forces have battled back and forth for years over the fate of the fields within what the locals call a community’s “sphere of influence.”

Near insatiable demands for housing have plowed-under much of the farming industry as development has proven to be a much more valuable commodity. Over time, areas previously protected from development are being made available to a house-hungry population (along with the retail accouterments that come with it) that continues to flock to the valley.

However, aftermarket entrepreneurs contemplating expansion in this market need to be aware that numerous high-end communities throughout the region have strict regulations regarding building projects.

Also, while there are economic development programs designed to assist beginning businesses and existing enterprises wishing to grow, be prepared to understand that these aids may be geared more toward high-tech operations—and automotive services might not make the cut.

A better plan may be to pursue still-developing areas that remain underserved by the aftermarket.

On the grow

“The Silicon Valley is growing into Monterey,” says Mike Emley, who with his brother Don owns four All Parts Auto Stores, Inc., a Parts Plus member headquartered in Morgan Hill.

Imagine the Bay Area as a large Y-shaped district: San Francisco tops the left arm with Oakland atop the right arm across the Bay. San José is positioned where the arms converge; the stem represents San Benito County and other points to the south.

Fast growing Central Valley, a 600-mile long stretch along the Interstate 5 corridor between Stockton and Fresno, is located to the east of San José across formidable mountain ranges at Z’s spot in the alphabet.

From 1950 through 1970, San José nearly quintupled in population with a yearly growth rate of 8 percent. (By comparison, Las Vegas, the fastest growing major U.S. city of the past decade, boasts 6 percent annual growth.)

Although San José surpasses San Francisco in population — a fact confirmed by the U. S. Census Bureau’s new official designation of San José-Sunnyvale vs. the old San Francisco-Oakland-San José label — there remains among some locals a belief that the neighbor to the north gets entirely too much attention.

(For example, musically there exists resentment that the psychedelic “San Francisco Sound” of the 1960s was in fact driven in part by San José tunesmiths. Jerry Garcia and Bob Weir honed their Grateful Dead chops in the coffee houses of Palo Alto, and the Count Five, they of the hit “Psychotic Reaction,” were in reality a San José homegrown band.)

Between 1980 and 1990, the population of Santa Clara County, where San José is located, grew by 16 percent. From 1990 to 2000 the population increased at a 12 percent clip, although future growth in Santa Clara is expected to subside somewhat as land approved for development remains scarce.

During the 1990s, San Benito (south of Santa Clara) grew 45 percent, the highest growth rate of any California county.

From 2000 to 2003, several Central Valley counties saw a considerable influx of new residents. San Joaquin (12 percent), Stanislaus (12 percent), Merced (10 percent) and Calaveras of Mark Twain’s jumping frog fame (10 percent) were among those experiencing significant population gains.

“The Central Valley is growing like crazy,” Emley confirms.

Although a commute between the Silicon Valley and the Central Valley can take an hour-and-a-half to two hours each way, people with jobs in the San José area do make the daily trek.

And Central Valley aftermarket operations are already placing employment ads in Silicon Valley newspapers inviting technicians to “escape the rat race” that the San José area has become.

According to the American Highway Users Alliance, the confluence of San José’s U.S. Route 101 and I-880 is the 21st most-congested intersection in the nation, handling 244,000 vehicles each day.

Kohlweiss staff members making long commutes are accommodated by later starting and quitting times.

San José’s average daily commute time is just under a half-hour — the 15th longest in the country. Locals think the figure is on the low side.

“It’s not unusual for people to commute 50 to 60 miles each way,” says Emley, noting that housing costs can be quite cheaper in outlying areas — which ultimately benefits the aftermarket.

“You’re getting high mileage cars, and picking up a huge commuter trade.”

Another plus is a strong consumer desire for electronic accessories and other comfort- and convenience-enhancing equipment desired by people who spend so much time in their vehicles. Demand also is enhanced by Silicon Valley’s natural affinity for gadgets and gizmos.

Few truly independent jobbers or WDs exist in this marketplace. Overhead is a killer. “You have to be a pretty savvy wholesale guy to stay in business,” explains Terry Hashchert, president of Winchester Auto, a five-store WD, jobber and retail chain belonging to the Parts Plus program group.

“It used to be that if you had a tool box and a truck you could do okay, but no more,” he reports.

On the move

Real estate prices are through the roof within the San José Battleground. 

