The aftermarket is facing unprecedented challenges that must be addressed forthwith if we are to continue to be a viable market channel. A short laundry list of our issues includes surplus capacity, an onslaught of offshore manufactured parts and burgeoning inventories.

Then there are our OE brethren who are targeting our parts and service business, simultaneous with their policies of obstructing access to the information we require to fix the cars. It’s not a pretty picture. 

It was bad enough when our biggest problem was overcapacity. A look at the latest effects of the ongoing barrage of products from low-cost producing countries is a glimpse of the new economic reality for the next 50 to 60 years. China has gone far beyond anything dreamed of by its predecessors: Japan, Taiwan, Mexico, India or Korea. 

We are no longer the manufacturing capital of the world; rather, we are at the mercy of volatile raw materials prices, as much as we’ve been at the mercy of OPEC for years. Some industries, with simpler or more integrated distribution systems, can pass erratic cost increases all the way down to the consumer in the form of surcharges.

The automotive aftermarket is seemingly incapable of such relief today. Instead, those higher costs must be eaten by suppliers whose reseller customers refuse them because they feel they’re already burdened with selling prices that make them noncompetitive and margins that are too low to make a reasonable return.

Dealing with pricing, OE pressures

Anyone who had an opportunity to hear the presentation by McKenzie and Company at the recent Global Automotive Aftermarket Symposium in Chicago got a textbook perspective on the numerous reasons for stagnant and sagging prices in the aftermarket. The McKenzie study suggested that in many respects, we are our own worst enemies with regard to pricing practices. 

Our inventory problems are bad and getting worse. Twenty years ago, it took about 50,000 SKUs for a typical WD to have good coverage. Today, it takes over 200,000. And that trend shows every indication of continuing.

At the same time, the OE channel is targeting our business. Sagging margins on new cars are turning the attention of many OE dealers to their parts and service operations.

To the naysayers who refuse to take this threat seriously, I suggest they need to do no more than look through an issue of Motor Age, this magazine’s sister publication. Count the number of advertising pages for original equipment companies that are speaking directly to our market. This is hard evidence that the OEs are becoming increasingly serious about capturing more of the independent tech’s parts business. 

In my consulting practice, I routinely moderate focus groups with automotive technicians. One point I always make sure to cover is their purchase patterns with OE dealerships. This dialogue with technicians makes it clear that they are becoming more and more comfortable with purchasing parts from dealerships. 

There is more than my focus group experience to support this notion. According to the 2003 NADA Data book, part sales under warranty were down 3.6 percent to $8.87 billion vs. parts paid for by customers (excluding wholesale, labor and body parts) up 2.5 percent to $12.85 billion. Note that those numbers specially refer to consumption of parts in dealer bays and exclude those sold wholesale to independent sources. But it is certainly evidence of the greater trend that many of us are observing — the OE dealer is serious about the parts business.

A ‘stack-up’ of tolerances

The combination of downward pressure on price, expanding inventory and market share erosion to the OE dealer is helping to put the traditional aftermarket in a downward spiral. It seems clear that only through collaboration can we reduce our costs, control our inventories and fight back against the carmakers.

The problems that have been mentioned are not contained in our individual houses; they are found in our community. The problem of too much inventory in jobber A or distributor B will not be solved just by better local inventory practices. The solution will be found through data sharing up and down the channel. All supply chain participants need to gain a better understanding of the upstream and downstream needs of customers and supplies. Here is the real issue: Something that is only a marginal problem with a manufacturer can become a bigger issue as it moves down the supply chain.

An engineer friend of mine refers to this phenomenon as a “stack-up of tolerances.” He compares our industry to an assembly of machined parts, each produced by different people at different tolerances. If every part has been produced at the outer range of its acceptable (+/-) specification, and all on the same side of the mean, the resulting assembly doesn’t function nearly as well as it could. In all likelihood, it will break down with use, unless the machinists collaborate to tighten up the specs.

As great as the need for intra-channel collaboration is, what I see in the aftermarket is lip service being given to the concept, while most behavior remains protectionist. Here are some observations I think support the premise:

Recently at an industry meeting, I sat next to an executive of a large auto parts reseller who was taking advantage of a wireless Internet connection to shop for airline tickets.

I noticed he was browsing Orbitz to compare flight times and prices on several airlines. Being something of a heavy user of travel sites, I asked him what he thought of Orbitz. He said that he found the ability to check available flight times and price shop the different airlines side-by-side to be a real advantage.

That’s when it struck me: His company, like several others historically, had elected to not participate in Web-based selling services that allowed his customers (technicians) to do the very same side-by-side availability and price comparison that he was currently using to make his purchase decision. That got me thinking about the conflict of doing what you think might be right for your business vs. doing what you think might be right for your customer, and when and if those actions are mutually exclusive. 

Another case in point: I volunteer with an industry group called the Aftermarket Data Trust (ADT). ADT is working to create an industry-owned method to certify and synchronize data and then standardize its distribution in the ACES and PIES data formats. Recently, I was speaking with a long time acquaintance who is an executive at a pretty tech savvy aftermarket company. I talked about the ADT and how important the support of his company was in this industry initiative.

I railed on about the need to put synchronized, standardized data in the hands of more resellers to help everyone sell more. After listening for a while, he interrupted me: “We struggle with this issue of an industry data warehouse. Frankly, we have spent a fortune getting our data in the ACES and PIES formats and tools to export it, and I can’t really see why we should support an initiative that makes it easy for everyone else to do the same.” His comment seemed to epitomize the conflict represented by industry initiatives: Is creating and complying with a standard OK in the competitive context, but helping to share what results from it over the top?

Calling our bluff

My work on the AAIA Category Management Committee exposes me to another example of missing the mark on collaboration. There is a term in category management jargon where a participating company has the option to “suppress” data. This means that one reseller reports his data and allows it to be used in reports for the overall category totals, but forbids its use in the reporting of individual market or brand-specific activity. It becomes a game of sharing just enough to keep the initiative alive, but not disclosing enough to make the supply chain better.

This all begs a broader philosophical, or perhaps ethical, question: When does establishing a competitive point of difference for one’s company take precedence over doing what is good for the industry? 

In contemplating these sorts of issues, I often refer to an old Irish folk tale I used to read to my son called “Stone Soup.”

Like many children’s tales, its wisdom is simple but undeniable. The story is set during the Irish Potato Famine of 1849. People are very untrusting of others, taking care of their own first (sounds familiar). 

Then, a stranger comes to town. He announces he can make delicious soup with only water and his magic stone. Nobody really believes him, but some figure a little free soup would be good.

He launches into an eloquent pitch about how good the soup will be with his magic stone. As an increasingly convinced crowd gathers to watch, the stranger skillfully suggests that if he just had an old bone or a piece of fat, how much better the soup would be. Someone produces a bone. He continues until he gets a bit of an onion, a carrot and a couple of potatoes, and so on until everyone sits down to eat the wonderful soup. And, in the end, they all agree that the stone is truly magic.

Working together in times of trouble, the citizens in the story accomplished something that individually they had been unable to do. And more importantly, everyone was better off for it. 

The fact is, we have several significant opportunities to make “stone soup” in the aftermarket. And more often than not, they exist in the context of the various levels in our supply chain: that rag-tag assembly of out-of-tolerance machined parts my engineer friend speaks of.

I believe it is only through collaboration that we can make real progress: collaborating to promote data standards and solutions or creating industry supply chain initiatives to find shared efficiencies. By working collectively to pass the Right to Repair bill or by helping solve the “unperformed” maintenance problem. And by getting over our petty differences and sharing the data we need for real collaboration with category management.