Auto Parts

INDUSTRIAL CODES

NAICS: 33-6310 Motor Vehicle Gasoline Engine and Engine Parts Manufacturing, 33-6311 Carburetor, Piston, Piston Ring, and Valve Manufacturing, 33-6312 Gasoline Engine and Engine Parts Manufacturing, 33-6320 Motor Vehicle Electrical and Electronic Equipment Manufacturing, 33-6321 Vehicular Lighting Equipment Manufacturing, 33-6322 Other Motor Vehicle Electrical and Electronic Equipment Manufacturing, 33-6330 Motor Vehicle Steering and Suspension Components (except Springs) Manufacturing, 33-6340 Motor Vehicle Brake System Manufacturing, 33-6350 Motor Vehicle Transmission and Power Train Parts Manufacturing, 33-6360 Motor Vehicle Seating and Interior Trim Manufacturing, 33-6370 Motor Vehicle Metal Stamping, 33-6390 Other Motor Vehicle Parts Manufacturing, 33-6391 Motor Vehicle Air-Conditioning Manufacturing, and 33-6399 All Other Motor Vehicle Parts Manufacturing

SIC: 3714 Motor Vehicle Parts Manufacturing

NAICS-Based Product Codes: 33-63111 through 33-63997554

PRODUCT OVERVIEW

A Global Enterprise

The auto parts industry has evolved over the last century from corner hardware stores supplying nuts and bolts for inventors such as Karl Benz, Armand Peugeot, and Henry Ford, to a global industry that supplies everything from screws, springs, and brake pads to total vehicle systems and in some cases entire automobiles.

In the early twenty-first century this industry produced parts, components, and systems for the world's car and truck producers projected to reach, according to the U.S. Department of Commerce, $1.1 trillion in goods by 2010. Like vehicle manufacturing, the auto parts industry is truly global. Suppliers operate on every continent except Antarctica.

Globalization has radically reshaped the industry especially in nations where domestic manufacturers have been under intense competitive pressure from offshore producers. As the Original Equipment Suppliers Association has put it: "More than ever, automakers are drawing on suppliers around the globe, shuttling parts across borders in search of lower prices and higher quality."

In earlier times independent parts suppliers were physically closer to their customers, rarely more than a day's drive away. In the global economy of the twenty-first century distance is not a barrier if your product is low-cost, meets industry quality standards, and can be delivered at the agreed-upon time. In fact, more than 20 percent of the auto parts produced in the world are exported from their country of origin to customers in other markets around the globe, primarily the United States, Western Europe, and Japan.

During the period from 2001 to 2005, auto parts exports across the world grew at an average annual rate of 12.7 percent reaching $220 billion by 2005 and more than 20 percent of global auto parts production. Emerging economies—Mexico, Brazil, Romania, Slovakia, Morocco, Saudi Arabia, Tunisia, India, and Taiwan—accounted for 29 percent of 2005 exports, their sales growing at a much faster pace (20.1%) than exports from established industrial nations.

This trend has had a pronounced impact on the domestic parts industry in the United States. The Detroit Free Press noted in a front page report (May 7, 2006): "Federal data found that vehicles built by Detroit automakers (Chrysler, Ford, and General Motors, the domestic 'Big Three') have steadily increased their proportion of parts from outside the United Sates and Canada. By the same measure, vehicles built in North America by Japan's largest automakers increasingly use U.S. and Canadian Parts."

Based on figures assembled by the International Trade Centre (ITC), foreign competition has had particularly negative impacts on U.S. auto parts producers. Until 2003 the United States was the world's leading exporter of auto parts. By 2004 it was second to Germany with Japan close behind and France, Canada, Italy, and Spain coming on strong. ITC is a joint technical cooperation agency of the United Nations Conference on Trade and Development (UNCTAD) and the World Trade Organization (WTO).

At the same time, U.S. auto companies dramatically increased their parts imports. Japan is the leading vehicle and parts producer; but unlike Germany and the United States, which are leading parts exporters as well as importers, Japan is only fourteenth on the list of importers. Japan relies more heavily on its domestic parts industry largely a result of its keiretsu structure under which manufacturers maintain exclusive relationships with their independent suppliers. According to the more comprehensive import/ export figures of the U.S. Office of Aerospace and Automotive Industries (OAAI), U.S. imports of automotive parts were $95.2 billion in 2006. Exports totaled $58.9 billion—producing a trade deficit of $36.3 billion. The 2006 deficit was lower than the year before ($37.1 billion) but still triple the $11.7 billion deficit reported in 1999.

