Thursday, December 16, 2010

Looking Forward to 2011: OE Aftersales in Review and Preview - David Carlisle

We shut down next week, so this is our final blog for 2010. It has been an interesting year, where I can say that we made it in much better shape than we ever expected. Whole goods sales rebounded, and were matched by parts sales increases. In some cases, more than matched. I ask myself, what did I learn in 2010 and what do I expect to learn in 2011? These are two critical questions of introspection. I skimmed all of the 2010 blogs as if they were EKGs of what I was thinking about for the past 12 months.

The heartbreaks of 2010 included the closing of Saturn, for all the right reasons. But, I can’t help but feel a twinge of regret. Saturn was a re-think of the customer experience, and set the standards by which we judge much of our customer handling efforts. The lesson here is that good ideas really are not all that good unless they pencil.

My aspirational roller coaster thrills in 2010 came from Volkswagen. I love change. I thrive on change. I love unambiguous wins. VW’s approach to supply chain improvement has been breathtaking. They are taking the same winning headset into dominating parts sales and marketing. I’m not an underdog kind of guy – I like to see winners win. Luck is just fine, but it is uninteresting to me. I like to see a plan come together, and winners bring home the bacon. I love watching the Red Sox, Patriots, and VW. Two lessons here: you can’t manage what you don’t measure, and you can’t measure if you debate forever about what the best metrics really are.

A lot of relief in 2010 came in the form of rebounding parts sales in the US market. Canada is up, but not much over last year and this is mostly due to less of a dip in 2009. The basics of autos and heavy trucks remain the same; higher miles driven mean higher parts consumption. Next year should be even better with increasing car and truck sales. Construction and Ag rebounded too, but operating hours have a long way to go. Helping out in 2010 was seeing the “beer game” played out with these rebounding parts sales. Many of us have been through “beer game” training exercises, so we knew about the Bullwhip effect. Well, it happened to our industry this past year. I credit Cat’s Steve Wunning and Jim Owens for bringing this to my attention. It was quite obvious to Steve and Jim what was about to happen. But, it wasn’t all that obvious to everybody else. 2010 sales forecasts were hyper-conservative and assumed that recessionary market conditions would persist and depleted inventories would remain depleted. The lesson here is that some of the stuff we learned and never used is a lot better than the stuff we learned and is no longer valid. The fundamentals have not changed. We sell more parts when UIOs grow, hours of usage increase, and depleted inventories are replenished.

In 2010 we focused on wholesale. As we learned in our 2010 Recessionary Survey, nearly half of dealers focused on wholesale to drive growth. In the face of declining new vehicle sales and an aging vehicle population, OEMs looked to wholesale mechanical initiatives to increase sales to independent repair facilities. OEMs also shored up collision with price matching and certified body shop programs. These efforts paid dividends in the form of increased dealer satisfaction with wholesale support. The first lesson here is that market share and retention is a lot more than customer pay. The second lesson here is that tackling something that is difficult mostly needs more commitment, passion, and endurance for those who believe. If you want to run (and win at) sprints in high school, move to the middle of Wyoming and just run like the dickens. If you want to win the Boston marathon, well, you need to train and be committed. It is just that simple.

In 2010 we started to see the seeds of digital devastation sprouting. Our service customers are evolving to become “Digital Service Customers” (DSCs) – they represent about a third of our customer base. They use the internet for shopping and research. They feel most comfortable with peer review and input. They act on what they research and have remarkably high switching rates. They are less dealer-centric. They are young and more highly educated. They will displace our older more dealer-loyal service customers. They are the sort of folks who use Edmunds to research their vehicle choices. They are familiar. I remember 1985 when we were working with Hyundai on their US market launch. We were slipping under the radar of the domestics and the Japanese OEMs – no threat at all. GM was still focused only on Ford, and a distant Chrysler. Toyota, Honda, and Nissan were feeling pretty cozy with intergalactic JD Power CSI scores and Consumer Reports ratings. Nobody was terribly fearful of share shifts. That sort of stuff did not impact current year tactics, hopes, and aspirations. Today, in aftersales, it’s sort of like those good old days that the vehicle-side folks were enjoying. My, look what’s happened since 1985.

