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On Market Issues: Staying In Touch With The Forces Driving Today's Market.
By Steve Fallen
The Automotive Parts Rebuilders Association
(APRA) incoming chairman, Steve Fallen, knows the importance of
staying in touch with the forces driving today's market.
What are those market forces? Fallen, 49, who is also president
of Ennis Automotive, Inc., Ennis, TX, a supplier of rewound stators,
rotors and armatures to electrical rebuilders, feels that demand
for rebuilt product is expanding. However, due to continuing consolidations,
there are fewer rebuilders and suppliers available to take advantage
"The big continue to get bigger,"
explained Fallen. "There seems to be a small number of
the biggest players who are gaining more market share. The original
equipment manufacturers (OEMs) are part of that equation. They
are increasing their market share with extended warranties, and
the leasing of new and used vehicles which brings cars back to
Fallen acknowledges that OEMs have tried, usually
unsuccessfully, to make inroads into the independent aftermarket.
But he says this time they are working harder and smarter at it.
He notes that warranties, technology and installer and end user
demand for quality replacement parts are issues which the OEM
has taken advantage of in order to gain market share.
Retailers, says Fallen, are also major contributors
to factors influencing and impacting independent rebuilders. "In
many respects, it's the retailers who are really in control,"
said Fallen. "They've played a major role in shaping
the consumer's demand for better quality parts at lower
prices. "In many cases smaller rebuilders just can't
compete with retailers in terms of price and warranty."
Fallen says that smaller rebuilders must examine
their core competencies. They must look for every opportunity
to serve niche markets not presently addressed by retailers and
other larger competitors. "Those niche markets may be industrial,
heavy duty, agricultural, marine or whatever," said Fallen.
"But the important thing for smaller rebuilders to realize
is that they can't just sit on their hands and wait for
the trends that are impacting their business to reverse themselves.
That's not going to happen, at least in the near term."
These market conditions, says Fallen, are not
just impacting rebuilders. They also present serious challenges
for suppliers. Suppliers, he notes, are also faced with having
to do business with fewer rebuilders. "In a consolidated
market we have fewer customers to sell to," said Fallen.
"That changes the balance of power to where many customers
are now in a position to be able to dictate pricing, delivery,
"Customers today demand more and often
give less for it," and that includes both large and small
customers," said Fallen. "It's a reflection
of the market and the economy we do business in. Everything is
so competitive, and so very price sensitive. I think that price
sensitivity will be less in the future, but it's probably
several years in the future."
Global competition is one of the primary forces
impacting today's aftermarket, says Fallen. Citing his
own business, he notes that in some cases he uses offshore suppliers
in order to source products that he can sell competitively. "The
global economy has most visibly impacted pricing," said
Fallen. "In some cases my customers can source parts overseas
at prices cheaper than I can manufacture them. In some cases rebuilders
can buy a complete alternator or starter for less than it costs
them to rebuilt it."
Technology is another market factor with serious
implications for rebuilders. Fallen wonders if smaller rebuilders
will be able to keep pace with advances being made in vehicle
systems as well as parts themselves. "I think the biggest
impact of technology," said Fallen, "is that it will
increase the concentration of aftermarket business in the hands
of fewer rebuilders. Vehicle electronics and the electronics within
the parts themselves will become more difficult issues for smaller
rebuilders to address properly."
Fallen said that the electronics of vehicle
systems and component parts themselves necessitate that rebuilders
purchase testing equipment that will likely be too expensive for
the mom and pop rebuilding operation. "The testing equipment
for doing the work is there," said Fallen, "but can
the smaller rebuilder afford it? I do know that rebuilders cannot
afford to replace electronic component parts today with new ones
when those parts are okay to reuse."
That brings the issue of costs close to home.
Every rebuilder and every supplier doing business today must be
actively involved in managing their costs. "We all must
continue to look for ways to reduce our manufacturing costs,"
"Competition and consumer expectations
are such that we must be very focused and flexible in addressing
all of our production costs. That includes everything from overhead
to warranties! In our own business we have cut our overhead by
20% this year. It's painful, but it's also necessary."
Fallen says, however, that rebuilders do not
have to try to address all of their problems without any support.
APRA, he says, continues to provide a vast amount of information
that addresses both technical and business management needs of
Fallen also said it is important for rebuilders
to recognize and support the association's vigilance in
attacking governmental rules or regulations that impact the rebuilding
industry at the local, state or federal level. "Access
to the vehicle's on-board diagnostics (OBD II) and the
IRS effort to have rebuilders value their cores at customer deposit
are examples of government intrusions that can seriously harm
rebuilders," said Fallen.
"I think it's very important
that people support APRA," said Fallen "It's
a very vigilant association which is working hard to focus on
the issues that are important to our industry. People need to
realize how the association is using its resources to help the
rebuilding industry. And just as importantly we need to work towards
expanding those resources. Rebuilders need to understand that
there is nobody else out there looking out for them."