An Important AM Market in the Automotive Component Supply Chain
Market News

An Important AM Market in the Automotive Component Supply Chain

A hidden important market in the automotive supply chain is the automotive after market (AM) which is used to satisfy after-sales repairs, inspections, maintenance, replacement, or modification services, and is an important part of the automotive supply chain.
Published: Dec 09, 2021
An Important AM Market in the Automotive Component Supply Chain

From a global perspective, the three major markets of Europe, China, and the United States account for 70% of total automobile production. The proportion of personal car purchases has grown substantially every year, and some cities even appear to be nearly saturated with cars.

While the performance of automobile production and sales volume is remarkable, another new field is slowly emerging automotive after market (AM), the after-sales service market. It revolves around the various services in the process of car use, such as the replacement, inspection, or modification of car parts, and is full of unlimited business opportunities. Among them, Taiwan's component industry, which has always been known for its "strong mechanical and electronic integration capabilities, good quality, and stable delivery", has a position that cannot be underestimated in the global automotive after market.

How Does the Car Factory Entrust the Production of Its Products to Upstream Manufacturers?

There is a lot of competition from many large automakers in the world. The content of the competition includes car body design, advanced car technology, supply chain design, and cost reduction. The number of automotive components is large and complex. To maintain their competitive position, automakers must reduce production costs and increase the efficiency of R&D and integration. Therefore, most of the automakers now delegate the detailed parts of auto parts to other manufacturers.

Classification of auto component manufacturers:
  1. Original car manufacturing parts: original factory commissioned to design and manufacture, original factory commissioned production and manufacturing.
  2. After-sales service: after-sales maintenance service commissioned by the original factory, independent after-sales maintenance service. (not manufactured by the original factory)
OEM of auto parts for original cars:

Speaking from the automotive supply chain, usually, a car factory has thousands of parts foundries, and the suppliers are usually divided into several levels. Most upstream manufacturers deal with raw materials related to the supply of raw materials such as steel, glass, and plastics, and are called third-order component manufacturers. The raw materials are processed to further achieve the assembly and modularization of components into a second-order component manufacturer, which can be called a midstream. Then the modular parts are combined into a complete part that operates independently, such as engines, cooling, and air-conditioning systems, etc., which we call a first-order component manufacturer. Finally, the parts of these first-order component manufacturers are directly handed over to the automaker to complete the car assembly, and the automaker is the car brand factory recognized by the public.

The classification of the original car manufacturing foundry model:
  • OEM (Original Equipment Manufacturer):

    Simply put, OEM means that the car factory authorizes the parts to be manufactured by the parts factory, but the parts factory cannot carry out the OEM manufacturing of other car factories with the same design drawings. Because the intellectual property rights are in the hands of the automaker, the commissioned parts factory can also be called a foundry. In terms of automotive components, the gross profit margin of OEMs is not high because they will be squeezed by the automakers. Most of them remain around 10%.

  • ODM (Original Design Manufacturer):

    ODM means that the design and manufacture of parts are handled by the parts factory, and then handed over to the large car factories after completion. The difference from the OEM situation is that the commissioned parts supplier has its intellectual property rights, so there is a way to slightly modify the design and then use it to produce for other brands. The production of the commissioned parts factory can be called OEM.

Most of Taiwan is OEM in the form of the foundry, but some foundries actively promote their technology so that large automakers rely on their R&D technology and design capabilities to convert to ODM. In this way, considerable mold development costs can be saved, and production can be scaled to enhance bargaining power downstream in the supply chain.

Classification of automobile after-sales service model:
  • OES (Original Equipment Suppliers):
    When the car needs repair, there are after-sales repair parts designated by the original manufacturer called OES. Auto depots still master the core technology of parts, and then they are handed over to other OES parts factories for production, or they may be produced directly by the original factory. OES parts are all branded by the original manufacturer, but the price is still more expensive than that of the subsidiary factory, and most of the sales channels are designated by the original manufacturer.
  • AM (Aftermarket):
    In addition to the original component manufacturers, there is another type of automotive component manufacturers called AM, which are non-original parts for after-sales maintenance, that is, the subsidiary factory. AM parts are different from ordinary parts and components. Manufacturers do not distribute finished products to car brand factories through the automotive supply chain but provide them to repair shops or retailers for driving options that need to be repaired. AM is characterized by lower prices and needs. There are not many ideas. Many AM products only need to be copied according to existing products.

What Is After Market (AM)?

The AM plant mainly produces collision parts, because collision parts are the product line most likely to face repairs. Mainly include sheet metal parts (doors, hoods), car lights (headlights, taillights, turn signals), plastic parts (bumpers, water tank guards), cooling parts (heating fans, water tanks), etc.

Different from the original products, the quality of the sub-factory's products is easy to be questioned. Therefore, AM products need specific certification in some countries before they can be sold locally, such as the SAE certification in the United States, the ECE certification in Europe, and the 3C certification in China. In addition, the most credible international certification is CAPA (Certified Automotive Parts Associaton), which appeals to consumers to buy AM parts of the same quality as OEMs at a lower price.

