Mike Rayne analyses the changing risk reward equation of the automotive remanufacturing industry
The automotive remanufacturing industry is changing rapidly. Historically the industry was focused on lower technology mechanical components (brakes, suspension, alternators, starter motors, water pumps etc), capital investment was relatively low and technology barriers were virtually nonexistent.
Over the past 15 years the content and complexity of vehicle technology has significantly increased, simple mechanical technologies have been replaced with sophisticated product often integrated into electronic systems managed with proprietary software.
Proprietary technologies and intellectual property can create barriers to entry for independent remanufacturers and it is this factor that is testing and challenging risk tolerance and changing the remanufacturing industries business model with the result that Tier 1 manufacturers who own the intellectual and proprietary technologies have taken a more prominent position as remanufacturers.
CHANGE
OEM and independent remanufacturers have evolved but with different commercial models. OEM remanufacturers have leveraged their intellectual and proprietary information and focused on their dealer channel, Independent Remanufacturers have developed All Makes product and leveraged a much broader independent aftermarket channel of distribution. As companies ponder their future some are evaluating partnerships. While for many this is daunting the answer lies in partnering with companies who can help create a comprehensive “Go to Market” strategy and use joint capabilities to bring to market both traditional and complex technology across a broad part number range allowing access to the complete installed base of vehicles.
GROWTH CHALLENGES FOR REMANUFACTURERS
While growth requires risk, the remanufacturing industry is somewhat unique in terms of the level of risk incurred with some strategies and options:
- Increase sales in captive markets.
- Capture lost market share.
- Increase market penetration by taking competitor share with the All Makes programs.
- Growth by acquisitions, joint ventures or
- Partnerships
But experience shows that a failure to fully understand the dynamic complexity of both the market and industry trends underestimates risk, creating a situation that is difficult to overcome. Where due diligence is focused on financial performance and operations with less emphasis on the strategic elements, companies are often left with initiatives that fail. Benchmark companies conduct a rigorous assessment of strategy and “cause and effect” which probes:
- Customer acceptance
- Competitor response
- Sales and distribution channel evolutions
- Product and technology and hurdles
- Regional and international market trends.
It is important that companies have a clear strategy for growth with a clear delineation between what will be achieved organically and by partnership. Rigorous due diligence which includes assessments of market dynamics, customer and competitor responses is a critical element and serves to reduce risk.
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