Fuel Prices. Other than miles driven, there is no other factor in our industry that we are all more sensitive to than fuel. And even though we somehow overcame a drop in miles driven in the past year — and there is little chance of miles driven growing big-time in 2012 — we cannot overcome significant increases in the price of fuel. Not only does it drive consumer spending in a profound way, it also affects the price of all goods including raising the price of goods sold and gnawing away at the bottom line of every member of the channel.

Right To Repair. As much as I hate it, Right To Repair continues to be a topic in our industry, and with the ballot issue in Massachusetts, it could be a pivotal year for the push to guarantee the independent aftermarket access to today’s high-tech vehicle systems. The new approach in the Massachusetts measure seeks to address a key problem now facing independents: the cost and practicality of obtaining the tools and information needed to repair late-model computer-controlled vehicles. Whether it can get done at the federal level remains to be seen, though, considering the do-nothing state of affairs in Washington.

Parts Price Fixing. According to the U.S. Department of Justice, an alleged price fixing investigation by auto-parts suppliers on four continents already is the most sweeping in U.S. history and may be spreading to include six automotive component segments. The parts involved were sold both to automakers and in the aftermarket, and the probe continues to expand, according to John Terzaken, director of criminal enforcement in the antitrust division of the U.S. Department of Justice. According to a Dec. 20, 2011 report in Crain’s Detroit Business, with subpoenas and further raids by officials on at least four continents, the investigation has broadened to include at least 19 suppliers in six auto supply sectors. “We have had one corporate conviction so far, with three individual cases,” Terzaken said. And that may be just the tip of the iceberg. “This is a very high-priority investigation for us, and it’s because of its significance to the economy. It will remain a very significant interest of the division until the end and all of its just conclusions have been reached.”

This one has many industry execs in both the OE-supply and aftermarket arenas nervously seeking ways to make sure they are identified as fully cooperative. And rightly so.

Distribution M&A Action. This one I just have a feeling about but can’t justify it with specific reports by others or analysis from market research studies. However, I do believe this is an area where we will see some movement in 2012 and into the following year. Though these moves are seldom as dramatic as those on the manufacturer/supplier side, they are occurring and will continue to — especially mergers at the WD level. And I think the trend was put into perspective back in December when we reported on Eastern Warehouse merging with South Jersey Auto Supply — two Alliance members — when Steve Thorne, the founder of Eastern and the new company’s CEO described the impetus for the merger stating that this was the only way to compete with the big boys. “Advance’s recent announcement that 37 percent of their sales are in the wholesale sector is highly motivating,” explained Thorne at the time. “Either stand up or sit down.”

Now, let’s see what he future has for us …

I work hard for my money and am relatively prudent about holding on to as much of it as possible. For the most part over the past couple of decades or so, with the support and encouragement of my spouse, I have managed debt and spending well. I pretty much look for value in what I spend my money on — getting the most bang for the buck.

Maybe that is why I usually don’t get too worked up about tax issues. For the most part — despite the tendency for government to waste money way too often — I think what we get for our tax dollars is very underappreciated. Too often, we are generally spoiled and undervalue such things as roads, bridges, and water treatment and the value we get from such government functionality.

That doesn’t preclude due diligence when it comes to how the taxes are collected, how the money is spent and how the recordkeeping for those taxing rules is dictated. That is the case with the pending implementation of new regulations, which begin at the start of 2012.

According to a CNNMoney.com report, the Internal Revenue Service has begun the process of figuring out how to turn new regs into actual rules for taxpayers, requiring any taxpayer with business income to issue 1099 forms to all vendors from whom they purchased more than $600 of goods and services during a year. That flood of paperwork will be generated from the estimated 40 million taxpayers subject to the new requirement, including 26 million who run sole proprietorships, according to a report released this week by National Taxpayer Advocate Nina Olson.

The new rules, aimed at reducing the “tax gap” between what individuals and businesses really owe and what they actually pay, could help the federal government recover some of the estimated $300 billion it loses from tax underpayment. The expanded reporting requirements, slipped into the landmark health care reform bill passed in March, are an attempt to create a paper trail of 1099s exposing business-to-business payments that might otherwise stay below the IRS radar.

