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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 of it.

"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 their dealerships."

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, quality, etc.

"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," explained Fallen.

"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 rebuilders.

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."

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