Roughnecks Amid Cutthroats

"I AM SELLING many parts for the same price as 25 or 30 years ago."

Those words spoken recently by a trailer dealer say a lot about what it is like to be in the aftermarket parts business in 1999.

The fact that companies can hold prices steady after three decades of inflation and still remain in business underscores the competitive nature of the business and the tenacity of those who work in it.

Just before Labor Day, Trailer/Body Builders surveyed truck equipment distributors, trailer dealers, and others in the parts business in order to gauge where the industry is now and where it expects to go. Most of the objective, numerical data that parts executives (either business owners or parts managers) told us can be found in the series of stories beginning on Page 00. However, we also asked them open-ended questions to hear their comments and the trends they see occurring in the market. If there was a common thread among the responses, it was how competitive the market is-and how companies are responding to meet these challenges.

Most of the comments we received had to do with competitive pressures. The effects of these pressures are varied, and they send waves throughout the industry. Here are some examples: * Changes in channels of distribution. Industry companies cited several new ways that customers are getting parts, including mail order operations, buying direct and bypassing the trailer dealer. Truck equipment distributors complained that truck dealers are now selling products that traditionally have been sold through truck equipment distributor shops. Another distributor reported facing increased competition from auto parts stores. Getting into someone else's backyard, however, can go both ways. A parts retailer who returned a survey form complained about increased competition from truck and trailer dealers. * Purchasing changes. Competitive pressures also are affecting purchasing decisions-but in diverse ways. Some parts managers are making themselves more competitive by being sure they have the parts in stock that customers want. "We believe in keeping parts in stock-no waiting," a truck equipment distributor said. One trailer dealer, however, took a far different approach. "We have a just-in-time inventory system," he said. "Margins just aren't there anymore to keep parts in stock." * Concentrated purchasing. Independent companies are concerned about the consolidation of purchasing power through the use of buying groups. * "Will-fit" parts. As customers seek lower prices, the use of "will-fit" parts have become increasingly widespread. These parts, modeled after those of original equipment manufacturers, are produced by third-party suppliers. They are designed with the same physical dimensions as the parts produced by the OEM, but they may or may not have the same material properties as those from the factory.

While customers typically buy these parts as a means of saving money, the concept is not without pitfalls. State Farm Insurance, for example, has suspended the use of such parts in the repair of automobiles following a class action suit. A jury awarded the plaintiffs $456 million, and a judge assessed State Farm $730 million October 8 after ruling that the company committed fraud by using will-fit crash parts to repair damaged vehicles of State Farm policyholders.

In spite of the changing environment, industry parts departments appear to be standing up to the pressure. Gross margins industrywide yielded only slightly this past year (an average of 27.93% in 1999, compared with 28.06% last year). Plus, managers are finding ways to work more efficiently and are discovering some new areas of growth. Among the positives: * The explosive growth of pickup and sport utility vehicles has created opportunities for the industry to sell more light-duty truck accessories. * Technical innovations such as the Internet, compact disks, and e-email have made selling easier and less costly.* Many truck fleets are placing a priori ty on driver safety. This is translating into sales for some parts departments. * Some federal regulations such as conspicuity give parts departments additional products to sell.

One final comment about the Trailer/Body Builders parts department survey: It was one of the bigger projects we have done lately. We believe it provides useful information, but additional responses could have made it better. Projects like this one are possible only through your support. Please write or e-mail your comments to us and help us fine-tune your magazine.

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