Motor Vehicle Supplies and New Parts

SIC 5013

Companies in this industry

Industry report:

This industry classification is comprised of establishments primarily engaged in the wholesale distribution of motor vehicle parts and supplies, such as accessories, tools, and equipment. Establishments primarily engaged in the distribution of used motor vehicle parts are classified in SIC 5015: Motor Vehicle Parts, Used.

Industry Snapshot

In essence, the auto parts industry concentrates on two different markets. One side consists of several tiers of original equipment manufacturers (OEMs) that supply automobile manufacturers with parts for new automobiles. After suffering through economically difficult times during the early 2000s because of a recessive economy, by the mid-2000s the auto parts industry still had found little relief despite an upswing in the economy and record new car sales.

Overcapacity caused by production cuts at Ford, General Motors, and Chrysler combined with skyrocketing energy, plastic, and steel costs had squeezed the price margin for parts manufacturers. Both Delphi and Visteon, the nation's largest parts manufacturers, were struggling to remain in the black, and a number of smaller operations either closed shop or sold out to the bigger players. Eight major suppliers filed for bankruptcy in 2006, continuing a trend in which at least 36 large auto parts makers sought Chapter 11 protection since 1999.

In addition to OEMs, other manufacturers and wholesalers serve the automotive aftermarket, providing replacement parts for used vehicles. This sector of the industry continues to experience consolidation. According to the Automotive Aftermarket Industry Association, total automotive aftermarket retail sales grew by 5.4 percent during 2004 to $257 billion then jumped to $267.6 billion in 2005. However, this figure includes service repair and tire sales, which together make up the bulk of the total.

To say the auto parts industry was struggling as a result of a global economic downturn in 2009 would be an understatement, when in fact more than 50 suppliers filed for Chapter 11 bankruptcy protection, while another 200 suppliers were liquidated. Overall bankruptcies weren't expected to level off until sometime in 2010. Additionally, a tightened credit market after the financial crisis made it impossible for automotive parts suppliers to secure any type of loan to cover materials and payroll. According to the Original Equipment Suppliers Association (OESA), automotive suppliers were operating at 45 percent capacity at the onset of 2009. It will take until 2012 for the auto industry, including parts suppliers to see any notable progress.

According to the U.S. Department of Commerce, the U.S. original equipment (OE) and aftermarket parts market was valued at $260.4 billion in 2007, declining 15.2 percent to $220.8 billion in 2008 from data supplied by Ward's Automotive. Revenues fell 23.4 percent in 2009 to $169.2 billion, a reflection of the ongoing stagnant economy. Of the $169.2 billion, OE parts accounted for $149.9 billion and aftermarket parts constituted $70.9 billion.

Background and Development

Traditionally, the distribution process for delivering motor vehicle supplies and parts to the marketplace took place in three steps. Manufacturers sold products to warehouse distributors, who then sold them to "jobbers" who in turn sold them to customers such as service stations. Jobbers offered benefits such as the extension of credit and wholesale discounts, and often sold items at retail price to the "do-it-yourself" market segment. Warehouse distributors provided other advantages, such as accessible inventory and a process for returning defective parts and stock that did not sell.

A variation of this process, termed "programmed distribution," emerged as jobbers united to make purchasing decisions. The largest and one of the oldest organizations of this type was the North American Parts Association (NAPA), which provided services such as volume buying, private labeling, and advertising.

During the 1980s and early 1990s, the distribution process evolved: jobbers began to make purchases directly from manufacturers, bypassing the warehouse distributors. Some claimed it would reduce costs by streamlining the industry; others claimed it merely shifted the costs of maintaining an inventory and handling returns to the manufacturer.

According to the Automotive Aftermarket Industry Association (AAIA), by 2002 consolidation had significantly scaled back the number of participants in the aftermarket portion of the industry. Much of this activity took place throughout the 1990s. Through consolidation, the number of establishments increased, while the number of owners decreased. For example, as illustrated in Automotive Marketing Online, in 1987, the top 100 chains owned 2,771 stores. By contrast, in 1999, the top four chains owned more than 6,000 stores.

Assimilation was another growing trend that became evident during the 1990s. With assimilation, the lines between the traditional and retail channels become blurred, and the use of the three-step distribution process has declined. As revealed in the November 2002 issue of Aftermarket Business, industry assimilation was still taking place in the early 2000s, and conditions were not expected to change in the near future.

With automakers running on razor thin profit margins and trying to make a profit by sheer volume alone, they were loathe to pay more for parts than absolutely necessary. Plagued by overcapacity, extremely thin price margins, and increased competition from overseas manufacturers, several of the big-name auto parts suppliers were struggling to show positive results in the mid-2000s. Record-high numbers of new auto sales helped keep demand up--even if prices were stagnant--during the first few years of the 2000s, but in 2004 auto sales declined slightly and the cost of steel nearly doubled, leaving parts suppliers in even more difficult position.

Visteon, the parts maker spun off from Ford in 2000, posted losses of $1.5 billion in 2004--and $3.2 billion in losses since 2000--and had to be bailed out by Ford to avoid going under. The country's largest auto parts manufacturer, Delphi, had its own financial problems, posting a net loss of $56 million in 2003 and announcing a Chapter 11 bankruptcy filing in 2005, compared to net gains of more than $1 billion recorded in both 1999 and 2000.

