Aftermarket Outlook: Still down, but improving

By Travis Kokenes, MacKay & Company

A couple of months ago in this column, we indicated our initial forecast for the 2020 parts aftermarket would be down 19.6 percent from 2019. At the time, in late May, nearly all the country was experiencing some form of shutdown orders related to the pandemic and every student was learning remotely to close out the school year.

Since then, we have completed our second quarter fleet utilization survey, and while significant drops were seen across all vocations, they weren’t quite as bad as initially predicted. Total Class 6-8 utilization for Q2 did decline just under 20 percent from comparable 2019 levels. However, when school buses (which were at nearly 0 percent utilization) are excluded from this measure, the drop was only 13 percent year over year. Compared with the historic drop in Q2 GDP, the industry seems to be weathering the storm better than others.

Furthermore, fleets responding to our more recent, monthly miles-driven survey indicate current levels to be off 5 to 7 percent  with year-to-date miles driven down around 10 percent versus 2019. The full results of our Q3 utilization survey will be ready by mid-October and will certainly shed more light on expectations heading into the end of the year and start of 2021.

So, what does all this mean in terms of aftermarket parts sales?

We anticipate sales will be down somewhere between 10 to 15 percent on average. But recent research with dealers and distributors makes it clear this will range drastically. We’ve heard of folks who’ve seen drops of 30 to 40 percent  and believe it or not, some who have seen rather sizeable increases in year-over-year sales. A lot of this depends on the types of customers one serves, as certain industries have experienced much larger declines than others, oil/gas being one example.

Fleets have indicated to us they have made changes to their maintenance and repair activities as a result of the pandemic as well. While the vast majority (75 to 80 percent) say they have not, a large enough portion has, which will have an impact on the aftermarket parts business.

Around 10 percent of fleets indicate they’ve extended maintenance intervals and/or predictive maintenance activities. Five percent have outright delayed needed repairs (non-critical) and/or indicate they’ve started to purchase more all-makes over OE genuine parts. Nearly 10 percent also say they plan on keeping their vehicles longer than they normally would, likely resulting in major repairs they otherwise wouldn’t complete; lost business for new truck salespeople and potential new customers for the aftermarket side.

The good news, which is well overdue this year, is most fleets, dealers and distributors have a positive outlook for the remainder of 2020. Times are tough, no doubt about it, but for those who’ve been in this industry long enough to know, the trucking economy is resilient, and we may yet come out of this most recent downturn stronger than ever.

Several dealers and distributors have told us this unique moment in history has allowed them to take a closer look at their businesses, identify problem areas and examine more closely potential opportunities for growth. Whether this is through new or improved e-commerce platforms, inventory management systems or just general operating efficiencies, all should translate into a better overall experience for customers.

As we’re now all accustomed to, much can change between now and the end of the year. A possible fall resurgence of coronavirus may very well lead to additional shutdown orders and school closures; dropping temperatures across much of the country will certainly cause a decline in business for restaurants, bars and other outdoor venues who’ve seen a somewhat return to normalcy this summer; and that’s to say nothing of the upcoming presidential election.

One thing however is certain, those who are most closely aligned with customers’ needs during these uncertain times and who are taking advantage of the current situation to make necessary changes to their business practices will be the ones to come out ahead.

Travis Kokenes, market research manager, has been with MacKay & Company since 2007. He currently heads the company’s research department and handles the data collection and processing for all its DataMac and proprietary studies. 

He oversees the design and implementation of all the company’s phone, direct mail and web-based surveys; working with clients to develop questionnaires that fit their specific areas of interest. He also handles data analysis and reporting for many single client projects and authors MacKay & Company’s monthly DataPulse Plus publication which tracks parts, service and inventory changes among dealers and distributors in the U.S. and Canada.

Routine Changes

By John Blodgett, MacKay & Company

Routines can be good and have consequences if not followed.

Every morning I used to come into the office, grab a V8 out of the refrigerator, go to my office, sit down, shake up my V8, open it and read my emails. One morning I came to the office, grabbed a V8 out of the refrigerator, went to my office, sat down, opened the V8, shook up my V8 and read my emails — while I tried to figure out how I was going to get this red juice off the walls, my computer, clothes and hair.

If only I had followed the routine.

Routines, processes, check lists, whatever you want to call them, are typically effective ways we have found to make sure tasks get completed in the correct and most efficient and safe manner. These routines should always be reviewed to see if improvements can be made, but should be followed whether swinging a golf club, landing a plane, changing oil in a truck or servicing customers.

