Want to Increase Your Business? Sell Specialty Parts and Accessories
Every year, our sister publication Aftermarket Business conducts a State of the Industry report on the automotive aftermarket. Results of the most recent study appeared in the February 2007 issue. In the study, 1,701 respondents were polled: 50 parts manufacturers, 345 resellers (WDs, jobbers, retailers and program groups), 813 service representatives and 493 consumers.Respondents were asked about returns, sales information, online habits, training and inventory control. Some major industry concerns for 2007 turned out to be inventory and returns. Parts Depot Chairman Rollie Olson said his company is putting an emphasis on improving inventory. He said it's a huge job deciding what to stock, but using programs that help determine what platforms and part numbers will be important has helped their business.
Topline results: Each company must find what works best for their business. For some, that might mean branching off in a new direction, such as selling and/or installing specialty parts. For others it could be as simple as getting back to the basics of business.Fletcher Lord Jr., president of Replacement Parts, summed it up. "There will be fewer and fewer jobbers, fewer and fewer distributors. It's a nuts-and-bolts business... It's down to the fundamentals: having the right people, getting them trained and serving your customers."
Specifically, Lord said his company is putting a great deal of emphasis on category management. He said the aftermarket is finally catching up to this business necessity. Taking the long view, Lord also mentioned that major issues will continue to be health-care costs and finding qualified people to staff stores.Prices always seem to be an issue. "With costs you have just two choices," said Olson. "You can make less money, or you can raise prices and enhance margins. When we talk about raising prices, many [technicians] have said to us, 'You deserve it.' They understand that the whole supply chain has to be profitable or the chain isn't going to make it. If we don't make money, we can't be there to supply parts."
Returns were also an important issue. Frank Ordonez, president of Delphi Product and Service Solutions and vice president of Delphi said the aftermarket industry has to be more efficient in managing returns. As parts get passed back from the tech to the distributor, someone is absorbing costs all the way. Typically, it's the supplier."We need to sell a part and have it be sold forever," he said. "With the right quality, fit and cataloging, it can be done."
What about brand-name parts? In the study, one in five shops always specified a brand when ordering parts. More and more technicians who specialize in import nameplate vehicles said they are increasing their purchase from OE service dealers. Why? Because they felt their traditional aftermarket supplier carried only traditional aftermarket brands they thought might not be appropriate for import nameplate vehicles."Made in America" is no longer of the highest importance when ordering parts. It used to be that parts from China were considered to be inferior. "Now technicians are telling us they are having success with some of those offshore parts," said Dennis Welvaert, president of the North American Aftermarket Division of Dayco Products.
MANUFACTURERS
Manufacturer respondents to the survey indicated that sales of traditional replacement parts and accessories increased by 30 percent last year, with the average increase hitting 14 percent. Six percent reported an increase in profit margins and 32 percent said their margins remained steady.Three in five manufacturers said they sold specialty parts and 22 percent reported increased sales of specialty parts last year. Ten percent said margins increased last year by 20 percent and 20 percent predicted margins will increase again this year.
Returns, including cores, were at the two- percent level last year. Also, 39 percent of parts were from offshore sources. Some 30 percent of manufacturers changed business strategies last year and 28 percent planned to change strategy in 2007.WAREHOUSE DISTRIBUTORS
In the survey, warehouse distributors indicated that three issues topped their list of major concerns: adequate profit margins, finding and keeping qualified employees, and potential loss of customers. Other major concerns included: the U.S. economy and gas prices, finding quality parts, and dealing with supply chain management issues.
Here is some good news. Three out of five warehouse distributors reported selling specialty parts and accessories in 2006. Of those who sold specialty parts, 46 percent reported that sales of specialty parts increased at an average of nine percent last year. Most (53 percent) of WDs expected sales of specialty parts and accessories to continue to grow.Interesting fact: The major reason warehouse distributors that don't sell specialty parts and accessories was due to "lack of expertise." Styling & Performance plans to change that by educating readers about specialty parts and accessories.
WDs also reported that Internet sales of traditional replacement parts and accessories increased in 2006. They expected such sales in 2007 to increase as well.
PROGRAM GROUPS
Major concerns for the Program Groups mirrored the concerns of the warehouse distributors: loss of customers, adequate profit margins, and supply-chain management issues. In addition, Program Groups were concerned about competition from new car dealerships, gas prices and OBDII access. Plans for 2007 included growing their membership and finding and keeping qualified employees.Of the Program Groups responding, 71 percent reported that sales of traditional replacement parts and accessories increased last year.
Interesting fact: 71 percent of Program Groups reported selling specialty parts. One- quarter of those Program Groups selling specialty parts said they increased their specialty parts inventory last year by an average of six percent. Those Program Groups not selling specialty parts and accessories cited "inventory difficulties" as the reason.Ninty percent of Program Groups have a Website, but only 43 percent reported selling parts online. Those who do sell online say online sales accounted for only 13 percent of sales.
Program Groups said they spent an average of 12 hours per week online in job-related activities.
