The conference consisted of a few presentations, as well as a number of panel discussions. There were three discussions of note outlined below, but two comments from the other discussions are also worth mentioning:
- One of the more interesting comments of the two days was made during a panel on women and the aftermarket, where the Tenneco representative stated that Tenneco cares very much about sending every customer to the independent aftermarket – I think they sell to OEMs too, don’t they?
- During the BB&T equity, investment discussion the presenter stated that their analysis shows that each dealership that closes is worth about $2 million in service and parts business to the aftermarket.
Bill Strauss of the Federal Reserve Bank of Chicago provided a macroeconomic overview, which I considered measured and probably a realistic assessment of the headwinds we are facing. Some of the important points he made were:
- Excess reserves are still growing, reflecting the combination of continued tight credit policies, as well as risk-averse borrowers. This “paradox of thrift,” as it was referred, while good for the long term will be a damper on the short-term recovery. On a related note, there is close to half a trillion dollars of un-invested private equity sitting on the sidelines. Bottom line: these credit and lending conditions are not sustainable over the long term.
- While gas prices are high, total expenditures on energy are at historical averages.
- However, (as we saw this in the last Case-Shiller home-price index) housing is still under significant downward pressure. While a ‘normal’ housing market is 1.5 million new units per year, we will see less than half that rate in 2011.
Bottom Line: ThePreparing for Increasing Complexity and Technology
economy still faces significant head-winds, which will dampen the recovery. US
This presentation, by a CARQUEST representative, was focused on the need for the aftermarket to ramp up training to deal with the new/emerging technology and the availability of scan tools and databases to work on current/future vehicles. They further promoted the idea of “open standardized diagnostics” and the fact that several OEMs, as well as CARQUEST, are supporting this (they didn’t reference which OEMs). They said that the OEMs should let the aftermarket provide the hardware to interface the technician (presumably IAM) to the vehicle. Great idea if you are an IRF!!! Transfer technology and how-to information to ‘the street’. When it comes to people, he highlighted the challenge as follows - it’s not quality and accessibility, it’s the quality of the technician and their ability to know what to do with that information. CARQUEST also highlighted the fact that they are implementing an OE-level tool program to allow their customers to purchase and support OE-level scan tools. Finally, he made the recommendation that during the Toyota unintended acceleration recall, shop owners should have looked into their database and reached out to all their Toyota owners, be proactive, drawn them into their facility, and found out if there was any way they could help. This one struck me as an odd recommendation, since drawing these owners into your shop for a problem you are not able to work on seems like a waste of the customers’ time.
Bottom Line: The aftermarket is thinking and talking about how to get ready for increased technology in vehicles and how to create open diagnostic and technical standards that will make them increasingly competitive with dealers.
David Sturz, of RepairPal, hosted a panel with two independent repair providers discussing transparency in the auto-repair space. This panel made the point that repair sticker shock reduces service retention. This is consistent with our consumer service sentiment survey, where an accurate up-front estimate was the #1 most important attribute. The panel focused more on how to use the internet to capture and connect with customers, with one IRF reporting approximately 50 internet leads in Q1, worth about $26,000 in initial business. The panel drifted into the topic of telematics and, interestingly, predicted the development of an open telematics architecture and ultimately sees telematics as an opportunity for their shops. I am not sure if they know something we don’t or if this is wishful thinking, but I don’t know that any open telematics architecture is in development…do you?
Bottom Line: Even small independents are increasingly getting internet savvy.
Impact of OEM Warranties
This presentation focused on the potential impact of longer OEM warranties and free maintenance programs on the aftermarket business. The aftermarket sees these programs as significant threats to their business, with potential lost business for the aftermarket ranging from $312 million, in the case of BMW, to $5.1 billion in the case of GM. The aftermarket clearly understands that these programs give the dealer the first shot at customer-pay business and that they need to react to this threat. Discussion ranged from offering free oil changes to “AfterStar” (Aftermarket sponsored On-Star) to a one-stop-shop for “coordinating” warranties for customers.
Bottom Line: OEM warranty and maintenance programs are having an effect on the aftermarket; they see the threat and are preparing responses.