Tightening Your Belts

You wouldn’t think a part category that involves little more than a loop of rubber stretched across a few spinning pulleys could really provide very much by way of change. Despite the belt system being largely unaltered for decades, the belts and tensioners market is one that is undergoing a great deal of change from a few different angles.

According to some research analysis at Frost and Sullivan, the changes come primarily from the top of the automotive food chain. Vehicle manufacturers have increased the number of components under the hood while making engine compartments smaller. This trend drives unit shipments in the North American belts, hoses, gaskets and seals aftermarket as changes in engine design necessitate changes in belt design and force distributors to stock a greater number of parts.

“Parts proliferation and application of improved technologies in belts, hoses, gaskets, and seals are driving unit shipments and revenues in the North American aftermarket,” notes Frost & Sullivan Industry Manager Avijit Ghosh. “Demand for belts, hoses, gaskets, and seals are also expected to increase proportionally with the increase in average vehicle age.”

Furthermore, the shift from V-belts to serpentine belts significantly increases the weighted average price. For instance, the industry-wide average price of V-belts in 2007 was approximately 50 per cent lower than the average price of a serpentine belt. As the industry continues to witness an increasing shift from V-belts to serpen- tine belts, the overall weighted average price of belts will likely continue to increase due to the usage of higher priced belts.

Parts manufacturers have also noted a major shift in the overall market, and cite some unique, albeit not terribly surprising reasons for the shifts.

“The trend in belts is moving towards more rubber belt applications and moving away from big chain driven V8s,” says Ken Edwards, general manager at CRP Industries Inc. Citing higher fuel prices, Edwards says the demand for small high-performance import engines (most likely driven by rubber timing belts) is the way of the future.

“The belt market talk is all about imports and import coverage, basically having the right belt for the job as opposed to one that’s close,” he says. “We’ve seen it coming with NAPA buying Altrom and Uni-Select buying Beck/Arnley.”

Bill Hay, vice-president of sales with Dayco Canada says his company has also taken note of the shift towards import applications, and insists that individuals from the bottom to the top of the supply chain should too.

“During the first quarter of 2007, Toyota sold more cars and trucks around the world than General Motors did, pushing GM to second place for the first time,” he says. “It is of no surprise to anyone that the foreign name plate automakers have increased their market share consistently over the past several years. In fact, FNPs have increased 120 per cent over the past 18 years. With the rise in FNP production, more and more specialists are popping up and they are requiring specialized OE style product to their customers.”

In the end, like Edwards at CRP Industries, Hay also says technicians in this lucrative import market need to be concerned with finding the right OE replacement part for the job, in order to ensure it is done properly.

What’s more, manufacturers insist that installers should be focused on selling systems as opposed to parts.

“There is definitely a trend towards the idea of one box, one part number to cover the entire job,” says CRP’s Edwards. “It’s kitting, just like we say with clutch systems. Timing is going the same way.”

Despite a positive overall demand outlook from the researchers, plus Hay and Edwards, the market segment also faces some renewed price pressure from offshore manufacturers. According to the Frost and Sullivan team, the increasing penetration of inexpensive parts imported from Asia intensifies price competition in the aftermarket. The technological capabilities of offshore manufacturers improve every year and the aftermarket for belts and hoses can expect more offshore competition.

“Counterfeiting of parts is also a major challenge for participants in the North American belts, hoses, gaskets, and seals aftermarket,” notes Ghosh. “Among the different categories covered in this study, belts and hoses are at greatest risk of being counterfeited.”

With the number of joint ventures between local and global automotive manufacturers escalating, there has been a corresponding rise in the risk of counterfeiting. The sharing of suppliers has complicated the privacy protection of product designs, necessitating increasingly stringent laws on intellectual property rights (IPR) protection.

Analysis from the research firm reveals that the counterfeit vehicle parts and components market in China earned revenue of $11.53 billion in 2004 and estimates to reach $44.74 billion in 2011. The Chinese government expects to launch several counter measures to address piracy and counterfeit problems throughout the country. Intensifying IPR protection and global automotive companies’ greater focus on anti-counterfeiting drives are likely to rein in the counterfeit automotive industry in China.

