Automotive Aftermarket Analysis free essay sample

The automotive aftermarket is a large contributor to the U. S. economy employing nearly 4. 6 million people. New replacement automotive parts such as alternators, brakes, lights, bumpers, fenders, and so on, are parts referred to as â€Å"aftermarket† or â€Å"functionally equivalent† parts when made by a company other than the original car manufacturer (Ford, Chrysler, Chevrolet, and others). This industry sells automotive parts and other products used to maintain or repair light and heavy duty vehicles. Products are sold both to consumers who repair or accessorize their own vehicles, the â€Å"do it yourselfers† (DIY) and to professional service stations or installers like gas stations, auto repair shops and service departments which are the â€Å"do it for me† (DIFM) providers. Dominant Economic Features Nearly 45,000 companies with combined annual revenue of $135 billion define the wholesale and retail automotive parts industry. Top companies include Genuine Parts/NAPA, AutoZone, Advance Auto Parts, CSK Auto, and Pep Boys, all with annual sales over billion. We will write a custom essay sample on Automotive Aftermarket Analysis or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page The top 25 wholesalers and top 40 retailers each have annual sales over $100 million. Many large firms operate both wholesale distribution centers and retail stores (Hoovers, 2008). During the 2003 -2007 periods, the US automotive aftermarket demonstrated fairly slow but steady rates of growth and is expected to continue over the forthcoming five years (DataMonitor, 2007). As stated by AAIA, â€Å"Overall aftermarket sales increased in 2004 to $257. 0 billion, an increase of 5. 4 percent from 2003. An increasing number of miles driven by an ever-growing vehicle population helped the aftermarket increase in 2004. Sales in the automotive aftermarket (cars and light trucks) totaled $190. billion and sales in the heavy duty vehicle aftermarket totaled $66. 5 billion† (AAIA, 2008). Estimated as a $257 billion market in the United States, the aftermarket helps keep vehicles on the road by providing consumers the choice to where they want their vehicles serviced, maintained or customized (AAIA, 2008). As indicated by AAIA, â€Å"The automotive aftermarket is the part of the automotive industry concerned with the manufacturing, remanufacturing, distribution, retailing, and installation of all vehicle parts, chemicals, tools, equipment and accessories for light and heavy vehicles† (AAIA, 2008). Porter’s Five Forces Power of Buyers Aftermarket auto parts retailers are prevalent throughout the country. In most cases the power of buyers is directly proportional to the availability of options given the buyer. Buyers can choose products based on price, brand and retailer assuming the retailers are readily available. Retailers can empower buyers by choosing store locations in proximity to competitors. By being readily available to buyers, aftermarket auto parts retailers such as Advance Auto and AutoZone give buyers the power to choose their store. Conversely the buyer’s power is less when there are limited options available or if the market has not been tapped and choices are limited. Both AutoZone and Advance Auto spend a great amount of money in building their brands and developing customer loyalty. This is a direct result of the buyer’s power to choose between these retailers and others. While buyers may have power in choosing retailer or brand they have little power to drive down prices in the aftermarket auto parts industry. Advance Auto and AutoZone both market to a large number of relatively small buyers. Neither company has large buyers that are significant enough to their businesses to drive prices down. Although single buyers do not influence the market and affect prices, buyers are able to be price sensitive as there is little product differentiation between sellers. Without product differentiation these price sensitive buyers put pressure on Advance Auto and AutoZone to lower prices to remain competitive. The lowering of prices and increased competition in trying to â€Å"win† customers cuts directly into the profits of these retailers. Proprietary information has decreased the power of buyers as well as the power of sellers in the aftermarket automotive industry. As the automotive industry becomes more advanced with the use of computers and special tools the independent repair shops and consumer are losing the ability to make repairs and replace parts. The information needed to work with the computers and special tools is held by these specialty manufacturers. They continue to withhold any information in an effort to capitalize not only on the sale of an automobile but also the repair. This disadvantage which is created by the automobile manufacturers is being fought on Capitol Hill. The â€Å"Right to Repair† act has been gaining support in an effort to make this proprietary information public and give the consumer the opportunity to purchase these items in a competitive market. Power of Suppliers Large suppliers like Delphi, Johnson Controls and Visteon, and many thousands of smaller suppliers and manufacturers make parts for auto companies under new vehicle programs and also make replacement parts specifically for the aftermarket retailers and wholesalers. A wholesaler/retailer typically buys from 200 to 300 vendors. Production