Schaeffler's aftermarket business to head for fast lane in 2010

Christian Bessler
Director
Automotive Aftermarket China
Schaeffler Group

Gasgoo.com: Welcome to Gasgoo Executive Interviews. First of all, please give us a brief introduction of Schaeffler's products and service as for China's aftermarket.

Christian Bessler: The Schaeffler Group with its brands INA, LuK and FAG develops and manufactures precision products for any things that moves in machinery, industrial plant, vehicles and aerospace. Here I'd focus on the products and service provided in China's automotive industry.

We opened the first representative office in Beijing in 1996 and then we moved the office to Taicang, Jiangsu Province in 2005. At that time it's clear that we founded a trading company within the Schaeffler Group. Then last year we witnessed the inauguration of the new R&D Center in Anting of Shanghai, and the second plant in Taicang( the first Taicang plant was opened in 1999).

Our Aftermarket department was established last April, and before that we also have local business-things like invoicing and stock control were organized by our Germany headquarter and we have local sales person to support the local customers. As the aftermarket business grows here, we're launching a new brand for the Chinese aftermarket next year. Ruville, a dealer brand that exists for many years in Europe, will be moved to China and presents new image for our aftermarket service in China.

Gasgoo.com: How was Schaeffler's aftermarket business now?

Christian Bessler: One year before we started our local business, we've made preparations. We looked for customers as we only deal with importers before that-I should call these distributors as partners rather than customers. Now we have five sales regions in China. To cover all the regions, we have 29 authorized distributors selling products of these three brands--INA, LuK and FAG. It's not allowed for them to sell a certain brand alone as they have to sell the three brands as a package.

We not only provide the products; we also give them technique support: for instance, we prepare product catalogue and technical brochure for them; we do technician trainings. We give them marketing support and business development support. Our motto in the aftermarket business is "Service, Power and Partnership" and we give our focus to these three key elements. We don't want the partners only to sell our products; they have a lot of duties themselves.

Gasgoo.com: How do you choose the partners in China?

Christian Bessler: A qualified partner for Schaeffler must have storage system; take over our corporate identity concept; sell the exclusive product portfolio of Schaeffler and sell them in his own sales region only, e.g. a distributor in Beijing is not allowed to sell the products to Guangzhou.

Gasgoo.com: How you found anybody who doesn't observe the rules?

Christian Bessler: It rarely happened and so for not a priority problem. We'll warn them the punishment if they break the rules. Anyway we can follow up where our products are flowing.

Besides the three points I mentioned, the partner also has to develop within their market. They should inform us of the fake products, the market demand or potential for our products, feedback from the consumers, price problems and etc. They must have a clear sales target based on our agreement. They are not allowed to sell the products of our competitors as cherry-picking is not allowed.

We invest a lot of money into the business-not only the products but also the service. So we want mutual trust with our partners.

Gasgoo.com: In China, the mid and small-sized Chinese components manufacturers compromise a large market share, who provide lots of standard and inexpensive parts in their product ranges. Also there're lots of fake goods. How to build your company's branding or image in this fast growing market?

Christian Bessler: No doubt brand awareness is very important. For this market, absolutely we're a new-comer. Not many people are aware of the three brands though we're well-known in the European market. So we'll do some brand awareness education and expand its presence in the premium market segment with our partners-not only for the products but also our service.

We prepare product brochures and failure diagnosis (trouble shooting and maintenance). We're preparing for the set-up of a dedicated Chinese website this year. After the website for aftermarket business is launched, there's also possibility to launch our garage portal-RepXpert, which is widely used in Europe with extremely up-to-date vehicle data and detailed technical information.

We take many measures to build our brand images. One way is that our partners opened 5 brand shops, where the concepts and ideas come from us. And more such shops will be added by the end of this year. From these so-called competency centers, the buyers like garages can not only buy Schaeffler products, but they can get information.

Until end of 2009, we're under construction. By that time, the preparation work has to be finished and our market place has to be established, and we'll be ready to gallop.

Gasgoo.com: We learnt that Schaeffler has the only distribution channel of independent retailers. So why not try other ways to tap the fast growing market?

