Parts Wholesaling - Real Competition from Vehicle Assemblers

by

Brian Taylor

One of the most listened to and discussed presentations at this year's ADF Workout was delivered by Mike Lee of Vauxhall Aftersales. It was about Vauxhall's Parts Trade Club and it showed just how serious vehicle assemblers are in selling parts to independent garages and workshops.

The Vauxhall Parts Trade was launched in September 1991 to encourage the independent motor trade to change their buying habits from supporting independent wholesalers and motor factors for all their popular replacement parts being fitted to Vauxhalls, to buying parts for Vauxhalls from Vauxhall dealers. Since that time it has grown to such an extent that the term Trade Club has become the generic description of vehicle assembler programmes designed to feed parts to the independent aftermarket. In turnover terms it is now in the Top Ten Motor factor league.

Limited penetration - huge opportunity

Before the introduction of Trade Club, Vauxhall's penetration into replacement rotating electrics fitted to Vauxhalls was less than 4%. Similarly their replacement clutch penetration on Vauxhalls was 8%. With few exceptions, the picture was not much different for other replacement parts. Clearly there was a huge opportunity. And the need to grown their replacement parts business with older cars as parts on newer vehicles did not need to be replaced so frequently was also focusing attention on how best to capitalise on this opportunity.

So independent workshop members of the Trade Club were identified and enrolled by any Vauxhall dealer participating in the scheme. The members did not have to be in the particular franchised dealer's vehicle sales territory. Members were then issued with a membership card and number. When ordering parts, members needed only to quote their name and number to benefit from the special Trade Club prices. Orders could be placed with any participating Vauxhall dealer - either over the telephone or counter - or via a dealer's on-the-road parts salesperson.

Vauxhall provided the promotional part of the equation by direct mail activity and participating dealer lists. Regular price analysis of Trade Club products was carried out by the participating dealers to ensure all prices were competitive in the aftermarket. Vauxhall dealers were rewarded on the sales performance with Trade Club members rather than on parts purchased by the dealer. Proof of sales was required to claim the extra credit.

By the summer of 1994 its early promise had been fulfilled. More dealers had joined the scheme and many more independent workshops were identified as members. In fact traders had increased at a much higher rate than the rate of dealers. Vauxhall estimated that at that time they were taking £10m of business that was previously with independent parts manufacturers. However, some of this business was probably down to the growth of the Vauxhall parc driven by good new vehicle sales performances.

Toddington investment

One of the developments that has supported this growth is the major investment in the parts distribution centre at Toddington near Luton. £30m has been invested over recent years and it is highly automated, as you would expect. It is on a 60-acre site and has an operational floor area equivalent to 18 football pitches. Every day it processes up to 40,000 individual lines. As many as 80,000 different parts valued at £40m are stocked and they cover Vauxhall vehicles aged up to 10 years old - sometimes older. They boast an average 97% immediate availability of stock. Dealer stock replenishment is delivered within 36-48 hours and this is supported by a quicker Top Priority next day service when necessary.

Impressive growth

The growth in Trade Club business since 1992 has been to say the very least very impressive. The following chart is based on information supplied by Vauxhall and uses an index of 100 for the 1992 performance. It can be seen that since 1993 it has more than quadrupled.

Vauxhall Trade Club Growth - Index

Source; Vauxhall Motors

Increased dealer investment

This growth has pushed dealers to invest in more sophisticated trade facilities. Additional telephone lines and trade only counters are the more common developments. Delivery frequency has been upped and more parts representatives put on the road.

As vehicles become more high tech with more component variables introduced on a regular basis, the vehicle assembler parts programmes are bound to have a competitive edge in ensuring the parts with the most exact tolerances able to deliver the maximum performance levels are made available. And made available the first time rather than after several goes by the factor and garage to get it right. And not all variations will be directly visible to the factor or end user without VIN Numbers.

An example of this is brakes and discs. To protect product integrity, any slight change in engine power or suspension will mean additional testing for braking systems. Where necessary new parts will be introduced to meet these standards. These tests can take up to 12 months to carry out. So many different variations of parts may be required during a model's life to meet the vehicle's full but changing needs. Yet less efficient components may well be capable of fitment. Unless aftermarket suppliers can keep up with this speed of development the losers are likely to be the car owner with a less satisfying experience during a component's life and the installer who will likely lose customers unhappy with component performance.