programs for new cars typically include 5 to 10 percent of production that goes to the aftermarket. Long-term supply contracts are rare, and in most cases, several suppliers are available for any particular product (Hoovers, 2008). Key inputs to the automotive aftermarket include various materials such as metals, plastics and equipment for the manufacturing process. Steel and aluminum prices have increased over the past few years and ongoing consolidation in the steel industry may lead to further price rises. Price increases are passed along from the steel industry to the aftermarket manufacturer, from the aftermarket manufacturer to the retail company and finally on to the end consumer. Raw material prices are also increasing and therefore will also negatively affect aftermarket manufacturers and retailers like Auto Zone and Advance Auto profits. Some suppliers are large companies such as steel manufacturers and they supply to a wide range of industries; thus brake manufacturers are not vital to their success in the market, strengthening supplier power. The quality of the product is crucial to the success of the brake aftermarket, particularly with brake components as they are integral to the safety of automotive vehicles (DataMonitor, 2007). According to DataMonitor Industry Research, â€Å"There is little risk of market players backward integrating as suppliers businesses are very different to their own and this would require high capital outlay. Although similarly it is unlikely that suppliers would attempt forward integration here†. Overall supplier power in this industry is strong (DataMonitor, 2007). Threat of New Entrants As more firms attempt to enter an industry, the profits of existing firms will ultimately decrease as well as lower their market share. Therefore, large retailer such as AutoZone and Advance Auto Parts must find innovative techniques to assure that they can keep new firms at a large disadvantage in competition. However, at present, the threat of new entrants in the automotive aftermarket industry is low to moderate. This was determined by examining criteria relevant to new entry threat as discussed below. New entrants need to operate scale economies to achieve success with the need for extensive distribution networks and efficiency in production to compete against large incumbents. Barriers to entry are therefore fairly high and this combined with slow market growth makes entry to the market problematic (DataMonitor, 2007). Economies of scale are a key factor to the success of new entrants in automotive aftermarket industry. In order for new entrants to earn significant profits they will have to sell large quantities of product, and therefore have to accumulate large amounts of assets to compete in the retail industry. Currently, AutoZone has over 4,000 retail locations and Advance Auto Parts has just over 3,000. From a cost perspective, new entrants will be disadvantaged because the dominate firms have a large level of production that brings costs down to the lowest possible level. These factors make it difficult for new firms to enter the market and compete with large, dominate firms such as AutoZone and Advance Auto Parts at the same price level. Industry growth is currently slow; therefore new entrants will only be able to gain significant volume by taking it from the industry giants. However, the exception to this is the entry into the online segment of the market. In contrast with the retail segment, in the online segment barriers to entry are low and new entrants can establish a web presence at relatively low costs. Thus, low start up costs and minimal barriers to entry make it easy for new competitors to join this portion of the market at any time. However, currently the online market represents a relatively insignificant portion of the industry. According to the AAIA, in 2006, the online and mail order portion of aftermarket auto parts is estimated at $2. billion, representing only one percent of the market. Having access to many channels of distribution and developing relationships with suppliers and distributors is another key to the success of new entrants in this industry. Access to channels of distributions and relationships is high because it is essential to maintain low costs from suppliers in order to increase profit and to maintain business the suppl iers that provide the lowest cost. AutoZone and Advance Auto Parts have built strong relationships with suppliers. New entrants will face difficulty in finding a supplier that sells its products at the lowest possible price to compete with these incumbents. Overall, the threat of new entrants in the automotive aftermarket industry is moderate. It is harder for new firms to enter the industry because of the barriers to entry posed by the larger competitors. As the top two dominate competitors in this industry, AutoZone and Advance Auto Parts have set relatively high barriers for new entrants. Threat of Substitutes Estimated as a $257 billion market in the U. S with few competitors, there is a great market for automotive aftermarket. The threat of substitutes is low because there is a progressive shift of powers between the high power and the low powers: the automobile industry and the aftermarket parts manufacturers. Still, there is an attractiveness for substitution and even counterfeiting aftermarket parts. Substitution in this market is possible