A kilt-ful of concerns
Mar 1, 2010 12:00 PM, BY RICK WEBER
In HD Aftermarket Forum, MacKay says explosive growth is a thing of the past — the market we see now is what we'll see in 2020
AFTER Stu MacKay was introduced to start the Heavy Duty Aftermarket Forum, he strolled out onto the stage wearing a green-plaid Scottish kilt and a sheepish grin.
“This has been such a bad recession that it scared the pants off of me,” he deadpanned.
The question is, when will he be able to put his pants back on?
MacKay, president of MacKay & Company, a specialized market research and consulting firm, said his company has some real concerns:
Flat market outlook. “Product improvements have changed the structure of the aftermarket. We're no longer overhauling engines after 250,000 miles. It's a million.”
Continued competitive in-roads.
Over-distribution. “We may be in a situation where there's simply too much distribution for a relatively flat market that we see over the next four or five years.”
What's happening in parallel industries. “With all the product improvements and no real growth or operating universe, we are not going to have the kind of growth we had in the last 10 or 20 years. So you're going to be dealing with pretty much the market you see today.”
Forecasting to 2020, he sees: little growth in the Class 8 and trailer universe; 100% diesel and 70% proprietary power; medium-duty hybrids and heavy-duty alternative fuels; onboard electronics across the board; a minimum 20% increase in repair/replacement mileages; continuing operator desire to outsource service; a 50% to 75% increase in Class 8 truck prices and longer trade cycles; shifts in both OEM and aftermarket brand control; and physical distribution simplification.
He gave two examples of markets he feels are plagued by over-distribution:
Salt Lake City, Utah: It has 7000 medium-duty and 13,500 Class 8 trucks, along with 19,400 trailers. Twenty-one companies — nine truck dealers, six major independents, three engine distributors, and three major auto parts outlets — are competing for a $71-million market.
Birmingham, Alabama: It has 3900 medium-duty and 11,700 Class 8 trucks, along with 14,400 trailers. Twenty-two companies — nine truck dealers, seven major independents, three engine distributors, and three major auto parts outlets — are competing for a $63-million market.
What needs to happen? He gave the example of Buffalo, New York, where he says 15 Ford dealers got together and, through buyouts, reduced the market to nine stores that are “healthy, profitable, and growing.”
“In select markets, this would make sense,” he said. “The customer base has changed. We will see fewer larger regional or national customers. Truck manufacturers have changed, going from 18 to four. The supplier base has changed. Look at the consolidation — mergers, acquisitions, and divestitures. That will continue. Competitive distribution has changed. Are you going to change?”
MacKay broke down the operating universe and how it has changed in the past 20 years: Class 6 is down 37%, Class 7 up 28%, Class 8 up 84% and trailers/containers up 53%. The heavy-duty aftermarket has increased from $9.7 billion to $14.6 billion, with significant increases in power generation (44%), power transmission (50%), undercarriage (41%), electrical (44%), and cab, chassis, glass, etc (50%).
Truck dealers' share of the aftermarket has gone from 35% to 42%, while independents' share has gone from 34% to 27%.
He said the most important reasons why customers purchase parts from independents are price, availability, and convenience of location — and service provides a similar picture.
“Customers pick dealers for warranty and availability,” he said. “Independents see dealers having an advantage with warranty and knowledge. Customers pick independents for price and location. Independents agree with customers that price is #1.
“Independents are 3-to-1 on price over dealers. Dealer availability matches independents. Dealers seriously outscore independents on warranty, OEM ‘umbrella’ and knowledge. Independents really only lead on price. This is a point, from our perspective, of major concern.
“How does the independent distribution channel build its share of the heavy-duty aftermarket? By adding or expanding service, building the parts business customer by customer, and niche positioning.”
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