According to Coldwell Banker, a 2,200-sq.-ft., four-bedroom home that would cost $160,000 to $180,000 in Las Vegas or Houston costs about $630,000 in San José and even more in other Silicon Valley communities.

A 50-year-old, two-bedroom house that would be considered a “starter home” in most other cities sells for around $400,000 in San José. In 2002, the average sale price of a single-family detached home in Santa Clara County was $641,000, while the average condo or townhouse sold for $372,000.

“This is not the Midwest,” Emley muses. “The independent repair shop is struggling because of high rents. Paying $1.50 per sq. ft. is not unusual for a place with a concrete floor and a roll-up door.”

In some areas, it has been impossible to obtain suitably sited quarters at any price. “People desire to move or expand but they can’t find a place to go,” according to Emley. The situation has been made somewhat better by the noted dot-com bust three years ago.

“We finally had the opportunity to buy a building,” says Moore at Larry’s Car Works. The structure is a former “server farm” wired with fiber optics to host roomfuls of computer equipment; Moore’s cost is $1.30 a square foot, and he’s pleased. “For the type of facility we have it’s great.”

Market shakeout

San José has been hit hard by the burst of the dot-com bubble, yet the Silicon Valley’s omnipresent microprocessor industry remains busy re-booting itself back into the black, along with the associated businesses and services that keep these widespread ventures up and online.

The region’s successful aftermarket enterprises have been able to capitalize on the up-and-down bumps by moving quickly with the changes. The net result is felt on both ends of the economic spectrum. At one end, you have people who spend freely on their vehicles, at the other end are those who are determined to keep their cars running longer.

“While you have kids just out of high school making $25 an hour taking computer parts off shelves, you also have PhDs walking around looking for work,” according to Hashchert.

“Since 9/11, our business has been up,” Kohlweiss reports. “We make 700-plus deliveries a day.” Individuals who previously drove new leased vehicles now purchase them with the intent of keeping them on the road as long as possible. “People are hanging on to what they have,” he says. “It’s expanded the future of the aftermarket.”

Kohlweiss points also to a rapid build-up of AutoZone stores and CSK’s Kragen Auto Parts. The Yellow Pages list 34 AutoZones within 50 miles of San José, Pep Boys is in place with 10 stores while Kragen dominates with a whopping 114 outlets. (These figures may be skewed somewhat because they include the San Francisco and Oakland markets.)

“They’re coming,” observes Kohlweiss, who views the arrival of the box stores as an omen for good things to come. “That means there’s a future for this market.”

He sells to both Kragen and Pep while believing that his repair shop customers remain inclined to stick with Kohlweiss as the first call.

“They don’t want to deal with McDonald’s-type counterpeople,” Kohlweiss explains, noting that hourly labor repair rates range from $90 to $140.

Quality carries the day with his wholesale customers. “We don’t have any white boxes. We use all branded lines — no private label. Other guys tell me about the Chinese rotors they sell, but we don’t do that.”

Emley believes that the high cost of rent and labor kept AutoZone and other national chains out of the marketplace until now.

He anticipates a shakeout of earthquake proportions between AutoZone and Kragen. “The pie gets no bigger,” Emley observes. “Somebody’s got to win the battle because they keep fighting. When they keep moving in across the street from each other you know there’s a war on. It’s interesting to watch it happen.”

Emley concurs with Kohlweiss on the need for a professional approach. “Our service level is very high — that’s how we compete with the mass retailers. We have professional countermen who are far away from the retail clerk mentality,” he says.

Ditto for well-run repair shops. “We usually take work away from the car dealers. We see ourselves as the alternative to the car dealer.”

People are willing to pay more, according to Moore, because his workers make a point to explain things to the customers. “The main complaint we hear (about car dealer service operations) is that there is poor communication,” he reports.

“We are not a cheap shop,” Moore continues. “People say, ‘I could take my car to the dealer for the same price,’ and we say, ‘Yes you could — but you won’t get the same service.’”

Gaining a hook

About half of San José’s population is classified as non-white. Asians comprise 26 percent of the residents, Hispanics 24 percent.

“We have several bilingual guys for the Asian and Hispanic markets,” reports Kohlweiss.

“I have more than one Spanish speaker in every store I’ve got,” says Emley. “Forty percent of my employees are Hispanic, and I value them immensely.”

All Parts does well by being all-inclusive, especially with Hispanic-owned repair shops. “They never turn down work, they pay their bills on time and they pay in cash,” Emley says.

Quick lube accounts pump $4,000 to $5,000 a month into Emley’s business.

