Doing Business in the New Market By Scott Fureman The past several months the hot- test topic of discussion on these pages has been trying to keep the importers out of our markets. Perhaps the sub- ject should be doing business in the new market. With the increased pressures from overseas as well as on our own shores it is increasingly important that we look at costs of doing business and the gross profits and profit margins generated from this business. Several things af- fect our costs: freight, inbound as well as out-bound; cost of the parts and components themselves; labor to as- semble, store and retrieve from stor- age; heating and lighting the parts also affect your gross cost. The reliability of the parts themselves is another hid- den cost in that the anticipated quality directly correlates to the risk of war- ranty return. There is another hidden cost that most in our industry choose to ignore and some don’t want you to think about; the financial support you pro- vide to your competitor/supplier. Where do you think the Pep Boys and AutoZones of this country are getting the $19.95 starters and alternators they sell? Could they be assembled by manufacturer/suppliers of component parts? Could these manufacturers be able to cut out the middleman mark- ups to produce a unit that inexpensive? Could your parts purchases be help- ing to finance and subsidize that low margin market while at the same time driving your competitive sales prices down? What about the OE unit manufac- turers? Sure they sell tons of starters and alternators to Freightliner, Volvo, etc., but do you think your purchases (at increased margins) might subsidize them also? What about the fleet across town that bought two starters and three alternators from the OE unit rep. Or the local heavy duty parts house? If you looked at the invoice would the price look close to what you paid? Maybe the price is even lower than your cost. Who is their OE unit rep? Is he or she the same person you have been buying units and components from for years? How long are we in the rebuilding industry going to loyally provide the higher margin subsidy to the very sup- pliers who have made it a business strategy to bypass the traditional dis- tribution channels and increase volume by reducing resale margins? The effect this strategy has had is to artificially lower market prices and skim the cream from the market. At the current rate, the successful rebuilding shop of the future will most likely be a small shop, probably no more than five or 10 people. The tech- nicians employed will be absolute ex- perts in their chosen field, constantly receiving training on whatever the auto and truck manufacturers bring out next. This company will offer drive-in ser- vice and on-vehicle diagnosis and re- pair. They may contract with local ser- vice stations to perform electrical di- agnosis and repair, providing the ser- vice as a subcontractor. They will probably buy their common starters and alternators from large production rebuilders, choosing to save their pre- cious talented labor for the odd or un- common units that cannot be pur- chased. This shop will most likely be amem- ber of a buying group. The members JANUARY, 2000 of this group would enjoy greater dis- counts (based on group volume) and protected sales territories, while being obligated to honor warranty for units initially sold by other members of the group. The group organizers would provide marketing assistance and ma- terials in an effort to draw buyers to the group members (as opposed to soliciting buyers and cutting out the rebuilders). Signing onto a program will be the easy part. The hard part is, and will be, selling. Every day of your profes- sional life you must sell your skills, abili- ties, products, service levels, inventory coverage, delivery service and the list can continue. Gone are the days when people will beat a path to your door, the consumer just has too many op- tions. As electrical specialists we have the skills and knowledge to take care of the electrical problems the right way the first time. It is this ability that should allow us to command a competitively higher price for our product. Electrical rebuilders have the knowl- edge and ability to provide a complete electrical service to the end user. A program as described above will am- plify that ability and help to regain the market lost to OE dealers, parts stores and manufacturer distributors who are less able to provide complete and knowledgeable service to the market. Scott Fureman is manager of technical services for Purfex/Paragon Electrical Distributors in Spring City, PA. Page 1 of 1