Cashing in

Dealers could both save and generate billions of new dollars by transforming their parts businesses and reaching out to new customers. Other industries have pitched in with new tools and technologies to aid dealers who now stand on the edge of a brave new business world of profit possibilities. Will they make the leap? And what will it mean to your business if they do? Read on.

Keeping score

By all accounts, 2005 wasn't the best year to be running a new car dealership. It also was far from the worst. Several 2005 statistics produced by the National Automobile Dealers Association (NADA) show a strong industry beset by small — but notable — falloffs in revenue.

Additional research suggests that sales dollars remain strong and are concentrated mainly in larger dealerships. These large dealerships are financial powerhouses with considerable resources. As competition stiffens (and sales of domestic models such as Ford and General Motors slip), dealers increasingly are compelled to look elsewhere for dollars, most notably with fixed operations such as parts and services.

With large showrooms, impressive inventories, trained personnel, extended operation hours and plenty of investment dollars, they're well suited to go head-to-head with retail outlets and other parts vendors. Some already have, but overall dealer movement — for now — appears small. Rich revenue territory remains largely unexplored.

Having what it takes

One of the best known and reliable sales axioms states: Business is where you find it. Selling is an opportunistic pursuit. Dealers apparently are passing up a significant opportunity to do more business selling parts to independent shops. Retailers and other parts distributors may want to pay heed.

Like many of the independent shop owners we talked to, Tim White, owner of California CARS in Redding, Calif., would like to buy more parts from dealers. White has the same goals of any repairer. Mainly, he wants to reduce comebacks to an absolute minimum. White believes the best way to do that is to use more OEM parts. Unfortunately, White says he simply can't afford to.

"The markup margins are just too small," he says. "When you buy through a dealership you're looking at a 15-to 20-percent markup. That's it. That hasn't changed in years, and I don't expect it to anytime soon."

White believes part of the problem may lie in the fact that dealers view independents as competitors for the same service business. "I can understand that to a point, but there's a lot of business out there. There's also a lot of potential out there for them to sell more parts to independents. If they would reach out to us, I think there's a lot of money to be made," he says.

Distributors take note: White says dealers are particularly well positioned to sell to shops because they can offer parts he believes the aftermarket can't offer in terms of quality. "It's particularly important to get OEM parts when you're dealing with a part that needs calibrated. We've seen real problems with aftermarket coolant temperature senders, idle speed control motors and oxygen sensors," he notes.

Brian Walker, owner of Peak Automotive (locations in Apex and Raleigh, N.C), shares many of White's views. Walker says he frequently turns to dealers for parts because much of his business is performed on Mercedes, BMWs and other high-end, luxury vehicles. "Dealers tend to matrix their parts, so we don't get a lot of markup," he says.

Walker also notes that some dealers (few though they may be) are willing to pursue shop business. He says his business works closely with a local Toyota dealership. "They take the time to get what we want. They're also willing to deliver it," he says.

Mike Brewster, owner of Gil's Garage in Burnt Hills, N.Y., says some dealers are proving more willing to pursue his business. Like White and Walker, in many ways he prefers to work with dealers instead of other vendors.

"Their parts people really know their stuff. When you get on the phone with a dealer, you get a person instead of a voice mail system asking you to make selections. Also, their people tend to many times be more knowledgeable. Part of that may be due to the fact that they're dealing with three different product lines instead of many. Still, we know when we call we're getting a reliable person," says Brewster, adding that if dealers become more aggressive with their price structure, he foresees doing more business with them.

Independents are broadcasting their interest and offering their dollars. Still, many dealers remain content to take their business elsewhere. They maintain that the economics of selling more parts to independents don't justify the returns.

A spokesperson at a Houston-area Honda dealership notes, "We just don't see a lot of money in this area, enough anyhow that would be worth the time for us to run down parts and deliver them the same day like a shop is going to want. We do work closely with a couple of shops, but they specialize in Hondas and order enough parts to make it worth our while. For others, you need to calculate the labor time and things like the cost of gas to see if it's worthwhile to order and deliver a single part to a shop 20 miles away. We're losing profit right there. I don't think the money is there. If we lower the markup on parts, there's even less money in it for us."

Independents are left waiting for a solution, one that aftermarket companies could fill with a combination of the right parts and reliable sales service.