This year has thrown a wrench in a lot of routines in the customer service arena. One of our projects for a truck manufacturer included calling new truck owners to see if the dealer followed procedure for new truck delivery.

We would ask questions like did the dealership show you the service manual and review it? Was the owner introduced to the service manager and parts manager? Did you complete a walk around the truck? Did the dealership complete all activities on their checklist? In today’s pandemic environment, that checklist would be hard to complete in the same manner.

Outside parts salespeople who have a routine of stopping in at customers on particular days have probably found they are, through no fault of their own, not as (or not at all) welcome as they once were pre-pandemic. Who would have thought showing up at a fleet garage with coffee and donuts to review current needs with the maintenance manager is now a potentially hostile act?

Whether it is delivering a new truck or selling truck parts, performing service or other customer-facing activities, the typical routines do not likely work today. As the goal of the routine, process or check list is the same, the routine has to change — and likely already has.

Most dealers and distributors have had a few months to test what works and what doesn’t. We have had dealers and distributors tell us they have seen increases in the use of e-commerce parts buying by fleets. E-commerce is a must and is certainly one way to supplement face-to-face contact. But there still needs to be a focus on keeping the personal relationships because if you don’t, it is too easy for someone to change parts sources when sitting at a computer screen.

Now is the time to start evaluating what is working and what isn’t when it comes to keeping those personal relationships. Learn about what your people are doing to stay connected to customers, who is having success and why? Can the processes be shared with others on your team?

Unfortunately, there are likely people on your team who are waiting for pre-pandemic times to return and not adjusting to the new world we live in. That might have been fine if this pandemic ended in a couple weeks, but it didn’t and we don’t know when it will.

You may not have all the answers, but your distributor, dealer and component manufacturing councils may have some good insights they can share. Industry publications, your friends and family in other industries might have an idea or two you could use. You don’t want to wait until 2021 to determine what to do — by then it likely will be too late.

John Blodgett has worked for MacKay & Company for more than 20 years and is currently vice president of sales and marketing, responsible for client contact for single- and multi-client projects. He can be reached at john.blodgett@mackayco.com.

Commentary: Omni-channel supplier to customer sales

By Richard Ilseman, MacKay & Company

Omni-channel marketing and sales is a relatively new buzz word in our e-commerce vocabulary.

Omni-channel differs from the more traditional multi-channel approach in the following way: In multi-channel, a supplier/seller has multiple touchpoints with customers such as a web page, social media, email, phone and perhaps a brick-and-mortar establishment. However, these touchpoints are not coordinated. IT systems/data are not centralized, nor are sales rep activity, customer service and communication.

In omni-channel, entire organizations and systems are geared toward meeting and supporting customers wherever they enter along the path to a potential sale and any subsequent touchpoints, supporting them with information and help, and giving them a common look and feel regardless of the channel they are using. As a simple example, pricing, discounts and specials a customer sees online or on social media are the same he will see if he shops directly in a physical store location.

Where is omni-channel growing and why? 

In large part, omni-channel has been spawned by the growth of mobile phone/app Internet ordering. Customers shop in a non-linear way, initiating on-line searches, looking at reviews on social media and specifying in-store pickup or delivery, for example. They expect this journey to be personalized, seamless, easy and well-coordinated from purchase to payment to possible return, with help available every step of the way.

Auto parts stores have been among the first to invest heavily in omni-channel marketing. It is actually to their advantage to have brick and mortar locations versus pure Internet players such as Amazon. They are able to provide not only a seamless online experience, but also offer in-store pickup or delivery and advice/guidance that is difficult, if not impossible, to provide entirely online. Because of their success, some auto parts stores are beginning to enter the medium-duty truck market to grow their customer base.

Heavy-duty truck parts providers

Heavy-duty truck parts providers have been slower to adopt an omni-channel sales approach, but are now coming to the party, especially on the business-to-customer (B2C) side. Business-to-business (B2B) is more difficult to enable, but, even here, professional buyers who are used to conducting their personal business online expect the same capabilities for their business ordering.

The extra complexities of larger orders, customer/fleet-specific pricing and payment terms, real-time inventory levels, predictive ordering and delivery pose obstacles to implementation. To address these issues, providers are now beginning to integrate omni-channel capabilities with their ERP/CRM systems to provide consistent, up-to-date and centralized data across all channels. Blockchain technology, made popular by Bitcoin, may be the ultimate technology to enable widespread B2B omni-channel adoption, eventually replacing an aging electronic data interface (EDI) technology.

What does this all mean to you? 

