mattjoneswrites

Originally printed in Service Truck Magazine Sept. 2022

Any person working in the automotive service industry is intimately aware of the ongoing spare parts shortage at this point. Stories of vehicles being stuck in garages for weeks waiting for parts are now common as the $300 billion auto-parts and repair industry faces a growing crisis. A garage owner from Philadelphia told Bloomberg news that they refer to it as the ‘intergalactic backorder’ as though they were waiting for parts to arrive from another galaxy. And in addition to the delays, prices have also risen significantly during the same time period.
But what caused this shortage? And what have the impacts been on service and mechanic truck operators? And what can be done to return to some degree of normalcy? Service Truck Magazine spoke with a variety of industry professionals to find out.
ALL ROADS LEAD TO COVID
John Firm, mechanic operations division chair for the Automotive Service Association (ASA), says there is one root cause to all these problems – the COVID-19 pandemic. The pandemic has had an impact on almost every aspect of our lives and it has similarly impacted every step of the supply chain, from material sourcing to manufacturing to importing and exporting.
“When you have a manufacturing facility that’s building a product and it takes 25 people to build that
product from beginning to end and then you have 20 of those people go out with COVID, you have five
people in that assembly line, trying to build that product,” says Firm. “You burn those five people out
pretty quick. Then you can’t build the product.”
Such COVID-exacerbated labour shortages have been the significant driver of these issues. Last year, all the major tire manufacturers announced price increases in quick succession after rubber production stalled when tappers from Laos and Myanmar were unable to travel to Thai rubber plantations due to the COVID-19 lockdown. Whether stemming from travel restrictions or workplace absences due to sickness, the pandemic has sent shockwaves through the manufacturing sector, which then trickles down into businesses that rely on spare parts.
“A really close friend of mine is a major manufacturer of oil filters, building them for five different
brands,” says Firm. “To run a line of filters takes 15 people. When you have 10 of those people out with
COVID, you’ve got to pull five people from another line and shut that line down. You’re shutting other assembly lines down in order to make one that works. And there’s your backlog, that’s why we’re not
getting parts and inventories.”
The steps in that supply chain are also more costly now as well. Firm says that prior to COVID-19, it would cost roughly $5,000 to have a container put on a ship, brought to North America and shipped out via transport truck. Today that same process would cost roughly $20,000.
“Now you’ve got the guys who can’t afford to pay the 20 grand, or you’ve got the guys that can afford to pay it and now the price of your products will skyrocket,” says Firm. “And that’s another thing we’re seeing – $20 items we used to buy are now $40 items.”
Firm also notes many manufacturers are attempting to build their own reserves in order to protect against further shortages. If a box of 20 items used to be standard, they may now only ship 15 and keep 5 in reserve.

John Firm, who had been a representative of the Automotive Service Association at the time of this article’s original publication.

WHAT HAS BEEN AFFECTED
Computer chips are commonly cited as being harder to source and more expensive to obtain. Firm says there are plans for a computer chip factory in Detroit, Michigan, but the facility is not yet complete. “Manufacturers were paying $3 per chip before COVID-19,” says Firm. “When the manufacturers quit building cars, the guy building those chips has to find somebody to buy them. So what went hot? TVs, computers, anything with entertainment. And they realized they could sell their chips for $12 and $20 for computers and TVs.”
Marc Karon, president of Total Truck Parts, Inc. and a member of the board of directors of the Commercial Vehicle Solutions Network, says that his company has experienced challenges in sourcing sensors and other electrical parts. He also noted that he expects Freon to become scarcer, though he attributes that to environmental activism.
“Another area where we are seeing critical shortages is in the area of engine parts,” says Karon. “We repair engines in our shops and we sometimes have to hold up a job waiting for a critical component. We have also seen shortages of media which affects filters. High quality steel affects bearings. And the one area that affects all of them is labor shortages. Many suppliers tell me that they have the subcomponents of the parts we need but they cannot get enough people to staff assembly lines.”
Nate McMurtrey, owner and operator of Offroad Wrench, says that the parts shortage cost him an
engine in one of his service trucks this year. His 855 Cummins needed injector sleeves and valves
replaced but neither of his local machine shops had access to the parts. He was eventually able to
source injector sleeves but not valves and ended up giving up and swapping out the entire engine.
“It devastated the start of 2022 for me,” says McMurtrey. “They told me I’d be looking at two to three weeks wait, so we made the decision to swap an engine out and we ended up having some other parts availability issues as we were doing the engine swap. So the total downtime was closer to five weeks of lost billable hours, and that’s just on my truck, that’s not even the customer stuff.” McMurtrey also had issues with a logging yarder. He needed cylinders for the guideline drums and it took two and a half months to get replacements. He’s also experienced a variety of other parts being unavailable with no set date for when they’ll show up.

