Technology Shift, CAFE Regulations Influencing Growth of Fuel Pumps in Aftermarket

The fuel pump aftermarket has changed significantly over the last two decades, primarily because of advancement in technology and corporate average fuel economy (CAFE) regulations. The first major transition was in the mid 1990s when there was a shift from mechanical pumps to electric pumps. This was followed by another wave of transition in the mid 2000s, at which time the demand started shifting towards fuel delivery modules.

Fuel delivery modules are integrated and easier to install. The module comprises of an assembly that includes the fuel pump, sender, all the mounting gear, a float rod and others in one piece. Replacement, therefore, involves removal and installation of an entire assembly rather than only the pump.

Over the next five years, unit shipments for fuel pumps (including fuel delivery modules) in the aftermarket are expected to grow at a compound annual growth rate (CAGR) of 4.5 percent from 8.9 million units in 2012 to 11.1 million units in 2017. Similarly revenue is expected to grow at a CAGR of 11.6 percent from $663.8 million in 2012 to $1.15 billion in 2017. Of the total revenue in 2012, fuel delivery modules are estimated to account for nearly 70 percent of the share in North America, while electrical and mechanical pumps account for the remaining 30 percent of the share.

Regulations such as CAFE also play a significant role in influencing demand for fuel pumps. CAFE regulations are resulting in adoption of new fuel technologies at the OE level and hence are impacting the fuel pump aftermarket. One such technology gaining ground at the OE level is gasoline direct injection (GDI). GDI engines inject fuel at a high pressure directly into the combustion chamber that improves cooling of the air/fuel charge within the cylinder. This in turn allows for higher compression ratios and increased thermodynamic efficiency without the onset of combustion knock. The technology requires design changes, as well as an additional high pressure fuel pump.

An active aftermarket for these highly efficient fuel pumps will develop in the long term, because, like most other fuel technologies, GDI impacts new vehicles more than vehicles already in use. Currently about 10 percent of all light-duty vehicles produced have GDI engines, and it is expected that the percentage will increase in the future.

Secondly, GDI components are more rugged and need to be designed so they can handle fuel at significantly higher pressures than indirect injection systems. These are therefore more complex to build and hence more expensive. Also, there is almost a nil failure rate for these pumps. All of these factors result in a declining replacement rate and restricted aftermarket opportunities in terms of unit shipments as well as locations where such pumps can be replaced or repaired if required.

Another challenge in the fuel pump aftermarket is inventory management. This is because a fuel delivery module is much bigger and more expensive than a fuel pump. This requires more storage space and a bigger investment. In addition, with the increase in the number of vehicle models, the stock keeping units (SKUs) of fuel pumps are also likely to increase. This will add to the increasing inventory cost and higher manufacturing expenses in the form of tooling.

Revenue growth is therefore primarily driven by an increase in average prices rather than unit shipments. Manufacturer-level average prices for fuel pumps are expected to increase at a CAGR of 6.9 percent from $74.50 in 2012 to $103.90 in 2017. The main cause for the significant price hike is the shift in demand from fuel pumps to fuel delivery modules. Modules are approximately three times more expensive than pumps.

High manufacturing and inventory cost as well as investment associated with developing a strong distribution network pose barriers to entry in this market. This results in a consolidated market where nearly 90 percent of the revenue is represented by five participants. Other market participants comprise of smaller regional manufacturers and importers.

As both fuel regulations and fuel pump technology continue to evolve and become increasingly complex, suppliers will be evaluated based on reliability, quality, lead time and the price of their parts. In the short and medium term, demand will be driven by older model vehicles. However, over the long term, suppliers will have to change their product portfolio to cater to replacement or repairing highly efficient newer fuel pumps.

Ratika Garg is an industry analyst with Frost & Sullivan’s Automotive & Transportation research group. For more information on Frost & Sullivan’s research, contact Jeannette Garcia, Corporate Communications, at [email protected] or (210) 477-8427. 

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