Market Analysis Summary
AutoAftermarket.com will be focusing on manufacturers and distributors in the automotive aftermarket that want to increase their competitive edge, especially when supplying the automobile industry, and open up communication lines with their customers.
Market Segmentation
The annual U.S. production of motor vehicle parts and accessories is valued at over $90 billion. The industry is made up of two principal sections: original equipment manufacturers (OEMs) and aftermarket suppliers. OEMs sell parts and components directly to automobile manufacturers for the production of new vehicles. Aftermarket suppliers manufacture and sell replacement parts for use in vehicles already on the road. The majority of automotive parts manufacturers sell to both OEMs and aftermarket companies.
Target Market Segment Strategy
The target markets that we will focus on are the manufacturers and distributors of auto parts. During the first year we will pay particular attention to the manufacturers because of the urgency with the major automakers. The plan is to break down manufacturers into two categories: original equipment manufacturers and aftermarket manufacturers. Following is a list of 6 of the top 20 that we will be pursuing heavily as customers, due to their profile, selling patterns, and the existence of established contacts:
- Dana Corporation
- Delco Electronics Corporation
- TRW Incorporated
- Robert Bosch Corporation
- Nippondenso Company Limited
- ITT Automotive
We will also focus on some of the major aftermarket companies based on the same criteria such as the following:
- Tenneco Automotive
- Federal-Mogul Corporation
- Echlin, Incorporated
- Tenneco, Incorporated
- Monroe Auto Equipment Company
Segmenting the automotive distributors will be done by determining who is primarily oriented to the consumer (do-it-yourself) and who is oriented towards the professional installer. The doit-yourself distributor will be more interested in reaching a large, nationwide audience for parts that can ship from any one of a hundred warehouses they own. We will recommend that they develop a program around free shipping just like Stan Roland does with Smartcars.com. Because of their increased volume and strategic sourcing, they are able to offer free shipping and significant discounts. Following are some of the chains we will target and the percentage of DIY business as reported by their CEO:
| Autozone | 90% |
| O'Reilly Auto Parts | 50% |
| R&L Warehouse (Federated) | 50% |
| Smyth Automotive (Pronto) | 40% |
| Hub City Warehouse | 40% |
The non-DIYer distributor will be more interested in improving their distribution chain than reaching the consumer, which we certainly can do through the Internet. However, AutoAftermarket.com sees this as an opportunity. Perhaps a distributor classified as "non-DIY" would benefit most by gaining DIY sales, a target market that they have never even identified. How could a company pass up the opportunity to increase their consumer sales without having to add additional sales people or a major advertising/marketing campaign? Following is a list of companies in our target market that we see as an excellent opportunity:
| Merrill Company | 15% |
| Barron Motor, Incorporated | 20% |
| Jarvis Supply Company (Federated) | 20% |
| Cape Warehouse (Pronto) | 20% |
| Pat Young Service Company | 25% |
During the first three years, AutoAftermarket.com will call on a 600-mile radius area around Indianapolis, including metropolitan areas such as Kansas City, Memphis, Detroit, Cleveland, Cincinnati, St. Louis, and Chicago. Many regional and national manufacturers, distributors, and specialty shops reside in this area. 61.6 percent of all manufacturers and 21.9 percent of all distributors listed in the "1999 Top 100 Auto Parts Chains" in the contiguous United States reside in this area primarily due to the strategic sourcing of car manufacturers. There is a limited offering of automotive aftermarket focused Internet consultants in the country, so there is a lot of potential opportunity.
Market Needs
By far, the greatest market need will come out of the major automakers' requirement of electronic strategic sourcing. As Harold R. Kutner, Group Vice President of General Motors Worldwide says, "It's the largest Internet business ever created. Nobody will be better. Nobody will be faster. Nobody will offer more to everyone involved." This no doubt will fuel the rest of the automotive aftermarket to become Internet-ready.
Another market need that AutoAftermarket.com will fulfill is the fact that the automotive aftermarket is in a major consolidation period. It is becoming more and more difficult to remain competitive. Many companies are looking for new and innovative ways to create additional sales. Another aspect of bringing automotive aftermarket companies online is that it will reduce the purchasing cycle, thereby directly reducing operating costs.