In 2010 we saw enhanced evolution of vehicle systems and Telematics. GM’s OnStar and Ford’s Sync are changing the way that consumers interact with their vehicles. With the proliferation of smartphones and other sophisticated mobile systems, I expect that more companies will make their onboard systems “talkative” with smartphones. This can be a major advantage in a variety of areas, including service retention – if your car can tell you it needs service, schedule a non-conflicting appointment based on your stored calendar information and set your reminders appropriately, why would you bother picking up the phone and calling an IRF? Telematics is big and becoming more plug-compatible. The lesson here is to pay attention to those Crystal Balls and get better prepared for the future. Ford, GM, BMW, Mercedes, and Komatsu all have a pretty good head start on this.

In 2010 we saw, thankfully, some reductions in junk car part sales from 2009. Evidence of this came from an OEM that conducted a market sizing and share exercise for their collision parts. They saw a clear reduction in the market share of junk car parts in 2010 compared to 2009. Several factors could have contributed to this; reductions in totaled vehicles to pull parts from … or the more optimistic belief that customers are using the rebounding economy to better repair their vehicles. Either way, our fear of an increase in the use of junk car parts long term looks to be dispelled for now. We still need to be careful here.

In 2010 some of those emerging markets exploded – you can’t really call them emerging markets when they’re now some of the world’s largest. It remains to be seen what level of growth is sustainable, but considering the unique challenges of ‘emerging’ markets and their customer tastes is more important than ever before. It’s not enough to design for Europe/Japan/North America and assume that the models (vehicles, networks, dealer relationships, etc.) will apply to emerging markets. There are unique challenges that must be addressed in each market; for rapidly growing markets, challenges are magnified and may be completely different from the issues that the industry typically handles. The Chinese are starting to move into developed markets… we need to watch for “interesting” service concepts like skipping a dealer network altogether and making agreements with national fast-fit chains for service.

In 2011 the HE segment got religion and continued on a “fat busters” program to increase sales and profits. Several heavy truck brands made very serious efforts to reevaluate every program and department … looking for ways to cut costs and not just do things because they always have. This wasn’t driven by financial hardship either – they’re having strong years for both whole goods and parts. A major focus is finding ways to use IT automation to free up headcount for repurposing. This segment is taking a course correction to follow the car-guys in many initiatives – taking advantage of the learning and investment the Auto sector has made along many different initiatives; for example, POS data. Several HT brands are ahead in using collision market intelligence. HT OEMs are continuing to push their focus on service retention and purchase loyalty. POS data gives this fight a new angle. The commoditization from all-makes parts makes this an enormous area of opportunity for OEMs to gain share from the aftermarket – and from each other. Second line and all-makes parts are gaining visibility at a bunch of HT brands. It would not surprise me to see OE Connection make some inroads in this segment. Lessons here? It’s all about listening with an ear to learn, not to defend. We still have some segments that are somewhat tone-deaf.

In 2010 we didn’t do enough in some areas. Most disappointing was the lack of effort in stressing the advantages of genuine parts, and dispelling the general public misconceptions that dealers are the high-cost spread. OEs have a lock on the distribution of parts that went into the building of the original vehicle, and, outside collision, they do pretty much nothing in merchandising this to their end customers. OK, mostly the car-guys are at fault here. CAT has historically been brilliant in merchandising the advantages of genuine. Our North American benchmark group has been seeing this for the past 15 years or so. Maybe we need to spend more time here.

