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Dave's Rants and Raves...

This e-newsletter provides a BRIEF edited review of news that impacts the aftermarket, and my comments, which I hope will stimulate thought, or at least validate your own thinking. We accept no responsibility for business decisions you make based on editorial opinion, and views expressed do not necessarily reflect the views of our sponsors. Send suggestions, questions, or contrary opinions to daveh@truckingtimes.com.

First, there is certainly good news from Ford showing their first profit in the last 7 quarters! GO FORD!

The next item is very complex so I'm writing it up for the September issue of Trucking Times. Below is my highly edited version.

2007 Auto Aftermarket Distribution Survey Results

*Published by Capstone Financial Group*

1. Manufacturers believe three-step distribution is on the way out
Manufacturers were asked, "Do you agree that three-step distribution is gradually being phased out by the two-step system?" A shocking 79% of respondents agreed with that statement, with 18% being unsure. Put another way, only 3% of those surveyed believed that three step distribution would not be phased out.

4. Manufacturers are very pleased with their sales through other distribution channels (direct to jobbers, installers, and consumers)
55% of manufacturers also sell directly to jobbers, with 93% deeming these efforts successful. Sales direct to jobbers average 27% of the company's revenue.

The article above is from a newsletter published by Capstone Financial Group, an investment banking firm which assists owners of middle market companies with their financial needs — including mergers and acquisitions, recapitalizations, private placements, divestitures, and other financial advisory services. They did the survey and the report, they deserve the credit.

RAVE:
They do not document much of this, but this is a financial institution I believe to be credible based on several years of observation. They appear to have no vested interest in the outcome and reporting of factual survey information. They make no guarantee concerning the information or its accuracy. It is intended to be general information regarding mergers, acquisitions and financing. You can learn more about them at www.capfg.com.

RANT:
It's pretty hard to find anything to rant about in this article. Let's talk about the reasons for this switch — if it really is happening. Here's what I think is driving change.

As the number of WDs shrinks the number of manufacturers selling around the system will increase

When there are fewer distributors, manufacturers can be locked out of the market with 4 alternatives.

• Sell to small regional WDs
• Sell direct to consumer — easier now with the Internet
• Sell dealer-direct
• Any combination of the above

Internet Shopping has pressured prices
Consumers make price comparisons quickly and easily, turning many products into commodities — especially for do-it-yourself products. If WD pricing can't compete with what may even be factory direct pricing, then something must give.

Off shore manufacturers knock off our products
Some products get marketed by Chinese manufacturers and some U.S. manufacturers have their products built in China. Either way it pressures prices for traditional manufacterers. Selling outside the WD system may be the only way they can compete.

Rising fuel prices haunt us all
Discretionary spending drops causing us to decide issues like whether to appeal more to commercial buyers.

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Environment issues threaten light truck sales
Light truck market share shrinks amid talk of raising CAFE standards on trucks while there are more models and an ever-increasing SKU list manufacturers must tool for.

Dealers pressure manufacturers to sell direct
Dealers/jobbers are experiencing the same financial pressures. No wonder larger dealers pit one manufacturer against the other until they get some kind of price concession for purchasing direct.

WDs are not fulfilling all their responsibilities
Manufacturers tell me that WDs stock too many lines and then are unable to keep enough SKUs in stock. Direct-ship of back orders is on the rise, at least for some. Dealers say they would like more marketing help.

This is becoming depressing.

Is this survey something other than what it seems to be?

I wonder seriously if manufacturers don't feel so pressured that when asked if they would like to place the blame on WDs, they take advantage of that opportunity just to vent their frustration — much like kicking the dog.

WDs do provide valuable services. Let's not be so quick to count them out
When business changes — businesses change, and we ain't done changing yet. WDs are smart, and they will adapt as needed — they do provide a valuable service. Don't be too quick to rush to count them out.

It's important we not fix the blame, but rather that we all sit down together and fix the problem. Our industry is like a sick patient suffering from more than one malady. Each requires a separate medication, but if we don't make sure they work in concert, we may kill the patient. Eliminating WDs will not solve all our problems. It may solve some, but I know it would create more that are not being properly considered. The main one is this. How can retailers handle all the paperwork, semis and interruptions caused by doing business with dozens of manufacturers to buy direct? It would be unmanageable, causing dealers to sell fewer products. Hundreds of products available through WDs would go away right along with the WDs.

The current distribution system has worked pretty well to get us where we are now. Where do we go from here? My advice??? I'd remain true to the system unless and until you can verify long term advantages that outweigh the inevitable disadvantages of "ANY" curative.

We can't change the direction of the wind, but everyone can change and adapt according to the weather forecast.

I've attempted to provide you with some facts and some business insights that I hope will help you decide whether to buy snow shoes or beach wear. I invite — no urge you to share your opinions, experiences and factual information with me. Let's keep an eye on this weather and monitor the patient's progress together as we face the brave new world with confidence that comes from knowledge.

p.s. If you'd like a copy of my full text article e-mail me your request and tell my why you need it now — daveh@truckingtimes.com