Aftermarket gurus warn of OEM competition on line - original equipment manufacturers

DSN Retailing Today, August 20, 2001 by Katherine Hutchison

CHICAGO -- Aftermarket industry executives who gathered here for the first eAftermarket Forum earlier this month were greeted with news that car makers are encroaching into their space and the most effective tool for protecting their businesses is the Internet. With a drop in new vehicle demand, original equipment manufacturers (OEMs) have their sights set on the aftermarket for profits, forum chairman Mort Schwartz told attendees. They threaten to snatch both consumers and technicians away from the industry.

"We look at OEMs as the greatest threat to our business," said Alan Bostwick, executive vp of PartsPlus. "They've got a lot of capital behind them."

OEM dealers overcome consumer anxiety about auto repair by virtue of their brand and name recognition, Bostwick said. He noted that General Motors has stand-alone repair facilities with up to 16 service bays that can repair numerous vehicle types and competes with independent shops for an ever-shorter supply of service technicians.

"GM plans 3,500 facilities in three years," he said. "They're building huge facilities with great waiting rooms. It's a captive market." "When did we leave the barn door open?" he wondered.

Brian Robb of iStarSystems said the aftermarket will fragment as OEMs take more control, first through inroads in collision repair work, "a precursor of what happens in the mechanical aftermarket."

Among the "Big Three" Internet initiatives is CollisionLink, a collaboration of GM, Ford Motor Co., DaimlerChrysler and auto parts cataloguer Ball & Howell, to sell parts to collision repair shops. The companies have their sights set on the $550 billion global auto repair industry, according to Bell & Howell, and CollisionLink is the beginning of a larger, yet-to-be-named joint venture to serve vehicle fleets and mechanic shops.

Encroachment by OEMs is also blurring the lines of competition as suppliers work more closely with OEMs, said Bill Lang of IBM Automotive Industry Group. "Suppliers are becoming competitors."

"All OEMs recognize they have value in the data in cars," he said. "We're seeing the emergence of e-business from manufacturers on the service side. Vehicles can send a signal to a server, and [owners] will get calls from OEMs that their cars need work."

But market research reveals consumers prefer a choice of service providers, which creates opportunity for the aftermarket, Lang said. "Once services are in a portal offering, e-markets can become service providers as vehicle systems open to remote access. The aftermarket will have to change its business processes."

New higher-end models such as Mercedes S class and BMW's new series are already enabled for such access, which will become pervasive by the 2003 model year, he said.

Polk Co. aftermarket performance consultant Lonnie Miller outlined other OEM retail initiatives, including GM Goodwrench service centers; Ford Fast Lane centers, which carry lube and oil change bays in dealerships; and Ford Quality Care, satellite centers set up for warranty service that can also repair non-Ford makes.

Houston-based JoeAuto.com, with $13.5 million in financing from investors, including Ford, is launching 24-hour, big-box retail service centers nationwide, beginning in its hometown market. Joe Auto aims to have 140 such sites in the Top 50 metropolitan markets by the end of 2002. Billed as a "auto repair" business, it offers Web cams where customers at home can watch their vehicles being worked on through the Internet.

Forum participants tossed around ways the aftermarket could counter, including online outreach efforts such as e-mail reminders to drivers about vehicle maintenance.

"The branding challenge is, how do we differentiate in hard parts?" Miller said.

One advantage the industry has is that manufacturers have information, but few know how to provide the same level of service, said Skip Potter of the Automotive Aftermarket Industry Association (AAIA). "Retailers and distributors need to equip their stores and people to connect them to manufacturer information," he said.

Also, local distributors know the market in ways an OEM can't, said Ronald Pyle, president of vendor network CarParts Technologies. "The promise of technology is it's an enabler: It levels the playing field. It gives the small distributor all the power of a large organization."

The industry is under siege not just from OEMs, but from an overbuilt supply of two million parts worth about $12 billion and a customer base demanding delivery in 30 minutes. "If we could improve that by 5%, it would be progress. E-commerce can help us get there," said Ray Stover, founder and president of DST Mcdonald.

But e-commerce initiatives must have a clear and timely business payoff and return on investment, the speakers agreed, and no e-commerce plan will overcome bad business practices.

Small, independent players stand to gain as much from e-business as the dominant players if they are willing to partner, and they can benefit from the dot.com shakeout by taking advantage of lower consulting rates and good investment values. Moreover, the industry will invest in an infrastructure that independents will be able to plug into, according to Lang.