What will 2011 bring? There are some things that I think will happen, and some things I hope will happen.
  • 2011 parts sales will show serious increases over 2010 for all segments. Most of the car-guys will see double-digit increases. Ag, CE, HT will see gains as well, but probably not at the same level as the auto segment. Motorcycle will get a breath of fresh air as consumer spending for delayed dreams increases, and the environment for accessory sales becomes more fertile. Harley will figure out how to reach into other segments – golf carts? Water sports? ATVs?

  • In 2011 Right to Repair legislation will continue to be an issue and will strive towards some conclusion. These bills (pending in NJ and MA) will force OEMs to provide their own proprietary tools and information to independent mechanics and other competitors, thus removing some of their advantage in the service bay. If the bills pass, it will make it even harder for dealers to retain service customers, and will accelerate the infection of low quality repairs performed in the independent aftermarket. It will be kind of like going to Mexico for your prescriptions … where, because of a lack of regulation, you don’t really need a doctor to write one out. Right to Repair smells like anarchy … hey, why not first roll it out to the airline industry? I’d like not to fly on a 737 that Joe’s Sunoco Repair works on.

  • In 2011 the OEMs are going to get even more serious about enforcing vehicle warranty terms that stipulate junk car parts from LKQ/Keystone not be considered as “genuine” and their use will void all warranties. This is just pure common sense – why should a vehicle owner who buys insurance want junk parts on a vehicle that is still in warranty? How can we be certain in this age of integrated engineering and safety systems that a junk car part from a car wreck still has all the quality of Genuine? Just who is responsible for checking all this out? It is time to get hyper-serious about this.

  • In 2011 I expect to present a banner to GM’s Vancouver PDC for either: (1) breaking the 100,000 LHY barrier, or (2) giving it a gallant try. I might have to settle for “Congratulations Vancouver – You Are Almost There – 100,000 is in sight!” I take this barrier-breaking as having the highest sort of personal interest.

  • In 2011 we hope accessories will continue to be a focus at the OEMs. Customers will continue to hammer the OEMs more and more on vehicle “invoice prices” they find on Edmunds, but accessories have maintained much of their suggested margins. Personalization is becoming more and more important to customers as a means of self expression, which the aftermarket has a strong hold on. Some areas the OEMs have more trouble competing in, like wheels, because of the aftermarket's lower quality standards and costs. However, other areas, like electronics, are high value items, and growing rapidly, that OEMs should control. Hey, you guys designed the vehicle, you should be able to create a better value proposition here than the aftermarket.

  • In 2011 digital media will be a strong focus for the OEMs; shouldn’t it be a strong focus for your dealerships too? Dealerships, like their OEMs, are creating an online presence on Facebook, Twitter, FourSquare, etc. Used correctly – not to simply blast Service Specials 24/7 – the dealership digital presence can be a powerful tool to increase our service retention. Smart dealerships are already using social media to answer service-related questions online directly with customers, who in turn will come to the dealership for service. You need to step it up here and assign your best talent in this area of the business.

  • In 2011 OEs are going to START to come to grips with the servicing, distribution, and lower customer pay sales of electric and hybrid vehicles. The use of electric and hybrid technology will have an adverse impact on parts sales. Although the percentage of vehicles sold with alternative powertrain technology over the next ten years will be low, it is forecast to grow quickly. The challenge is that most OEMs are providing long vehicle warranty coverage on the powertrain. Thus, parts sales will be warranty, not customer pay. Also, to some degree the use of diesel engine technology will have an adverse impact on parts sales. Again, although the percentage of vehicles sold with diesels over the next ten years will be low, it is forecast to grow quickly. Not just pickup trucks. The challenge is that diesels are highly reliable and will consume fewer parts than gas engines. So, technology will start to have a depressing impact on customer pay sales … we need to better understand this.