More than 50 Jiffy Lubes are listed in the Yellow Pages and about 25 Speedee Oil Change & Tune-up outlets are in the region.

Offering inexpensive lubrication services is a common marketing strategy, according to Kohlweiss. “I’m seeing a lot of shops realizing that they’re losing ‘the hook’ to bring customers in by not giving them cheap oil changes,” he observes, “so now the shops give cheap oil changes to get the car on the rack.”

Servicing fleets is a moneymaker for a number of operations. The region’s five Bruce’s Tire, Inc. centers focus on electricians, contractors and other service providers who keep the technology businesses plugged in and powered up.

“We do a lot of under-the-hood activity,” explains Jane Howard, Bruce’s marketing director. “There’s a real niche in Fremont for the commercial market.” (Fremont, site of the original San José-named mission, is just to the north in Alameda County.)

According to R.L. Polk and Co., the average nationwide ratio is 42 percent DIFM to 32 percent DIY.

A Polk study of the San José Battleground reveals an average regional DIFM rate approaching 67 percent, compared to a 5.5 percent DIY rate. The highest DIY concentration in this market is a couple of 30 percent figures found in the heart of San José.

Mount Hamilton scores a 100 percent DIFM ranking, although that can be misleading because this location houses an observatory. The astronomers on duty say there are no services of any kind within 20 miles. Winter snows can make the road impassable, and don’t even try the trip at night because they are too busy stargazing — plus headlights disrupt the telescope’s performance.

Santa Clara County

• Population: 1,682,585
• Median Household Income: $74,335

San José is Santa Clara’s county seat, and this is the epicenter of the Silicon Valley.

Certain locations — particularly points south — appear ripe for picking as fields and orchards are being replaced with housing and retail.

One community even admits on its chamber of commerce Internet site that most of the town’s historic landmarks have been paved over in favor of shopping centers.

Opinions differ on Santa Clara’s aftermarket growth opportunities in the northern portion.

“Unless we have a large influx of population this market is saturated,” Emley declares.

“I’m just amazed at all the building going on,” counters Howard. “It’s still a growing market.”

The Bruce’s Tire center in San José dates back to 1936, and it is a top performer along with the Fremont outlet. Located at the 101-880 highway interchange, “We have excellent freeway visibility,” Howard explains.

The company’s family business-orientation ensures that customers remain happy and eager to tell their friends about it.

“Word-of-mouth is significant, and our sales staff is always out there.”

Two outside sales people make the rounds all over the Bay Area trolling for new fleet accounts. A specialist in custom wheel applications calls on car dealers to pump up a specialized commercial niche that takes advantage of the many accessorized trucks, sport utility vehicles and tuner cars on the road.

Polk proffers a paltry 3 percent DIY figure for the area around Winchester Auto’s Winchester Road store. However, Hashchert says he gleans strong retail sales at this location based on the presence of apartments housing a large population base.

Overall, though, DIY is dwarfed big-time by DIFM throughout this Battleground.

“There are fewer and fewer cars that people can work on,” says Hashchert, referring to the complexity of today’s vehicles. “A guy may have a pet race car (to work on), but there aren’t too many people running around in 1980 Toyotas” requiring shade-tree repairs.

The seven Skip’s Tires and Auto Service centers are spread throughout the region. Skip Lightfoot, the vice president, reports that the Santa Clara County Almaden Expressway and Blossom Hill Road branches bring in more business than the others.

According to Polk’s study, these neighborhoods boast DIFM rates of 69 percent and 75 percent respectively. “We didn’t pay any attention to that,” says Lightfoot — the centers simply went where the development was.

The company advertises in the San José Mercury News along with mailers and flyers. Its Internet site promotes the Be Car Care Aware campaign, complete with maintenance advice. The site also highlights Skip’s use of AutoZone’s ALLDATA shop service management system. (Several ALLDATA executives have backgrounds tied to Silicon Valley’s high-tech scene.)

Like most area aftermarket business owners, Frank Edelman makes the motoring public aware of the industry certifications earned by his A-1 Auto Tech, Inc. center in Mountain View. They include recognition as an ACDelco Quality Installer and approval from AAA.

Mountain View enjoys a 69 percent DIFM rate, although Edelman reports, “It’s a tough business.”

Edelman has received considerable media coverage for his entrepreneurial and marketing abilities. He confides that the best strategy is simply working hard while minding your own business. “I work from 6 to 6 Monday through Friday. I’m an owner-operator so I don’t spend a lot of time outside my business looking at what other people are doing,” he explains.

