The long-term view

After serving as a captain in the U.S. Marine Corps., Creamer joined the automotive aftermarket in 1955. He joined Wheels, Incorporated, a (CITY) automotive and marine parts distributor, as a salesman, and was president of the company by 1963. The company was sold to American Parts System (APS) in 1967, and Creamer served as northeast regional vice president for APS until 1969.

He founded Distribution Marketing Services in 1978, and still serves as the company's president today. The firm specializes in three broad areas: marketing consulting in the aftermarket, merger and acquisition activity in the aftermarket, and executive placement.

Creamer has been honored numerous times throughout his long, illustrious and ongoing career in the aftermarket. In 1977 he received the Northwood Institute Automotive Aftermarket Education Award, in 1995 he was appointed president of the AWDA and received the AWDA Pursuit of Excellence award, and in 2000 was named AWDA Automotive Leader of the Year.

He was instrumental in helping start the Global Automotive Aftermarket Symposium (GAAS), which — in its 15 years — has raised more than $1 million in scholarships, for students who want to study in the automotive marketplace.

Despite all the accomplishment, Creamer simply describes himself as someone who "keeps a low profile and an ear to the ground."

Aftermarket Business sat down with this visionary industry leader to tap his vast well of knowledge on a variety of subjects, including what changes are in store for the industry in both the short-and long-terms, how the industry can attract the best and brightest young people, how imports from low-cost countries are changing the landscape, and everyone's favorite topic: who will be the winners and who will be the losers in the aftermarket of the future.

In Aftermarket Business' Aftermarket Manual (May 2007), you wrote an article in which you said the parts business will go through a few more major shifts before it settles into a stable business. Where are we with that? What shifts have happened, which ones are in progress, which ones are coming, and how will we know when the business is "stable?"

The parts business has been very stable over the last 10 or 15 years. The big differences being whether the increase over last year is 2 percent or 5 percent. Very seldom have we had negative growth years in the industry as a whole. This year and last year I think we were impacted a little bit by the price of gasoline, that took away some of the discretionary spending on the part of the consumer. And I think that slowed the growth of the industry.

But if you look at the major players, many of which are public companies, they all showed growth in 2007, they all anticipate growth in 2008, albeit it's not going to be five percent, it's going to be maybe two percent. But it's there. And in an industry that's as mature as the parts business, that's a pretty solid performance. We certainly don't have the swings of the drug companies or some of the other consumer products companies. People need to keep their vehicles in shape because they have to drive to work or to the store, and that's not going to change.

You very seldom see any huge growth spurts in public transportation, or any things that would compete with the continuing use of the personal vehicle. So I really am optimistic about the business as I always have been, it's just that the growth expectations of the investing public, which is sometimes all we hear about, are stronger, and when they falter a little bit the investing public — which is mostly institutional anyway — tends to shy away.

But the fact of the matter is that Genuine Parts Company, and O'Reilly and Advance Auto Parts and AutoZone have all performed pretty well in the last few years, and the companies that haven't performed well have had other circumstances and other reasons for not performing well; it certainly hasn't been the movement of parts through their stores.

As far as the industry achieving "stability," I don't think it's a percentage of growth that will indicate stability. Look at what has happened during the past few years. Four or five of the major suppliers to our business have gone through bankruptcy, and yet the business has stayed pretty stable. Federal-Mogul, Dana, Delphi, none of what those companies have gone through has altered their performance to the customer at all.

So I actually think the business is pretty stable right now. That doesn't mean there won't be changes such as the O'Reilly/CSK adventure, but the fact of the matter is, it is a pretty stable business, and will continue to be so.

Speaking of O'Reilly's acquisition of CSK, can you comment on some of the ongoing events in the aftermarket, such as Advance's new team of "Best Buy" executives, and Pep Boys' ambitious five-year plan?

It's wonderfully logical for O'Reilly to acquire CSK, because it acquires a West Coast presence that it didn't have. It makes enormous sense.

At Advance, the investors are just waiting to see how the new team of managers runs the business. The new teams comes from a very aggressive retail mindset at Best Buy, and they've already announced that the senior officers are going to continue to live in Minneapolis and not Roanoke, and people wonder if that will impact the business. Well, I don't think it will. They're pretty smart guys, the new CEO sat on Advance's board for three or four years, so he knows what's going on in the business, and the same is true at Pep Boys. They have a new management team and a new CEO, he's got a new plan that makes sense, Pep Boys has a fairly substantial real estate portfolio which gives them some substance financially and will give them time to execute their plan.

So I think all those things are positives. It's a natural course of events. This industry has been consolidating, on the manufacturing and distribution and retail sides, for the last 10 years. I don't think that will stop.

Let's go back to the bankruptcies for a moment. What does it mean for the market as major players emerge from Chapter 11?

The market basically has supported Federal-Mogul through Chapter 11. Most of Chapter 11 wasn't caused by bad business practices, it was caused by an asbestos litigation issue that was a non-business issue they were stuck with. But they continued to churn out the product and stay in the marketplace. And the marketplace obviously needed a good vendor like Federal-Mogul. The product lines that are in the Federal-Mogul packages, such as Fel-Pro and Champion and Wagner, have been and continue to be great names. They haven't gone away and they're not going to.

What is the long-term effect on the aftermarket of the increasing number of products being imported from low-cost countries?