  • The engine business is going to get interesting in 2011. With Caterpillar’s exit from on-highway, Cummins is now the major player beyond proprietary engines. OEMs are pushing their proprietary engines as a way to reduce the percentage of their trucks built with all-makes. This will be a battle fought not just in the front of the store, but in the back of the store as maintenance and repair concerns are much more important to fleets than your average soccer mom. How Caterpillar’s share gets divvied up between Cummins and proprietary engines will have significant long-term impacts on part sales for OEMs and Cummins. For all of us, we need to stay tuned here, watch this evolution, and learn from it.

  • In 2011 someone will remember that structure follows strategy … and that our strategies have matured. Our 21st century strategies are all about low cost, high quality supply chains that subsume purchasing, interconnected digital information networks, service and parts retention strategies, sales and service operations excellence, revenue management, and support from finance and IT. Our structures are mostly relics from the last century.

  • In 2011 I hope we will collaborate more. We’ve planted the seeds for collaboration and now it’s time to harvest. We need to form a unified front against the AAIA. We need to communicate the value of genuine. We need a robust web-presence that provides sticky content, quality information, and unbiased reviews. We need to work together on the toughest supply chain issues. The longer we wait, the more difficult it will be to make up ground. We need to transcend benchmarking.

  • In 2011 the New York Times will figure out that Mr. Ed Niedermeyer’s opinions are quite idiotic and they will not use him – they will devote more space to sports coverage of their crumbling Yankee and Giants franchises, where at least it’s hard to get the facts too wrong. Mr. Ed’s wisdom on December 16 was that it is pretty much a crying shame that GM and Chrysler followed the market, rebounded from their bankruptcy miseries by selling more trucks, SUVs, and minivans. They cheated. They were supposed to just sell high-mpg cars and let those truck intenders go over to Ford, Toyota, Nissan, and Honda. Hmm. I thought it was pretty cool launching the Volt and Cruze, paying off billions of dollars in debt, having the largest IPO in history, and having balance sheets that are the envy of the industry. Oh well, what do I know.

To all of you, have a wonderful holiday season. Share it with the ones you love. Keep safe and happy. Return in January and let’s knock the ball out of the park in 2011.

Thursday, December 9, 2010

Why a Second Line of Parts Was a Bad Idea and Isn’t Now

Life was simple in the old days. If you bought a Toyota or a Chevy, you tended to stick with the brand and went back to the dealer for service. The industry was selling more cars and trucks than it ever dreamed possible, and the money to be made was at the front of the store – new, used, leasing, F&I, fleet. Dealers’ brothers-in-law worked in parts and service, and they all got together once a year at Thanksgiving. The mission of the dealer service department was to service what the front of the store sold, and make a lot of money off of warranty … unless you were a Toyota store. Matrix parts pricing and monster labor charges were de rigueur. You used genuine parts for everything – warranty repair and 150,000 mile fix-er-uppers.

Life was good in the old days.

Well, these are now the OK new days. The front of the store is break-even most years, and now “fixed operations” is expected to provide 85 - 100% retailer fixed cost coverage. The customers changed, and now they are not all that loyal to the brand. They shop and have a zillion little helpers on the internet that help them find the best products, the best deals, the best negotiating strategies, and the best satisfaction. This is all old news. Thank goodness for parts and service.

Not so fast.

Our service customers are also evolving. Younger customers are displacing dying off old customers, are less dealer-loyal for service, and are searching for all those internet helpers that helped them buy their car. Some of those helpers are here today. AutoMD is a good example. It “shifts the power to you.” Let’s say that I have a 2005 Camry and live in Acton, Massachusetts, and I want to replace my brake pads. It tells me that I can pay $65.69 for the pads if I put them in myself, or pay $86.25 if I go to a shop. The shop will charge me $92.22 for 1.3 hours of repair time with a “benchmark” labor rate of $71 per hour.

I can even buy the brake pads on-line and pay $63.74 (“saving $20.21”).

Or, I can ask it to find me a shop. It comes up with a list sorted how I like it. Here, I discover that there are some close-by shops that will do the repair for $25-$35 an hour, and I see that the closest Toyota dealer charges $95 an hour.
30% of all service customers use on-line research, so this is not just a short-term anomaly. We call this new generation of service customers “Digital Service Customers” – “DSCs” for short.