Rystar

Vauxhall see Trade Club as a huge sales opportunity. Probably as high as £175m. Unlike dealership in-house service which is limited by investment in bays, equipment and staff, Trade Club investment is relatively quite basic and can be self-funded. It does not clash with the need to satisfy new car owners by dividing dealership workshop facilities between owners of new cars and older cars.

Rystar is based in Aston, Birmingham. It is part of the Ryland Motor Group, which acquired the site from Startins in 1997, along with Barnards in Selly Oak. This gave Rystar four locations and the Aston branch became the centre for their Trade Club activities in 1998.

They concentrated on selling the trade club elements to independent garages and workshops within the vehicle sales territories covered by the four Rystar Vauxhall dealers. They used Vauxhall graduate trainees to prepare a new marketing plan and re-visit the parts wholesaling activities of the group. Using Yellow Pages and comparing businesses with those on the current trade database, they identified companies not currently being contacted. In this way they doubled the potential customer base.

They then telephoned these companies introducing Rystar and Trade Club. They signed them up as Trade Club members by filling in the application forms over the phone. These were then added to the customer database and a parts representative visit was initiated. A second telephone call was made to check that all Trade Club details were being received and from then on a fortnightly phone contact was put in place to identify any parts needs that could be supplied by Rystar.

Slow going at first

Dave Huxford, Rystar's Group Parts Director says,

"It was slow going at first with 3-4 orders per week from new customers being the norm. But continual contact built up the number of orders per company and the number of active new customers. Those not using Trade Club were phoned again after a while and another visit by the parts representative arranged. If they then stated that they did not intend to use Trade Club they were cleansed from the database so that telephone and representative time could be used with those using the dealership or new businesses not yet contacted".

The growth rate in the number of new businesses and the revenue generated by them was remarkable as the graph shows. It had reached £80,000 within 6 months. They also initiated a van sales project which itself produced sales off-the-van totalling £2000 per month.

Rystar Vauxhall Trade Club Growth

Source; Rystar

Rystar found out that if you stick at it Trade Club can increase parts sales considerably. Telesales does work. But it takes effort, commitment and financial investment in marketing. They also found that the vast majority of Trade Club members draw only one Trade Club product line on a regular basis so the challenge is to broaden this out into other lines. Drums of oil are a recent success story.

A more selective future?

Dave Huxford feels that the future of Trade Club lies in Vauxhall becoming more selective and focusing on those companies prepared to fully commit to the offer - becoming Regional Stocking centres for the network as a whole. He believes the service line range needs to be developed to produce more order-book opening opportunities by competitive pricing and a broader fitment range.

He also believes that the value of the parts warranty needs to be more fully explained. If there is a warranty comeback, independent garages should be encouraged to let the dealer carry out the repair as a sub contractor - free of charge. The consumer benefit of more first time fixes and the independent garage workshop benefits of less wasted labour hours and fewer comebacks need to become much more visible.

Protectionism - who's kidding who?

Vauxhall is totally committed to improving the penetration of Vauxhall parts in the aftermarket and they are totally committed to achieving this growth with - and to the benefit of - their dealer network. The latest figures show a Trade Club customer database of over 61,000. Vauxhall will continue to keep very close to their customers - Vauxhall drivers and Trade Club members.

At the ADF Workout Mike Lee put forward a logical argument against the cries of foul so often given aftermarket players inferring restrictive practices and protectionism. He pondered on a recent article covering the Independent factors Association. It said,

"There are strict rules. To ensure best terms, members must order the bulk of their stock from an IFA supplier. Members cannot compete with each other. An existing members has veto over any new firm joining or a fellow member opening a branch on their patch".

Without criticising the IFA, which like all buying groups has to focus its activities, it does weaken the 'foul' argument a little as far as distribution activities are concerned.

The one area of weakness in Trade Club has already been partly raised in this report by Rystar. Not all Vauxhall dealers are committed to the same level of investment and in particular to funding parts representation. It is something Vauxhall is aware of. There are not enough good parts representatives across the network. They are scattered around like golden nuggets. The development of this vital role will be fundamental to the future strategic development of Trade Club Sites. This time next year could produce a completely different picture.