But, this could be a real burden for smaller companies. The article said that the Pennsylvania business networking organization SMC Business Council surveyed its members and found that they currently average 10 filings a year of 1099 forms. The new rules would push that average to more than 200 filings per year for a typical small business, the industry group estimates.

There is some relief in sight, though. The IRS plans to exempt transactions made through credit and debit cards. A separate IRS reporting requirement kicks in next year that will cover card transactions and help the tax man spot unreported payments made through those channels. But, the SMC Business Council sees little relief there, since exempting credit card transactions would affect less than 10 percent of his members’ reporting requirements.

How this affects our particular businesses will be interesting to see. Small shops and parts operations could have a tough time implementing this process, since they often do much of their own bookkeeping. For other larger players in our market — those who track all their spending via computerized programs — it is just one more regulatory hoop to jump through.

And, from my misguided perspective, it just puts more businesses in compliance with the tax code and more taxpayers carrying the burden that they should be carrying. I guess I just see it as a measure of fairness when it comes to paying our taxes.

In any case, the old “death and taxes” saw comes to mind — and complaining about neither will make you any happier.

Study results are tabulated using a “problems per 100 vehicles (PP100)” metric, where a lower PP100 indicates higher initial quality. Awards are given to the top-performing model in each segment with the lowest PP100, as well as to the assembly plant that produces the vehicles with the fewest number of problems (plant awards are based on defects and malfunctions only and not design quality).

What we noted in that Service Executive report was fascinating to me: Domestic auto brands, as a whole, have demonstrated higher initial quality than import brands for the first time.

The industry average for initial quality was 109 problems per 100 vehicles (PP100) in 2010, increasing slightly from 108 PP100 in 2009. Initial quality for domestic brands improved by 4 PP100 in 2010 to an average of 108 PP100, which was slightly better than the initial quality of import brands, which averaged 109 PP100 in 2010.

Most notably, substantial improvements by many domestic models — including the Ford Focus, Ram 1500 LD and Buick Enclave — drove the overall improvement for domestic automakers in 2010. In particular, the initial quality of Ford models has improved steadily for the past nine years. And, as a corporation, the Ford Motor Co. (including Volvo) had 12 models that ranked within the Top 3 in their respective segments in 2010 — more than any other corporation. General Motors had 10 models that ranked within the Top 3 in their segments.

In that same Service Executive issue, we reported that two domestic luxury nameplates (Lincoln and Cadillac) are offering free scheduled maintenance for U.S. customers who purchase or lease new cards. Lincoln’s program covers oil changes, tire rotations, vehicle inspections, engine belts and hoses for three years or 45,000 miles, as well as wear items, including brake pads and wiper blades. Cadillac says it will provide owners of all 2011 models with “frequently required maintenance services” for the first four years or 50,000 miles. The program, called Cadillac Premium Care Maintenance, covers scheduled oil changes, tire rotations, replacement of engine and cabin air filters, and a multi-point vehicle inspection.

Both of these items reminded me how the new car sales marketplace has changed so much over the past two years; from a near disaster with almost no sales and two of the Big 3 being bailed out to new car sales that are on a general upswing. All six of the largest automakers’ sales are projected to report growth in June from a year ago, according to car-shopping website Edmunds.com. There are concerns, though, that the vehicle sales market’s recovery could be stalling after months of slow but encouraging gains.

With some true commitments to quality and value, U.S. car makers are finally back in the game. And, even though the downturn in new car sales bolstered aftermarket business, we don’t live long-term without a significant vehicle fleet that is aging, otherwise there will be a significant gap in service and maintenance down the road for everyone in the aftermarket.

For the sake of U.S.-based car makers, it is good to see sales picking up. And particularly pleasing to see the perception of these U.S. car makers’ brands. For the sake of the American consumer, it is good to see these U.S. car makers meet the quality standard set over the past several decades by the import nameplates.

Looks like a win-win for all involved, and we are all involved.

For example, the 14th Aftermarket Business Consumer Attitude Survey is indicating strong DIY activity out there, with 73 percent of the consumer respondents to the survey stating they are installing the products they purchase. Now, with the majority of survey respondents (87 percent) being male, this could account for the strong showing in DIY activity. But, with the current economic and employment picture coupled with the age of the vehicle fleet, one would believe that DIY sales are growing.

