The big news in automotive isn’t that OEMs are closing dealerships; the big news is how the closed dealerships are responding. Two recent articles from Automotive News highlight the risk faced by OEMs:
- “As dealerships close, online parts retailers step up”
- “From Chrysler to…NAPA?”
Both articles highlight how resourceful businesses are taking advantage of new opportunities and both articles identify a significant risk to OEM profits.
This news indicates that our previous concerns are valid, without a modern aftermarket strategy OEMs are at a severe disadvantage. Since service parts represent a large portion of OEM profits—some say as high as 50%—they desperately want to improve their share of the aftermarket. (Especially with new car sales falling.) But the reports in Automotive News indicate that OEMs are poised to lose aftermarket share to independent parts distributors and repair facilities.
In the first article Tom West, CEO of JC Whitney (a parts retailer), is quoted as saying, “As dealerships close around the country, a lot of people are re-evaluating how they get their car repaired. If you’re confronted by inconvenience, you tend to adopt new habits.” As if to prove the point, the National Automobile Dealers Association reported that even as the average age for cars has been increasing, parts and service revenue fell 2 percent (to $81.84 B) at franchised dealerships last year. It appears that aging cars are being fixed by independent repair facilities (IRF) rather than dealers. In response, West admitted that JC Whitney is shifting toward selling more replacement parts online saying, “Automotive is running 10 years behind in embracing the e-commerce model. I think some dealers have tended to view the Internet as a threat. And, frankly, it’s probably going to be a disruptive force to anybody who’s not in the Internet game.”
Regarding closed dealerships, the second article says, “NAPA, an Atlanta-based nonprofit auto parts association, is thinking big about the opportunity to convert hundreds of dealerships” into NAPA AutoCare Centers. (See Mitigating the Loss of Closed Dealerships.) One former franchise holder, Bill Hahn Jr., says that, “With NAPA service, he can offer everything a customer is used to in a dealership but they can get it 20 to 25 percent cheaper than what a dealership is charging.’”
So with fewer dealers available to sell parts and service cars, what is the OEM to do? Believe it or not, fewer dealers can sell more parts. But they can’t do it without significant help from OEMs. For OEMs to increase aftermarket share, a strategy similar to the Dealer Parts Hub is necessary. After all, if you’re not moving forward you’re probably falling behind.