AMN's Top Ten Week: Top Ten News Stories - aftermarketNews

AMN’s Top Ten Week: Top Ten News Stories

If nothing else has been made clear by the events taking place in the automotive industry over the past 12 months, this much is true: The automotive aftermarket is changing — in dramatic ways. Here, the editorial staffs of Counterman and aftermarketNews takes a month-by-month look at the key events that have shaped this industry’s destiny over the past year.

If nothing else has been made clear by the events taking place in the automotive industry over the past 12 months, this much is true: The automotive aftermarket is changing — in dramatic ways. Here, the editorial staffs of Counterman and aftermarketNews take a month-by-month look at the key events that have shaped this industry’s destiny over the past year.

By Amy Antenora and Michael V. Freeze

ADN: THE AUTOMOTIVE DISTRIBUTION NETWORK IS BORN

The year was off to an exciting start when two of the top distribution groups in the aftermarket – Parts Plus and Independent Auto Parts of America (IAPA) – merged to form the Automotive Distribution Network (ADN). The merger took effect Jan. 1.

As part of the merger, Mark Bond of Quality Automotive Warehouse headquartered in Baltimore, MD, and Stephen Sattinger of Merle’s Automotive in Tucson, AZ, were named co-chairs of the Network. Mike Lambert of Parts Plus and Mike Kamal of IAPA now serve as co-presidents with both groups retaining their separate marketing programs and private-label brands.

With a number of changes taking place among distributors this past year, the Parts Plus/IAPA merger was spurred on by Uni-Select’s merger with MAWDI in September of 2004. However, a number of other factors, such as the ability to create a larger, more efficient footprint for the group, made the merger attractive, according to Lambert and Kamal.

ADN today consists of 51 members, 242 warehouse distributor locations and more than $2 billion in annual sales. The group is headquartered in Memphis, TN. — AA

RPM, PRONTO JOIN FORCES

Consolidation also summarizes the year for two other programmed distribution groups — National Pronto Association and the RPM Group — which announced their merger in February.

Pronto, based in Justin, TX, has been on an aggressive growth streak this past year, bringing in more than 20 new members during the year. “It didn’t take much conversation to find out we had very common cultures and similarities in the way we operate,” said Bill Maggs, president of Pronto in an aftermarketNews Executive Interview last April. “In reality, there has been a blurring of the marketplace. Retailers are selling the wholesale market and some in the wholesale market are selling retail.”

Based in Vinton, VA, RPM Group represented hundreds of retail-focused stores throughout the U.S. Mike Mitchell, former executive director of the RPM Group, said the group’s members unanimously approved the move.

“What we really are doing is serving the independent marketplace to help ensure that our members can compete,” said Mitchell during the interview. “We want to make sure that our membership has a voice, and by coming together as a single voice, a single entity, a single management team, we feel we can best serve our members. It’s going to be a very good thing.”

The combined group now flies the Pronto banner and operates out of the National Pronto Association office in Justin. — MF

BECK/ARNLEY GOES SOLO

On March 31, Affinia Group Inc. announced the sale of its subsidiary, Beck/Arnley Worldparts Corp., to Heritage Equity Group, Inc., a privately held company funded entirely by private investors, and in part by Beck/Arnley management.

Max Dull, who was vice president and general manager of Beck/ Arnley when it was a subsidiary of Affinia, is credited with orchestrating the privately funded purchase. In March 2005, Dull sought out investors to buy the business. Dull, along with majority equity partners Pat Greene and Richard Crawford, as well as other key equity management partners, formed Heritage Equity Group in order to acquire the business. Currently, Heritage owns all Beck/Arnley stock.

In addition to his role as president and CEO of the independent Beck/Arnley, Dull is also a partner and CEO of Heritage Equity Group. In announcing the sale, Affinia President Terry McCormack said the nature of Beck/Arnley’s business made it different from the rest of Affinia, and therefore better served separately.

Dull echoed McCormack’s optimism and added that being affiliated with any primarily vertically oriented company creates issues for both.