Quarterly reports from the various parts retailers also indicate that DIY sales are on the uptick.

More pointedly, iATN released a poll of its membership indicating that 67 percent of respondents expect an increase in business in 2010. The online poll concluded in March with 4,050 votes from its more than 70,000 members. Of those responding, 50.9 percent anticipate a slight increase in business, while an additional 16.1percent foresee a dramatic increase.

A subsequent iATN poll concerning hiring expectations also indicates a positive trend. The 3,761 respondents to the poll in May indicated 29 percent were looking to hire — up from 22 percent when the same poll was taken two years prior.

And finally, from a credibility standpoint, a recent survey conducted online by Harris Interactive on behalf of CarMD.com in April found 65 percent of U.S. adults who have ever owned/leased a vehicle feel that auto mechanic/repair facilities are trustworthy. On the other side of the coin, realistically, nearly a one-third of adults who have ever owned/leased a vehicle feel auto mechanic/repair facilities are somewhat untrustworthy, and 6 percent feel they are very untrustworthy.

The survey also found that 43 percent of those who have ever used an auto mechanic/repair facility have a local mechanic they’ve trusted for years. Conversely, of those U.S. adults who have ever put off automotive maintenance/repairs, 11 percent did so because they didn’t have a mechanic/repair facility they trust.

As noted in the message with the release on the study, CarMD has recently been mistaken by many in the industry as being the same company as AutoMD, a division of U.S. Auto Parts Network, which released a study in late February ranking the best and worst cities for auto repair. That study was based on mystery shoppers, and many in the aftermarket took exception to not only the findings but the methods used in the study.

The CarMD study seems to overcome the myth perpetuated by the AutoMD study and others that our industry is not worthy of trust.

For what it’s worth, we always enjoy reporting encouraging news concerning our industry. Too often, it is easy to focus on what remains to be done, those issues we need to work on to make ours a better industry. But, it is necessary to remind ourselves often that there are reasons to take pride in our industry and to look at business with optimism.

In this case, that seems to be warranted.

I have been around long enough and am fundamentally cynical enough that the kinds of things that often impress or excite others usually leaves me with a yawn. Most flag-waving and cheerleading leaves me flat, and things done for show are wasted on me. For me, substance precedes posturing.

This type of cynicism can be healthy and is necessary in keeping us from being overly-influenced by minor shows of commitment or temporary displays of advancement.

What we have learned from other becomes our own reflection. — Ralph Waldo Emerson

Back in my early days in this industry, back in the 1980s, AWDA University is where I learned much of what I needed to know about the aftermarket and how our businesses could best operate. The courses were well-designed, taught by qualified presenters and crafted to meet the needs of those in attendance. Out of that grew the Automotive Aftermarket Professional (AAP) certificate program.

Over the years, through the development of AWDA University into the University of the Aftermarket, this designation gained credibility within the industry — not just because it existed or kept accurate track of hours spent in a classroom, but because those hours spent in study were real-world based with subject areas both specific to our industry’s needs but also programming that made our personnel better at all their interpersonal responsibilities in every way.

The ultimate goal of the educational system is to shift to the individual the burden of pursuing his education. — John W. Gardner

Over the years, the University of the Aftermarket has affiliated itself with an accredited four-year university, Northwood University; expanded the AAP program to include a Master Automotive Aftermarket Professional (MAAP) certificate program; and continues to deliver on the promise with both “live” programs, as well as online and distance learning opportunities for various levels of the industry.

Learning is like rowing upstream: not to advance is to drop back. — Chinese Saying

These programs deserve our support and our commitment. That commitment should take the form of overall support of the University, but, more specifically, taking advantage of courses offered as well as suggesting courses and programs needed.

But, most importantly, as an industry, we need to emphasize AAP and MAAP when we are hiring and promoting, and encourage staff to work toward these certifications as evidence of their commitment to the betterment of the organization.

Certifications and credentials alone are no answer. But solid certifications, developed by an industry to address its specific needs, are of particular value.