Dramatic differences

Picking a location for a business in Santa Clara County can involve considerable consultation with local governments regarding land use regulations. Local history and customs also come into play.

“A difference within a block can have a dramatic impact on housing costs,” says Tom Dillard, owner of Campbell Auto Restoration in Campbell.

Also close by is Los Gatos with its enticing 95 percent Polk DIFM rate. But Los Gatos (named for the mountain lions that used to prowl the area) strives to remain historic and quaint. Its well-to-do residents go down the road for most auto services — Campbell and Cupertino made space available for planting high-tech startups and associated businesses.

“The last orchard was probably plowed over a decade ago,” Dillard recalls. Cupertino is the core of Apple’s computer enterprise, housed in dozens of buildings not far from where co-founder Steve Jobs went to high school.

“We’re seeing local business from the companies that moved into Morgan Hill,” says Scott Leadres, marketing manager for Dinan, which specializes in BMW performance parts and repairs with centers in Morgan Hill and Mountain View. “Most people have their cars serviced where they work,” he says, noting that Morgan Hill is another community that made the shift from farming and residential to include high-tech.

An area to keep an eye on is Coyote Valley, which lies between Morgan Hill and San José. It is poised for development amid ongoing arguments over the scope and size of what will be allowed.

Gilroy is going places, according to Emley, who this summer relocated an existing All Parts store into a 6,000-sq.-ft. former NAPA outlet. “We’ve picked up a lot of business from NAPA,” he says. (The Yellow Pages list 11 other NAPAs in the region.)

“We’re going to have the largest inventory in town,” Emley promises. “It’s a street location with plenty of glass,” he explains. “It’s got 12-foot ceilings—room for lots of inventory.”

Gilroy has an array of several car dealers, and Polk reports a local customer base of 48 percent DIFM vs. 16 percent DIY.

San Benito County

• Population: 53,234
• Median Household Income: $57,469

San Benito is the nation’s seventh-largest producer of lettuce, although aftermarket entrepreneurs may be interested in a different kind of lettuce—as in profits that could come as development sprouts across this untapped land.

As California’s fastest-growing county during the past decade, significant construction projects have become part of the landscape.

“They’re getting rid of all the apricot orchards and lettuce fields,” reports Tom Castillo, assistant manager at Hollister Auto Parts, Inc. He is only slightly exaggerating. “The housing is starting to extend toward town,” he observes.

“The market for used homes is huge right now,” Castillo says. “They can buy a house here for $400,000 to $500,000 and pay cash for it.”

According to Castillo, a 1,800-sq.-ft. house bought by his sister for $31,000 in 1979 recently appraised at $390,000!

Telling the tale

Several years ago, the City of Hollister, the county seat, placed a moratorium on development as it sought to bring sewage lines and other infrastructure elements up to anticipated capacity. Come January, the ban will be lifted.

“They’re going to start building again, so next year will tell the tale,” according to Tom Birmingham, a partner with Hollister RV, a repair and retail operation with three big bays across from Greenwood Chevrolet near Highway 25.

San Benito’s bucolic beauty and historic attractions make it a natural for vacations, and Birmingham spotted a need and opportunity. “We lived in Hollister and there was no place to get our RV serviced, so we decided to go for it,” he recalls.

“We get all the town people and out-of-area campers,” Birmingham points out. “After 9/11, more are traveling (by RV), and people are going to camp no matter what.”

Also in town are Kragen and AutoZone. Polk reports a 55 percent DIFM ranking compared to a 21 percent DIY rate.

Birmingham buys certain items from Hollister Auto Parts — and RVs are among many segments served by the 5,000-sq.-ft. NAPA outlet.

“We have farmers and garages that deal with us on a regular basis,” says Castillo. “Our inventory is wide-based.” Marine products also are stocked.

The business was founded in 1926, and some customers are third- and fourth-generation patrons.

One of Castillo’s colleagues has been working there for 43 years, and his product knowledge and mechanical know-how is unsurpassed, a huge competitive advantage over the discounters.

“We have a pretty big clientele,” Castillo says. Area governments and other fleet operations are a stable source of sales. “They come in regularly for their parts.”

Recent arrivals to the community are rapidly discovering NAPA’s ability to obtain the correct parts and give good advice, according to Castillo.

“On the weekends, we generate a lot of business from backyard mechanics,” he reports. “We see a lot of new faces coming through the door.”