This reflects the continuing difficulties of the domestic auto parts industry, as outlined in the March 2007 U.S. Automotive Parts Annual Assessment of the OAAI, as their major customers continue to lose market share; costs of raw materials keep rising; the domestic Big Three (Ford, Chrysler, and General Motors) demand price and cost cuts; and foreign competition grows. "However," observed the report, "as transplant automakers (U.S. operations of foreign manufacturers) increase their presence in the United States, foreign-affiliated suppliers also increase their presence to supply the automakers, creating equipment and jobs in the U.S. economy."

Shrinking Domestic Sector

Employment in the U.S. auto parts industry has been eroding. Parts producers employed 920,000 in 2000 and 721,900 in 2006 according to data provided by the Bureau of Labor Statistics (BLS), a part of the U.S. Department of Labor. The number of participating companies has also been declining. In fact, as OAAI reports, "industry analysts predict that, of nearly 800 major suppliers in 2000, fewer than 100 will be left by 2010 as a result of bankruptcies, mergers and acquisitions, and migration to other industries." In 2005, for example, there were thirty-two mergers and acquisitions, up from twenty-six in 2004. In 2006 another eight major suppliers filed for bankruptcy. The employment figures are especially troubling in view of the fact that "Automotive suppliers are directly and indirectly reported to account for more jobs and provide more economic well-being to more Americans than any other manufacturing sector," according to the OAAI.

In some respects, the auto parts supplier industry is repeating the history of the industry it serves, but in a different form. A report in the May 1996 issue of Ward's Auto World presaged this trend in recounting historical highlights of the auto parts industry: "In the beginning, suppliers such as Henry M. Timken, Arthur Oliver Smith, Albert C. Champion, and the Dodge and Fisher brothers sold parts to the early automakers that they designed and manufactured themselves. Later, the automakers bought out some of these suppliers so they could control the parts that went on their vehicles. Meanwhile, other suppliers joined forces to create larger and more capable companies.

In the 1990s, automakers are returning design and engineering responsibilities to suppliers for the components and systems they provide. Will automakers eventually return to vertical integration? That's not likely, say industry watchers, but the trend by larger suppliers to acquire smaller companies to give them systems capability and global presence closely resembles (automotive) industry history.

The report goes on to quote David E. Cole, director of the University of Michigan's Office for the Study of Automotive Transportation, to predict that "there won't be a wholesale return to vertical integration," although consolidation among Tier 1 suppliers takes the place of vertical integration from a historical perspective, which is essentially what has been transpiring. This has been a major factor in the decline of the number of major U.S. suppliers.

Industry executives and investors participating at Reuters Autos Summit in Detroit in September 2006, added their own take in a conference report: "Consolidation is inevitable among U.S. auto parts suppliers after two years of bankruptcies and declining Big Three vehicle production, but mega-mergers may not be in the cards." The report went on to observe that "consolidation in North America does not necessarily mean building a few very large suppliers, which have not fared as well as focused medium or small suppliers (companies focused on specialty technologies)," that have been much stronger than larger suppliers.

Major Product Categories

The auto parts industry produces a wide range of products, in effect all components of an automobile except its body and its tires. The sector is so diverse, in fact, that in reporting on it the U.S. Bureau of the Census breaks it apart into eleven separate industries which, in this presentation, we treat as nine major product groupings. The product array is presented in Figure 7, displaying category shares as percent of the sector's shipments in dollars.

Ignoring the All Other category, which includes a great multiplicity of parts, the largest category in 2005 was transmissions and power trains, the smallest automotive air-conditioning systems. In the combined carburetors, engines, and parts industry, carburetors represent 7 percent, engines and parts 93 percent of the total. Within the lighting, electrical, and electronics category, automotive lighting is 14 percent of the industry and all other electrical and electronic components 86 percent.

Shares of the components have remained roughly the same over time with small changes between 1997 and 2005. In 1997, for example, transmissions and power trains were 17.2 percent, slightly smaller than in 2005. Similarly the carburetor/engine category was 15.9 percent in 1997 and 16.6 percent in 2005.

The All Other category includes filters, exhaust systems, wheels, bumper assemblies, automotive frames, fuel tanks, radiators, doors, sunroofs, air bag assemblies, and many other componentry that do not fit readily into other major categories.

