Is there room in the program groups for consolidation?
I see you are starting with the easy questions! I guess there is almost
always room for consolidation in any industry; however, program groups
are a little different in that the main focus is serving and adding
value for members. Most groups like Federated are not-for-profit
entities, channeling all benefits to the membership. So the real
question is: would there be a benefit to the members if there was
consolidation among groups? The reality is that groups like Federated
serve members and
suppliers, and try to find ways to work together to be more effective
When independent shop owners needed support with
advertising, merchandising, computer systems, training, leasing, credit
cards, and other programs to remain competitive with large national
chains, it was more efficient and effective for Federated to create its
Car Care Center program rather than each supplier or each member to try
to do so independently. There are hundreds of examples where Federated
has leveraged costs or resources to improve services and support for
members and suppliers, and doing so today is more important than ever
work together with members and suppliers on things like catalog
initiatives, leveraging the internet, improved training delivery,
technical data integration, improved inventory forecasting, reducing
returns and a host of other initiatives designed to improve marketing
effectiveness and drive costs out of the system. We are working with
suppliers to combine our members’ volume to reduce logistic costs,
especially on imported lines; to merge member information for more
effective data management; and to pool resources and talent for better
ideas and direction. We have to be competitive and have found that
working with preferred suppliers to drive down costs creates mutual
benefit. Dedicating the majority of our total volume to one supplier
creates advantages in marketing and other areas that can support mutual
the bottom line from my view is that the key to success for program
groups is getting members and suppliers to work more closely together.
If consolidation can improve that effort, then we should work to make
that happen. However, if through consolidation, efforts get diluted and
there is a lack of unified direction, then I can see how it might not
benefit members. Certainly there are many areas today where sharing
cost across a larger base would be an advantage but, at the same time,
with the complexities in the marketplace, it is more difficult to get a
large group of distributors to agree upon direction. While we could
merge groups and all just keep doing the same things, I am not sure how
that creates any added value for members or suppliers. If there are
tangible benefits for group members to consolidate that provide added
value to all constituents, then we will see that happen. After all,
this is a very efficient industry that is constantly changing and
driving continuous improvement.
What benefits exist in consolidation?
we assume that two groups today with members who compete and have
different suppliers, computer systems and marketing programs could
consolidate and agree upon the same suppliers, systems, marketing,
etc., then the benefits would be huge to everyone involved. But the
consolidation would also require a great deal of change and some things
would be sacrificed. What we have seen with some consolidations is that
there may be a benefit to the groups but not necessarily to the
members. Size is not a strategy unless it creates value for members and
suppliers alike. To truly create value through consolidation, further
cost effectiveness must be achieved in marketing, training, systems,
inventory, warranty and returns, data, internet, catalog, manpower,
customer service, communications, quality, logistics and the hundreds
of other areas that are important to the participants.
consolidation allows us to deliver more for less, then it is a good
strategy. But delivering less for less will only allow our retail
competitors to have a bigger advantage than they have today and that
would not be a benefit. Cost reduction is also not a strategy if more
value is given up than the savings achieved. I believe there are
benefits available through consolidation but would want to make sure
that the net overall improvement achieved for members offsets any
How has the business environment improved so far in 2011 over the past two to three years?
business environment has been very positive for most aftermarket
participants over the past two to three years as consumers seek to keep their
cars longer, discovering the value of maintenance again. Our entire
industry should be very proud of the overall value we provide to the
American consumer. When the recession hit, the aftermarket was able to
quickly and effectively help motorists adjust their spending. Consumers
were able to forego the purchase of a new vehicle, maintain their old
one cost effectively and spend the money saved on other expenses.
aftermarket delivered great value and was rewarded with solid growth
during the recession when other industries suffered. We saw a slight
dip in miles driven as consumers adjusted to the new reality, but that
bounced back quickly. We saw some focus on lower cost products and an
increase in DIY activity, but now we are seeing demand for premium
products and services growing again. We believe that the drivers of the
market remain solid and that consumers have learned the value delivered
by the aftermarket. While new vehicle sales will improve, much of the
savings that the aftermarket created has been redeployed to other
areas. This means that many consumers will now plan for maintenance and
repair costs rather than replacement. This should serve our industry
well for many years to come.
What are the strengths of the aftermarket over the OE?
are so many strengths; it’s hard to know where to begin, so let’s start
with parts. The OE manufacturers design parts for new vehicles where
everything is new, tolerances are tight and exact, and everything fits
together perfectly. In the aftermarket, our components must work with
related worn OE parts, improve inferior OE designs that wear out or
break quickly, and perform as well or better than the originals. The
OEs may know more about vehicles, but I believe the aftermarket knows
more about parts. The majority of aftermarket parts, including
remanufactured parts, have found ways to improve on the original design
to increase life or performance. Just look at the facts. Consumers are
keeping their vehicles longer, yet these vehicles are safer and perform
next area of strength is our distribution system. While the OEs can
usually get a part within a day or two, our industry operates in a
matter of minutes. And, we do so for every make and model, not just
one. Plus, we supply an array of accessories, performance parts, farm
and fleet, and many industrial parts supplied to factories and
municipalities. It takes a unique group of people to handle this broad
array of parts and vehicles, and do so, in most cases, better than the
OE who focuses on just one make.
we get to the shops and the technicians that repair every kind of
vehicle quickly and cost effectively even as the OE dealer has every
advantage in terms of communicating with consumers, access to technical
information, repair processes and equipment, training and so on.
