Germany: A challenging aftermarket in all respects

Oct. 22, 2015
In 2014, seven of the top 20 global suppliers were based in Germany. Many of those companies are well known fixtures of the U.S. aftermarket as well. And all of them are considered the drivers of technical innovation within an industry that thrives on such.

When Karl Benz sold the first commercially available automobile in early 1888, the automotive industry was born. Along with it was birthed its fraternal twin, the automotive aftermarket industry.

While vehicles sales in the early years were measured in double digits, innovation and technological advancements were advancing rapidly. In August of 1888, Karl and his wife Bertha collaborated on the first improvements to their vehicle design, which included lining the brake shoes and developing gears so that the car could manage inclines. Granted, these were modest improvement, yet they were the foundations of the innovative engineering that aftermarket suppliers bring to vehicle technology today.

More than a century later, the auto industry has turned into a multi-trillion dollar global business. The global aftermarket alone represents nearly $1 trillion of annual sales. Not surprisingly, Germany’s heritage in developing the industry endures today.  

In 2014, seven of the top 20 global suppliers were based in Germany. Many of those companies are well known fixtures of the U.S. aftermarket as well. And all of them are considered the drivers of technical innovation within an industry that thrives on such.

Germany is the world’s fourth largest economy with a nominal GDP of US$3.9 trillion. It is also the largest economy within the European Union. As such, the German economy is the bellwether of how things are going in Europe. After a deep recession, which saw the economy contract by 4 percent in 2009, economic growth has not rebounded quickly. Mainly, economic growth since 2010 has stagnated at less than 2%, and has even dipped into recession briefly in 2013.

The outlook for GDP growth in 2016 is targeted at less than 1.8%, and long-term estimates are for 2% growth by 2020. Germany’s automotive industry is its largest industrial sector, and it has revenues of US$480 billion, according to U.S. Commerce Department estimates. The industry is keeping pace with the overall economy, and it is expected to grow at roughly 1.8% this year. There are also 780,000 people employed by the industry in Germany, and employment expected to grow at 2.5% year over year.

German attitudes towards automobiles closely parallel those in the U.S. They are a cultural phenomenon that is a core part of their zeitgeist. Young adults aspire to car ownership as a rite of passage. German consumers also bring that same quality of exacting standards and precision that they are known for to the car buying experience. As such, Germans prefer to buy German cars. In 2014, 17 of the top 20 most popular cars sold in Germany were made either by VW, BMW or Mercedes Benz. But does that same preference extend to aftermarket purchasing decisions? In large part, the answer is yes. Local manufacturers seem to have an advantage.

“Germany is a very challenging market for outsiders to break into, even for big multinationals from U.S. or Japan,” says Jay Burkhart, vice president and chief strategy officer of the Automotive Aftermarket Suppliers Association. “The aftermarket channels are well established and networked. The ‘genuine’ German brands of parts are much preferred, and usually this type of environment can be an even more important barrier than the financials or the regulatory.” 

The advantage of German domestic brands isn’t just limited to the products that are made in Germany. As it is in many industries, manufacturers are increasing adopting global footprints. An individual product line might contain products made in a variety of countries, often by the same manufacturer. Burkhart said, “the German OE and aftermarket brands are increasingly making product outside of Germany, but they rely on their engineering, quality and German brand names to succeed in Germany.”

Others in the industry point out that these preferences aren’t necessarily a case of nativism on the part of aftermarket consumers.

“There is not a general preference for native German brands. But these brands do have a strong advantage, because they now [offer] the high service level which is demanded in Germany,” said Michael Kupzig, business development director & country representative DACH for Delphi Products & Service Solutions. “Due to the fact that these brands are normally quite old, they do have good brand awareness, at least at the garage and mechanic’s level.”  He also points out that the history the local brands have within the distribution channel is probably a key element of their success.

So how can a brand succeed in the German aftermarket?  The biggest factor seems to be service. Kupzig said that the trick is, “to meet the high expectations at the service level the aftermarket customers are used to. This is including delivery times, delivery performance, data quality, sales literature in the local language, recent information about product features and news, and brand activities, among others.” 

In Germany, those standards are quite high. So it is simply not enough to offer high service levels. Everyone is doing that. To capture market share in Germany, you must offer a better value proposition.

“There must be a benefit for the aftermarket customer [as to] why they should take a new supplier into account. Unless they are able to generate additional sales they are not very willing to change the current supplier to a new one, [perhaps one] with maybe less brand awareness,” Kupzig said.  

Access to the market in Germany can be almost as difficult as meeting the local standards. One traditional approach is displaying at local trade shows. But even that is more difficult in Germany. The largest aftermarket trade show, Automechanika, is held in even numbered years in Frankfurt.

According to Burkhart, “As Germany is the centerpiece of Europe’s global automotive persona, it makes sense that the international show is in Germany, but it is not a local German show per se, like say Equip Auto which is a more French show for local market.”  Finding the right distributors might require a more direct approach.

One alternative is seeking relationships with buying groups. Those familiar with buying groups in North America will find that the European counterparts operate in many of the same ways. But there are differences.

According to Jay Burkhart, “Most of the EU program groups don’t have compliance rules and strict vendor selection like in the U.S.”  He also cautions that, “It’s important to network with the groups there and to keep apprised of developments.”  He said U.S.-based manufacturers should try interfacing with the “sister” organizations in the EU of the groups they may already be affiliated with in North America.

There are opportunities to sell to the German market. Those companies that bring innovation and new technology will find success.

According to the U.S. Commercial Service, “Aftermarket opportunities are limited to innovative products, e.g. telematics, infotainment, connectivity, and safety products as long as they comply with relevant technical (safety) and environmental standards and regulations.” 

Kupzig adds that while the market will overall remain flat for traditional lines like braking and steering, he points out that vehicle electronics and fuel management are two categories he expects to grow over the next 12 to 18 month time period.

Selling to the German aftermarket from abroad is definitely a challenge. The hallmarks of a successful strategy will include preparedness, innovative products and extremely high service levels. The advantage of the home-grown brands seems to be based more on their knowledge of the customs and requirements of the market than on any inherent consumer bias towards them. Foreign brands can effectively overcome those hurdles by ensuring compliance with market expectations.

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