due to the variety of market research available for purchase from independent research companies and many suppliers of product and market data. These research companies offer local, national, and global research with product and market segment as their main focus. The higher power in this industry is the automobile companies; each has its own unique parts for its products. Each automobile company specializes its vehicles and strives to distinguish its original equipment parts from the rest. Such inherent competitive elements in the automobile industry allow each automobile maker to have the power in pricing and limits distribution of its parts to the automotive after market. However, as the automotive aftermarket industry works to have Congress approve the â€Å"Right to Repair† legislation, the power balance will shift. As the Right to Repair press release states that this Right to Repair act will make the products less exclusive to the industry: â€Å"[the legislation] requires car companies to make the same service information and tools capabilities available to independent repair shops that they provide to their franchised dealer networks†. With this legislation, there is more opportunity for the automotive aftermarket industry and coherently, more opportunity for product substitutions to enter this market and compete with the existing ones. The lower power falls within the existing automotive aftermarket companies and their abilities to produce and sell their own parts under their own name as original spares. Currently, most automotive aftermarket companies carry more generic replacement parts that fit a variety of vehicles and have a variety of applications. Such general specifications can make it very simple for parts to be copied and duplicated and therefore enabling parts substitution in the form of counterfeiting. Although not a significant threat in Western markets, fake parts can often be very similar to true aftermarket parts and even original equipment parts. It has been demonstrated that the most reputable garages can unwittingly fit counterfeit parts. However, in general, the trade in counterfeit vehicle parts does not occupy a large share of the market due to aftermarket affiliations such as the Automotive Aftermarket Industry Association (AAIA). The AAIA serves as a central information center and provides aftermarket producers and retailers information and serves as a liaison for all companies within this market. According to the AAIA competitive interchange information is an important tool for curbing counterfeiting and increasing sales at the retail and wholesale point of service. Thus, nearly all part manufacturers in this market have the same information available to them. Another threat to replacement parts would be buying an entirely new vehicle. However for most end users, this is not a convenient or affordable alternative. Overall, the threat of substitutes for the automotive aftermarket is low because the shifts of high and low powers are changing. Existing Competitors As stated above in the industry overview, the aftermarket auto parts market consists of many companies and about 25 wholesalers and 40 retailers each have annual sales over $100 million. Many large firms operate both wholesale distribution centers and retail stores. The $257 Billion (2007) aftermarket auto parts sector has been dominated by brick and mortar retailers such as AutoZone (AZO), Advance Auto Parts (AAP), OReilly, Napa, Pep Boys, etc. The domestic demand for US auto parts is forecast to increase at an annual compounded rate of 5. 7 percent between 2007 and 2012. Auto Zone and Advance Auto Parts are the #1 and #2 retailers for the aftermarket auto parts. But many competitors like O’Reilly and Pep Boys are quickly closing the gap. Externally, the major competition for aftermarket auto parts is the original equipment manufacturer (OEM) parts. Equivalent comparisons in the mechanical parts business would be aftermarket items such as Sears ® Die-Hardâ„ ¢ batteries, Monroe ® shocks and Midas ® mufflers to name a few replacements to the original parts that are not manufactured by original equipment manufacturers (OEM). The car manufacturers fiercely advertise against buying aftermarket parts. In addition, since 1998, most states have passed laws that prohibit or limit the use of aftermarket auto parts in collision repair work and/or require enhanced disclosure or vehicle owner consent before using aftermarket auto parts in such repair work. Competitive Pricing For example, in 1992 an OEM fender for the Toyota Camry cost $253, before any comparable aftermarket part was available. By 1996, when an equivalent, quality aftermarket fender was available for only $100, the price of the OEM Camry fender had suddenly dropped to $143. 88. Auto owners today enjoy price reductions as much as 40% or more, depending on the part and complexity of repairs involved. In comparison, if a repair shop were to completely rebuild a car using only OEM parts, the cost would still be nearly three times the original retail price. For example, an average Ford or GM car selling for $14,000 on the showroom floor would cost more than $40,000 if purchased piece by piece using OEM parts. Aftermarket As mentioned previously, products are sold both to consumers who work on their own cars, the do-it-yourselfers (DIY); and to commercial installers (do-it-for-me, DIFM market). The DIY segment accounts for about 30 percent of the market, the DIFM segment 70 percent. The main domain AZO and AAP try to rival each other is customer service. The primary sector where there is opportunity for growth is the commercial (DIFM) market and each of them are trying to capture the customers by giving huge price incentives. But price is not the only thing, availability of parts and having parts specialists in the stores is also critical. The two retailers also have moderately high attrition rates as employees shift companies. The net sales for Auto Zone and Advance Auto were $6. 