Think Like a Specialty Manufacturer By Gary Smith and Jody Nava This article is a brief discussion of the history and structure of the automo- tive parts business, and offers a line of thinking as to why it is financially appropriate to view the operation of an electrical rebuilding business from the point of view of being just another auto parts store. As an auto electric rebuilder, you are a member of the replacement automo- tive parts industry, and as such you are to some degree governed by the eco- nomic rules and practical realities of the parts distribution business. As a member of the parts distribution business, some of your largest competi- tors are parts stores. By the same token, if you position yourself correctly, and the mix of personalities is favorable, some of your largest and most loyal cus- tomers can be auto parts stores. Much of the turmoil that currently is afflicting the electrical rebuilding indus- try is a result of the fact that a “step” in the pricing structure is being eliminated. Economics and “global entrepreneurial- ism” is not going away, and the reality is that this change will continue to fruition. However, if you think this is difficult, realize that the auto parts industry went through this in the 80s and early 90s, and further, is now going through changes that may well make pricing appear as though a portion of another “step” is being eliminated. As an auto electric rebuilder, you are what could be accurately described from an economic perspective as a “hybrid” or “specialty” manufacturer, meaning that you don’t nicely fit in any one business category. The reality of the situation (with all of the whining and moaning set aside) is that if you position yourself correctly for your individual marketplace, as a specialty manufacturer, you have some distinct advantages that auto parts stores do not. Parts Distribution Marketplace The parts distribution marketplace is a rat’s nest of competition and cutthroat marketing. If you don’t think so, just look around. Parts stores are on every street corner (metaphorically speaking) in many communities. Replacement parts can be bought anywhere, and if you search with any effort, whatever you are looking for in the brand that you wish to purchase can be found some- where else for less cost. It is a commodity market: product is readily available, and for many product lines and product groups the major ele- ment of differentiation is price. If you want to find a good place to work where it is hard to make a buck, try the auto parts business. As an auto parts store, you have to purchase your finished goods for resale completely up front and hope that some- one walks in the door and wants to pur- chase them. As an electrical rebuilder, you do not have this full burden. As an electrical rebuilder, you have to purchase the manufacturing (raw materials) compo- nents of the manufacturing or rebuilding process, but you do not have to purchase the finished goods. You produce the fin- ished goods. It is important to note that the largest parts players (read AutoZone and CarQuest) are trying really hard to pass the flooring cost of product to the man- ufacturer. Time will tell how successful they will be with this strategy. Parts Pricing For more than 40 years, the parts industry has used basically the same pricing format for component pricing. How this pricing is applied has changed, but the nature of the pricing structure has remained intact for a very long peri- od of time. Specifically, there are five price defi- nitions that are commonly used in the distribution chain: list, user, dealer, job- ber and WD (warehouse distributor). Historically, the important price defini- tions have been dealer, jobber and WD. In today’s marketplace, the important price definitions are jobber and WD. Note that this does not mean every- thing sells at these prices, but these are the numbers that are most commonly talked about. WD (which is normally defined as a percentage discount below jobber) is the price at which a manufacturer sells product to his vol- ume distributors. Note that for his largest distributors, a manufacturer may define WD as a larger discount from jobber, and for his smallest distributors, a manufacturer may define WD as a smaller discount from jobber. The reality is that volume always matters. Jobber price, from a historic perspec- tive, was the price at which a WD sold product to a parts store. While some amount of this practice remains in today’s market, jobber price today is normally defined as the price at which a WD sells product to his “preferred” cus- tomers. These customers may be parts stores, large installers, small installers or most any other category that someone in marketing may decide to pursue. JODY’S COMMENT: Jobber price is basically what rebuilders pay for the product. Considering that some WDs are selling direct to the rebuilder’s cus- tomers at jobber means the rebuilder cannot compete and stands a chance of losing the s