Because professional technicians at independent shops must fix what
comes into the bay, not just one model, they need access to systems
that independently provide more overall information than an individual
OE dealer. At Federated, we have a variety of programs that not only
supply information, but also allow members to offer a nationwide
warranty, roadside assistance and other such benefits so they can
compete more effectively with the OE programs.
how does the aftermarket do it? I believe that this industry is still
the example of the American dream. It is the epitome of hard work,
ingenuity and dedication with a focus on overcoming obstacles and the
pride of accomplishment. Better parts, better service, better people
that is the aftermarket’s strength in a nutshell.
With fuel prices creeping up over $4 a gallon, what effects if any, will be seen in the aftermarket?
we all start using high gas prices as an excuse, telling everyone how
bad they are; we might see more impact than we do today. The reality is
that fuel prices do have an effect on the aftermarket but if we change
our focus, we can turn them into a positive. The other day, I heard a
retail radio ad trying to promote air filter replacement that talked
about high gas prices and how much more it costs to drive a car today.
As an industry we need to stress the positives. A more effective
message would highlight how proper vehicle maintenance can increase gas
mileage and help save money. There are too many organizations that use
a negative approach and end up hurting the entire industry.
analysts are saying that the only thing that could impact the
aftermarket is high gas prices. I suggest they look at the last few
years when we had high fuel prices, a recession and double digit
unemployment, and the aftermarket was strong. High fuel prices have an
impact, but the effects are mixed. We need to focus on promoting the
positive aspects of our industry because consumers have shown that they
will adjust to higher fuel costs. We need to remind everyone that a 10
percent improvement in fuel economy through vehicle maintenance can
offset a 40 cent increase in gas prices at $4 a gallon.
What effect has e-commerce had on margins for parts?
believe that e-commerce has had an impact, but can’t say how much or
give a definitive amount. I would suggest that margins were already
compressed and that there isn’t a lot of room for them to go down
regardless of the effect of e-commerce.
reality is that today there is so much more information available that
it seems inevitable there will be a negative impact on margins. Let’s
face it, many of our distributors and stores are competing with pricing
on the internet from competitors that are miles away and sometimes
don’t even carry parts. Shops can quickly compare prices from many
different suppliers without lifting the phone. The result is that there
is a lot of information available on prices, but not enough on parts.
While e-commerce can be a great tool, we need to focus on making sure
that the content is richer and complete. Just featuring a price and a
picture is not a good use of the power available with e-commerce.
industry cannot afford margin compression or a major mix shift to lower
priced parts at any level and we need to all work on how to provide
more information to users so that they can make informed decisions.
E-commerce should be a strategic benefit, not a threat, if used
correctly. Unfortunately that probably isn’t the case today.
How is data being used to streamline operations and as a tool for inventory management?
short answer is that data is used in hundreds of different ways.
Federated has a number of initiatives in this area and there is a lot
of member involvement. We are making improvements in “back room” costs
through integrated information with suppliers, lower EDI costs,
three-way matching and other such cost savings, and we are also working
to improve scanning systems and processes. We have had some major
efforts underway to increase speed and efficiency, and we are using the
internet to store and communicate data across the membership, including
inventory and availability. There is a lot of work being done on
forecasting sales of new items and identifying the end of a part’s
life, along with using data to analyze future needs and inventory
requirements. In terms of data utilization and management, our industry
is still in the early stages of what can be accomplished, and at
Federated, we are excited about the opportunities that exist.
What are the biggest challenges for the rest of 2011 and beyond?
are many challenges that face our industry but I don’t feel there are
any that cannot be overcome. We obviously are challenged with inventory
becoming more complex with vehicle and model proliferation and are
exploring new tools to address this area. We are learning the value of
data and the power of using it, and the challenge of managing it. We
are challenged to provide better catalog information along with
interchange, product features and images so that we can improve service
to our customers and eliminate the cost of paper for our suppliers. We
must keep up with the financial benchmarks set by the retailers and
work hard to remain competitive. We must also find ways to attract and
keep good people even as the passion for vehicles has declined, making
this more challenging. We are challenged in many areas, but we always
believe that the aftermarket will remain viable and strong unless
something comes along outside of our control. That’s why I believe the
Right to Repair Act is so important. It’s more like “right to exist”
for aftermarket companies. With the complexity of today’s vehicles,
having ready access to technical service and repair information is
is a great industry and, absent the government letting the OEs take
over the business, we will always find a way to make it better. Today,
we have the largest vehicle parc in the world, the best independent
repair system, the best parts distribution system, a society that is
dependent on their vehicles to support their families and the greatest
aftermarket in the world. Whatever the challenges, we will find ways to
improve and grow, create good jobs, and maybe even make the parts here
again someday. I am truly fortunate and proud to be a part of this