B2B aftermarket profitability - OEM versus its distributors
In the traditional relationship between OEMs and the distributors of their products the lifetime profitability derived from a product’s sales and its maintenance, restoration, and modifications, is primarily captured by the distributors. This legacy relationship is in the early stages of being challenged by the OEMs as they develop business models that will enable their selling of tailored, multi-year, performance-assured, fixed-fee Advanced-Services agreements, providing materially higher profitability and recurring revenues. This article looks at the financial performance of Rush Enterprises (NASDAQ: RUSHA), the only publicly traded, standalone commercial truck dealer in North America.
Rush Truck Centers primarily sell commercial vehicles manufactured by Peterbilt, International, Hino, Ford, Isuzu, FUSO, IC Bus, and other brands. With 120 locations, it sells 5.6% of all new Class 8 trucks in North America.
The attempt of this post is to extrapolate an authorized OEM’s sales channel profitability with that of the OEM. Considering Rush Enterprises as a benchmark, it appears that majority of the lifecycle profits of the machine sales is experienced and obtained by sales and distributor channel of the OEM.
Moving to servitized and direct sales models, enabled by remote monitoring and central fleet/ installed based data gathering technologies, the nature of OEM-distributor relationship is going under a substantial change.
While distributor channels are still in many industries remain as service providers, their role in product and some aftermarket sales will be changed to great degree in different industries and hence the resetting of profitability and sources of revenue.
Such changes are also one of the main challenges in the servitization transformation journeys. All OEMs that employ sales channels as the distributors of their product and Aftermarket parts and services should have a clear roadmap on how they would overcome such challenges during this journey together with their sales partners and channels.
What do you think would be the critical success factor in servitization transformation?