A series of upheavals in the global business environment in Europe and the United States in the past two years have created new opportunities for aftermarket (AM) auto-parts makers in Asia, and especially in Taiwan, thanks to their world-renowned ability to provide a comprehensive range of products at competitive prices.

According to Taiwan's Cathay Investment and Trust Co., the global business downturn over the past two years has forced big companies around the world to cut prices in any way they can. For many of these firms, contracting production from Asian suppliers has served as an efficient means to this end.

Growing numbers of big AM auto-parts makers in Taiwan are attracting the attention of global investors due not only to their already high share (80% to 90%) of the AM auto-body parts market in North America, but also because they are expected to double or even triple their regional market share in the coming few years.

A senior analyst at Cathay says that more and more auto insurers and their policyholders in the U.S. are accepting the use of quality-approved AM parts to repair cars after collisions as AM parts are often priced at only 50% to 70% of their factory-original counterparts.

Taiwan AM parts makers' global competitiveness is the result not only of their comprehensive product lines--the product of 30 years of development--but also in the many strategic alliances that tie the local industry together and stabilize prices, the analyst says.


OE Quality at AM Prices


According to one industry insider, the auto-parts market is divided into two main categories: OE replacement parts, which are often distributed through auto-manufacturers' service channels and sold under their brands, and AM parts, which have the same specifications as OE parts but are often sold without automaker certification.

One local auto-parts manufacturer states that in Canada, the U.S., and other industrially advanced countries, consumers have traditionally preferred OE replacement parts that carry the quality and safety certifications of the original automaker. In recent years, OE replacement parts have accounted for about 85% of the US$2.7 billion auto repair and maintenance market in the United States. The manufacturer says, however, usage is gradually declining because the quality of aftermarket parts now equals that of OE parts, while their prices are much lower.



According to the Insurance Research Committee (IRC) of the U.S., the ratio of American consumers willing to use AM parts rose to 52% in 2001, more than double the 2000 figure of 25%. The Automotive Aftermarket Industry Association (AAIA) of the U.S. notes that the total value of AM parts sales in the U.S. grew by 4.8% to US$178.8 billion in 2001, including a 6.2% increase in the crash-parts sector (parts most often replaced after collision).

In addition to their lower prices, AM auto-parts suppliers often can beat their OE counterparts on product selection, especially of parts for older auto models.

Such advantages, says the Cathay Investment analyst, have given Taiwan AM parts makers a solid lead that competitors in other countries will find difficult to erode. In addition to the small-batch, large-variety production mode that local companies specialize in, systematic long-term investment in molds and dies has helped local makers set up an extremely high entry threshold for newcomers. This barrier has also helped established producers control global pricing.


Wooing Consumers


The Cathay analyst reports that following the settlement of a lawsuit about three years ago in which a U.S. consumer sued State Farm insurance company for using non-OE replacement parts in repairing his car, the American auto-insurance industry has changed its insurance policies to allow the use of non-OE aftermarket parts. The event, far from deterring insurance firms and consumers from using AM parts, actually increased consumer awareness of AM parts.

Since there is no commonly accepted quality-standard regime for AM parts in the global market, American insurance firms are promoting the Manufacturers' Qualification and Validation Program (MQVP) for the certification of the quality and safety of non-OE parts. This program outlines policies and quality-management practices designed to ensure that repair parts are equal in form, function, performance, durability, and appearance to the originals. This is expected to further elevate consumer confidence in approved AM parts.

Another development that is encouraging the use of AM parts is the differential-premium system offered by insurance companies in the U.S., allowing policyholders to opt for lower premiums if they accept the use of non-OE parts to repair their cars.

All of these factors, the Cathay analyst says, are expected to help AM auto parts producers to increase their share of the U.S. market to either 49% or 67% over the next two years, compared with 15% to 31% now.

He adds that the 49% share is predicated on the adoption of AM parts by America's two leading insurance firms, Allstate and USAA (with a 20% share of the auto insurance market), while the 67% ratio would also include the use of AM parts by State Farm.