AKRON, OHIO — On Wednesday several hundred aftermarket executives will converge upon Chicago for the 10th annual Global Automotive Aftermarket Symposium. Inspired by the theme for this year’s event — “Lessons from the Past, Perspectives on the Future” — we’ve asked some of the industry’s leading executives to give us their predictions for the future of the aftermarket.
Max Dull, President and CEO, Beck/Arnley:
Nothing today indicates that the growth in the foreign nameplate vehicle population is going to slow down. But the lines between domestic and import vehicles are becoming more and more blurred, and may eventually disappear. The OE manufacturers recognize this fact and are becoming increasingly more aggressive in their pursuit of service business, trying to increase their share of the replacement market.
Alternative fuel technology will impact the aftermarket in the future, but the immediate, rapid development of vehicle electronics in general is facing us now with such systems as steer by wire and braking by wire. With all these changes, supplying the people installing aftermarket products with the right information to help them diagnose and repair vehicles will continue to be very important. In fact, supplying the most complete data in the most efficient manner to service providers will be a key tool in combating the OE dealers.
Mike Gingell, Vice President, Strategic Markets, R. L. Polk & Co.:
As Mark Twain once said, prophecy is a good line of business, but it is full of risks. So, while I think it is difficult to predict the future due to all of the uncontrollable variables, I do believe that there are a few predictions that have a reasonable probability of occurring.
Industry Consolidation — As the OEMs, particularly the domestic OEMS, continue to struggle with decreasing production volumes and profitability, they will continue to put cost pressures on the Tier One suppliers. Because of this, along with the increase in the price of raw materials, I believe you will see continued consolidation in this market as a mechanism for survival. In addition, as Aftermarket companies look to obtain growth, they will seek acquisitions in their product categories as well as acquisitions to expand and compliment the product categories. Consolidation will be used as a tool to drive increasing economies of scale in the production process and distribution channels within the industry.
Increased use of and focus on technology — Technology will be the differentiator for the high performing companies of the future. Technology will provide a competitive advantage in that it will allow companies to manage their inventories more effectively, make more fact-based decisions, give companies more flexibility and increase profitability through efficiencies. Based on the increase in the competitive environment, increase in the cost of raw materials and the continued struggle with inventory management, companies will focus on the use of technology to drive operational gains and eliminate costs.
Continued struggle with inventory management and efficiency — Inventory efficiency is really about economics, supply and demand. As the vehicle population grows due to vehicles lasting longer and the population mix shifts from domestic car to light trucks and import cars, inventory management will continue to be an issue on a global basis. In order to address this issue, the industry must truly commit to data and data exchange standards, become more willing to share information throughout the distribution chain and begin to work together to address the inefficiencies in the supply chain. I believe the industry could make great strides in attacking inventory inefficiencies if it would consolidate the supply chain information and utilize demand data and demand forecasts to better predict how to have the right parts, in the right place, at the right time.
Increased competition from the OEM dealers — As the new vehicle market continues to become more competitive and profitability on new vehicle sales continues to decrease, the OEMs and OEM dealers will continue to seek other avenues to drive profitability. This means that they will focus on the back-end of their businesses, which has traditionally been profitable, to offset decreased profits in new vehicle sales. An increased focus on parts and service from the OEM dealers means increased competition for the aftermarket. The OEMs will try to differentiate themselves by utilizing their relationships with the owners, emphasizing service and implementing proprietary technology.
Adverse impacts on market and profitability due to counterfeiting from foreign countries — Over the past few years, counterfeiting of parts has increased significantly. Intellectual property rights have been violated and many corporate brands have been negatively impacted. This all adds up to loss of revenue and profits for parts manufacturers and safety risks for consumers. Unfortunately, without unity in the market and in Washington, I do not see this changing. A growing battle over counterfeit parts will continue to mount over the next few years.
The future is bright for those who sustain — Although the aftermarket does face many challenges, the good news is that it is a growing market, with more than $244 billion in total sales. In addition, many positive actions have been taken in the last few years. For instance, the industry has started the process of developing and adopting data and data exchange standards, there has been movement to focus on key issues such as Right to Repair, counterfeit parts and consumer education has taken center stage within the industry. For those companies who are able to successfully put strategies in place to counteract the industry’s challenges, I believe the future will be bright.