The aftermarket sector continued to struggle with the increasing complexity of automobile engines, which scared do-it-yourselfers away from self-maintenance. Although motor repair and maintenance has advanced beyond the skills of most drivers, the do-it-for-me (DIFM) market was increasing in popularity. James E. Guyette noted in Aftermarket Business, "Because of the increased complexity of repair, the more difficult--and more expensive--repairs are becoming more of the exclusive domain of the DIFM segment, a trend expected to continue."

During the first half of the 2000s, the aftermarket segment continued to consolidate, with 37 acquisitions, worth approximately $7.5 billion in sales, during 2003 alone. The top competitors were also expanding operations by opening stores in new locations. For example, during 2004, AutoZone, Inc. opened 201 new stores and O'Reilly Auto Parts opened an additional 105.

Mergers and acquisitions continued through the mid-2000s, with 32 taking place in 2005. According to industry analysts, fewer than 100 major suppliers will remain by 2010 after the first decade of the twenty-first century began with 800 major suppliers.

Jobs in the automotive parts industry have not increased since 2000, when the industry employed more than 920,000 people. According to the Bureau of Labor Statistics (BLS), employment in the industry dropped 3 percent from 2005 to 2006 and stood at less than 722,000.

Auto parts industry shipments totaled $217.1 billion in 2005, according to the U.S. Census Bureau's Annual Survey of Manufacturers. U.S. exports of auto parts were $58.9 billion in 2006, an increase of 6.9 percent from 2005. Exports to Mexico and Canada accounted for 76 percent of total U.S. exports in 2006.

Current Conditions

According to the U.S. Census Bureau, 37,619 automotive parts and accessories stores operated in the U.S. in 2008 with industry-wide employment of 303,113 workers.

As the economy struggled through one of the worst downturns in recent memory, the automakers scaled back production, as did their parts suppliers with mass layoffs. U.S. employment for both the automakers and automotive parts suppliers combined fell 24 percent from 875,000 in 2008 to 666,300 employees in 2009.

Despite massive layoffs and scaling back wherever they could to survive, it was no match when two of the Big Three, Chrysler Group LLC and General Motors Company filed for Chapter 11 bankruptcy protection. Tight credit only added to parts supply companies grim outlook since banks could not be assured of payment, especially when automakers had sought bankruptcy and were not guaranteed payment.

The bankruptcies of Chrysler Group LLC and General Motors Company followed with emergency funding from the U.S. government. In response, the trade association for the auto parts supply industry requested a bailout of $25 billion, in which they received $5 billion to be governed by Chrysler's and General Motors. Of the $5 billion allotted from the federal government, parts suppliers needed $413 million, which was paid in full by March 31, 2010.

During the first quarter of 2010, there was a noticeable improvement in both production and the return of credit availability. Many parts suppliers that were in the red in the first three months of 2009 were returning to profitability. However, some analysts warned parts suppliers not to get ahead of themselves. "The parts industry has a history of bulking up quickly after recessions as auto sales recover, only to struggle later if demand wanes, Jim Gillette, an analyst with CSM Worldwide, who advises parts suppliers noted in Crain's Detroit Business in April 2010"

Industry Leaders

The top industry leader in motor vehicle supplies and new parts, Delphi Corp. based in Troy, Michigan, lost $5.5 billion in 2006 after losing $2.4 billion in 2005. The company had global sales of $26.4 billion in 2006, down from $26.9 in 2005. Delphi struggled to emerge from bankruptcy protection in 2006, when roughly 20,000 of its approximate 33,000 unionized workers agreed to take General Motors-supported buyouts or early retirement. Visteon Corp., near bankruptcy in 2005, received assistance from former parent company Ford in the form of a $3 billion bailout. The agreement transferred 23 unprofitable plants and approximately 23,000 workers to a holding company controlled by Ford. The result was 2005 revenues of $11.4 billion for Visteon, down from $18.7 billion in 2004.

The aftermarket side of the industry was led by Genuine Parts Company, the largest member of the NAPA trade association. Based in Atlanta, Georgia, Genuine Parts recorded almost $10.5 billion in sales and employed 32,000 workers in 2006. The nation's largest distributor was AutoZone, Inc., with revenues of $6.2 billion in fiscal year 2007. AutoZone operates some 4,000 stores and employs about 53,000.

Delphi Corp. reported $18 billion in 2008 with 146,600 employees. In a deal that that transferred control to its lenders, Delphi Automotive (formerly Delphi Corp.) emerged from bankruptcy and was taken private in 2009. Additionally, General Motors agreed to take back some Delphi plants and its steering business. Delphi was left with four plants from a high of 44 plants at the time the company filed for Chapter 11. Visteon Corp. filed Chapter 11 bankruptcy protection in May of 2009 and emerged in fall of 2010. The company reported revenues of $9.5 billion in 2008 before plummeting to $6.6 billion in 2009. During 2010 the company was able to grow its revenues to $7.4 billion with 26,500 employees.

Genuine Parts Company reported revenues of $10 billion in 2009 before climbing to $11.2 billion in 2010 with 29,000 employees. The company operated about 1,100 NAPA Auto Parts stores throughout more than 40 states. AutoZone, Inc. posted revenues of $6.8 billion in 2009 with 60,000 employees. The company operates about 4,390 stores in the U.S. and Puerto Rico, as well as another 235 stores in Mexico. For 2010, AutoZone grew its revenues to $7.3 billion and increased its workforce by 3,000 employees.

© COPYRIGHT 2018 The Gale Group, Inc. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. For permission to reuse this article, contact the Copyright Clearance Center.

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