Regulations & training necessary to advance China's automotive aftermarket

Gasgoo.com: Could you briefly tell us TRW's aftermarket business in China?

Alex Ashmore: TRW has had an aftermarket business in China for many years. It was incorporated in 1999, but we've decided to ramp up the investment in this area two years ago. Our business in China addresses both product and service requirements. We have the Vehicle Manufacturers Services in China, and it also allows us to address the Independent Aftermarket here. Moreover, we moved the Asia Pacific headquarter from Singapore to Shanghai, China, using our distribution platform for as a regional distribution center and as a supply warehouse to our operations in Germany, South and North America.

Gasgoo.com: Talking about the difference and similarities between China and the world, is there anything unique for the products and services in China's automotive aftermarket?

Alex Ashmore: The fundamentals of the aftermarket are the same wherever you go--you have one level that makes products, one or two or three levels to distribute products by buying, stocking, selling and fitting them into the car (these of the distribution chain wherever in the world are more or less the same).

I think the differences for us in China are: firstly there is a unique set of competitors. Of course, we have the international brands that are present in different markets all around the world but also in China; we have pure domestic Chinese competitors with their own brands that are generally not yet visible as brands in their own right outside China. Due to the difference, the spare parts market is fragmented in China, which is also true for Southeast Asia as well, while in cities there is a concentration of dealers, wholesalers and retailers, especially in certain big cities like Shanghai, Beijing, Guangzhou. For sure it's creating an exciting environment, full of auto parts businesses, but also brings heavy price competition.

Work hard to build brands, but also defend and protect them

Gasgoo.com: We've noticed that there are a lot of small and middle sized Chinese auto parts manufacturers who offer standard and cheap products in their ranges, also there is a lot of fake goods. So how does TRW build the brand image in this fast growing market?

Alex Ashmore: For TRW, I think the first building block of brand is our original equipment (OE) position. We have a strong OE position in China and throughout the world, but that's not enough to survive in the aftermarket.

We have to have consistent products; we have to have good distributors; and we also have to have the best product range and effective communication support. On communication support includes advertising, PR campaign, and so on, but there is also effective supporting information for our products' cataloguing, and also word of mouth marketing. It's also important to be working with good distributors- and that they all consider TRW as a good company and swear to work with TRW in the aftermarket.

You mentioned counterfeit products; we have various actions that we take against counterfeiters. We are a member of the QBPC (Quality Brands Protection Community) in China, and also we are working with collogues in the aftermarket in Europe on a very special anti-counterfeit device that we hope will become an industry global standard. It's like a thumbing print on the product label, which can be checked with a very simple handheld device, and checked against our database and work backward to show the traceability of the product. So that's how we work in the aftermarket-- we work hard to build our product and our brands, but also to defend and protect them.

Gasgoo.com: How do you differentiate your products from other competitors--not just the foreign branded companies, but also the domestic companies--in China?

Alex Ashmore: The first thing we have to differentiate ourselves is strong branding, we emphasize our TRW branding of products on packaging, cataloguing, and all the marketing and supporting materials. Where I think we're currently better than our competitors, is the quality of our catalogue information, and the speed which we develop new product lines for our distributors to sell, which's very quick and helps them get the advantage of the market.

Gasgoo.com: To speed quickly enough, you also build the warehouses near the OEMs and near the distributors?

Alex Ashmore: Yes. We have a network of depots around China to serve the vehicle manufactures' distribution network in aftermarket. Also we are fast with our speed to develop new items. With the right kind of database, we can create new references, and with an efficient process to develop news parts, we can offer the new products to the aftermarket.

Imports and localized products to support Chinese market

Gasgoo.com: Do you bring products from the factories in other existed countries or you make localized products in China?

Alex Ashmore: We do both. Our main mission in China is to grow our domestic market, and in order to address that market, we know most of our products in China will be localized over time. Of course our position at the moment is to have the advantages to offer the complete product range, and in order to do that, we have some products manufactured domestically, but also we import some items for maybe special specifications or maybe the quantity of the car in China is small but the quantity in other markets is high, and it's not economic to develop in China. So we have an appropriate policy of import and localization.

Take brake parts for example, where there's a locally made vehicle we'll generally provide locally-made braking parts; if it's an imported model, we'll provide imported braking parts, from Europe or Japan. We follow the original equipment specification to make a complete product offer. So when our distributors want to buy "A", "B" or "C"…we have it.

Gasgoo.com: How was your distribution channel organized in the Chinese aftermarket?

Alex Ashmore: We have a service obligation first to the vehicle manufacturers, so in the aftermarket business, we are obliged to give the VMs service for the original equipment (OE) products we serve to them in the first place. That's one channel to market what we have. 4S shop is the major distribution channel for vehicle manufactures in China. The way we're addressing that channel is that we are not selling to the 4S shops, we're supplying directly to the vehicle manufacturer's service department, and they would distribute the replacement parts to their own cars and own service channel. We contact 4S shops in researching and finding out what is needed in the marketplace and so forth. This is a consistent strategy for us worldwide.

Then we have the independent aftermarket channel. We distribute to independent distributors, wholesalers and dealers in the market place. We are not selling directly to workshops because that is not our distribution approach or our capability of delivery service level. We are a manufacturer, and we sell to distributors who'll sell to the garages.

We are still developing our channels as well; we've started our field sales team who works with distributors around china and develops a good, strong partnership with them.

At the end of the day, the vehicle manufacturer is our way to address the vehicle manufacture service channel.

I do not think we will distribute to garages as this is the role of the distributor.  But as the market grows and consolidates, along with some combination of networks, then we may have to look at other channels.

Gasgoo.com: what's the percentage of the two channels for TRW nowadays?

