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 “aftermarket” or “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 “do it yourselfers” (DIY) and to professional service stations or installers like gas stations, auto repair shops and service departments which are the “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 $1 billion. 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, “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 $190.5 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, “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...