Convention Takes Close Look at Consolidation

CONSOLIDATION and technology were hot topics throughout the 1998 Heavy Duty Distribution Association (HDDA) Annual Convention in Las Vegas November 1-3. More than 130 heavy duty parts and service executives attended the convention, which featured industry speakers and a trade show.

Richard L Clayton, vice-president of Dana's Heavy Truck Components Group, focused on four trends affecting the heavy duty industry: consolidation, globalization, technology, and the shift from components to modules and systems.

"Opportunities exist for companies that strategically address the consolidation trend, move to globalize, pursue the development of modules and systems, and embrace technology. These four components are driving the heavy truck industry and the aftermarket parts industry today," Clayton said.

Dana learned that from 1987 to 1997, "despite a decade of cost reductions, an increased commitment to quality, services that expanded customer coverage more than 500 percent, and greater commitment to capital, technical, and human resources," the company was not performing to the levels that Dana, its customers, and shareholders expected, Clayton said.

Explaining Dana's plan to acquire critical mass in axles, brakes, chassis, and auxiliary power, Clayton cited Dana's sale of Spicer Clutch to Eaton and the subsequent purchase of Eaton's axle and brake business.

"We entered into a long-term marketing agreement with Eaton. Today, that agreement covers all field sales and service for heavy and medium duty products and systems for both companies," Clayton said. "In the end, the outcome of this collaborative effort with Eaton is better service to the marketplace than either company could have provided alone."

Bill Smith, chairman and chief executive officer of Competitive Advantage Solutions, said heavy duty distributors desire product proliferation, and many second and third generation owners seek liquidity in their businesses. These business owners see value in the additional capabilities gained from other businesses through adding new product lines to their businesses, and through asset management, including inventory sharing and central receivable collections.

"The sum of the consolidated entities must have more value than the individual business values," Smith said.

James T Stone, president of Stone Heavy Duty America, discussed why Stone Heavy Duty became a part of a consolidation group. His business would benefit from the access to both financial capital and management expertise, while the consolidation group's investment in systems would contribute heavily towards Stone Heavy Duty's future competitiveness.

Stone said he would be able to provide more value to his customers and offer his employees additional career growth and stock ownership. Being part of a consolidation group offered an eventual exit strategy for the ownership of Stone Heavy Duty, but gave him the challenge of reaching a higher business plateau.

Michael Young, chief executive officer of TransCom USA, said joining a public consolidation group allowed each business to focus on growth, and the roll-up group could participate with other industry leaders in building a national company.

Robert Ganache, vice-president and general manager of Palmar, discussed the opportunities and dangers of change caused by consolidation. The Canadian heavy duty distribution channel already has seen much consolidation, with five major companies controlling the market.

His recommendation for success involved slashing costs, aligning with key suppliers of the future, increasing the number of value added services for customers, and becoming more electronic. However, consolidation results in the loss of key personnel and drastic changes in customer habits. Consolidation may be "a response to the brutal reality we live in. Eat or be eaten."

Stuart MacKay, president of MacKay & Company, presented a statistical look on the heavy truck industry that includes four major changes: market positions, customer requirements, the for-hire market composition, and cost of operation. Within these four categories, MacKay demonstrated how the market has shifted since the 1970s and projected how these changes will play out over the next decade.

As one example, MacKay explained that the reliability of equipment has improved since 1985, and the service interval of Class 8 trucks will increase more than 300 percent by 2005 in several categories, including transmissions and engines. This has led to a decline in the importance of fuel economy and nonengine component performance, while it has increased the need to guarantee operation costs and for companies to differentiate between each other.

A panel of speakers discussed the savings their companies have gained from technology. Terrell Salerno, MIS director, Gear & Wheel Inc, described how his company's latest bar-coding system has affected areas in his company that include receiving, accounts payable, accounts receivable, asset management, and order fulfillment.

Dave Bennett, chief information officer, Inland Truck Parts, described sales force automation as "the area you should invest your information technology monies in order to gain a competitive advantage in the marketplace."

Richard Schien, president, Karmak Inc, demonstrated the benefits when distributors control customer inventory using technology. "Heavy duty distributors manage their ordering process, but not their order entry process...entering orders from their customers," he said.

Jeffrey Knapton, trade marketing manager, AlliedSignal Truck Brakes Systems, discussed how his company's future plans with the Web include interactive order entry, a dynamic electronic catalog system, and customer profiling.

HDDA serves aftermarket distributors and manufacturers of parts and services for commercial, industrial, and agricultural vehicles in North America. Its web site is www.hdda.org.

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