Diesel Profits

Dec 2, 2009

As we all clearly recall from late last year, fuel prices in general and diesel prices in particular spiked to previously unimaginable highs.

How did that jump in prices impact profits for the diesel pickup market? Does this market continue to grow? We asked a few different suppliers. Here are their comments and observations.

Diesel Price Spike

Oddly, one could make the argument that higher fuel prices made diesel vehicles more attractive, then, now and in the near future. After all, a gallon of diesel will carry a pickup farther down the road than a gallon of gasoline will, and if that road happens to go up a hill, the diesel will provide more power for towing.

It seems like a logical choice-but not one everyone realized.

Brian Roth of BD Diesel Performance in Abbotsford, B.C., says that high prices slowed down the economy by removing extra cash from the consumer.

Paul Morgan of Dynomite Diesel in Monroe, Wash., agrees, adding, “A lot of people parked their trucks for a while. Those trucks are now back on the road, but it was odd for a while. The town we’re located in is predominately a diesel pickup area. A lot of people have horses and responsibilities like that. But, we started seeing a lot more economy cars on the road.”

As tough as it was for those working with diesel pickups, other areas of the diesel world had it even harder. Morgan started his diesel career working with big-rig companies. He heard independent truckers, and even some of the big trucking outfits, say that if diesel went any higher, they were going to park their trucks.

“That’s quite a threat,” says Morgan. “They were losing their livelihood and threatening to walk off of the job if prices got higher. I actually know guys who say they couldn’t afford to haul loads at certain points.”

He adds that since prices have dropped, both parts and service sales have improved for diesel shops.

However, every company had their own experience. “In our case, in the end I think that things have stayed the same,” notes Mike DeFord of Bully Dog in Aberdeen, Idaho.

DeFord acknowledged that for the period when fuel prices were so high, people were buying fewer diesels. However, the company was helped by the fact that its products can improve fuel economy.

“Even if you’re increasing fuel economy by just one or two miles per gallon, it can add up over time. With that, we didn’t see a big downturn other than the fewer diesels being sold. But, we’re still moving as much product to the warehouses and dealers as we normally do,” says DeFord.

Daryl Sampson of Advanced Clutch Technology in Lancaster, Calif., witnessed minimal impact as well, though for a different reason.

“The price of diesel didn’t really affect us much, because only a small number of diesels use a manual transmission, so diesel sales are just a portion of our overall sales. However, in talking with other people in the industry, it seems that parts that provide power without efficiency gains have been hard hit.”

Tom Bennett, president of Superchips in Sanford, Fla., says that quite a few things contributed to the softening in attractiveness of the diesel truck market.

“Obviously, fuel prices spiking the way they did caused everybody to take a pause about how they use fuel and how their vehicle fits their lifestyle and needs. However, I think the diesel truck customer, by and large, isn’t buying a diesel for any kind of fashion statement or lifestyle statement. They buy a diesel out of need. But, I really do think they stopped to think about whether they needed a new one or not,” says Bennett.

Current Best Sellers

The spike in diesel prices certainly had an impact on the market as a whole, but there were smaller, more specific changes as well, such as a shift in product focus.

Roth notes, unsurprisingly, that the products performing best for BD Diesel Performance are those that extend the life of current vehicles.

“It is service and maintenance items, turbocharger repairs, fuel pump and injection services, transmission services and suspension-enhancing devices like steering box stabilizers,” he says.

Morgan says that injectors are selling best right now, explaining that since they wear out quickly on new diesels, they automatically generates sales.

“Also, people are looking for performance and economy, and we provide that in our entry-level performance injectors. Most people make gains in both horsepower and economy, so it’s a win-win for them.”

Morgan added that those injectors add 50 hp for most customers and a 1-2 mpg gain. He also noted Cummins is Dynomite’s best seller.

ACT’s Sampson says that in terms of sales, the Dodge 5.9 Cummins performs best for his company as well.

Looking at the software performance side of the market, DeFord says, “Right now, our best-selling products are our E3 Triple Dog Downloaders, and we’ve got both a gas and diesel version. Some of our other downloader units are doing well also. These are more economy-based products with lower price points and fewer bells and whistles than some of our other downloaders.”

Bennett informed us that of the three diesel-specific products Superchips sells, one is geared specifically towards improved mileage (Mileage XS), another towards increased horsepower and fuel efficiency (the Flashpaq, which comes with a few extra features), and finally, the high-end Cortex programmer that comes with a power train warranty.

“Surprisingly, what’s really moving right now is the Flashpaq, the venerable product that’s been around for a few years. People are appreciating that the product delivers both economy and performance, and further, they have the ability to set the parameters of their engine for either. Whereas with our mileage product, it’s really mileage only. I think people were thinking, ‘For a few dollars more, I can step into a performance programmer which already comes preloaded with the mileage settings and towing settings to complement the performance settings,” says Bennett.

Keep that in mind as you place product on the floor-package products together in deals and when speaking with customers: power and efficiency sell well together.

Parts Sales for New Vehicles

Overall, new vehicle sales are down for all categories. But specifically, how have they impacted diesel performance sales? The answers we received were somewhat surprising given the gloomy perception of many.

Morgan says new vehicles sales are steady for Dynomite Diesel. “Purchases slowed down there for a month or two, but now I’ve got guys showing up with ’08 trucks and wanting upgrades.”

