One thing’s for sure: When it comes to the luxury car market, most of the parts traffic is cruising through dealerships, not parts jobbers. One reason is that luxury car owners typically take their vehicles back to the dealerships for repairs. The other reason may be a lack of knowledge.
Tina Mills, part owner of R-Way Auto Service, Inc., a NAPA Autocare Center in Columbiana, Ohio, says most of the luxury cars that come through her mechanical repair shop are domestic, with an occasional high-performance or classic car.
She says most of the parts they order come from NAPA, but if they can’t get them there, they’ll call a dealership. “NAPA supplies a good 80 to 90 percent of the parts,” says Mills. “The only stuff they really can’t get are parts for cars just released, like 2003 and newer.”
Kim VanKleeck, manager of Calvin’s Service, another NAPA car care center in Columbiana, also fixes some high-end cars, including a few Mercedes and Saabs. He says he usually has to get parts for such luxury cars from the dealer and that he doesn’t have a certain parts jobber who takes care of that for him. “It seems as of lately, we have to go to the dealership to get most of our Saab and Volkswagen parts,” he says. “(NAPA) just doesn’t have them.”
Even in places like California, where a myriad of streets are lined with luxury, dealerships get the bigger piece of the parts pie.
Giovanni Bonduc, service manager at Mercedes Benz of Oakland in Oakland, Calif., says there are aftermarket garages, but they get their parts from his dealership. “Most likely,” he says, “if Joe’s Automotive down the street was fixing a Mercedes Benz, he’s calling the dealership for parts. We supply a lot of shops with parts.”
But all that’s not to say there aren’t any parts stores out there that supply luxury car parts and that dealerships are always the enemy. All Parts Auto Stores, which has four locations in San José, Calif., sells parts at a 60 percent retail/40 percent wholesale ratio. From a retail perspective, Store Owner Mike Emley says luxury car hard parts and accessories make up less than 10 percent of his sales. On the wholesale side, luxury parts sales make up 25 percent of his business.
Being located in the Silicon Valley means his customers range from blue collar residents to lawyers, doctors and corporate executives with inexhaustible incomes. With some very elite, expensive communities in his market area, one of Emley’s accounts is the repair shop for Bentley of Silicon Valley, which sells Bentleys, Jaguars, Ferraris and other extremely luxurious rides, and he also enjoys a substantial amount of business from an area Hummer dealership, however, dealing dominantly with parts for cars like Infinity and Lexus, and above all, BMWs.
Dealing with dealers
Scot Spears, owner of Columbiana Automotive Supply, Inc., a NAPA auto parts supplier, also supplies some aftermarket parts for luxury vehicles. He says one thing he seems to be a major supplier of in his market is exhaust systems, especially — and somewhat surprisingly — to local dealerships. He says he also gets a lot of calls for friction material for more lavish cars.
“It seems like the people who drive the higher-end vehicles with more premium parts are prone to go back to their dealer for service,” says Spears, but he’s got a good relationship with at least three dealers in his area. “They have their own sources of supply, which would be OE, but we do well in certain product lines with dealers because we can actually beat the price they’re buying at from their own company, one being exhaust.”
Another reason local dealers give him a shot is due to parts availability. “Most NAPA stores today have a pretty good inventory, for the most part, and there’s a lot of them out there,” Spears says. “I have a huge exhaust inventory, probably more than what the dealerships here in town stock, so they will source things like that from me.”
Ninety percent of the parts Spears sells are for “average” vehicles; the other 10 percent are for luxury cars. Of that 10 percent high-end market, he says only about 1 percent is for imports, the remaining being for domestic luxury cars.
Although Spears doesn’t get a lot of the high-end import business, he says it’s very possible because he would have numerous lines available through NAPA.
Spears agrees that there aren’t many jobbers that supply luxury car parts. Why? It’s a smaller segment of the market, he says, but cautions, “There are more and more luxury cars out there. Of course, there are a heck of a lot more average cars on the road than there are luxury cars, so jobbers probably think their money’s best spent stocking and going after the domestic, middle market.”
