'DISTANCE MANUFACTURING' FOR DELCO REMY

The term 'distance retailing' has become generic for describing retail point programmes operated by aftermarket component suppliers and manufacturers. But the recently opened Delco Remy factory in Hungary takes us into 'distance manufacturing' - or remanufacturing in this case. Because although based in Hungary, it has been built specifically to service the remanufactured rotating electrics' demands of the UK aftermarket. It is the company's second Hungarian plant, and with labour costs at one third of those in the UK - $3 per hour compared to $10 - you can see why they are so interested in such developments. Even with core collected in the UK and sent all the way to Hungary for remanufacturing the profit sums still stack up. And the plant will be supplying 45% of the Delco Remy's UK aftermarket needs.

Televised opening

The brand new 5,230 sq. m factory is in Hungary's second largest city - Miskolc. It has an initial production capability of 250,000 remanufactured starters or alternators per year - with further expansion plans that can triple its size. The factory was funded by an investment of £3 million - of which 30% was covered by local grants. The opening of the plant was seen as an important event in Hungary and the USA. It was covered by Hungarian TV and attracted luminaries such as the Minister of the Economy, the American Ambassador to Hungary, the President of Delco Remy and the local Mayor. Most of the company's senior European management was also in attendance along with the European trade press.

Remarkable growth

Delco Remy only came into existence 5 years ago after detaching itself from GM. 90% of the company's global production is rotating electrics and they are a major o.e. supplier. In fact they are the largest manufacturer of automotive rotating electrics in the world. They have 30 factories worldwide with six in Europe of which four are specifically for remanufacturing. Although they have only been a UK aftermarket supplier for 6 months after purchasing the Fradley Heath Lucas plant, this immediately positioned them as the UK's largest UK supplier of remanufactured rotating electrics - producing 300,000 units a year. The production strategy is for the new Hungarian facility to specialise in long run simple remanufacturing processes, leaving the higher skilled based UK plant in Fradley Heath to focus on small batch high tech products such as Denso starters.

Market shares and country differences

The total UK rotating electrics market is put at around 1.7m units per year of which 1 million are remanufactured. On a European basis, Delco Remy is second only to Bosch, taking 16% of the total number of new and remanufactured rotating electrics units sold in the aftermarket. Valeo are close behind at 15%.

European aftermarket shares - units

Source; Delco Remy

But there are quite substantial differences as far as the type of rotating electrics sold into each country's aftermarket. In the UK and Germany, remanufactured units take the lion's share, whereas in Spain and Italy repaired units lead the market. The difference between repaired and remanufactured units lies in the depth of dismantling and component replacement that takes place.

FOR LOADING GRAPH ONLY

Market breakdown by country - units

Source; Delco Remy

Bright outlook for remanufacturing

Eric De Poortere, Vice President Aftermarket Sales & Marketing for Delco Remy, Europe, believes remanufacturing is on a continuing growth curve - seeing the main drivers as lowering costs and environmental pressures. He sees this growth occurring in the aftermarket being driven by the pressures on the affordability of mobility. But his thoughts about the future are more radical than many. Because he also believes that remanufacturers will increasingly work with vehicle assemblers. Not only as sub-contractors for aftermarket activities, but as tier one suppliers, providing quality remanufactured components for fitment to new vehicles leaving the assembly lines.

He also has strong opinions about where remanufacturing and the aftermarket is heading. He says,

"I believe with certain product groups, remanufactured products will become the only aftermarket offer. Likely components will be starters, alternators, air conditioning units, engine management systems, clutches and calipers. And these are the same products I see entering the tier one supplier segment".

"I predict remanufacturing will move towards the developing nations to keep production costs down. Countries like Hungary in Central and Eastern Europe are seeing growth now, but the Far East and Africa will soon see some activity. And these moves will be in line with continued consolidation of remanufacturers. The bigger remanufacturers will be buying up medium and smaller operators who will simply not have the capital available to offer a complete range resulting in them being unable to compete."

"And increasing core demand will result in a core shortage. So core identification and collection on a global scale are the absolute keys to success in the future, together with the better utilisation of that core. One core, with adjustments - can be used for various different applications as long as it is correctly identified and the technical expertise is available to achieve this".

Vehicle assembler involvement required

But many industry observers believe vehicle assemblers will have to change in strategic terms before remanufacturing can take its rightful place in the aftermarket. Currently the assemblers make profit from selling new vehicles as well as new parts into the aftermarket. The profit from one supports the other, and parts profit is particularly important to offset the cost of vehicle sales at franchised dealer outlets in the mature and therefore more competitive markets throughout the world. And it is important to remember that these businesses work on a global basis and national industry strategic rules do not apply.

If the aftermarket profit pool is to change dramatically due to environmental legislation (which is increasingly becoming the case) and re-using core, then it will affect the cost of acquiring new vehicles in the first place. Unless, that is, vehicle assemblers and their o.e. suppliers become the major players in remanufacturing - designing the new components with remanufacturing in mind.

The biggest will survive

Whilst others are getting out of remanufacturing, Delco Remy is expanding fast because they know it will become big business. But only the biggest will survive and prosper - with their own brand and as a subcontractor to others. As vehicle assemblers themselves continue to consolidate, the use of common components is bound to increase, with model and marque differentiating factors being focussed on visible appearance and on-board support systems for varying levels of driver comfort and convenience. This will keep assembly costs within check to some extent.

The larger consolidated remanufacturing businesses can then use their economies of scale to capitalise on the higher volumes per part number. And when multi-core use becomes a design feature, remanufacturing can begin to take its rightful place at the table. But they will need to work in close partnership with vehicle assemblers. And they will be high volume global businesses, utilising high-tech but the lowest cost remanufacturing centres. Delco Remy's position as the largest player in the sector on a global basis clearly puts them in a strong position.