Did Industry Predictions Hold True?

BACK IN 2005, noted industry researcher Frost & Sullivan published a report on the North American brake market.

The report made three key predictions: increased imported parts competition, the rise in rotor and drum demand due to an aging vehicle population, and a potential rise in premium products for these categories.

Half a decade later, how did they do?

In 2010, with many parts of the aftermarket still feeling the aftershocks of the financial sector-initiated downturn, more shifts in the market over the past five years, and with offshore supplies well and truly entrenched, the fact is that the predictions have held up pretty well, though not perfectly.

On the topic of rotor demand, the answer to the question of rising demand seems to be a resounding yes.

Mark Mandel, partner in Toronto-based Vasto-Auto Distribution Ontario, says that he has definitely seen a rise in rotor demand, but there is more to the story.

“We no longer carry premium rotors, although we’re considering adding them in our new facility,” he says. Of course, no discussion of any category would be complete without at least touching on import nameplate business. Mandel says that he sees no discernable difference in this part of the market from its more traditional domestic nameplate segment, but imports can’t be ignored either.

“We don’t get many calls for the high-end luxury cars (e. g., BMW 7-Series or the Mercedes S-Class), but we get a lot of calls for entry-level BMWs (3-Series) and Mercedes (C-Class), and the parts required for those vehicles are a mix of branded and entry-level products.”

There is agreement in general on both these points from Ramzi Yako of ProMax Auto Parts Depot Ltd., a supplier of brake rotors and friction.

“We have seen that rotor and drum demand is increasing steadily on an annual basis; the number of vehicles is increasing annually, which leads to increased demand for rotors and drums,” says Yako. “Around 85% of North American’s rotors and drums are made offshore; these rotors can only provide 12 months of service life, which has a large impact on rotor demand.”

Premium-level product, however, is taking a hit.

“Rotors and drums from Asia and Latin America are now at a satisfactory quality level and very competitive prices. It’s becoming difficult to sell premium rotors, especially with a huge price difference between premium and non-premium rotor or drum. We have also seen a major shift on origin of premium rotors and drums. Most premium rotors and drums were [formerly] made in North America; however that has been changed and most premium rotors and drums are now made offshore as well, which makes it difficult for a retail or wholesale store to sell premium product versus others.”

However, Ramzi does note an evolution of sorts, since the import nameplate market has grown.

“The increasing number of import vehicles has changed consumer purchasing habits, as well as our purchasing habits as distributors. Let’s take for example brake pads: import vehicles are originally equipped with either ceramic brake pads, NAO brake pads, or low-metallic brake pads. Most jobbers now are carrying ceramic, NAO, or low metallic to satisfy consumer demand. Traditional brake pads were riveted metallic and organic for years, and now we’ve seen that import purchasing habits have changed all that.”

While a growth in premium products that was predicted by the Frost & Sullivan study of five years ago may not be quite playing out that way, that market certainly has its proponents. It’s quite possible that what is defined as “premium” may have shifted too; after all, ceramic friction was the poster child of premium offerings not long ago and is now viewed by many as the price of admission to the market.

Still, in the last half-decade, SKU counts have risen and the market has demanded ever more responsiveness to new offerings from its players.

“I think it’s critical. Any time we find out that a new brake part is available, we add it to our inventory,” says Mandel.

“New part numbers could play a big role with jobbers, but it depends on the geographical area,” says Yako. “Some jobbers are eager for new applications because of their customer base and geographical location. Jobbers in small towns have a limited number of new vehicles in their marketplace, so new numbers will not have as much impact on their business.” However, he adds, new numbers are still important for everyone. “Jobbers should take advantage of new part numbers in the brake market, as profit margins are much greater than on older applications.”

Mandel says that there is a basic formula for jobbers to succeed in the market.

“Talk to your customers. Each customer and each market is different.

“The successful jobbers are trying to offer their products– whether they’re entry level or premium–at a competitive price. Anyone trying to get a premium price for entry-level product won’t survive. I don’t think most jobbers can inventory everything. That means that they have to align themselves with a warehouse that can fill that need.”

Yako agrees, adding, “If a jobber has the right mix of brake pads for his market, he can raise the performance of service level and profit. No doubt customer purchasing habits have changed, so jobbers need to carry today’s technology in the brake market to satisfy the new consumer purchase habit. Jobbers today need to keep three levels of brands or formulas of brake pads in order to satisfy customer demand; it’s a cost to jobbers, but in order to provide good service at reasonable profit margins, jobbers need to have a multi-formula, multi-brand inventory.”

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What They Said In ’05

What follows is an edited brief released by Frost & Sullivan in 2005 upon the introduction of its North American Brake Market Report.

Growth in Unit Shipments of Imported Rotors Poses Strategic Challenges for North American Suppliers

North American manufacturers of rotors and drums are facing stiff competition due to low-cost imports from Asian and Latin American countries. Given the substantial cost advantages, prices for economy or entry-level rotors and drums from these regions are about half the price of those manufactured in North America. North American manufacturers would therefore find it more advantageous to offer rotors and drums for the premium segment while importing low-cost components from overseas to supplement their product lines. In fact, in the long term, the focus is expected to shift from low-cost to higher-priced rotors and drums that offer longer product life.

Demand for Rotors and Drums to be Supported by Growth in Aging Vehicle Population and Increased Replacements

With the aging vehicle population in North America, demand for rotors and drums is expected to show steady and incremental growth over the long term. In addition, as brake system parts have become increasingly lighter and thinner to support cost-saving efforts and reduce the overall weight of vehicles, rotors and drums are expected to wear more quickly and therefore increase replacement rates.

Another major trend that is likely to drive up replacements for rotors and drums is the shift toward ceramic friction materials for brake components. Ceramic friction parts are shown to be slightly more abrasive on rotors and drums than the more traditionally used semi-metallic and non-asbestos organic friction parts, explains the analyst of this research service. As ceramic friction continues to gain market share, the unit shipments of rotors and drums is expected to show a steady increase.

Opportunities Expected in Premium Rotors and Drums Segment

With installers and vehicle owners showing increasing willingness to pay higher prices for longer-lasting quality products, the premium rotor and drums segment is expected to emerge as the key revenue generator. Despite the impact of economy-line imports from overseas on price and produ
ct life, quality is re-emerging as a competitive factor in the North American rotors and drums aftermarket, reiterates the analyst. Manufacturers will have more opportunities to differentiate their products to attract new customers, as in the case of drilled-and-slotted rotors that have won a loyal following among racing enthusiasts.

The renewed interest in rear drum brakes, which are less expensive and lighter than disc brakes and resolve automakers’ cost and fuel efficiency issues, is also expected to drive growth in the future.