Counterman
Search
Article > Tech

Dealership Parts Departments and Parts Sourcing Decisions


6/1/2004
By Gary Goms

Are you being one-upped by your local dealership parts department?
 

Let's say you're a jobber who religiously tracks your account activity and you discover that sales are declining, especially among shops doing emissions, driveability, chassis and electronics work. Of course, the short answer may be that the economy is slow and sales are down. The long answer may be that your local dealership parts department is upstaging your act by selling quality parts at reasonable prices and adding a little extra service to boot!

In years past, independent repair shops turned to the dealership parts department only as a last resort because prices were generally much higher and the service and warranty much poorer than their local jobbers. Today, dealerships are going out of their way to cater to the independent shop. To date, their efforts have earned them first-call status by many independents needing even the most common engine electrical and vehicle maintenance parts.

To make matters worse, the OE aftermarket divisions of many auto manufacturers are mimicking aftermarket programmed distributors by offering independent shops across-the-board coverage on competing nameplates, not to mention offering various grades and styles of parts. In most cases, the OE aftermarket parts divisions are sourcing their parts from the same domestic and overseas manufacturers that aftermarket distributors do. So, with the tables turned and the rules changed, let's look at why OE parts may be increasing its market share in your neighborhood.

DRIVING FORCES

Several seemingly unrelated issues are driving the modern replacement parts market. First, modern vehicles are much more reliable than even a decade ago, which reduces the demand for vehicle-specific components such as mass air flow sensors, throttle sensors and other electronics-based components. In many cases, sales volumes for these items are so low that the aftermarket suppliers can't justify manufacturing them for aftermarket distribution.

Consequently, most suppliers find themselves re-boxing OE-sourced components and selling them at slightly higher-than-OE retail prices or leaving them out of the inventory altogether.

Second, given the fact that modern computerized design and production techniques allow auto manufacturers to make frequent design changes, parts proliferation continues to drive the aftermarket's stocking decisions. One only must look at today's voluminous cataloging to understand that increased parts proliferation will force aftermarket distributors to limit the manufacture of parts to those that will deliver the most sales movement and profitability.

Third, quality has become much more important to the technician whose responsibility it is to restore a vehicle's performance to original levels. A slightly-off calibration mass air flow sensor can, for example, cause even greater diagnostic headaches by turning on the check engine light and storing diagnostic trouble codes for unrelated parts like oxygen sensors. In addition, diagnosing an intermittent failure in a poor-quality electronic part can take hours and even days out of a shop's schedule, not to mention time and money spent dealing with a frustrated customer.

Last, the issue of an OE's intellectual property rights may determine if and when an aftermarket manufacturer may duplicate any OE-designed part. Although the matter is currently under legislative discussion, the practical aspects are real. For example, the introduction of multiplexed electrical systems has created a potential need for the replacement of a number of body control modules. Unfortunately, because they're software-based, these modules can't simply be reproduced by the aftermarket because each module must be programmed to fit individual vehicle applications. If, for example, a right-hand door window and lock operating module on a vehicle is defective, the module must currently be replaced and reprogrammed by an authorized dealership facility or by an independent shop with OE programming capabilities. Nevertheless, even with OE capabilities, the independent must currently buy the module from an OE source because of the intellectual property rights issues involved.

PRICING MATH

The myth that OE parts are much more expensive than aftermarket replacements continues to be perpetuated by the aftermarket. In years past, this may have been true in some respects because OE parts didn't feel the need to be competitive in the open market.

Nevertheless, let's look at how a 25 percent increase in the price of a replacement part affects the final cost of the overall repair. Currently, labor sales represent about 60 percent of the average repair order, while parts represent the remaining 40 percent. Since most shops also factor a 40 percent profit margin into the average part sale, the cost of a replacement part would be about $24 per each $100 service sale, while the retail would be $40 per each $100 of the service sale.

COMEBACK MATHEMATICS

To follow up this argument for quality parts, let's do the mathematics for a parts comeback for our $100 service. To begin with, the $60 labor charge is lost replacing the defective part. Added diagnostic charges are a huge variable in our equation because they are usually absorbed by the shop's "public relations" budget. Clearly, the $6 cost savings of the inferior off-shore part over the OE-quality part is devoured in the first few minutes of diagnostic and replacement time. Our OE quality part, on the other hand, not only added another $10 of profit to the bottom line, it also has a very low failure rate.

TECHNICAL UPGRADES

Of course, there's another reason for buying OE parts. All too often, the auto manufacturer will redesign a part to remedy a design flaw. Many in-tank fuel pumps produced during the 1980s, for example, have a very great tendency to vapor lock. Auto manufacturers redesigned the pump to reduce fuel cavitation and the fuel pressure return line to eliminate feeding fuel vapor into the fuel pump inlet. Consequently, in order to remedy most design problems, the independent shop owner is forced to buy the OE upgrade for that specific application.

COMPETITIVE STRATEGIES

Let's begin by recapping the simple truths about OE versus aftermarket parts. First, the re-boxed aftermarket re-part may not be cheaper than the OE version. Second, let's not assume that the lower cost of an aftermarket part is a major selling point to the quality-conscious installer. Third, due to limited component access on today's vehicles, the qualitative aspects of a component are becoming more important to the aftermarket installer. Last, simply re-boxing somebody else's engineering mistakes is not a good way to sell parts.

If aftermarket manufacturing is to continue to grow, it's important to maintain creativity in product development and its responsiveness to the needs of its installers. If the aftermarket manufacturer has representatives in the field talking with installers and has training programs and technical hot lines in place to help solve diagnostic and installation problems, it should also be able to develop problem-solving products that are equal to, or superior to, OE parts.

Is the playing field between OE and aftermarket sources still level? The answer is yes, but parts proliferation and reliability is changing the size of the playing field. Just as OE suppliers have increased their service and availability roles in the aftermarket, so must aftermarket suppliers increase theirs in terms of quality and sense of place in today's automotive service industry. The only constant in today's market is change; therefore, only in change will we see continued profitability and growth.













Advertise     Contact Us     Subscribe    
Babcox Media • www.babcox.com
3550 Embassy Parkway, Akron, OH 44333
330-670-1234 • (FAX) 330-670-0874
Babcox Website Counterman: Home