Body Distributors Pressured by OEM Direct Sales

June 1, 2001
A LOVE-HATE relationship has been building for years between several old friends who previously shared a need-need relationship. Unfortunately for all

A LOVE-HATE relationship has been building for years between several old friends who previously shared a need-need relationship. Unfortunately for all the groups concerned, the situation could continue to abscess for sometime to come.

For years, the original equipment manufacturers (OEMs) of both truck chassis and truck equipment have worked hand-in-hand with the truck body and equipment distributors. The relationship has been beneficial for all participants.

Chassis OEMs were able to manufacture truck chassis in greater numbers because of the standardization factor that aftermarket body-parts distributors allowed them to have. Specialized body and equipment manufacturers claimed nationwide marketing coverage because of the interwoven distributor network available to them. And truck body and equipment distributors were happy because they were able to grow their predominately local businesses and serve their customers.

But according to a recent survey conducted by Trailer/Body Builders, that time-honored relationship could be changing. The boundaries between the three groups has become pressured to the point where it is eroding — at least that's the consensus after sampling owners and general managers of some small- and medium-sized truck equipment distributorships.

The Competitive Challenge

Respondents, mostly distributors that specialize in light- and medium-duty upfitting, were asked to name two challenges that they will face over the next five years. The answers were analyzed and here are the findings.

Overwhelmingly, the greatest challenge that distributors cited is direct selling from both chassis and truck equipment manufacturers. The second most cited challenge that distributors face in the future is obtaining qualified labor.

“What we're running into is a lot of the manufacturers that are selling directly to the customers,” says Linda Van Pelt, controller for Dailey Body Company, Oakland, California.

Van Pelt explains that the pressure is coming from both the equipment OEM, as well as the chassis OEM. “So many of the chassis manufacturers are doing their own upfitting on large and smaller orders. For example, several years ago manufacturers didn't want to put work-ready packages together. Today they encourage their light-duty dealers to do just that. That's an extra avenue of competition that exists for the truck equipment distributor.”

But the competitive lines are becoming blurred even among the distributors. Although many independent distributors understand the economics of industry consolidation, the phenomenon has presented challenges to the independent truck equipment distributor.

“Certainly independent distributors are facing some unique threats while trying to remain viable and profitable. We've seen a lot of industry consolidation by companies that are building larger and larger regional organizations,” says Jan Carter, president of Lodi Equipment, West Sacramento, California. “We're probably going to see a continuation of the roll-up activity as companies pursue market share and try to reduce cost.”

Carter says that roll-ups, by their nature, have a tendency to push for market growth and geographic development. He points out that the truck equipment distribution industry has been an industry served by the independent business owner-operator. In today's business environment, some companies are being rewarded for commoditizing the products and services of the body and truck equipment industry, he says.

Carter questions the role that intermediate buyers are having on isolating the independent distributors from the end-users of the equipment. “For unconnected companies like us, the independently owned distributor, it's difficult to sell the features and benefits of some products like our 12-foot flatbed or van cabinetry to the end-user. More and more of that business is being driven by automotive dealerships that are putting together packaged product.”

Nevertheless, some distributors did voice skepticism over the possibility of national or regional body distributor powerhouses being able to completely dominate the truck equipment industry. That view was best exemplified by Steve Choquette, president of Choquettes' and Son, Sparks, Nevada.

“It's the Home Depot syndrome. Larger and larger body upfitters are getting to the chassis OEMs for pass-through business. Equipment OEMs are selling directly to end-users and trying to bypass the local body distributor, and many of the light- and medium-duty dealerships are putting prepackaged products together without content from the local upfitter. For the truck equipment manufacturers, I could see it being a cautionary situation. It can work both ways. Nevada is a good example of an area where they need independent distributors to sell and service their products.”

Skilled Labor

Employee availability continues to be a problem that plagues the small- and medium-sized body distributor. Body distributors say it is the second-greatest challenge they will face in the next five years.

“Finding qualified employees in today's marketplace is a problem for almost every body distributor — irrespective of what part of the country they operate in,” says Charles Rayside, president of Rayside Truck and Trailer, West Palm Beach, Florida. “We've got to find employees that have strong skill levels. Their skills aren't up to par.”

The type of employee that Rayside Truck and Trailer needs costs more to hire, he says. But the problem is finding them.

“The industry as a whole makes ruinously low margins when you look at the type of work that we do and the value that we add,” Rayside says. “The margins will allow us to pay our determined cost per hour; but what these guys in the shop are able to get in the marketplace exceeds that amount. It's a problem that I suspect many body distributors are having.”

Larry Gibson, Canfield Equipment in Warren, Michigan, reiterates the same concerns about the labor market. “The labor market is a big concern for us. We've recognized that we need a more sophisticated technician than the market will allow us to pay for. That will continue to be a real challenge for all of us.”

Gibson says that the educational and technical qualifications have reached a complexity pinnacle for the body distribution industry. “You just can't hire anybody. Our work is more complex today. There are questions about what the manufacturers want from a technical perspective, how they intended to do the electrical connections, and many other technical procedures relating to possible liability issues. Those have all been factors that have pushed the distributors to search in a labor pool that is hard to afford.”

New Challenges

Truck equipment distributors are facing challenges today that were not anticipated by the industry leaders thirty years ago. Some in the industry see these challenges and breakdowns of traditional values as a result of the technological advances that have been made in the field of communications and logistics.

“We had a local municipality post a snowplow bid on the Internet,” says Choquette (Sparks, Nevada). “There were distributors from New Jersey and international manufacturers bidding on this municipal contract. I think that just puts all of us in an awkward situation.”

Diminishing areas of traditional responsibilities, the need for sophisticated employees, or the advancement in modern communications has not brought on all of the problems facing today's truck body distributor. Some are just inexplicably poor timing.

As one California truck body distributor said, “Yeah, we're handling today's challenges the best way we can. Today I've put a sign above the shop, “Will work for power!”

About the Author

John Nahas