E-commerce ordering will continue to grow. You, the truck owner or fleet are going to enjoy a simpler, easier and quicker way to research, compare vendors, order, return, pay for, receive and return parts. The process will look much more like the one you use today for your personal purchases. Regardless of your preferred choice of channels, whether web-based, mobile app, social media, phone, email or in person, you will experience a more customer-centric, personalized and efficient process.

Richard Ilseman joined MacKay & Company in September 2014 after 40 years with Navistar International. While at Navistar, he piloted, designed, implemented and supported a vendor-managed inventory system. As an accomplished SAS programmer, Ilseman conducts statistical analysis and survey tabulation at MacKay & Company.

Keys to help prevent inventory disorganization

By Lynn Buck, MacKay & Company

I chose to write about this topic this month because of my firsthand experience in dealing with and attempting to address inventory issues that cost time and money and contributes to staff and customer aggravation.

In the perfect truck parts inventory world, a distributor wouldn’t have a need for a warehouse. Parts would be ordered and drop-shipped directly to the customer. While this works for some components and some businesses, they are likely in the minority.

A disorganized inventory should be a thing of the distant past with today’s technology, but with acquisitions and personnel changes, what you have under your roof can get off track. I’m not an inventory expert but will point out some basic areas that I feel are important.

The first key to having an organized inventory is a good ERP system. This system should integrate purchasing, accounting, shipping, and receiving. This sounds expensive, but most small business accounting software can be used for small shops and distributors while more expensive systems are needed for multi-location distributors.

For multi-location distributors, the system needs to be set up to place demand in the correct warehouses — those closest to the customer. If a customer in California orders 25 starters and my closest distribution center doesn’t have them but my distribution center in Chicago does, the system needs to place demand in the distribution center closest to California, not Chicago. Otherwise, if the replenishment order is placed for Chicago, you will have product that could sit on the shelf taking up valuable space and inventory dollars in Chicago and a future customer in California will have to wait longer for the part.

Make sure the cross references are readily available to offer customers an option if their first selection is out of stock. Ensure information is entered correctly into the system. The old adage of ‘garbage in, garbage out’ holds true. If someone in receiving fat-fingers an order and enters 100 starters instead of 10, that’s a big problem. Those types of issues should be short-lived given the next point.

The second key to an organized inventory is reconciliation between invoices and quantity added to inventory, which should catch receiving issues. Technology like bar-code scanning does help but because receiving errors happen, and likely will happen, reconciliation is key even if it is a pain! Reconciliation between invoice, packing sheet, and product received should happen as soon as possible to avoid any upset customers.

If quantity on hand shows 100 and a customer wants and expects 25 today, but you actually have only 10, I wouldn’t want to make that telephone call telling him 15 of his trucks won’t be rolling tomorrow.

The third key of good inventory is good, old fashioned eyes on counting of inventory. If you can physically count it, it should be counted. The more complete the count, the better. Cycle counting is used in many operations, but in my experience has never seemed adequate to catch many of our inventory issues.

There are variations on cycle counting with which to experiment to see what works for your organizations, but just because you’ve always done it that way doesn’t mean it’s the optimal way for it to be done now. Measure each option and find out what works best for you and your customers.

There are many books and resources on the best practices in inventory management. For many of you who read this, you already know this information. But does your team in sales or other departments understand why you don’t have product?

Again, in my experience, inventory can become like a living being that grows out of control — costing you money or shrinking and frustrating customers. Organization and knowing what you have is key to avoiding these issues.

Lynn Buck, information technology analyst, joined MacKay & Company in November 2012. His background includes more than 15 years of data analysis and reporting in a variety of settings. Most recently, he has performed the roles of pricing manager and inventory manager for two aftermarket parts distributors. Prior to that, he analyzed markets for new parts and service locations for Navistar.

Going to the Mattresses

By John Blodgett, MacKay & Company

That headline, “Going to the Mattresses,” is a great line from a great book and movie (“The Godfather”), which basically means: To enter into or prepare for a lengthy war, battle or conflict; to adopt a combative or warlike position. Like when the Germans bombed Pearl Harbor — another line from a very different movie (“Animal House”).

So, thankfully, we are not in an actual combat war, but we are in what likely will be a long, painful journey until we defeat this virus. Not if — when!

Last month I was on vacation (so glad I went last month) with friends and we got into a discussion about previous generations and, by comparison, we have had it easy (on average). Sure, we had 9/11, related wars, the recession of 2009, but in totality (at least through February 2020), it has been a pretty easy ride.

If I look at my grandfather’s life, the country was in WWI when he was a child, went into a market crash and deep depression soon after he got married then entered WWII. When his kids were young, there were wars in Korea, Vietnam, the oil crises, double digit interest rates … just to name a few things he and his generation had to endure through their lives. It certainly helps explain their drinking and smoking habits.