“We are simply delighted to be in control of our own destiny. This truly will allow Beck/Arnley to be Beck/Arnley,” said Dull. “Trying to juggle the needs and requirements of two very large manufacturing divisions with the needs of Beck/Arnley and its market segment approach was a challenge. Operating separately will allow each company to focus on its strengths. The customers of both businesses will benefit.” Beck/Arnley has maintained its master distribution center and headquarters in Smyrna, TN, as well as its network of six branch locations around the country. — AA

TRANSPRO PLUS MODINE EQUALS PROLIANCE

Technically, it started in November 2004 with a letter of intent, but it was not until the first quarter of 2005 that Transpro’s heavy-duty OEM business and Modine Manufacturing’s aftermarket business merged to create Proliance International.

The transaction has formed a publicly traded company focused on supplying heating and cooling components and systems to the automotive and heavy-duty aftermarkets, primarily in North and Central America and Europe. Charley Johnson, president, CEO and director of Proliance International said the merger of Transpro and Modine’s aftermarket business came as a result of a shared vision.

“In order to serve successfully the highly competitive aftermarket of today and tomorrow, a larger, financially stronger company would be needed,” said Johnson in an aftermarketNews Executive Interview. “The deal required over two years of discussion and work to accomplish. While the term is sometimes over used, at the end of it all this deal was a ‘win-win’ for both contributing companies.”

But most often, with mergers come restructuring. Under its $10 million-14 million restructuring plan, Proliance closed its distribution centers in Orlando, FL, and Kansas City, MO, and consolidated them into two existing facilities in Arlington, TX, and Southaven, MS. In addition, the company made plans to transition a portion of its copper/brass radiator production, from its Nuevo Laredo, Mexico, facility, into its Mexico City plant location, which was acquired in the merger. The company also closed its copper/brass tube mill operation located in New Haven, CT.

The company’s third quarter posting took a hit due to circumstances related to the merger, but management is optimistic about the future. In fact, the company has accelerated its restructuring program, from an originally expected 12-18 months to a six-to-seven-month time frame. — MF

HURRICANES ADD PRESSURE TO AN ALREADY CHALLENGED INDUSTRY

For several years, raw material costs have been an issue that has put pressure on the automotive aftermarket. Add to this rising gas prices and you have an industry that is stressed. Now imagine adding not one, but two natural disasters to the mix. Hurricanes Katrina and Rita are still having an impact not only on the Gulf Coast region, but also the nation. In addition to the tragic loss of life that occurred as a result of these storms, an overwhelming amount of physical damage was also done, leaving numerous ravaged homes and businesses in their wake.

A number of aftermarket businesses in the Gulf Coast region, including parts retailers, WDs, service locations and manufacturers, were impacted by the storm. Several major tire manufacturers, including Cooper Tire, saw production and output reduced due to raw material shortages caused by the storm. Officials at Cooper estimated that more than 30,000 tires per day would be taken out of the company’s production schedule until the raw material supply was normalized. Several retailers, including O’Reilly Auto Parts, were forced to close and rebuild storm-damaged stores. In anticipation of Hurricane Rita, O’Reilly closed 166 stores for the duration of the storm. The majority of its stores were re-opened quickly, with only a handful requiring major repairs following the storms.

To make matters worse, the storm damaged several oil refineries in the area, putting pressure on the already unstable raw materials market. Gas prices, which were already creeping upward, soared to more than $3 a gallon across the country, forcing both consumers and businesses to take a hard look at transportation. Many warehouse distributors and parts jobbers whose financial well-being is dependent upon being able to deliver parts quickly were forced to either absorb the additional cost or pass along surcharges to their customers. — AA

PASSAGE OF THE “STOP COUNTERFEITING IN MANUFACTURED GOODS” ACT

As recent as two years ago, the issue of counterfeiting in the auto parts industry was like a long-harbored family secret — no one ever talked about it. But, thanks to the efforts of industry leaders who understood there was much to be gained by being vocal about this problem, today it’s a whole new ball game.

This year, the “Stop Counterfeiting in Manufactured Goods Act,” was passed by both the House (in May) and Senate (in November). The bill, which is now headed to the president for his signature, would require the seizure and destruction of counterfeit labels, as well as the equipment used to make and package counterfeit goods.

