We’ve written a couple of blogs lately about the importance of aftermarket strategy in a recession, so I’m glad to point to an article that validates what we’ve been saying, “Survival Strategies for Aftermarket Vendors in a Recessionary Economy,” published by a Frost and Sullivan analyst.
Analyst Ratika Garg writes that growth in the North American automotive aftermarket will be flat this year, but “an upside of the recession for the automotive aftermarket is that vehicle owners now prefer to keep their cars longer rather than spending a large amount on the purchase of a new car. Hence, as the vehicle age increases, it drives aftermarket repair revenues.” Garg cautions, however, that OEMs and distributors must be vigilant about finding ways to reduce costs and remain competitive. The article lists several recommendations but I’ll focus on two that resonate with Enigma.
1) Leverage Technology to Enhance Productivity
Yes, investing now in aftermarket technology prepares you for the inevitable upturn in the economy. Garg suggests that investing in inventory management is a key area; I respectfully add that it’s just as important to invest in parts catalog technology that ensures dealers/customers are ordering the correct parts to begin with. After all, the easiest way to eliminate shipping and stocking fees for mis-ordered parts is to eliminate mis-orders. Another advantage is reducing the cost of creating, publishing and distributing your parts and service information. There’s just no need to waste money by outsourcing your parts catalog. Also, OEMs can increase aftermarket share by making it easy for dealers and distributors to identify the customer’s problem, locate and order parts, and perform the required service, all using one interface that is integrated with the dealer management solution. After all, if it isn’t easy for dealers/customers to find and purchase your parts, they will look elsewhere.
2) Instill Brand Loyalty for Your Aftermarket Products at the Influencer Level
“Technicians play a significant role in influencing the purchase decisions of vehicle owners. According to Industrial Marketing Research, nearly 29 percent of parts installed in the aftermarket are sourced through dealer channels simply because of the perception that OE parts have a better fit than aftermarket parts.”
In this section of the article, Garg seems to be advising vendors who compete against the OEMs (presumably auto parts stores like O-Reilly, Autozone, Advance Auto, and NAPA) to find ways to motivate technicians to buy generic aftermarket parts. But Enigma caters to OEMs, so our advice to OEMs is this; the service technicians in a dealer network are naturally friendly to OEMs—they are franchises after all—so if you expect your dealers to buy your parts, make it easy for them to do business with you. Deliver them updated parts and service information, and integrate your parts catalog with an order management system. This has two benefits: 1) it helps the dealers provide better customer service; 2) it helps dealers expand their wholesale business to compete with all those auto parts stores. It’s important to remember that the vast majority of purchasing decisions for aftermarket parts start in the service bay.
It’s good that an automotive analyst from Frost and Sullivan recognizes the importance of the aftermarket; it seldom gets attention like this, especially in the midst of all the news this year about OEM bankruptcies, dealership closings and cash for clunkers. The aftermarket is a crucial part of an OEM’s profit stream; under normal circumstances an automotive OEM gets less than 5% of corporate revenue from spare parts sales but those same sales provide more than 30% of corporate profits. If OEMs take the analysts’ advice, it just might help them on the road to recovering profits.