So, we don’t have a lot of training for this and, as hard as it might be, it’s our turn to “go to the mattresses” and help our country, employees and families survive this temporary huge bump in the road.

The good news is trucking is getting a spotlight like never before and trucking is shining. People are starting to understand the importance of the trucking industry, the truckers, the fleets, the companies that manufacture trucks and support and service to keep the trucks on the road. I have seen several commenters on TV in the last week praise what the trucking industry does and how it is helping mitigate some of the impacts from this pandemic.

During this time, industry associations like the Motor & Equipment Manufacturers Association, American Trucking Associations, Auto Care Association and others are getting the message out to local, state and federal government officials concerning the impacts of implementing rules and regulations on the trucking industry, like keeping rest areas open.

In the coming weeks and months, we at MacKay & Company will be assisting our clients to better understand the actual impacts and forecasted changes for the trucking industry — including new truck sales, aftermarket parts and service demand and issues we probably haven’t even thought about yet.

We know most school buses aren’t running and obviously a lot of trucking activity such as delivery to restaurants and bars and many other industries are near a halt, but demand for trucking to grocery stores, warehouses, hospitals and support of home deliveries appears to be up. Not likely enough to make up for the areas that have dropped off, but it is not all negative.

Refuse will see a drop at most commercial businesses, but I would assume residential pickups might increase (if what is packed in my refrigerator is any indication). The farming market also looks very positive for this year.

It is unfortunate that an event like this is needed to highlight the importance of the trucking industry. As a result of this pandemic, I do think it will be interesting to see what changes, new ideas and processes come from and for the trucking industry. I look forward to writing about that in the future.

A More Competitive Year Ahead

Most vehicle truck and component manufacturers, as well as those in the forecasting business, anticipate U.S. retail sales of Class 8 trucks will be down 30 percent or so in 2020 compared with 2019. Declines also are expected for medium-duty trucks and trailers. That is a significant drop.

The aftermarket for the current year is not impacted much by the vehicles sold in the current year. These vehicles are under warranty and they are a small portion of the operating population. They will, however, impact the aftermarket in future years as fewer trucks sold today means fewer opportunities for parts and service in the future.

Reading this publication and others over the last few weeks makes it apparent this expected downturn in retail sales likely will have an impact on the aftermarket in the form of more attention and competition.

The CEO of one of the major Class 8 truck manufacturers recently stated they are going to expect help with more parts sales profits to offset the decline in new vehicle sales. In another article, a truck dealer stated that his focus this year will be towards parts and service in reaction to the anticipated decline in new vehicle sales.

I do not think most truck dealer parts departments believe they have been slacking off the last several years. Most new truck dealer service departments have had an increase in make ready and warranty work related to the increase in retail sales, so they don’t likely feel they have been slacking off, either. Any good dealer organization strives to have its absorption rate at least above 100 percent where the parts and service departments cover all expenses.

In a recent survey, we ask parts distributors by channel who is their primary competitor. This includes truck dealers, independent parts distributors, engine distributors, automotive WDs and independent garages. They all say truck dealers are the primary competitor (except engine distributors — but truck dealers are second). This makes sense; we estimate truck dealers control 49 percent of parts sales in the parts aftermarket.

The challenge for those who compete against truck dealers (everybody) is there is now going to be more focus on the parts aftermarket by truck manufacturers and dealers. So, while dealer parts departments have not been slacking, it is likely they will have more programs and/or resources to address the aftermarket, which they may have wanted for years and now the market conditions justify the focus. Service sales, in particular, also will get more attention as more service sales equal more parts sales.

In addition, everybody who has ever worked for a truck dealership knows that no one at a dealership is immune to cutbacks or layoffs caused by new truck sales declines. The hits don’t just stay in the truck sales department so there is extra motivation to go the extra mile.

The flipside to this discussion would be that the independent aftermarket has had it easy for the last several years as truck dealers have not focused on the aftermarket.

I don’t think anyone on the independent side would agree with that statement.

What I have learned over the past 25-plus years is that all channels of the aftermarket have some very dedicated, hardworking and creative people and companies. The aftermarket offers opportunities for those on the OE side and the independent side.

The aftermarket is not a right, it’s an opportunity for those who want to fight the battles every day and come up with customer service and solutions that beat the competition. This year, the battles might just be a little more competitive.

John Blodgett has worked for MacKay & Company for more than 20 years and is currently vice president of sales and marketing, responsible for client contact for single- and multi-client projects. He can be reached at john.blodgett@mackayco.com.