MARKET

The North American auto parts market is not alone in experiencing difficult times in the early years of the twenty-first century. "Fully one-third of auto suppliers, globally, are in financial distress, with 41 percent in the Americas, 24 percent in Europe, and 32 percent in Asia," reported Neil DeKoker, president of the Original Equipment Supplier Association (OESA), in a presentation made in August of 2006 at a conference on "Rationalizing the Automotive Supplier Industry: Carving Out Profit from M&A [monitoring and evaluation] Activity." In its 2006/2007 Industry Review, the OESA reported a 7.3 percent decline in the total world original equipment parts market in 2005 ($781.7 billion) compared to 2004 ($843 billion) after several years of growth, including a 10 percent increase in 2003. Over the longer term, the world market is expected to experience growth, and is expected to exceed $1 trillion annually by 2010.

Domestic shipments of automotive and truck parts were reported by the Census Bureau as valued at $200.3 billion dollars, up from $174.6 billion in 1997. The growth rate in this period was 1.73 percent annually, but as shown in Figure 8, sales are cyclical. In the 1997 to 2005 period, the highest shipments were realized in 2000. Shipments dropped sharply in 2001 as a brief recessionary period set in. By 2005 the industry had again almost reached its 2000 peak in this period.

The U.S. new car and truck market (as contrasted to parts) was one of only two major markets in the world to lose ground, with sales fading 2.5 percent from 16.95 million vehicles in 2005 to 16.52 million vehicles in 2006. Japan was the other declining market. Japanese demand fell 2.5 percent from 5.73 million vehicles in 2005 to 5.59 million in 2006. Western Europe, the largest automotive market in the world, managed to grow slightly during 2006—0.8 percent from 16.52 million units in 2005 to 16.65 million in 2006. The emerging markets of the world, on the other hand, experienced more robust growth—other European countries were up a combined 8.1 percent; Brazil and Argentina, 13.3 percent, and the other markets of the world, 14.6 percent.

These anemic sales figures for new vehicles plus increasing pressure from auto parts suppliers in emerging economies were key contributors to the slow growth shown by domestic auto parts suppliers. Exports from emerging economies countries have been growing at an annual rate of 20.1 percent, well above the export growth rate from more industrialized countries (12.7%). Automotive parts trade with China is an example of the impact imports from emerging economies can have. This trade has grown significantly. The United States imported $1.6 billion worth of auto parts from China in the year 2000. Seven years later, in 2006 the United States imported $6.9 billion worth of auto parts from China, an increase of 313 percent or nearly a 50 percent increase annually during the first years of the twenty-first century.

KEY PRODUCERS/MANUFACTURERS

There are thousands, if not tens of thousands of independent companies supplying the global automotive industry with everything from nuts and bolts to entire systems. More than 100 of these firms have sales of $1 billion or more based on global sales of original equipment. In 2006 the top 100 suppliers were dominated by companies in Germany, Japan, and the United States; both Japan and the United States had twenty-seven top 100 companies and Germany twenty-three. The largest auto parts builder in the world in 2006 was Germany's Robert Bosch, GmbH, noted primarily for fuel injection systems, chassis systems, energy and body systems, and automotive multimedia and electronics.

Bosch

Bosch was established in 1886 when Robert Bosch opened the Workshop for Precision Mechanics and Electrical Engineering in Stuttgart, Germany. While its first projects were electrical equipment, including telephone systems, the business took off when Bosch produced his first magneto and adapted it to ignite an internal combustion engine, "solving one of the greatest technical problems faced by the automotive industry in its formative years," according to "Bosch History At A Glance" on the company's Web site.

The company has since evolved into its present preeminent position in the automotive world, producing not only an array of auto parts but providing diagnostic and other car service systems and advanced automotive technology developments as well. Corporate-wide, it operates in more than fifty countries with some 260,000 employees. Bosch has been number one since 2004 when it supplanted the Delphi Corporation, the U.S.-based auto parts giant that was spun off from General Motors in 1999, for the lead.

Delphi Corporation

Delphi, broadly based as a supplier of steering, chassis, energy, engine management, thermal management, interior, electronic systems and in-vehicle entertainment systems, had dropped to fourth in global sales by 2005 but regained second place in 2006 as it struggled to recover from Chapter 11 bankruptcy, for which it filed in 2005. The corporation has approximately 170,000 employees, including 17,000 engineers, and operates thirty-three technical centers and 162 wholly owned manufacturing sites in thirty-four countries. Since losing the top spot Delphi has been in an ongoing seesaw scramble with Denso Corporation of Japan and Magna International of Canada for the second, third, and fourth positions in the auto parts manufacturing industry.

Visteon Corporation

This company, which was the second largest auto parts producer in the world when it was spun off from Ford in 2000 and still ranked fourth globally as recently as 2004, had dropped to fourteenth by 2006. Visteon, like Delphi, is a broadly based supplier with an extensive array of products, notably chassis systems, climate controls, powertrain controls, electronics, lighting, engine management and fuel systems, exterior/interior systems, and cockpits. Visteon had sales revenue of $11.4 billion in 2006 and employed 43,000 people.

