Wholesale Parts –Dealerships' Other e-Commerce Opportunity
By Ted Fellowes
Big Changes Coming
Why start with parts e-commerce? Simple: over the next several years, for most dealerships, parts e-commerce will have a larger impact on fixed operations than anything else on the horizon. Your wholesale parts business will be changed, perhaps dramatically, by e-commerce. The first wave of parts e-commerce initiatives surfaced in the second half of 1999 when two parts information services leaders, Bell & Howell and PartsVoice (a Cobalt subsidiary), revealed separate visions at dealer conferences. The pace picked up at NADA 2000 with a beachhead of parts "dot.coms" (Parts.com, CarParts.com and CarStation.com) and continued through 2000 with the entry of major new players (ChoiceParts formed by Reynolds, ADP and CCC, followed by iStarXchange, a joint venture between Toyota and i2). Expect a flood of parts e-commerce announcements, booths and activities at NADA 2001. The claims and counterclaims will be confusing; the investments and fees may be substantial; the profit opportunity and risks are too large to ignore.
Big change brings risk as well as opportunity. Competitors to dealers' wholesale parts business, aftermarket, and salvage parts operations, long limited by inferior technology, embraced the new economy sooner and are now automating more rapidly than dealership parts departments. Increased transparency for pricing, quality, and availability inherent in e-commerce may unleash more threats to dealership sales of O.E. parts. It's too early to be afraid; but be aware, very aware.
Supply Chain
Parts e-commerce has several meanings. How you define parts e-commerce varies with your position in the supply chain. So, let's start with an overview of the three links in the automotive parts supply chain:
- (1) parts procurement by the automakers
- (2) movement of parts from the automaker to the dealer
- (3) sale of parts by dealerships
No single e-commerce initiative covers all three links and few cover more than one. Covisint, the joint venture between the big three automakers and Renault/Nissan, is the best example of an e-commerce initiative targeted at the supply chain's first link. The hope is that Covisint will enable the automakers to procure parts at lower cost, and the automakers will pass some of those savings to dealerships in the form of lower dealer costs for parts.
It appears that parts suppliers' fear, that Covisint increases emphasis on price, leading to thinner margins, is largely correct. And that is why Covisint (in its current form) will not expand into the next two links of the supply chain. It is not in the interest of Covisint's founders (automakers) to extend a buyer-centric e-commerce model into automaker-to-dealer trade. Obviously, the automakers wish to be the sole source of parts purchased by dealers-so the automakers see no need for an e-commerce exchange like Covisint operating between them and dealers. Nor do the automakers want a buyer-centric, price-focused e-commerce business model to succeed in dealers' wholesale parts markets. The automakers want parts buyers to focus on quality and service, not price, as O.E. parts seldom are the least expensive.
Web DCS
e-Commerce implementations of dealer-automaker parts trade are emerging: several automakers are enabling parts ordering via Internet-based DCS. But until integrated into your dealership's DMS, dealer-automaker parts e-commerce will be more an engineering curiosity than a meaningful contributor to your bottom line. The first Internet-based dealer-to-factory parts ordering was implemented by Bell & Howell and Click Interactive for Hyundai over two years ago. Since dealer-to-factory parts orders are already automated within most major DMS platforms, the goal of applying e-commerce to this link in the supply chain is limited to reduced dependence on the DMS DSPs and, in theory, lower DMS fees. But expect the DMS DSPs to charge fees for integration to automakers' web-based parts DCS, and expect those fees to be at least as much as the fees for your current DCS-within-DMS application. (Eventually, someone will end up pocketing the reduced telecommunications costs.)
Parts e-commerce between manufacturers and dealers is more common in industries without sophisticated parts inventory DMS applications. But for automotive dealers there is little money in the first two links of the parts supply chain. Potential profits are concentrated in the third link, the sale of parts by dealerships.
Market Segmentation
The final link of the parts supply chain is the most complex and fragmented. Dealerships' wholesale parts e-commerce opportunities are a confusing jumble unless described by market segment. The most effective segmentation follows natural divisions of buyer communities. For daily B2B parts sales via dealers, there are three categories of buyers:
- (1) other dealers (dealer-to-dealer, "D2D")
- (2) installers (dealer-to-installer, "D2I"), which includes all professional mechanical repair operations from independent repair shops to fleet operators.
- (3) body shops (dealer-to-collision, "D2C").
Although an e-commerce initiative may serve all three market segments, different sets of applications will be required to implement e-commerce for each type of transaction. For example, a D2C e-commerce solution must integrate with body shops' collision estimating systems, a D2D initiative must have at its core a superior parts locator, and a D2I portal requires a web-enabled EPC and integration with installers' systems.