“Oddly enough,” says Bennett, “the mix has stayed consistent for us between gas and diesel, and then the mix among the various OEMs, Ford, GM and Dodge, has been fairly consistent. It’s really just a matter of us being in a low-tide environment right now. The market went from selling 17 million new cars and trucks each year to 10 million. That net effect, of course, takes some dollars out of the market. I would say that the diesel market has been hit slightly worse than the gas market, but it hasn’t yet been noticeable enough for us to change our business strategy. We still believe that the diesel market is a very vibrant market.”

For guys who sell software performance, their product numbers cover so many different years and models for a make that it’s difficult for them to gauge sales of new vehicles versus older vehicles.

However, when Superchips’ customers register their new toys online, they also provide some interesting market information, and it actually seems to be pretty consistent.

“There’s a block of buyers who likes to buy and upgrade their new truck. There’s a block of buyers that tends to buy as a second buyer. As the vehicle comes out of warranty, it’s that buyer that can’t afford a new vehicle but really wants to customize the vehicle they have. Then, we have some real legacy buyers who purchased earlier versions of our technology and are looking to upgrade to the additional functionality of our new products,” says Bennett.

When selling these products to diesel customers, be sure to educate the customers as much as possible on all of the applications possible with their new performance software. This will add value to the product, making its sale easier. Also, get to know the customer in order to point out features that will be most useful to them. For example, someone who tows a lot will find value in being able to keep track of their EGTs.

Older Vehicles Modified More?

It is a topic worth tapping into during these tough times: Do consumers do more extensive performance and efficiency upgrades on vehicles they already own, rather than purchase new trucks?

According to Sampson, “Sales for older vehicles have remained relatively the same. I think that’s because for a person looking to buy a pickup truck, the deals for the new diesels, because of the financing and rebates available, were almost more attractive than those for used. Over the last 18 months, I think people looking to buy a diesel ended up buying new.”

Morgan says Dynomite Diesel hasn’t seen an increase in older diesel truck sales, but that’s because they’ve always done well with that market. “But, we are seeing an increase with guys that are doing major projects, such as full rebuilds to trucks that they probably would have traded in five years ago. I’ve had a lot of customers come in recently and say, ‘I’m going to keep this truck another few years. I have a budget of $5,000 to $8,000, and I want it to be better. Do everything it needs for it to be solid and perform better.’ And, that’s what we do. I think people are holding on to their vehicles longer.”

As for his view on older diesels, Roth says that BD actually recommends people buy diesels 2006 and earlier. “They get better fuel economy and are less expensive to operate, and the aftermarket has inexpensive parts coverage.”

Explaining some of the frustration diesel shops and their suppliers have had with the most recent diesel power plants, Roth says that the new trucks’ emissions systems have added to the cost of vehicle design and manufacturer costs. He added that the poor fuel economy results in a high driving cost and operational costs.

Great Service, Solid Marketing

Great service and solid marketing strategies are always important, but in tough times, they’re even more important. What can diesel shops do today?

“Promote service-related items, items that improve efficiency and add durability to reduce the cost of vehicle ownership over a longer period of time,” says Roth. He added that the most effective strategy he’s seen is simple: provide good, honest service with good quality products, and those that experience it will tell the world.

Morgan had a more specific strategy. “Any shop that’s looking for extra business should focus on any of the manufacturers’ common-rail injector years (for Cummins, it’s ’03 and on; for Duramax it’s ’01 and on; and for Power Stroke it’s ’03 and on). Those injectors basically have a life-cycle that’s shorter than any other injector that’s on the market because of the pressure that they’re asked to deliver. Their failure rate is high, so if you’re looking to put your shop into a new skill, that would be something I would look at first.”

Morgan also suggested looking into replacing fuel filtration.

Taking that further, in an atmosphere where consumers are hanging on to their vehicles longer, any shop could create a list of parts that wear quickly and then make sure they have an efficient performance part to replace it.

DeFord says that as a jobber, you have to know your customers. “If you pigeon-hole yourself into being just a performance shop, you’re not going to bring in the guys seeking efficiency and vice-versa. So really, just market yourself and all that you do. Be aggressive.”

DeFord noted that this is a time when no one wants to spend money doing anything. However, if you’re in a city with six other jobbers and only one of them is doing any marketing, there’s a substantial opportunity to do some marketing of your own and claim greater market share.

“The guys right now that are sitting idle and aren’t being aggressive are the ones that are going to be hardest hit, be it 30 days from now or six months from now.” He added that shops should also take advantage of the cooperative marketing programs Bully Dog and other suppliers offer. Those programs pool cash and collective efforts to retrieve as much value from the industry’s marketing dollars as possible.

Sampson advocated a creative package approach.

“For example, it makes sense to sell a downloader, intake and exhaust together, and many jobbers package those together. But, whenever power is added, it puts more stress on the drive train, particularly whenever significant power upgrades are sold, such as nitrous or a turbocharger. In these cases, it makes sense to package them with drive train upgrades. At the least, be sure to inform the customer that a new clutch should be their next purchase. Plant that idea in the consumer’s mind,” he says.

Sampson added that providing sound advice with each sale is another way to add value for customers. “A good salesperson can make the difference between an end-user ending up with a bunch of mismatched parts versus a planned process for upgrading their truck. The one thing the Internet can’t do is make up for a good salesperson.”

As with so much else in life, shops and salespersons who are better informed about the products they offer and the vehicles they improve will sell more than their less-educated colleagues.

“Put effort into studying diesel technology that you make your living from and that effort will be paid back in sales,” says Roth.