Denso Corporation

Japan's largest auto parts producer and another supplier with an extensive product portfolio, Denso has shown steady growth over the years, challenging Delphi as the number two global supplier and eventually Robert Bosch for number one. Should growth trends established in the first five years of the twenty-first century continue, Denso will be well-placed to continue growing.

Magna International, Inc.

This Canadian auto parts leader is noted for interiors, exteriors, body and chassis systems, seats, mirrors, closures, electronics, engines, transmissions and drivetrains. Magna was also one of the first major suppliers to manufacture entire vehicles for customers. In 2007, for example, Magna assembled the BMW X3, and Chrysler 300, 300C, and Jeep Commander.

MATERIALS & SUPPLY CHAIN LOGISTICS

"The auto industry is one of the key oligopolistic, dynamically complex and networked global industries. To produce a car, which consists of some 20,000 parts and components, a producer needs to orchestrate the logistics and assembly of various kinds of input factors such as steel, glass, rubber and plastic, semi-assembled components though many a manufacturing technologies that are spatially distributed and located internationally."

A Look at the Spatial Distribution of the Automotive Industry reflects the realities facing the global auto parts industry in the twenty-first century as individual companies strive to survive in an extremely competitive environment.

"More than ever, automakers are drawing on suppliers around the globe, shuttling parts across borders in search of lower prices and higher quality," according to the Original Equipment Suppliers Association.

A May 7, 2006, Detroit Free Press report noted that "federal data found that vehicles built by Detroit automakers have steadily increased their proportion of parts from outside the United States and Canada. By the same measure, vehicles built in North America by Japan's largest automakers increasingly use U.S. and Canadian parts."

The report found that the value of parts coming from within the United States or Canada declined for all of the Big Three from 1995 to 2005. General Motors U.S./Canada-sourced parts in 1995 accounted for 91 percent of those used in vehicles sold that year and only 81 percent in 2005. Ford Motor Company U.S./ Canada-sourced parts accounted for 86 percent in 1995, down to 82 percent in 2005, and Chrysler U.S./ Canada-sourced parts accounted for 89 percent in 1995, down to 76 percent in 2005.

For that same period, the top three Japanese automakers increased their share of parts produced in the United States and Canada: Toyota with 49 percent in 1995 and 75 percent in 2005; Honda with 47 percent in 1995 and 68 percent in 2005; and Nissan with 42 percent in 1995 and 57 percent in 2005. However, the report also pointed out that "when considering all vehicles sold in the United States (in 2005), including those made in Japan, the share of parts value from U.S. or Canadian sources fell dramatically: Toyota, 49 percent; Honda, 58 percent; and Nissan, 48 percent."

The United States imported auto parts valued at $95.2 billion in 2005, an increase of more than 50 percent since 1999 when auto parts imports totaled $61.6 billion. During that same period, exports of auto parts from the United States grew only 18 percent, from $49.9 billion in 1999 to $58.9 billion in 2006, tripling the U.S. trade deficit in auto parts.

Mexico is the largest exporter of car parts to the United States with $26.4 billion in parts in 2006; Canada is second with parts exports valued at $20.4 billion; Japan is third largest with $15.4 billion in exports to the United States. Together, these three countries accounted for approximately two-thirds of all car parts imported into the United States ($62.2 billion). Mexico and Canada, partnered with the United States in the North American Free Trade Agreement (NAFTA), exported auto parts valued at $46.8 billion to the United States in 2006. They also were the destination for 76 percent of all U.S. auto parts exported that year ($44.7 billion).

Most parts for vehicles built in the United States and Europe are supplied by independent producers since two of the largest supplier companies were spun off from their parent companies. Delphi Automotive Systems, a former subsidiary of General Motors, became independent in 1999 and Visteon Corporation, formerly part of Ford, became independent in 2000. They were among the 1,500 to 2,000 major Tier 1 automotive suppliers (companies selling components and systems directly to the vehicle builders) estimated to be serving the global automotive industry in 2004. This number is expected to shrink to between 500 and 700 major suppliers, and only about fifty of these survivors will be system-integrators dealing directly with the vehicle manufacturers, according to the Boston Consulting Group. The trend is for the major suppliers to provide larger and more complete vehicle systems or segments rather than simply supplying hundreds of parts and components, with some—like Magna International—building complete vehicles.