He agrees, however, that since luxury car parts cost more, if a jobber was to sell more of them, he would have higher profits.
Emley, a Parts Plus jobber, disagrees, thinking the profit margin is the same. “Shops are smart and shop price,” he says. “Dealerships are smart. Car manufacturers have extensive market research and know what we’re selling our parts for. They will take the most popular parts and use velocity pricing, and they’ll come down to meet us or beat us. The customer is sharp as a tack, and the manufacturer is sharp as a tack, and they’ll do predatory pricing just to make sure that sale returns to them.”
Taking an economic perspective on the luxury car parts business, Emley looks at his location, which was the most prosperous place in the country up until the spring of 2000, when it became as economic disaster that is now slowly climbing out of its slump. But this bad economic break for the area actually helped Emley’s business.
“All those expensive vehicles that were all over the streets were being serviced by the dealerships,” he says. “Now they’re being serviced by the vehicle owners, if they still own them. So it’s a market that has improved for us because of the change in the economic structure here.”
Emley says he’s seen an increase in his luxury car parts business, but on the lower end of the luxury scale. He explains that if someone owns a Mercedes S 600 at $110,000, it’s getting serviced by the dealer, but Emley’s selling more filters and brakes for those who are driving C-classes.
Pat Martin, director of sales at Pacific Supply Company in Anaheim, Calif., a Parts Plus warehouse distributor that has a main distribution center, nine satellite warehouse facilities located throughout the state and 19 company-owned parts stores, thinks selling luxury car parts is more lucrative than selling “regular” auto parts. “I think it can be very lucrative if you have the appropriate training, the right marketing department and you’re filling an industry need,” says Martin.
He also sees a benefit for his business when it comes to dealerships. In many cases, he explains, dealers offer very limited warranties, and their return policies are nothing short of cumbersome. As a result, he says, parts distributors can shorten their warranty periods, which, of course, helps them cut costs.
The market
Everyone interviewed basically thinks there is room for growth and a need for others to join the luxury-car parts market. Martin thinks that this particular sector of the industry, when it comes to repair, is growing, and believes it’s because of the availability of luxury cars themselves. “There are so many new ways people can get into luxury vehicles, such as leasing,” he says, “and the desire for America to drive luxury vehicles is huge. (The market) is growing because people want to be in these vehicles.”
Emley, however, suggests that the luxury-car parts market has peaked for the time being. Why? A decline in the economy is one reason.
Another thing Emley says needs to be considered is that buyers of new luxury cars are likely to get four-year, 48,000-mile free maintenance warranties, with all service included in the sales price. “So you don’t need to see me for four years,” Emley says. “They’ve captured that market.”
Only as a car passes out of warranty will his luxury business increase, he says, and being in a nice, non-humid, sunny climate, Emley thinks his luxury-car business will stay stable.
Spears, however, has somewhat of a sunnier outlook: “There are premium vehicles out there,” he says, “and as long as we make owners of these vehicles understand that we stock their vehicles’ parts and have access to them, then maybe they will give us an opportunity to get a portion of the business.”
Another way Spears thinks jobbers can gain a portion of the luxury business is to consider the trend in the high-end market: People are really into fixing up their luxury vehicles with accessories. (See sidebar entitled, “It’s all about accessorizing.”)
Another trend, according to Emley, is that professional repair technicians have developed “an OEM mentality. And it’s growing,” he says. “They want original parts, so you have to convince them that your domestically or import-manufactured part is as good as or better than OE. If they get hurt just once, they’ll go to the dealer.”
What doesn’t help the situation, according to Emley, is that dealers and OE manufacturers are doing an excellent job promoting the quality of their OEM parts.