One group in particular – the Motor & Equipment Manufacturers Association (MEMA) through its Automotive Aftermarket Suppliers Association (AASA) segment – was influential in getting legislators in Washington, D.C., to take this matter more seriously. MEMA and AASA in 2004 formed the Brand Protection Council to help auto parts manufacturers share best practices to detect and prevent product counterfeiting, as well as to educate law enforcement and the media to the problem and lobby for stronger laws and intellectual property rights protection at home and abroad. Members of MEMA and the Brand Protection Council this year lobbied on Capitol Hill for tougher legislation and testified before the

Senate on the impact of Chinese counterfeiters. The FBI estimates that product counterfeiting costs U.S. businesses $200 billion to $250 billion annually. Product counterfeiting is estimated to cost American automotive suppliers approximately $12 billion in lost sales annually. – AA

AAIA CREATES NEW HOME FOR INDEPENDENT SHOPS

According to the Automotive Aftermarket Industry Association (AAIA), the aftermarket industry was in dire need of a platform for more direct communications between independent service providers and the rest of the supply chain. In response to association members wanting a forum to represent the interests of independent vehicle service and repair businesses, in November, AAIA created the new Independent Service Providers (ISP) segment.

“The entire aftermarket depends on the folks in the trenches who sell and install parts and service and repair the 232 million motor vehicles in this country,” said David Caracci, AAIA chair. “These professionals are feeling increased pressures to not just remain competitive and profitable, but to stay in business.”

AAIA’s ISP segment will be governed by volunteer leaders with experience in the repair and maintenance arena.

“The ISP segment now completes the circle; the pipeline is in place,” said Kathleen Schmatz, AAIA president and CEO. “There is a feeling of remoteness among independents and their professional technicians who are unable to offer their input on the design and application of aftermarket parts and service techniques. Dealer technicians, on the other hand, are consulted regularly by their OE franchisers on matters relating to parts design, ease of use, repairability and other issues.”

Schmatz also mentioned that such a forum would establish more direct access to independent service providers for AAIA and its member companies in the execution of critical grass roots legislative efforts — such as the “Right to Repair” issue, the adoption of technology standards and participation in the “Be Car Care Aware” consumer education campaign.

“AAIA currently represents indirectly thousands of repair shops and service professionals by virtue of its members that are program groups, franchises and state and regional aftermarket associations,” said Schmatz. “The new ISP will streamline AAIA’s grass roots advocacy response capabilities and empower local shop owners to get more involved in business-building initiatives directed by the association.” — MF

SENIOR MANAGEMENT SHUFFLE

What do companies like Murray’s, Federal-Mogul and CARQUEST have in common? Aside from the obvious connection to the automotive aftermarket, they each underwent a change in their top leadership this year. And, they weren’t the only ones. From our count, there were more than 80 changes in top leadership at some of the biggest players in the aftermarket this year.

Notably, nearly every one of the major parts retailers saw a change in leadership in 2005. At AutoZone, not only did Steve Odland leave his post as chairman, president and CEO for a job outside of the industry at Office Depot in March, but then so did Michael Archbold, executive vice president and CFO, in September for a similar position at Saks Fifth Avenue.

Advance Auto Parts also saw the departure of its CEO when Larry Castellani announced his retirement. Pointing to its low turnover rate, Advance noted that Castellani’s replacement, Mike Coppola, became only the fifth CEO in the company’s 73-year history. In January, Pep Boys President and former CFO George Babich announced he would step down after successfully leading the company through its restructuring. Also in 2005, CSK named a new CFO, James Riley, after promoting former CFO Don Watson to Chief Administrative Officer.

O’Reilly Auto Parts also promoted two longtime executives, Greg Henslee and Ted Wise, to senior management positions this year. In February, the company announced that Henslee had been promoted to CEO/co-president and Wise was promoted to COO/co-president. Their promotions were part of a management succession plan for the business.

Probably the most talked-about executive changes this year were those taking place at struggling auto parts supplier Delphi. In March CFO Alan Dawes was ousted from the company following the news that Delphi was conducting an internal investigation of certain accounting errors. The company named former KPMG exec John Sheehan acting CFO. Months later, as investigations into the accounting errors alluded to much more serious problems for the business, six more senior officials were let go from the company including Chief Accountant and Controller Paul Free and Treasurer Pam Geller.