Japan, one of the leading global producers of automobiles, has traditionally operated under the keiretsu system in which an association of companies agrees to work together, often at the exclusion of firms outside the group. Automotive keiretsus sometimes have several hundred companies associated with a particular vehicle manufacturing company, usually in a somewhat exclusive arrangement. These agreements in essence bar non-members from obtaining supplier arrangements with the vehicle manufacturer. However, these keiretsu relationships are tending to dissolve as cross-sourcing of components among the suppliers increases with industry globalization.

The global automotive industry is a major consumer of a host of commodities worldwide. With vehicle production at more than 64 million units each year, it is a major consumer of various grades of steel, for example, which accounts for 55 percent of an average vehicle's content by weight, over 1,700 pounds in a mid-size sedan. Other materials consumed include cast iron, averaging more than 400 pounds, primarily for engine and suspension components; plastics and composites, nearly 250 pounds; aluminum, about 190 pounds; plus rubber, glass, copper, zinc, other metals, fabrics, and various fluids and lubricants. These materials are sourced from all over the world, the location depending on price, availability and accessibility on the part of the provider of parts and/or components supplying the vehicle manufacturer.

DISTRIBUTION CHANNEL

Auto parts are distributed through several different networks, according to their destination: as original equipment (OE) for assembly on vehicles in production; as original equipment service (OES) parts destined for the vehicle manufacturers' service networks; or as aftermarket parts and accessories, sold through an extensive network of independent jobbers, wholesalers, and retail outlets. The aftermarket parts are built or remanufactured to replace damaged or worn OE parts, while the accessories are parts sold after the original sale of a vehicle intended to add to the comfort, convenience, performance, safety or customization of that vehicle.

OE parts, which account for an estimated two-thirds to three-fourths of total automotive parts production, may move via several routes on their way to the vehicle assembly plant, where they may be delivered in bulk or timed to arrive shortly prior to installation on the vehicle—known generally as Just-In-Time (JIT) delivery. These parts, components and systems destined for final assembly have three basic points of origin: Tier 1 suppliers that sell finished components and systems directly to the vehicle manufacturers; Tier 2 suppliers that sell parts and materials for the finished components to the Tier 1 suppliers; and Tier 3 suppliers which supply raw materials. The Tier 3 companies may sell directly to the vehicle manufacturer, as well as to the Tier 1 and Tier 2 suppliers.

Auto parts are shipped using both truck transports and railroads to move vehicles to dealerships, although air freight may be used if critical parts are needed as soon as possible in order to keep an assembly line moving. Offshore exports and imports are handled by ship. In addition to OE and OES parts, shipments also may include auto parts destined for the various national and regional parts distribution networks serving the aftermarket segments of the world.

OES parts, like automobile sales, have traditionally been handled through the franchised independent dealership networks in the major markets of the world. In the United States, the National Automobile Dealers Association (NADA) represents some 20,000 franchised new car and truck dealers holding nearly 43,000 separate franchises, both domestic and international (many dealerships represent multiple nameplates, including those from more than one manufacturer). In addition the American International Automobile Dealer Association (AIADA) represents 11,000 international nameplate automobile franchises.

The independent aftermarket distribution networks are much more complex. There are approximately 45,000 companies engaged in the wholesale and retail auto parts industry with combined revenues of $135 billion according to an industry overview by Hoover's, a business information resource firm. The aftermarket has traditionally consisted of wholesalers who purchase parts and components from the manufacturers; jobbers, intermediaries between wholesale distributors and retail operation; and the retail outlets.

A wholesaler typically buys from 200 to 300 vendors, including manufacturers who may also be producers of OE and OES parts, and from many of the thousands of smaller companies that make parts specifically for the aftermarket, according to Hoover's. A wholesalers' distribution center may carry 300,000 parts for virtually every conceivable vehicle on the road.

Retailers range from small, single-location operations to network operators such as Genuine Parts, AutoZone, Advance Auto Parts, CSK Auto, and Pep Boys. Hoover's reports that AutoZone has 3,200 stores and Genuine Parts fifty-eight distribution centers and 900 retail outlets. Some retailers sell to consumers, repair shops, and commercial installers—gas stations, fleet operators and car dealer service departments; some also operate their own repair departments.

KEY USERS

The biggest consumers of the auto parts industry are the vehicle manufacturers, accounting for an estimated two-thirds to three-fourths of total automotive production. The balance is sold to the service, replacement parts, and accessories markets. A small user group is the do-it-yourself consumer, who repairs his own vehicles.

ADJACENT MARKETS

The market for auto parts covers cars, trucks and related four-wheeled motor vehicles, but there is a wide variety of other transportation vehicles served by their own parts-producing and distributing networks, including golf carts and motorcycles, construction equipment and commercial vehicles, trains, ships, aircraft and mass transit systems.

