Genuine Parts Company

1925–1997

Genuine Parts Company is one of the largest automobile parts suppliers in the United States, providing parts to about 5,800 NAPA Auto Parts stores across the United States and Canada, 800 of which are owned by the company. The company maintains close ties with the National Auto Parts Association (NAPA), owning approximately 90 percent of the trade association's member distribution centers. After selling only auto parts for almost 50 years, Genuine diversified into industrial replacement parts and office supplies in the mid-1970s. Then in the late 1990s Genuine moved into the wholesaling of electrical and electronic materials with the acquisition of EIS, Inc. About half of the company's revenues are generated by its automotive group, with about 28 percent coming from the industrial group, 16 percent from office products, and about 7 percent from the electrical/electronic materials group.

1920s-60s: From One Store to Nationwide Distributor

Genuine Parts Company was founded by Carlyle Fraser in 1928 when Fraser bought a small auto parts store in Atlanta. The store had six employees and capital of $40,000 when he acquired it. Sales reached $75,000 the first year, although the store lost about $2,500. Independent garages for car repair were spreading with incredible rapidity, providing Genuine with a swiftly growing market for its parts. Genuine bought auto parts from manufacturers such as Tenneco and sold them to parts stores, called jobbing houses, which sold them to the independent garages. From the beginning, Genuine pushed swift, reliable service as a way to outflank the competition. The firm also used its relationship with NAPA, the trade association cofounded by Fraser in 1925. NAPA set standards and sold parts to jobbers.

Genuine's business was in some respects helped by the Great Depression. Many people could not afford to buy new cars, so they held onto aging automobiles and bought the replacement parts needed to repair them when they broke down. In 1936, about $2 was spent on parts for the average one-year-old car, whereas a three-year-old car required $10 in parts. During the 1930s, company sales went from $339,000 to $3.18 million.

Genuine continued to grow during World War II. Consumers again held onto their older cars, sometimes having little choice because automakers were devoting much of their capacity to the war effort. By the same token, the War Production Board only allocated resources to parts manufacturers to build "functional" parts for cars. This restriction meant, for instance, no fenders or door hardware were available to sell to those needing them. With auto sales slacking, the average vehicle was 7.28 years old in 1946, compared with 4.77 years old in 1941 before the United States entered the war. As a result, $19 in parts were bought for the average car in 1945. In the year of its 20th anniversary in 1948, the company had $20 million in sales. That same year the company went public, selling 150,000 shares of common stock at $11 per share (thanks to a series of stock splits, an investor who had bought one share in 1948 would have had 205.04 shares by April 1997).

With the prosperity of the 1950s and the increasing number of families with two cars, Genuine expanded at a tremendous pace. It opened NAPA operations in Boston in 1950, Omaha in 1955, Jacksonville and Miami in 1956, Denver in 1957, and Minneapolis in 1959. By 1962 the firm owned 97 retail stores and 12 warehouses along the East Coast and in the South and had annual sales of about $80 million. Rebuilt parts accounted for 15 percent of sales. Although it still bought parts from manufacturers, Genuine did some parts rebuilding itself, including clutches, brake shoes, and pumps. To increase its slice of that business, in 1968 the firm acquired Atlanta-based John Rogers Co., a rebuilder of auto engines. In 1969 Genuine diversified out of the auto business for the first time, buying Beck & Gregg Hardware Co., a 103-year-old distributor of home appliances, building goods, and sports products (this business was sold in 1985).

By the late 1960s, Genuine was a nationwide distributor, supplying 2,500 independent jobbers and owning 33 of the 55 NAPA distribution centers, which then served 4,000 jobbers throughout the United States. The first NAPA brand parts were introduced in 1966. Genuine also supplied parts for trucks, tractors, power boats, and power tools.

The store had six employees and capital of $40,000 when he acquired it.

1972–1982

Diversifying in the 1970s

Expansion outside the United States began in 1972, when Genuine acquired auto parts distributor Corbetts, Ltd., which was based in Calgary, Alberta. Corbetts served more than 100 jobbing stores. Genuine also began an expansion into Europe in 1973, but this proved to be a short-lived endeavor as the European operations were sold off in 1978.

