Keeping it real

Plummeting new vehicle sales have led to a more buoyant second-hand market, as well as a move by operators to keep their trucks on the road for longer, but will this mean a boon for the parts and components industry, or is it as much in danger as the vehicle manufacturing sector? NADINE VON MOLTKE investigates.

“Obviously, the first assumption we made as the local vehicle market began feeling the credit crunch was that there would be a climb in parts sales,” says Johan Jacobs, parts, sales and marketing manager at MAN Truck & Bus.

“Operators are relying on maintenance to keep their trucks on the roads for longer, which leads directly to an increased need for parts and components. However, the reality is that the original equipment manufacturer (OEM) suppliers are taking a hit.”

In fact, OEM suppliers are taking such a hit that Alfred da Costa, chair of the upcoming South African Automotive Week (SAAW), was prompted to issue a warning to local manufacturers to join hands and make the auto components industry work, or it will be lost.

His warning follows a report issued by the National Association of Automobile Manufacturers of South Africa (Naamsa), which reveals second-quarter sales results for 2009 as dangerously low.

According to the report, “As a result of low industry volumes and ongoing financial stress experienced by suppliers, availability and security of supply is increasingly at risk in certain instances.

“The ever-present need for global cost competitiveness and vehicle manufacturers’ cost-reduction targets continued to pressurise suppliers. The strengthening of the rand also caused domestic components to become less competitive,” it continues.

So, despite an increasing need for parts, the OEM-approved industry is clearly feeling the results of the global economic crisis as much as other transport sectors.

When asked why this is the case, Jacobs admits that while many operators, particularly those running larger fleets, are turning to trusted and proven OEM-approved parts, others are shopping around, looking for the right price.

“It’s a difficult situation,” says Jacobs. “On the one hand, operators need to keep their trucks reliable and on the road, so we are selling more maintenance contracts than ever before, particularly to major fleet operators, but, on the other hand, companies need to cut costs where they can.”

The question then becomes, what are efficient cost-cutting choices, and what are poor cost-cutting choices?

“It’s a matter of quality, reliability and refusing to compromise on safety standard critical items,” reveals Ronald Melville, used vehicle purchase coordinator, Scania Approved.

Scania’s maintenance contracts are based on a strict policy of only using Scania parts; just to qualify as a Scania Approved used vehicle, a truck needs a full maintenance record, carried out by a Scania workshop, using only Scania parts.

“It’s not that all generic parts are necessarily inferior quality,” explains Melville, “It’s that we cannot guarantee a part or how it operates if it isn’t one of ours.

“Many OEM-approved suppliers manufacture OEM parts, as well as generic parts, so the quality of even the generic parts can be trusted to a degree, but they have also not necessarily been manufactured to meet OEM specifications,” he continues. “As a manufacturer, we would never recommend using a part that has not been made to our precise specifications.”

Jacobs elaborates: “When a vehicle is developed by a manufacturer, millions of Euros are invested in developing new technology or updating older technology. This includes the development of parts and components to specific standards, which is why we always recommend OEM parts.

“For example, a fuel filter designed and manufactured to OEM specifications will block particles at five microns or bigger, while the same company will also produce an after-market, ‘generic’ fuel filter that blocks particles at 20 microns. That’s a significant difference in quality, which naturally comes at a price.”

Jacobs relates an incident whereby a client approached an MAN workshop questioning the price of a fuel filter. “He told us that he could buy the same fuel filter from supplier X at a third of the price to our OEM-approved part,” says Jacobs. “What he didn’t realise was that it wasn’t the same filter. Generally, parts are cheaper for a reason.”

Melville relates instances of metal disintegrating, brake linings peeling, air bubbles found in metal parts that are safety critical and a host of other issues relating to the fitment of non-OEM parts.

“I recently compared a generic air bellow – which supports cab suspension – to one of our original air bellows,” he reveals. “I cut both in half and established that the generic part was half the thickness of our original part. That’s how quality is lost, in ways you often can’t see simply by looking at the part.”

According to Melville, who regularly inspects used Scanias before labelling them as “Scania Approved” or not, one of the biggest areas of cost cutting tends to be in a truck’s drivetrain.

“The components that make up a drivetrain are expensive,” he admits. “Engines, transmissions, driveshafts and differentials make up the core of a truck’s cost, so it’s here that we often find generic and pirate parts.”

Unfortunately, these are the areas where reliability and quality are needed most, together with safety-specific items such as a truck’s braking system.

“The problem is that while maintenance and genuine parts play a huge role in keeping a truck efficient, on the road and safe, so does driving style,” continues Melville.

“A truck driven by someone who is rough on the vehicle, engine and gears will naturally experience greater wear and tear than a truck driven by a very good driver. We have customers with trucks that have done over a million kilometres without needing any part of the drivetrain replaced, but even the best parts and components cannot withstand poor driving indefinitely.”

The solution? To have a good driver, use genuine parts, and ensure regular maintenance of the vehicle.

“The better a truck gets looked after, the lower the chance of something breaking and causing more damage instead of being replaced timeously,” Melville insists.

But is the insistence of manufacturers enough to encourage operators to support the OEM-approved market?

“There has certainly been an influx of cheaper parts onto the market,” admits Enoch Silcock, national sales and marketing manager at Wabco. “They aren’t pirate parts, because they aren’t pretending to be anything other than what they are, but the cheaper price can be enticing to operators looking to cut costs.”

However, Silcock also notes that many operators recognise the benefits of fitting OEM-approved parts as well, particularly when the cost of downtime is that much greater in a recessed market.

“The cost in the field from a breakdown isn’t worth it, and more and more operators are coming to this conclusion,” he reveals. “We are actually starting to see a return of market share that we originally lost to cheaper opposition. Operators are returning to names they know and trust.”

Assuming that operators are more concerned with maintaining their vehicles than ever before, firstly because they need their trucks to be as efficient as possible, and secondly because they need them to be on the road for longer, is the OEM-approved parts and components industry doing better than ever before?

Unfortunately, the situation is not so simple. As we have seen, Naamsa reported low industry volumes and financial stress.

“We have not yet seen a growth in sales figures to support the argument that the parts industry should boom during this period,” says Silcock, “but there are indications that we might be moving towards an increase in sales.

“Many small parts distributors who jumped on the bandwagon and began importing cheaper parts from the East have fallen way, mainly because smaller importers cannot afford to sit on containers while sales are slow. The larger, established companies are more stable, so we have a better chance of surviving the downturn.

“In addition to that, many operators are either turning back to OEM-approved parts or determined to continue using high-quality parts and components for the reasons we’ve already discussed.

“However, and this is where our market is getting a knock, many operators are parking vehicles in their fleets. Our market has seen a 20% drop in sales simply because there has been a drop in vehicle sales and trucks that are actually on the road.

“In addition, excess trailers – and trailers are our biggest market at Wabco – are being stripped for parts to keep trailers in use on the road. With trucks and trailers being parked anyway, it’s cheaper for an operator to cannibalise one of his other trailers and replace it later when times are better, than park it and buy new parts for the trailers still in operation.”

All in all, the parts and components market is as fallible as the vehicle manufacturing market during such volatile economic times. However, with manufacturers continuing to stress the importance of OEM-approved parts, and local distributors and parts manufacturers continuing to maintain standards and battle the storm, the industry should hopefully see an upturn in the not-too-distant future.