The Downside of Quality

According to research recently released by Frost & Sullivan, original equipment parts are becoming too reliable, and lasting far too long.

HVAC, lighting, brakes, and emissions systems were all put under the microscope in the company’s study, and in most cases, it was determined that replacement rates were in decline, and some significantly so.

Steven Spivey, an automotive industry analyst with Frost and Sullivan, says that the burden of research points to some key market areas. “Growth rates will simply not keep up, and the size of the pie will not grow fast enough for everybody,” he says.

Apart from the obvious issue of longer service life halting the natural flow of vehicles into the aftermarket, there were also several other ancillary circumstances affecting the outlook highlighted in the study.

Rising fuel prices are projected to cost the aftermarket some revenue in the coming years as drivers may choose to drive less, thus conserving their various automotive parts along with their chequebooks.

Furthermore, although a J.D. Power and Associates finding, discussed in this space last month, noted a halting of the dealerships’ incursion into the four- to eight-year-old vehicle market, that’s not to say that they won’t keep trying. In this area, GM seems to have dropped the gauntlet.

The aftermarket, of course, is the bastion of the off-warranty vehicle; and that is the very target of the new GM warranty plan, which is seeking to retain the service dollars of vehicles for a newly extended period of time. While GM Canada president Arturo Elias said diplomatically, in his announcement of the program, “We want to share this new level of confidence with our customers by providing the best coverage in the industry including warranty, roadside assistance, courtesy transportation and peace of mind,” he might also have added how delighted he was to keep Buicks in Mr. Goodwrench’s bays.

That’s not to say that there aren’t areas where research has shown the aftermarket to be strong. These include, to put it bluntly, cheap imports, careless driving, and customization trends.

While headlamps and interior LED lighting dollars will likely be scarce given the quality of the newest technologies, the drive for customization in brake lighting may help. Strict government regulations severely limit drivers wishing to customize their headlamps, but rear brake lighting remains fair game. As such, replacements in this market niche are expected to remain constant, and this is where Spivey offers the greatest hope for jobbers looking to move forward.

On the other side of the coin, poor driving habits can also aid the aftermarket’s prospects, seeing as rear lighting is one of the most common collision replacements. While it may seem dubious to applaud the failings of inattentive, tailgating drivers, they do present a constant flow of business for the lighting market; and that is unlikely to change much, given the growing congestion on Canada’s highways.

Brake components, long a staple of the aftermarket, are another potentially significant market. Spivey cites the advent of ceramic brake friction as an example. While this new generation of brake pad is quieter and cleaner than its semi-metallic predecessor, its expected lifespan can be shorter.

Perhaps even more significant, in terms of the brake market’s overall sales picture, is the apparent deterioration in brake rotor quality. “From our conversations with installers, it seems as though a rotor that used to last on average three to four brake jobs, is now really only lasting on average maybe one or two brake jobs,” says Spivey. According to Spivey, thinner, lower-quality brake rotors are quickly becoming the norm within the auto industry, as manufacturers–particularly the domestics-look to slash costs.

More often than not, this means importing cheaper parts from low-cost countries like China. In terms of imports from that country in particular, for the automotive market as a whole, and the brake market in particular, the affect of the trend is staggering.

According to recent reports from both official Chinese sources and independent study groups like Global Source, China’s influence in the market is only going to become more significant in the coming years. In fact, a recent report from the Chinese Ministry of Commerce stated that 2005 automotive exports reached $8.9 billion U.S., a jump of some 23% over 2004.

While that number includes components from the entire vehicle, a more focused study put together by Global Source pegged the value of Chinese brake exports at $1.4 billion U.S. in 2005, an increase of some 30% over the previous year. While the brake numbers are substantial, their effect on the OE market is limited, as Global Source’s general manager of content development, Michael Kleist, notes. “Less than 20% go into assembly lines, due to the challenge of meeting stringent international certification requirements. In addition, most top carmakers already have long-standing relationships with established brake part manufacturers.”

However, given the financial woes of the big three domestic producers, one can only expect that percentage to climb. In that eventuality, the aftermarket should be able to benefit by providing disgruntled consumers with a better alternative, which is where Spivey sees the aftermarket heading. “It’s time to rethink the fit, form, and function role of the aftermarket,” he says, “to focus on taking what the OEMs do, and improve it.”