This decade’s escalating fuel prices have resulted in the latest upsurge of interest in the diesel market, which is thought to counterbalance costs through better fuel economy. In years past, the diesel audience has been willing to sacrifice power and performance for fuel savings, but no more. And, as fuel prices continue to soar and the cost of diesel surpasses that of gasoline, look for changes in expectations of, and demands on, the diesel performance market.
Reflecting the growth of the market, Premier Performance of Rexburg, Idaho, already the largest diesel warehouse distributor in the U.S. with three locations, is planning to add two more by the end of 2008, says Joe Richards, their sales and marketing manager, “Other warehouses are laying off;” Richards notes. “We’re growing.”
Commenting on one of the factors contributing to the diesel aftermarket’s growth, Mark Craig, president of Diesel Performance Parts, Inc. (DPPI), located in Nashville, Tenn., states, “There’s an increase in the desire to find products that improve fuel mileage, and that trend will continue as long as fuel prices are high.” Six to 12 months ago, he points out, performance and towing capacity were sought after. Now, consumers are more concerned with chasing after better fuel mileage.
To that end, the wholesale distributor of diesel-related parts in Nashville, Tenn., carries modules, chips, programmers, air intakes and exhaust products. Almost everything DPPI sells, he adds, when used correctly, can improve mileage. “At $3 a gallon, people are looking for products that boost fuel mileage. Our products can add 2-3 mpg.” In fact, he says, Edge and Quadzilla have “mileage-specific products.” They don’t produce as much horsepower and have no features, but they do carry a lower sticker price-which helps make them popular.
Changing Market Trends
Electronic performance modules remain popular, Craig reveals. “People walk in and ask for them.” The problem, as he sees it, is that many consumers aren’t aware of the full performance package. “A module is good, but if you add fuel, you need to add air, and if you add air, you have to add exhaust. You must monitor the engine as you add performance enhancements. If you add 100 horsepower to a [Chevy] Duramax, for example, you add more fuel. That adds more heat, so you need to add air.”
Jobbers know that, which is why Joe Richards, sales and marketing manager for Premier Performance Products in Rexburg, Idaho, says intakes and exhausts are hot items and why electronics, which have been big sellers for a couple of years, are softer lately, although he concedes it’s also partly due to increased competition.
Parts from electronics to tuners still sell because they’re quick additions for more power, but Richards says because custom tuners are getting smaller and manufacturers’ tuners are good, there’s less need for consumers to go to dyno shops. A computer-savvy public is tuning at home.
That has some potential pitfalls. Craig explains that as auto manufacturers get tougher on warranties, aftermarket manufacturers are trying to keep one step ahead of them by going to programmers that aren’t detectable. He cites Ford as being particularly difficult on warranty issues, thanks to the “major catastrophe” with its 6-liter engine. He summarizes Dodge’s policy as, “If you put [aftermarket] stuff on your truck, you own it,” but says GM is more liberal about aftermarket add-ons.
As the industry tightens its grip, jobbers play an increasingly significant role. It’s more important than ever for retailers to know the market, understand the products and work with customers on individual applications for the best results. “A lot of retail employees are into extreme applications,” Richards surmises, “but the most extreme turbo doesn’t always work for a customer. You could burn up the turbo with towing or tuning. You can go too far with tuning. You need to find out what the guy does with his truck: Does he use it for towing? Is he looking for better fuel mileage?”
Now and Later
Craig rattles off a list of popular diesel vehicles: Ford Power Stroke, Dodge Cummins, Chevy Duramax, Volkswagen TDI, Jeep Liberty, Mercedes CDI. His list includes some surprises, such as Case IH, John Deere and New Holland.
Richards considers Dodge the leader of the pack now that the more stringent emissions regulations have gone into effect. Nevertheless, he says the diesel market is up and has broadened its scope to include light duty cars, vehicles such as the Jeep Grand Cherokee and half-ton trucks. Right now, three-quarter-ton trucks and one-ton trucks outnumber half-ton two to one or even three to one, Craig estimates, but Ford and Dodge are working on half-ton V6 diesels, he reports, and GM will introduce a smaller version of the half-ton Duramax that he envisions leading to SUVs.
“There are big changes on the horizon,” Craig forecasts. He believes the advent of low-sulfur diesel fuel will spark interest in passenger cars and European diesel vehicles, as well as compact and small-duty trucks. Since diesels get a larger BTU of performance out of the same quantity of fuel, a comparable engine gets better mileage, making smaller vehicles competitive. In this case, size doesn’t necessarily matter.
