Thursday, February 17, 2011

Oops, Hey That Internet Thing Might Be Important and the State of the Parts Industry

You might think that it is difficult to draw a parallel between Border’s Wednesday bankruptcy notice and parts sales. It’s all about thinking of today and tomorrow. On Tuesday, Borders was a bookseller superstore without an effective Internet strategy – this was probably mentioned in some business books you read on your Kindle. On Wednesday, it was bankrupt. On Thursday, analysts all blamed 40 year-old Borders for not understanding where their product distribution fit in the digital world. Let’s keep that in mind.

We are preparing our first quarter 2011 Collaborative Parts Forecast; we recently finished our web-based meeting and will send out the updated forecast deck on Monday. This is an interesting exercise involving a bunch of planning experts who are willing to think and debate. After the last session we were able to consolidate all of our parts sales drivers into the six buckets shown on the left. At this time, five of the six indicator “buckets” are positive (green) for 2011.

Our forecast for 2011 shows positive YoY results for all partners in our collaboration group, with some OEMs seeing gains of up to 8% - 9%. 2010 was an exceptional year for year-over-year sales growth – the denominator was 2009’s very bleak recessionary collapse, and the numerator was 2010’s recovery and bullwhip. With 2010 as the new denominator and sustained economic recovery, we believe that 2011 parts sales growth will be about half of what we saw in 2010. Accessory sales will grow with increased vehicle sales and will only be tempered by changes in vehicle mix due to rising fuel costs. M&R growth will reflect more economic recovery and less satiation of pent-up, delayed, demand. For the Collision folks, we are indeed in a winter wonderland with all of the snowfall this season. Powertrain is recovering due to program and parts proliferation factors that favor the OEMs.

So, as Cole Porter would say, 2011 will be de-lovely.

But what about 2013? Borders should have looked at February 16, 2011 way back in 2009. Growth factors for auto parts don’t look so good. Higher quality vehicles and improvements in technology will put an ever larger dent in the absolute size of the parts market. 2009’s huge drop in car sales will represent the 4-year old customer pay car parc - Ouch! Parts sales growth will still be positive in 2012, but less so than in 2011 – so, the growth fraction for 2013 will be less attractive. Further compounding this will be a growing customer base that is more digitally focused – like those pesky eBook and Kindle folks who screwed up Border’s market strategy. These Digital Service Customers will search the internet to capture, connect, and close with their internet-accessible maintenance and repair service providers. Right now the OEMs, in this regard, look more like Borders than Barnes & Noble. Unless we see some serious action on the dealer and OEM front, we will start seeing noticeable share shifting to the IAM in 2013 and beyond.

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