Christian Bessler: Our focus at the moment is to expand the distribution network in China. We'll never directly supply the 4S shops or outlets like that the replacement parts. Maybe some competitors are doing this, but that's against our principle. Schaeffler offers components to almost all car manufactures in China, including the home-grown automakers and joint ventures; we can't undermine their OES business.

Gasgoo.com: We know that there is price gap between independent dealers and 4S shops. So how do you balance the gap?

Christian Bessler: In China, one thing clear is that the Car Manufacturers want and have to earn big money. The biggest margin goes to the OEM and OES, not to the garages, and that's why the independent market is so competitive. With a totally different price structure, we have win-win agreement with our partners.

Today, I don't see the 4S shops are so well-established. The main interest of the Car Manufacturers in China is that they want to sell cars, but they're not well-prepared for the after-sales service. For the reason, there's chance for these independent distributors who're well-organized.

In Europe, people have stable car sales, not like China, The OEMs there give more focus to the aftermarket business; they know this is the most profitable, where they can earn more money than selling new cars. And I see the situation in China, not yet, but come in three or four year.

In the aftermarket, you should not only sell the products; you should sell them the know-how, the information of the products. And what I don't see today in most of the local workshops or garages is "prevented service"-usually the technique or the repairing worker will have a short briefing with the car owner after he went to the garage and then do the trouble-shooting; he finds the oil pump was damaged and needed to be replaced and he finally gets agreement from the customer to replace it. The fact is that in China the technique has to convince or even argue with the customer. The customers lack in the technology information and they just want to save money. They may require not replacing some damaged parts that may bring them double cost at the end of the day. And the garages don't insist to give explanation or they themselves lack the practical experience.

In the car, many parts work as a system. For example, the belt drive which composes lots parts like crankshaft, camshaft and belt. In some cases you have not only to change the belt, but also the tensioner or idle pulleys; if the customers say I only want to change the belt so the technique follows his request, and one month later if the bearing of the tensioner blocks, the belt get wared and breaks down, then the engine gets damaged. You see the customer wants to save RMB150 but he finally may pay dozens of thousand RMBs.

The fundamental problem of these is that the end-users don't trust the garages. They trust the car, but they don't trust the aftermarket service. I think they (the OEMs) fail to give enough impact onto their 4S shops (also there're lots of fake products sold in the 4S shops). I think it's the duty for the garage to inform the customer what really needs to do with the car.

Back to the question, that's exactly what our strategy is based. To balance the price gap, to penetrate the market, we seriously select our partners with professional background and we tell the end-users the information of the products and relevant knowledge. We try to educate and build trust. I ask the purchaser-if this car is you baby, would you buy fake medicine for it? Won't you give it the best treat?

Gasgoo.com: Who should shoulder the responsibility of education in the aftermarket?

Christian Bessler: For the 4S shops, it's the OEMs, the automakers' duty; for our distributors, it's the OE suppliers' responsibility. The end-users could never be an expert, so the mechanics should educate them.

Gasgoo.com: what unique features else do you see in this market?

Christian Bessler: The aftermarket here is still under development as well as big-almost every automaker comes here to sell cars. In my opinion, we need another five to ten years before this market is really established and has clear structures. Trust can't be built only with our efforts. All the market players need to work together.

For the copy/fake goods, everybody is a loser. The end-user has to pay for the damages that the fake products bring; the garage loses the customers, and the manufacturer damages the branding appeal. For no-name products, it's the similar case. These products may not bring quick damages, but the risk to cause damage is high. Wide use of the fake or no-name products is related to money problem or education or something else.

For a long time, the market here is a price-driven market and lack in qualified garages. But today we shift to talk about service, brand and quality. It's a good sign.

Gasgoo.com: Who are reshaping the after-sales market--the OEMs, OES suppliers, those non-OES suppliers, or the retailer of parts, accessories and maintenance items in China?

Christian Bessler: All of them. They will exist in a long time, but for sure the non-OES suppliers will get less and less. There's market integration.

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