At the beginning of this year, ArvinMeritor announced a long-term strategy to reorganize and focus on the commercial vehicle on- and off-highway market segments for both original equipment manufacturers and aftermarket customers. Since then the Chassis and Wheel divisions have been sold off and a major investment has been made in the company’s Brazilian operations. What was the thinking behind moving away from the light vehicle market to focus more on the commercial vehicle market?
The decision to sell the Light Vehicle Systems business is part of the company’s ongoing corporate transformation (3R strategy to rationalize, refocus and regenerate – that has been underway for the last five years). Over the last few years, we’ve been refocusing the company selling businesses including the light vehicle aftermarket and emissions technology. Selling LVS is another major step in the transformation to build a stronger, more competitive company for the future.
By becoming a company with a stronger focus on its Commercial Vehicle business, we’ll significantly benefit and offer a better return to our shareowners from a greater focus on our core business, competencies and expertise. As a more focused company, we’ll significantly increase our brand recognition in each of our global markets.
We have sold the majority of the Chassis business, announced the sale of the Wheels business, and are on track to sell the Body System business.
Why is the South American market a strong focal point in ArvinMeritor’s future growth strategy?
The South American market has a good mixture of both North American and European heavy vehicle platforms. With our worldwide reach and original equipment on many of name-plates in use in the market, we are well positioned in the region to capitalize on both the domestic and export growth opportunities as they arise.
Further from an aftermarket viewpoint, we have been producing and distributing parts in the region for both domestic and export consumption for over 20 years. We have excellent joint venture relations with Randon Co. in Caxias do Sul, Brazil, and our joint ventures, Suspensys and Freios Master. The market history, the joint venture relations, and our smart-aggressive marketing, coupled with our in-the-field aftermarket team support, will prove a strong, strategic foundation for future growth.
Are there commonalities between the North American and South America markets that will make for increased efficiencies? If so, please explain.
We do see common traits in approaching the markets — the manner in which we go to market, the customer demands, and the demands for high-quality parts at a good value. In various countries in South America, the vehicle platforms play more closely with the North American platforms and we can offer enhanced beneficial synergies such as electronic ordering/catalogs and consistent training manuals and support materials.
Does ArvinMeritor plan to make any more global investments and if so, what regions do you look to next?
The corporation continually assesses strategic growth opportunities and most recently has indicated its intent to grow its Specialty business (off-highway, bus and coach, and military); its Commercial Vehicle Aftermarket business (such as recent investments in remanufacturing like Mascot and TruckTechnic) and expanding CVA into global markets, as well as growing its business in the Asia-Pacific region. The company will also continue to invest in ER&D, advancing and improving the product offerings to its customers, invest in advanced technologies like the hybrid drivetrain technology.
With the current economic downtrend, have you seen an increase in the ordering of aftermarket parts from trucking fleets? Dealerships?
To the customers we serve, we see a switch in the order patterns of less stocking of parts, more expedited shipments and customers buying only what they must have that day. We still see a considerable number of vehicles parked on the fence lines and those vehicles are being cannibalized to keep other trucks running. While we do not see an increase in the ordering today, we do see a change in the order pattern of our customers. As the market recovers and truck utilization trends upward, we expect to see an influx of orders from the pent-up demand for parts.
If fleets are ordering more aftermarket parts would you consider that to be an indication that they are extending use of current fleet trucks beyond the usual trade-in cycles?
In today’s environment it is hard to say if this is driven by life-cycle changes or economic realities. End-user customers are smartly looking at ways to save costs and one method is to keep their vehicles longer (i.e. extending trade cycle). We take a holistic approach to the life-cycle of a vehicle. Our offerings focus on the first, the second and the third owners based upon proper alignment of value, quality and performance required by the end-user. For example, our remanufacturing initiatives are reflections in which we are assisting customers by extending the useful life of the vehicle.
What types of parts inventory programs do you currently make available to fleets?
Our path to market is through the OEM and its dealer body and the independent distributor. We offer vendor managed inventory (VMI), rapid response delivery, direct shipment as ways to reduce transaction cost and as ways to streamline the total supply chain cost. From a fleet’s perspective, we take a consultive approach meeting with the motor carriers to understand their needs and ensuring that local distribution has the right parts when they need them.
What percentage of aftermarket business does the division do with dealers vs. distributors vs. direct with fleets?
Our aftermarket business is basically split in equal halves – with 50 percent to the OEM and dealer body, and the remaining half to the distributor channels.
Are you finding more customers asking for more "just in time" approaches in order to minimize their inventories or are dealers, distributors and fleets continuing to maintain strong levels of inventory?
We have experienced the inventory draw-downs as the market reacted to the economic slow-down. The buzz we hear is not so much “just in time” but rather “I need it now” and “will you be there for me” during the recovery. This trend is based on less stocking of inventory by our customers, and the reliance on the brand owners like ArvinMeritor to fulfill those needs. There is absolutely no slack in the supply chain as we brand owners must be fully prepared to meet the parts needs of our customers. We are confident as the market returns, there will be “winners” — those suppliers that can deliver on-time to customers.
Finally, what are your thoughts on the economic recession, especially as it relates to your market? Do you feel we are on the road to recovery?
Yes, we’re on the road to recovery. We’ve heard the conversations of whether this recovery will V-shaped, W-shaped or U-shaped, we will have to wait to see what those graphs look like. But in our aftermarkets served, it appears as if we are bouncing along the bottom with some more consistent positive indicators. In our discussions with our customers, inventory draws are stopping, we see order flow stabilizing with some slight up-ticks, and are seeing other preliminary signs that indicate a small gradual recovery. We are cautiously optimistic and looking for other market signals that will confirm our optimism.
* Fleet Equipment Editor Carol Birkland and Publisher David Moniz contributed to this interview.
