Wheeler Dealers

The business of this industry is often termed as a people business, and in many ways it is. It is people who drive every business, every industry. All the statistics, reports, stock charts and actuarial tables that possess much of our attention are just a reflection of human activity. And they are a reflection of human history.

There is no doubt that numbers are important, but this industry, like many others, tends to obsess over concepts that relate in one way or another to personal relationships.

So many battles are fought on the human level that this industry tends to forget that there is increasingly a new battle being fought, not on the streets and at the counters, but in the information technology departments of organizations as vastly different as the car dealer and the big box retailer.

Frankly, it is a battle that the traditional aftermarket has been losing for some time, and it is only now beginning to realize just why.

I recently spent a very interesting afternoon as part of the Young Executive Society’s second annual roundtable discussion. A number of issues were covered, and suggestions made, on image building, cooperation among associations, etc.

The little group of which I was a part decided to tackle car dealer competition: what the state of it was and why it was getting more vigorous.

Now, I’m not talking about the battle for the consumer here. That fight is long known, but the inroads that the original equipment service channel has made into the parts-buying habits of the independent garage are nothing short of astounding.

In some cases, more than half the parts an independent shop buys are from a car dealer and that hurts, especially when you consider how little else the dealer does for the independent shop.

There are confidence issues to be sure, and there are availability issues too, but a key reason the dealers have made inroads has to do with pricing. In some cases the dealer is able to offer a part with an OEM association–not necessarily OE–at a price that is equal to and sometimes far below the price being asked for the aftermarket part.

Sure, sometimes the OES channel charges what can only be regarded as ridiculously high prices for parts that do not appear to warrant it, and have only the single distinguishing quality of being exclusive to the dealer. Welcome to Economics 101. If you control the supply, you can also control the price. This is rarely the case in most of the hard parts world, as the aftermarket is finding out in reverse these days.

A key point of the discussion is the fact that the OES channel is much more sophisticated in the way that it prices its parts. Call it strategic pricing, call it velocity pricing, call it pricing based on gross margin return on inventory, or maybe even commodity pricing–it is a practice that may go by many names but ends with the same result: the parts that get the most attention and generate the most volume are treated very differently than the rest of the catalogue.

Too often this is not the case for the jobber. Despite some recent improvements in the availability of more sophisticated technology, much of the aftermarket uses a standard markup pricing matrix that leaves them high and dry on some parts while giving away dollar margin on others.

What you, and your aftermarket distribution chain, need to do more effectively is to define these cases, feed them back up through the system and respond with an approach that allows you to compete and maintain profitability. It won’t come as news to anybody that dealer pricing can be hard to fight, but few seem to take it seriously enough to integrate it into the pricing strategy. It needs to be better than calling a rep and pleading for a change. A lot better.

It takes effort and it takes commitment, but it can work if you put in the time to make it happen, and, in that way, I guess it is a human issue too.