Over The Counter: December 2004

AutoZone Pay-On-Scan Still Struggling

According to recent supplier statements, there are still only a handful of companies agreeing to AutoZone’s pay-on-scan initiative.

The initiative by the U.S. auto parts retailer is designed to effectively track when products are sold, but also involves inventories being essentially held on consignment, with payment to the supplier only occurring when each part is sold. The industry at large has been watching the development of the system closely, as its widespread adoption could have a significant impact on the aftermarket.

According to the aftermarket newsletter Automotive Week, United Components reiterated its non-participation during a recent conference call with analysts to discuss its third quarter results. The management of United Components Inc. was asked to comment on AutoZone’s pay-on-scan program in light of the fact that Toledo, Ohio-based Dana Corp. (now Affinia) refused to do business with AutoZone under the system and now no longer has AutoZone as a customer.

UCI CEO Bruce Zorich said nothing has really changed for the company. UCI has not agreed to do pay-on-scan.

“We are not doing it,” he said. “It is, however, an important issue for AutoZone, and AutoZone is an important customer for us. So, we continue to evaluate it, and we’ll continue, as we go forward, looking for ways to make it a win-win. But, as for now, nothing has changed for us.”

Pay-on-scan has been employed in other retail environments and involves delivery of product to the store without any payment at the time of delivery. The store may or may not track the delivery quantity. The payment to the supplier is based on actual consumer sales, rather than on “calculated sales” as is the case in consignment selling. In a pay-on-scan scenario, the retailer tracks sales and calculates the amount due to the supplier based on the amount sold and the price per unit in the retailer’s system. Pay-on-scan does not involve any tracking of shrinkage and, in this case, because the retailer is only paying for product that has actually been scanned at check out, the supplier bears the cost of shrinkage or non-selling product.

On the plus side, the approach provides real-time data on sales to the supplier. The downside is that a supplier has to bear the burden for up-front costs of producing the parts to fill inventories, which may take months to sell down.

Though very few companies have come forth to discuss the matter openly, in its fourth quarter discussion with analysts earlier this year, AutoZone reported that it had cleared some $147 million U.S. from its books due to the system, which, according to the Motor & Equipment Manufacturers Association, represents almost 10% of its total inventory.

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Questions Surround Lighting Tests

An industry quality organization is questioning the validity of tests that determined some aftermarket headlights did not meet safety standards.

The Manufacturers’ Quality and Verification Program (MQVP) Inc. says that CAPA, which authored the test report, should withdraw it or defend it openly. Based on that report, Keystone Automotive removed two applications from its offering.

The MQVP says that CAPA’s interest and motivation behind this study may not be unbiased. Independently produced automotive replacement lamp manufacturers are not in the CAPA program and the two manufacturers in the MQVP program have resisted endorsing the CAPA 301 requirement as unnecessary, says the group.

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Automotive Aftermarket Industry Week Attendance Shatters Record

More than 117,000 people attended the Automotive Aftermarket Industry Week (AAIW) exhibitions, shattering record attendance numbers from 2003 by 12,000, according to show organizers.

AAIW is comprised of the Automotive Aftermarket Products Expo (AAPEX) and the SEMA Show, and represents the $250 billion U.S. aftermarket.

According to show organizers, buyer attendance was up some 20%, to 59,476. “Our exhibitors reported not only an increase in the number of buyers, but in the number of decision-makers attending the show,” said Bill Glasgow Sr. of W.T. Glasgow Inc., AAPEX show manager. “The quality of attendees this year furthers our reputation as the aftermarket show where business is done,” he added.

This year marked the inaugural year of the International Autobody Congress & Exposition (NACE) being held in conjunction with AAIW. NACE organizers reported total attendance of 30,243 in 2004, representing a 26% increase over the previous year. NACE experienced a 13% growth in exhibitors with more than 500 companies occupying 2,000 booths.

This year also marked another milestone for the AAIW shows with 90% of attendees pre-registered online, also an all-time high.

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Meineke Canada Announces Alliance with Network Franchising International

Meineke Car Care Centers, Inc. has announced an agreement with industry leader Network Franchising International to manage a major Meineke expansion initiative in Canada.

“There have been significant changes in the Canadian auto repair industry,” said Ken Walker, president and CEO of Meineke Car Care Centers, Inc. “We feel it’s the right time to aggressively grow our chain in Canada.”

“I am very excited about our new association with Meineke in Canada,” remarked Cliff Richler, president of Network Franchising International (NFI). “This is a great opportunity, with unlimited potential,” added Bruno Piva, NFI’s account manager for Meineke Canada. “Meineke has nearly 900 franchises worldwide, with exceptionally strong brand awareness, and offers an exceptional franchise business opportunity for astute entrepreneurs.”

NFI specializes in recruiting franchisees and working closely with them through the day of shop opening. “It will be a great combination,” added Duane Arbeau, Meineke vice-president of Canadian Operations.

Meineke vice-president of franchise development Mark Street noted, “We have been in Canada for a number of years now, but really have not achieved the level of penetration we’re looking for. We feel the timing is right for expansion.”

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Powerflow Products Limited has appointed the AutoMarket Sales Group to represent it in the Canadian aftermarket within the province of Ontario. Rob Grinton, Wayne Thurston, and Paul Woolley will be calling on all Ontario warehouse distributors, buying groups, and jobbers to service their needs and to promote the Powerflow automotive accessories product lines of splashguards, bumper protectors, trailer balls, connectors, lighting kits and couplers, as well as antennas, lighters, switches, rubber straps, floor mats, and grease fittings.