Compacts are already popular. “The Volkswagen TDI gets 40-plus mpg.” Craig points out, “and we can add 80 horsepower. It’s a screaming race rocket.” Because of its success, he claims Honda and Toyota are “looking hard” at the U.S. diesel market, “Everyone is.”
Richards agrees that the compact market is expanding, a phenomenon made easier by the fact that fuel systems have a common foundation from big trucks to small vehicles. “A 3.0-liter gets 30-40 mpg, makes good power and meets emissions requirements.” That’s important when the U.S. Environmental Protection Agency [EPA] is “hitting hard” and the industry is shifting away from black smoke.
Emission regulations may be taking aim at the diesel industry, but the regulatory focus is consequently opening the diesel industry to new ideas, vehicles and aftermarket parts. “It’s increasing the market we can sell products to,” Craig emphasizes. In fact, he advises retailers to think outside the performance box by reaching out to other market segments. Towing is big, Richards says, but think beyond retiring Baby Boomers towing fifth-wheelers, toys and even hot rods as they go back to their roots in their newfound leisure, using their plentiful disposable income. “Construction guys” also appreciate the better mileage and comprise a growing market share for aftermarket diesel performance sales.
Similarly, Craig says the agricultural market is big. “We sell a lot of modules for tractors, combines and harvesters.” He also urges consideration of the two- and three-ton market: straight-axle rental- and lease-type trucks typically used in delivery fleets. “If you can show them a 2-5 percent savings on fuel costs, they’re all over it.” If you already carry diesel performance parts, why not appeal to a broader range of customers and increase your sales volume?
A possible downside of expanding your markets involves the question of stocking inventory for a broader customer base. Richards advises carrying a wide variety of products and brands. “It helps to have plenty of inventory so the consumer who has a favorite brand can get what he wants. The Internet has changed the market; customers know specifically what they want. It’s worth the time to stock; it hurts sales if products aren’t available.”
Fortunately, he says, several manufacturers are making it easier on the retailer by consolidating SKU numbers. “For example, Hypertech went from 50 SKUs to about 20. Consolidation has been a big thing for warehouses. Instead of carrying 100 tuners for 100 vehicles, you can stock 30 tuners for 100 vehicles. It helps with overhead, and it helps expand business.”
Craig is of the opposite opinion when it comes to the issue of inventory. “Don’t,” is his rule of thumb-especially if you’re in a market heavily saturated with brands. “There are so many options, so many products. Unless you know your market and are a one-brand store, you’ll have a lot of stuff on hand.”
Why tie up space when DPPI is only “three days away” from virtually the entire country? Call before 3:30, he advertises, and your order will go out the same day. Even better, about 30 percent of the orders go directly to the end user, with billing sent to the retailer. Furthermore, Craig claims that DPPI deliveries are often less expensive than factory-direct shipping, due to DPPI’s volume and the subsequent freight discounts it qualifies for-discounts that are passed along to their customers. “The freight we bill our customers what it costs us. We’re not using shipping to make a profit.”
Besides, Craig argues, it’s not necessary to maintain a lot of inventory if you’re doing the installation, so you don’t need the part the same day any way.
Richards acknowledges that the better shops book two days out, so having parts on hand isn’t strictly necessary. For do-it-yourselfers, Premier ships directly to the consumer’s home. In fact, he adds, “We’re doing next-day freight more than ever.”
Smoke-tinted bug deflectors are popular impulse-buy items that Craig thinks should be stocked. However, when it comes to performance items, “It’s different. It can still be an impulse buy, but when customers are educated, they’re willing to wait for specialized parts.” Not only are consumers willing to wait, but the personalized sale makes the retailer look smart.
Retail Support and OtherBenefits of the WD
Making the retailer look smart is something both DPPI and Premier work toward. Although he encourages potential retail customers who sell performance but not diesel products to learn the technical side before the business “explodes,” Craig stresses WD support, praising the technical expertise available and boasting that, “We can help the jobber determine the right product for the application.” Noting that there are a lot of mistakes to be made without guidance, he explains that DPPI spends a ton of time educating retail outlets.
DPPI is “old-fashioned,” Craig rationalizes, because they retain a live person on the phone bank, rather than opt for an automated menu. “It costs us more money, but our customers will know the total cost and ship date and get answers to their questions.” If his tech support people don’t know the answer, they go directly to the manufacturer to get it.
