(2).jpg)
I have just spent three weeks in Europe. I have seen sad faces and happy faces. Sad to grim faces are worn in the new car business. The new car business is in trouble – although in Europe, the new car business still looks much healthier than in the disastrous U.S. market. If you visit parts dealers and wholesalers who focus on the after sales market, you experience something that is in short supply these days: Optimism, growth, full coffers due to a strong parts market.
Two factors coincided: One, people delay the purchase of a new car and drive the old car longer. That results in wear and tear and repair. Two, a harsh winter that most of Europe had and has. Snow and ice are always good for the parts market. I was sitting at a large wholesaler in Northern Germany last week, snow was coming down hard, he looked out of the window and said: “Ah, parts weather!”
In order to profit from that market, you need to be a part of it. What are your options?
1.) You can become an OEM supplier. European makers such as Volkswagen, Daimler, BMW etc. source more and more parts in China. They typically won’t work with you unless you are a tier one supplier. You will have to survive stringent audits and deal with their purchasing departments, which they typically have in China also. Sometimes, you may have to deal with their Chinese and European purchasing departments. Each with their rounds of price negotiations. If successful, you typically will be issued a supplier number and be entered in their computer systems. Prepare yourself for tough price negotiations each year – this is how their purchasing departments justify their existence.
2.) You can become a contract manufacturer for large European parts and system suppliers etc. They are in China, you supply their Chinese venture. This is currently the most common avenue into the European market. So common that no further comments are necessary. Be careful, a number of large European parts suppliers have declared bankruptcy, more likely will.
3.) You can become a contract manufacturer for smaller and specialized European parts suppliers. This can be an interesting business. However, you need to be more engaged in Europe, possibly even establish a small presence that keeps the contact alive. Smaller, specialized parts suppliers with a high exposure to the OEM business carry a high bankruptcy risk. If they are focused on the after sales market, the risk is much lower.
4.) You can establish your own brand in Europe. Usually, jumping off a tall building is a better and cheaper option. There is no shortage of established parts brands in Europe. A wholesaler will stock one or two brands, and if you are brand number 17, your chances are slim to nil. To be taken seriously, you need to stock parts for most cars. In the brake pad and brake disk business for instance, this means that you need to stock at least 250 – 500 parts each for pads and disks in a central warehouse in Europe (or even better, multiple warehouses,) preferably with a drop shipping system directly to the wholesaler’s dealers. The investment is likely higher than in your current plant. A secretary in Europe likely earns more than a department head in China.
5.) You can supply wholesalers directly. The best way to do this is to become their private label supplier. This can be very rewarding, but also very complex. So complex and rewarding that it warrants its own column
Next week: Private label business with Europe.
About the author: Bertel Schmitt, Gasgoo's columnist, is CEO of Hong Kong based parts sourcing company Sinamotive. Before founding Sinamotive, with the assistance of U.S. venture capital, Mr. Schmitt was a marketing consultant to Volkswagen AG.