The fact is, our service customers are becoming zombies, just like our sales customers, who became zombies just like our purchasing organizations …. once they understood the power of data and negotiation. We are stuck with our dependence on the parts operations to cover fixed costs and generate profits – heavy equipment came to this realization well before the car-guys did. The facts all line up telling us that one-size-fits-all genuine parts branding strategies are not sustainable. I’m not going to talk about uncompetitive labor rates at dealers in this blog.
Timeout: OK, I lied. I can’t resist talking a little about those labor rates that give dealers a high-cost reputation. Just spend a few minutes on the internet and you can find thousands of price points for common maintenance and repair parts – like brake pads. The “evidence” to support dealer high-cost stereotypes is in extreme abundance. A DSC can shop the web and find brake pads for their vehicle at a fraction of the cost of the pads offered by their dealer. Now, they might be inferior pads, but the DSC will never know because the dealer parts counterperson rarely, if ever, sells the advantages of genuine. So, to the consumer, a $29 brake pad for a 100,000 mile Camry looks just as good as a $100 brake pad. To change this misconception requires training hundreds/thousands of unappreciated parts managers with skinny recessionary budgets using brain-dead dealer trainers. Not a horse I’d like to bet on. OK, let’s assume we can fix all that with some genius 2x2 matrices of rising cows and lazy ducks. Then, we’d have to tackle the problem of AutoMD’s list of $25 an hour labor alternatives vs. Bob Moran Toyota’s $95 an hour labor. We’d need to convince the DSC, with some clever web-stuff, that paying four times as much an hour for a wrench is a good deal. Sounds pretty tough, eh? Well I’m not all that concerned. Most fixed operations managers are smart, and labor costs are under their control. Ultimately, the smart ones will market-price their labor and use smart menu pricing. (The not-so-smart ones will continue to be good brothers-in-law and will show up on Thanksgiving … until things get worse in the front of the store.) The big problem will be in the stuff not under the control of the smart fixed operations managers – like the price of genuine parts in shrinking segments.

Next Time Out: OK, let’s take a bold leap and crystal ball this. It’s easy. Just forget everything you know, look at a very simple set of thirteen facts, and think like an entrepreneur. Here are the facts: (1) there are lots of IAM dollars going to buy right to repair legislation, (2) the internet tells you how much parts cost for lots of common maintenance and repairs, (3) AutoMD tells you how much labor costs, (4) AutoMD is only one third-party provider and others will surface and probably be a lot better than AutoMD, (5) there are thousands of dealers out there, (6) they service a lot of cars and trucks, (7) most OEMs only provide their dealers with genuine parts, (8) lots of these genuine parts are a lot more expensive than IAM parts, (9) historically, dealers have been very loyal to their OEMs, (10) younger Digital Service Customers are less dealer loyal and very dependent on the internet for research, (11) dealers will lose these customers to cheaper service providers that the internet tells them about, (12) these younger DSCs will grow as older customers die off, (13) dealers will become less loyal to OEMs. What does this all add up to? “DWDs” - Dealer Warehouse Distributors. Some smart chain like AutoZone will kiosk parts at dealers so dealers will not lose their service business as a consequence of web-enabled service shopping. That wasn’t so hard, was it?
The OEMs need to think out and roll out second lines of parts. Soon. This is no small feat. First off, the OEMs need to un-learn old, obsolete, and cluttered wisdom concerning why second lines don’t work: part number proliferation, cannibalization, parts quality, engineering costs and compliance, untested new global suppliers, eroded profits, small volumes, warranty terms & conditions complications – you know, things like these.

Let’s take a stab at this re-think.

