Future Looks Bright for Independents
I’m sure most of you will agree with this statement: The past 15 years have changed the transportation industry like no one could have expected. Advancements in areas such as communications and technology have improved all facets of our industry, from product performance to customer service, and everything in between.
From a distributor’s point of view, the requirements to be competitive in the parts and service market have changed more dramatically than ever before.
A recent column [February 2010] in this magazine by my fellow guest columnist Stu MacKay suggested that independent distribution channels are becoming less able to compete and will struggle to survive in the coming years. He presented data supporting the theory that dealers are on their way to owning the parts and service market.
As the owner of Power Train, an independent distributorship, I find it difficult to accept this information as a valid prediction of what the future holds for my company and other independent distributors in the industry.
Analyzing statistical information can be a difficult task. In situations like this, although the data is valid, it fails to take into account issues that may skew the results. The most important point to understand is what differentiates dealers from independent distributors and how the two compete in the same markets.
The independent distributors’ ability to differentiate their products and services allow them to compete directly, and successfully, with dealers.
The dealers’ No. 1 advantage is their ability to sell at low profit margins. Dealers are willing to sell at single digit profit margins to maintain close relationships with large national fleets that demand volume pricing.
Independent distributors are not directly affected by this strategy. While sales volumes may seem higher from dealers’ reports, independent distributors constantly are perfecting the task of increasing value to their products through additional services.
The direct relationship between the dealers’ parts sales and new truck sales means that as consumers purchase fewer new trucks, parts sales will follow the same downward trajectory. Dealers rely heavily on warranty-related sales and captive parts sales to maintain constant revenue streams. With the current state of the economy, fleets both local and national are extending the trade cycles of their vehicles and purchasing fewer new vehicles, which directly impacts warranty-related sales and service. As warranties expire, factors such as customer service and product knowledge will start to be more important to decision makers and ultimately drive where they purchase parts.
This changing market creates opportunities for all aftermarket competitors. For instance, the acceptance of the Rockwell remanufactured differential legitimized the remanufacturing industry for dealers and distributors across the nation. As the costs of new trucks continue to rise and the “green” aspect of remanufacturing becomes more popular, independent distributors can leverage a very strong competitive advantage in this area.
Generally staffed by technically savvy, industry-bred employees that started out “wrenching” and were trained on a bench, distributors possess the knowledge and skills to provide top quality results which dealers cannot afford to match. Because of the independent distributors’ hands-on knowledge and expertise, they benefit from lower costs and are able to offer more value attached to their price.
Distributors are growing and now adding service shops as one way of increasing opportunities to gain new customers and better support markets they serve. Most dealers, conversely, have closed down 24/7 service shops and perform less service work overall.
Also affecting the marketing environment is the consolidation of national buying groups (i.e. the potential merger between HD America and Truck Pride). The possible consolidation of these groups increases the purchasing power of their members and offers a strong brand that can help promote and market a national footprint. Also, roll-up distributors like FleetPride are gaining competitive advantages as they grow and gain market share at the national fleet level. There is no doubt that dealers already have felt the pressure in their markets from independents who are growing stronger.
Independent distributors offer fleets many advantages that dealers fail to deliver. Local and regional fleets see the benefits of purchasing through independent distributors and will continue to want this channel available.
Besides having strong product knowledge through most or all of their lines and offering technical support that can’t be found in an online library, distributors offer greater breadth and depth of parts choices and are flexible to react quickly to market demand.
Independent distributors form close relationships with fleets in their market and provide multiple ancillary services like training, on-site tech support, local referrals and more.
It is the independent distributors’ ability to differentiate their products and services that allow them to compete directly, and successfully, with dealers. The top advantage for the independent distributor is the ability to know their customers on a personal level. By focusing on regional and local markets, an independent distributor can close the gap between supplier and consumer and listen closely to the wants and needs of their customers.
It is the passion and determination of distributors across the nation that will continue to drive companies like Power Train to succeed in the aftermarket parts and service industry. n
Lyle Bass is president and co-owner of Power Train Service and the 2009 Truck Parts & Service Distributor of the Year.
Power Train Service is headquartered in Indianapolis and has nine locations throughout the Midwest.