The high labor content products were the first to go. And once the LCCs proved they could produce a quality product, that passed all the necessary tests, it simply became part of the supply line. I don't know very many manufacturers today in the domestic marketplace who don't have some kind of connection with Mexico or China. They all do. And initially there was a little ripple effect because it took some of the rebuilt products, such as water pumps, and replaced them with less expensive new products. So it changed the dynamics of some product lines, but I think that's gradually smoothing out, and people who are manufacturing in Mexico and China have quality controls in place, and they're going to make sure the product performs. And as long as it does, and it's guaranteed and protected by the manufacturer, the customer, whether retailer or wholesaler, isn't going to raise too many questions about it.

Here's a three-part question for you: What is the biggest issue facing the aftermarket today; what is the biggest issue you can see looming in the future; and, finally, what issue is a "much ado about nothing" issue right now, that is getting more attention and concern than it merits?

The main thing that troubles me is, are we, as an industry, driving our vendors out of the marketplace? Are we pressuring our vendors to the point that they cannot make a profit, and therefore they can't service us? We need the access to the OE technology, we need vendors who are strong and can withstand some of the economic changes that come along, such as higher prices of raw materials and so on.

However, we have put a lot of pressure on our vendors. And sometimes that pressure has led to their demise. Now are we killing the goose that we need to lay the golden egg? Are we pushing too hard? Are there any more ways we can cooperate, as opposed to making any purchase an "or else" kind of situation?

We've seen the rise of telematics, and GPS, and all kinds of new things like that that have come into the lineup from the OE side, and we need access to that kind of thing. And this ongoing battle between the OEs and the aftermarket for repair and technological information is really a negative situation. The trade associations are working hard to resolve the issue, but I don't think the whole "information pipeline" issue gets enough attention. The big players pay attention, but the little guys don't have the time or the resources. But it's not an issue that we can ignore.

The lack of qualified technicians is also troubling in this business, and I don't see much of a system to get good, new technicians into the pipeline. And of course, even the computer technology that's required now to work for a jobber or a distributor, requires a technical literacy that wasn't required 10 or 15 years ago.

As far as an issue that's overblown, here's something that's a problem on one hand and an opportunity on the other. They said to us in the aftermarket that sometimes we cry "wolf" too early and too loudly about things that are going to "kill" the aftermarket. Years ago, when disc brakes or electronic ignitions, to pick just two examples, became popular, there was talk about how the aftermarket wouldn't be able to handle these innovations. But we've taken it in stride. We've learned how to use the test equipment, and overcome many things that were going to signal our demise, for the past 20 or 30 years without much problem.

They're now talking about "green" vehicles, and that's a whole new segment of vehicles coming into the pipeline, but like anything else they're going to require repair, and knowledge and repair, and that knowledge will find its way into our business, as it always has.

We touched a little earlier on consolidation, what does the future hold there?

I think it will continue on all three sides of the fence: retail, wholesale, and manufacturing. It's simply the nature of the business. I don't see any downsizing, I think there are regional distribution consolidations that will take place, such as a major retailer making a regional buy of a small chain of stores, and the O'Reilly/CSK exercise is just a continuation of that kind of consolidation. I don't look for that type of thing to change.

Who are going to be the "winners" and the "losers" over the next five years?

The winners are going to be the players who have the best systems and the most discipline. Those are two things that exist in the well-run companies. They exist at Genuine Parts, at CARQUEST, and at O'Reilly, and those are the types of companies that are going to survive.

Some of the systems we've arrived at in this business we've gotten from other industries. Because people from other industries came into our business and said, "Hey, auto parts is pretty good. The margins are good, the manufacturers are cooperative." Managing inventory became a buzzword a few years ago, and now it's managing inventory all the way up and down the system. Now, at a company with good systems and good discipline, an installer can track down a part instantaneously without ever leaving his desk.

What technologies are we lacking, that we need to help this industry advance and thrive in the 21 st Century?

I think more and more today, the large retailers or wholesalers, have a fair amount of technology in their parts management their inventory management systems, their communications systems, their online ordering capability, and so on. That technology is really rapidly moving through our industry. The catalog people, such as Activant, for example, are really there for us. And our industry is quickly adapting to these systems. So I don't think it's missing. It's there, it's just a matter of getting more and more people to use it.

What can we do to attract good, smart, young people to make careers in this industry?

The problem is that the business, on the surface, doesn't have much glamour. More people are getting college educations, and we're seeing less second-generations in the parts business than we used to. Plus, it's not well understood that a good technician, for example, can earn $70,000 to $80,000 per year. We have to get that word into the pipeline.

I've seen companies in this industry that couldn't get good salespeople, because they the industry just couldn't keep up. In the future, I see the germination of some national sales forces, where some of the larger, more inventive manufacturer rep companies that will tell manufacturers, "I'll rep your whole product line across the country, and I'll do it more efficiently financially and more efficiently as far as keeping touch with your customers than you can."

As a reader of Aftermarket Business, what question would you like to see Jack Creamer answer?

How the hell did you last so long?

Actually, one of the things that has always intrigued me about this business is that in spite of how huge it is, it is still at heart a "people business." When people get in this business they tend to stay in it. So the thing I would hate to see disappear in this business are the personal contacts that exist at every level and in every segment of the industry.

If there's something that would make me nervous about the new people at Advance, for example, is that yes, they're really bright and smart, but are they going to ignore some of the depth of knowledge that exists within their own businesses? Will they listen? That is kind of thing I worry about, although I try not to let it keep me up at night.