Tuesday, July 11, 2017

July 2017 - OEM vs. Aftermarket Parts: "The Battle Continues"

For years, we have seen the on-going battle for market share in the secondary market of the aftermarket parts industry. The Original Equipment Manufacturer, (O.E.M.) has been losing more and more of their market share in this secondary market, but they are not going down without a fight.

According to a report by the International Trade Administration in the Department of Commerce, they define this secondary market as follows;

"Aftermarket parts are divided into two categories; replacement parts and accessories. Replacement parts are automotive parts built or re-manufactured to replace OE parts as they become worn or damaged. Accessories are parts made comfort, convenience, performance, safety, or customization, and are designed for add-on after the original sale of the motor vehicle."

Now that we have the "formal" definition of what this secondary market represents, we can break down just how big this market is and who the players are. We will also see just what's different today versus what we have all known for years.

According to estimates by Auto Care Association, the automotive aftermarket is estimated to be worth $273.4 billion dollars in 2017, which is a $35 billion increase over the last four years. This estimate contributes approximately 2% - 3% of our Gross Domestic Product, (GDP).

This secondary aftermarket industry does't just effect our GDP, it plays a huge part of our job market as well. Currently, the aftermarket employs 4-5 million people who work at manufacturers, distributors, retailers and repair shops.

Let's start off with what the difference is today versus the battleground we've all known for years. That main difference, of course is the internet which has made this secondary market a "global" market with players all around the world.

A recent Frost & Sullivan study explains in detail the current trends in this secondary market as well as what we can expect going forward in their published study; "The Future of Parts and Service Retailing in the Automotive Aftermarket".

One of the first "bullet" points in the study was the mention of the rise of eCommerce with their B2C, (Business to Consumer) sales of automotive parts, which is expected to become a $20 billion dollar business by 2020. In itself, that would a equate to a 9%-10% penetration rate within the overall secondary aftermarket sale of auto parts.

The next thing that caught my attention in this study was the fact that direct selling will be the "norm" for suppliers and vehicle manufacturers. They are even starting to set up shop on known websites like TMall.com, selling directly to businesses and end consumers.

The study goes further to say that B2B sales, (Business to Business) will be the new battlefield with online players, traditional distributors and retailers. China is one of the biggest players in this B2B venture with their online industry giant, Alibaba. Autozone is among the competitors gearing up as well with many others to follow.

We also can't leave out the traditional online retailers like Amazon.com and eBay Motors, as they are still big players as online retailers of aftermarket parts and accessories. As more and more enter into the field of battle, I would expect the competition to start having a huge impact on price and quality of product.

Speaking of eBay, in a fairly recent article, they noted that back in 2013, by the end of the second quarter of that year, the U.S. had reached an all time high on imported auto parts from around the world. An estimated 220,000 containers were off loaded at our docks from around the world.

The eBay article goes on to say that approximately 1 out of 20 factories in mainland China were producing auto parts considered to be OEM equivalent under U.S. standards. Even more shocking, Taiwan had approximately 15 of 25 factories that were devoted to producing auto parts considered to be OEM equivalent and suitable by U.S. standards.

Now that we see who the players are and how the secondary market has grown to be a world wide industry, let's take a look at what all that means when it comes down to price and the overall quality of these aftermarket parts. As we will see, some things haven't changed, but on the other hand, much has changed.

Parts quality and price has always been the difference in which parts eventually end up on the customers vehicle. What's new today is, in the case of some aftermarket parts, quality and price are going hand in hand as this world wide competition has actually put the two together. 

For the sake of comparison, I'm going to use brake pads and rotors as the example of many secondary market parts that have impacted the automotive parts industry.

We will look at some of the features and benefits of buying OEM parts versus Aftermarket replacement parts, starting with the manufacturers' OEM parts.

As many of us know and have known for years, purchasing OEM parts from the manufacturer, in most cases, provides a better warranty and insures the quality that the manufacturer requires.

OEM parts also gives the consumer the assurance that the part will, or should perform as well as the original part they are replacing. This is why many of our customers choose OEM parts as they provide that added "peace of mind".

On the other hand, when it comes to brake pads and rotors, using OEM semi-metallic brake pads can cause brake rotors to wear far quicker than ceramic brake pads, even though the "brake feel" may be better than ceramic, or other brand name, aftermarket brake pads.

The OEM brake pads also tend to be more expensive, even though most of the manufacturers have made great strides in providing alternative choices for dealers. These choices include a more competitive price for the consumer as well as different material composition on the brake pads themselves.

Lastly, when talking about OEM parts, we also know that availability can be an issue as they can only be purchased at the dealer, making it, in some cases more difficult and less convenient for customers to purchase these OEM parts.

In comparing brake pads and rotors from the aftermarket side of things, we have always known that there is an expectation of lower price and "fair" quality. There are also more choices when considering aftermarket parts, in both brand name and in brake pad materials.

The difference today is, when comparing to years ago, the quality of these aftermarket parts can actually be as good, or even better than the OEM parts in some applications.

For example, you can purchase brake rotors with a varied amount of rotor fans that help keep the brakes cooler and prolong the life of the brakes in general.

