Auto Service World
Feature   May 1, 2000   by Andrew Ross

NEWS & ANALYSIS: The New Players

Visteon and Delphi may be huge global suppliers with well-established OE connections, but they're new to the traditional aftermarket, and look to face many of the same challenges as traditional suppliers.

It’s not every day that any industry sees the entry of two new players with corporate assets like those of Delphi and Visteon. In terms of both dollars and resources, each of these players has the potential to be formidable competition for existing suppliers, as well as a significant asset to the aftermarket. With all of their unique qualities, it may come as something of a surprise that these newcomers to the traditional aftermarket are taking such a traditional approach.

Delphi is, to put it succinctly, the world’s largest automotive parts company. Its annual revenues approach $30 billion (U.S.) worldwide, and up until a few years ago it was the captive parts source for the world’s largest automaker, General Motors. Since gaining independence three years ago, it has continued to sell parts to General Motors and is the key supplier of its Service Parts Organization. In fact, SPO continues to be its single largest customer. The ACDelco Freedom Battery you’re so familiar with is produced by Delphi. Despite this mutually beneficial arrangement, less than 10% of Delphi’s business is in the aftermarket, now accounting for about $2.1 billion. For the record, Delphi will not be calling on car dealers and will continue to work with ACDelco as a supplier.

As companies of every ilk look for ways to boost their stock price, it is no wonder that Delphi should be looking for that all-important growth in the aftermarket. As with Visteon, what is a relatively mature market for those already in the aftermarket is virgin territory for the newcomers.

Delphi announced its intention to enter the aftermarket with its own branded product last fall in Europe, and is launching its product portfolio in Canada with batteries, spark plugs and filters. It will launch into the U.S. in 2001.

Brakes, fuel pumps and remanufactured alternators and starters will soon follow the initial product selection. The company will ultimately make available a wide variety of aftermarket products in Canada, which will fall under five key aftermarket categories: undercar products, thermal systems (such as air conditioning components), energy/engine management systems (such as alternators and batteries), electronics (such as Engine Control Modules and sensors) and remanufactured products. Despite its GM connections, Delphi is embarking on an all-makes strategy with an eye to doubling its aftermarket sales by 2005, a strategy which includes acquisitions.

Louis Merz, director, global sales and marketing, Aftermarket Operations, Delphi Auto-motive Systems, says that the brand promise of Delphi is “lots and lots of technology” and that despite its commitment to the traditional distribution chain, for Delphi “the partner we are looking for is the installer. We intend to provide services to help make his job easier; he is served more by information than by parts,” says Merz, who adds that the whole thrust of the company’s plan is to make that installer want to use parts from the company because of its ability to offer him the repair information he requires.

A large part of Delphi’s perceived strength within the aftermarket, a position shared somewhat by Visteon, is its strength at the OE level. Anyone who has been paying attention to the increasingly close ties between OE suppliers and the aftermarket cannot have missed the point that many analysts feel that being an OE supplier is critical for success in the aftermarket. The key point is being able to readily transfer to the aftermarket what it learns in building for OE.

Merz obviously subscribes to this view; in an event held to mark the official launch into the Canadian aftermarket, he reviewed Delphi’s technical and engineering capabilities. He focused on the technology it has developed for accident avoidance, which links radar and powertrain control, air bags, and 911 dialing, among other systems, to avoid collisions and minimize injuries and delays in emergency response when a collision occurs.

Visteon, despite recent announcements of its impending spin-off this fall, remains very much a part of Ford Motor Company. Like Delphi, it supplies virtually every part and vehicle system through its various divisions. It is only two-thirds the size of Delphi, however, with annual revenues at just over $19 billion (U.S.). Its aftermarket business is about $1 billion (U.S.). It differs in some other significant ways from Delphi, particularly in that it has had a mandate for some time to develop its non-Ford business despite the fact that it is owned by Ford. No doubt the recent announcement of its impending launch into independence has been in the planning stages at least as long as it has been rumored, from virtually the day it was given its own identity three years ago.