We’ll, I’ve decided to invoke the “Mission Accomplished” banner regarding Right To Repair in the automotive aftermarket — and, in this particular case, the initial combat has been successful and the remaining fight is what will really take our true resolve and our commitment.

Without reviewing the detailed history of this issue, the fight here has always been politically positioned as a battle to preserve consumers’ freedom of choice in getting their vehicles serviced beyond new car dealerships. A vibrant aftermarket has been a vital part of the American automotive environment, giving consumers a cost-competitive and effective repair alternative that has kept America on the road for decade after decade.

The fight was always presented as a right to access to repair information — critical information needed to service today’s technologically-complex vehicles. And, in the beginning, that information was, at best, difficult to obtain and, in many cases, not available at all to those in the aftermarket.

Along the way, under the pressure of R2R, a voluntary agreement came forth from the carmakers, prompting the creation of the National Automotive Service Task Force. Over the course of the last decade, the work done by those involved with NASTF — both from the automaker and aftermarket sides — has provided a means to the end of getting the needed repair information into the hands of those in the aftermarket who need it.

Make no mistake, there is work remaining. But, for the most part, the system in place addresses the need, and that has even been recently acknowledged by many of the major principals in the fight for access to repair information. And, make no mistake, this all happened because of the pressure put forth by pending legislation.

Now, though, the real battle is before us. This fight involves such things as intellectual property rights and the high-tech components that are standard equipment on today’s motor vehicles. Emissions standards, fuel economy standards and other regulatory demands have made today’s cars and light trucks a mass of computers on wheels. Developing aftermarket components to replace those high-tech components will be a considerable challenge if the carmakers can convince regulators and legislators that, for example, the programming behind the operation of these components should be protected and solely the intellectual property of the OE developer.

That is the fight ahead of us — a fight that will require a total commitment and focus from this industry, and one that will require more than political posturing and public relations positioning. The biggest share of the battles will be at the regulatory level, both at the federal, as well as the state level — especially in California where emissions standards and the like become forged into concrete regulation and enforcement. It will be a long fight with many, many individual battles requiring our firm resolve in this specific matter.

As an industry, I know we are up for the fight because the motivation is simply survival. And, united in a cause that will benefit all involved in the aftermarket, it shouldn’t be hard to speak loudly and effectively as one voice.

Gary A. Molinaro
Editor/Publisher

According to some observers, those moves early in the year were just the first steps in a continuing strategic process that they believe could cause an imbalance in the marketplace and could put vendors and fellow distributors in difficult positions going forward.

According to a number of sources we have spoken with throughout the industry, around the time of the AIM acquisition and the Network departure, Uni-Select put an Enhanced Drop-Ship (EDS) program into the field across the U.S. that offered considerable discounts beyond current drop-ship programs they offered or other functional discounts. Drop-ship programs have been the bread-and-butter of Uni-Select for some time now and has been fundamental to how MAWDI, the base for its U.S. business, goes to market. The difference this time, though, is the pricing in the EDS program essentially offers WD-level pricing for jobbers regardless of their size. And, this EDS pricing on hundreds of product lines was reportedly put into the field with no prior knowledge of the vendors or suppliers who stand behind those product lines — putting those vendors in a precarious position with other trading partners.

Of course, the folks at Uni-Select have a different perspective.

Responding to an inquiry from us, the folks at Uni-Select said that prior discussions with vendors were pre-empted “within the context of a confidential ‘acquisition’ transaction and could therefore not be communicated to vendors beforehand.” And, since the program has Uni-Select taking on the financial weight and risk associated with the credit program, it may not have needed prior review by the suppliers involved. “To our way of thinking, this is exactly the function a WD should fill in the supply chain,” the statement said.

Additionally, Uni-Select takes issue with the proposition that the program essentially offers almost any sized jobber a WD-level price on many product lines. “Although discount levels offered improve on their present buying conditions, our objective here was to support the independent jobber by giving him a better opportunity to compete on a more level playing field,” the statement said. “Further, when we designed the EDS program, we benchmarked other programs from chains and buying groups that were commercially available to jobbers of like size on the open market.”

