In a standing-room only session at Heavy Duty Aftermarket Week in Las Vegas in January, a panel discussion duked it out between the views of the dealer and the independent aftermarket distributor.
Karon and Calbi agreed that a national network is an important dealer advantage -- one distributors need to come together to address.
Representing the dealer side was Michele Calbi, vice president, parts, Navistar Defense. Calbi previously was vice president at Swift Transportation and before that a general manager at Freightliner, so she was able to give a good accounting of the OE's perspective on the issues, as well as how a big fleet views the situation.
In the distributor's corner was Marc Karon, president of Total Truck Parts in Florida. Moderating the session was another distributor, David Scheer, president of Inland Truck Parts, a large multi-location distributor, service provider and remanufacturer in the Plains states.
What follows is an edited and in some cases paraphrased account of the panels' comments.
Q: Do you think the marketplace is well served by two channels, OE dealers and independents?
Calbi: I don't think the OE or the distributor make that decision. I think the marketplace makes that decision. I think it's extremely important that customers have choices, and we facilitate that, but again, that decision ultimately goes to that consumer. You see some businesses fail because they won't change; they aren't providing what the customer or marketplace has demanded.
Karon: I think the market is well served by having two channels - if they're on equal playing fields, they compete, and try to improve all aspects of their business. Continuous improvement is a precursor to success. Because if we're better, we're serving our customers better. But the important part has to be pricing. When one channel deploys predatory practices, the whole focus shifts to price and away from service.
Calbi: Who's doing the predatory pricing depends on where you're sitting. If you're sitting on the OE side, you say, "Oh, these distributors are so aggressive with the pricing," and the distributors say, "Oh, the dealers are so aggressive with the pricing."
This time, coming out of recession, is a good time to make changes. I heard at the beginning of this session what some businesses have done to be more effective in the marketplace. Price, when you survey customers, is not always the number one issue. You can have a rock-bottom price and not have availability, so what good is that price? And those availability issues are going to be very, very apparent, and have already hit.
Q: Do you think there is price parity at the street level?
Calbi: No I don't, and I don't advocate that at all. The pricing depends on the supplier's strategy, on how they want to go after the market. Having parity in pricing, you get into some issues of antitrust, and that causes other problems. What's important is how well a facility can keep their costs under control. If you don't know what those costs are, you need to find out at this time. The competitive factor is going to be keeping your costs under control, not the price you get from that supplier.
Karon: I think there is a lot of price parity in the market. The one area where there's not price parity, it seems every time there's a price increase, the OE dealer tends to lag the distributor by two to three months in the date they have to raise prices. Whether that's sloppy accounting on the OE side, which is what the supplier tells us, or whether it's someone getting away with it, I don't know.
Q: What are the strengths and weaknesses of the OE dealer?
Karon: One very strong advantage is the multiple profit centers. A typical dealer sells new trucks, used trucks, has a shop, and they could have financing, leasing, all with only one overhead. From an accounting standpoint, how they allocate their costs to absorption of overhead makes a big difference on their pricing strategies. The breakeven margins are set a lot lower than a single parts distributor would.
Dealers also have access to every brand that goes on that truck. They don't have to jump over hurdles, or buy so much to get access, so that's a big advantage. They have business driven to them by the national fleets. They just have to service it; they don't have to go out and solicit it. And the dealers have the delayed price increase I mentioned. And access to all these proprietary parts and proprietary information; they have the repair code resets we don't have.
On disadvantages, I think they tend to lack coverage and depth in all makes of products. They focus on their nameplates. Of course I'm being the generalist here - not everyone's that way.
They tend not to have the best people in the market, which I think is very important. They don't work very well with suppliers, don't have the strong relationships we do. They have OE control in some aspects of their business, which means they sometimes have a more restrictive warranty policy and the OE can mandate certain requirements with facilities and how they're structured that may not be beneficial in their particular market. They are slow to bring new products to market; they tend to sell what's on the truck. And they have a limited number of shop bays, and since they have to take care of warranties first, in some cases they can't give the level of service to customers the independent can.
Calbi: Marc had some very good points, but it's always amusing to be on the other side of the fence. Having been very close to dealers in my career and being in dealer council meetings, they always say their overhead is huge, that it's difficult to be profitable. Marc is correct, there are a lot of areas in which they can make a profit, but if you think the dealer's making profit on the new truck department in the last few years, think again. So they have to make sure their service and parts business absolutely covers the nut of the dealership. It is extremely difficult to look at some of the megadealers trying to survive with their big facilities and large amount of bays.
What helps the fleets is when there is a network of dealers they can depend on to keep their trucks running. That is extremely important. Uptime in this environment is absolutely important to the fleet right now. No matter whether that fleet lands in a facility that's a distributor or a dealer, you've got to get them out of there, you've got to keep them alive. That network is something we looked at when I was at Swift and something we paid attention to. So that is an absolute strength - although some OEs have a stronger supply chain than others where the dealer network is concerned.
There are a lot of master technicians in the dealer network. They have laptops, they're trying to diagnose today's complicated electronics; it's becoming very difficult. That is a big strength, the training on the product.
There are flip sides to all of this, but I firmly believe the dealer network has more strength than it does weaknesses, and it depends on how sophisticated the dealer is and how dedicated they are to learn, to train, to become an effective dealer.
Karon: Michele brings up two important points. We distributors have to figure out a way to come together, whether it's buying groups or whatever, and build that network so when that truck leaves Palm Beach and goes to Indianapolis, he gets everything the same. This national fleet issue is something we need to talk about. I think it's a weakness in our side of the industry.
The second thing is training. I'm not sure where you guys are on these repair codes and things like that, but we've got to get trained. Trucks are changing dramatically, and if we are doing the same things we were five years ago, we're falling behind and we're going to be left out.
Q: What are the strengths and weaknesses