What's the pulse in parts?

By most yardsticks, the commercial truck and trailer market is working through a challenging period right now. Reports of double-digit declines in sales are common for trailer manufacturers and their dealers. The same holds true for the entire chain of commercial truck production, from the companies that manufacture the chassis to the truck equipment distributors who complete the vehicle.

Yet the parts department seems to be providing an oasis to those who have them — trailer dealers, truck equipment distributors, repair shops, truck dealers, and companies that specialize in the parts sales, according to the results of a survey Trailer/Body Builders conducted in late September.

On September 17, we sent out an e-mail request to our readers who typically have parts departments: trailer dealers, truck equipment distributors, truck dealers, repair shops, and parts specialists. We asked these companies about a variety of factors, including their parts sales, inventory levels, and gross margins for last year and what they believe these factors are faring in 2007. From that, we also calculated the average sales generated by the typical department employee, along with how quickly parts departments in our industry were turning their inventories.

In addition, we took a look at compensation levels for parts managers and their inside and outside sales personnel. Survey results found stability there, too.

Finally, we asked those with a vested interest in aftermarket parts to identify the primary trends affecting their departments.

The idea was to provide at least a general yardstick that company owners and parts managers can use to see how their particular operations compare.

Conducting the survey

The survey was conducted by the research office of our corporate office. It was from there that the e-mails went out, explaining the project and providing a link to a Web site that collected the data.

The questionnaire was designed to minimize the effort required to respond. Rather than type in sales figures for example, respondents simply clicked a button corresponding to a narrow numeric range.

Of the 1,400-plus e-mails that were sent, more than 8% of recipients responded by completing the survey. Not everyone filled it out entirely, and their partial results were not tabulated. The survey resulted in 120 usable responses.

Here's what they told us.

It's the economy, stupid

What's foremost on the minds of the 120 survey respondents? While the parts department may be stable, the economic and market turmoil around them are hard to ignore. However, not even general topics such as the economy were placed at the top of the list by more than 12% of respondents. Parts department management has a lot of different topics on the radar screen.

The most generally cited trend involved the economy and its impact on sales. When asked for the biggest trends affecting parts departments, 12% of respondents listed either the overall economy or the declining sales that the slower economy is affecting.

“Construction in this area is down,” one respondent wrote.

One listed two trends — a decline in new trailer sales and an increase in the sale of used trailers.

“People are fixing trailers right now instead of buying brand new trailers because of the economy,” a trailer dealer reported.

Several mentioned the decline in the sale of new trucks.

“New truck sales have been down this year while parts sales have been flat,” one respondent said. “This is not a normal balance. We expected parts sales to rise this year.”

The rise of imports

The rise of imported and counterfeit parts was the second-most frequently cited trend, drawing the ire of several survey respondents.

“Competitors selling non-genuine parts,” one survey respondent said. “Our company has long taken pride in selling what works, not what is cheapest. Too many fleet managers no longer consider that factor.”

Some of the terms used to describe this trend:

  • “Cheap brake shoes.”

  • “Chinese imports and direct fleet sales.”

  • “Competitors selling gray market parts.”

  • “Low-cost, non-branded, will-fit parts.”

  • “Offshore, low quality merchandise.”

  • “Too many vendors offering generic parts.”

  • “Continued price compression from ‘commodity’ and non-domestically sourced products.”

Trying to stay competitive

A tough economy tends to make the market more competitive. Companies that cater to related areas tend to seek new niches to offset losses in their primary businesses. Not surprisingly, several respondents reported such instances in today's market.

  • “The truck people are giving away parts because they can't sell trucks after the big rush last year with the engine change,” one respondent said.

  • “Tractor dealers and auto parts stores are selling trailer parts,” another reported. “Competition is selling below a respectable margin.”

  • “Truck dealers are selling trailer parts, driving margins down,” a third respondent said.

In addition to new competitors coming from outside the market, several respondents complained about an abundance of dealers in the same area.

“There are five truck upfit companies within five miles of each other,” a truck equipment distributor said.

A people business

In spite of a soft market, dealers and distributors still cannot hire enough qualified employees. Personnel concerns finished third among the trends that parts department managers cited.

“We just can't hire experienced parts people,” one respondent said.

“There is a lack of qualified parts people,” added another.

Other trends that multiple people cited included:

  • The rising cost of fuel. This is a major concern for fleets. What affects the customers of commercial truck and trailer customers also affects the industry.

  • Deliveries.

    “Suppliers seem unable or unwilling to ship product in a timely manner,” one respondent said.

“Suppliers are not stocking parts,” another respondent reported. “This increases lead times when we order parts.”

“There is a need for efficient and speedy service and parts delivery,” another respondent said. “Also, we need to be able to locate and acquire special-order parts.”

Other issues

Other concerns that were on the mind of multiple respondents:

  • Weather. Several truck equipment distributors complained that recent mild winters have had an impact on their sales of parts for snowplows and other snow and ice control equipment.