1 Billion and $4. 9 Billion respectively for year 2007. The net income for Auto Zone and Advance Auto was $595 million and $238 million respectively. Auto Zone has around 4200 stores whereas Advance Auto has just over 3000 stores which to some extent explain the difference in net sales and net incomes. This industry has high fixed costs, so having more stores with an efficient distribution network is a key strategy. The profitability of individual companies depends largely on inventory management and marketing. Computer technology is essential to auto parts wholesalers and retailers because they deal with large inventories of many items, bought from many suppliers, and with numerous small orders from customers, many that buy on account. Computerized catalogs that allow customers to find the correct parts based on auto year and make are common, and some companies, like AutoZone. com and PartsAmerica. com, allow customers to buy parts over the Internet using electronic catalogs. Having a friendly and competent internet portal is very important and Advance Auto lacks behind Auto Zone in this sector. Currently just 3% of the U. S. aftermarket auto parts market activity is done online. That number is expected to grow to 13% by 2010. Car makers are rapidly encroaching into the aftermarket space and the most effective tool for protecting their businesses is the Internet. With a drop in new vehicle demand, original equipment manufacturers (OEMs) have their sights set on the aftermarket for profits. They threaten to snatch both consumers and technicians away from the industry. The market will still be where they have stores but the internet provides a more efficient ordering system and a better way to share data with suppliers, while intranets drive internal efficiencies. Also they need to make sure that when people use the internet to find a part, its going to be there when they drive to our stores. While both the OEM and aftermarket parts industries continue to develop and smooth out their negativities to gain the favor of the consumers, the competition can only benefit both the purchasers and the industry. Automotive Aftermarket Analysis free essay sample The automotive aftermarket is a large contributor to the U. S. economy employing nearly 4. 6 million people. New replacement automotive parts such as alternators, brakes, lights, bumpers, fenders, and so on, are parts referred to as â€Å"aftermarket† or â€Å"functionally equivalent† parts when made by a company other than the original car manufacturer (Ford, Chrysler, Chevrolet, and others). This industry sells automotive parts and other products used to maintain or repair light and heavy duty vehicles. Products are sold both to consumers who repair or accessorize their own vehicles, the â€Å"do it yourselfers† (DIY) and to professional service stations or installers like gas stations, auto repair shops and service departments which are the â€Å"do it for me† (DIFM) providers. Dominant Economic Features Nearly 45,000 companies with combined annual revenue of $135 billion define the wholesale and retail automotive parts industry. Top companies include Genuine Parts/NAPA, AutoZone, Advance Auto Parts, CSK Auto, and Pep Boys, all with annual sales over billion. We will write a custom essay sample on Automotive Aftermarket Analysis or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page The top 25 wholesalers and top 40 retailers each have annual sales over $100 million. Many large firms operate both wholesale distribution centers and retail stores (Hoovers, 2008). During the 2003 -2007 periods, the US automotive aftermarket demonstrated fairly slow but steady rates of growth and is expected to continue over the forthcoming five years (DataMonitor, 2007). As stated by AAIA, â€Å"Overall aftermarket sales increased in 2004 to $257. 0 billion, an increase of 5. 4 percent from 2003. An increasing number of miles driven by an ever-growing vehicle population helped the aftermarket increase in 2004. Sales in the automotive aftermarket (cars and light trucks) totaled $190. billion and sales in the heavy duty vehicle aftermarket totaled $66. 