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Troubling Trends


12/1/2003
By Jon S. Owens

The markets inefficiencies are posing serious hurdles for many suppliers. Much of the problem is of our own doing.
 

Recently, Dana Corporation announced that the bulk of its automotive aftermarket group is for sale, including such long-standing product lines as WIX and Raybestos. The reason for the sale is simple: Dana Corp. wants to sharpen its focus on its OE business.

While this is big news throughout the market, it should come as no surprise. One need only look at AutoZones intention to implement its Pay on Scan (POS) inventory consignment system as the culmination of a dysfunctional trend.

Is the Dana move the beginning of a new trend in which manufacturers must decide whether theyre best suited to serve either the OE or the aftermarket, but not both? I hope not. It does, however, indicate that all is not rosy on the supply side of our market. Dana is a great company, with a long-standing history as a reliable, high-quality OE and aftermarket supplier. Why sell these businesses now?

The sell-off may have something to do with the difficult issues posed by the aftermarket, including programs such as POS. Its one thing for manufacturers to adjust their accounting and delivery models to appease the needs of their OE customers. Its quite another thing to make those adjustments based on the aftermarkets inaccurate forecasting models with seemingly never-ending product life cycles. If POS takes hold at AutoZone, you can bet it will also be implemented at other powerhouse distribution companies. Could manufacturers survive under such circumstances? Perhaps Dana decided it could not.

Essentially, there is very little differentiation at the repair level, and even less at the store level. WDs and company-owned DCs are set up to do the same thing - supply stores. Manufacturers are left to choose their distribution partners, and potentially consolidate for operational efficiency.

Which brings us to where we are today. Its hard for me to see how initiatives like POS will work, considering the lack of accurate data and technological implementation across all fronts. Manufacturers simply cannot own inventory that they know nothing about (from a usage, tax and shrinkage standpoint). Its also difficult for aftermarket-only manufacturers to capture market share as production volumes decline by part number due to proliferation. Without the volume OE production allows, its very tough for an aftermarket-only manufacturer to compete from a cost standpoint.

I dont fault AutoZone for initiating this strategy, nor do I fault Dana for its decision to shrink its aftermarket presence. These are simply the realities of a very challenging marketplace. There are still many great opportunities to succeed in the aftermarket. True differentiators who are highly efficient and technologically advanced (both from a product and operations standpoint) will find this to be quite a comfortable market indeed. Distributors are going to find that theyll soon be sourcing from more suppliers than they once were, as suppliers parlay their OE victories into aftermarket opportunities. Aftermarket-only manufacturers will be challenged to bring clear product enhancements and superiority in order to protect their market share and maintain profitability.

Bring on the New Year! The fun is just beginning.













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