Preliminary Parts eCommerce Volumes | U.S. Automotive Dealers
Summary
$6.5 billion or over 27% of 2020 external parts sales by U.S. car dealers are forecast to be sold via eCommerce – in a first-ever study focused exclusively on parts sales of franchised car dealerships. The study by Fellowes Research of parts eCommerce transaction volumes is based on information from the dozen-plus firms that provide parts eCommerce to U.S. automotive dealerships,industry studies and data sets - and augmented by assessments from industry experts.
The eCommerce share of parts sales varies widely across four market segments. The Collision-repair segment leads with the highest share of parts sales that are eCommerce (40%) – followed by retail (consumer). In terms of absolute dollars of eCommerce transactions, the collision-repair segment is by far the largest – estimated at $4.5 billion.
Preface
Surprisingly, this is the first initiative to publicly reveal dealer/OEM parts eCommerce volumes by segment. Though automotive parts eCommerce has recently received much press – for example, the series of Automotive News stories (August 2019) reporting the findings of Hedges & Company – these prior studies have focused on retail sales and sales of AM parts – this study fills that void by including wholesale transactions (which are substantially larger than retail) and excluding non-dealer sourced sales.
For automakers and their dealership networks, parts are crucial to their financial performance (even survival). Historically, parts buyers ordered parts from dealerships by phone or fax – or walked into the store to stand in line at the parts counter. Parts eCommerce is gaining share in all four market segments and will come to represent the vast majority of part sales for each segment during the 2020s. Drivers of this shift include improved CX (Customer Experience), productivity gains (for buyers and sellers) and key capabilities enabled or facilitated by parts eCommerce solutions. Automotive leads the way and is likely blazing a trail that other vehicle and equipment industries will follow.
This report is preliminary in that there is endless complexity in filtering out double-counting (individual transactions may flow through more than one eCommerce platform) and flagging (and in some cases filtering out) non-parts sales (such as accessories and merchandise).
For their invaluable help in this study, my thanks to the firms that have provided aggregated transaction data and shared their views on eCommerce traffic sizes and trends.
Scope
Our initial study focuses on OEM service-parts sold to external buyers by U.S. automotive dealerships. (That is, internal use of parts by a dealer’s own operations is excluded.) There are four distinct market segments defined by parts buyer community: (1) collision repair; (2) mechanical repair including IRFs and fleets; (3) retail; (4) dealer-to-dealer. These four segments are each defined below.
The study included the four major types of parts eCommerce platforms for service-parts: (1) portals, (2) dealer websites, (3) OEM websites, (4) marketplaces – such as Amazon and eBay Motors. Excluded from this study is another type of online parts procurement/ordering – direct ordering – which largely falls short of the minimum attributes associated with parts eCommerce. Examples of online ‘direct ordering’: shops emailing lists of part numbers to dealers or manually exporting individual parts orders into a dealer’s DMS – and extending a dealer’s network of EPCs to include external buyers. Direct ordering (all types combined) – if counted – could add several percentage points to share of sales via online channels – but only for the wholesale segments. A future post will address direct ordering.
Parts eCommerce providers included in this study include: (in alphabetic order) Amazon, CCC, eBay Motors, Infomedia, Lexcom, OEConnection, OPS, PartSites, Parts Trader, RevolutionParts, SimplePart, Solera and WHI Solutions.
Why This is Important
In 2020, U.S. automotive dealerships will consume or sell nearly $75 B in replacement parts – of which $21 B will be sold to external buyers (that is, buyers other than their dealers’ own service workshops, body shops and vehicle reconditioning operations). The migration of OEM parts sales to eCommerce is creating winners and losers in contests pitting (1) automakers against AM (‘Aftermarket’ or non-OEM) parts manufacturers, (2) dealers against independent parts WDs (Warehouse Distributors) and stores, (3) dealers against dealers and (4) solution providers against solution providers for selection by OEMs and/or dealers.
In two of market segments – mechanical wholesale and retail – dealers and OEM (‘genuine’) parts are playing catch-up with AM parts. Only in the collision-repair segment have dealers established and retained the share lead in online parts procurement.
Interestingly, parts eCommerce, while benefiting all parts types, appears to disproportionately benefit OEM and dealer parts sales by enabling (or improving the facilitation of): (1) OEM targeted ‘conquest’ pricing, (2) promotion of substitutes – such as second-line parts, (3) identifying parts ‘missing’ from orders via OEM data; (4) filling in for the longer hours that dealer parts departments are closed compared to AM parts suppliers.
Parts eCommerce provides a significant productivity boost to sellers (as buyers take a larger role in identifying the specific parts to be ordered). In turn, this allows dealer staff to invest time in identifying parts the buyer should have ordered, errors in the parts ordered and building relationships with buyers. Parts eCommerce also reduces the percentage of parts that buyers return (very expensive) as well as potentially making the remaining returns easier to track.