JOBBERS
Seventy-five percent of jobbers reported being members of a program group, with an average length of membership of 16 years. Jobbers spent more time in 2006 sourcing inventory; and they planned to spend even more time sourcing inventory: Jobbers said they would source manufacturers, WDs and dealerships in 2007.What was the number-one purchase decision? Jobbers said it was parts availability. Jobbers' business concerns mirrored other segments of the aftermarket: adequate profit margins, finding qualified employees, and finding quality parts. Jobbers in the survey reported that product updates came from trade magazines, manufacturers and WDs. The survey also indicated that 79 percent of jobbers sold specialty parts and accessories and they were sourced from specialty warehouses, manufacturers and online. One-third reported a sales increase in specialty parts last year, and 23 percent said their specialty parts and accessories inventory increased last year.
Jobbers reported they spent about eight hours per week in job-related online activities; 58 percent had a Website and 36 percent reported selling products over the Internet, which was a slight increase when compared with last year's results. Of Jobbers surveyed, 20 percent said say they expected Internet sales to increase again in 2007. As far as Internet training was concerned, 75 percent said they were satisfied with current online tech and counterperson training programs.
How did Jobbers communicate with their customers? They said they used Yellow Pages, outdoor signage, sales calls, event sponsorship and direct mail; 22 percent reported using the Internet to reach customers.
Jobbers said they want more communication from WDs and manufacturers and improved tech support. Inventory management was very important; 28 percent used a category inventory management system. Why? Better turns and increased product availability. Their main complaint about electronic catalog systems (E-Cat) was a lack of frequent updates.
Sourcing inventory was very important and Jobbers reported spending 14 hours a week sourcing inventory either on the phone or via the Internet. Lastly, 62 percent of Jobbers expected a loss of customers would affect their business this year.
REPAIR SHOPS
As motor vehicles get more and more complex, one of the major concerns for vehicle repair shops is access to repair information from manufacturers. The independent repair shops realize they must improve their skills to remain successful. Trying to find the correct approach, the shops are using employee training and serving a particular niche as methods of staying abreast of the new vehicles and new technologies involved.
Three out of five repair shops reported doing more maintenance work last year and the maintenance-to-repair ratio has shifted. In 2006, the shops reported a ratio is 63 percent repair to 37 percent maintenance; for 2007, they predicted there will be even more maintenance work.
Jobbers said there were some serious challenges to face: More complex vehicles require more training, and 72 percent reported having trouble obtaining repair information. There is also some good news to report: Repair shops were not losing business to OEM dealers.
Seventy percent of repair shops reported using more products from China and other offshore sources than one year ago. Where do repair shops get their parts? According to the survey, the average was three jobbers, three retailers and four manufacturers. Some 72 percent used one to three WDs. Only one in five always requested a specific brand when ordering parts from a supplier.
Returns are always a challenge for repair shops. Fortunately, most shops reported only a one percent to two percent return rate, but 5 percent of the shops surveyed reported having return rates of 10 percent or more. Ouch! There were two key reasons for the returns: Either the part was defective or the part delivered was for the wrong vehicle.
Specialty parts were a bright spot and can become an added profit center. Eight of 10 repair shops reported installing specialty parts (engine kits, suspensions) last year. Most of the parts (81 percent) were brought in by the customer. Here is the good news: Repair shops can now use Search-Autoparts.com and CatalogRack.com to find and sell specialty parts and accessories. That way, the shops can add high-margin sales invoices to their high-margin labor invoices.
NEW CAR/TRUCK DEALERS
New-car and new-truck buyers are getting the message: Their new cars and new trucks will provide longer, trouble-free service if they follow the manufacturer's recommended maintenance schedule. Partially as a result of this consumer awareness, new-car and new-truck dealerships increased their maintenance work by 10 percent in 2006. Dealers reported that it was getting harder to find good technicians. They also reported that their repair-to-maintenance ratio was changing. Last year, it was 55 percent repair and 45 percent maintenance.
Where do dealers get their parts? Dealers reported that, in addition to their factory, they bought parts from four jobbers, four retail stores, seven WDs and four parts manufacturers.
They also reported that prices of hard parts increased in 2006 by 9 percent, and three of five dealers increased their service and labor prices in 2006–and expected to have to do it again in 2007.
Most dealers (four of five) reported having a parts-and-service Website up and running and 59 percent reported actually using the Internet to order parts. Dealers said they spent up to 10 hours per week online and 30 percent said they plan to use Internet programs in 2007 for training purposes.
CONSUMERS
Consumers reported that they bought specialty parts and accessories from many different sources including dealers, retail chains and online. They also reported spending an average of $449 online for specialty parts. The big question is: Who installs the specialty parts?
It turns out that 3 percent of consumers who bought specialty parts and accessories were do-it-yourselfers: They installed the parts themselves, with a friend or a family member. However, the good news is that another 36 percent had independent repair shops install the parts. This presents a real opportunity for the repair shops to sell and then install the parts.
Most consumers reported changing oil every 3,962 miles and 44 percent said they had an oil-change chain handle the job. Consumers who did their own auto repairs and maintenance rose to 10 percent (an increase of four percent) in 2006. The reason: To save money.
Three of five consumers reported visiting an automotive-related Website in 2006. They searched for prices on vehicles, for parts and for repair information. Fifty-five percent reported they did not purchase anything online last year. However, those who did purchase auto parts and accessories on the Internet spent an average of $186 for parts online.