THE parts segment of the trailer and truck-equipment industry apparently has survived — and in some cases even thrived — in the nation's harshest economic landscape since the recession that started in July 1990 and ended in March 1991.
As Trailer/Body Builders went to print in early October, most analysts viewed a recession as inevitable — whether it is defined as a period of two or more successive quarters of decreasing real GDP or the official announcement from the National Bureau of Economic Research, which considers it to be a period of declining real GDP, employment, and income lasting more than six months and accompanied by declines in many parts of the economy.
The terrorist attacks on the World Trade Center and the Pentagon rocked an already shaky economy, driving the Dow Jones down while driving the unemployment rate up.
But our 2001 parts survey, compiled with the help of 41 trailer dealers, truck-equipment distributors, parts specialists, repair shops, and truck dealers, showed that they were projecting parts sales to increase by 4% over last year (from $2,332,599 to $2,435,061). And the median figure was projected to fall by just 4% (from $1,665,000 to $1,600,000).
Trailer sales were well on their way to the second straight year of decline after a record 1999 — reports had them off by 30% to 50%, depending on the type of trailer — and truck sales were experiencing an equally steep decline, with Class 6 and 7 falling by over 30%.
The obvious conclusion: Fleets and businesses are choosing to maintain their trucks and trailers rather than make new purchases, thus keeping parts departments in the forefront. Whereas a young vehicle is labor intensive, an old vehicle is parts intensive. Parts costs are generally regarded to be twice as high as labor. So somewhere in an analysis of the life-cycle cost, more companies might be choosing to maintain the old rather than invest in the new.
The average gross margin for 2001 is projected to remain exactly the same as it was in 2000: 28%, which represents a 4.2% decline from Trailer/Body Builder's 1999 survey. Only 12 reported an increase, led by one company's 10%. Fourteen reported modest decreases ranging from 1% to 5%. There wasn't much variation between the three groups: Trailer dealers were projecting a 1% increase from 26% to 27%. Distributors and the others (parts specialists, repair shops, and truck dealers) were expecting it to remain at 29%.
How do parts sales contribute to the overall revenue stream of the respondents? Overall, they accounted for 20% of the total sales in 2000, and are expected to account for 22% this year. With parts specialists, repair shops, and truck dealers, parts represented 57% of total sales; with trailer dealers, 15%; and with distributors, 19%.
The survey results include respondents from locations as diverse as Louisiana and Maine, plus five from Canada. There were 16 trailer dealers, 15 distributors, and 10 classified as parts specialists, repairs shops, and truck dealers. They get 30% of their sales from parts. The median inventory is $357,500.
Because of the $6 million inventory of one distributor, the average of the 15 distributors was significantly higher ($733,361) than the median. The lowest inventory was $47,910.
The diversity of the group was reflected in the tremendous variation in numbers. One company reported $60 million in total sales, another reported $80,000. One had parts sales of $16 million, another had just $90,000. One had 60 full-time employees, another had none.
While the group certainly was not large enough to constitute a scientific sampling, it represented a fascinating cross-section of the industry: where it has gone and where it is going.
The average company had 6.7 parts employees. Despite the economic downturn, there were more companies reporting an increase in employees in 2000 (six) than a decrease (five), while 30 companies held the line.
The picture seemed to be nearly identical in the three groups of respondents. Trailer dealers seemed least likely to add to their staffs: They had the lowest percentage, with one of 16 reporting more employees (6%), compared to 20% for distributors (three of 15) and parts specialists, repair shops, and truck dealers (two of 10).
There were more than twice as many inside parts employees as outside, but an equal number of companies were making changes to both staffs, so the overall composition was expected to stay virtually the same in 2001.
Parts managers earn an average of $45,435 — a 14% increase over the figure reported to Trailer/Body Builders in the last survey in 1999. Only 22 of the 41 companies reported having outside parts sales personnel. Those 22 had an average compensation of $42,483 — -a 20% increase over the 1999 survey. Inside parts sales personnel had the second-largest salary increase — -17%, from $27,367 to $32,036.
Parts managers who work for trailer dealers had the highest salary ($49,448), but that appeared to be skewed by one company's $93,450 salary that was $23,450 higher than the next-best salary. The median salary of $45,000 actually was lower than the median salary of $46,000 at truck dealers, parts specialists, and repair shops. Salaries for trailer dealers' parts managers ranged from $25,000 to $93,450.
The salary range for truck dealers, parts specialists, and repair shops was $32,500 to $60,000, for an average of $45,411.
Distributors were paying parts managers a median figure of $41,039. Salaries ranged from $27,000 to $60,000, for an average of $37,000. Compared to the last survey, this group actually showed a salary dropoff. In the 1999 survey, their average was $37,947.
The salaries for outside sales personnel ranged from $16,020 to $65,000. The breakdown:
Truck dealers, parts specialists, and repair shops had the highest average ($47,367) and median ($48,100). This category also showed the smallest range, with the highest salary at $54,000 and the lowest at $40,000.
Only five of the 15 distributors reported having outside parts sales personnel, and they ranged from $28,000 to $55,000, with an average salary of $42,600 (a 22% increase over the 1999 reported salary of $34,982) and a median of $40,000.
Trailer dealers were the only group that wasn't compensating outside parts sales personnel at a higher rate than they do for their parts manager. The average was $39,242 and the median was $38,000, with a high salary of $65,000 and a low of $16,020. That represented a much higher salary range than the 1999 survey, and also a 12% increase over the average of $34,985.
The salaries for inside parts sales personnel ranged from $16,020 to $45,000. The breakdown:
Distributors were paying the highest average salary ($34,527) and median salary ($37,000). The average represented a 27% increase over the 1999 survey. The salaries ranged from $22,800 to $45,000.
