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Aiming for bigger aftermarket business

May 17, 2012

JOPLIN, MO – As the average age of Class 8 tractors reached a record high of 9.5 years in late 2011, a corresponding spike developed for parts and repair services needed to keep such old equipment up and running. As a result, OEMs, dealers and independents alike are deploying a variety of different methods to try and capture as much of this expanding aftermarket demand as possible.

Bryan Martin, owner of 4 State Trucks and head of the “Chrome Shop Mafia” made famous on the Country Music Television show “Trick My Truck,” told Fleet Owner he’s specifically expanded the new, used, and salvage parts mix at his 40,000 square foot retail location here off I-44 at the far western edge of Missouri in order to appeal to a wider range of customers.

“The key for us is parts diversity,” he explained. “We don’t want all of our eggs in one basket. That’s why we offer new parts, used parts, and a ‘yard sale’ style set up for salvage parts so we can appeal to all levels of parts needs within the trucking business.”

Martin’s philosophy is to offer a “Wal Mart Super Store” retail environment for parts yet couple it with a “mom and pop” approach to service.

“We figure if we get someone in here once looking for a particular component, and we have it in stock and win them over with our service, they will always come back,” he said – and Martin credits that approach to helping 4 State Trucks weather the “Great Recession” and sluggish economic recovery of the past few years.

“When times get tough, there’s a lot more demand for used and salvage parts,” he added. “And when times get better, sales of new parts, chromes accessories, etc., begin to rise. We want to be in a position to serve both ends of the parts market so we keep business coming in during the rough patches.”

Big dealership chains are following a similar philosophy as well. For example, Rush Enterprises Inc. – which operates one of the largest commercial vehicle dealership chains in North America – noted that aftermarket services, including parts sales, accounted for about 63% of the company's total gross profits in 2011. 

Indeed, W. M. "Rusty" Rush, the company’s president and CEO, stressed in the firm’s annual report that expanding aftermarket capabilities is one of three critical strategic focus points for his family’s business – which booked $2.5 billion in revenue last year – going forward.

“Parts, service and body shop revenues reached record highs in March [2011] and continued to climb throughout the second and third quarter of 2011, remaining strong through the year’s end,” Rush said. “The resulting record absorption rate of 117% for the fourth quarter of 2011 and an annual absorption rate of 114% – our highest ever – [is due to] increased service needs of aging vehicles as well as incremental business generated by service solutions we are providing to our customers.”

Rush added that the company plans to continue seeking opportunities to expand aftermarket services we provide our customers, and he expect parts, service and body shop revenues to remain strong throughout 2012.

Such expansion is also occurring as managing part inventory is becoming a bigger and more expensive chore for fleet parts and service managers, noted Paul Tuomi, director of parts sales for Daimler Trucks North America LLC.

“As truck engines become more complex with ever-more-sophisticated emissions controls, there are literally more parts per truck to keep track of and stock,” he explained. “For this reason, many fleets look at outsourcing much of their parts needs to dealers and distributors, moving that responsibility, cost and risk away from their operations. Together with OEM truck leasing and contract maintenance programs, this appears to be a growing trend.”

“A lot of fleets are outsourcing parts inventory and management to dealerships to maintain better control of their inventory, reduce obsolescence, increase inventory turns, and reduce downtime,” added Chris Harrison, general manager of CIT Group, Inc., a Kenworth dealership chain headquartered in Morton, IL.

“Advancements in electronics and emissions systems also require a lot more parts on a truck, [which] require more parts to be placed in inventory,” he said. “Because many of these parts are fairly expensive, it's more critical to have stricter parts inventory control so you have the right part at the right time to avoid downtime.”

Dale Brubaker, director of parts operations for Navistar Parts – a division of truck maker Navistar Inc. – added that the parts population is only going to keep growing, but that isn’t necessarily a bad thing for fleets. “For example, aerodynamic improvements that improve fuel economy might require more parts,” he said. “But that also means fleets are demanding that their OEMs be more flexible in how they support their needs.”

Navistar for example is using a proprietary Dealer Inventory Alliance of “DIA” system to help its dealers strike the right balance of parts availability and inventory cost by identifying what parts dealers need and what parts they don’t need.

“There’s a certain population of parts that every dealer needs to stock based on the products currently on the road that may require service, but the system also helps develop customized inventory plans for dealers based on their sales history,” Brubaker explained. “Our goal is to have the right part at the dealership when a truck comes in to be fixed.”

That’s also what’s driving OEMs to try and “bundle” more aftermarket services together. Volvo Trucks, for example, recently created a new division called Volvo Trucks Support Services so as to help provide fleets in the U.S. and Canada with more customized support solutions, noted David Pardue, Volvo’s vp-aftermarket solutions.

“Bundling truck support services can help protect assets, improve operational efficiency, offer a ‘one-stop shop’ for service and parts information and provides the fleet options to manage costs,” he explained. “That helps simplify truck operation and maintenance for our customers.”  

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