Schaeffler: Sustainable competitiveness comes from the combination of flexibility and discipline

An interview to Gu Jun, director of Schaeffler Automotive Aftermarket

On august 10，2011, Gu Jun Director of Schaeffler Automotive Aftermarket accepted the Gasgoo`s interview about the status of china`s independent aftermarket and Schaeffler`s aftermarket business development.

Gasgoo: From building factory in Taicang in 1996 to the formal establishment of Schaeffler china in 2004, Schaeffler has been more than ten years to witness the development of china auto market, especial in the aftermarket, Schaeffler is one of the foreign parts manufacturers early entered into china. So, with the high-speed growth of china auto market, what are the biggest opportunities and challenges in china automotive aftermarket.

Felix: There is no doubt that China automotive after market’s prospect is bright, but the road is full of twists and turns.

At present, average age of cars is four years in china market. When the age arrive to 5 or 6, will bring greater opportunities and profits to aftermarket. In total, After market’s growth will certainly not be less than 30% in the next few years. For this big cake, car firms are rushing.

China auto market is like a kaleidoscope, all vehicles of various nationalities are here, this complex situation has brought a greater challenge to the independent aftermarket. From Chinese current situation, the car has become the second most important thing after the house. But there is a strange phenomenon, the maintenance of these two expensive products is handled by a group of low-level people. So the talent bottleneck will be a great challenge that the independent aftermarket need to face.

Gasgoo: In your opinion, what is the similarity and difference between the independent aftermarket in United States and in china?

Felix: In China, the proportion of independent aftermarket does not exceed 40%, while in the United States is 70%.In fact the situation of the United States in the 1950s and 1960s is similar with present China, so that the China market must go through a painful process of evolution.

In the United States, the cumulative vehicle number is very large, which is inseparable with the emphasis on car maintenance, but the situation in china is different. Driving mileage of Chinese consumers is far less than of United States and Europe consumers, so the parts need to be replaced are naturally not so much. But good news is that the Chinese consumers` attitudes are changing.

Early time owning a car is a symbol of social status, but few actually uses. Now, with the lower cost of buying a car, the consumers really use the car as a normal transportation tool.

A family car in China can reach an average annual mileage of 20,000 kilometers, then four years up to 80,000 km, many parts need to be replaced. When car usage extended, the independent aftermarket will also grow.

Gasgoo: In present China Automotive Aftermarket, there is such a point of view: the closer to the end-user, the fewer good parts you can get, consumers can’t distinguish whether the quality is good or not.

Because too many levels in the distribution channel, like the "bad money drives out good money" in economics, a good product can’t reach the final end-user. Does this phenomenon really exist? In turn, what causes it?

Felix: In fact, the Auto parts company's production capacity is enough to supply OEMs & independent aftermarket. But these Branded products could not been sold to end-users, reasons are quite complex. One of the critical reason is in distribution channels. Currently the independent after market’s demands for parts are mostly satisfied by second and third class manufacturers with high imitation products, which crowding out the market position of brand parts. This situation is common not only in the automotive parts industry, but also in other industries. Such as electronic appliances, if there is no emergence of Guomei and Suning, then no one can guarantee that the goods bought in the market are genuine. So if there is no one big business giant to integrate the entire market, then it will be difficult to change the current situation that consumers can’t buy a good product in market.

Gasgoo:Do you think the Auto parts industry will change the current status of distribution and forms retail giants like what exists in electronic appliance industry?

Felix: Forming retail giants is inevitable, but no one can predict when. In order to integrate, it requires a lot of money and talents in the automotive parts industry.

In the future there may be some regional, localized network slowly maturing. It is sure to go through the process such as a regional alliance. Although the majority of alliances are currently frustrated, we must learn the failed and successful lessons. After deeply reflection, we will get more capitals to seize the next integrate opportunity.

Gasgoo: Although foreign enterprises are better than local companies in management and human resource. But from the current Chinese market possession, the local enterprises get more market share, can we understand as foreign enterprises do not adapt to China market? what has been done in Schaeffler to adapt to China market?

Felix: We should not generally say that all foreign companies are unable to adapt the Chinese market environment, some foreign companies are doing well, Schaeffler is also trying to working on this. As for multinational companies, We normally think their products` quality is good, but too many regulations, short of flexibility. Therefore, Schaeffler sales team currently emphasize on combining the creativity and discipline. Easy to become imaginator if we foucs too much on creativity, while easy to become bureaucracy if emphasize on discipline, so only a good combination of both could brings a sustainable competitive edge.

For foreign companies it is not enough to just have good products, quality, and markets it is as well important to have the acquired / necessary flexibility to enter the various markets. Local businesses, mobile and flexible are as much important as e.g. foreign companies with a strict management. It is a combination of both, which is needed and leads us to success.

Gasgoo: How many dealers does Schaeffler have at present? To the case as we know that Schaeffler has several dealers in the same area, then how to balance the conflict of interest between the dealers?

Felix: In china the dealers that Schaeffler direct manage are more than 40, but their business models are not the same, can be divided into two types. The first category is model-based, that is wholesalers; second is chain or retail-based, each dealer in their respective fields have their own competitive advantage. Although in the same area has several dealers, but in essence they have no substantive conflict, because products in each dealer`s hand are not the same.

From last year on, Schaeffler puts more efforts on the dealer management. We set up a dealer management committee, select best dealers in the whole country, so that they can sit together every quarter to communicate; establish a self management and constraint mechanism to make the distribution network into healthy and orderly development.

As the market changes, our sales team are constantly changing on consciousness. The most happiness is that the harvest coming from the independent automotive aftermarket is proportional with the efforts. Run as long as you can and run fast, it will certainly result. Schaeffler is also working hard to bring this concept and own basic values to our distributors, in order to seek common development with them.

Gasgoo: You said just now that in the market there are many second and third tier Chinese brands, then how does Schaeffler make his own brand deeply into end-user?

Felix: China market is huge, garages are numerous as well, what we can do now is to continue training for repair shops. Although our training capacity and coverage area are very limited, we do not have a shortcut to go. Want to do one great thing, first you should actually constantly repeat a simple matter, until doing well. In addition to this, Schaeffler will also do some market publication and promotion. In this process, we have to combine the power of distributor, so to be able to really go deep into this huge market, and truly understand consumers` demand.