Automotive to the USA

(Last updated: 22 May 2008)

Trends and opportunities

The market

The move towards global sourcing and systems integration combined with increasing cost and timing pressures, and the AUSFTA, has opened the door for the Australian automotive industry.

The AUSFTA which went into effect on 1 January 2005 provides enhanced access to a market of nearly 300 million people and further integrates Australia's economy with the US. Economic analysis suggests the AUSFTA will result in a boost to the Australian economy of over A$6 billion a year, one decade after coming into force, and create more than 30,000 additional Australian jobs. The potential opportunities to increase the current A$750 million worth of automotive exports to the US market are huge.

The automotive aftermarket industry is made up of replacement parts, specialty products (accessories, performance and racing products), equipment, and services. Due to a well-established and mature automotive parts and accessories industry in Australia, excellent opportunities exist for Australian automotive suppliers in America in these areas, as well as parts and services for Asian platforms. Companies with products and services that are innovative and price competitive have the greatest potential in the market.

The North American automotive aftermarket consists of more than 2500 suppliers. It is the largest in the world, generating revenue of US$270 billion per year. It is comprised of four major segments:

1. replacement parts
2. services and maintenance
3. equipment
4. specialty equipment (racing and performance accessories)

There is a push for the automotive industry to use e-commerce for the quoting and sourcing of new business. Many automotive companies have developed websites for marketing their products online B2C and B2B. Additionally e-hubs or sourcing portals are being developed whereby entire groupings of automotive aftermarket companies can be found competing for medium to large orders.

Examples of these sites include www.autocentral.com and www.teccom-eu.net (European focus but worthwhile exploring). A useful website for automotive e-business information is www.eyeforauto.com.

Opportunities

Under AUSFTA, the US has reduced its average tariff on motor vehicles by approximately 2.4 per cent, and 97% of automotive products are now free of any tariffs.  Any increase in Australian motor vehicle exports will increase demand for Australian component manufacturers. Direct vehicle exports, particularly of the 'utes', category hold particular promise with the elimination of the 25 per cent US 'truck tariff'.

As US motor vehicle manufacturers incorporate a resurgent level of rear-wheel and more 'all-wheel' drive-trains, Australian experience will provide a competitive edge in the export of complete systems and associated technologies and components.

Alternative fuel technologies and products, particularly for the hybrids which combine traditional and alternate fuel power-plants, will be in increasing demand. Hydrogen fuel cell development will play an increasingly prominent role in advanced product design.

The recent changes brought about by the rationalisation and globalisation of the US automotive industries also offer a number of unique ground level opportunities for export-ready, committed Australian automotive aftermarket suppliers. Movements to shorten and simplify the distribution chain are opening up more opportunities for e-commerce, direct sales, and importation by distributors. Additionally, original equipment manufacturers (OEMs) are getting out of the parts manufacturing business and are tasking tier one and tier two companies to provide sub-assemblies and modules. This opens the market for supply to the OEM of subsequent replacement parts through the USA tier one, tier two and even tier three supplier chains.

The performance, racing, and accessories segments have shown the greatest growth in the American automotive aftermarket sector and are forecast to remain strong in the future. Products for the compact performance car market show the strongest growth in the USA. There is a strong trend toward greater cooperation between the automotive aftermarket industry and the OEMs to incorporate more aftermarket products into their original equipment products.

Automotive components, assemblies and systems have the best export potential.  Australia has sophisticated production capacity in areas such as:

• engines
• panels
• braking and clutch systems
• suspension systems
• exhausts
• transmissions and rear axles
• air conditioning
• vehicle instrumentation and electronics
• lighting
• mirrors and wheels

The Australian magnesium and aluminium raw material suppliers have an opportunity to grow their business in North America through OEM vehicle applications requiring light metal alloys (eg. power-train [engine and transmission] body and chassis component areas). Furthermore, lightweight composite materials and the manufacturing technologies associated with them will create additional opportunities for the Australian supply base as increasingly stringent CAFÉ standards will provide increased impetus to weight reduction strategies. Australian component manufacturers and tooling companies can join in this growth by adopting technologies that emerge from light metals research and development.

Australian component manufacturers and tooling companies can join in this growth by adopting technologies that emerge from light metals research and development and target the rapidly developing fuel-efficient and hybrid section of the market.

Competitive environment

Increased competition in the local market has prompted Australian automotive producers to look for export opportunities to sustain and grow their businesses. Ongoing productivity, quality improvement and government assistance programs, have all contributed to substantial export growth. Exports now account for more than 30 per cent of automotive production compared to less than 10 per cent a decade ago.

Tariffs, regulations and customs

As a result of the AUSFTA, all tariffs on automobiles and parts have been eliminated including the 25 per cent tariff on light commercial vehicles.  Although the US tariffs are relatively small, their elimination will enhance our competitive position in this very price-conscious industry.

Another provision of the AUSFTA regarding government procurement of automotive products and services will position Australian suppliers on an equal footing with their US counterparts in the bidding process. As a final intangible, the AUSFTA raises the profile of Australian suppliers in this highly specialised and competitive market.

