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A Q&A With Rusty Bishop, CEO, Federated Auto Parts


7/12/2011
By Mark Phillips

 
Mark Phillips
Rusty Bishop began his career in the automotive aftermarket 40 years ago with Fisher Auto Parts. In 1985, Bishop co-founded Federated Auto Parts Distributors, which has grown to become one of the nation’s largest automotive parts distribution networks. Bishop holds the position of CEO with Federated, which is headquartered in Staunton, Va.

What benefits exist in consolidation?
If 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 consolidation 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.

If 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 sacrifice.

How has the business environment improved so far in 2011 over the past two to three years?
The 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.

The 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 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?
There 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 better.

The 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 to do so, in most cases, better than the OE who focuses on just one make.

Then, we get to the shops and the technicians who 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.

So 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.

What effect has e-commerce had on margins for parts?
I 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. 

The 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 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.

Our 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 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. 












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