Recent investment firm study reveals the trend mostly occurs with accessories.
According to a recent survey fielded by the Capstone Financial Group, more manufacturers are selling directly to jobbers, installers and consumers — and are making a handsome profit doing so. However, Daniel Smith, president of the Hilton Head, S.C.-based investment banking firm, warns readers to take the results of the survey with a grain of salt, saying they do not predict the end of a three-step distribution system. In fact, the survey may help WDs learn how to thrive in a changing aftermarket.
"The survey relates to the kinds of products being sold, how consumers view them, whether the consumer searches for them by brand name and whether they have brand equity," Smith says. "We also found that consumers aren't really buying hard parts directly from the manufacturer — they're buying accessories. When manufacturers sell hard parts directly to an end-user, that user is going to be a technician."
Tracy Leckenby, president of the Lacey, Wash.-based Cut Rate Auto Parts, agrees. Leckenby says that although his accessory sales are down, his hard parts business remains strong.
"I don't know why a customer would want to buy a hard part directly from a manufacturer," he adds. "You won't have technical support. That's what I'm here for. My job is to educate the consumer and help them find the part they need the first time around."
Some manufacturers refuse to sell directly to the end consumer, preferring instead to cultivate relationships with warehouse distributors. For example, the Delphi Corporation will not sell direct, because "our channel partners are critical to our success," says Senior Communications Manager Carrie Wright.
Like Delphi, ACDelco does not believe in selling "around" the nation's WDs. The company has formal agreements with distributors that recognize them as members of a Dedicated Distribution Group (DDG), allowing them to distribute ACDelco products to jobbers and independent service centers participating in the company's Total Service Support program, as well as select retailers.
"The ACDelco DDG agreement is a mutually beneficial one, with both parties focused on growing our mutual business," says Brent Snelson, the U.S. Director for ACDelco's Global Independent Aftermarket division. "ACDelco rewards our DDG members for sales to the aftermarket, and DDG members, in turn, uphold their agreement to be the source for ACDelco products in their respective areas."
The survey also points out that Internet sales have boosted manufacturers' abilities to sell direct. Smith cites one successful client who offered consumers 10 percent off a purchase if they ordered online. During the time the special offer was in place, the client's sales tripled.
"That should scare anyone in the middle," Smith says.
Still, Leckenby doesn't think the three-step distribution system is going away. "If I ran a repair shop, I'd want to get everything from one guy," he says. "If you're buying directly from a manufacturer, you won't be able to get everything you need to get the job done in one shot."
Smith agrees, adding, "If a WD can find a specialty niche and/or offer customers value-added services, they're going to be just fine."
