During Heavy Duty Aftermarket Week, MacKay & Co.'s Mark Linton and John Blodgett took a look at the state of the aftermarket. Using an economic indicator their company developed called Truckable Economic Activity, they showed how TEA was negative for two consecutive years in 2008 and 2009 for the first time since they started tracking the figure. Class 8 truck utilization and parts demand track TEA fairly closely. The last time we saw two years in a row of parts sales drop-off was in the early '90s, but it wasn't as severe as this one.
Linton noted that in 2009, we saw factors the industry has not seen since 1982, which was the last major transportation recession:
* A high number of parked trucks
* Low used truck values
* Parts cannibalization
* Inventory pull-down from everywhere possible, as parts sellers and fleets alike tried to generate cash anyway they could, such as returns to suppliers and not replenishing inventory.
Blodgett explained that the trucks that were parked tended to be the older trucks in a fleet. "That's kind of a double whammy for the aftermarket," he said, since those are the trucks you would expect to need maintenance, repair or overhaul.
Parts cannibalization wasn't a large percentage, "but it was bigger than we had ever seen in the past," Blodgett said. Fleets cannibalizing parts from parked trucks tended to be smaller fleets, older fleets, more local/regional fleets that had a lot of similar or like vehicles where they could swap parts.
"We did talk to a lot of larger fleets, and they may have considered it, but when they looked at trying to track what they took off of what truck, that was going to be too expensive," Blodgett explained. "The good news is, you can only cannibalize that part once, and when those trucks do get back on the road, there will be a bump in parts sales."
So what did all this mean? A total reduction of 8.3 percent compared to 2008. Parked trucks made up 3 points of that, cannibalization 1.5 to 2 percent.
The good news is, 2010 is looking better, they said. We're seeing fewer parked trucks and thus less parts cannibalization. Fleets have delayed replacing trucks, both because of the recession and because of the big increase in prices for engines meeting 2010 emissions standards, so the age of the fleet is older - which could mean a higher need for parts in the aftermarket.
In 2009, Linton said, the nation's fleet had about a half million vehicles parked, including trailers and chassis. For 2010, MacKay & Co. is predicting closer to 200,000 units, meaning about 300,000 units coming back into use this year. In 2009, just over 6 percent were parked; this year that number will just be over 2 percent.
The bottom line? MacKay & Co. forecasts that for 2010, Class 6-8 truck and trailer replacement parts demand will rise 8.3 percent. 2011, they say, will be up about 2.2 percent over 2010. But then over the next few years, they predict, the market will be largely flat.
One trend that does not speak well for the aftermarket is a declining population of trailers.
"We're going to be losing about 600,000 trailers and chassis over the next five years, and that's significant for under chassis parts usage," Linton said. Thanks to the increased use of asset tracking technology for trailers, fleets are getting better utilization out of those trailer fleets, meaning they need a lower ratio of trailers to tractors than they needed in the past.
Why fleets buy
MacKay & Co. fleet surveys have found that the main reason fleets buy parts from independent distributors is price, followed by availability and convenience of location. In comparison, the top reason for buying from dealers and engine distributors is availability, followed by the OEM ties.
When it comes to service, warranty is the main reason fleets choose dealers and engine distributors, followed by availability. The main reason they choose independent distributors that offer service was price, followed by location and convenience.
As MacKay & Co. sees it, there are two main opportunities for independent distributors in 2010 and beyond:
1. Have the part on the shelf. Everyone has been holding back on inventories. As the economy picks up, those parked vehicles coming back online and delayed repairs in fleets will provide a demand bump. Will you be there to meet the need? "You're going to probably see some customers you haven't seen before," Blodgett said, "because they will go to their normal source for the part and they won't have it, so they'll come to you." This is a great opportunity to win new customers.
2. Service. "Service gives you control of the wrench and allows you to sell that part," Blodgett says. "Fleets want to outsource more of their service work." There are opportunities in service for nontraditional areas, such as air conditioner service, fuel systems and electrical systems. Location becomes a key issue when it comes to service. The time fleets are willing to travel to have various types of service done varies - and it's measured in minutes, not miles. For a PM, they typically won't travel over 24 minutes. But for paint and body work they're willing to drive nearly an hour.
Better service sells
Fleets and owner-operators have long been unhappy with the lack of communication at dealerships when it comes to having their vehicles serviced. Although many dealers have been taking advantage of the slowdown in business to put into place systems to address this issue, it still marks an opportunity for the independent who excels in customer service.
"Knock down the barriers," Blodgett said, noting that key factors include proximity, speed to satisfactory completion, consistency, and communication with the customer. "I can't tell you how many times we've done focus groups or interviews with fleets and to hear them complain about the non-communication of the service provider on the status of their vehicle. They need to make decisions, and they need communication from the service provider to make those decisions."
Linton also noted that distributors should look beyond fleets and owner-operators for customers.
"Now is the time to prepare for growth," he said. "There are opportunities to expand the customer base. Parts opportunities are everywhere, not just at fleets. The lines are blurring more across the channels. You'll have more customers - dealers, other distributors, independent garages, and of course the fleets. Don't shy away from selling parts to competitors.
"You need to service every customer how they want to be serviced. Be their parts advocate, help them get there."
Fleet survey identifies parts-buying preferences
In an annual fleet survey conducted last fall, CK Commercial Vehicle Research asked the 62 respondents about their replacement parts purchases.
Overall, 56 percent of replacement parts were bought at dealers, 42 percent at distributors.
For-hire fleets, as might be expected because their fleet age is typically lower, are more likely to buy replacement parts at dealers than government and private fleets. For-hire fleets bought 61 percent of their parts from dealers, 37 percent from distributors. Government fleets were nearly the opposite, buying 67 percent of parts from distributors and 32 percent from dealers. Private fleets were in the middle, buying 53 percent of parts from dealers and 45 percent from distributors.
When asked about the importance of using the same brand as spec'ed on the original equipment, the CK respondents preferred the OE brand 76 percent of the time for power units and 66 percent for trailers. Some of the parts cited that were more likely to be an aftermarket brand included brake shoes, filters, li