In the United States, according to statistics compiled by the U.S. Census Bureau in its Annual Survey of Manufactures: 2005 and earlier editions, transportation equipment manufacturing, which included complete vehicles, aircraft, ships and railroad rolling stock, delivered a grand total of goods valued at $687.3 billion in 2005 and employed 1.56 million workers paid nearly $84 billion. These employees included 1.1 million production workers who earned more than $53.3 billion.

Within this Transportation Equipment Manufacturing Group, Motor Vehicle Parts Manufacturing, not including motorcycles, accounted for goods valued at more than $206.3 billion, employing 613,218 men and women, including 478,673 production workers. This represented 30 percent of the total value of goods shipped by transportation equipment manufacturers throughout the nation and 30 percent of that industry's total work force.

Aerospace product and parts manufacturing, which includes guided missiles, produced goods valued at $137.1 billion in 2005, of which about $48.5 was for aircraft engines, engine parts and other aircraft parts and auxiliary equipment. Overall, that industry employed 382,660 workers, including 157,055 in engine, engine parts and other aircraft parts manufacturing. Railroad rolling stock manufacturing produced goods valued at $9.2 billion while shipments of ship and boat building manufacturers were valued at $25.5 billion. Those industries employed 25,853 and 140,627 workers, respectively. All other transportation equipment produced in the United States in 2005 had a total value of $16.1 billion and those transportation equipment manufacturers employed 41,025 workers.

RESEARCH & DEVELOPMENT

The R&D efforts of the automotive industry are primarily focused on technologies that will make the automobile as environmentally compatible, as economical, and as safe as possible—goals which are the focus of both the vehicle manufactures and many of their leading suppliers. In fact many innovations introduced in cars and trucks have come from supplier companies, including electronic fuel injection, anti-lock braking systems (ABS), auto-dimming mirrors, electronic stability control, and a host of others. One of the keys to survival for any medium- to large-size auto parts supplier is innovation, either an improvement or significant refinement to an existing system or introduction of a totally new concept or technology.

A major emphasis in the early years of the twenty-first century was to make vehicles more environmentally compatible by reducing exhaust emissions and improving fuel mileage. This has included not only refining the venerable internal combustion engine but seeking alternative fuels and powertrains as well, including hybrid, all-electric, and fuel cell systems. Advanced safety systems are also a major focus, including everything from occupant protection systems ranging form "smart" air bags and seat belt systems to accident avoidance systems.

While the vehicle manufacturers take the lead in much development work, they rely heavily on their parts suppliers to develop and refine many of the technologies and devices required to make the new systems possible. These efforts include advanced batteries capable of long-range touring without frequent recharging; bio-fuels for both diesel and gasoline engines; inexpensive catalysts for fuel cells; and gasoline and diesel engine refinements to make these powertrains even quieter, more fuel efficient, and capable of higher power and torque outputs.

Electric motor advances are being pursued to make these powerplants practical as either the primary motive force or as part of a hybrid system mated with an internal combustion engine. In hybrid versions, the internal combustion engine may be used in any of three ways: as part of a generating system to charge the batteries; as an auxiliary to the electric motor providing extra power when needed as well as recharging the batteries; or as the main motive force while the batteries are used to power all other systems in the vehicle, reducing demands on the internal combustion engine.

A great deal of R&D effort by both the vehicle manufactures and engine suppliers is being devoted to refining the diesel engine. Diesel may wind up being the best solution to an efficient, economical and environmentally friendly powertrain. The diesel engine suffers from a negative image. It is thought to be noisy, dirty, hard to start, and expensive. Research, as reported in a May 2004 report in Motor magazine, has largely addressed these issues but ongoing R&D among diesel engine builders and fuel system suppliers is focused on improved engine management systems, common rail fuel systems, direct injection, high pressure injectors, multiple spray patterns, turbocharging, particulate filters, and new biomass fuels.

In the longer term, fuel cells are considered to be the next revolution in automotive powertrains. Fuel cells convert hydrogen and oxygen by using electrochemical devices. Such systems are inherently clean in that water is their by-product. Research into the development of viable fuel cell vehicles (FCVs) is directed at reducing the cost of fuel cells, improving their performance, and developing effective and efficient ways to produce and store hydrogen and other fuels. The effort is spearheaded by Freedom-CAR, a cooperate venture between the U.S. Department of Energy (DOE) and the U.S. Council for Automotive Research (USCAR), and CaFCP, the California Fuel Cell Partnership formed to encourage private companies and government agencies to work together to move FCVs toward commercialization.

