to Automotive Imports: What to Do?
like many other industries, is feeling the pressure of offshore
competition. This is a good time to consider the implications
and develop alternatives. In simple terms, how should you
respond? Is this a direct threat or an emerging opportunity
that you should seize?
rebuilders already feel the pressure from imports; it has
become a fact-of-life. Rebuilders are also experiencing
other challenges that are just as fundamental. The OE dealer
channel becoming stronger and is taking share. OE and replacement
parts are lasting significantly longer, reinforced by warranties.
Price and service pressure is everywhere.
preparing for an industry seminar, Hadley Associates called
150 rebuilders. This was not a scientific survey, but rather
informal interviews. The calls were made to owners and managers
of both large and small operations. These companies rebuilt
a variety of products.
very simple questions were asked, namely:
is the health of the industry?
significant changes occurred in the past 5 years?
do you expect to occur in the next 5 years?
are you doing to do to respond?
highlights help to put issues into perspective. As you read
the statements, ask yourself what do they mean and what
are the implications?
OE product life is a major issue
units are coming from Mexico, China and Taiwan
units cost lest than re-man
service segment doing well
segment has become a staple
manufacturing reducing costs
driving increasing the wear factor
products simply lasting longer
product is favored over re-man units
repair outlets appearing
cases have a bright future
to electronic control from hydraulics
product lasting longer, backed by extended warranties
first buying cycle staying with new car dealers
aftermarket units cost less than re-man
"A" item doing well, as well as service work
is less crowded
proliferation and hard-to-rebuild system are issues
vehicle registrations supporting growth
product lasting longer, backed by warranties
proliferation continues to be a problem
components is a strong segment
dealers channel becoming a factor
not see significant import activity yet
reality is that we have multiple business pressures; foreign
component parts and products is just another one. This is
benefiting consumers, but creating short-term problems for
rebuilders. After initially being emotional, most rebuilders
see this as an opportunity.
delving further, rebuilders need to ask several strategic
value-added activity do I bring to my customers?
is the "real" cost of providing these products?
"other needs" do my customers have that I do
my current business model need to be changed?
in Mexico, Taiwan, India and China initially have one major
advantage, "price". With time, they address quality,
product features and even brand recognition. This formula
has worked with automobiles, apparel, and electronics. The
pattern will never stop; it is progress. What does have
to change is how we respond to it.
success of foreign auto parts did not just happen; it the
result of leveraging a strength (labor and component costs)
to satisfy the market. Remember, a successful program requires
someone saying, "This is exactly what I need; I will
success of foreign parts has many factors, but it settles
down to "customer segmentation". It is a cost/value
relationship. You do not need the best quality to succeed;
there are trade-offs. A 15-year-old vehicle owner has different
expectations than a 3-year-old vehicle owner. Someone in
Philadelphia has different wants than an individual from
Fairfield, IA. As a result, they patronize different outlets
and use different buying criteria. This needs to be understood.
auto electric segment can serve as a good example.
interviewing profitable rebuilders, most that it is more
profitable to buy-and-sell "A" items than it is
to spend the time rebuilding them. It is a cost/value relationship.
Many have simple rules-of-thumb like $XX profit/unit or
time-to-rebuild that triggers the decision. Their most important
concern is maintaining the customer relationship profitably.
the auto electric rebuilder can buy a unit, mark it up 30%
and still satisfy the customer without expending any labor,
it is a rational decision. With the time saved, the rebuilder
can repairs a "C" item at a much higher unit price.
By doing so, the rebuilder has satisfied two customers and
produced two revenue streams. This is smart thinking.
strategic advantage of the small rebuilder is their customer
relationship. They understand their customers, products
and end-use applications, thus adding value to the relationship.
Answering technical questions, providing immediate solutions
and responding to time-sensitive needs are their "real"
products. This is more than just selling an alternator or
starter. Reinforcing the cost/value relationship requires
constant attention in the shop and with the customer.
same principles apply to production rebuilders, but from
a different perspective. A production shop with 100 employees
serves different segments than a three-man shop, perhaps
supplying wholesalers, multi-location jobbers and/or parts
stores. They focus on one product category, like mid-priced
operations use volume, product depth, lower prices or a
program as their advantage. They are, however, susceptible
to importers who focus on even lower prices. What is the
value-added that the production rebuilder brings? Is it
blending product lines, handling cores, satisfying special
orders or being a low-cost supplier? The customer relationship
will tell them.
electric rebuilders are already benefiting from import parts,
either buying components direct or through distributors.
They may even buy complete units this way, focusing their
operations on what foreign suppliers cannot do well. Whatever
their strategy, it has to address improvements to the cost/value
curve. "Lean manufacturing" is one method; rationalizing
"make/buy" decisions is another. The key is how
you link strategies together.
WHAT IS THE ANSWER?
products are not going away; the nation may change, but
"low cost" sources will stay. This is classic
economic theory, traced back to 19th century European economists.
The question is: Do you see this as an opportunity to modify
your business model or do you see it as a threat and plan
on fighting it in some way?
can easily become an emotional issue. It is easier to project
one's anger and frustration to something else. This does
not solve the problem. The solution is to look at the opportunities
in light of your operations. Consider these solutions:
"activity based" accounting
"value-added" resale pricing
services and higher margin products
parts, WIP and finished inventories with demand
suppliers that match your quality standards
non-revenue producing activities
the total "cost-of-quality"
"customer service levels"
many products, "new" has become more cost competitive
than "remanufactured" items. In other situations,
the gap between "new" and "re-man" is
still enough to lead the buyer to remanufactured. The pattern
is not universal; analyzing each situation is crucial. Most
important, your customer expects you to supply them with
the appropriate product for the situation. There is a high
degree of trust and responsibility here.
approached correctly, the perceived threat of imported products
is really an opportunity. In some limited cases, it can
be a direct threat requiring bold actions. In both situations,
the solution is to understand your customers' wants, know
your costs and develop a delivery system that is beneficial
for both of you. This may require some adjustments in your
operation and thinking; it may not. The solution is to logically
understand the situation by using data and critical thinking.
Associates is a consulting firm focused on industrial market
research and facilitating strategic change. Drew Hill, principal
consultant, is a certified focus group leader and management