Thursday, August 25, 2011

Repair Pal Pals – Superstars of the Independent Aftermarket

First off, I’ve got to give AutoMD a compliment. They really don’t try much to hide that they are owned by US Auto Parts. They are a wolf in a wolf’s clothing, and savvy EDSCs see this … and move on to Google and Yelp for help.
RepairPal is different. They are wolves in sheep’s clothes. Mort Schwartz is on their advisory board – he’s on WorldPac’s board of directors, too. Mort’s a consultant to Genuine Parts, headed up Strauss Discount Auto, and been a Svengali to the independent aftermarket for decades. He’s got his own company – Schwartz Advisors, where Rick Keister is an affiliate. Rick ran Keystone Automotive and Delco Remy’s aftermarket businesses.

Rick is a RepairPal investor too.


My mother told me that I’d always be judged by who I hang out with.

Bottom line: RepairPal is an AutoMD wannabe – an extension of the independent aftermarket that makes its money from selling non-genuine parts and service. Hey, there are lots of companies like this out there. They certainly aren’t objective sources of automotive service and repair information. They need to come out of the closet.

Wednesday, August 17, 2011

The Coupon Phenomenon - by Charlotte Buchanan

As a consequence of the recession and resulting consumer thrift, coupon distribution and usage has skyrocketed in the last few years. And it’s not just coupon-clipping moms on TLC buying hundreds of rolls of toilet paper and jars of peanut butter. Our summer focus groups have highlighted the importance of coupons and specials in influencing EDSCs’ (Emerging Digital Service Customers) everyday purchasing decisions. EDSCs proudly report how they comb the internet for deals. They know what websites to visit and what phrases to type into Google in order to find coupons for specific goods and services. When it comes to LOF service, they know Jiffy Lube offers a standing $5 off coupon on their website.

Timeout: How do they know this? Well, a Google search for “oil change coupons” or “oil change” turns up the Jiffy Lube website as the top result. Alexa’s search analytics tool confirms that the highest impact query driving organic search traffic to is in fact “oil change coupons”. This is not just dumb luck for Jiffy Lube.

Through ubiquitous daily deal sites like Groupon, EDSCs also receive coupons right to their inbox. The aftermarket quickly jumped on the Groupon bandwagon, with Midas, Goodyear, and a host of independent repair facilities selling thousands of oil change deals in 2010. OEMs came late to the party; this April a group of ten Chicago-area Hyundai dealers tested the water by offering a $29 Groupon for an oil change, tire rotation, carwash and multipoint inspection. Over 1,300 people purchased the deal, many of them new customers and/or owners of competitive makes. Other OEMs and dealers quickly followed suit, offering various deals across the country.

Hyundai’s press release indicated that they will be monitoring redemptions of their Groupon, which expires this fall, to assess the promotion’s benefit. One metric will be whether Groupon holders purchase additional parts and service during their Groupon appointment. Another, far more important metric, will be what these customers do after they redeem their Groupon. How many new customers return to the dealer six months, a year, two years down the road, and for what? Can dealers convert these dealer-skeptic EDSCs into loyal customers?

Bottom Line: Coupons have proved to be a lever that OEMs and dealers (as well as aftermarket providers) can use to get people in the door. However, coupons alone won’t educate customers about the benefits of genuine parts and service. And, as we explored in a previous blog, customers who don’t know what “genuine” means won’t prefer it. We must educate customers to retain them.

Friday, August 12, 2011

“Right to Repair” – There’s an Awful Lot Not Right About It - David Carlisle

OK, I will move on after this blog. It is difficult to be a Massachusetts liberal living among like-minded do-gooders who love to mint laws protecting civil liberties and promulgate social got-to-haves. Trillions of dollars in debt and we still churn out new laws that compromise liberal, civil, and social interests with conservative pork barrels. Right to Repair is a simply wonderful example of this.
Massachusetts is becoming another battleground on this issue – I hope that the Old North Bridge is strong enough to handle the load, again. What’s “right to repair” all about? It’s about a bill making its way through the Massachusetts legislature “allowing independent auto mechanics access to the same repair information available to dealership mechanics.” ( 7/6/2010 Mass. Senate approves Right to Repair Act) If you do a Google search on this topic you get a lot of hits and very few points of view. Let me simplify it all for you.
A lot of companies that produce non-dealer auto parts are supporting a non-profit industry group, AAIA (Automotive Aftermarket Industry Association) in their multi-million dollar lobbying efforts to push this legislation through to set legal precedence so that they can sell more parts and make more money. They chose Massachusetts as a battleground state because we voted for McGovern, feel strongly about civil liberties, and, heck, ain’t fixing your car where you want a civil liberty? So, because we are a bunch of Democrats, a bunch of Republican businesspersons are playing us as a bunch of dupes.
Let’s look at the Massachusetts Right to Repair Coalition and examine the facts that they are making their case with.

