Industry leaders dive into globalization, rocky first quarter.
Strong sales trends are expected to continue, but the ride has been anything but smooth, according to an industry panel at the recent Global Automotive Aftermarket Symposium in Chicago.
For the presentation, many levels of the supply chain, from manufacturers to retailers and wholesalers, joined forces to take a hard look at some of the most prominent concerns and trends within the industry today and predicted a very different way of doing business in the future."Sales have been strong, in spite of fuel prices, and our members believe these sales trends will continue," says Rusty Bishop, CEO of Federated Auto Parts. "There is continued pressure on margins due to health insurance costs and energy costs, which means a greater focus on efficiencies and margins. Some areas are stronger than others, but business is good."
The other panelists, Larry Magee, chairman, CEO and president of BFS Retail and Commercial Operations, LLC (BFRC); Dave Mueller, former executive vice president of merchandising and marketing for Advance Auto Parts, Inc.; and Peter Morse, president of Morse Automotive, agreed with Bishop's assessment, although they thought the first quarter had been a bit of a roller coaster ride for certain industry sectors."The first quarter of 2007 was very, very strong," Magee says. "Then there was April, and the best thing to say about April for us is, it's over. The good news is that May started out much better, so we certainly hope that trend continues."
Quality overrides origin
But when moderator Steve Handschuh, president and COO of the Automotive Aftermarket Suppliers Association (AASA) and vice president of the Motor & Equipment Manufacturers Association (MEMA), turned the discussion toward country of origin, globalization became the dominant theme of their conversation."When I first got into the business four years ago, I was told that 'Made in the U.S.A.' was an indicator of quality," Mueller says. "Now, everything's changed. Our installer partners and commercial customers are not looking at where a part comes from as long as it has quality. Now, the domestic manufacturing companies are becoming more globally focused and are developing their own manufacturing facilities around the world to leverage both their expertise and the (benefits of doing business) in the lower cost countries. "
As the overall quality of globally produced parts has improved, companies like Morse Automotive have moved their manufacturing plants overseas without suffering a backlash from their customers. "A few years ago, we wouldn't have thought of going to China," Morse says. "But now we have plants in China and Mexico, and (the practice) is readily accepted by our customers."A technician with Federated Auto Parts echoed this sentiment, saying: "It was years ago when people were really pushing to use American-made parts, worried about putting American workers out of jobs. Now, most automotive parts come from overseas. That's what we have, and as long as it's a good quality part, it doesn't really matter."
But globalization also could be an indicator of a more hostile manufacturing environment. As Morse notes, it has become challenging for most manufacturers to keep their U.S. facilities open with skyrocketing health care costs, a rising minimum wage and the current workers' compensation rates. These factors, combined with the major OEMs moving their manufacturing facilities offshore, essentially have forced the aftermarket to follow suit in order to remain competitive and keep product prices low.
"I wish we could manufacture all of our product here, because some of the people buying it are our own employees, but it's just not feasible," says Morse. "Our costs keep going up. In the last year, our raw material costs were up more than 28 percent. So in order to be able to try and hold the price that we're charging, we have to move overseas. We don't have a choice."Demand for the 3 Fs
Another challenge facing the aftermarket is the increasing demand for products that look, fit and function like original equipment.
Handschuh says the aftermarket might have unwittingly promoted this trend by marketing products as better than OEM. Has this tactic put the OEMs behind the controls and allowed them to define quality throughout the industry?
"The OEMs are in the driver's seat for a number of reasons," Bishop says. "As many of the best aftermarket companies have shifted from a focus of making parts better to making parts cheaper, the difference — whether it is perceived or real — has helped the OEMs' influence and image."
Agreeing with his colleague, Magee adds: "I think it's certainly put the OEMs more in the driver's seat. The technicians drive a lot of this from the form, fit and function as competitiveness, quick speed of installation and proper fit."
Mueller, who identifies himself as somewhat of a neophyte within the business, disagrees with this point of view. "I think the real opportunity here is that the aftermarket now has the opportunity to fix the OE parts that are failing. The quicker the auto aftermarket manufacturers can find a solution to come out with a better part than originally was put on seems like a way to turn this trend around."
Magee echoes these thoughts, adding, "As long as the new aftermarket part improves on the design, longevity, performance and ease of installation (of the failed part), that would be a win, win, win for the customer, the technician and the company."
At the end of the day, the service professional's demand for OEM form, fit and function reflects a continued desire to do the job right the first time.
"Two drivers of the retail business are trust and convenience in automotive repair," Magee says. "Trust is defined both in the level of human interaction at the sale, at the transaction level, as well as the quality of the service provided at the store level, which leads to a superior buying experience for the customer. Comebacks or parts defects make it extremely hard to deliver on a positive customer experience. So managing the quality of the parts is a clear motivation to go in this direction."
Through the windshield
But for the aftermarket, this means one thing — parts proliferation. With OEM form, fit and function driving higher SKU counts, how can WDs help their customers manage inventories up and down the supply chain? The answer is, simply put, communication.
According to Mueller, trying to resort and move inventory around to various stores and through various supply chains is a challenge. But what complicates matters even more is parts that were needed in the market at one point are now obsolete, and new parts have filled their spots. By sharing data, manufacturers, WDs, retailers and service and repair outfits can address the issue of parts proliferation and manage inventories.
"We really need to begin to forecast together — to look out the windshield, instead of the rearview mirror," says Bishop. "We need instant access to the sales at the end of the channel, at the installer, the guy that throws away the box. We need to allow the vendors to deliver immediate replenishment. And we need unlimited returns to channel partners that support vendors 100 percent and agree to let the vendors do vendor managed inventory."
But in the end, each panelist agreed that facing this challenge head-on and forming a partnership up and down the supply chain would be the only way to survive, and thrive, within the aftermarket of the future.
"True category management is what we need, and that includes using all the data that's out there (including) Polk, NPD, the Alliance Data Warehouse," Morse says. "I think if we use all the tools at our disposal, we're going to be able to handle our inventory better."
But no matter what challenges the aftermarket faces, the panelists all agree that the future looks bright — as long as they face their problems together and collaborate on the solutions.
"I think the retail aftermarket is a wide open field, where no one owns a lion's share of the market," says Magee. "And like any retailer in any industry, you want to provide a customer-centric experience and the best possible solution for the customer experience itself. And that's easier said than done."
Adds Bishop: "Well, I for one feel good about the future of our industry. My son works in the industry, and I guess if I didn't feel good about it, I would encourage him to go off and be an attorney or something. But what worries me is that we can do everything right, but we need customers out there, installers that are successful and we need to work hard to make sure those guys stay in business and buy parts."