  • Improved reliability of trucks and trailers have reduced the need for aftermarket parts.

  • Vendors selling direct.

  • The need to be bilingual in order to communicate with some customers.

Parts sales hold steady

Aftermarket parts sales are hanging fairly steady, according to the results of the survey.

Respondents expect sales for all of 2007 to be approximately 6% below last year's levels. That figure should be fairly accurate, given that sales for almost three-fourths of the year had already been reported by the time the survey was conducted.

The median parts department sold $1,629,032 in parts last year. When asked to project sales for the balance of the year, the median response was that sales would be $1,527,777, a 6% decline.

When a straight average of responses was calculated, sales for 2007 were expected to increase slightly. Parts sales among the 120 respondents averaged $2,574,324 in 2006. The average forecast for 2007 was $2,719,318, up 6%.

Much less difference between the average and the mean could be found in the gross margin that parts departments make on those sales. Parts management is experiencing pressure on margins, and that pressure is reflected in the responses. When either the median or the average is calculated, the result is the same — an anticipated decline in margins of between 0.25% and 0.36%.

Inventory values up slightly

The value of inventories so far this year seems to be slightly higher than in 2006, perhaps merely the effect of inflation.

The median value of the parts inventory so far in 2007 was $246,738, up 2% from 2006. In 2006, the value was $242,499.

The average of the 120 respondents — which included some large parts operations — was $707,592. This represents an 8% increase from the 2006 average parts inventory value of $653,715.

Gross margins under pressure

When it comes to margins, parts departments are selling parts at almost (but not quite) the same margins as last year.

Given the complaints many respondents expressed about their competitors and the influx of imported parts, management seems to be doing a pretty good job of holding the line.

Survey respondents reported a median gross margin of 24.63% in 2007. This is down only 0.25% from the median gross margin reported in 2006.

On average, the gross margin of industry parts departments is 25.61%, according to the results of the survey. This compares with an average gross margin of 25.97%, a loss of 0.36% of margin.

Employees: What they earn, how much they sell per year

Parts department employees are earning slightly more this year, but they are generating a somewhat fewer sales per person, according to the results of the survey.

The scope of the survey included the median and average annual compensation for parts managers, outside sales personnel, and inside sales people. It also asked for the number of employees each company has. From that, it was possible to calculate average and median sales per employee. Here are the results:

  • Parts managers. Parts managers are on track to earn 7% more this year, the survey indicated. In 2006, the median annual compensation level for a parts manager was $48,421. That figure is expected to grow to $51,590 for 2007.

    The average compensation for parts managers was $47,389 in 2006. That figure has moved up to $49,555 this year, a 5% increase.

  • Outside sales. Compensation for outside sales personnel has remained flat in 2007, perhaps a reflection of commission-based compensation systems in a period of stable sales. The median compensation for an outside sales person in 2006 was $56,000. Compensation for 2007 was calculated to be $56,176, essentially unchanged from 2006 levels.

    Averages for outside sales personnel: $49,295 in 2006, increasing to $50,317, an increase of 2%.

  • Inside sales. Earnings for inside sales personnel, whether viewed as an average or as a median, have increased 5% this year. The median earnings figure was $37,407 in 2006, increasing to $39,138 in 2007. The average inside sales person earned $38,222, a figure that has grown to $40,196 this year.

Is management cutting back on the number of employees in their parts departments? Reductions in employment at major companies pointed to a significant decline in the average. But when we look strictly at the median, we see very stable employment.

The median number of parts department employees in 2006 was four. This year, the number is virtually unchanged — 3.95. The slight reduction in parts department employees, combined with a modest decline in median parts sales produced a 5% erosion in sales per employee this year. The median sales per employee in 2006 was $407,258. That figure has slipped to $386,779 in 2007.

From where?

Parts executives from 35 states, plus Canada and Mexico respond to survey
State % of responses
Ohio 10.00%
Texas 8.30%
California 6.70%
Michigan 6.70%
Illinois 5.00%
New York 4.20%
Wisconsin 4.20%
Iowa 3.30%
Missouri 3.30%
North Carolina 3.30%
Florida 2.50%
Georgia 2.50%
Indiana 2.50%
Pennsylvania 2.50%
Tennessee 2.50%
Arkansas 1.70%
Idaho 1.70%
Kansas 1.70%
Maine 1.70%
New Jersey 1.70%
Oregon 1.70%
Utah 1.70%
Alabama 0.80%
Arizona 0.80%
Louisiana 0.80%
Massachusetts 0.80%
Mississippi 0.80%
Montana 0.80%
Nebraska 0.80%
Nevada 0.80%
New Hampshire 0.80%
New Mexico 0.80%
Oklahoma 0.80%
Rhode Island 0.80%
South Dakota 0.80%
Canada 6.70%
Mexico 0.80%
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