From aftermarket to original equipment! – The OES market for C-parts

From aftermarket to original equipment! – The OES market for C-parts
The aftermarket business has long been recognized by major vehicle manufacturers as offering important sales potential and in particular a source of earnings.
Yet, they face fierce competition from the IAM (Independent Aftermarket); especially when it comes to standardized and inexpensive components such as filters, gaskets, and technical consumables, but also for more high-end and expensive components from areas like air conditioning.

In recent years this situation has led to strong price erosion, especially for so-called C-parts. Even OEM operations now need to stay on high alert to remain competitive in those areas where customers can readily compare spare part prices.

As a result, the procurement of spare parts allocated to the aftermarket is increasingly becoming detached from serial purchasing. The point of detachment is reached once the number of vehicles produced for an individual market has reached a significant level and a substantial demand for spare parts has built up. The goal is to minimize the purchasing cost. The portfolio of the OES then consists of large volumes of so-called fast-moving parts, but also of spare parts that are needed only sporadically.

Until some years ago this OES market consisted largely of series suppliers. The serial order often also determined whether the spare parts business was taken on board or not. It was hard for newcomers without the appropriate tools and approvals to enter the market. Also OEM long showed little interest in changing their supplier. This has changed significantly in recent years. Today, OES purchasers issue new tender notices of the often very heterogeneous OES volumes at ever shorter intervals.

Small, flexible suppliers have in recent years seized the opportunity to take over market shares in the OES market from established OE suppliers. Many of them actively approached OES buyers, analysed the most important parts, and offered cost savings. Even though compliance with the required specifications is assured, a detailed review does not always take place. In other cases, the relevant component is approved by the respective suppliers in cooperation with the OEM development. The OES buyer is presented with the final audited offer.

Once these new suppliers have become established in the aftermarket, they now start gaining a foothold in the original equipment market. Their high flexibility, low cost production opportunities, and strong customer orientation pose a massive problem for the incumbent suppliers who cannot adequately cope with the competition. Without reorientation many established suppliers will lose market shares not only in the original equipment business but also in the aftermarket.

So far OES buyers grant their business, on a basis of mutual trust, especially to non-Asian suppliers. However, in the long term it is to be expected that Asian suppliers will also adapt this kind of business model.