“The government is anticipated to strengthen its legal framework and enforcement on IP protection to deter IPR infringement in China,” says Frost & Sullivan Industry analyst Amelia Wong. “Moreover, with a new judicial interpretation regarding criminal cases, customs policy designating ports for automobile trade has changed to discourage smuggling.”

Such measures are likely to reduce the profit margins of manufacturers and distributors of counterfeit and pirated products. Moreover, Chinese consumers are becoming increasingly aware of the importance of the quality and safety of vehicle parts and components.

Most of the estimated 40,000 counterfeit vehicle parts and component manufacturers in China are small-scale operators that function at low cost, making their products attractive to price-sensitive customers.

“However, with the expected deregulation of imports restriction and tariffs reduction on imported vehicle parts and components from 2005-2011, the price gap between the original and counterfeit vehicle parts and components is likely to decrease,” notes Wong. “With original products becoming more affordable, consumers are likely to increasingly prefer these to counterfeits.”

Original product manufacturers are strengthening their anti-counterfeiting efforts by filing more IPR applications and taking legal recourse to IP infringements. They are also providing detailed information about their products to government officials to help them differentiate between genuine and duplicate goods and provide similar education to consumers.

In fact, a potentially high-profile case involving a massive belt manufacturer and an Ottawa-based distributor has recently made some headlines on autoserviceworld.com.

According to a release recently made available, Dayco Products, LLC, a subsidiary of Mark IV Industries, Inc., announced that it has filed a lawsuit against Kingdom Auto Parts Ltd. based in Ottawa, Ontario.

This U. S. federal court action, brought in the Eastern District of Michigan (Detroit) includes claims for trademark infringement, trade dress infringement and false designation of origin, unfair competition and patent infringement under state and federal law.

The lawsuit alleges that Kingdom has been selling automatic belt tensioners and pulleys for the automotive aftermarket that appear to be “Dayco” belt tensioners and pulleys but which are, in fact, counterfeit products.

The company says the packaging for the Kingdom products includes the well-known “Dayco” trademark and the unique five-digit product code associated with Dayco.

Also, Dayco alleges the Kingdom tensioner products themselves duplicate the distinctive, aesthetic, nonfunctional trade dress elements of the Dayco automatic belt tensio
ners, including the overall configuration and appearance, the number and shape of ribs, recesses, cutouts and cavities reflected in the product’s castings, and the inclusion of a flat spring.

Far from backing down to the allegations however, Kingdom Automotive’s Gary Calagoure says the allegations are baseless. “Kingdom Auto Parts has been informed through the trade press of a lawsuit filed by Dayco Products relating to tensioners,” he says. “Kingdom Auto Parts has not been served with the Complaint, and therefore it is premature to comment on the merits of or defenses to the lawsuit. However, if the matter involves the same belt tensioners that were the subject of correspondence in late 2007, Kingdom Auto Parts doubts the suit has any merit. Calagoure goes on to say, “Dayco’s claims in late-2007 of “trade dress” rights in intrinsically functional belt tensioners are baseless. It is the policy of Kingdom Auto Parts to vigorously defend its position against tenuous claims asserted by others to thwart honest competition in the automotive parts aftermarket.”

Suffice to say that the issue of alleged counterfeiting in this particular market segment is one that is not likely to dissipate any time soon. In order to protect your shop against substandard knock-off parts, be sure to use a reputable supplier and always remember the “too good to be true” adage.

“The rubber industry has always been quite profitable for manufacturers, and because of large margins in the past you could legitimately see some big price discrepancies,” says Edwards. “But of late, the way of doing business is changing, and all of those incentives and trips are going away. Ultimately, the gaps will start closing and premium products will all end-up in the same ballpark. So, if all of a sudden you see a 50 per cent decrease in price, you have to start wondering.”