Adding on profits with add-ons

On paper, dealer attraction to the accessories market should be obvious. According to the Specialty Equipment Market Association (SEMA), the specialty automotive industry generates over $30 billion annually. SEMA statistics also show that consumers, on average, spend more than $1,000 on accessories after a new vehicle sale. Automobile dealers capture less than 20 percent of these dollars.

In essence, dealers order, stock and prep a product they turn an average $750 profit on (2005 NADA statistics), only to turn that product over to another business that will pull $1,000 or more from the same sale. If they wanted, dealers could sell and install these same accessories. They also can make accessory purchases more attractive to customers by working their costs into vehicle financing and by covering accessories (to some extent) with the vehicle warranty.

Fortunately, a lot of dealers aren't focusing their energies on accessory sales. SEMA notes that selling accessories is a business in itself requiring experience, talent and the moxy to perform successfully. Any unwillingness from dealers is an opportunity for the aftermarket, but distributors and retailers must act quickly. Associations and carmakers are advising dealers on how to sell these products; OEMs are getting in on the act with products that help dealers sell accessories.

For example, Mazda hopes to give its dealers some help with a new virtual showroom, called Retail Revolution centers, where customers can build their own vehicles and shop for accessories. Mazda believes the new, wired multimedia showrooms help build excitement and boost sales because they allow customers to shop more comfortably and confidently by letting them control the flow of information. The showrooms also tap interest in younger buyers who are used to utilizing information systems for their shopping needs. Tim Gilman, a spokesperson for Mazda, says the Retail Revolution centers have proved especially popular with the tuner segment, which comes in searching for accessories.

Mazda is further helping its dealers with accessory sales through special training programs. Jack Stavana, director of accessory operations for Mazda North American Operations, explains, "We just completed a significant accessory sales training program, which provides dealers with a clear explanation of the business opportunity to get into the accessory business or grow further and a clear, proven process and facility ideas and solutions to make every dealership employee an accessory salesperson."

The automaker additionally offers a special line of accessories, Mazdaspeed, apart from its Mazda line, to give customers more options. Aimed at buyers of Mazda's sportiest vehicles — the RX-8, Mazda6 and MX-5 Miata — Mazdaspeed products boost performance and allow buyers to individualize their vehicles at the dealership. Stavana notes the most popular Mazdaspeed products include cat-back exhaust systems, cold air intake systems, body kits and lowering springs.

So far, these strategies have proved extremely successful. In just the first half of 2005, Mazda sold over $40 million in dealer-installed parts and accessories, a 185-percent increase over 2001 sales. Stavana says sales continue to increase.

To keep its accessory sales rolling along, Stavana says accessory product planning begins at the same time as basic vehicle planning, giving Mazda dealers a heads up over the rest of the aftermarket. Members of the aftermarket point out that markup of dealer accessories is far below that of aftermarket products, meaning dealers can make more money looking beyond OEM products.

The e-market

Perhaps lost within the plethora of stats and information produced by NADA is the following figure: 94 percent of dealerships now have a website. Dealers are using the Web to boost sales of both vehicles and parts.

Consider dealer interest in the Loyalty Driver e-newsletter, produced by Waltham, Mass.-based IMN. IMN customizes e-newsletters for its clients. The newsletters include vehicle and seasonal news items, tech tips and coupons. Dealers are reaching out to their customers with these newsletters, which are proving to be more popular than traditional marketing materials.

"We've found that 20 percent of the customers on a mailing list will open it. That's far more than the 1 or 2 percent who will look at traditional mailings," says Brian Epro, a spokesperson for IMN, adding, "Even more impressive, less than 2 percent choose to opt out."

Epro explains that dealers typically draw their e-mail lists from the addresses of recent customers. He also notes that the e-newsletter helps create a "club atmosphere" where dealers can maintain continual contact with customers after a sale.

Matt Lamoureux, director of Internet Business Development for Acton Toyota in Acton, Mass., says Loyalty Trader has helped sell seasonal items such as carpeted floor mats and remote starters. "It's a great tool for keeping us in the minds of customers who might otherwise buy these things elsewhere," he says. "People don't think they can buy these things from you unless they know they're available. It's just a good way of getting people to talk about us."

Epro says Loyalty Trader has been on the market for a year and a half. During the first year it had 100 dealer customers. Today it has 250.