“There’s obviously the used parts route that we could go with but the customers and the fleets that I
operate with prefer not to use used parts,” says McMurtrey. “They prefer preventative maintenance
ahead of time. And I operate my own stuff the same way. But I still ended up putting a used engine in.”
McMurtrey notes that part availabilities in some cases have begun to improve, however the high
demand has also led to price increases.
“The stuff that is available is astronomically expensive at this point,” says McMurtrey. “And the stuff
that’s not available, we don’t know when it will be available.”

INDUSTRY RESPONSES

Like many automotive and machine service operators, McMurtrey has responded to the shortages by stockpiling parts in hopes of being prepared for when a need arises. He operates with 3 fleets on a regular or semi-regular basis, so fleet management is key to his business. He’s currently looking for used engines that can be rebuilt and stored for when they’re ready to use.
“We are collecting major components for the equipment and looking at what the value of having that component in our stock is,” says McMurtrey. “Because relying on parts availability, just calling your dealer and your parts houses has gone away.”
One of McMurtrey’s clients has three or four machines with identical undercarriages in use and they’ve purchased an entire track rail assembly, rollers, idlers and sprockets, which are all waiting on the ground in the case of any failures that need to be dealt with. Another fleet he works with placed orders for two brand new undercarriages with the OEM at the end of 2021 and they have not yet arrived.
“We’ve also had some aftermarket undercarriages and those companies have gone bankrupt and left us with undercarriage we can’t service,” says McMurtrey. “So last year we made the decision to stay with our local dealers and purchase OEM undercarriage for these fleets. That way we have local support, local pressure and buying power.”
In addition to engaging with this topic at a high level with the ASA, Firm has also felt the impacts firsthand as the owner of Firm Automotive. He says that when a vehicle comes into his shop with a component failure, they often have to let the customer know that the part is on backorder with no estimated time of arrival (ETA).
“Or, we have to let them know that you can’t believe the ETA,” says Firm. “A lot of parts that we get from the manufacturer say they’re going to build it, and they’re going to deliver it in a week from now or two weeks from now. But when that date comes around they’ve issued another date. We’ve seen that a bunch of times.”
Not all businesses struggled due to the parts shortage, however, as some were able to position themselves to take advantage. Karon says that Total Truck Parts benefitted significantly, as they had anticipated there would be supply interruptions after the initial COVID-19 lockdowns and that they would cause price increases.
“We did a lot of advanced purchasing and buying in extended quantities,” says Karon. “When the price increases came, we were able to sell our extra inventory at the new prices which resulted in significant profit gains. Although there have been some improvements in the supply chain delays, we are still seeing shortages of key parts and we are stockpiling these. In some cases, we are stocking more than a year’s supply.”
Karon also says that parts shortages have made his company more creative in how they service their customers. When a truck is down that typically generates thousands of dollars a day in revenue because of a $50 part, customers are less concerned about the cost of the part than when they will get it.

“As a result, we do a lot of sourcing away from our major supplier when they cannot meet our needs,”
says Karon. “This has been taxing on our sales team, but they are very effective and work hard to take
care of the customer. Unfortunately, suppliers have not stepped up and set up too many rules to make
emergency sourcing difficult. The result is they lose business.”
Another trend he has seen is suppliers increasing their freight minimums, which has caused Total Truck Parts to move to other suppliers. While Karon sympathizes with the suppliers having to bear the increased costs of freight, he notes a better approach would be to limit the number of orders per week.

“Increasing freight minimums do no lower costs,” says Karon. “All it does is drive business away. How does that make a company more money? We have successfully negotiated shipping programs with many of our suppliers and they are enjoying significant growth in our purchases.”
Karon feels that companies with the ability (read: capital) to do so, should be planning ahead and stocking parts that may be in short supply in the future. With Total Truck Parts being based in Florida, they are aware of the possibility of disruptions stemming from hurricanes, so they have detailed mitigation plans. The parts shortage is another, equally predictable circumstance in his view.
“We pay attention to what is going on that might affect availability,” says Karon. “The environmental movement is pushing to shut down R134 Freon availability. Thus, we stock up just in case. When we see steel prices increasing like they did last summer, we purchased drums. At one point, we had a year’s supply in stock. Now the availability is better, so we have let the stocks run down some. Manufacturers use ‘just in time’ inventory which will not allow for any interruptions in supply. We think that is the wrong approach. When commodity prices are rising faster than the cost of capital, buying inventory is a great place to park your cash.”