Mike Howarth, Senior Vice President – KYB America:
I really expect the speed of change in the global automotive market to increase. Change isn’t always good, and unless we anticipate and plan for it, and lead our businesses appropriately, then it certainly won’t be good. The expression comes to mind “some people make things happen, some people watch things happen, and some wonder what happened!”
In the North American aftermarket we are seeing the effects of an ever increasing number of import vehicles, but because many of these are assembled locally, what does ‘import’ really mean, and why do we in the aftermarket continue to label vehicles as either import or domestic? Distribution channels will certainly continue to consolidate and rationalize, whether for distributors or service centers, and franchise dealers will continue to improve their volume and profits on parts as opposed to new and used vehicle sales. Many parts manufacturers, large and small, continue to ‘creak’ under the burden of debt, low margins and increased competition, but many are also profitably growing their businesses.
In terms of where all this is heading, I say, relax, it’s just the normal competitive pressures of the market. However, if we cannot identify and satisfy the needs and expectations of our customers, it’s going to be a long and torturous ten years ahead. The most important factor in the equation will continue to be the quality of leadership in our businesses.
Terry McCormack, President and CEO, Affinia:
Today’s vehicular aftermarket business is markedly different than anything we’ve ever experienced. Technological change is rapidly shifting our environment and our approach to business in virtually every aspect. Competition at all levels is fierce with the influx of new technologies and new competitors from around the world.
Within the next 10 years, it is unimaginable how many new advancements will be made to the existing way we do business. I believe that the dynamics of the industry will continue to work in our favor. The world is becoming more and more mobile, the number of vehicles on the road grows every year, and essentially vehicles are simply lasting longer than ever before.
Not only is technology changing, but consumer buying patterns are continually shifting. Consumer expectations are changing as the pace of life quickens. We live in a “Do It Now” culture, in which consumers demand longer hours, increased availability and immediate results. We will have to continually enhance our business practices to meet the demands of our consumers.
We have learned that it is no longer sufficient to simply adapt to change. We must embrace and harness new ideas and technologies, integrating them into the way we conduct business.
John Nodson, Director of Marketing, Standard Motor Products:
The aftermarket industry is ever-evolving, especially as the cars being manufactured today are becoming more complex than ever before. How vehicles are produced in the next ten years will be a direct result of both evolving technology and increased government regulations, such as fuel economy and emissions standards.
In addition, as automotive technology becomes more complicated, it will be increasingly difficult for the average do-it-yourselfer to perform the more complex repairs. Therefore, it is critical that repair information becomes more easily accessible to technicians so they have the tools to make the proper diagnosis and repair decisions. And, because accurate data is so important to our success in the coming years, programs like PIES and ACES are moving us in the right direction. The bottom line is that our industry must communicate better and faster than ever before.
Strong partnerships between manufacturers and distributors will become increasingly more important in the coming years to keep both sides healthy and profitable. We must work together to meet the needs of our customers, especially the service providers, by providing them with training and innovative ways to communicate with motorists, such as the 21st Century Tune-up.
Mike Schultz, Executive Vice President – Federated Auto Parts:
The automotive aftermarket has always been able to reinvent itself over time and there will be even more changes over the next decade. There will be a continuation of the consolidation of WDs and jobbers while suppliers will need to expand their manufacturing in Asia and other low cost areas of the world. Domestic auto producers will continue to lose market share to the Asian manufacturers and the distributors will need high-quality, low-cost parts to cover all applications.
Summary by Amy Antenora, Managing Editor, aftermarketNews.com:
This week, the 2005 Global Automotive Aftermarket Symposium will take an even closer look at these issues and more. aftermarketNews and our sister publication Counterman magazine will be bringing you more predictions on the future of the aftermarket, live from the 10th annual GAAS in Chicago. Stay tuned for daily news reports from the symposium on aftermarketNews.com and an extended article about the event in the June issue of Counterman.
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