Auto Value Associates, Inc.

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Auto Value Associates, Inc.

14351 Blanco Road
San Antonio, Texas 78216-7723
U.S.A.
(210) 492-4868
Fax: (210) 492-4890
Web site: http://www.autovalue.com

Public Company
Incorporated: 1976
Employees: 85
Sales: $85 million (1997 est.)
SICs: 3465 Automotive Stampings

Auto Value Associates, Inc. is an organization made up of 39 U.S. and Canadian automotive parts warehouse distributors, which own and operate over 100 distribution centers and facilities from the eastern shores of Canada to the islands of Hawaii. Although directly competing with such strong firms as Pep Boys, AutoZone, and Western Auto, Auto Value Associates is a leader in the field of automotive parts distribution. One of the reasons for the associations’s success has been its ability to implement a highly effective and thoroughly comprehensive jobber support system, whereby affiliated auto parts installers display the Auto Value identification sign and take advantage of a full range of marketing programs, store merchandising materials, personnel training, seasonal promotions, advertising assistance, and quality automotive replacement parts. One of the most important factors that set Auto Value warehouse distributors and affiliated jobbers apart from the competition is that all decisions regarding products, pricings, promotions, and advertising methods are made regionally and in light of the prevailing local market conditions. In the late 1990s, Auto Value Associates decided to expand its activities and enter into the Mexican auto parts distribution and jobber markets.

Early History

During the early and mid-1970s, a number of leading automotive parts distributors began to form groups or consortiums in order to compete on a more equal basis with mass merchandisers, chain stores, such organizations as NAPA and APS, and various other participants in the automotive parts aftermarket. These “marketing groups” or “programmed distributor systems,” as they called themselves, were initially formed to promote a common identification and to standardize advertising methods. However, within a short time of their formation, it became clear that these groups had come to represent a highly organized and significant degree of buying power, which possessed enormous potential in the marketplace. The ability of such groups to negotiate prices and terms of purchase gave them a distinct advantage over non-affiliated warehouse distributors.

Recognizing the developing importance and advantage of these marketing groups, four major warehouse owners arranged to meet in order to discuss and formulate a solution for warehouse distributors whose preference was to retain individual control over their marketing programs. As the meeting progressed, it soon became apparent that the four principal owners not only had a great deal in common, but also agreed on many issues related to marketing programs, automotive parts distribution centers, pricing systems, and purchasing strategies. The camaraderie and congenial relations, not to mention common business interests, that were a result of the meeting led to the creation of Auto Value Associates, Inc. in 1976, an organization established exclusively for the purpose of implementing combined purchase activities.

After forming a board of directors, S. R. Downey of Chattanooga, Tennessee, was elected as the association’s first chairman. Downey brought extensive experience in the automotive parts aftermarket to the association and guided it through its initial stages of incorporation, organization, and systemization. Downey convinced the board of directors to headquarter Auto Value Associates in his hometown of Chattanooga and immediately went to work establishing a firm legal foundation for the association’s activities. Paying particular attention to the possible liabilities of group buying, Downey contracted one of the most talented antitrust lawyers practicing in the United States and gave him the task of developing a stringent set of operating guidelines that would guarantee compliance with all the appropriate laws within the industry. Downey understood the need for credibility within the association, and the requirement that its success depended largely on forging on honest and open relationship with the general public. Pricings, vendor agreements, marketing campaigns, automotive parts warranties had to be clearly formulated and legally agreed upon. Within a few years, the chairman had developed the association into one of the most promising and fastest growing associations within the automotive parts aftermarket.

One of the important factors for the association’s early success was its marketing and advertising program. Initially based in Springfield, Missouri, the original administrator of all marketing and advertising activities was Ozark Automotive, a firm highly committed to the growth of Auto Value Associates. Within two years, the marketing and advertising efforts of the group had expanded so quickly that the board of directors at Auto Value Associates decided to relocate the program to its headquarters in Chattanooga, Tennessee. By the end of the 1980s, the number of warehouse distributors belonging to Auto Value Associates had grown to over 30.

Growth and Expansion in the 1990s

During the early and mid-1990s, Auto Value Associates added a number of programs that significantly enhanced their share of the automotive parts aftermarket. The North American parts warranty program was one of the first of its kind within the industry. The warranty arranged by Auto Value Associates included coverage for all parts warranted by the original manufacturer, under the exact same conditions and terms, and period of the warranty, initially offered by the manufacturer. The attraction of the Auto Value Associates warranty program was that every customer could exercise his right to the warranty at all of the Auto Value stores, no matter where they were located. The store providing the warranty service would provide a brand new part in exchange for the defective or damaged part, and subsequently receive full credit for the part from its automotive parts warehouse distributor, which was part of the Auto Value Associates system. Since the association had expanded by this time to cover a broad geographical area, encompassing all of the United States, a large region of Canada, and certain portions of Mexico, a customer could get warranty service almost anywhere in North America.

