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Technology The
Speakers Peter Edge has over 25 years operational experience in the automotive market – equally divided between distribution and manufacturing based activities. He has gained a comprehensive understanding of the European parts aftermarket through holding a number of senior marketing position with companies like ICI automotive paints, Unipart, the Quinton Hazell Group, Sikkens automotive paints and the Partco Group where he was a principal in the MBO from Burmah Oil. Peter joined Knibb Gormezano 5 years ago and has helped grow the consultancy’s aftermarket portfolio. He has specialised in marketing and business strategy - with assignments across the globe. These have included projects with a number of the world’s largest aftermarket players - looking at market entry strategies, product development, company evaluations and acquisitions strategies. He has become a regular conference speaker, and was well placed to help discuss just what challenges parts distribution companies will have to face as the effects of the big changes in vehicle design tumble through to the aftermarket. Brian Knibb is a mechanical engineer by training, spending some fifteen years or so with Perkins Engines where he worked in manufacturing development, product and business planning. He spent seven years with the international management consultants A T Kearny, much of it as Manager, European Automotive Group. He was also Vice President of Berkt Management – a US/Swiss automotive consultancy. He set up his own practice in 1985. His consultancy experience has included leading assignments concerned with on-off road vehicles, engines, components, materials, technologies and industry supply relationships. He has covered original equipment projects and issues concerning the aftermarket. With Joe Gormezano he was a founding partner of the now established and well-respected Knibb Gormezano Partnership. Recent assignments have included work in Western Europe, North America, India, Indonesia and Eastern Europe. He too is a regular speaker at conferences throughout the world and a prime interest has been in the field of technology developments and their impact on company strategy. So he was well positioned to talk about OBD and future emissions controls and many other issues linking parts distribution and the increased sophistication of components fitted to vehicles The first topic covered by the guest speakers was technology and it was left to Peter Edge to get things going. He identified the two key drivers of change as:- 1 Consumer demands 2 Legislative demands Consumer Demands Consumer demands have led to several developments and these were explained in some detail. Better quality and durability of parts The impact of improved component quality was clearly demonstrated by a frightening series of graphs reflecting the unit demand trends since 1988. They showed exhausts, shock absorbers, steering parts, brake pads and clutch components all on a downward path. The only graph showing growth displayed at this time was the vehicle parc which somewhat compensated for the decreased component replacement opportunities per car. Real average impact
Source; Knibb, Gormezano & Partners Lower cost of vehicle ownership The pressure on ownership costs has led to longer service intervals and new designs and materials to improve crash reparability. The impact of extended service intervals on the sale of service line items was again demonstrated graphically using the reduced demand for air/oil filters and oil as examples. ICDP research was used to support these trends which identified that car servicing had fallen by 70% in the last 20 years and will half again in the next decade. The result will be that annual repair bills will drop by 30% over the next decade. Better performance and more features The affects of better performance and more features have produced more complex vehicles with the increasing use of electronics and some innovative new products. These have made the aftermarket more complex with range explosions across most products. The same products were used as examples and it was clearly demonstrated how the aftermarket was being hit not only by reduced sales per vehicle but by increased part numbers as well. The part number scale is the same for all graphs and shows how exhausts have been affected more than most. UK Replacement Exhaust Market
Source; Knibb, Gormezano & Partners UK Replacement Shock Absorber Market
Source; Knibb, Gormezano & Partners UK Steering Parts Aftermarket
Source; Knibb, Gormezano & Partners UK Brake Pads Aftermarket
Source; Knibb, Gormezano & Partners UK Replacement Clutch Market
Source; Knibb, Gormezano & Partners UK Replacement Air/Oil Filter Market
Source; Knibb, Gormezano & Partners Legislative Demands Legislation was driving three key areas – reducing emissions, improving health & safety and more recycling. Emissions OBD – it can be a threat to independents or an opportunity Improved health & safety This is affecting bodyshops more than most More recycling The vehicle assemblers are getting involved and this side of the industry will develop and become more professional. The Importance of Parts Profit to Franchised Dealers and Vehicle Assemblers Peter stressed the importance of parts profit to vehicle assemblers by displaying an automotive profit pool pie chart which identified the profit from selling vehicles to franchised dealers at around 1% of the total profit pool associated with a vehicle through-out its life. Finance products and parts far outstripped it. The Automotive Profit Pool
Knibb, Gormezano & Partners As the profit from car assembly was unlikely to increase as a percentage of the total vehicle assemblers will turn more to related services for profit. They want and need more of the aftermarket cake, as the car increasingly becomes a commodity item. The key aftermarket retail segments were identified and quantified in another pie chart. Aftermarket Retail Segments
Source; Knibb, Gormezano & Partners The Knibb, Gormezano & Partners projections for these sectors is that by 2008 ICE, ITs, Security & Communications will increase the most in value, followed by crash repair and mechanical repair/tyres. Windscreens and accessories will decrease in value. Brian Knibb then looked at the four changes impacting on the aftermarket in more detail. Traditional Products Exhausts They have a future for as long as the internal combustion engine is with us. The advent of CATs is adding complexity but the increasing aftermarket potential they present is counteracted by the fact that they are helping to extend the life of other exhaust components – 10m cars in UK are already fitted with CATs. Brakes The move to brake disc applications in truck & trailer market is reducing the opportunity for added value in this sector. We are also seeing the introduction of electric calliper and brake by wire systems replacing mechanical systems. Filters By the year 2005 oil filters will last 25,000 kms and air filters 40,000 kms. Tighter emission standards will help counteract this trend as far as air filters is concerned. The market is moving to integrated filters and by 2001 only the filter element will need replacing. There will be