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Building a foundation with parts

Building a foundation with parts

October 2016 editorial

Thirty years after pitching his hometown baseball team to the brink of the World Series, Nolan Ryan remains a celebrity in his hometown south of Houston. He even has a freeway named after him—the Nolan Ryan Expressway.

It’s been years since Ryan has seen action on the pitching mound. Instead, he occasionally delivers sales pitches on television commercials seen on local stations.

In one of those TV spots for a foundation repair company, Ryan sits on a sofa with a husband and wife. Behind the sofa is the living room wall, and it has a Major-League crack.

“Cracks,” Nolan observes, “are bad.”

This is hardly shocking news to homeowners. All of us want our houses built on strong foundations. The same holds true for truck equipment distributors and trailer dealers. They, too, want a foundation that allows them to weather the ups and downs that frequently plague the commercial truck and trailer industry. If you are looking for stability in a business that can fluctuate dramatically, the parts department is it.

Also 30 years ago this month, Trailer/Body Builders began conducting periodic surveys of industry parts departments. During that time, we have conducted eight of them—every four years on average.

While the purpose of the survey has always been to take the current pulse of parts departments and identify trends in that segment of the truck equipment and trailer business, we thought we would review all eight of the parts department surveys to see how the business has changed over the past 30 years.

In all honesty, the fundamentals of our parts department haven’t all that much. Rather, they have been the epitome of consistency. There are no meteoric rises in parts sales as there have been in new equipment sales. But parts departments generally have been spared the sharp downturns that new equipment sales have suffered over the past 30 years.

Sure, the tools that parts personnel use to do their jobs are substantially different—and we will touch on some of those in just a moment. But the striking thing we saw from 30 years of data is how consistent the fundamentals of the business have been.

For example, the number of people working in the parts department has been roughly unchanged. Thirty years ago the average industry parts department had 4.0 employees—typically a parts manager and three people either in outside sales or working the parts counter. Our most recent survey results (see Page 22) show the average at 3.7 employees. Employment reached its low point during the Great Recession, but even then, there were three employees working in the average parts department.

The challenges parts departments face also remain the same. In those years where we asked about the biggest challenges parts departments face, cutthroat competition (or similar price-sensitive concerns) was at or near the top of the list. Yet despite the competition, parts departments have maintained gross margins. The average gross margin over that timeframe was 26.6%. Even the lowest gross margin reported was 24.2%. Not surprisingly that came at the bottom of the Great Recession.

If salaries are any indication, top management appears to place a consistent value on their parts managers and sales personnel. Over the course of 30 years, outside salesmen consistently earn 90-95% as much as parts managers.  Inside sales personnel typically earn 70-80% as much as parts managers.

Salaries, however, do not appear to have kept up with inflation. According to the results of this year’s survey, parts managers on average earn just over $51,000 per year. But if we factor in inflation, that’s more than $5,000 less in today’s dollars than what a parts manager would have earned 30 years ago. The same holds true for the sales guys, roughly $3,000 short for outside sales and $5,772 below the inflation adjusted salary of an inside sales person 30 years ago.

But generally speaking, parts departments appear to have served as intended, producing the revenue (along with profits from the service department) required to keep the lights on when new equipment sales grow dim.

This isn’t to say that parts departments haven’t changed in 30 years. In 1986, parts managers only recently had said goodbye to the manual system of tracking inventory on index cards. Sophisticated parts departments had collections of catalogs that rivaled public libraries and checked inventories on green monochrome monitors or on reams of reports printed with dot matrix printers. The vast majority of inventory was kept back behind the parts counter, out of the customer’s sight and making impulse buying impossible.

Today’s parts departments have a new look and new tools. But the fundamentals of the business have remained consistent. They are to dealerships what bonds are to an investment portfolio—a stable foundation that provides steady income.

We doubt Nolan Ryan gives much thought to selling truck and trailer parts and accessories. But especially in times of volatility, dealers and distributors appreciate the business foundation that parts provide. Cracks are bad. It’s great when the foundation is steady. ♦

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