A short time later, Auto Value Associates established the University of Auto Value jobber and installer training program. The purpose of the University was to provide current information and training programs for affiliated parts stores throughout North America. Management at Auto Value Associates was well aware of the pressure on installers to keep abreast of the continuously changing technology within the automotive parts aftermarket, and the introduction of the Installer Training Guide was instrumental in the development of this program. The Training Guide provided the phone number of manufacturers’ technical service hotlines so that any participating installer could have access to information that was necessary in diagnosing or repair a difficult problem in a customer’s vehicle. An additional section provided a listing and summary of manufacturer’s warranty programs, so that an installer would be certain as to what he could or could not repair cost free to the customer. And finally, the Training Guide contained a lengthy list of videotapes that each Auto Value warehouse distributor kept in stock for installers to refer to in case there was more information needed on a specific automotive part or diagnostic problem.

In 1994, a new president of Auto Value Associates was chosen to lead the organization. Richard H. Morgan assumed his responsibilities as president having had many years of experience in the automotive part aftermarket. One of the first decisions that he made was to relocate the entire administrative operation of the group from Chattanooga, Tennessee, to San Antonio, Texas. The reason for this move was to take advantage of the dramatic growth in the automotive parts aftermarket throughout the southern and southwestern part of the United States. In addition, the move also facilitated the organization’s expansion into Mexico, which was regarded by Morgan as one of the largest potential markets in the world.

Recognizing the importance of advertising, and the revenues it could produce if directed at the appropriate audience, Morgan implemented an aggressive strategy to put the name of Auto Value Associates at the forefront of the sports world. Working diligently since he was appointed president, within a short period of time Morgan was able to reach an agreement for Auto Value Associates to co-sponsor the Bondo/Mar-Hyde Super Car Racing Series of the Automobile Club of America. Held at many of the most prestigious racing tracks across the country, the Automobile Club of America sponsored races typically held a day before a major race such as the Winston Cup Series. Since the events were held at the same track and one day after the other, both events enjoyed and took advantage of comprehensive, worldwide press coverage. TNN, ESPN, and TBS provided national television coverage of all the Bondo/Mar-Hyde Super Car Races, for example, with significant excerpts shown on other televised sports programs across the United States. Morgan was able to arrange for Auto Value to be viewed in an innovative way; the name Auto Value would be placed on a stripe across the windshield of every car in the race. Thus in any publicity photo for the race, the name Auto Value was not only visible but prominent. The results of this advertising campaign were impressive. Auto Value figured that, after the first race of the series on February 12, 1995 at Daytona International Speedway in Daytona, Florida, the association had received a 24 percent return on its entire investment as a sponsor of the event.

Company Perspectives:

Each successful year for Team Auto Value provides the building blocks and helps shape the plans for the next set of challenges and opportunities. What we’ve learned each year, what we ‘ve shaped and redefined and strengthened, provides new ideas and insights designed to compete even more aggressively in the coming year.

The next step in the association’s growth involved the development of a service center concept. In 1995, members of the association, with Morgan leading the discussion at the national marketing meeting in Salt Lake City, Utah, decided to develop an Auto Value Service Center to heighten the group’s identification program. The program was designed to include interior and exterior identification elements, such as signs, awnings, mats, window-posters, and also personnel identification items, including uniforms, caps, and tee-shirts. Other components of the service center program involved cleanliness standards and the requirement to hire at least one ASE-certified technician. Cautious about its image, but committed to helping affiliated installers become more competitive in the marketplace, the association members agreed to develop a prototype before the actual program was implemented.

Competition and Success

By 1995, the number of warehouse distributors within the association had grown to 39, and the number of affiliated jobbers operating under the name of Auto Value Stores had grown to 1,500. By the middle of 1997, the number of affiliated jobbers had increased to over 1,800. The 39 warehouse distributors operated more than 100 distribution centers across the United States and Canada, with new locations in Hawaii and Mexico. By 1997, the number of distribution centers operated by warehouse distributors had also grown to more that 120 locations.

Although Auto Value Associates had implemented an aggressive campaign to attract new warehouse distributors and new affiliate jobbers, the automotive parts aftermarket remained a highly competitive industry. Nevertheless, the association’s emphasis on marketing, with price savings for warehouse distributors and assistance for each new affiliated jobber to advertise his services, continues to attract new members within a rapidly consolidating market.