Visteon’s launch strategy into the aftermarket has been distinctly different from Delphi’s. It has heretofore stayed away from the traditional, staple products of the aftermarket. Whereas Delphi has sought to build revenues with some very traditional aftermarket lines, Visteon first launched video entertainment systems in the Spring of 1999, then added climate control through its acquisition of A.R.S., renaming the brand Climate Pro, and body styling and accessories with its RoadFx line. It also has the replacement glass business called Carlite. With the exception of the first category, it’s certainly not the lineup one might have predicted from a world leader in advanced vehicle systems.

“We decided to focus on areas where there was growth,” says Dave Peace, vice president of global aftermarket operations for Visteon, adding that it was also looking at growth markets without large, dominant players. “A/C and climate control systems are growing, particularly in Europe and the mid-east.” In North America, Visteon’s most public move into that arena came with an agreement announced last November to supply the Midas network with its climate control components, though it may be a while before that has much impact on Canada. He says that the company will be looking at different remanufactured products–such as alternators, starters, and compressors–as well.

“We have an advantage because we manufacture a lot of the components. So we have a competitive advantage and that is a good starting point,” says Peace. Growth is an imperative–Visteon logged 15% last year–and this will dictate many of its moves especially as it moves to independence.

“We are operating as an independent now,” says Peace. “We’re trying to move the mix away from Ford,” though he adds cannily, it remains its most important customer. Peace says that there are many opportunities to do this–including the crash parts arena–but will be picking his targets carefully.

Perhaps one of the most interesting developments–if you can call it that–is how both of these companies resemble the traditional aftermarket players already. This is true not just in strategy and product assortment, but most strikingly in people. Delphi, for example, has chosen aftermarket veteran Cle Smith to head up its operation in Canada. He’s a former AIA chairman–you don’t get much more ensconced in the Canadian aftermarket than that. Lou Merz is himself a veteran of the traditional aftermarket, with a career that stretches back to Moog, through Echlin and Borg-Warner.

Visteon’s Dave Peace comes from a Canadian and North American Tenneco background, and moved to Visteon with the express assignment of building its aftermarket business. With Tenneco alumnus George Hobson on board to build a sales organization in Canada, Visteon too is gaining an ever-more familiar face.

The issue of the OE connection when it comes to the aftermarket is bound to have more significance as the current OBD II equipped vehicle population ages. While the basic OBD-II codes are readily accessible, the detailed “manufacturer’s optional codes” and the tools to access them are not. On this subject, both Peace and Merz are careful in their statements.

It is clear that both appreciate the position their employers are in as designers of much of the technology, but also how tightly their “customers” Ford and GM feel
about letting that information out.

“We are gong to balance that decision very carefully,” says Peace. The issue, he says, is that a lot of the technologies are tied up with agreements. “I can’t predict what the outcome will be, but we’re all aware that people other than the dealers need to have access.

“Long term, you’re going to see those barriers to entry start to break down.”

Merz echoes this sentiment. “Our OE colleagues would say that they don’t want the information out, arguing that it’s proprietary.” How do you expect the aftermarket to service these vehicles without the information? he asks. “We will definitely have the information available,” he adds unequivocally. (Equivocation came the next business day with a phone call from the company, just to make sure I understood that Merz was not suggesting that Delphi would be breaking any agreements to do this.)

For the time being, it appears that these two new global players in the traditional aftermarket will be taking somewhat traditional stances.

In the final analysis, it amounts to a similar situation that many aftermarket companies find themselves in: agreements and legalities, not know-how, restricting their ability to provide information to the aftermarket.

Their ability to bring their full technological prowess to bear may be dictated as much by their legal departments and the willingness of their largest customers as by their engineering departments.

If there was any doubt about how vigorously the automakers want to protect their territory, consider this: two Ford Motor Company representatives traveled all the way from Detroit to Montreal for the Canadian International Auto-motive Show to patrol the booths of unsuspecting exhibitors and brusquely order the removal of any products marked with the Ford name.

One can only imagine how such “brand police” might react if such products, or even the technology behind them, might have actually been for sale.

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