growth in fuel and cabin filters with 90% of all new cars fitted with cabin filters by 2000. Clutches The self adjust clutch is being introduced and there will be growth in the number of cars fitted with automatic transmissions incl. CVT types. AMT systems will be introduced. Hydraulic clutch actuation with concentric slaves will be a feature on new vehicles. All these developments will reduce wear on friction parts. Oil DIY oil changes will eventually be banned and the move away from mineral oils to synthetics will continue. The former will continue to push work back to installers whilst the second - along with the need to maintain lubricant integrity – will probably increase the value. In a competitive market an increase in value is by no means guaranteed. Headlamps There is a move to more durable (unbreakable) polycarbonate headlamps – reducing sales from front-end smash accidents. Over 50% of new cars will be fitted within the next 5 years. Rotating electrics Conventional starters and alternators will disappear due to increased electrical demands. Power requirements will double from 1 Kw to 2 Kw and constant voltage delivery will become critical. Liquid cooled and dual voltage electrical systems will be developed along with flywheel starter generators. Batteries Electrical systems will eventually move to 36v batteries to meet higher power demands These are likely to last longer but cost more. Impact of OBD OBD II is now replacing OBD I. EOBD will become effective from January 2000 for type approval and January 2001 for all new vehicles. This will make fault finding easier because there will be standardised outlets and codes so only one set of diagnostic equipment will be required. There could still be a problem with on-board systems not recognising aftermarket parts electronically. The Government is putting pressure on vehicle assemblers to disclose code information and independent garages will feel the impact from 2003. But there is a big requirement for training because independent garages must be able to demonstrate competence before the information will be released. Product Innovations Navigation systems will be an innovation with big impact on the aftermarket. Demand will triple by 2000 when 1.2m systems will be sold throughout Europe. The strategic growth opportunity will be o.e fitment of course. But there is big aftermarket opportunity estimated over the next 5 years or so. The Future of the Internal Combustion Engine The internal combustion engine will be with us for at least 30 years and consumer-buying habits are not expected to change drastically over the next decade. Development of petrol and diesel engines will continue. However there will be development of all new powertrains based around all-electric and fuel cell technology. On the negative side this will eventually mean huge reductions in the aftermarkets for pistons, rings, bearings, valves, injectors, filters, exhausts, CATs, starter motors, alternators, transmission and brakes. But there will be growth in drive motors, power management components, batteries, reformer and cell components. There will also be impact on coolant systems, gaskets, hoses and vehicle electrics. The overall trend is expected to be a reduction in aftermarket value. Electric Vehicles The development of electric vehicles is being held back on cost and bulk of battery grounds. Electric car use is likely to be minimal and restricted to local fleets. Bus prospects look very good. Fuel Cells The jury is still open on whether this is where the future lies with big questions surrounding cost, fuel, vehicle specification, performance and volume forecasts still to be answered. The early consumers are likely to be commercial vehicle and car fleets. Their future will become stronger if we move away from ownership to use in mobility strategies, which is increasingly forecast by many industry watchers. If diesel particulates prove to be a key health risk then the fuel cells will have a more positive future if Government tax levels on hydrogen-carbon fuels are increased well ahead of inflation. They might ban all except fuel cell or electric vehicles from city centres. Hydrogen storage problems need to be overcome and of course a support infrastructure needs to be in place. At the moment hybrids appear to be the favourite future mobility option. They are better than fuel cell in performance and cost. They can achieve Euro IV/V standards. New Opportunities The investment in ICE is considerable in infrastructure and technology development. But traditional aftermarket products will continue to decline as durability increases. New aftermarket opportunities will appear off the back of product innovation like navigation systems, cabin comfort, etc. The ICE aftermarket could decrease after 2004 when all new cars will have extensive systems fitted from new. Specialist aftermarket sectors will develop like electronics and emission control. But all these changes are based on the scenario of evolutionary changes. Radical strategic changes for survival and growth will also take place and these are bound to change the status quo.
Technology table chairman Dr Richard Stock reported that the general view about higher cost maintenance on older vehicles was that will not shorten a vehicle’s operating life – except maybe on crashed vehicles which may be written off at an earlier stage in their life. Remanufactured components will increasingly be used and like the computer market the brainstormers reasoned that the cost of hi-tech components would reduce with the passage of time. Cheaper but legal alternatives will be available to owners of older cars. Also, on-board technology used in pre-diagnosis could predict expensive faults before they occurred. They also felt that when the affects of car price harmonisation begin to influence car prices in the UK, the maintenance cost /car value equation would move in favour of older vehicles. As far as specialism and costs for accessing OBD are concerned, the brainstormers felt that it was in the interest of parts manufacturers to keep a strong independent market, So, as they own the technology, they felt they would be crucial to making it available to independents in a cost effective manner. They felt that independents should group together to share knowledge and tools. Intranets could play a role. They also felt that independents should develop expertise ahead of the game to negate the effects of vehicle assembler franchised dealers gaining too strong a foothold. This is where specialists could play their role. The general feeling was that part number proliferation would continue but at a decreasing rate. The car buying publics demand for choice and niche models will continue to promote broader model ranges and so some parts will continue to proliferate. Others will reduce due to joint ventures using common components. The groups felt that there was still a long way to go in introducing technological solutions for disseminating information and on-line ordering between suppliers and installers. They suggested the ADF should organise a website as a bulletin board to brainstorm fitting problems. Parts sourcing, etc. In general the industry has not taken on-board the advances in technology like email or the NET. (7/99) |