In June, the company announced that Robert “Steve” Miller had been selected to succeed J.T. Battenberg III as chairman and CEO in conjunction with Battenberg’s planned retirement this year. In a separate announcement, the company’s board appointed Robert Dellinger to succeed John Sheehan as CFO. Sheehan was named Delphi’s vice president and chief restructuring officer. Delphi started off the year by appointing a new president and COO. With this appointment, Rodney O’Neal became the first officer, other than Battenberg, to be responsible for all of Delphi’s global business units. — AA

TOUGH TIMES FOR MAJOR MANUFACTURERS

This year has not been a kind one for several large aftermarket suppliers.

Last spring, the Delphi Corp. was dogged by reports of accounting irregularities resulting in the dismissal of its CFO and other senior officials. To make matters worse, its biggest customer, General Motors was experiencing a sales slump, causing Delphi’s business condition to further deteriorate. In July, the company posted a loss of $4.8 billion for 2004, which was the biggest such loss for a company in the U.S. auto industry in nearly four years.

In October, the company filed for Chapter 11 bankruptcy protection after two months of separate restructuring negotiations between its labor union and its customer General Motors broke down. The company hopes to be (financially) back on its feet by early 2007. In one of the year’s more unusual filings, American Remanufacturers, Inc. (ARI) filed for Chapter 11 bankruptcy, then, less than a week later, the company ran out of money. The company went back to court requesting emergency conversion to Chapter 7 bankruptcy protection after lenders said they were unwilling to consent to the use of cash collateral for funding operations. In turn, all operations including its nine subsidiaries (ARI Holdings, Inc., American Driveline Inc., ATSCO Products, Inc., Automotive Caliper Exchange, Inc., CCT, Klickitat, Inc., New ABS Friction, Inc., New Driveline, Inc. and Ohio Caliper.), were shut down.

Universal Automotive, in the beginning of 2004, was expected to achieve profitable operations. The company acquired three brands from TRW Automotive’s Kelsey-Hayes subsidiary — Autospecialty, ValuMaxx and Power Stop — that nearly doubled the size of Universal Automotive. Fast forward more than a year later. The company’s CEO Arvin Scott stepped down and the manufacturer is looking for a buyer. In February, Universal Automotive hired turnaround firm The Parkland Group, to help the company keep positive footing. and appointed David Cesar of the Parkland Group as its restructuring officer. — MF

SHAKE-UP IN PARTS DISTRIBUTION

Two of the top four auto parts store chains in Counterman’s Super Stores List grew substantially in 2005. In the spring, O’Reilly Auto Parts, ranked fourth on the list, acquired Midwest Auto Parts Distributors, which had ranked 18th. Later in the fall, the number-two ranked retail chain Advance Auto Parts purchased all the stock of Sharon, MA-based Autopart International, which had ranked 20th on the list.

O’Reilly purchased all of the outstanding stock of W.E. Lahr Co. and its subsidiary, Midwest Auto Parts Distributors and affiliates, headquartered in St. Paul, MN, for $61 million in cash. Midwest operated 71 stores in Minnesota, Montana, South Dakota, Wisconsin and Wyoming. W.E. Lahr Co. has been in business for 70 years as a major warehouse distributor, local jobber and retailer of automotive aftermarket parts.

Advance Auto Parts acquired Autopart International, Inc. (AI) in an all-cash transaction. Autopart International provided replacement auto parts for a growing do-it-for-me market. With the acquisition, Advance hopes to establish a stronger presence in the Northeast region of the U.S. The privately held Autopart International had 61 auto parts stores throughout New England and New York state. In addition, Advance strengthened its northeast presence further by also purchasing privately-held Lappen Auto Supply Co., Inc.’s 19 auto parts stores in the greater Boston, MA market.

At press time, CSK (ranked 5th on Counterman’s Super Stores List) announced it had acquired Murray’s Discount Auto Stores (previously ranked 11th). For more information on this story, see page 16. — MF

Read more AMN Top Ten features:

R. L. Polk & Co’s Ask the Industry: Industry Execs Comment on the Top Ten Issues of Year

Top 10 Distribution Influences

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Click here to view the rest of today’s headlines.

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