OE quality
Martin says he believes that all of his full-service jobber stores are selling a good amount of luxury parts and explains that, in the last several years, he’s been able to diversify his offerings, compared to previous years, when he sold brand-name parts.
Martin has added several OE-equivalent lines with OE names. “We’ve tried to add products that are more niche oriented because, typically, people who drive high-end cars are looking for OE form and fit,” he points out. “We’re finding (OE manufacturers who make aftermarket parts) that are becoming distributors for those products so that jobbers can offer the same service dealers are offering at a better price.”
What inspired this? “We noticed a loss in confidence from the installer level in some of the traditional name-brand products,” Martin says. “And with the dealerships really making a push at the aftermarket segment, they’ve done a good job of marketing that OE name.” So, this year, Martin rolled out an “OE connect strategy” on about 12 different product categories, basically products that have the brand names installers are looking for; that are manufactured by the same companies that provide OE.
And this seems to be paying off: Martin says that so far in 2004, he’s running at a 7 percent sales increase company wide. Prior to this year, before adding the new strategy, he says luxury-car parts were probably roughly 2 to 3 percent of his business. Today, it’s more like 5 or 6 percent. “We give a lot of credit to this OE strategy, helping to fill in where the big box brand-name companies that we’re partnering with don’t necessarily have that niche or that name,” says Martin.
Part of making this a success, according to Martin, is information and training. Training for the sales team that sells to the jobbers, and then education of the jobbers to the installers so they understand that they have the ability to sell the exact parts/OE names that the dealers have. “You really need some expertise to sell luxury parts,” he says, “and we’re showing our jobbers that when they sell an $80 set of brake pads as compared to a $30 set, that there’s some benefit and payoff in working this luxury car market.”
Emley says he deals with only extremely high-quality mechanics that are well trained. “We don’t sell generic parts,” he says. “We sell pretty much upscale parts, OE or extremely high-quality aftermarket parts. My mechanics will not use plain white box parts.”
Tips for this niche
“There is no profit if you don’t make a sale,” says Emley. “You have to have it in stock, or it better be readily available from your local WD on a very short time basis. And it better be OE quality; that’s the only way you can even get a profit off this stuff.”
He explains that in his market area, or in any metropolitan area for that matter, customers won’t wait two hours for a part. What does he do to help make sure he has the parts he needs? “We will specifically stock for a shop that has a very large, loyal base so that they don’t wait,” says Emley. “If they have to wait, they won’t buy from me.”
Emley says jobber saturation in the luxury-car parts sector is very specific to local markets, and he thinks it tends to be heavily oriented toward metropolitan areas. “You have to know your marketplace. You have to know what your needs are relative to how affluent the area is in which your store is located,” he says. “They’d have to analyze their own market.”
He also suggests getting into the luxury niche by going online, as tuners, who deal in exclusive performance parts, do. “If I was getting into this business and trying to capture a large amount of that trade,” says Emley, “I would do a vehicle census on what age groups are buying in each particular category. I would probably select the performance and aftermarket accessory one, and I’d go online. If looking in the hard parts sector, I think your opportunity for growth is out-of-warranty cars, and I would focus on that.”
Martin advises jobbers who want to start selling luxury parts to talk with their installers, if that’s their base customer, to find out just how much business they’re giving to dealers each month. “Really do a market survey and understand just how much business in their marketplace is going away from them,” he says. “And it’s their very best customers; their very best friend — the guy who owns a repair shop who lives next door — who is not telling jobbers how much he’s buying from the dealer because he doesn’t want to hurt their feelings. We find that if you talk to an average repair shop who’s giving a jobber $3,000 or $4,000 a month worth of business, he’s giving a dealership the same.”
Is luxury for you?
Even though most parts jobbers seem to be out of the luxury-car-parts game, there are opportunities to serve this market for just that very reason. Most jobbers shy away from it not because they don’t want the business, but because they don’t understand it. You might want to change that thinking because this could be the niche you’ve been looking for.
