End Uses and End Users of Small Electric Motors

Business Economics, April, 2000 by Michael Deneen, Andrew Gross

In a mature marketplace, such as small electric motors, firms often focus on "market share capture," and we can expect further concentration. Right now, Emerson Electric and General Electric account for twenty-three percent of the U.S. market, with the next five firms taking another twenty-one percent.

Price competition in this industry is intense. The OEMs have great bargaining power and attempt to wrest price concessions from their suppliers. Low-cost foreign producers often attempt commodity-like pricing and have come to dominate large portions of the market. This is especially true for small motors with simpler technology and common materials, e.g. most AC induction motors. In contrast, U.S. firms and other Western firms are dominant for high-tech motors, e.g. those with variable speed drives, permanent magnets, and exotic materials. Small motors range in price from a few dollars for toys and clocks to over $200 per unit for aerospace applications.

Moreover, original equipment manufacturers of cars, appliances, machinery, etc. no longer want to be experts on all the parts going into their goods. Thus, the makers of small motors and motor-controls must offer more than reliable products and services; they must provide technical expertise, improved performance, and "total" solutions (including warranties)--all at prices often set by the QEMs.

Producers of fractional horsepower motors promote their ware by advertising in trade journals, direct mail, appearance at trade shows, catalogs, and now web-sites. But it can take years to build strong relationships with purchasing departments of OEMs; personal rapport, up-to-date products, sharp pricing, and firm delivery dates are a must. The Internet is a powerful new tool and is being increasingly utilized not just by building one's own web-site, but also by being prominently featured in "clearinghouses" and/or selected electronic catalogs of consolidators.

Distribution of small motors is achieved in a variety of ways. National or key accounts are handed directly by the producers' own sales force; smaller accounts via wholesalers, independent distributors, and parts dealers. Since the QEMs themselves are now scattered around the globe, the fractional horsepower motor manufacturers are following their customers and hence seek global distribution.

Industry Structure

The fractional horsepower motor industry is a part of the broad electric motor industry. Many firms make both small and large motors, i.e. those with ratings below and above one horsepower. The fractional and integral motor makers also share numerous characteristics with the industrial machinery sector, such as mature and cyclical markets, as well as competition from foreign-based suppliers.

Toward the end of the 1990s, the top seven producers--Emerson Electric, General Electric, Valeo SA (France), A.O. Smith (which now includes Magnetek), Ametek, and Lear/UT Automotive--accounted for forty-four percent of total U.S. shipments. These firms offer a broad, technically advanced product line, and often target one or more major market segments. We can expect a heightened merger and acquisition policy in the coming years, especially if there is further consolidation among automotive manufacturers. Global presence will be a must for the top tier players as they wish to be near OEM locations.