New Rules Open Europe To Taiwan Aftermarket Auto Parts

One of the biggest factors that will affect sales of aftermarket auto parts in Europe over the next few years is the new Automotive Block Exemption Regulation (BER) 1400/2002/EC' which came into force on Oct. 1' 2002 but contained a provision for a buffer period lasting through 2003.

The new regulation' which provides a legal framework for motor-vehicle distribution and service agreements' aims to foster more competition in the auto sales' service' and parts markets. It protects the right of motorists to have their vehicles serviced' maintained' and repaired in a shop of their choice and at prices controlled by the competition mechanism.

One result of the new rules is likely to be the increased sale of aftermarket auto parts in Europe' and this will be good for Taiwan's manufacturers of such parts.

With the mandatory linkage between new vehicle sales and after-sales service removed by the new rules' dealers are now free to offer either sales or service' or both. They will also be able to apply for authorization to repair multiple brands of autos.

Dealers and repair shops are now able to purchase' from independent parts wholesalers' original equipment' original-equipment service' or aftermarket parts that meet original-equipment quality standards. Manufacturers are not allowed to place any restrictions on the right of dealers to do this.

The European Commission stresses that automakers offering spare parts of differing quality (such as "economy lines") may not prevent their contractual dealers from buying parts of similar quality from independent distributors.

The new rules also prohibit vehicle manufacturers from denying their suppliers of original equipment and original equipment service parts the right to sell products to independent parts distributors or independent repair shops.



Growing Impact



Parkson Jong' vice president of Auto Parts Industrial Ltd.' one of Taiwan's three biggest aftermarket auto-parts companies' said in a recent interview that the impact of the new BER is not so obvious right now but that it will become heavier and heavier within the next three to four years.

"The new BER will benefit all aftermarket parts makers around the world in selling their products in Europe' if they are competitive enough'" the vice president said. "The use of aftermarket parts is only about 2-3% in Europe' compared to about 15% in the United States. We're very optimistic about a rapid expansion of our aftermarket parts sales in Europe in the next few years' since the average age of cars in Europe is higher than in the U.S.' and that means more business opportunities for us."

Aftermarket parts have a bad reputation in Europe. The quality of aftermarket products made there is relatively low' and auto insurance firms often refuse to accept such parts in the repair of insured cars because of safety considerations. In addition' Jong says' "Twenty years ago or so' aftermarket parts were called 'copycat parts' or 'pirated parts' in Europe' and it takes time to bring about a change in consumer habits and product images.

"But insurance firms there now know very well that the more the use of aftermarket parts increases' the lower the prices of original equipment and original-equipment service parts will drop." To illustrate the influence that aftermarket prices can have' he cites the example of an original-equipment service fender for the Chevrolet C-10 pickup' the price of which plummeted from US$400 (in the U.S.) to only US$100 because of the competition from aftermarket parts.

Jong says that Taiwan's aftermarket-parts makers are more competitive than most of their European counterparts' since the Taiwanese have developed a very wide range of products for most European' American' and Japanese cars. The European manufacturers' by contrast' aim their product offerings at just a few popular car models. In addition' the vice president goes on' Taiwanese manufacturers are much faster than the Europeans at developing molds and dies because of Taiwan's tradition of hard work' relatively few holidays' and lower wages.

Makers of original-equipment parts in Europe have cut their prices in an attempt to minimize the impact of the new BER. "We know that they might also try to criticize the quality and reliability of aftermarket parts'" Jong comments' "or adopt other measures in the near future to try to consolidate their market share. But we know that the European market for aftermarket parts will grow' though the ratio of use may not be as high as that in the U.S. because of Europe's relatively conservative consumer habits."



The Promise of Eastern Europe



Another promising market for Taiwan's parts makers' Jong notes' is Eastern Europe/Russia' where cars are even older than in Western Europe. "All automakers are required to provide replacement parts for their models for at least 10 years'" he explains' "but the growing number of new models in recent years has greatly elevated the difficulties and costs of mold and die management for original-equipment parts suppliers. This means unlimited opportunities for aftermarket-parts makers if they invest in products for a wide range of models."

In addition to the faster response time and comprehensive product range of Taiwan's parts makers' Jong notes that the island's sales to Europe will also be helped by the sharp appreciation of the euro' which has greatly boosted the price competitiveness of Taiwan-made parts despite the cost of shipping them over such a long distance. Taiwan's container-consolidation capability also helps.

"In Europe'" the vice president comments' "most aftermarket-parts makers produce parts for only popular car models' and don't want to risk investing in more comprehensive product lines. This gives Taiwan an advantage. Furthermore' most leading aftermarket parts makers in Taiwan play an important role in helping foreign customers source products that they do not produce themselves. It's normal for Auto Parts Industrial' for example' to ship a 40-foot container that carries more than 200 different crash-parts items. Our container-consolidation service can greatly reduce per-item transportation costs. All of the leading parts makers in Taiwan have a very' very strong logistics capability."

This will help with sales to Europe' especially since the use of aftermarket parts by insurance companies there will increase once such parts obtain quality certification to assure their quality and safety. According to Jong' the relevant certification systems include Thacham in the United Kingdom and Certo Zaragoza in Spain. Some importers and distributors in Europe have attempted to set up other certification systems' but those systems have not yet won acceptance.



The Importance of Approval



Jong claims that Auto Parts Industrial is one of the few aftermarket-parts makers in Taiwan that have won Thacham approval' which comes with six months of protection for each certified item. Four of its sheet-metal parts have already won approval; and' reports Jong' "the number of approvals is expected to increase rapidly in the future until insurance firms can get from us most of the parts they need to repair cars. We already have over 700 items approved by the Certified Automotive Parts Association (CAPA) system of the U.S."

Jong believes that the real effect of market growth from the new BER will be felt within the next three to four years.

Furthermore' Jong asserts' "Quality is the best policy' with or without BER. Makers of aftermarket parts who want to tap the European market should first see to their quality' and then boost the comprehensiveness of their product lines so that they can provide customers with one-stop-shopping services."

Jong notes that his own company began life as a trading firm and then gradually moved into the production of an ever-more-comprehensive line of products. Today' trading and manufacturing each account for half of the company's revenues' which totaled around NT$4.42 billion (US$137 million at NT$30.9:US$1) in 2003 and are expected to grow to NT$4.7 billion (US$152 million) this year.

Another way that the company continuously strengthens its global competitiveness is through constant investment in molds and dies' and Jong says that this strategy will be pursued more aggressively than ever to meet the expected needs of the growing European market after the new BER takes hold. The effort will focus on European car models-and especially on the cooling-fan market. (Mar. 2005)