5 billion† (AAIA, 2008). Estimated as a $257 billion market in the United States, the aftermarket helps keep vehicles on the road by providing consumers the choice to where they want their vehicles serviced, maintained or customized (AAIA, 2008). As indicated by AAIA, â€Å"The automotive aftermarket is the part of the automotive industry concerned with the manufacturing, remanufacturing, distribution, retailing, and installation of all vehicle parts, chemicals, tools, equipment and accessories for light and heavy vehicles† (AAIA, 2008). Porter’s Five Forces Power of Buyers Aftermarket auto parts retailers are prevalent throughout the country. In most cases the power of buyers is directly proportional to the availability of options given the buyer. Buyers can choose products based on price, brand and retailer assuming the retailers are readily available. Retailers can empower buyers by choosing store locations in proximity to competitors. By being readily available to buyers, aftermarket auto parts retailers such as Advance Auto and AutoZone give buyers the power to choose their store. Conversely the buyer’s power is less when there are limited options available or if the market has not been tapped and choices are limited. Both AutoZone and Advance Auto spend a great amount of money in building their brands and developing customer loyalty. This is a direct result of the buyer’s power to choose between these retailers and others. While buyers may have power in choosing retailer or brand they have little power to drive down prices in the aftermarket auto parts industry. Advance Auto and AutoZone both market to a large number of relatively small buyers. Neither company has large buyers that are significant enough to their businesses to drive prices down. Although single buyers do not influence the market and affect prices, buyers are able to be price sensitive as there is little product differentiation between sellers. Without product differentiation these price sensitive buyers put pressure on Advance Auto and AutoZone to lower prices to remain competitive. The lowering of prices and increased competition in trying to â€Å"win† customers cuts directly into the profits of these retailers. Proprietary information has decreased the power of buyers as well as the power of sellers in the aftermarket automotive industry. As the automotive industry becomes more advanced with the use of computers and special tools the independent repair shops and consumer are losing the ability to make repairs and replace parts. The information needed to work with the computers and special tools is held by these specialty manufacturers. They continue to withhold any information in an effort to capitalize not only on the sale of an automobile but also the repair. This disadvantage which is created by the automobile manufacturers is being fought on Capitol Hill. The â€Å"Right to Repair† act has been gaining support in an effort to make this proprietary information public and give the consumer the opportunity to purchase these items in a competitive market. Power of Suppliers Large suppliers like Delphi, Johnson Controls and Visteon, and many thousands of smaller suppliers and manufacturers make parts for auto companies under new vehicle programs and also make replacement parts specifically for the aftermarket retailers and wholesalers. A wholesaler/retailer typically buys from 200 to 300 vendors. Production programs for new cars typically include 5 to 10 percent of production that goes to the aftermarket. Long-term supply contracts are rare, and in most cases, several suppliers are available for any particular product (Hoovers, 2008). Key inputs to the automotive aftermarket include various materials such as metals, plastics and equipment for the manufacturing process. Steel and aluminum prices have increased over the past few years and ongoing consolidation in the steel industry may lead to further price rises. Price increases are passed along from the steel industry to the aftermarket manufacturer, from the aftermarket manufacturer to the retail company and finally on to the end consumer. Raw material prices are also increasing and therefore will also negatively affect aftermarket manufacturers and retailers like Auto Zone and Advance Auto profits. Some suppliers are large companies such as steel manufacturers and they supply to a wide range of industries; thus brake manufacturers are not vital to their success in the market, strengthening supplier power. The quality of the product is crucial to the success of the brake aftermarket, particularly with brake components as they are integral to the safety of automotive vehicles (DataMonitor, 2007). According to DataMonitor Industry Research, â€Å"There is little risk of market players backward integrating as suppliers businesses are very different to their own and this would require high capital outlay. Although similarly it is unlikely that suppliers would attempt forward integration here†. Overall supplier power in this industry is strong (DataMonitor, 2007). Threat of New Entrants As more firms attempt to enter an industry, the profits of existing firms will ultimately decrease as well as lower their market share. Therefore, large retailer such as AutoZone and Advance Auto Parts must find innovative techniques to assure that they can keep new firms at a large disadvantage in competition. However, at present, the threat of new entrants in the automotive aftermarket industry is low to moderate. This was determined by examining criteria relevant to new entry threat as discussed below. New entrants need to operate scale economies to achieve success with the need for extensive distribution networks and efficiency in production to compete against large incumbents. Barriers to entry are therefore fairly high and this combined with slow market growth makes entry to the market problematic (DataMonitor, 2007). Economies of scale are a key factor to the success of new entrants in automotive aftermarket industry. In order for new entrants to earn significant profits they will have to sell large quantities of product, and therefore