HOW TO MOVE FORWARD

Understanding how these shortages developed and the impacts that they have had are only useful as a means of determining how to move forward. Returning to ‘normal’ may be impossible, but we may be able to achieve a new ‘normal.’ Given the logistic complexities that have been impacted by the COVID- 19 pandemic, Firm’s biggest suggestion is to simplify supply chains by bringing manufacturing back to domestic soil and reducing outsourcing and importing.
“I think by bringing back manufacturing here, it will open up more jobs as far as the trucking industry and delivery,” says Firm. “If we brought manufacturing back to the North American continent, we could be stronger, and we could be outsourcing the stuff to those countries. They’d like American products a whole lot better than what we like from China.”
However, that is not nearly as easily done as it is said. Manufacturers have traditionally enjoyed outsourcing overseas for cheaper labour costs. And furthermore, truly learning to live with COVID-19 is not just a matter of dealing with having more people out sick, but making infrastructure investments to mitigate impacts, such as outfitting facilities with high end ventilation systems. These are significant investments that manufacturers would have to grapple with. Are they willing?
“There’s gonna to be some changes to get there,” acknowledges Firm. “The minimum wage, they’re increasing that, that’s going to help as far as manufacturing, now people can make a living doing that. But we still have to sell that product at an increased price. And we have to get North America to bite on a better quality product for a little bit more money. And we have to deliver that better quality product. There’s a well known saying right now, ‘don’t buy anything that was made during COVID that’s an RV.’ Because they put them together with half the staff and they have a lot of problems. We’ve got to say, no matter what it is, we still do the best we can do and deliver a top quality product. We don’t have to rely on an imported product.”
Representatives of the National Association of Manufacturers did not respond to requests for comment on this topic, however, a spokesperson for their Canadian counterparts, the Canadian Manufacturers & Exporters, offered the following comment.
“The shortage comes from manufacturers’ inability to source these parts from abroad because of the fracture of long, complex supply chains, and a lack of domestic alternatives. This in turn leads to our calls for two big things: 1. Government needs to properly scope out and map Canada’s industrial capacity, and 2. Once that is done, we can target vulnerable areas in the supply chains, but overall help manufacturers invest in growing their businesses.”
Karon suggests another approach to increase productivity in the workforce would be to lower the age requirement for obtaining a commercial driver’s license (CDL) to 18 and to make them easier to obtain. “We just had to pay $2800 to get one of our employees a CDL,” he says. “How many 18-year old’s have $2800?”
He would also like to see the reinstatement of investment tax credits that existed in the 1970s, programs like Work for Welfare, a review of regulations that discourage investing in US-based manufacturing as opposed to southeast Asia and creating a $2000 a year tax credit for 18-20 year old’s who go to work in a brick and mortar business or factory.
McMurtrey says that he would like to see more unity on behalf of the industry at large to put pressure on manufacturers. He describes himself as an OEM advocate, which perhaps makes him an oddity in the independent service world. But through his preference for OEMs, he believes he has some pressure he can place on dealers to get things accomplished.
“Buying power comes from unity and if all we’re doing is searching for the cheapest price anywhere, you don’t get any kind of power, your buying power diminishes,” says McMurtrey. “If you’re the guy that is always just searching for the best price, you’re going to get left in the weeds. If you are building relationships within the industry and strengthening those relations, by combining your buying power you’re going to do much better.”
He adds that young independent operators getting into the industry need to ensure that while they are building their relationships with their customers they should also be building their relationships with the vendors.

“In the next couple of years, that’s going to keep an outfit with work in front of them,” says McMurtrey. “I do my best to save my customers money by building relationship and limiting the number of vendors we have. We’re going back to trying to get as many things as possible from one vendor instead of just price shopping because it takes so much time. We’re willing to pay a little bit of extra money to have somebody else actually do all that searching for us. It’s not all about just making money for yourself – it’s about keeping the end user, your customer, up and running. And if you stay focused on that, and build the relationships, the money comes after that.”