Business Models
Business models for e-commerce vary by whether and how the supply chain is changed. And e-commerce business models vary by whether they structurally favor the seller ("sell-side") or buyer ("buy-side"). For automotive replacement parts, there are a few additional twists. Many, if not most, early e-commerce models were designed to blow up the supply chain by cutting out one or more links in the chain (disintermediation). Initially, a number of dot.com start-ups approached the automakers about directly buying O.E. parts, intending to cut out the dealer community. The automakers have declined every overture. I believe that any significant loss of dealer participation in O.E. parts sales is unlikely.
Another way to change the supply chain is to add a link (intermediation). This is also called "brokering." In the case of vehicles, brokers are forbidden by the automakers. And it is not too hard to imagine that parts brokers are unwelcome by the automakers. The intermediary buys parts from dealers at pre-negotiated (heavily-discounted) prices and then sells the parts to buyers (at higher prices). The broker-intermediary may have dealers drop ship parts to body shops or installers, but the dealer is paid by the intermediary, not the shops installing the parts. Most new B2B e-commerce businesses profess opposition to blowing up the supply chain and instead promise to tune it up.
Whether an e-commerce initiative favors buyers or sellers is more subjective and can be contentious. Many e-commerce entities claim that they benefit both sides and are thus neutral. Such claims are misleading. Buy-side models emphasize price and enable multiple sellers to bid on a single buyer's order. Buy-side initiatives often expand the included seller community to further increase price pressure. A sell-side model does the opposite. For example, Hyundai's parts e-commerce site is pure sell-side: the buyer can send an order to only one seller, buyers cannot directly compare prices from multiple sellers and only franchised Hyundai dealers are welcome as participating sellers. Near the opposite end of the continuum are ventures that expand the seller community to include salvage yards and aftermarket WDs and allow buyers to easily compare prices.
Exchanges (sometimes called portals, or in vertical markets like automotive parts, vortals) are a popular new form of B2B e-commerce. Covisint is an exchange as are iStarXchange and ChoiceParts. Exchanges connect buyers and sellers, they provide tools and processes to automate completion of transactions; they may even provide customer support and dispute resolution. Exchanges are much more than lead-generation services and often may be primarily focused on lowering the costs of transactions between buyers and sellers that are already doing business together. But exchanges are not buyers or sellers.
The final important distinction between e-commerce business models is control. For O.E. parts e-commerce, initiatives may be controlled by individual automakers, groups of automakers, dealer groups, DSPs and independents.
In theory, an e-commerce exchange could also be controlled by a group of buyers, but at present the buyer community is too fragmented for an effective buyer-controlled exchange. (Although an insurance industry-led exchange is not unthinkable). Control is significant for several reasons, the first of which is that it impacts the extent to which buyers or sellers are favored. And control determines the scope of an e-commerce initiative. For example, will recycled and aftermarket parts be sold side-by-side with O.E. parts or left out? In terms of scope, we must remember that other than consumers, buyers need parts for all makes and models, as well as recycled and aftermarket parts. For that reason, I predict parts e-commerce models that are too narrow (for example, a single automaker's) will fail to have significant market impact.
The Rest of the Story
In my next column, I will finish this introduction to parts e-commerce for dealers by answering the following questions. Of the over 50 North American automotive parts e-commerce initiatives, which are the leaders? And how will they make you more profitable? Why are automakers the dealer communities' best friends when it comes to parts e-commerce? How should you decide which parts e-commerce initiatives to participate in? How many should you participate in?
In the meantime, dealers who want to learn more can look for conventions, exhibitions and seminars on parts e-commerce. In the near term, I recommend attending NADA's convention (www.nada.org) and now that eAutoWorld has forged an alliance with WD&S, consider attending their April conference in Detroit (see www.eautoworld.com for more information).
Finally, I'd like to hear from dealers with wholesale parts e-commerce experiences, good or bad. If you've put your parts inventory on the web, let me know. Or if you have used "middleware" to connect your DMS to the web, e-mail me.
Breaking News: December 8, 2000: At NACE, the annual conference and exhibition for the automotive collision repair industry, GM, DCX, Ford, and Bell & Howell announced the formation of a joint venture, rocking the parts e-commerce world. The unnamed joint venture (call it NewCo) will launch an OE-only parts e-commerce exchange whose purpose is to assist dealers sell more genuine parts-no aftermarket or salvage parts. This is strictly through the franchise dealer channel, for the dealers, by the automakers. Learn more at www.oeconnection.com, the initiative's web site.
With the Big Three forming a club for 800-pound gorillas with Bell & Howell, the landscape now consists of three gorilla clubs and countless nervous dot-coms. The three troupes of big gorillas are:
- NewCo: Big Three plus B&H
- ChoiceParts: ADP, R&R and CCC, the original gorilla club
- iStarXchange: Toyota and i2, one of the really big e-commerce infrastructure makers.
Will the gorillas learn to live together or will they try to rip each other to shreds? More in the next column on what this means to you.
Ted Fellowes is a consultant with over 15 years experience in automotive parts information. His firm, Fellowes Research, focuses on replacementpartse-commerce.tfellowes@dealeronline.com
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