Two of the world's largest automotive suppliers are mounting aggressive assaults on the $245 billion global aftermarket.
Last autumn, Delphi Automotive Systems Corp. announced plans to double worldwide aftermarket sales to about $4 billion in the next five years.
Visteon Automotive Systems made a concerted move into the aftermarket two years ago. Sales climbed more than 28 percent from $700 million in 1997 to $900 million in 1999. They are expected to top $1 billion in 2000.
Independence accounts for some of the enthusiasm. Delphi was spun off from General Motors early last year. Visteon is expected to separate from Ford Motor Co. this year. That leaves both companies free to pursue growth wherever they can find it.
Still, selling to the aftermarket differs from selling to automakers. The aftermarket needs fast, flexible and responsive players. And for all of the depth and breadth of Delphi and Visteon, it will be no small feat to meet their growth objectives.
Delphi and Visteon still must compete with established firms, not to mention the rising number of other Tier 1 suppliers joining the aftermarket hunt.
A changing aftermarket
Frank Hampshire, director of research for the Motor and Equipment Manufacturers Association in the USA, stopped short of calling Delphi's plan to double aftermarket sales unrealistic. But he called it 'an aggressive statement.'
But Frank Ordonez, Delphi's general manager of aftermarket operations, predicts the aftermarket of 2005 will be very different from the aftermarket of today and that will create new opportunities.
Several factors are spurring the change:
The rise of in-vehicle electronics should be a boon for the aftermarket.
With electronics comes a need for support services such as diagnostic tools and technician training, which large suppliers are equipped to provide.
E-commerce is opening a window to the retail world. Trends in aftermarket sales will be apparent sooner, and manufacturing and distribution systems will become more efficient and responsive to the growing demands of aftermarket customers.
'There was a void that we all left behind because we didn't find (the aftermarket) very interesting once upon a time,' Ordonez said. 'Now the aftermarket is getting along. Delphi has an opportunity to come into the aftermarket, and bring its electronics expertise and work with the existing aftermarket to fill the void.'
Delphi has established aftermarket operations in Europe, Asia Pacific and South America. Plans are being formed for the North American market.
The initial product focus is on repair, replacement and maintenance parts. Eventually, Delphi will investigate opportunities to sell add-on accessories as well.
Creating new markets
Dave Peace, Visteon's vice president of global aftermarket operations, said Visteon has targeted the aftermarket 'with gusto' because it offers immediate revenue and earnings growth compared with the years-long product cycles on the original equipment side of the business.
'It is a critical component of our story going forward,' Peace said. Visteon has concentrated first on the European and North American markets, and is putting a small team in place in South America.
About 80 percent of Visteon's aftermarket business today is replacement and repair parts. But Peace sees great potential in what he calls the customization market, which will draw heavily on electronics. It might include offering such things as new and improved compact disc players or in-car personal computers.
Profit margins in these areas could hit double digits. That compares with repair and replacement part margins of 2 percent to 8 percent and original-equipment margins of about 4 percent. Peace said, 'It's about creating new markets that didn't exist before.'
Looking for experience
Delphi's Ordonez admits original-equipment suppliers have in the past been accused of going into the aftermarket without understanding how to operate there.
He and Peace share a strategy that calls for understanding the unique needs of aftermarket customers, then leveraging their engineering and manufacturing resources to meet those needs. To that end, they are reinforcing their work forces with experienced aftermarket executives.
Peace, who came to Visteon in 1997 from Tenneco Automotive, where he ran global aftermarket operations, has recruited a mix of people from inside and outside Ford. Many of the outsiders arrived with more than 15 years of aftermarket experience and established relationships with customers outside Ford.
Ordonez is a 30-year veteran of GM and Delphi. Before taking over aftermarket operations, he was director of finance and occupant protection business team leader for Delphi Interior Systems. But he plans to hire more than half of his employees from the aftermarket. At the same time, he needs Delphi people who understand manufacturing and who know how to get things done internally.
'Our goal is to get a mix of the two and merge them into culture that's very customer-oriented, customer-friendly and has the ability to resolve little problems and big problems,' Ordonez said.
Industry watchers acknowledge that some aftermarket players, particularly smaller companies, may fear companies such as Delphi and Visteon.
But consolidations in recent years have left room for more players, said Gene Gardner, president of the Automotive Aftermarket Industry Association in the USA.
Neil De Koker, managing director of the Original Equipment Suppliers Association in the USA, said: 'The additional competition is good for the industry and good for consumers.'