CURRENT TRENDS

Since auto parts suppliers respond to the needs and demands of the automotive industry as dictated by global markets, supplier trends are a direct reflection of the factors determining the direction of the industry overall. These trends can be summarized as:

• The blurring of the line between cars and trucks as truck-like vehicles become increasingly popular.
• The drive to make vehicles more environmentally friendly by cleaning their emissions, making them more recyclable and lighter, and eliminating their consumption of non-renewable resources.
• The effort to make vehicles as safe as possible by improving their crash avoidance capabilities, crash worthiness, and occupant protection.

Within each of these trends, the driving force is the continuing application of advanced technologies, notably the continuing increase of mobile and in-vehicle electronics, expected to rise to $9.6 billion in 2007, an increase of more than 11 percent; automotive-grade semiconductors, experiencing year-on-year growth of 10 percent, reaching $18 billion in 2007; and automotive telematics and navigation, also expected to have strong growth in several world regions, generating about $38.3 billion in revenues by 2011. Most of these products and/or their components will come from auto parts suppliers.

The blurring of the line between cars and trucks is the result of the growing popularity of light trucks as multi-purpose passenger vehicles, resulting in a demand for vehicles that incorporate the comfort and performance of the automobile with the utilitarian benefits of a truck. The result is a new breed of vehicles that is a cross between a car and truck, requiring different steering, suspension, chassis, seating and other systems, most being sourced from the auto parts suppliers.

The same is true for the new breed of powertrains on the horizon in the first decade of the twenty-first century, notably direct-injection clean diesel engines, advanced gasoline engines with electronic valve timing, electrical and hybrid powertrains, and fuel cell-powered vehicles. Advanced safety systems, from smart air bags and seat belt systems that sense the size and positioning of passengers to more sophisticated electronic stability control systems and all the associated componentry will largely originate from innovative suppliers.

The auto parts industry is under intense pressure, both from increasing global competition and from many of its customers that demand lower costs and higher quality in the face of rising material, labor, and transportation costs.

The OAAI identified five issues facing the U.S. Automotive Parts Industry in its 2007 Annual Industry Assessment, which summarize the course the industry will likely be taking through much of the first decade of the twenty-first century:

1. Higher energy, plastic and steel costs, heavy debt, cash flow problems and overcapacity created by production cuts at Ford, GM and Chrysler.
2. High legacy costs, employee wages and benefits with touch negotiations between suppliers, automakers and labor unions.
3. Continued depletion of industry ranks as a result of bankruptcies, mergers and acquisitions, plus migration to other industry—industry analysts predict that over nearly 800 major suppliers in 2000, fewer than 100 will be left by 2010.
4. Mergers and acquisitions of supplier companies. In 2005 there were thirty-two mergers, up from twenty-six in 2004, with private equity firms responsible for 53 percent of the deals.
5. Relations between the domestic Big Three and their suppliers, which are improving slightly, but remain poor compared with those of Japanese competitors.

TARGET MARKETS & SEGMENTATION

The target markets for auto parts are clearly defined, the primary target being the vehicle manufacturers of the world who account for anywhere from two-thirds to three-quarters of all auto parts purchases. The balance of auto parts production enters the service/replacement parts distribution network with most (approximately 70%) destined for commercial installers—auto repair shops, gas stations, fleet operators, and car dealer service departments. The remaining 30 percent goes to the retail market serving do-it-yourselfers.

The retail market can be divided into four basic segments: hard parts, such as brakes, mufflers, batteries, starters, alternators and pumps; maintenance items, such as oil, oil filters, lubricants, additives, spark plugs, fuel injectors, lights wipers, paints waxes and hoses; tools, including diagnostic equipment, wrenches and screwdrivers; and accessories, such as trim, hub caps, audio systems, and navigation systems.