Aftermarket brakes also offer a wide variety and even lifetime warranties on some brands, but there are always "pluses and minuses" to each eventual choice. For example, a semi-metallic brake pad can shorten the life of the brake rotor, but tends to have a better "brake feel".

Ceramic brake pads, on the other hand, can lengthen rotor life, but may not provide the same "brake feel" and may not perform as well in colder weather. Ceramic pads may also cause the vehicle to brake differently, and not as efficient as semi-metallic brake pads.

Another "minus" for some aftermarket brake rotors is that they may actually be thinner than the OEM brake rotor, thus causing more "out of round" situations as well as a shorter brake rotor life span.

I have actually witnessed aftermarket rotors being "out of round" right out of the box, causing further brake issues as well as a potential dissatisfied customer. This doesn't even account for the lost "down time" in the service shop, waiting for parts that will fit and perform to expectations.

In addition, aftermarket brake parts may have a tendency to be noisier than OEM parts, or even mixing and matching aftermarket parts to OEM parts can be a nightmare.

Lastly, and perhaps most important to Parts Managers, purchasing and perhaps even stocking aftermarket parts can be a nightmare, if not taken seriously and correctly.

All these "choices" can even cause problems with obsolescence and even lost sales of parts actually on the shelf, but perhaps under a different part number, or brand, due to a lack of proper part number cross over information noted in the Dealer Management System, (D.M.S.).

With all these choices and "good, better, best" options, it's no wonder why consumers get confused when "price shopping" their brake repair options. We have to do our homework if we are to enter into this new world of offering all these options to our customers.

Another area of aftermarket parts that has entered the battle field over the past several years is in the area of collision parts. Like, Kind & Quality, (LKQ) parts are finding their way on more and more collision repair orders than ever before.

It is in this area of comparison that I have to lean 100% to OEM parts. The problem is, in my opinion, when comparing OEM to aftermarket collision parts there are way too many players on the battlefield.

Not only are we dealing with a wide variety of manufacturers of these replacement parts, including the OEM manufacturers, we also have to deal with auto insurance companies. These auto insurance companies have brought in a whole new level of competition to the battlefield.

A recent Edmunds Car Care article had some shocking information that I did not realize. We have all experienced "fit" issues when utilizing aftermarket collision parts, but the surprising thing to me was just how uninformed the consumer must be when selecting their auto insurance company.

Here's the part of the article that grabbed my attention....

"In 21 states and the District of Columbia, a body shop's repair estimate does not have to indicate whether aftermarket parts will be used. You'll often find that your insurance company will favor aftermarket parts because they are cheaper. If you request OEM parts, some insurance companies ask you to pay an additional fee....all aftermarket parts are not created equal, but all OEM parts are..."

The other important thing that this article pointed out when considering aftermarket collision parts versus OEM collision parts is that these aftermarket collision parts may not have the proper "crumple zones", which is required for crash safety. To me, safety is the key part in comparing aftermarket collision parts to OEM, far outweighing the proper "fit".

It was recently reported that if we were to replace every part on a mid-size, domestic vehicle with secondary market parts, the cost to replace every part would exceed $100,000.00. That's over five times the original purchase value of the vehicle. That indicates to me that it shouldn't be any surprise that we are seeing this battle field getting bigger and bigger.

The last area in this battle field that I'm seeing growing larger and larger each year is OEM replacement parts being parts being purchased and repackaged under a different, aftermarket name for repurchase. This area of repackaging has gone on for years, but in my opinion, not to the degree it's being done today.

For years, we have known that there may be just a few actual manufacturers of certain automotive parts that many vehicle manufacturers use in initial production as well as in the secondary market. 

Years ago, I can remember reading that most ignition parts were only actually made by just a few vendors, such as Echlin, Standard Parts, Delco Remy, Motorcraft, Robert Bausch, etc. This wasn't uncommon back in the day, but what I'm referring to is much different.

It is not uncommon today to see OEM replacement parts being purchased from the dealer and then repackaged under a different brand. This also contributes to more actual "dealer item" parts being available in the aftermarket and online worldwide.

As auto manufacturers continue to compete in both the primary and secondary markets, I believe that we will see more and more battles on the OEM's trying to fight for disclosure. 

Meanwhile, overseas countries such as China, Taiwan, Indonesia and Japan will continue their fight against the OEM manufacturers monopolizing these primary and secondary markets.

The fight isn't over by any means as the battle field gets bigger and bigger, involving companies and countries from around the world. In my opinion, this battle will continue to grow and "Smart Parts" Readers need to be more and more aware of what we are buying and what ends up on our customers' vehicles.

As more and more manufacturers and vendors enter this field of battle, it is quite possible, in my opinion that we will see more and more dealers offer their customers more options in the parts used to service their customers vehicles. 

After all, if we want to keep up with our competition and stay in the fight on our battlefield, we need to keep our minds open to all of our parts purchase options. Our battle is not just retaining our customers, we need to make sure we are giving them the best product at the right price.

Dave Piecuch is the Vice President of Automotive Consultants Group Inc. and is the Head Coach for Smart PartsTMThe only "Results Based" High Return Training, Coaching, and Consulting company in the world!  Dave can be reached at Cell 786-521-1720 or E-mail at dave@smartservicetraining.com Vist our Website at www.smartpartstraining.com