But vendors are limited on tech support, Richards states. It’s one of the challenges of manufacturers’ jobber-direct programs. “How do you handle questions and returns? We educate retailers on what the customer needs because we have inside knowledge of the market.” The WD acts as a resource for jobbers who need answers to consumers’ questions.
That extra layer of customer service is just one advantage WDs can offer. Richards lists others: “We help retailers save space, time and money because we have better pricing. A lot of guys carry aftermarket parts, but we offer service and inventory beyond just parts on the shelf. Our availability and timeliness minimize their capital. We’re more accommodating. We can supply quickly; we drop-ship in two days via UPS to 90 percent of the country.”
As Craig points out, many manufacturers don’t keep a lot of back-up inventory. “We do.” It’s available and, since he believes most shops concentrate on price, he estimates that 99 percent of the time, DPPI can offer dealers, jobbers and distributors the same direct-buy price or better.
“In a lot of cases,” Richards speculate, “direct buyers don’t save money with direct buy.” Another money-saving advantage of doing business with a WD is that, “We already made the buy-in for you,” Richards explains. “That can cost $50,000.” In essence, he says, “We used our money to help their business.”
A jobber can’t be direct with all the manufacturers, Craig insists. It’s far too time-consuming. As a result, they sell what they’ve got-whether or not it’s what the customer wants or needs. That carries long-term consequences. “You lose money if the customer isn’t satisfied. Beyond price, service and technical support, satisfaction is most important. You want customers to come back to the same retail outlet for everything.”
WDs provide services you can’t get from direct-buy, Richards reiterates, yet a lot of “wobbers” [small-time shops that buy direct], get “direct-itis.”
“There’s a certain status associated with being direct,” Craig admits, adding that there’s a perception that direct-buy translates into better deals. “That’s not necessarily true.”
In addition to offering competitive pricing and covering the buy-in, he explains another WD advantage. “We’re selective about the manufacturers we use; they must be stable. We do the due diligence on manufacturers for the jobber.”
WDs field a lot of problems retailers might encounter in a direct-buy situation. “The margins [with direct-buy] are better,” Richards acknowledges, “but that’s offset by more headaches, phone calls, returns and lengthy drop-shipping [some vendors take 2-3 days]. After six months, most come back to us.”
One headache relief comes in the form of a buffer. Craig says manufacturers’ representatives do everything in their power to sell their products. “Sure, we’re here to sell products, but we sell whatever fits the application and need. We’re not entrenched into any brand.”
Correspondingly, Richards says Premier isn’t involved in conversion sales. “We’re not selling any particular product or brand. We focus on what the customer needs.” However, he says Premier helps set the trends and market direction because of all the research they perform and because they help locate dealers to test the new products that manufacturers are developing.
Finding Mr. Right and Makinga Future Together
In addition to running interference, WDs simply have more to offer. “You have to be a warehouse to buy direct, unless you go with only one brand,” Richards presumes. But not all warehouses are alike. It’s important to forge a relationship with the right supplier.
“Look at the warehouse distributor,” Craig councils, “not [just] the name, the size or the price. Look at what they can do as a whole package. Some sell on price alone. We’re competitive on price, but you get so much more, and that makes you more money in the long run.”
Jobbers shouldn’t have to compete with their supply source to make money. “Some warehouses sell retail,” Richards divulges, “but we don’t compete. It’s a good selling point for us. It’s not worth the risk of hurting our retailers, even if it’s tempting because of the margins.”
Evaluate suppliers carefully. “Some companies-big box stores or diesel-specific WDs-claim to be the biggest, best, etc., but all they sell is a part number,” Craig contends. “They don’t have the knowledge to guide jobbers. We’re the best for our customers because we know we’re nothing if they don’t call, and they won’t call back if they didn’t get what they needed the first time. If they’re getting repeat business, we’re getting repeat business, as well as word-of-mouth advertising.”
Wherever retailers get their parts from, one thing is certain: the diesel trend is here to stay. “Diesel is the future of hybrids,” Richards believes. “You can do great numbers using renewable sources such as coal, bio-diesel and veggie diesel. It requires a big education process, but it will help the tuner market because there’s still room to fine-tune and get extra power. It gets new markets, like people who don’t have three-quarter-ton trucks but like the diesel idea.”
Plenty of people do like it.
“People see a big truck and think you’re wasteful,” Craig assesses, “but with a diesel truck, you can be ‘green’ and get 20 mpg on the highway, stock!”