They (look at the names on the coalition – mostly a bunch of parts companies) want a level playing field that requires the manufacturers to provide to independents the same repair and diagnostics information that they provide to their dealers … at a fair price. This is a non-issue because this information has been available since 2002. There are lots of sources for this information – the big one is the National Automotive Service Task Force (NASTF at NASTF says that the information currently available covers 99.8% of all repairs. Consumer Reports independently says that lack of access to data represents about .2% of all repairs, and that may be overstated. The missing .2% might be a function of language skills, education, training, IQ, and lack of basic technology. So, this issue is all about 2 repairs in a thousand. Have you ever had what they call an “intermittent failure?” These are service problems that are nearly impossible to diagnose because they come and go. It might just be that the 2 in 1,000 statistic is incredibly overstated, and irrelevant. How often do automotive service technicians experience intermittent failures and do not have enough information to complete the repair? This “demand” is like stating, “when did you stop beating your wife, for a fair price?” The false accusation and negative inference is the intent.

They want to ensure consumers’ choice of where to get their car fixed. We all have that choice today – just read the signs in the waiting rooms of Joe’s Sunoco, Jiffy Lube, Firestone, Midas, and any other independent mechanic. So, there’s nothing here either.

They want to save consumers $300 - $500 per family annually. How? We see numbers like this all the time but with no substantiation. We recently documented a mystery shop at Jiffy Lube – a non-dealer independent service outlet – and determined that you could save more than $150 a year by going to a dealer. Now, this is really simple stuff – changing your oil. Where’s the proof on the tougher stuff? Nothing’s here.

They want to protect Massachusetts drivers and their families by requiring all safety bulletins and recall information be distributed to all repairers, not just independent repair shops. Done! This information is all over the internet, sometimes, in the most unexpected places. If you have a few minutes to go to Google and type in “technical service bulletin” you will find “Clever Dude” which describes how to get all the TSBs you could ever want. To get everything, all the gory details, it’s going to cost you $24.95 for each vehicle; or, you can get a summary for free from Edmunds. Again, there’s nothing in this Coalition’s demand that is not already done and documented as history.

Finally, the coalition wants to protect 32,000 jobs in Massachusetts related to the independent automobile industry, including more than 5,700 repair shops. It’s not like all those jobs and service shops are going to China. The reality is that the OEMs have been steadily losing market share over the years. 75% of all non-warranty repairs are already done by the independent shops. The work will stay in Massachusetts and the shops will continue to benefit from increasing independent aftermarket market share. This last coalition worry-wart is just plain stupid. Not really. The lobbyists are really being paid to shift more sales, profits, and jobs away from dealers to non-dealer service outlets.
Never assume that someone spending millions of dollars lobbying something is truly stupid. If none of their facts line up very well, then something must be missing. That’s why I read the Massachusetts House Bill 102.
The bill stipulates that the OEMs make available to the independent motor vehicle repair facilities pretty much everything involved in product support at the same cost and terms that they charge authorized dealers. And they want it in the same form and same manner that all this stuff is provided to dealers. This includes diagnosis, service, training, repair information, and tools. If they don’t do this and the law passes, the independents can sue based on unfair and deceptive trade practices.
This reflects the brilliance of the lobbyists who wrote this bill. They found an elegant trap - voters want to hear about how they can save money & jobs, and protect their civil rights. Voters do not want to pay attention long enough to understand and appreciate complexities. And, here, the complexities are profound. Embedded in the Right to Repair bills are three things – “hidden agendas” – that the “coalition” really wants:
  1. “Everything” - The independent aftermarket parts and service providers want everything, including information that is intellectual property representing multi-billion dollar investments into competitive advantages.
  2. “Same Cost” - The independent repair shops want it at the same cost dealers get it for.
  3. “Big Stick” - The lawyers want an enormous litigation club where anybody can launch an “unfair and deceptive trade practice” lawsuit.
Spreading the wealth of information at the same cost that dealers get might sound reasonable on the surface. But, it is not. In the area of long-term customer support, OEMs generally treat service and engineering as cost centers, and parts sales as a profit center. A lot of stuff that Bill 102 asks for is provided at no charge to dealers: diagnostic systems development, training curriculum development, tool design, hotline technical support, internet technical support, technical service bulletins … the list goes on. Some of this stuff is provided to dealers at minimal cost/profit levels – dealer service training, technician certification, dealer technical systems support, tools; again the list goes on. OEMs do this because it incentivizes dealers to invest in their own customer support and provide the highest possible level of service. This “stuff” costs millions of dollars annually, and the investment is internally seen as:
  1. A way to differentiate brands in the market place – e.g., a Yugo vs. a Toyota. Yugo’s lack of customer support in the US market was one reason for its failure. Ultimately, customers benefit from Chevy’s higher standard of customer support.
  2. A way to increase end-customer satisfaction, achieve higher brand recognition, higher brand loyalty, and sell more cars and trucks.
  3. Just part of the cost structure that is offset by parts profits.
Codifying a bunch of vague claims and demands into a law, then giving lawyers an atomic-sized “unfair and deceptive trade practice” stick is going to cost millions of dollars in legal fees. With thousands of independent service stations in each state, it would be fairly easy to assemble class action lawsuits. One way or another, millions of dollars of excess cost will be incurred by the OEMs to defend their interpretations of a vague law and for protecting their competitive secrets. Who suffers? Vehicle and service customers who, ultimately, will have to pay for all those lawyer Gulfstream jets. We should name this law for what it really does: Lawyers’ Right to Fleece You More (LRFYM) Act.