Finally, growth of parts eCommerce will boost the revenues and valuations of dealer parts solution providers – to $ 1 billion and more (as it has in at least one case last year).
Collision-Repair Parts
The collision-repair market segment is not an arbitrary construct – it is naturally distinct with no material overlap with other market segments of parts buyers. Parts orders by collision repairers start in a shop’s collision estimating system which identifies needed repairs and associated part numbers with high (but not total) accuracy – next, for what shops call “online procurement”, either directly or via a collision shop management system – the part number file is shared with the eCommerce service via one of two CIECA standards. (Alternatively, parts orders are also faxed in – and placed via phone calls.)
In 2020, over 40% of OEM parts sold for collision repair of passenger vehicles in the U.S. will be ordered via eCommerce. There is no practical barrier to increases in this share – which may eventual reach 80% or higher. It is common for buyers and sellers to operate multiple eCommerce solutions – the average number is also likely to grow (but that’s a story for another post). Not every shop uses parts eCommerce, but the number and percentage of shops ordering via eCommerce continues to grow – particularly as eCommerce is promoted by collision shop systems providers. Not every dealer employs parts eCommerce to receive orders – and while the adoption rate will continue to climb, it is likely to level off at the percent of dealers with a low but not zero level of collision repair wholesale parts business – that is, well below 100%. Dealers incur $3,000 or more (per OEM) of direct costs annually plus personnel training and retraining – for each eCommerce platform adopted.
A small portion of orders will start in one eCommerce solution and via integration be delivered in another (competitive) eCommerce solution. This results in a likely-small double-counting of parts eCommerce volumes that will be quantified (rather than eliminated) in future revisions of the Fellowes Research OEM parts eCommerce volumes study.
The U.S. collision-repair segment has five incumbent eCommerce providers with successful nationwide dealer parts businesses. Several potential new entrants are in the wings.
Mechanical-Repair Parts
The mechanical-repair segment is also not an arbitrary construct – it is distinct from other segments with little overlap. Like the collision repair segment, the mechanical repair segment consists of preexisting buyer-seller trading pairs. Trading pairs form as the result of delivery times (wholesale parts transport is the seller’s responsibility), parts volume, negotiated discounts and buyer satisfaction. Negotiated discounts are deep enough that repair shops would rarely be able to get better OEM parts prices from another dealer for a one-time order with same-day delivery (or next day delivery), net of shipping costs.
IRFs and fleets do not have systems comparable to collision estimating systems. To order parts online, IRFs and fleets need an OEM parts catalog (in effect, an EPC). There are all-makes OEM catalog data sets (at least in North America) and many OEMs license their parts catalog and vehicle data sets – but there are holes, limitations and few online parts catalogs available and sufficient to achieve the full potential of OEM mechanical-repair eCommerce. The lack of (superior, inexperienced-user-friendly) online OEM parts catalogs is one reason (of several) that the mechanical-repair segment has developed slowly. In time, the online parts catalog situation will improve as OEMs realize that mechanical-repair wholesale parts eCommerce is in their best interest. In the mid-term, the eCommerce share of OEM mechanical repair parts sold by dealers will climb from percentages in the single digits to the majority of sales.
The U.S. mechanical-repair segment has three OEM parts eCommerce platform providers – but only one with a large footprint. There are several potential new entrants.
Retail Parts
As with the other market segments, ‘Retail’ covers a defined set of customers – DIYers – and has limited overlap with other segments.
Like mechanical repair parts eCommerce, Retail parts eCommerce is dependent on an online parts catalog (though retail buyers are thought to be more tolerant of catalog shortcomings).
Retail has seen greater churn in parts eCommerce platforms and providers than the other segments. Currently, there are a few major solution providers plus several smaller providers. While many, if not most dealers participate in retail parts eCommerce, it is a more competitive space as consumers are willing to wait several days or even a week until FedEx or UPS Ground can deliver their parts at a moderate cost – from any of hundreds of dealers with the needed part, not just those in driving distance. It is also the only segment dependent on creative ever-changing digital parts marketing – not in surplus at all dealer systems developers.
Dealer-to-Dealer Parts
Also self-contained and not overlapping other segments, dealer-to-dealer parts eCommerce – like collision repair – does not require a parts catalog. Dealer-to-dealer parts eCommerce is generated by several distinct processes and systems: (1) parts locators – only some of which support online ordering, (2) idle parts trade or exchange – only some of which are sufficiently automated to support end-to-end online processing, (3) OEM-directed parts order referral (generally for back-orders). This is the smallest of the four market segments – and (except for OEM order referrals) mostly a low share of transactions are online.
Next
Assessing parts eCommerce volumes is a process that continues at Fellowes Research. Automakers, other OEMs, dealers and dealer groups, DSPs, MSOs, insurers and all stakeholders interested in learning more or collaborating are encouraged to contact us.
Our preliminary transaction volumes for parts eCommerce by U.S. automotive dealers will be updated by an updated set of results in the next month with more segment level detail. Stay tuned.