Can E-Commerce Help Save the Aftermarket?

A White Paper by James Lang, President of Lang Marketing Resources, Inc.

November 27, 2000

Once the darling of the investment community and a dependable growth sector, the aftermarket - for many - has fallen from grace.  But now, from an unlikely source, help is on the way.  In its many B2C (business-to-consumer) and B2B (business-to-business) forms, e-commerce can help reverse some of the negative trends which plagued the aftermarket during the 1990s.

E-commerce holds the promise of providing substantial remedies for three major aftermarket woes:  massive inventories, unperformed vehicle maintenance, and sluggish product volume.

While the aftermarket has done an exceptional job of providing local availability for the vast range of products necessary to keep the nation’s more than 200 million cars and trucks rolling, the expense in inventory investment and infrastructure is enormous.  However, through sophisticated supply chain management techniques, e-commerce can reduce inventory in the supply chain and can wring out what some estimate to be billions in excess inventory and related distribution expenses.

Although there may be fewer intermediate distributors as a result of e-commerce, the total number of suppliers actively selling service outlets will not be reduced, since e-commerce will provide service outlets a broader range of supply sources.

While supply chain management will help optimize inventory levels, electronic procurement programs which are being installed at service outlets are beginning to yield significant reductions in merchandise returns from service outlets to suppliers. 

The high rate of returns to suppliers (which often is the result of double ordering by outlets to ensure timely delivery) can be reduced by electronic procurement programs which actively involve service outlets in product selection and increase the efficiency of the entire procurement process.  By reducing returns, e-commerce can help improve inventory balance within the distribution chain while eliminating the high cost of double handling merchandise.

Over the past 30 years (with the elimination of many local service stations) the vehicle service industry has moved from a preventative maintenance to a necessary maintenance model.  With today’s busy lifestyles, much necessary maintenance goes unperformed.  Lang Marketing estimates that 1999 unperformed maintenance for cars and light trucks in the U.S. topped $40 billion in product volume at user-price. 

Through a growing variety of B2C and B2B applications, e-commerce can help reduce unperformed vehicle maintenance in the U.S., improving vehicle safety and generating billions in aftermarket sales.

A number of e-commerce companies are providing service outlets with web sites to make vehicle service more convenient and efficient for consumers.  Dot-com’s are also taking aggressive actions to drive business to their service outlet partners.  Such programs also allow service outlets to notify customers when maintenance is required for their individual vehicles.

Vehicle dealers are also aggressively pursuing ways to increase service volume, aided by a number of e-commerce initiatives which enable dealers to develop a database of existing and potential service customers and to notify them of required vehicle service as well as service specials they offer.

Telematics (location-based information services) is the next generation of wireless communications.  In the next several years, a new generation of Internet-wired vehicles will remind consumers about required service.  These “wired” vehicles will have sophisticated systems for monitoring vehicle operation and expansive communication capabilities for notifying consumers about required service and where that service can be performed.

E-commerce procurement programs as well as other B2B e-commerce initiatives will significantly improve service bay efficiency, helping to offset the growing service bay crisis.  Lang Marketing estimates there were 163 cars and light trucks in the U.S. for every service bay in 1999, up from 131 vehicles per bay ten years ago.  Within five years, Lang Marketing estimates the average number of vehicles per service bay in the U.S. will top 174. 

By increasing service bay efficiency through more effective parts procurement, more timely and expansive maintenance information, as well as improved service outlet scheduling techniques, e-commerce will serve as a kind of “service bay multiplier” helping to offset the growing number of vehicles per service bay in the U.S.  All these factors will help reduce the amount of unperformed maintenance among cars and light trucks in the U.S., improving vehicle safety and expanding aftermarket sales.

 E-commerce will also boost sluggish Do-It-Yourself aftermarket sales.  During the 1990s DIY sales averaged less than 1% annual growth.  By providing consumers a greatly expanded product array (particularly in terms of accessories, tools, and other discretionary aftermarket purchases) e-commerce will increase aftermarket product volume.  While some aftermarket Internet B2C sales will cannibalize retail store and mail order volume, Lang Marketing estimates that nearly $2 billion will be added to the size of the 2005 Do-It-Yourself market as a direct result of the net.  This is to say nothing of the increase in retail stores sales resulting from net-driven consumer buying.

Accessories will generate most of the increase in Do-It-Yourself car and light truck aftermarket product volume (77%), with replacement parts accounting for one-seventh of the increased volume (13%), and all other products (tools, chemicals, and gear) representing 10% of the approximately $2 billion in product volume added to the 2005 DIY market by B2C activity.  The Specialty Equipment market will be the big winner with light truck accessories and performance products leading the way in B2C direct sales growth.

All in all, e-commerce will help improve aftermarket profitability and sales volume through a growing multitude of B2C and B2B applications which will drive greater inventory efficiency throughout the distribution channels serving the aftermarket; reduce unperformed vehicle maintenance, thereby, improving vehicle safety and increasing aftermarket product volume; as well as expand DIY aftermarket product sales by offering a greater array of products, particularly accessories and other discretionary items, to consumers as well as commercial buyers.

James Lang is President of Lang Marketing Resources, Inc. (www.langmarketing.com), a Wyckoff, New Jersey-based consulting and research company specializing in the Vehicle Products Industry for more than 20 years.  Lang Marketing publishes The Lang Report®, a monthly analysis of the U.S. aftermarket, as well as eAftermarketÔ, a twice-monthly publication focusing on the e-commerce aftermarket revolution.  Contact Lang Marketing at www.langmarketing.com or phone (201) 652-5220, or fax (201) 652-5324, or e-mail info@langmarketing.com.