RELATED ASSOCIATIONS & ORGANIZATIONS

ABS Education Alliance, http://www.abs-education.org

Alliance of Automobile Manufacturers, http://www.autoalliance.org

American International Automobile Dealers Association, http://www.aiada.org

Association of International Automobile Manufacturers, http://www.aiam.org

Automatic Transmission Rebuilders Association, http://www.atra.com

Automotive Aftermarket Industry Association (AAIA), http://www.aftermarket.org

Automotive Communications Council, http://www.acc-online.org

Automotive Engine Rebuilders Association, http://www.aera.org

Automotive Industry Action Group (AIAG), http://www.aiag.org

Automotive Maintenance and Repair Association, http://www.4amra.com

Automotive Parts Rebuilders Association, http://www.apra.org

Automotive Service Association, http://www.asashop.org

Automotive Trade Policy Council, http://www.autotradecouncil.org

Automotive Warehouse Distributors Association, http://www.awda.org

Brake Manufacturers Council, http://www.brakecouncil.org

Car Care Council, http://www.carcarecounciol.org

Council of Fleet Specialists, http://www.cfshq.com

Equipment and Tool Institute, http://www.etools.org

Filter Manufacturers Council, http://www.filtercouncil.org

Fire Apparatus Manufacturers Association, http://www.fama.org

Heavy Duty Distribution Association, http://www.hdda.org

Motor and Equipment Manufacturers Association (MEMA), http://www.mema.org

National Association of Trailer Manufacturers, http://www.natm.com

National Auto Auction Association, http://www.naaa.com

National Automobile Dealers Association, http://www.nada.org

National Automotive Technicians Education Foundation, http://www.natef.org

National Truck Equipment Association (NTEA), http://www.ntea.com

Original Equipment Suppliers Association, http://www.oesa.org

Recreational Vehicle Industry Association, http://www.rvia.org

Specialty Equipment Market Association (SEMA), http://www.sema.org

Tune-Up Manufacturers Council, http://www.tune-up.org

United States Council for Automotive Research, http://www.uscar.org

BIBLIOGRAPHY

"Automotive Parts: Trends in Global Production and Trade," U.S. Department of Labor. Available from 〈http://www.bls.gov〉.

Bailey, David. "U.S. Parts Supplier Consolidation Inevitable." The Boston Globe. 14 September 2007.

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"December Global Light Vehicle Sales." Global Monthly Sales Report. JD Power and Associates. Available from 〈http://www.jdpowerforecasting.com〉.

"Global Vehicle Production and Sales by Manufacturer," Global Market Data Book. Automotive News Europe. 26 June 2006.

Hill, Kim, Debbie Menk, and Steven Szakaly. "Contribution of the Motor Vehicle Supplier Sector to the Economies of the United States and Its 50 States." Center for Automotive Research, Economics and Business Group. January 2007.

Hyde, Justin and Michael Ellis. "Foreign? American? Auto Parts Go Global." Detroit Free Press. 7 May 2006, 1.

"Industry Overview: Automobile Parts Wholesale-Retail." Hoovers, a D&B Company. Available from 〈http://www.hoovers.com/automobile-parts-wholesale-retail〉.

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Keenan, Tim. "Supplier Sequel? Some See History Repeating Itself—Relations Between Parts Manufacturers and Automotive Producers—U.S. Automotive Centennial." Ward's Auto World. May 1996.

Klier, Thomas H., and James M. Rubenstein. "The Supplier Industry in Transition—The New Geography of Auto Production," Federal Reserve Bank of Chicago. August 2006, Number 229b.

"Rationalizing the Automotive Supplier Industry; Carving Out Profit from M&A Activity" Original Equipment Suppliers Association (OESA) and PricewaterhouseCoopers. 23 August 2006. Available from 〈http://www.oesa.org〉.

"Statistics for Industry Groups and Industries: 2005." Annual Survey of Manufactures. U.S. Department of Commerce, Bureau of the Census. November 2006.

"Top 100 Global Suppliers." Automotive News. 25 June 2007.

Tsuge, Hiroto and Frank Bartels. "FDI Promotion Strategies in Developing Countries: A Look at the Spatial Distribution of the Automotive Industry." SAIS Working Paper Series. Johns Hopkins University, Paul H. Nitze School of Advanced International Studies. October 2003.

"U.S. Automotive Parts Exports, 1999–2006," U.S. Department of Commerce, International Trade Administration, Office of Aerospace and Automotive Industries' Automotive Team. Office of Aerospace and Automotive Industries' Automotive Team. 2007. Available from 〈http://www.ita.doc.gov〉.

"U.S. Automotive Parts Imports, 1999–2006." U.S. Department of Commerce, International Trade Administration, Office of Aerospace and Automotive Industries' Automotive Team. Office of Aerospace and Automotive Industries' Automotive Team. 2007. Available from 〈http://www.ita.doc.gov〉.

"U.S. Automotive Parts Industry Annual Assessment." U.S. Department of Commerce, International Trade Administration, Office of Aerospace and Automotive Industries. March 2007.

Verespei, Mike. "Detroit Needs A Different Driver." Purchasing Magazine Online. 7 April 2005. Available from 〈http://www.purchasing.com〉.

Watkins, Thayer. "The Keiretsu of Japan." San Jose State University. Available from 〈http://www.sjsu.edu/faculty/watkins〉.

see also Automobiles, Construction Machinery, Trucks