Comparison of parts between the original factory and the sub-factory:

The challenge faced by automotive after market manufacturers is a small amount of variety. To meet the maintenance requirements of most vehicle types, the auxiliary plant requires a very diverse mold to manufacture various parts. Therefore, the mold cost is also the biggest difficulty for the AM plant. There are a lot of auto parts manufacturers in Taiwan that focus on the automotive after market, and the parts manufacturers in the automotive after market have many characteristics compared with the original manufacturers.

  • The original parts will be exploited by major car manufacturers and distributors, and profit margins will be greatly reduced. Products in the automotive after market are free from the exploitation of major car manufacturers and sold directly through retailers or repair shops. For consumers, the gross profit margin is about 30%-40%.
  • The automotive after market has a great relationship with the driving age of vehicles. After a few years of driving age, there will be a part replacement period. As time goes by, the demand for parts maintenance will continue to increase.
  • Automotive after market orders are relatively unstable, mainly due to the driving age of the car and the loss of parts, or the replacement tide caused by natural disasters such as wind and snow disasters. It cannot be like OED and ODM factories where, as long as there is new car production, there will be a new wave of orders.
  • Currently, repairs in Europe and the United States still mainly use original parts. On the contrary, after-sales repairs in China and Taiwan mostly use sub-factory components, showing different consumption habits in different regions.
The proportion of after-sales maintenance of automobiles in various regions:

At present, Taiwan's automotive component foundry is mainly based on AM and OEM foundry. The biggest business opportunities for OEMs are mainly the first few major automakers in China, but in terms of market share, Taiwan’s AM collision components account for about 80% of the world. Many companies originally engaged in OEM production are also developing in the automotive after market, and are certified in the international market. Under the blessing of the company, the products of the subsidiary factory will gradually break away from the stereotype of inferior quality. However, no matter what kind of foundry method, Taiwan's automobile parts and components have taken a place in the world, and a lot of foundry and repair parts are made in Taiwan.

The Development Status of Taiwan's Automotive After Market

  • It is unlikely that Taiwanese automakers will develop independently:

    Under the Japanese colonial development in Taiwan in the early days, more than 95% of the auto parts factories cooperated with Japanese manufacturers, and most of the OEMs also have cooperation or joint venture relationships with Japan. These Japanese-funded enterprises regard Taiwan as a processing base, but they have not brought in resource allocation such as capital from the parent factory, advanced technology, and management personnel, which has caused Taiwan to lag behind the realization of the industrial chain production of vehicle manufacturers.

  • The rapid development of single auto parts:
    While Taiwan has gradually become the arena of multinational companies and the distribution center of parts manufacturing, each factory produces almost only a single type of product. Therefore, the factory has very professional R&D and production technology for specific parts, which has created the professionalism of Taiwan's auto parts industry. With very fine division of labor, and small but specialized manufacturing, Taiwan has gradually accumulated a good reputation. This has also laid a solid foundation for the battle to gradually extend to the international supply and demand chain and has now become an important part of the international automotive supply chain.
  • Constraints of Taiwan's conditions:
    The entire island of Taiwan has only 36,000 square kilometers of land and a population of more than 23 million. Since the per capita GDP exceeded US$10,000 in 1993, Taiwan’s car ownership has soared. According to relevant statistics, Taiwan’s total car ownership has approached 5.92 million, and the number of cars per 1,000 people has reached nearly 300, which is three times higher than the world average! Although the development of the automotive component industry is mature, the Taiwan market has long been saturated and expanded, and there is not much room for development. Therefore, it is imperative to go international.
  • The elasticity produced in Taiwan is strong:
    Taiwan's auto parts have gradually succeeded in occupying a place in the US auto after-sales service market with their strong elasticity, rapid response to the market, excellent quality, and fairly internationally competitive prices. Until now, Taiwan’s export of automobile components is still mainly the United States, and it has maintained a market share of about 40% in the US market. At the same time, Taiwan's auto parts have taken the lead in the mainland auto market where demand has exploded with the advantages of "high quality and stable delivery", and has achieved vigorous development in all aspects of supporting facilities.
Future opportunities for Taiwanese component manufacturers:

Today, Taiwanese component manufacturers have entered the Chinese market in the form of complete vehicles, parts, sales, and after-sales, etc., which has become a large-scale collective action in Taiwan's automobile industry and an economic force that cannot be ignored. In Europe and the United States, the export value of Taiwan's auto parts and components has also continued to grow substantially, becoming an important part of the global auto industry's division of labor.

Taiwan's automotive components have occupied an important position in the global automotive after market. Taiwanese automotive component manufacturers have also adopted various methods to increase their competitiveness, such as expanding scale, reducing vehicle types, and reducing development costs. It is hoped that in the future, Taiwan's auto parts will be combined with complete vehicles and components, and coupled with the trust of good quality, will work together to expand the development of the automotive after market.
Published by Dec 09, 2021 Source :stockfeel, Source :stockfeel

Further reading

You might also be interested in ...

