In the past year, U.S. carmakers have been sandwiched between demands for price reductions from customers and rising material and energy costs. The mounting cost pressure forces them to gain components from offshore manufacturers, which has been reshaping the global landscape of auto parts sourcing. Aftermarket parts participants, along with OE (Original Equipment) parts ones are reeling from more pressure to minimize price than to maximize quality.
Aftermarket Segment
In 2004, U.S. motor vehicle aftermarket sales rose by 5.4 % to $257 billion. The growth was braced by the medium and heavy-duty segment, which inched up 7.1% to $66.5 billion as the automotive light vehicle segment gained a modest increase of 4.8% to $190.5 billion. According to the Automotive Aftermarket Industry Association (AAIA), 39.5% U.S. households bought no less than one aftermarket accessory for their vehicles in 2004 to optimize the performance, luxury appearance or styling of a vehicle's design. The most-frequently purchased accessories by U.S. end-users are floor mats (24.5%), license plate frames (12%), seat covers (6.7%) and vehicle alarms/security systems (5.1%). These accessories are mostly bought in auto parts stores and discount stores, accounting for 39% respectively.
U.S. aftermarket manufacturers continue to fight for the competition from low-cost country suppliers (LCC) countries while local distribution outlets tend to purchase more parts from China and other low-cost countries on account that the price renders more of an opportunity to create profit margin. According to a survey on industrial players, one out of three producers reported a profit margin decrease in 2005, while 25% reported a gain by an average of 8%. Over half reported an inventory rise of nearly 13% for 2005 and expect to raise in 2006. Besides the price-slashing and inventory issues, the aftermarket is also confronting the problem of a loss of maintenance, together with a shortage of DIYers.
Original Equipment Segment
In recent years, the market share of the Big Three vehicle producers has downsized steadily from 73% in 1996 to under 52.2% in October of 2005 as foreigners make inroads. Since 2001, the exports of U.S. made auto parts have fallen as the imports have lasted to pick up. U.S. local are challenged with calls by automakers for the cost-saving reason in parts production. In 2004, the U.S. imported $77 billion of motor vehicle parts, particularly from Canada ($22 billion), Japan ($19 billion), and Mexico ($14 billion) in country origin basis, which occupied for 72% of total imports. Engine-related components were the biggest imports, accounting for about $23 billion of the overall, generally from Canada, about 500,000 engines solely and Mexico, Japan & Germany for each of 250,000 engines), compared to $37 billion in 1995. In 2004, the chassis parts, mostly brakes and tires for about $4 billion respectively; steering, suspension, and wheels each valued about $2 billion, accounted for $15 billion as the second largest imported parts in terms of value and largest %age gains since 1990.
The labor-intensive parts such as electrical wiring were 80% imported from Mexico. In June 2005, China had surpassed Germany as the fourth largest source of auto parts imports for the U.S. China exports aftermarket parts, such as wheels and tires (both for 29% of all imports during the first half of 2005), rather than OE parts to the U.S.
The shrinking share of the domestic automotive market (from 73% down to 52.2% within 10 years) of the Big Three worsens the situation of many of the industry's biggest names, such as Delphi Corp, the used-to-be world's largest parts supplier and GM's affiliated company, and Visteon Corp., the second-biggest parts supplier, plus a former Ford Motor subsidiary. The former filed for bankruptcy protection in October 2005 while the latter was forced to close its domestic plants. In addition, other major auto parts players are also loosing ground in facing the cut-throat competition from low-cost countries while they have been skittish about the persistent pressure for cost reduction from domestic carmakers. Some of them have announced plans to accelerate their restructuring by closing plants and transferring production to lower-cost regions. For example, Visteon Corp. plans to shut 12 plants and sell another six over the next three years. The company makes a push to narrow its focus to spotlight on vehicle interiors, and electronic and climate control systems. Meanwhile, Dura Automotive, a maker of driving and seat controls, schedule to wind up between five and 10 factories and relocating half of its production.
