June 2013, TruckingInfo.com - WebXclusive
As margins are squeezed on parts sales, independents may find adding service to the equation helps boost profits.
Consolidation, more proprietary parts and increased competition are squeezing margins for those who sell heavy-duty truck parts. Industry experts are on the record saying that in the future, aftermarket parts distributors need to have service as part of their business if they want to remain profitable.
Some distributors have recognized this and are taking steps in that direction.
“When we look at what we call the white box part, everybody has them, and more competitors are coming in like Grainger and AutoZone,” says Lyle Bass, president of Indiana-based Power Train. “All this is doing is compressing margins. We are not as good as those companies at distribution. They can reduce their cost of distribution and they have bigger buying power.”
Recognizing these trends, approximately two and a half years ago Bass decided to enter the service business by acquiring Truckers 24.
“We were already rebuilding transmissions, differentials, power steering and fan clutches so we looked at this acquisition as vertically integrating our operations,” he says. “By that I mean what we rebuild we then consume in the shops. We rebuild the transmission, it goes to our shop and then gets put in a truck.
“Everyone is talking about dealing with the end user – the person who throws away the box. Now we are the person who throws away the box so we can control what parts go into a truck.”
The initial acquisition proved successful, so in August 2012 Power Train purchased Colyer’s Truck Parts. The company also added bays to some of its existing locations. Today Power Train has 80 service bays, seven mobile service trucks and three mobile preventive maintenance trucks.
Bass explained that three years ago, service represented 0% of his business. Today it represents 25% of the company’s sales.
“It also has raised our overall gross margins by quite a bit and has cut down on our warranty payouts because we now install what we’ve built. We always found that installation was the biggest problem we had in terms of potential warranty claims,” he says.
Adding Service Without Adding Bays
However, not all parts distributors who recognize the value of service want to invest in brick and mortar. Members of both HDA Truck Pride and Vipar Heavy Duty have other options. Through HDA Truck Pride’s Truck Service Experts and Vipar’s ViPro Truck Force, distributors can align themselves with existing independent repair shops.
About 50% of HDA Truck Pride members own their own service facilities, according to Tina Alread, director of sales and marketing for HDA Truck Pride. These shops are part of the TSE network, but the network also includes independent shops.
“Controlling the guy who throws away the box and controlling your destiny by offering service is the avenue of the future,” she says. “But [distributors] may not necessarily be in a position where they want to take that on so they partner with an independent repair facility.”
Don Reimondo, HDA Truck Pride’s CEO, adds, “What the Truck Service Expert program does for our distributors is gives them a direct link into this end-user capability and enhances what both of them can do.”
Reimondo explains that the TSE network allows the independent repair facilities “to be part of a massive footprint and their exposure becomes significantly greater. It allows them to set up reciprocal service agreements with other TSEs.”
Allan Parrott, president of Tidewater Fleet, first got involved with the TSE program about 10 years ago. “It started with us looking at six or seven of our best heavy-duty installer customers who we had been doing business with for a significant amount of time.” After listening to a presentation about the program, all of them signed up. Today Tidewater Fleet has close to 20 TSEs.
One of the side benefits of the program is that “it has helped us create more lasting partnerships with these folks. We feel like we are more of a partner than just a parts supplier,” he says.
To help further cement the relationship, HDA Truck Pride puts quarterly Hot Packs together for each TSE. According to Parrott, the box contains product literature, technical tips, new product samples and information about upcoming educational opportunities.
“It is a good way to engage those customers quarterly to make sure they are getting the latest information. It also gives our guys an opportunity to go visit the customer’s place of business and go through all the material with him.”
Looking to the future, Parrott says he will continue to look for “great shops” to add to his TSE network. “We really only want the best shops, the ones that are reputable, clean places that have the best technicians.”
Bass also anticipates growth in his service operation both from bays and mobile trucks “This is our growth area and what is projected out is double-digital growth.”
He envisions setting up service-only locations within 90 miles of his existing locations. “We have a game plan of where we are going and we are not afraid to grow.”
Reimondo believes for the independents to be successful in the future they must continue to do what they have done. “And that is to be very flexible and customer-service oriented. One of the things that keeps our guys going is their flexibility. While dealers are consumed with warranty work, our guys are like squirrels running around fast. They will do what it takes to get the customer’s truck back on the road.”