June 28, 2012
Title: Cleaning up with catalytic converters
Sub-title: A growing aftermarket, product profusion and commoditization are creating new opportunities for jobbers.
It’s no secret that the financial crisis and ensuing recession’s aftermath have caused North Americans to hang on to their vehicles longer. Less known, is how this trend has played out in the catalytic converter aftermarket, which has grown by leaps and bounds. According to data supplied by Tenneco Inc. an estimated 136 million of the 250 million vehicles on US roads alone are out of warranty. “In a growing number of cases, owners are choosing to invest in more moderately priced aftermarket converters, rather than OE sourced replacements,” notes Pay Haynes, the company’s product manager (catalytic converters). “They are seeing that (they) represent the best value, particularly those sourced from leading manufacturers and brands.”
Canada too has seen the build-up of a large catalytic converter aftermarket to replace devices damaged, worn out through improper vehicle maintenance and in some cases even theft, making them must-stock item notes another expert, with a slightly different take on the market.
“It’s a good business,” says Pat Bruder, co-owner (along with brother Peter) of Exhaust Direct, which supplements its exhaust bracket, front pipe and resonator sales by distributing several lines of cats to specialty shops such as Speedy, Midas, WD Warehouse Distributors and others. “Not too long ago the market was dominated by a few large brands, but in recent years the product has become increasingly commoditized and customers are now looking for the best value wherever they can get it.”
Exhaust Direct recently began taking advantage of the trend by introducing its own private label EXD line of catalytic converters. “Expectations regarding cats are similar to those in almost any other industry – customers want everything,” says Bruder with a laugh. “Drivers want a superior product that will last forever. But they also want it cheap and they want it now. If you can’t give them all of that, they will simply call elsewhere.”
Growing recognition of the need to pay for quality
These days, not many of Bruder’s customers have been calling elsewhere. The company carries three lines of converters, a lower end model, an OBD II (on-board diagnostics) compliant one and a higher end offering. Billings have been brisk across the board (rising constantly since the line made its debut 14 months ago) and are expected to double this year. The timing could not have been better for Exhaust Direct, which recently added 7,400 square feet of storage and manufacturing space to its facility.
Surprisingly, it was sales in the company’s high-end line which beat expectations most handily. “Several years ago it was all about getting the cheapest model all the time,” said Bruder. “Nobody wanted to pay more than they had to. But at the same time, the cost of installing a new cat is so high relative to the part itself, that many customers are now concluding that it makes more sense to go with quality.”
Walter Fantin, a manager at Cat Exhaust Systems agrees. “In the old days there weren’t as many universal and direct fit converter options (available),” Fantin explains. “Today I think that more shops are willing to spend a few dollars more to get the proper unit." Fantin however cautions that demand for economical alternatives remains strong, and companies that service this market are rewarded accordingly.
An evolving market
One of the major trends over the years in catalytic converters has been incremental product improvements by a slew of manufacturers, which have driven the industry as a whole forward. “In the old days many people used to cut off their cats because they were there for anti-pollution purposes,” notes Bruder with a laugh. “These days they do more than that –they actually also make your vehicle function better.”
Despite the fact that catalytic converters have been around for decades, the market continues to be dominated by major brands such as Walker, Bosal, MagnoFlow, Imco and others. Yet the segment is constantly evolving, with dozens of players hacking at various niches. “In many respects it is very much shifting into a regional commodity business,” says Bruder. Customers want to deal with someone who is close to them who can make quick shipments in order to keep inventory low.”
Indeed stocking the right parts is key notes Fantin. “Imagine not being able to offer (customers) more than one line of brakes. What would happen to your brake sales?” he asks rhetorically. “Exhaust is no different. Customers are looking for alternatives.”
Haynes agrees that effective inventory management is one of the best ways for jobbers to grow catalytic converter sales. “You have to make sure you have the right mix for your market,” says Haynes. “”If you work with a major manufacturer, they should be able to provide you with a detailed analysis of the vehicles in your area along with insight into the popularity of specific part numbers. (For example) Tenneco sales representatives use a tool called WalkerINVision to create comprehensive inventory recommendations based on documents and emerging demand patterns in each market. In many cases, this tool can help jobbers reduce overall inventory dollars while increasing sales.”
Guy Trottier, product manager (after market) at Ultra-Fit which sells a full line of cats for domestic and import vehicles to jobber stores and warehouses also makes a big effort to keep a vast range of inventory. “We cover about 80% of market needs,” says Trottier. “But we can also manufacture a “one-off” in 24 hours, if a client is really in a jam.”
That said those market needs are growing says Trottier, in part due to changing systems in late model cars, due to tightening government emissions regulations which necessitate higher load converters. For the past ten years Ultra has also been making more direct fit (as opposed to universal) converters, which require less installation time.
Haynes has seen the trend among Tenneco’s customers too. “Direct fit has seen significant growth, - more than 50 percent since 2009, - due in part to a continued shift from universal,” says Haynes. “The trend is being driven by a number of factors. But the most significant is the rapid growth of the foreign nameplate population. In many of these applications, the under-body “packaging” of the emissions control systems is very tight, so the converter needs to be more compact and might have complex pipe bends. As such it is more difficult for the shop to install a universal converter, which typically requires cutting and bending.”
Minimizing converter returns
Another good way to maximize catalytic converter profits is to minimize returns. That starts with customer education either at the garage level, done either through clinics or visits by experts. According to Fantin the market remains rocked by the aftermath from a glut of converters a few back that caused engine warning lights to flash. “There were several reasons for this,” notes Fantin. “The first was that the market was feeling pricing pressure and was thus flooded with Pre OBD-II approved catalysts. Most installers think that all universal converters are the same and are only focused on price, not realizing that if you put a pre- OBD-II converter on an OBD-II vehicle it will pull a PO420 code.”
In fact industry personnel agree that many returns are simply due to errors elsewhere in the system. “Many clients simply don’t have the money to properly maintain their vehicles by doing regular tune-up and the like,” explains Bruder. “If that happens and the spark plugs foul up or if they use bad gas, the catalytic converter can blow. That’s why when you are getting returns. And it is very important to try to find out the source of the problem. Often it is not a product defect.”
© 2012, 2010, 2009, 2008, 2007, 2006, 2005, 2004, 2003, 2002, 2001, 2000, 1999, 1998
Peter Diekmeyer Communications Inc.