Truck dealers, parts specialists, and repair shops were reporting an average salary of $33,675 and a median of $35,000, with a salary range of $19,000 to $44,400.
Trailer dealers were reporting the most modest increase of the three groups since 1999: 5%, going from an average salary of $27,411 to $28,691, with a median of $30,000. The salaries ranged from $16,020 to $35,470.
The 41 respondents reported stocking an average of $583,700 in parts in 2000, a figure skewed by one company's $6 million inventory — -$4 million higher than the No. 2 company. Only 12 were above the average figure, so the median of $357,500 would be more representative of inventory levels.
How were inventory levels projected to change this year? Not a lot. The median for 2001 ($350,000) is down just 2% over last year. Only eight of the respondents estimated a lower parts inventory for 2001, led by a 35% dropoff. Eleven projected the same inventory and the rest projected an increase, led by one company's 65% boost.
Distributors and trailer dealers are projecting a 2% increase over last year, with distributors going from $733,361 to $744,746 and trailer dealers going from $434,838 to $443,707. (The company with the $6 million inventory is projecting the same for this year, so the average is an acceptable barometer). The dropoff in overall inventory can be traced to parts specialists, repair shops and truck dealers, who are projecting a 10% decline, from $569,444 to $510,444.
Most of the respondents seem to be turning their inventories at a slightly slower pace. The average was 4.12 in 2000, compared to a projection of 4.09 for this year. Only 15 were projecting a decrease. The average was altered significantly by one company that was projecting 1.49 fewer turns, and three others projecting at least one fewer turn.
Trailer dealers — despite being the only one of three groups to project a dropoff for this year (0.16 fewer turns, on average) — apparently are still getting the most out of their inventories, turning them 4.69 times annually. That represents a 6% decline from the 1999 survey.
Parts specialists, repair shops, and truck dealers are projecting an average of 3.91 turns for this year, or 0.11 more than a year ago.
Distributors, after averaging 3.66 turns in 2000, project an increase to 3.72 this year. That is nearly one more turn than they reported in 1999, or a 25% increase.
Most industry companies will admit they have a long way to go when it comes to utilizing technological advances to sell their products. But they've also come a long way just in the two years since our last survey.
Overall, 49% of the respondents say they use the Internet to find parts suppliers; 60% use e-mail to communicate with suppliers; and 48% use e-mail to communicate with customers. The most surprising result: This statistical group of companies is using the Internet less frequently than the ones in 1999 to sell parts online — -only 24%.
Here's what our survey found in each of the three categories:
Trailer dealers: 33% use the Internet to find parts suppliers (a 14% increase); 47% use the Internet to promote their parts (23% increase); 27% use the Internet to sell parts online (8% increase); 67% use e-mail to communicate with suppliers (38% increase); 53% use e-mail to communicate with customers (24% increase); 27% use e-mail to advertise/promote parts sales (13% increase); and 27% use other technological applications.
Distributors: 67% use the Internet to find parts suppliers (45% increase); 40% use the Internet to promote their parts (14% increase); 14% use the Internet to sell parts online (10% increase); 60% use e-mail to communicate with suppliers (29% increase); 47% use e-mail to communicate with customers (25% increase); 7% use e-mail to advertise/promote parts sales (3% increase); and 20% use other technological applications.
Parts specialists, repair shops, and truck dealers: 44% use the Internet to find parts suppliers; 0% use the Internet to promote their parts; 30% use the Internet to sell parts online; 50% use e-mail to communicate with suppliers; 40% use e-mail to communicate with customers; 10% use e-mail to advertise/promote parts sales; and 0% use other technological applications. Comparisons to 1999 could not be made because these groups were separated for that survey.
The companies were asked to identify the biggest trend that is affecting the parts department.
A sampling of the responses:
Trailer dealers: “Economy and fuel prices.” … “Overall economic slowdown; customers being more price-conscious; vendors direct.” … “People repairing instead of buying new equipment, increasing our parts business.” … “Too much competition.” … “National accounts and central buying.” … “Lower profit margins; manufacturers selling direct to customers.” … “National purchasing agreements.” … “One-stop shopping concept.”
Distributors: “Competition is compressing margins; customers need parts immediately.” … “Slow economy; consolidation in industry.” … “Margin is too low in the market.” … “The emergency of many small, independent companies.” … “People are buying more pickup accessory products.” … “Use of the Internet.” … “Local automotive businesses trying to do jobs of specific truck equipment houses.”
Parts specialists, repair shops, and truck dealers: “Mexico labor cost.” … “Mega-dealership price-cutting due to purchasing power advantage.” … “Gross margin erosion due to more dealers involved in parts.” … “Competition.” … “Buying groups, OEM aggressiveness, vehicle warranty extensions.” … “Safety.” … “New installation shop for installing components we sell.” … “Warehouse distributors getting into the captive parts market.” … “Hard to locate parts when needed.”
Trailer dealers: Brakes and brake components are by far the biggest sellers, followed by cargo-control equipment, flooring, body parts, and lights.
Distributors: Hydraulic components (including PTOs and pumps), snowplows and parts, toolboxes, hitches, lighting, and crane parts.
Parts specialists, repair shops, and truck dealers: Brakes and brake components, hydraulic components (including PTOs and pumps), lighting, snowplow parts, and engine oil and filters.
Best-selling products that have been added in the past three years:
Trailer dealers: Tool boxes and automatic lube units were the two most mentioned items, followed by cargo-control components (including walking-floor components), hitches, liftgates, brakes, pumps, and wheels.
Distributors: Hydraulic components, van interiors, snowplow parts, pickup ladder racks, hitches, and lighting.
Parts specialists, repair shops, and truck dealers: Strobe lights, hydraulic components, snowplow parts, air conditioning, flatbeds and dump beds, and brake parts.