have to accumulate large amounts of assets to compete in the retail industry. Currently, AutoZone has over 4,000 retail locations and Advance Auto Parts has just over 3,000. From a cost perspective, new entrants will be disadvantaged because the dominate firms have a large level of production that brings costs down to the lowest possible level. These factors make it difficult for new firms to enter the market and compete with large, dominate firms such as AutoZone and Advance Auto Parts at the same price level. Industry growth is currently slow; therefore new entrants will only be able to gain significant volume by taking it from the industry giants. However, the exception to this is the entry into the online segment of the market. In contrast with the retail segment, in the online segment barriers to entry are low and new entrants can establish a web presence at relatively low costs. Thus, low start up costs and minimal barriers to entry make it easy for new competitors to join this portion of the market at any time. However, currently the online market represents a relatively insignificant portion of the industry. According to the AAIA, in 2006, the online and mail order portion of aftermarket auto parts is estimated at $2. billion, representing only one percent of the market. Having access to many channels of distribution and developing relationships with suppliers and distributors is another key to the success of new entrants in this industry. Access to channels of distributions and relationships is high because it is essential to maintain low costs from suppliers in order to increase profit and to maintain business the suppl iers that provide the lowest cost. AutoZone and Advance Auto Parts have built strong relationships with suppliers. New entrants will face difficulty in finding a supplier that sells its products at the lowest possible price to compete with these incumbents. Overall, the threat of new entrants in the automotive aftermarket industry is moderate. It is harder for new firms to enter the industry because of the barriers to entry posed by the larger competitors. As the top two dominate competitors in this industry, AutoZone and Advance Auto Parts have set relatively high barriers for new entrants. Threat of Substitutes Estimated as a $257 billion market in the U. S with few competitors, there is a great market for automotive aftermarket. The threat of substitutes is low because there is a progressive shift of powers between the high power and the low powers: the automobile industry and the aftermarket parts manufacturers. Still, there is an attractiveness for substitution and even counterfeiting aftermarket parts. Substitution in this market is possible due to the variety of market research available for purchase from independent research companies and many suppliers of product and market data. These research companies offer local, national, and global research with product and market segment as their main focus. The higher power in this industry is the automobile companies; each has its own unique parts for its products. Each automobile company specializes its vehicles and strives to distinguish its original equipment parts from the rest. Such inherent competitive elements in the automobile industry allow each automobile maker to have the power in pricing and limits distribution of its parts to the automotive after market. However, as the automotive aftermarket industry works to have Congress approve the â€Å"Right to Repair† legislation, the power balance will shift. As the Right to Repair press release states that this Right to Repair act will make the products less exclusive to the industry: â€Å"[the legislation] requires car companies to make the same service information and tools capabilities available to independent repair shops that they provide to their franchised dealer networks†. With this legislation, there is more opportunity for the automotive aftermarket industry and coherently, more opportunity for product substitutions to enter this market and compete with the existing ones. The lower power falls within the existing automotive aftermarket companies and their abilities to produce and sell their own parts under their own name as original spares. Currently, most automotive aftermarket companies carry more generic replacement parts that fit a variety of vehicles and have a variety of applications. Such general specifications can make it very simple for parts to be copied and duplicated and therefore enabling parts substitution in the form of counterfeiting. Although not a significant threat in Western markets, fake parts can often be very similar to true aftermarket parts and even original equipment parts. It has been demonstrated that the most reputable garages can unwittingly fit counterfeit parts. However, in general, the trade in counterfeit vehicle parts does not occupy a large share of the market due to aftermarket affiliations such as the Automotive Aftermarket Industry Association (AAIA). The AAIA serves as a central information center and provides aftermarket producers and retailers information and serves as a liaison for all companies within this market. According to the AAIA competitive interchange information is an important tool for curbing counterfeiting and increasing sales at the retail and wholesale point of service. Thus, nearly all part manufacturers in this market have the same information