Regarding existing pricing structure, Uni-Select believes there may be some misunderstanding regarding EDS. “One must remember that Uni-Select is basically a publicly traded buying group, which is committed to growth and the support of the independent jobber, and that it is Uni-Select [that] is the vendor’s customer here. Uni-Select has simply decided to sell its jobbers at a certain discount level as it has always done and has, in no way, affected the vendor’s pricing structure,” the statement said.

Like it or not, this has become a significant back-channel discussion in the marketplace and something that obviously has fundamental affect on various levels of the distribution channel and relationships between various trading partners. For some, it tears at the fabric that already exists. For others, it is just another way to compete within the context of a capitalistic system.

How it plays out in the long run — as is usually the case and a good thing — the market will determine the final score.

Gary A. Molinaro
Editor/Publisher

It’s important to remember that there was a time not that many years ago when these foreign buggies were seen as either something unusual or a threat to the U.S. economy.

Things are certainly different today. The top-selling nameplates are now from off-shore companies — many manufactured here by foreign-owned carmakers — and, though there are still diehards who are dead-set against Americans spending money on foreign nameplates, the landscape has changed enough to make import vehicles more than commonplace.

While American consumers slowly got comfortable with these imports, our own industry more grudgingly adapted to a market that required our manufacturers to provide coverage for these various import models — a considerable challenge considering changes during model years with multiple parts numbers for the same part and an explosion of nameplates and models.

It seemed like just a few years ago there was still discussions in this industry about coverage for imports as well as the challenge traditional shops had in servicing foreign nameplates. Anecdotally, many would say that the import automakers were the ones who were the most-reluctant to share repair information, some would say the Germans specifically were the least cooperative.

For many years, the import automakers held a unique level of owner loyalty, with many import nameplate owners doing their service work only at the dealership. That seemingly-solid hold seems to be melting away, and that is good news to traditional service providers.

According to information in its recent newsletter, Lang Marketing Resources said that the import OE channel declined in foreign vehicle product share from 2004 to 2009. And, despite an increase in foreign vehicle dealers during the five-year span of 2004 through 2009 (primarily among Korean carmakers), there was a drop from nearly one-third of foreign vehicle aftermarket volume flowing through the OE channel in 2004 to less than 30 percent of 2009 volume. The volume reduction, Lang reported, resulted from increased competition from other channels, particularly import channel distribution.

And, in the next three years, the OE import channel will suffer the largest decline in foreign vehicle product share during this span — dropping to just over one-fourth of 2012 aftermarket product volume for foreign cars and light trucks.

No, this doesn’t mean all the import parts and service sales that were being done at the dealerships will fall into the laps of traditional aftermarket providers, nor does it mean the import specialist channel will just wither away. Far from it, according to Lang Marketing, which said the import channel — defined as import warehouses and/or import jobbers — will record the largest increase in product share, soaring from less than one-fifth of the 2009 market to nearly one-quarter of 2014 foreign vehicle product volume.

And, at the same time, as Lang’s report pointed out, the traditional channel will moderately increase its foreign vehicle aftermarket strength between 2009 and 2014.

Over the past several decades, we have all learned to accept the imports. And, through consistent efforts, we have put ourselves in a position to service these vehicles adequately. The next few years may see the payoff for those decades of effort.

Gary A. Molinaro
Editor/Publisher

There are, of course, some programs and some association efforts open to criticism — and we are not hesitant to call them like we see them — but those are the exception rather than the rule. And, it is those types of exchanges of various ideas and perspectives by the active industry members that makes these associations effective in the long term.

One example of these effective efforts, in my opinion, is the “Know Your Parts” program rolled out last fall by AASA, the supplier branch of MEMA, which serves manufacturers of aftermarket components, tools and equipment, and related products. The “Know Your Parts” campaign seeks to stem the proliferation of low-quality parts throughout the aftermarket supply chain. These components not only threaten the good reputations of aftermarket businesses in the supply chain — from the supplier to the distributor to the independent repair facility — but also pose a potential danger to consumers and the professional repair technicians who install the parts. The campaign was the product of an association marketing executives council study of low-price parts and the impact that lower-cost, lower-quality parts can have on an industry built on better-than-original quality products.