The OPEC oil embargo in 1973 played havoc with the auto parts market. With the rise in gasoline prices, consumers drove less and needed fewer auto parts in the short term. The oil shortage, however, also led to recession in 1973 and 1974. Car owners held onto their older cars, driving up sales and prices of auto parts in the longer term. Nearly 90 million cars were being driven in the United States, and approximately 60 percent of them were over three years old, making them likely candidates for car parts. An increasing number of these vehicles were small cars, whose parts tended to wear out faster than those of bigger cars. Although cars were being driven for fewer total miles than ever before, more of those miles were in urban areas, resulting in greater wear on the parts. Do-it-yourself sales soared, and mass marketers such as Sears Roebuck and J.C. Penney began increasing parts orders from distributors. Genuine's sales reached $500 million in 1973, twice as much as its nearest competitor, APS; that figure, however, represented just 2 percent of the fragmented auto parts market.

Auto parts were becoming more elaborate and expensive as a result of technology advances and stricter pollution standards. In 1975, attempting to diversify, Genuine picked up a wholesale office supplies firm, S.P. Richards Co. In 1976, under the leadership of CEO Wilton Looney, Genuine also expanded into the industrial parts business with the acquisition of Motion Industries, Inc. Looney believed that industrial parts would be recession-proof in the same way that auto parts were: during recessions industrial firms would buy replacement parts for existing machinery rather than purchasing new equipment. In 1979 the firm bought a Michigan-based industrial parts distributor, Michigan Bearing Company, to expand that segment of its business.

In 1978 Genuine installed a computerized point-of-sale system for billing customers, tracking inventories, and automatically ordering replacements for parts that were sold. The system, developed with Data General Corp., cost $24,000 to $30,000 per complete system, and grew to include 900 jobbers by 1982. This system gave Genuine an important advantage over competitors, because no other independent distributor could match the services Genuine could offer.

Staying Ahead Through Acquisitions and Retooling in the 1980s

Genuine's sales reached $1.6 billion in 1981, of which 63 percent came from the distribution of parts, 22 percent came from industrial replacement parts, and 8 percent from office-supply products. The firm had 55 U.S. distribution centers for auto parts and four in western Canada, selling to about 5,200 jobbers, of which it owned about 350. Genuine ran six distribution centers and 160 branches for industrial parts, selling to 50,000 customers. Office supplies were being sold to more than 5,000 retailers in 15 states. Genuine's leading item overall was spray paint used for touch-ups, which accounted for 8 percent of sales. Exhaust products, filters, hoses and belts, and batteries accounted for between 3 and 6 percent of sales each.

1981–1990

The number of vehicles in the United States continued to rise, reaching 160 million by the end of 1981, with an average age of 6.5 years. Parts for imported cars accounted for only about 10 percent of inventory, despite rapidly growing import sales in the United States. Since the imported parts broadened inventory, the trend to buy imports was seen as increasing Genuine's advantage against smaller, less well-financed competitors.

In 1982 Genuine bought General Automotive Parts Corp. of Dallas in a stock swap valued at about $250 million. General Auto had stores in 12 states in the southwest, north, and central regions of the United States. Genuine also was opening about five outlets a year, most in major cities. To better supply them, it opened NAPA distribution centers in Dallas, Houston, and San Antonio in 1983, and Portland, Maine, in 1984.

A recession hit the United States in 1982 and hurt Genuine's supposedly recession-proof industrial parts business. The recession was severe enough to temporarily shut down some factories, and closed factories do not buy parts. As a result of its diversification, about 35 percent of Genuine's sales came from operations other than auto parts, up from 10 percent ten years earlier.

NAPA was an increasingly important part of Genuine's business. NAPA's 72 distribution centers sold parts to 5,200 NAPA jobbers, who sold parts to local mechanics. Genuine owned 55 of the distribution centers, and 350 of the 5,200 jobbing sites. Genuine thus had 85 percent of NAPA's sales, although that accounted for only 5 percent of the nationwide market for replacement parts. About 85 percent of Genuine's 100,000 auto and truck parts bore the NAPA brand name. Genuine used its NAPA connection to give it leverage over the 5,200 NAPA jobbers. If a jobber began buying less than 85 percent or so of its parts from Genuine, the firm might open another NAPA shop in the same area. If jobbers kept Genuine happy, they would find little direct competition and excellent service. Genuine delivered parts overnight to most of its customers, enabling them to keep their inventories, and thus costs, low. Genuine began refurbishing its image in the mid-1980s, raising awareness of the NAPA brand name and redesigning its stores. Most of the firm's nearly 500 stores installed brighter lighting, updated the layout of sales floors, and added a blue and yellow color scheme that drew attention to the NAPA logo.