available to them. Another threat to replacement parts would be buying an entirely new vehicle. However for most end users, this is not a convenient or affordable alternative. Overall, the threat of substitutes for the automotive aftermarket is low because the shifts of high and low powers are changing. Existing Competitors As stated above in the industry overview, the aftermarket auto parts market consists of many companies and about 25 wholesalers and 40 retailers each have annual sales over $100 million. Many large firms operate both wholesale distribution centers and retail stores. The $257 Billion (2007) aftermarket auto parts sector has been dominated by brick and mortar retailers such as AutoZone (AZO), Advance Auto Parts (AAP), OReilly, Napa, Pep Boys, etc. The domestic demand for US auto parts is forecast to increase at an annual compounded rate of 5. 7 percent between 2007 and 2012. Auto Zone and Advance Auto Parts are the #1 and #2 retailers for the aftermarket auto parts. But many competitors like O’Reilly and Pep Boys are quickly closing the gap. Externally, the major competition for aftermarket auto parts is the original equipment manufacturer (OEM) parts. Equivalent comparisons in the mechanical parts business would be aftermarket items such as Sears ® Die-Hardâ„ ¢ batteries, Monroe ® shocks and Midas ® mufflers to name a few replacements to the original parts that are not manufactured by original equipment manufacturers (OEM). The car manufacturers fiercely advertise against buying aftermarket parts. In addition, since 1998, most states have passed laws that prohibit or limit the use of aftermarket auto parts in collision repair work and/or require enhanced disclosure or vehicle owner consent before using aftermarket auto parts in such repair work. Competitive Pricing For example, in 1992 an OEM fender for the Toyota Camry cost $253, before any comparable aftermarket part was available. By 1996, when an equivalent, quality aftermarket fender was available for only $100, the price of the OEM Camry fender had suddenly dropped to $143. 88. Auto owners today enjoy price reductions as much as 40% or more, depending on the part and complexity of repairs involved. In comparison, if a repair shop were to completely rebuild a car using only OEM parts, the cost would still be nearly three times the original retail price. For example, an average Ford or GM car selling for $14,000 on the showroom floor would cost more than $40,000 if purchased piece by piece using OEM parts. Aftermarket As mentioned previously, products are sold both to consumers who work on their own cars, the do-it-yourselfers (DIY); and to commercial installers (do-it-for-me, DIFM market). The DIY segment accounts for about 30 percent of the market, the DIFM segment 70 percent. The main domain AZO and AAP try to rival each other is customer service. The primary sector where there is opportunity for growth is the commercial (DIFM) market and each of them are trying to capture the customers by giving huge price incentives. But price is not the only thing, availability of parts and having parts specialists in the stores is also critical. The two retailers also have moderately high attrition rates as employees shift companies. The net sales for Auto Zone and Advance Auto were $6. 1 Billion and $4. 9 Billion respectively for year 2007. The net income for Auto Zone and Advance Auto was $595 million and $238 million respectively. Auto Zone has around 4200 stores whereas Advance Auto has just over 3000 stores which to some extent explain the difference in net sales and net incomes. This industry has high fixed costs, so having more stores with an efficient distribution network is a key strategy. The profitability of individual companies depends largely on inventory management and marketing. Computer technology is essential to auto parts wholesalers and retailers because they deal with large inventories of many items, bought from many suppliers, and with numerous small orders from customers, many that buy on account. Computerized catalogs that allow customers to find the correct parts based on auto year and make are common, and some companies, like AutoZone. com and PartsAmerica. com, allow customers to buy parts over the Internet using electronic catalogs. Having a friendly and competent internet portal is very important and Advance Auto lacks behind Auto Zone in this sector. Currently just 3% of the U. S. aftermarket auto parts market activity is done online. That number is expected to grow to 13% by 2010. Car makers are rapidly encroaching into the aftermarket space and the most effective tool for protecting their businesses is the Internet. With a drop in new vehicle demand, original equipment manufacturers (OEMs) have their sights set on the aftermarket for profits. They threaten to snatch both consumers and technicians away from the industry. The market will still be where they have stores but the internet provides a more efficient ordering system and a better way to share data with suppliers, while intranets drive internal efficiencies. Also they need to make sure that when people use the internet to find a part, its going to be there when they drive to our stores. While both the OEM and aftermarket parts industries continue to develop and smooth out their negativities to gain the favor of the consumers, the competition can only benefit both the purchasers and the industry.