Alex Ashmore: Of our existing sales it's roughly 50:50, which is also roughly in line with the general market. I think generally, because along with the growth in the vehicle parc, the aftermarket is roughly 50% through the vehicle manufacture service channel; roughly 50% is in the independent aftermarket.

Gasgoo.com: Now are you over-distributed or under-distributed?

Alex Ashmore: For the independent aftermarket, we just put the resources in line and put the programs together during last year, so we are starting our journey for the independent aftermarket. We are appropriately expanding our network. So it's not over-distributed yet.

Unlike many other companies looking at distribution all round China, we look at the cities with high car populations suiting our distribution models, and make sure that we have all our products distributed in those cities all the way. Of course, as we grow, we will be progressively going downward the list of cities.

We launched our products last year, we are recently happy with our development and we have a few sales network established, and the sales are growing.

Gasgoo.com: Have you found that different regions in China have different levels of auto aftermarket?

Alex Ashmore: Absolutely. We notice that the aftermarket is only following the original equipment market. In the south of China, there're a lot of Japanese cars; in the north China, there're lots of Volkswagens; in the west of China, there're lots of ChangAn Ford cars. What we can sell in the different parts of China depends on what's there.

Gasgoo.com: For different channels of distribution, how do you balance the price gap?

Alex Ashmore: I think at the end of the day, the consumers are driving the prices into the two different distribution channels. And TRW's job is to sell at a fair price that reflects the service level of customer requirements and respects the volume that they wanted to purchase from TRW. Thereafter, the local market and the distributors' efficiency and abilities are determining the price make-ups.

Regulations & training are in urgent need

Gasgoo.com: Do you think more regulation is necessary to regulate China's auto aftermarket?

Alex Ashmore: Yes, maybe some regulations on service, maintenance and testing measures, and also some general training to consumers about the necessity for service and maintenance. Preventing measures which are important for a number of reasons, but the first of all is safety. TRW is positioned to offer safety products, but what people should take first in safety is that people need to ensure the car works properly, make sure the brake pads or other parts are not worn down. And secondly the car should have good maintenance and good care.  Then it will last longer, and when you sell it, the price will be higher. So it is important for economic development to build aftermarket in China.

Gasgoo.com: Do you offer training for the 4S shops and the independent dealers?

Alex Ashmore: it's different by channel. By the 4S channels, we do our training and technical support to the vehicle manufacturer, and they organize, and adapt it to their maintenance and service training programs to their 4S dealers for the car model in question.

In selected countries round the world, we are participating in a program called eXponentia, which is a marketing alliance of some companies such as ourselves, Valeo, Tenneco, SKF and Gates. We're gathering the training information together, in order to support the market, and enable any distributor or workshop to be trained on most product technologies. This is what we do on a global basis, and we're thinking how to exploring this in China. I think it will be a great benefit. From my visit to the workshops in China, there is a real need particularly on safety critical parts improvement on technical level and know-how.

Gasgoo.com: World widely speaking, who are reshaping the aftermarket, the OEMs, or OE suppliers, or non-OE suppliers, or the retailer, or others? What's your opinion on this?

Alex Ashmore: Apart from these channels and divisions of the market, I think it is the consumers that are reshaping the market at the end of the day. The consumers are the end customer, and his or her requirements are deciding the winners and losers. The manufacturers are shaped by the consumers' requirements, then he lays the requirements to his distributor, and his distributor has to offer the garage services and the service level that he is demanding. I think the winners are decided by who is providing the consumer the right package of price, product quality, service, and in particularly consumer proximity--because people don't want to drive 50 kilometers to get the car serviced, they need something more local. So these factors are driving the winners and losers.

Gasgoo.com: If we just look at China, who is playing the key role in the aftermarket? Also what do you think of the numerous roadside shops that provide replacement parts and service?

Alex Ashmore: The aftermarket is enormous, absolutely enormous in China. Everybody is having some strategy to address the market. There is room for lots of players I'm not sure if it's clear yet who in the future dominates the market, and time will tell who is having the best strategy.

I can't say on the prospect of those operations by the roadside shops, but from what I can see of that type of operation, of course it's in the low end. They are cheap, and have good proximity to customers, so it's very convenient. But in the future, we have to ask ourselves; will they continue to operate well with the increasing regulation? Secondly, will they be able to get the know-how that they need to get?

The vehicle population in China is expanding dramatically both in its volume and variety. There are so many different car models, all of the companies all over the world want to be in China. They (garages) have a huge variety of cars to deal with now, and increasingly in the future. I don't know whether they will get the know-how to deal with all these types of car in the future. But certainly it's a trend in the market.

Gasgoo.com: What's TRW's strategy to tag China's aftermarket in the coming years?

Alex Ashmore: This year and in the near future, we are concentrating on the distributor level of the customer. We try to work with distributors to have good and close cooperation with them, to support them and let them support us.

On the first stage, our focus is on the big cities with large car population, and as we begin to grow, then of course we will step up to other cities, going to the next levels of cities, and then next levels and the next.

I think by providing product and service to our vehicle manufactures customers and the aftermarket, laying down the distribution network, we could have good partnership relationships with our customers with a good package of support. The varieties of cars in China is exploding and many suppliers are not effectively supporting their distributors and dealers in the aftermarket.  TRW will continue to offer the best catalogue information in which parts are for which car, pictures of the parts and all the necessary information. That's how we differentiate ourselves in the first step by providing a great t package of support, because our customers have to be successful first for us to be successful.

Gasgoo.com: In the future will you also provide service in the village area in China?

Alex Ashmore: Yes, it depends on the economics. There are many years for us to grow, on a step-by-step controlled and managed fashion. The smaller places can get service from regional hubs, or regional cities or something like that.

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