FRANKFURT - Shrinking profit margins and increasing competition from carmakers are putting pressure on European suppliers' aftermarket operations.
'The aftermarket in Europe is undergoing tremendous change,' said Erik Lundtoft, director of Visteon's European aftermarket operations.
Price pressure resulting from consolidation was a major topic at Automechanika 2000, the German aftermarket trade show that ran from September 6-10.
Lundtoft cited French car accessories group Auto Distribution Europe's recent E262.5 million purchase of Finelist Group plc of the UK. The acquisition created Europe's biggest aftermarket purchasing group.
'Over time, margins will be squeezed,' said Lundtoft. 'Cross-border cooperation will impact pricing - it's happening more and more.'
He said pricing differentials of up to 40 percent between European markets had provided high profits for many companies.
But the shift to a pan-European market, encouraged by price shopping on the Internet and the introduction of the euro, would soon affect the parts aftermarket, Lundtoft said.
Better quality original equipment products are also affecting the aftermarket. Sales are stagnant for some traditional products.
'The replacement rate is declining,' said Karel Bos, the new CEO of Belgian exhaust supplier Bosal.
Improvement in the quality of materials used for original equipment parts in recent years means that exhausts have a life span of up to eight years, said Bos. Five years ago, he said they might have lasted just three years.
Bosal is a E610 million company with its origins in the aftermarket.
'Some of us are still growing in the aftermarket, but at the expense of others,' said Bos.
Additional pressure on suppliers is coming from carmakers trying to increase aftermarket profits. Carmakers are taking advantage of growing consumer preference for original equipment quality parts.
Some suppliers are responding. Bosal, for example, has launched original-equipment standard laser-welded mufflers for the aftermarket.
'Carmakers are trying to get as much of this market as possible,' said Jurgen Behrend, CEO of Hella KG, the German electronics and lighting specialist. 'Competition in the aftermarket is increasing and we would be satisfied if we could just hold margins.'
Hella, with a DM1.3 billion (E658.4 million) aftermarket business, has appointed a development team to create innovative products for the aftermarket.
Sachs Handel GmbH CEO Georg Kreiner said parts suppliers could differentiate themselves through better service.
'We can't reduce prices,' he said.
Sachs is repositioning itself for the aftermarket, where it has annual sales of E390 million, mainly in clutches and shock absorbers.
'It's not just a focus on original equipment quality but also on service quality, with a new coaching program and a full service concept for retailers,' Kreiner said.
Sachs has just opened a new logistics center in Schweinfurt, Germany.
'You can order what you want online but there has to be a system at the company behind the offer,' said Kreiner. 'You must create the logistics service as fast as you create the business-to-business systems.'
Still, the emergence of e-commerce could transform the aftermarket, said Michael Stokes, managing director of aftermarket operations at GKN plc of the UK.
'The next three or four years will see a bigger transformation in the aftermarket than there has been in the past few years,' said Stokes. 'It has historically been a market that is fairly inefficient. There is not much visibility through the chain so you have had inefficiencies in stock management.'
Stokes said more consolidation in the aftermarket is inevitable.
'The companies that will win are those that can manage that consolidation process effectively,' he said.
As a strong brand with long-term relationships with some successful aftermarket companies, he said GKN will partly benefit from the consolidation.
'We must have a good share with the bigger consolidators,' said Stokes. 'We need to have strong companies that can represent our brands well in the aftermarket.'
He said GKN has grown its constant velocity joints and driveshafts aftermarket business on the strength of its original equipment sales.
'We have a fairly aggressive aftermarket growth targets over the next three or four years,' said Stokes.
US supplier Delco Remy International Inc. entered the European starter and alternator aftermarket a year ago and now has a light-duty vehicles product program of more than 2,200 part numbers. The company is now introducing a heavy-duty trucks catalog. Sales this year will be about E70 million in Europe and are growing fast, said Eric De Poortere, head of aftermarket sales and marketing.
De Poortere said Delco Remy can capitalize on the fact that it is a specialist at a time when there is a strong move toward remanufacturing in starters and alternators.
'The car parc is becoming more complex and it is very challenging to understand all the technical specifications of the different starters,' he said.
De Poortere said he wants to differentiate Delco Remy through high quality and more reliable delivery to distributors.
'We measure the performance of a starter or alternator versus the original equipment specifications,' he said. 'Another key advantage is our ability to supply the marketplace quickly through an adequate stock. The order fill [delivery to distributors to target time] is a high priority for us.'