If you compare a typical OEM to NAPA and most of those parts companies who are paying the Right to Repair lobbyists, the OEM provides a lot more services, and bears a lot more cost, due to the stuff that Bill 102 asks for “at the same cost and terms that they charge dealers.” It’s because OEM parts sales is a profit center and service and engineering are cost centers. The lobbyists know this, the lawmakers simply don’t care, and those liberal Massachusetts voters, like me, are all dupes.

Jay Forrester, the MIT inventor of System Dynamics, would love to build a system dynamics model of what would happen if this bill were to pass. Consumers would ultimately get slaughtered.
  • Disclosure of relevant IP would make it easier for off-shore companies to make cheap unregulated and untested safety-related parts that would be marketed – like what we all see today when we buy contaminated frozen shrimp from Vietnamese fish farms.
  • All the OEMs would have to start charging dealers fair and stand-alone prices for all the stuff that Bill 102 ask for – they’d have to do this because there is simply too much cost involved to give it away for free or at current costs and terms.
  • OEMs could reduce parts costs to do this, but, due to matrix pricing, consumers would never see this. The dealers would need to preserve current prices to preserve fixed operations profits.
  • Human nature would take over in this very cyclical, mature industry. These higher costs would cause many dealers not to buy the training, technician, certification, tools, hotline support, technical service bulletins, diagnostic support … the list goes on.
  • Because of the costs, the independents would not buy this stuff either.
  • With declining sales for all this “stuff”, OEMs would reduce their investments. And, both the content and quality of this “stuff” would decline over time.
  • It might take 5 years, but sheer economics and system dynamics would combine to give the US market a KO punch. We’d end up with a Yugo market.

Thursday, August 4, 2011

Hmmm. I Wonder If Things Are All Right With Parts Sales Trends?

Our monthly detailed Market Watch report shows steady sales gains for the major OEMs. Accessories and collision are going gangbusters; M&R looks OK; Powertrain less so. So, in terms of OEM sales to dealers, things look good. What we said in March is dead on.

But, what about dealer sales to end-customers? This week Automotive News talked about owners spending less on service; so far in 2011 owners are spending $169 vs. $176 in 2010. A modest 4% decline. No problem; it’s just a single digit fraction. Charles Child wrote the article and leaned on J.D. Power data: he thought that the decline in spend was surprising given that the average odometer tallied to 78,000 in 2011 – about a 28% increase from the pre-recession 2008 average odometer. So, vehicles in dealer service bays seem to be older and have higher mileage. Of course.

Wow, Americans really have a tough time with simple math. 2011 is three years into the recessionary equivalent of the Dutch Elm disease – new car sales swung from 16.5 million units annually to 10 to 11 million.
There are simply not as many young cars out there. The higher odometer average is more a consequence of this simple math than of the spate of aberrant behaviors that Child’s lists in his article.

So, there’s nothing to worry about? I would not go that far. The J.D. Power data seems to support our car parc and parts sales analyses from March 1st. And, the mud pies thrown at the dealers are, also, familiar.

“Automotive” represented the top complaint in state consumer protection investigations – “faulty repairs” was listed under this category. People see this and think, “dealers”. Our customers are changing and the digital revolution is generally not a friendly place for dealers.

After reading Child’s article several times in an effort to separate the facts from the bad analysis, I’m stuck on the startling implications of 2011’s $169 a vehicle spend for an older vehicle vs. 2010’s $176 spend for a younger vehicle. Older cars cost more to repair and maintain, and
spending should be less “deferred” the further we get away from 2009 and the more total miles traveled increases. The small decline in spending at dealers is indicative of a larger problem facing dealers and OEMs – namely, that they hemorrhage market share in older car parc to the IAM. Given current economic conditions, this will accelerate – our focus groups confirm this, and the recent AAA affordability study does, too. Childs hints at this by saying that the J.D. Power report didn’t take into account how much business is going to the independent repair shops. Again, we talked about this in March. More evidence.

Bottom line: It might be wise to prepare for tougher market conditions in 2012 and 2013. Maybe it’s time for the OEMs to watch the Godfather again. “No, no, no! No more! Not this time, Consigliary. No more meetin’s, no more discussions, no more … tricks. You give 'em one message: … it's all-out war: we go to the mattresses.”