Replacement part sales sagged in the mid-1980s, barely keeping pace with inflation. Car and truck sales had slumped in 1982 and 1983, meaning fewer cars needed parts several years later. Cars were being built better and generally started to need replacement parts after four years rather than three. Customers increasingly brought their cars back to their dealers for repairs, and the dealers got parts directly from the manufacturers. As Japanese cars steadily acquired U.S. market share, parts suppliers were slow to begin carrying them in sufficient numbers. Warm winters in 1988 and 1989 were partly to blame for the drop in sales as well because alternators, batteries, and other parts tended to fail during very cold weather. At the same time, Genuine's competition was heating up. Specialty shops such as Midas and Jiffy Lube were expanding rapidly, and retail chains were increasing their automotive operations.

To help compensate, Genuine tried to increase its efficiency and started a new marketing campaign. Genuine signed agreements with Midas, Montgomery Ward, and others to supply some of their auto parts. To make jobbers aware that it carried foreign parts, Genuine put out a catalogue focusing on imported car parts. By 1990 most of the 6,000 retailers who bought parts from Genuine were connected by computer to one of the firm's 64 NAPA distribution warehouses. In addition to getting parts to jobbers quickly, Genuine used the computer system to keep track of who was selling how many parts and why.

Changes in the auto industry did have some benefits: if cars needed parts less often, the parts continued to increase in cost, with some costing twice what they had 20 years earlier. At the same time, Genuine's other businesses continued to grow at higher rates. Sales for the industrial group were $547 million in 1988, with profits of $35.7 million. Office product sales came to $450 million, with profits of $36.7 million.

1989–2000

1990s and Beyond: Continued Growth, Major Acquisitions

In late 1993 Genuine strengthened its industrial parts business by acquiring Berry Bearing Company for about $300 million worth of stock. Bearings were seen as a stable seller in a recessionary economy as firms delayed purchases of new equipment. Expansion into Mexico began in 1994 when Genuine formed a joint venture with Auto Todo, based in Puebla, Mexico, to distribute automotive replacement parts in that country. In 1995 NAPA entered into an agreement with Penske Corporation to become the exclusive parts supplier for more than 850 Penske Auto Centers. That same year, S.P. Richards bolstered its operations through the acquisition of Horizon USA Data Supplies, Inc., a Reno, Nevada-based wholesaler of computer supplies. Another development in the mid-1990s was the revamping of hundreds of NAPA stores, including the creation of superstores with about 8,000 square feet of space, in an effort to attract more do-it-yourselfers. Coinciding with this remodeling program, which continued into the late 1990s, was an advertising campaign emphasizing the same theme--that NAPA stores served more than just auto repair shops. By year-end 1996, there were 5,700 NAPA stores, 750 of which were owned by Genuine Parts. Revenues surpassed the $6 billion mark for the first time in 1997, the company's 70th year in operation.

The late 1990s featured a series of acquisitions as Genuine sought to increase its pace of growth and return to the double-digit annual increases in sales and earnings the company had enjoyed in earlier years. Perhaps most significantly, Genuine entered a new, and potentially higher growth, line of business through the July 1998 acquisition of EIS, Inc., a distributor of electrical and electronic materials, in a deal valued at about $180 million. Also based in Atlanta, EIS achieved $522.4 million in sales in 1999, its first full year as a subsidiary of Genuine. In December 1998 Genuine spent about $231 million to buy the 80 percent of Montreal-based UAP Inc. that it did not already own. Since 1989 Genuine had held a minority stake in UAP, a distributor of auto and industrial parts with annual sales of $555 million. In January 1999 Genuine further expanded its auto parts group by acquiring yet another Atlanta-based firm, Johnson Industries, Inc. With annual revenues of $120 million, Johnson served new-car dealers and owners of large vehicle fleets, such as Federal Express. Also in 1999, Genuine acquired Brittain Brothers, Inc., a NAPA distributor based in Oklahoma City that served more than 190 stores in Oklahoma, Missouri, Arkansas, and Texas. Meantime, S.P. Richards gained its first presence in Canada through the 1998 purchase of Norwestra Sales, Inc., which was based in Vancouver, British Columbia, and was expected to serve as a base for a Canada-wide operation. This spate of major deals enabled Genuine to post a 21 percent increase in net sales for 1999, to $7.98 billion. The late 1990s also saw Genuine Parts develop e-commerce capabilities in each of its four product groups.

Despite continued softness in the automotive aftermarket, Genuine managed to post net sales of $8.37 billion for 2000, marking 51 straight years of sales gains. Profits edged up as well, hitting $385.3 million, giving the company 40 consecutive years of profit improvement. Dividends also rose that year, the 45th consecutive year of dividend increases. With one of the best track records in American business, an increasingly diversified range of operations, and a more aggressive approach to growth, there seemed to be no reason to suspect that Genuine Parts' remarkable history of success would not continue.