The cosy – and highly profitable – arrangement whereby franchised dealers were obliged to source vehicle parts from their respective manufacturers is no longer acceptable. At least that is the thinking behind the latest block exemption rulebook which allows dealers and authorised repairers to purchase parts from suppliers other than the carmakers. But, as with another BE reform – right of access to technical information for independent workshops – there’s scant evidence to suggest that manufacturers are about to release their vice-like grip on aftersales. Report by John Kirwan.*******Investment bankers Goldman Sachs point out that margins on original equipment (OE) parts are typically 40 per cent and form “the bedrock of automotive profits”.
“We believe the automakers will continue to find ways to force dealers to stock only original OE parts supplied by the OE manufacturer in OEM branded boxes,” states a Goldman Sachs research report. “The European Union will simply not have the resources to police the relationship between the OEM and dealer.” John Wormald, co-founder of automotive consultancy group Autopolis, believes that block exemption changes give both parties in the aftemarket sector – franchised retailers and independent garages – a chance to shape their own destinies.
“If the independents don't shape up, if they remain fragmented at eachlevel (garages, distributors), then they are vulnerable to a resurgent dealer sector,” he says.
To counter that, Wormald argues that independent repairand service workshops need to follow the example of the fast-fit sector. This would mean the formation of branded groups and the establishment of trading relationships with parts suppliers and parts buying groups.
From the standpoint of main dealers, he says: “As their service networks go multi-brand, they will need to have them supported by all-makes parts distribution, on a national scale, instead of sourcing parts for each vehicle brand separately from each vehicle manufacturer - and paying for the huge margins that manufacturers take on spares.”
On a more immediate note, it seems that independent workshops are more concerned about convenience rather than best price when it comes to shopping around for parts. Brian Taylor, compiler of the latest Automotive Parts Distribution Trend Index, says one of the “shocks” of his findings is the proportion of parts (around 30 per cent) sourced from franchised dealers.
Taylor points out that this practice is most evident among Korean and Malaysian marques where “lack of availability” is cited as the reason for not buying from factors. But “better quality” (perceived or real) was also found to be of significant influence in sourcing parts for European and Japanese cars through franchised dealers.
Another explanation for the appeal of franchised suppliers, Taylor believes, is the increase in parts representatives employed by dealerships. This in turn was linked to the growth of manufacturers’ trade part schemes.
For the buying groups, big is best. They exercise growing influence in parts distribution. One of the most recent initiatives comes from the Factoring Services Group with the launch of its AutoCare Complete package. The scheme offered through its distributor partners provides garages with the tools and skills needed to compete with dealers, including branding and software,
Over 20 garages are on the pilot scheme but FSG automotive trading group manager Andrew Dickinson believes that this will grow to 500. For Dickinson, the scheme “opens up the way for garages to compete with main dealers”.
Another group, the Independent Factors Association, already runs its Autosafe programme, which offers similar services and is well established. Its web site provides the list of factors based geographically and the garages approved for that area. As is the case with both schemes, garages have to be approved by the local factor. The buying power is substantial. In 2002, Sachs Boge, for example, won a three-year, single supplier agreement to supply the IFA with clutches for around £30m. Yet another group in the independent sector is Parts Alliance, which comprises such familiar names as Andrew Page, CAF and Central Auto Supplies.
While players like the FSG and the IFA get closer to their parts suppliers, the factor market itself is consolidating fast. Among recent moves was Motor World’s acquisition of 21 Les Smith outlets from the receivers. It was Motor World’s first major purchase since the management buy-out from Finelist in 2000.
Meanwhile, on the dealer front a recent survey estimated that half the top 20 groups have plans to set up parts wholesaling businesses that will challenge traditional factors. According to John Wormald at Autopolis, “the new-form dealer groups could well be drawn into setting up their own super-factoring structures”.
Blurring the boundaries still further, carmakers continue to grow their parts operations targeting independent garages. Ford, with its Parts Plus network of wholesalers, offers 100,000 lines, including parts for vehicles up to ten years after model run-out, from its distribution centre at Daventry which last year boosted its first time order fill to over 96 per cent.
When it comes to price, the perception that non-OEM parts are cheaper was recently confounded by a survey focusing on Vauxhall’s Trade Club. The study looked at a basket of parts including air and fuel filters and spark plugs, brake pads and discs and compared prices from the Trade Club, a national factor, independent factor and internet retailer. It concluded that there were “compelling” reasons for visiting Vauxhall dealers for fast moving parts, that they were “competitive across the board”.