Turning cool into cash: Niche vehicles and factory-approved accessories bring profits to automakers and suppliers

Automotive Industries, Feb, 2003 by Craig Fitzgerald

Suppliers of components and assemblies for low-volume niche vehicles will typically be quite different from suppliers of factory-approved accessories.

The accessories supplier has extensive experience designing, manufacturing and distributing product into the aftermarket. These suppliers provide cool, cutting edge, passion-filled products that reach deep into the soul of the car enthusiast Innovative product concepts, cool styling and an ability to make money running low- and mid-volume parts are a few of the core competencies of these suppliers. The business case attracting the aftermarket part specialist centers around the Big 3 becoming an addition distribution channel with large volume (and profit) potential. Aftermarket suppliers typically think in terms of hundreds of units of volume per SKU, while OEMs talk thousands and tens of thousands.

There are hurdles to be jumped over by aftermarket suppliers choosing to enter the factory-approved accessories market Quality systems and practices need to become substantially more robust, procedures need to be formalized and there are various OEM-mandated communications and planning systems to be followed.Decisions from customers come slowly, and there are typically multiple approval steps within OEM bureaucracies. The reward for patient suppliers choosing this path is a distribution channel with huge volume potential, up-market brand repositioning opportunity and increased brand awareness and recognition.

The profile for the niche vehicle supplier of components, assemblies and systems is quite different from the aftermarket supplier. These suppliers are already in the Big 3 supply chain, positioned anywhere from a tier one systems integrator to a third or fourth tier component manufacturer. Mature and capable systems already exist in most functions within the business including revenue acquisition management, quality systems, product planning and execution systems, and program management systems. Suppliers choosing this path will typically be supplying larger "chunks" of the vehicle, and have significant development and design responsibility. These suppliers will typically have significant dollar content per vehicle because they are providing many parts, a module or system.

Flawless program management is the ante into this card game. Timing is nearly always very tight on these programs, the rate of late engineering changes is colossal and the OEM and vehicle integrator (if different) typically are under resourced. Flawless program management is required to perform sufficiently well to be considered for successor programs.

The business objectives for suppliers pursuing low volume niche programs frequently include:

* Capitalizing on the higher margins associated with programs requiring substantial engineering and development capability and capacity

* Leveraging the operational flexibility and excellent productivity achieved by suppliers with extremely mature and lean manufacturing and engineering systems

* Using low-volume programs as a demonstration and qualifications building platform to enable successful bidding on complex, higher volume programs