Increased complexity, more focus on remanufacturing, and the importance of selling the value proposition of premium brands were the themes of a recent panel discussion of aftermarket suppliers.
Mike McGrath, president, vehicle service market NA for SKF, pointed out that something as seemingly simple as a seal is much more complex than it used to be.
"The Scotseal product used to be taken out with any brake job," he said during the Heavy Duty Aftermarket Dialogue in Las Vegas earlier this year. "The warranty was almost non existent. Today, that seal lasts 300,000 to 500,000 miles, so we've lost two to four replacement cycles on the seal.
"The technology had to get much better because the wheel end suppliers found away to get the bearings in preload position and everything had to hold up longer. You can't make up that profit unless you triple the price and that's not going to happen. You develop the best product you can; the new normal is that's how long the product lasts."
Kelly Dier, president of Marmon Highway Technologies, pointed out that 10 or 12 years ago, his company decided to invest heavily in research and development. The goal, he said, was to "bring new products to market that bring significantly added value in terms of things like the life cycle, the weight, or the performance of the product. If you bring that value to the market place, that's what the North American market wants."
Dier calls this "decommoditization. "If you're going to sell a commodity product, you've got to be the absolute lowest. Otherwise, you've got to bring added value. We're in the business of building premium parts."
This is a trend that has been happening for a while now, said Pedro Ferro, president, aftermarket and trailer, Meritor.
"A brake system is now twice the life of it was 10 years ago, and we did that while taking some nasty metals out of the brake."
The newest challenge is more stringent stopping distance regulations. "No one really knows what the stopping distance solution is going to do to brake life. But you can see how strong the value proposition of the drum brake is; it's going to be very difficult to convince someone that [more expensive] disc brakes are the solution. This is the kind of value we have to bring to this industry. We need to continue to cater to the first, second and third owner while continuing innovation."
Remanufacturing was cited as one way suppliers are serving the market, especially those second and third owners.
"I think it's one of the best ways we have going forward," Ferro said. "I think reman has to be seen as a professional reman system, as has happened to the engine side, happened to the drivetrain, to the undercarriage."
Dier said his company had taken it a step further to refurbishing entire trailers. The effort got its start in remanufacturing platform trailers for the U.S. military. After the military decided to start doing the refurbishing themselves, Dier said, "I said why can't we remanufacture a commercial trailer and really do it right? It extends the life of the trailer for seven to nine years at about half the cost of a new trailer, with no FET involved."
MHT started this business about a year and a half ago, and Dier said the margins are significantly higher than the new trailer business. "Commodity prices have driven the viability of this," he said. "The amount of metal [in a trailer] and what's happened to the prices of those commodities, it makes total sense today."
The Value Proposition
Of course, competing against cheaper "white box" or less-expensive aftermarket products is a big concern for these suppliers.
"At the end of the day it's the product, the service, the manufacturing, the quality that makes the brand," Dier said. "We have a lot of wonderful brands that people pay premium prices for. The key is to make sure that brand denotes a premium value product."
"Our goal is to take care of the customer, whether it's uptime, total cost of ownership, inventory, logistics," said Joseph Saoud, president, Cummins Filtration. If our customer wins, we will win, and that 's how we create loyalty. They trust it to be there when they need it, to work well, and for us to keep improving on it."
At SKF, McGrath said, "The way we view it is being a premium brand means a lot more than having a good product at a high price – that means tech support, logistic services, supply chain, field people. And they need to communicate the value proposition. You are selling uptime. You need to have that fleet technician or maintenance director know you're putting the best part you can on a truck. So we've invested heavily in training, we've got training trucks, last year I want to say somewhere near 10,000 technicians participated in our training."
"I think there are three elements," said Meritor's Ferro. "First of all is the customer intimacy side. The second thing is innovation. When we put a product in a box, if the price point is different, we know exactly how the product is going to perform. The third point is we strive to have the lowest transaction cost to our customers. We think it's very important we have a system where we can help with things like packaging and logistics, to help that transaction remain cost competitive."
Consolidation among fleets, dealers and marketing groups has its pros and cons, the panel said.
"Consolidation is going to create a more sophisticated buyer," Dier said. "There's a better opportunity for that larger customer to understand the value proposition," rather than buying on up-front price.
"I think we need all the channel partners," said SKF's McGrath. "We don’t want one or two suppliers and one or two customers. I think everyone plays a role, which keeps everyone in check, and I think that's good."