Taiwan Keeps EdgeIn Auto Repair Tool Industry

If their local makers are right' auto-repair tools may be the last goldmine in Taiwan's tool industry thanks to their high added value' the high technical barriers to market entry' and the strict quality demands made by professional users.

While mainland Chinese suppliers are taking aim at what is the last redoubt of Taiwan's tool industry' the inferior quality of the items they churn out makes this an exercise in futility in all but the lowest-price mass-market segment.

Taiwan's auto-repair tool sector is only about a decade old' but it is perched on the shoulders of the island's successful 40-year-old hand-tool industry. The local industry has also benefited from the constant need for new-specification tools--a test of innovative ability--as new car models roll off factory lines.

Indeed' the need for specialized tools is what has made this sector so lucrative for the few players able to meet the stringent standards required. Currently' many Taiwanese suppliers offer over 1'000 product items' each in numerous specifications' to meet this diverse demand.

And demand there is. Having built a name for quality' Taiwan now supplies top-end auto-repair tools to many international brands on original equipment manufacturing (OEM) terms. In the own-brand market' however' the going has been tougher as bigger entrenched brands keep a virtual lock on this sector through the loyalty of professional users.

1'500 Choices and Growing

Founded in 1996' Apo Tool International Inc. supplies around 1'500 types of auto-repair tool' making it one of the most comprehensive local suppliers in the line. The company has achieved this breadth of selection by focusing exclusively on professional-use auto-repair tools--a strategy that has earned it a solid image for quality.

Company president T.P. Huang shifted APO's specialization from DIY (do-it-yourself) tools to professional auto-repair tools when the former segment became too competitive. "Auto-repair tools still command higher profits than do most DIY tools due to the strict quality demanded by professional users'" he says.

APO focuses on producing a wide variety of auto-repair tools in small-batch production mode' such as bearing pullers' filter wrenches' hub separators' tube cutters' and flaring kits. This emphasis has enabled the company to avoid going head-to-head with more established players in large-volume segments' such as engine and transmission-system repair tools.

Although a senior supplier in the DIY-tool industry' it took Huang a whole year to master the multivarious specifications for auto-repair tools. He even compiled his findings into a guidebook on specifications and purposes' creating what he purports to be the first such manual for auto-repair tools in Taiwan. The book serves as a standard reference for all of APO's 40 to 50 suppliers in Taiwan' providing them with criteria to follow and keeping quality consistent' Huang says.

APO's full product range and high quality' he states' have earned the company business from five world-leading auto-repair tool brands.

In addition to its low costs' APO has moved into the upper echelons in the industry through its strong product-development capability. According to Huang' the company has introduced around 200 new items in each of the past five years' and around 300 to 500 new items in the years before then.

Huang notes that auto-repair tool suppliers usually need to tie up more capital in inventory and molds' compared with their counterparts in the non-professional tool sector' resulting in higher financial risk.

Despite its quality manufacturing and low prices' APO has no immediate plans to tap the own-brand market. Huang concedes that Taiwanese suppliers have little chance to build a name in the industry because early entrants already dominate the market. "Professional users care more about quality than pricing because they depend on their tools to make a living. So they rarely shift to new brands from established brands they have long trusted'" he explains.

Still' in Huang's view' Taiwan has emerged as an important player in the global supply chain of auto-repair tools due to the high quality and low pricing of its products.

The United States remains the largest market for Taiwan-made auto-repair tools' though Europeans are starting to warm up to Taiwan suppliers as well' Huang says. He sees a lot of potential for the local industry to win more orders from the many big names that still make tools at in-house facilities.

Huang predicts that the number of tools used to tune some mechanical devices will gradually fall as automakers replace such devices with electronic counterparts.

He is more worried' however' by the threat from mainland Chinese suppliers. Some steel factories in the mainland' he claims' are offering steel to local tool suppliers at unusually low prices to lure orders. And while mainland producers still lag in quality' Huang frets that with access to low-cost and good-quality materials' such as chrome-molybdenum steel' chrome-vanadium steel and high carbon steels' they may be able to catch up. Suppliers of steel products in Taiwan have been plagued by rising steel prices' which have dampened their competitiveness.

Lock on High-end Wrench Market

Huang's concerns are not shared by Raya Enterprise Ltd. President Jet Lai' who says talented employees and managers' not materials' are the key to success in the professional market. "I've visited many tool factories in the mainland and found that their working spaces are a mess'" he says. "People are a critical element in production. If they keep doing things this way' they will never be able to compete with us' even if their steel quality improves'" he says.

Lai's company supplies over 200 basic types of auto-repair tools' such as rackets' wrenches' and drivers' with about 80% going to Europe. Like most of its local counterparts' Raya focuses on the mid-range professional market' which includes both individual consumers and some workshops.

Raya is one of only a handful of tool suppliers in Taiwan that promotes its own-brand products. The move is especially bold due to the risk of alienating OEM customers. The company has earned 30% of its revenues from branded products since its establishment in 1995. "Our strategy is to team up with small to mid-sized importers that don't have their own brands. So far' we have signed up around four or five such dealers in Europe'" Lai says.

Raya sells its hand tools under the Custo brand and pneumatic tools under its AR brand. Custo' Latin for "enjoyment"' is an easily accepted brand name in Europe' Lai says.

Before opening his own business' Lai had worked at a tool enterprise run by his family since 1981. He notes' however' that auto repair tools are completely different from household tools as the former require a much greater degree of specialization' and are also subject to higher quality demands.

So far' the company has contracted around 50 dedicated suppliers of auto-repair tools in Taiwan. It sorts these suppliers into A' B' and C classes according to their manufacturing quality. Regardless of the supplier class' all of these products must pass Raya's inspection' which Lai says is based on ISO standards.

Like many other suppliers on the island' Raya has compiled a list of tool items and specifications according to its knowledge about the industry's specifications. "Compared with most of local suppliers' specifications' ours are much more stricter. So' our tools are more durable and work harder'" Lai boasts.

Lai predicts that his industry will increasingly focus on tools equipped with smart designs' such as digital gauges' as more young people enter the business as vendors.

Over the past few years' Lai's company has seen its business rise about 15% annually thanks to quick introduction of tools for new car models. "When there is new car model available in the market' there is a set of tools dedicated to it'" Lai notes.

Certified Quality

Chien Yu Hung Co.' Ltd. Makes repair tools for a range of devices' including engines and chassis systems. The company opened in October last year' but its co-founders' including factory manager M.H. Lee' each boast about 20 years of experience in tool manufacturing.

Ratchet wrenches are the major item in the company's product line. According to Lee' such wrenches require complicate techniques to make because each model contains many components that need to be carefully integrated. Such tool's also need to deliver consistent torque force.

In making its high-quality tools' the company relies on computerized numerically controlled (CNC) lathes' automatic threading machines and other costly equipment. The company makes its tools from chrome-molybdenum steel' chrome-vanadium steel' and high-end carbon steel.

Lee says his company's ratchet wrenches have passed qualification testing in Italy and Germany' where it has earned the GS certificate.

Chien Yu Hung makes ratchet wrenches in six torque specifications-50 pounds' 75 pounds' 80 pounds' 150 pounds' 250 pounds' and 300 pounds. It plans to add 110-pound tools soon.

The company now puts out 30'000 DIY and professional-use ratchet wrenches a month and plans to expand output soon. (July 2004)