#1: First find some comfort in knowing that other OEMs in Europe are moving in this direction. Several OEMs have second lines in Europe. In fact, there is an explosion of OEMs going in this direction. Block exemption is the catalyst. However, there are also lots of things to think about. A globally tested poor idea is taking a genuine part and putting it in a different box and selling it 20% cheaper as a second line. No wonder you see cannibalization; dealer’s aren’t stupid. And with the internet, consumers won’t stay stupid for very long either. Trying to do second-line and all-makes at the same time (these are different topics) will get you into trouble unless you are a heavy truck, agriculture, or construction equipment OEM. So, Auto-guys, just forget about all-makes (as was explained to me a decade ago by an old sage, “it all makes no sense”). Start by taking a look at what some companies in Europe have done – the collective wisdom here does not all lie between Oregon and Ohio.

#2: Segmentation should control the growth of parts proliferation. A market study will identify product lines/segments that have lower-than-expected market shares. Using a pareto analysis at a part number level will identify the smallest set of parts largely responsible for the lost segment shares. This handful of part numbers needs to be subjected to the 5-whys to understand what happened to all the volume. When the answer is largely “price” and the vehicle applications are for non-current models, then you should consider a second line. If the answer is largely “price” and the vehicle applications are current model – then, you need to re-price the main line and do not need a second-line part. Also, remember that “second line” really means second line – it is in addition to the genuine line. This more surgical approach provides a fair degree of inoculation against cannibalization. Don’t have the resources to do all this? Farm it out.

#3: Second lines are not “genuine.” This is important. Genuine parts represent a bundle of capabilities and caveats that cost a lot of money. For example, they can be used in vehicle warranty repair and they have more robust parts warranties. They have more “delicate” supply chains, they have higher fill rates, and they are built to exacting new-vehicle replacement standards. The product matches the promise. The product/promise relationship is also true for the stuff that AutoZone and LKQ sell. So, it is important not to overbuild, over promise, or overprice for non-genuine. These parts should be globally sourced and direct-shipped to dealers in order to control costs and provide for competitive margins.

#4: Second lines have different part numbers and terms and conditions. This is important. The benchmark here is tired, old, but still alive – NAPA. Parts warranty coverage should line up with NAPA for the class of part that the second line represents. This one is simple – just line the T&Cs up with the market icon and don’t think much more about it. Put a third party into business to audit retailer compliance by having them match up RO sales history with warranty claims: just like freight bill audits, they can work off a fraction of the savings. Saddle the third party with the responsibility to pay audited claims within the same time-frame window that NAPA does. Now, you don’t have to worry about retailer compliance or internal staff requirements.

#5: Farm out the engineering, too. That’s what aftermarket does. Find out how the IAM does all this to such an extent that they can merchandise their products as conforming to original equipment specifications. Then do what they do. Alternatively, consider using the engineering model used by OEMs who are growing their accessory business: push the product development and engineering to a separate skunk works legal entity to leverage entrepreneurial energy and fast time-to-market … while they contain legal exposure and mitigate risk.

#6: Train your retailers on how to un-learn stuff that no longer works and learn stuff that really does work in this web-influenced selling environment – how to compete in this new frontier. This includes qualifying the buyer, responding quickly, nailing down competitive quotes, managing a competitive internet presence, closing the deal, and following up upon completion. It isn’t about long hold times, off-the-cuff double-net pricing, switching to the service advisor for the labor cost, and sounding like a zombie.

#7: Think about the long term potential of a second line being an enabler to grow wholesale mechanical sales to IRFs … AFTER you get IRF fill, delivery and service nailed.

Bottom Line: Wipe away your excuses not to act and act like an entrepreneur.