All packaging and labelling must conform to all USA standards and regulations and there are customs requirements for all imported goods. When tariffs are involved binding rulings can be obtained by contacting the Binding Ruling Clerk, US Customs.

Industry standards

Compliance with automotive regulatory standards vary by country, however the main standards in the USA are QS-9000, ISO/TS 16949, SAE, ANSI.

There are a number of industry standards required by automotive aftermarket companies depending on the specific product and its purpose. These can include standards from:

• The American National Standards Institute
• Society of Automotive Engineers
• Underwriters Laboratories
• Department of Transportation
• Environmental Protection Agency
• Federal Communications Commission
• The Consumer Product Safety Commission  
• Occupational Safety and Health Administration

Marketing your products and services

Market entry

Market entry should be individualised based on an evaluation of the company and commodity. You need to visit the market regularly and attend the relevant trade shows both as a spectator and as an exhibitor.

Typically your market entry strategy will require a solid business and marketing plan, which includes a local presence plus warehousing, etc. It is advisable to visit the market prior to finalising your plan.

There are a variety of potential market entry strategies that can vary according to the product and service, incorporating such elements as:

• regulatory
• pricing
• competition
• positioning
• strengths, weaknesses, opportunities, threats (SWOT)
• promotion
• after-sales service

A market analysis must be undertaken to determine initially if the company’s product or service is suitable for export to the USA. Once the market analysis has been completed, then an individual marketing strategy can be developed and implemented. A personalised approach works best. American companies like to be able to meet and deal on a face-to-face basis initially.

Protection of intellectual property and mitigating product liability risk are of paramount importance, and these steps are elemental to a sustainable market approach.

Australian automotive aftermarket manufacturers can take advantage of the multitude of niche opportunities that exist in the lucrative American automotive aftermarket if they have:

• an innovative product
• competitive pricing
• aggressive marketing
• adequate production capabilities

Australian automotive aftermarket companies can also leverage their ability in producing ‘short-runs’ – production runs of a limited number of a product which might be considered unprofitable to a larger, less-efficient US or Canadian firm.

Continued consolidation and increasing global competition are forecast for the automotive parts industry. The future prospects for large domestic producers are likely to depend on their ability to obtain contracts with Japanese transplant manufacturers. For smaller second and third tier suppliers, the key is likely to be establishing strong relationships with primary suppliers.

Distribution channels

Distribution direct to the purchaser in the US is still difficult. Generally the use of sales agents and representatives are preferred by the customer as they will have an established 'track record' with the buyer. Joint ventures and strategic alliances can be an effective approach. In all cases channel integration analysis provides a sound 'go-to-market' strategy.

The distribution channels in the North American automotive aftermarket industry can vary according to product and segment. These channels can include:

• utilising the services of a manufacturer's agent or representative
• a local distributor
• direct sales
• joint venture
• manufacturing under license
• franchising
• online sales

Links and industry contacts

Automotive-­related resources

Detroit Regional Chamber - www.detroitchamber.com
National Automobile Dealers Association - www.nada.org
Society of Automotive Engineers (SAE) - www.sae.org

Automotive aftermarket

Specialty Equipment Market Association (SEMA) - www.sema.org
1575 South Valley Vista Drive
PO Box 4910
Diamond Bar, CA 91765-0910
Tel: 909 396 0289
Fax: 909 860 0184

Motor and Equipment Manufacturers Association - www.mema.org
10 Laboratory Drive
Research Triangle Park, NC 27709-3966
Tel: 919 549 4800
Fax: 919 549 4824

Automotive Parts and Accessories Association (APAA)
4600 East-west Highway #300
Bethesda, MD 20814-3415
Tel: 301 654 6664
Fax: 301 654 3299

Automotive Parts Rebuilders Association (APRA)
Tel: 703 968 2772

Automotive Service Association (ASA)
PO Box 929
Bedford, TX 76095-0929
Tel: 817 283 6205
Fax: 817 685 0225

Automotive Service Industry Association (ASIA)
25 Northwest Point
Elk Grove Village, IL 60007-1035
Tel: 708 228 1310
Fax: 708 228 1510

Automatic Transmission Service Group
Tel: 305 670 4161

Automotive Warehouse Distributors Association
9140 Ward Parkway
Kansas City, MO 64114
Tel: 201 763 0086

Government, business and trade resources for the USA

American National Standards Institute - www.ansi.org
Environmental Protection Agency - www.epa.gov
National Highway Traffic Safety Administration - www.nhtsa.dot.gov
US Consumer Product Safety Commission - www.cpsc.gov
US Department of Labour - www.osha.gov
US Patent and Trademark Office - www.uspto.gov

Service providers

AutoAll.com - www.autoall.com
CARQUEST auto parts - www.carquest.com
NAPAonline.com - www.napaonline.com

Media

Automotive Industries Magazine - www.ai-online.com
The AutoLink - www.theautolink.com
Automotive News - www.autonews.com
The Detroit News - www.detnews.com
Automotive Industries - www.ai-online.com
Smothers Parts International - www.carpart.com