When consumers use the Loyalty Driver e-newsletter to link their way to a dealer site searching for parts and accessories, they may end up using a dealer product called StoreMaker X. Manufactured by Reynolds and Reynolds, StoreMaker X is a virtual parts store that allows both wholesale and retail customers to order parts from dealers over the Web.

StoreMaker X effectively makes a dealer's parts inventory (averaging $250,000 and a dealership's most valuable fixed operation) and its accessories available to customers anywhere in the world. Consumers can search for parts by year, make, factory part number or keyword. They can add parts to a shopping cart, select a shipping method and pay credit card, PayPal, COD or via a Purchase Order.

Steve Stauning, director of Reynolds and Reynolds Web Solutions, explains that StoreMaker X allows dealers to create their own catalogs with branded packages and promotions to customize their parts store. Stauning also notes that StoreMaker X, much like Loyalty Driver, allows dealerships to track customer interests. Because customers must first log in with an ID, dealers can tell which parts they've performed searches on even when they don't make a purchase.

"If the part wasn't purchased, the dealer can contact the interested buyer and ask him if there's anything more he can do to sell him the part," says Stauning. He reports dealers are increasingly interested in using StoreMaker X to sell accessories.

Dealers say StoreMaker X is driving significant Web traffic to their parts stores. Kathleen Purdue, IT department manager for Broadway Toyota Scion in Portland, Ore., says her dealership's virtual parts store receives 30 to 50 hits a day and about 1,480 monthly.

"It's pretty popular with our wholesale customers, particularly body shops, since they can view the parts they're searching," she says. "It also helps us manage things like returns and parts cores."

Dealers also have Internet sales options outside of their own websites. The Cobalt Group offers a product called the PartsVoice Locator. Dealers load their available parts inventories into the PartsVoice database, where they become available to other dealerships, shops and do-it-yourselfers.

Jeff Painter, vice president of Cobalt and general manager of Cobalt's parts division, reports that PartsVoice has thousands of dealer customers. Companies like Toyota and Subaru endorse the use of PartsVoice to their U.S. dealer networks. Cobalt reports that nearly 700 Toyota dealers subscribe to the Toyota National Parts Locator and complete an average 200,000 parts locator inquiries every month.

Cobalt also offers a Web solution to help dealers liquidate slow-moving stock. Painter notes that 10 percent to 20 percent of most dealer stock stops selling after nine months. After those nine months, that stock has just a 15-percent chance of ever selling, leaving the average dealership with thousands of dollars worth of idle stock. Compounding the problem, idle stock takes up valuable space that could be utilized by faster moving, more popular items. To resolve this problem, dealers can utilize the Cobalt Cash Discover Program at the website, www.sellmyidlestock.com. For a fee, Cobalt helps move idle OEM stock to dealers who do have a demand for it.

Painter says the site moves an average of $2 million worth of dealer stock every month. Tim Colson, parts manager for Grindstaff Dealerships in Elizabethtown, Tenn., reports selling $53,000 in stock the first week he used the site.

Regardless of which e-solution dealers turn to, users say they are still in the early phases of learning how to leverage their abilities. Their best, most effective days are yet to come.

These dealerships and many others remain committed to Internet business for the long term. Says Stauning, "Dealerships are learning that most of their customers are comfortable with using the new media. That's how dealerships will be attracting business now and for a long time into the future."

Future plans

Obviously, the very thought of lines of customers pouring into a dealership parts department or ordering from a dealer website is cause for alarm for retailers and many other vendors. Indeed, as vehicles become more technologically sophisticated and the aftermarket struggles to build its own options for expensive, cutting-edge parts like drive-by-wire systems and alternative fuel power plants, the future for dealers seems bright. How much of their good fortune will be at the expense of the rest of the parts and accessories market remains to be seen.

Any real impact probably will take many years to be felt. One problem with describing movement in the dealer market is that it isn't one monolithic industry. Dealers represent thousands of smaller businesses. Movement across the board for this industry, like any, takes time.

If anything, dealers are moving slowly and cautiously. With profits slipping on new vehicle sales, they realize all too well how easily dollars are made and lost in their industry. Widespread interest in Internet and electronic options punctuates this point further due to the fact that these options remain rather inexpensive and help roll in areas like parts and accessories with new car sales.

In short, dealers aren't using these tools to create new or separate identities as a neighborhood parts store. They're still gauging just how much business they can attract, along with how much they're willing to invest and what industries (if any) they intend to battle for revenue.