Headline
Market News
Exploring the World of Surgical Instruments
Surgical instruments play a crucial role in the hands of skilled healthcare professionals. From delicate scalpels to intricate retractors and specialized probes, each instrument serves a unique purpose, contributing to the success of surgical procedures. In this article, we will explore various surgical instruments, their functionalities, design principles, manufacturing processes, special features, and emerging applications.
Headline
Market News
Enhancing Healthcare through Wearable Medical Devices
In recent years, the healthcare industry has witnessed a significant transformation with the introduction of wearable medical devices. These devices have revolutionized the way individuals monitor and manage their health, providing real-time data and insights that were previously unavailable outside of clinical settings. From fitness trackers to continuous glucose monitors (CGMs) and wearable ECG monitors, the range of wearable medical devices available today is vast and diverse, each serving specific purposes and catering to different healthcare needs.
Headline
Market News
Semiconductor Peripherals: Integration of Taiwan’s Chip Manufacturing
Semiconductor peripherals are essential components that complement semiconductor devices, enabling connectivity, power management, data storage, sensing capabilities, and interface functionalities in electronic systems. These peripherals include Printed Circuit Boards (PCBs), Power Supplies, Memory Modules, Sensors, Interfaces/Connectivity Components, and more. We will look at five of these peripherals to gain an appreciation for their function and importance in semiconductor technology and manufacturing.
Headline
Market News
The Modern Food Processor: Types, Technology, Design, and Quality Insights
Food processors are a staple in contemporary kitchens, combining the efficiency, versatility, and functionality of culinary tasks—from chopping and slicing to pureeing and kneading—in one device. They have evolved significantly since their inception, becoming essential in both domestic and commercial settings. Buyers should consider their specialized uses, unique designs, underlying technology, and manufacturing locations to get the best value for their money.
Headline
Market News
The Primary Challenge in Reducing Carbon Emissions in the Supply Chain
Supply chain carbon emissions are 11.4 times greater than operational carbon emissions. Therefore, if companies are to move towards net zero, the effectiveness of supply chain carbon reduction will be an important key. However, supply carbon reduction faces two major problems: inconsistent calculation methods and low data transparency.
Headline
Market News
Why Blockchain Does Not Guarantee Decentralization, Immutability, or Trust
The "decentralization" of the blockchain has many advantages, but it does not mention its shortcomings. In fact, "decentralization" and "centralization" have their own advantages and disadvantages, so "using both" is a more feasible way, why?
Headline
Market News
Unlocking Opportunities with 5G and Edge Computing
Smart factories combine digitization and artificial intelligence (AI), edge computing, drones, machine learning and other technologies to have ultra-high elasticity and adapt to changing production needs. 5G Ultra-Reliable Low Latency Communication (URLLC) and edge computing using intent-driven orchestration are expected to enable 5G network-based manufacturing automation to realize smart factory concepts.
Headline
Market News
Sports Business Opportunities Broke Out After The Epidemic
After the outbreak of the epidemic, most physical fitness industries have become places for people to keep away from due to environmental problems such as dense personnel and poor ventilation, such as traditional gyms of 24 Hour Fitness, Gold's Gym in United States. It was also forced to file for bankruptcy and became a victim of the epidemic. However, at the same time, people discovered that staying at home and exercising at home not only saves money and convenience, but also saves the transportation time to the gym, which unexpectedly spawned a wave of home fitness, and together with the sales of fitness equipment online, such as Kettlebells and dumbbells were all sold out of stock, and "Home Workout" instantly became a hot search keyword.
Headline
Market News
Remanufactured Laser Printer Cartridges: A Sustainable Printing Solution
Remanufactured laser printer cartridges present a viable, eco-friendly alternative to traditional OEM cartridges, offering both environmental and economic benefits. Through innovations in remanufacturing technology and improvements in quality standards, these cartridges provide a sustainable choice for high-quality printing solutions.
Headline
Market News
AeroPress Coffee Makers: A Coffee Revolution
The AeroPress is a patented coffee brewing device celebrated for its innovative design and exceptional versatility. The AeroPress has revolutionized coffee brewing by combining immersion, pressure, and precision to produce smooth, flavorful coffee with minimal bitterness. Compact, lightweight, and easy to use, its unique design and simplicity have made it a favorite among coffee enthusiasts, travelers, and professionals alike.
Headline
Market News
An Introductory Guide to Coffee Making Products for New Baristas and Coffee Lovers
An Introductory Guide to Coffee Making Products for New Baristas and Coffee Lovers
Headline
Market News
The World of IoT Devices: Innovation, Application, and Manufacturing
The Internet of Things (IoT) has transformed our interaction with technology by seamlessly integrating digital intelligence into everyday devices. These devices are embedded with sensors, software, and other technologies to connect and exchange data with other devices and systems over the internet. Ordinary household items, as well as sophisticated industrial tools, are creating networks of intelligently interconnected devices that streamline operations and enhance our interaction with technology. The scope of these devices is quite extensive and grows every year. Let’s take a look at what these devices include and how they are impacting our everyday lives.
Agree