Thursday, December 2, 2010

North American Auto Parts Sales Seem to Be in Solid Recovery

I planned to lead this week’s post with an awesome 3-D chart that compressed 12 charts’ worth of information into one. But as the author Henry David Thoreau was laid to rest just a stone’s throw from our Concord office, my staff persuaded me to simplify, simplify, simplify. Plus, I didn’t want to give Edward Tufte an aneurysm. I should mention that the information in the following charts is from Carlisle’s monthly Market Watch. Note that all the charts have the same y-axis scale. Let me summarize the high points:

The US parts market is recovering faster than the Canadian market … actually, it looks like Canada didn’t get hit quite so hard last year, so there was less room for a rebound. But, Canadian trends still seem a little… bleh.

Overall US parts and accessory sales are still gaining momentum. For some OEMs it will be in the double digits – growth in the same ballpark as year-over-year vehicles sales. Selling a lot of new cars and trucks does not automatically mean that you will sell a lot more maintenance and repair parts for your older vehicle parc. Certainly, accessory sales derive from vehicle sales, but this typically accounts for only 15% or so of the sales total. So, the overall parts sales growth is a result of more things going right with the economy and personal expenditure spending.

Accessory sales are leading the charge across the entire North American market and have been doing quite well in this recovering whole-goods (vehicle) sales market. Double digit accessory-greedy light truck sales growth is a major contributor here. Overall parts sales gains for the OEMs are generally more robust than the IAM, mostly due to spectacular accessory sales.

Collision is growing, as forecasted, based on a reversal of some fundamentals that took place last year (lower speeds to get higher mpg, delayed repair, pocketed insurance checks) and some recovery in miles travelled. This is a curious and controversial segment. LKQ’s organic growth in the third quarter was 8.2%, and there does not seem to be any “organic” momentum building through their current fiscal year. Yet, we do see some growth momentum at the OEMs. My guess is that some cash has freed up at retailers and they are building some inventory for the winter season – the “bullwhip” effect I talked about in previous blogs. This “recovery” contravenes some common industry thinking that postulates that retailers are sticking with their recessionary thinner inventories and relying more on the OEM’s hyper-fast order response times. Occam’s Razor tells us to select the competing hypothesis with the fewest new assumptions. Retailers building winter collision inventories in a recessionary recovery period certainly has zero new assumptions.
Timeout: The bullwhip effect is all about demand magnification throughout the supply chain, caused by a series of independent (and somewhat myopic) reactions of value-chain partners buying inventory in reaction to sales events. As we recover from last year’s recession, consumers will start to buy more … from severely depleted value-chain inventories. Delayed maintenance and repair will transition to upticks in dealer businesses, and independent installer business. Who gets what depends on who has what. The surviving retailers out there will have to compete for this uptick in demand and will want to replenish their inventories, both for what is selling and what they think might sell. Distributors will respond to this with orders on their suppliers. How will they react? They will react from the same nexus of fear … fear that they will lose sales and, worse yet, customer purchase loyalty. So, they, too, will have to replenish (probably over-replenish) for what is selling and what their wizards think will sell. And so on as we move along the supply chain. MIT and others have studied this to death. Bottom line is that a link chain of these sorts of reactions will rebuild inventories and enterprise sales … far beyond what actual demand might be. Just as we all were slaves to the Keynesian Paradox of Thrift in 2009, we will be slaves to 2010’s bullwhip. But the big questions are not only how loud the crack will be, but also, who will get cracked?

M&R sales gains are solid and seem to be more programmatically driven than reflective of a common wave of consumer fix-it-up behaviors.

Domestic powertrain is doing quite well (not much more room for disappointments here – so, from the bottom everything looks up). The Importers have not quite figured out how to sustain growth here- YTD numbers are good, but there’s a lot of month-to-month variability.

Tire sales are increasing. Yet, it seems that we’ve lost some momentum here in the market – Goodyear’s North American overall tire sales seem to be pretty strong.

Bottom Line: The service parts market is in recovery, the IAM has not launched a secret market share stealing weapon, and, due to 2009 cutbacks and capacity tightening, the OEMs are all under-realizing the potential of these market conditions. That is the unintended consequence of conservative forecasting. Hundreds of millions of dollars have been left on the table.