Consolidation Shifts Bargaining Power from Distributors to Manufacturers

PALO ALTO, Calif.--Nov. 1, 20032, 2003--With Standard Motor Products Inc.'s (SMP) takeover of Dana Corporation's engine management business, bargaining power has shifted more to the side of the manufacturers, putting distributors on the defensive.

The takeover signals manufacturers' greater capacity to set prices and provisions over the short term. The consolidation is expected to catalyze other industry developments, such as distributors seeking alternative sources of supply, which may boost demand in the remanufactured fuel injection aftermarket.

New analysis from Frost & Sullivan (www.transportation.frost.com), North American Fuel Injector Aftermarket, reveals this industry generated revenues totaling $136.1 million in 2002. Total market revenues are expected to reach $195.5 million in 2009.

"The industry consolidation has three major ramifications -- bargaining power now swings toward manufacturers, industry prices may push upwards as the manufacturing supply side becomes more concentrated, and other industry stakeholders will work assiduously to counter SMP's growing influence," states Frost & Sullivan Industry Analyst Christopher Chen.

With growing stock keeping unit (SKU) counts, higher manufacturing investments are required for product design, packaging, and tooling. These rising costs compress margins as the profit per unit declines.

Rapid proliferation of parts also makes it difficult for any single manufacturer to cost effectively produce all the part applications required to be a full-service fuel injector supplier. As a result, participants are compelled to enter co-manufacturing or co-supplying agreements with other manufacturers to offer comprehensive parts coverage.

"Although companies are hesitant about sharing proprietary data, it is in their interest to enter long-term supplier-distributor agreements to reduce inventory costs, increase their mutual capacity to sustain prices, and avoid counter-productive price slashing," notes Chen.

For aftermarket companies that do not aspire to provide full-line coverage, those manufacturers will focus on providing specific engine management applications, such as those for German or Japanese vehicle nameplates. These manufacturers can minimize financial risk by building strong relationships with specialist-oriented distributors and eventually broadening their reach among full-line distributors.

Over the short-term, the increasing consolidation in the aftermarket enables manufacturers to push for higher prices and boost total industry revenues. Whether industry revenue growth can be sustained depends upon various factors. An important issue in this regard is whether distributors succeed in finding economical alternatives to new fuel injectors, and how reliably remanufactured fuel injectors will fill this mandate.

The North American Fuel Injector Aftermarket, a part of the Automotive Aftermarket subscription, offers insights on the industry's evolving competitive structure. It also identifies areas of growth that are grounded in cogent analyses of market drivers, restraints, and forecasts. The report service focuses on light vehicles under 14,000 pounds -- cars and light trucks. Summaries and interviews are available to the press.

Frost & Sullivan, an international growth consultancy, has been supporting clients' expansion for more than four decades. Our market expertise covers a broad spectrum of industries, while our portfolio of advisory competencies includes custom strategic consulting, market intelligence, and management training. Our mission is to forge partnerships with our clients' management teams to deliver market insights and drive growth for them through innovative approaches. Frost & Sullivan's network of consultants and industry experts spans the globe with offices in every major country around the world.

North American Fuel Injector Aftermarket

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Keywords in this release: Fuel injector aftermarket, North American, remanufactured, Standard Motor Products, Inc., SMP, Dana Corporation, full-line distributors, parts proliferation, prices, stock keeping units, industry consolidation, manufacturing costs, inventory management, co-manufacturing, co-supplying agreements, research, information, market, trends, technology, service, forecast