Future for Emissions Parts Sales Is Clear

Every summer, cities across North America are trapped in the grip of summer heat and are faced with more and more smog days. This summer could be worse than ever.

According to preliminary reports released recently by Environment Canada, the spring of 2006 was the warmest documented since such records were kept. Furthermore, this spring came hot on the heels of the warmest winter on record, averaging some three degrees warmer than usual.

Obviously, these statistics have the usual environmental suspects in something of a fit, as Canada lumbers towards total non-compliance with its Kyoto obligations. Politics aside, dramatic shifts in both the actual climate and the resulting media coverage are certainly going to have some serious implications for the automotive parts business, and in particular, parts involving the emissions system.

Emission system under the microscope, and over the counter

In January of 2004, Canada’s new raft of emissions laws took effect as the nation hoped to do its part to create a greener future. In addition to federal regulations, provinces like B.C. and Ontario also instituted their own versions, designed to act as an adjunct to their federal counterparts.

Part of the new legislation strengthened existing laws regarding inspections and mandatory maintenance, which is of course going to mean an increase in parts sales, as drivers are legally bound to perform emissions maintenance on their vehicles.

In fact a 2005 report put together by Pacific Vehicle Testing Technologies, a group intimately involved in the British Columbia AirCare program, cited some interesting numbers regarding the kinds of revenues parts suppliers can expect. The report mentions that in 2004, nearly 750,000 cars were tested for excessive emissions. Of that, some 7%, or nearly 53,000 vehicles, failed to pass the government-regulated examination.

The report went on to specify that the estimated cost of repair associated with a failing grade, i.e. the median cost of taking a car from a fail rating to a pass, was $350, a number the researchers say climbs by nearly $25 annually.

Seeing as precise emission control is not something that many motorists would bother to fix voluntarily (since it has little effect on the operability of the vehicle), it is reasonably safe to suggest that emission control legislation, at least thus far, has provided something of a boon for the various parts distributors supplying this now very busy niche market. In fact, using the numbers provided by the study, emissions testing and its subsequent legally required repair brought in close to $20 million for the automotive service industry in B.C. alone.

The obvious increase in both the parts themselves, and a growing diversity in those parts, means that jobbers need to be both informed and prepared in order to meet the demand of their customers–and to meet that demand immediately.

Predicting Business Trends

According to the B.C. AirCare study, certain months of the year seem to produce an increase in failure rates, which would obviously then produce an increased number of garages looking to replace various emissions parts.

In both 2003 and 2004, the study reported increased failure rates from May through to October, while the numbers for the remaining months were decidedly lower. The ability to predict supply and demand trends, especially in terms of your initial parts ordering for any given month, could very well help on both ends of the spectrum.

Should you get your numbers right, you won’t have to tell customers they need to wait for delivery of a part, nor will you be saddled with excess inventory come season’s end.

New Inventory Issues

Oxygen sensors are easily the part cited most often when talking about emissions systems, and understandably so.

Over the past few years, their proliferation has been remarkable. As a study conducted by Robert Bosch Company noted, “Today, 92% of the 218 million automobiles and light trucks on the road in the United States are equipped with at least one oxygen sensor. These sensors contribute every day and every mile to reducing automotive exhaust emissions, and maintaining or restoring performance to millions of vehicles.”

There is no reason to believe that a different proportion of the 18 million vehicles on the road in Canada would be so equipped.

Not only is this single part extremely important, aftermarket replacements have also undergone some serious changes in the past few years, going from manufacturer-specific to universal and back again.

Several years ago, when aftermarket manufacturers started building universal oxygen sensors, the intention was to put an end to all inventory problems.

A few years on, while those universal units still have their proponents, the drive for OE-like fit, form and function has taken hold.

Bob Butcher, a manager at NAPA Auto Parts in Mississauga, Ont., explains, “We’ve pretty much done away completely with universal sensors, and gone back to the original style.” Of course, by “original style,” Butcher is talking about the system whereby jobbers stocked a vast array of sensors for installation on specific cars, as opposed to a one-size-fits-all approach.

On the downside, Butcher reports that he has been forced to make some inventory alterations. “It’s had a pretty big effect. Your inventory obviously expands, because you have to carry a lot more numbers. I’d say it’s meant a difference of a few thousand dollars a month, just because I now carry around 20 more parts.”

However, despite the increased inventory, adding by Butcher’s calculations a few thousand dollars a month, he says it has come with a great deal of benefit as well. “Mechanics really didn’t like using universal sensors,” Butcher states. “They said they found that it didn’t fit as well, didn’t install as quickly, and generally took more effort. So we used to get a lot of comebacks on universal sensors. Now, since we’ve mostly gone back to the old way of having individualized part numbers, we don’t have nearly as many comebacks. In the end, having fewer comebacks more than offsets the increased inventory,” he says.

The observations made by Butcher certainly seem to reflect some serious effort on behalf of manufacturers to get the industry out of universal parts. Chris Harrison, product manager and assistant marketing manager with NGK Spark Plugs Canada Limited, notes his company’s position. “NGK is strongly involved in efforts to lead an industry evolution of its customers (jobbers, installers, and even consumers) away from the use of ‘universal’ oxygen sensors.

“Due to the numerous problems regarding the diagnosis of emissions control systems, the use of universal oxygen sensors, which are often misused or [installed incorrectly], only exacerbate these problems,” he says.

The move back to application-specific parts has also forced some of the major WDs to make serious alterations in the way they present their product.

OE Look, OE Fit, Aftermarket Box

As many jobbers will attest, quality aftermarket parts, when made well, are just as good as the products being offered by the original equipment manufacturers.

However, there certainly remains the impression within the service business (possibly aggravated by the influx of counterfeit parts) that aftermarket parts should simply not be installed.

Mike Hayhow, manager at a Carquest location in London Ont., speaks candidly about the shift from generic aftermarket products to OE gear.

“You’ll find it’s all OE parts now,” he says. “Some of the aftermarket guys just don’t match everything up identically, and that’s what technicians want today. They want the part they are about to install to look exactly the same as the one they just took out.”

According to Hayhow, WDs like Carquest have responded to this kind of shift by using their buying power to start purchasing actual OE parts, so that they can then offer them to their clients. “Carquest has gone all in, and got everything matched up,” he says. “Just about everything we offer now has all of the OE colours and looks identical.” In fact, in many instances, it goes further than just appearance. “Most times nowadays it actually is an OE part,” says Hayhow. “It really is identical stuff. It may even say Toyota or ACDelco right on the part, but they have been put in our boxes.”

While this kind of tactic certainly represents a distinct shift in the aftermarket, in the end it really comes down to the changing nature of the business and customer demands. Hayhow puts it perfectly when he says, “We’ve made that change, because that’s what we need to do to keep the garage guys happy.”

As in the sources for this article attest, if your timing, inventory decisions, and product strategy are well-informed, components like the hot-selling oxygen sensor could end up being something of a cash cow–but it’s up to you to milk it.