Thomas Langer Jr. founded TLG Research Inc. in 1992. Langer grew up in a vehicle dealership family and went on to manage the marketing research and pricing activities for a Fortune 50 auto, truck and industrial parts manufacturer. In addition, Langer has been the chair of the Automotive Marketing Research Council’s (AMRC) Research and Planning Committee, has been active with the corporate mergers and acquisition group, participated in many other industry organizations and served with the APAA Government Affairs Committee. His undergraduate work is in management, his graduate work is in organization development. As an adjunct business instructor, he taught international marketing and management classes at a local university. Today, Langer remains active in the industry as a board member of the Wisconsin Auto and Truck Dealer Foundation, as an author for industry trade journals and more. He is also a soccer coach, club president and referee, and has served as Treasurer for a statewide children’s service organization.
Tom, tell us a little about your background, why you started TLG Research?
I grew up in the car and parts businesses. During my teen and early adult years I worked in our family dealership to include the parts department and, when someone didn’t show up, in the machine shop. In 1982 I went to work for Dana Corp., and enjoyed 10 years working in the Pricing, Market Research and Mergers & Acquisitions arenas. . I also became involved in industry organizations such as AMRC, ASIA, NEPMA, PERA, APAA and many more. At the same time, I found that I really enjoyed combining my love of all things vehicular and the opportunity to learn and investigate. From this experience, and the knowledge gained, it appeared that a new research and pricing model was needed to really understand the parts industry. So, in 1992, I established TLG Research, a firm that specializes only in the automotive market: on and off highway, heavy duty, industrial, marine and aviation. That is still true to this day. We are dedicated to being our clients’ “problem solver” and offering such services as price shops, product line/market data, surveys, focus groups, Webinars and any additional data requested. I would be remiss in not recognizing the amazing contributions by many people along this journey. I have been fortunate to be surrounded by some of the best people in the parts business.
The past year has been tumultuous for the North American automotive industry. The "Big Three" have been downgraded to the "Detroit Three" in recent years as the industry has become increasingly ‘globalized.’ What do you think the future holds for the North American automotive manufacturing and supplier industries?
I am very bullish on the industry. I remember in the 60’s and 70’s while working at our family’s and other dealerships [encountering] issues such as the oil embargo and huge inflation. After I joined Dana in 1982 there was the deep recession, here for the 90’s and since. Through all of this the industry has persevered. There is no doubt there’s been change. Some industry pundits years ago made many of the same pronouncements about the "end of the industry" that we hear today… when Packard went away, Hudson, AMC, DeSoto, Olds, Plymouth, the dozens of brass era brands and others. We’ve been here before. We’ll be here again. Through it all, the ingenuity and persistence of the people in our industry will carry the day as it has in the past. There’s no doubt that we’ll see alternative power sources, new designs, new brands as others fall away, and companies becoming global that may not have thought they would see that day come. That’s business. That’s history. And, history repeats itself. We’re just on a bigger stage now.
As a result, [I believe] we will see a few larger challenges ahead:
1. Balancing the issues of cash flow. Many suppliers have exhausted available credit lines to stay in the game. As lines come back up, the challenge will be to finance the raw materials and payroll until the cash flow improves.
2. Finding new markets for products. As an industry, the supplier base is ready to ramp up to a vehicle output that may well exceed what’s going to happen for a while. That capacity could be used in other places. Creativity will be required.
3. The continuing need to structure and operate in a global industry with others who enjoy lower labor rates, possible better access to materials, etc.
Again, we’ll make it happen… we always do!
There has been a great deal of news pertaining to alternative fuels and hybrids. What impact do you foresee and how soon will be aftermarket be affected?
The primary issue of alternative power is distribution. It’s great to see the work with hydrogen power along with other sources. But it won’t help if there is limited availability of fuel. Electricity is readily available, but long distance technology is still in the growth stages. For the foreseeable future we will continue to see the use of gasoline. I do believe we’ll continue to see development of more combination hybrids of all sorts along with the next generation of engine controls designed to save gasoline while lowering emissions. The answer long-term will likely be combinations of technology. From the professional technician’s standpoint the greatest challenge for the next 10 years will be to continue to be adaptive to ever-changing technology and equipment needs. The technician of 2010 and beyond will be like any professional — a doctor, accountant, whatever — and will have to continue their education.
As you look toward 2010, what do you think will be some of the key factors influencing the automotive industry and how will they impact the aftermarket?
Looking forward, we see a number of issues. A lot of people are talking about the dealership closings and the impact on the aftermarket. While losing a dealership shop in any given area may open up additional opportunities for the independent shops, the real impact is mitigated by the share of shop work that was and will be warranty, and much of the customer-pay work that was done when a vehicle was in for warranty service, new dealerships forming near closed dealer points and more. There have been estimates between $0 and billions as to the new independent opportunities. Using a model we’ve constructed, it is our opinion that the impact is approximately $3.8 billion, both parts (at average shop margin) and labor, and this may be lower depending on a number of factors yet to play out.
We also see an impact from the Cash for Clunkers program that will pull about $500 million from the independent aftermarket. This assumes the number of vehicles relative to the $3 billion now allocated are all taken out of service, using a model to define the average annual repair costs for each. This program hurts the independent aftermarket simply because it pulls vehicles off the road that are in the "sweet spot" for many major repairs.
With all of that said, we think the real issue going forward in the aftermarket for our installers is one of technology, investment and profitability for the independent shop. Using the average dollars of revenue for a shop, it’s been hard and is getting harder to afford tools and training in order to work with later model vehicles. We must address this as an industry. In Wisconsin we have witnessed a partnership between the schools, shops and dealers toward continuing education. Another program provides for training at various levels. One part of the program trains people in basic skills such as brakes, oil changes and other basic services. From there, they may choose to step up to a certificate program or two-year degree. Then, there are continuing education classes to make sure the person is up-to-date and fresh. The bottom line … we are a profession, and must act and train like one.
Would you talk a little about the distribution channels and what changes you are seeing?
With the complexity of repair, curbside service for maintenance items at part outlets and the need for so many more specialized tools, DIY activity continues to shrink. At the same time, the "traditional" jobbers and retailers are increasingly meeting each other in the middle of the market. The more things change, the more they become the same. The bottom line is that there are X number of vehicles on the road requiring maintenance and repair. The parts and service bay capacity shifts between channels. However, the number of vehicles per service bay has more than doubled over the past couple of decades. For a repair business and parts supplier that has a plan and understands their business, the next few years will be very exciting, and most likely more profitable than we’ve had in a while.
Finally, could you speak to how you see the role of national vs. private brands playing out over the next few years?
Again this tends to run in cycles. As part supply chains work to establish a brand, they put their money and efforts behind their house brands. Eventually it seems inevitable that it shifts to a national brand strategy, possibly with a second private brand option for maintenance parts.
We think the larger issue will be the use of private brands to pull together a diverse network of parts suppliers. Whether it is to combine a second line from multiple low-cost manufacturing centers under one brand or a house or sale brand involving more than one supplier, the private brand offers an opportunity to become very creative in sourcing. As a result, we see the use of private brands growing in the near future.