Commentary: Lessons from Detroit for Distributors

Many of our readers are seeing direct impacts from the wrenching transformation taking place in the U.S. auto industry. While it is easy to focus on the negative and sensational news our national media regurgitates constantly, there are some important takeaways from this situation for distributors and manufacturers who sell through independent distribution channels.
 
First: The recent financial meltdown did not cause the downfall of the Big Three. The financial crisis precipitated what arguably was more than two decades in the making. Remember the ghost of Ignacio Lopez, GM's purchasing chief in the 1990s?
 
In the 20-plus years I have been covering industrial distribution channels, the supply-chain relationship between these manufacturers and their suppliers, including distributors, went from dysfunctional yet profitable for suppliers to even more dysfunctional and unprofitable. (Thank goodness you can make it up on the volume!) The most successful distributors in these markets changed direction and rebuilt their business models. It was a painful transition, but in hindsight, it seems like it was the right move to make.
 
Contrast that with the rise of the new domestics, principally in the Southeast, with a dramatically different basis for supplier relationships and contract negotiation, according to MDM subscribers who serve these markets. These are not hug-fests, but these relationships are based on mutual self-interest in lowering cost, improving performance and quality, and continually bettering processes. Both parties are investing in the future of the relationship.
 
Another issue distributors and manufacturers can learn from is the consolidation of more than 15,000 dealers who sell Detroit-made cars and trucks. Some analysts think that number should be cut by two-thirds to stay competitive with Toyota and Honda. Domestic dealers outnumber foreign car dealers by more than 5 to 1, according to an article in The Detroit News. Yet the average Honda dealer outsells a Chevy or Ford dealer 2 to 1, and the average Toyota dealer outsells those two by about 3 to 1.
 
Many distribution markets are oversaturated. Manufacturers are downsizing their networks; some distributors are trimming lines and looking more like manufacturer representative firms than traditional broad-line distribution houses. The primary lesson is to work especially hard now to define relationships - vendor and customer - going forward. Look beyond the brand and company size to determine what will build the best platform for future growth.