Manufacturers discuss pain points, challenges of serving OE and aftermarket customers

Jan. 1, 2020
  Manufacturers discussed their pain points, bringing manufacturing back to North America and the challenges of serving OE and aftermarket customers at a GAAS panel discussion May 21 in Chicago.

Manufacturers discussed their pain points, bringing manufacturing back to North America and the challenges of serving OE and aftermarket customers at the GAAS panel discussion “Manufacturing in the Face of Change” May 21 in Chicago.

Moderator Bill Long, president and COO of the Automotive Aftermarket Suppliers Association (AASA), said motor vehicle parts manufacturers employ more than 734,000 employees and are the largest U.S. employer of manufacturing jobs.

Direct employees’ labor income amounts to $58 billion per year with a value added income of $80 billion.

Auto suppliers represent 2.7 percent of U.S. employment and 2.6 percent of total U.S. wages, Long said. Despite and sometimes because of the size of the industry, manufacturers have some unique pain points to deal with.

“There have been dramatic changes in manufacturing in the last 20 years,” said Ken Friedman, president of the Americas for Gates Corp., which has 13,000 employees in 30 countries and has been manufacturing in Colorado for more than 100 years.

“Twenty years ago it was a fire fight to get the parts out,” Friedman said. “We’ve made substantial investments in information technology and enterprise resource planning systems. Because of that we can offer better quality parts today due to increased technology and due to our increased capability at the manufacturing floor level.”

SKF has 140 factories worldwide and 10 of those plants focus on automotive hub units, according to Keith Wilson, president of Affinia Global Filtration “Our plants are regional and flexible. That is important because our position in OE is very large. In the aftermarket, those OE channels are not efficient. We have quick tooling for aftermarket parts and they make OE-quality parts.”

Made in the U.S.

Michael E. McGrath, president of Vehicle Service Market – North America, SKF, said it is possible to move production back and forth between various plants.

“Moving a production line is doable,” McGrath said. “If there is a resurgence for parts to be made in the USA, we could do that. We think that made in North America is powerful, too.”

Wilson said that made in America means something to the end customer, who views it as positive. Some customers have been buying global products for such a long time that it is less important.

Friedman outlined the realities of the cost of foreign labor versus U.S. labor.

“Not too long ago Chinese labor was 23 times cheaper than it was in the U.S. Now it is 11 times cheaper than the U.S. and a short-term projection is that it will be six times cheaper. We have seen a resurgence in North American manufacturing; however, 90 percent of our business is served from within North America.”

Manufacturing in the U.S. does present challenges, however.

“Many of our plants are in rural America,” McGrath said. “We are big fish in a little pond. When people in those areas find that fracking work can double or triple our $12 to $15 per hour labor rate, it becomes difficult to keep people. That is the price you pay to manufacture in more rural markets than for example, Chicago, where the cost of doing business is much higher.”

Aftermarket vs. OE

All three manufacturers said that managing OE and aftermarket business is challenging.

“You have to manage OE and aftermarket as separate businesses,” McGrath said. “OE will try to influence over the aftermarket. The businesses must be managed in a way to not cause conflict. Relationships sometimes get strained. The OE side has vision into products that will be required in the future, in terms of part performance and how it will be tested.”

Wilson said that Wix is only about 5 percent to 10 percent OE business, so it has not been an issue at Affinia. “We are selective about the OE programs we go after due to all the testing and research required to get into them. On the OE side of the business, suppliers and OEs want as much intellectual property in the systems as possible to drive business back to their dealerships. The challenge for the aftermarket is the barrier to entry to work around the OE patents to develop a product that has the same function if not form. This allows you to differentiate the aftermarket part. The aftermarket can patent their own technology to get around the OE patents.”

Managing both businesses is difficult, according to Friedman. “One is a high volume low SKU business and the other is a low volume, high SKU business. The OE business creates a lot of the technology that ultimately gets used in the aftermarket."

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