The program has developed a cute and creative animated video ad with agency partner MontAd, and that video was introduced at the Vision Conference held in Chicago in mid-March. And, at the same time, a viral marketing program has been in process.

At that recent conference, Steve Handschuh, president and chief operating officer of AASA, announced the next steps in the “Know Your Parts” campaign. Those efforts, specific to the volunteer engagement of its full-service members, involve:
• Including the “Know Your Parts” logo and/or message in member-company communications;
• Using the campaign logo on member-company websites, with a link to the campaign site at http://kyp.aftermarketsuppliers.org;
• Broadcasting the “Know Your Parts” campaign videos at trade show exhibits, other industry events or on related websites;
• Distributing campaign material, including flyers, talking point cards, and more at events or through corporate mailings;
• Partnering with AASA to promote their companies’ product quality training material;
• Promoting member-company online product quality training programs through a link at the “Know Your Parts” campaign website;
• Including material in customer contacts and during client meetings;
• Encouraging other full-service suppliers to promote the “Know Your Parts” campaign during peer networking at industry events;
• Educating member-company employees about the “Know Your Parts” campaign.

“We have a vital message to spread throughout the aftermarket industry that quality matters when it comes to aftermarket parts,” Handschuh told conference attendees. “As full-service aftermarket suppliers, you add value to the aftermarket supplier chain and, most importantly, you stand behind the parts you sell.” And, most importantly, AASA got a signed commitment from member companies defining their level of commitment and the specifics of their efforts in support of the “Know Your Parts” campaign.

As noted here previously, this is a concrete program that will benefit what is the foundation of what has made the independent automotive aftermarket a vital industry in our economy. Consumers have depended upon quality from aftermarket suppliers for many years now, and this commitment to quality is what will keep up going.

That commitment to quality will help keep America on the road.

The one-day event featured a salesforce panel that explored the rep system; a repeat performance from economist Erik Hurst, professor of economics from the University of Chicago Booth School of Business; a full look at the Opti-Cat e-catalog program; and exceptional insight into the Firestone/Tires Plus/Expert Tire/Wheel Works service center programs from Larry Magee, chairman, president and CEO of Bridgestone Retail Operations. All the presentations were well received and gave the attendees real deliverables to take back to their various organizations.

Somewhere in the midst of Magee’s presentation, somewhat in passing, he noted the rapid changes in vehicle technology, featuring a number of the most modern designs including hybrids and full-electrics — cars that are already in the showrooms and on the streets, cars that will multiply in the years ahead and begin to trickle into our bays over the course of the next few years.

For me, this is an exciting proposition, as we begin to take our technological talents and apply them to the challenge of building personal transportation vehicles that free us from the grip of world oil supply politics, as well as address the need for environmentally-positive vehicles that protect the planet for our children. These are exciting times, watching us move slowly but surely away from the 100-plus year reign of the internal combustion power plant to those that make us more efficient and less polluting.

But, in the midst of this ethereal moment, it began to dawn on me that we are already behind the curve in getting today’s technicians ready to take on these new vehicles — with complex computer-managed systems and diagnostic challenges we haven’t even thought about yet.

“Hell,” I thought. “We seem to have just gotten shop personnel on top of the technologies that the various Clean Air Acts of the 1990s and 1980s have brought to bear over the last three decades. How are we going to get them to the next level?”

It is that lurking distraction that left me with an unsettled feeling for the remainder of the day, taking in great presentations with one part of my brain while another section ruminated over the seemingly-impossible task that will rock our industry to its deepest foundations.

The strength of this industry has always been built on the proposition that, whatever is on the road, the independent aftermarket shop technician can diagnose it, get the parts and get the repair executed in short order. Maybe the technology will make itself simple to diagnose, but I think we’re going to need more than that type of faith to solve part of the equation in the decades ahead.

Fundamentally, it is going to take a level of cooperation between car makers and the independent aftermarket that we have never seen before. And, more importantly, it is going to take a deep commitment from aftermarket suppliers — the men and women who were in the room with me at the Vision Conference.

After a good night’s sleep, I am less distracted than I was when this struck me the day before. My faith in our ingenuity, resourcefulness and commitment to quality repair service leaves me optimistic that we can meet the challenge.

Of course, the process will be fascinating to watch.