Another problem that AutoAftermarket.com tries to solve is to have more effective orders, i.e. fewer errors. Most companies experience a key-entry error rate of between 3-5 percent. Consequently, it is estimated that the handling of an error costs 5 to 10 times that of handling information transmitted correctly. A general rule of thumb for the cost of manually handling an incoming purchase order is somewhere between $50 and $75. Imagine eliminating just key-entry errors: this would save the customer 5 to 10 times that of $50 to $75. Also, by some estimates, the $75 handling charge when combined with an electronic ordering system can slash the cost of processing a purchase order to as little as $6.
Market Trends
The world's major auto manufacturers are currently restructuring their operations in North America, Europe, Asia, and Latin America. The parts manufacturers have responded to globalization by strategizing their operations to supply auto parts worldwide. This has resulted in a sharper focus by parts manufacturers on their core competencies in order to become more competitive. This in turn has changed the look of the automotive parts industry. Many automotive manufacturers have undergone strategic mergers and acquisitions in order to pool their resources and gain a competitive edge. Manufacturers who have been unable to do this have been forced to close their doors. The value of mergers and acquisitions soared annually, nearing a record $19 billion in 1997, up 27 percent from the previous year. Although this sounds like a weakness of the industry, AutoAftermarket.com will utilize this shortcoming as a selling point.
Market Growth
The automotive parts industry accounted for slightly over 4 percent ($157 billion) of total U.S. manufacturing shipments in 1997. It is projected that by 2003, industry shipments may approach $189 billion.
The compound annual growth rate for the past ten years was 9.5 percent. More recent years have seen increases of 5 and 6 percent, somewhat lower than previous. Traditionally, growth in the U.S. aftermarket has been directly related to the size and age of the vehicle fleet. As discussed previously, the primary reason for this relatively low level of growth has been the dramatic improvement of quality in U.S. auto manufacturers.
Domestically, firms have restructured themselves in an effort to maintain their competitive position with Japan. This consolidation of the market to become more competitive plays a key role in the future growth of the industry. To give an example, Dana Corporation between 1993 and 1996, completed 24 purchases or joint ventures. In 1998, they announced their acquisition of Echlin, creating a company worth $13 billion in annual sales.
Future growth for U.S. automotive firms will continue to be technology-driven with more and more government regulation. Fuel efficiency, safety, and environmental regulations will open up new windows in the parts market. Consolidation and competition will remain major issues for U.S. aftermarket suppliers over the long term. Many firms will become more competitive by automating their manufacturing and supply chain with Enterprise Resource Systems. Any ERP such as SAP and J. D. Edwards can and will link the entire industry to the Internet in some capacity, whether it's linking the supply chain together (B to B) or making products available to the end-user (B to C).
Service Business Analysis
The consulting business consists of thousands of smaller consulting organizations and individual consultants for every one of the few dozen well-known companies.
Consulting participants range from major international name-brand consultants to tens of thousands of individuals. One of AutoAftermarket.com's challenges will be establishing itself as a "real" consulting company, positioned as a relatively risk-free corporate purchase.
Distributing a Service
Consulting today is sold and purchased mainly on a word-of-mouth basis, with relationships and previous experience being by far the most important factor. Some of the smaller jobs tend to go out on bid with online sites such as E-Lance and Yahoo!
The larger, more well known Internet consulting firms like Razorfish and Web USA have locations in major cities and major markets, and executive-level managers or partners developing new business through industry associations, business associations, and chambers of commerce and industry.
Competition and Buying Patterns
The traditional buying process for consulting services varies by type of client and by type of service. Businesses find and choose consulting firms using several methods. Referral businesses find consultants through their lending institutions, business or industry associations, friends or colleagues, and the Yellow Pages. Businesses contact these consulting firms to obtain proposals and price quotes for the required services. A consulting firm is chosen based on the needs of the client, such as price, quality of proposal, as well as the reputation, past experience, and level of expertise of the consulting firm.
This was verified by General Parts Incorporated, the largest member of the CARQUEST buying group and the largest privately owned corporation in North Carolina. When they realized the need for an online presence and an Intranet, they went by different referrals from people within the industry, as well as their internal IS people. After a number were referred, the process of interviewing began until a final decision was made.
Strategy & Implementation Summary
