Geographic expansion is key to starter, alternator growth

The starter and alternator aftermarket in the U.S. is in a continued state of decline. This situation is brought about by a low replacement rate, driven by increasing OE quality, reduced vehicle-miles driven, and reduced consumer maintenance expenditure. Because of these factors, the U.S. market is expected to decline at a CAGR of 0.2% through 2019, with the value in 2019 reduced to approximately $1.2 billion.

To further complicate the situation for manufacturers, the business landscape is shifting. Sales of new starters and alternators are increasing, driven by both the falling prices of new components, thanks to outsourcing, and the rising complexity, and therefore cost, of remanufacturing. In order to gain share in an increasingly competitive market, manufacturers should consider aligning product line and distribution strategies with the market, and consider geographic expansion.

Strategies for driving business in North America should, in the future, revolve around increasing offerings of low-cost new products sourced from overseas. As OE installations shift toward salient-pole (SL) alternators in place of cylindrical-pole (CL) alternators, the complexity, and therefore the time, cost, and required skill of remanufacturing increases, are making new products a more attractive alternative.

Managing raw material cost is also vital to manufacturers of rotating electrical equipment. As raw material costs rise, margins tend to decrease for manufacturers, especially given the already-high costs involved in designing and sourcing components for a wide range of imported vehicles.

Because of the highly price-sensitive nature of the replacement market for these products, manufacturers without a private labeling program in place are in a precarious position. The independent aftermarket handles more than 90 percent of all replacements, due to the typically lower prices in the auto retailer and warehouse distributor channels. Among these channels, private label products are vastly preferred, again as a cost-saving measure by consumers.

Latin America is rapidly emerging as a growth market, due to an average vehicle population growth of 27.2 percent through 2019 and rapidly increasing consumer purchasing power. Of the Latin American countries, Brazil and Mexico emerge as the best opportunities for geographic expansion. These countries have large population centers, expansive vehicle populations, and relatively strong economies.

For starters and alternators specifically, Brazil’s market is expected to grow at a CAGR of 5.21 percent, totaling $563 million in 2017, while Mexico is expected to grow at a CAGR of 4.03 percent, totaling $327 million in 2017. This growth is driven by a 12.2 percent increase in vehicles in operation (VIO) in Mexico and a 34.1 percent increase in VIO in Brazil.

Another advantage common to both of these markets is the relative lack of established distributors or retailers, given the size of the vehicle population. This allows manufacturers to protect margins and sell under national brands. Further, manufacturers can potentially bring manufacturing or remanufacturing operations into these countries as well, lowering production costs as well as transportation complexity into the U.S., while being able to serve the local market at an advantageous price.

Matt Scruggs is a Consultant within Frost & Sullivan’s Automotive & Transportation group. Frost & Sullivan, the Growth Partnership Company, works in collaboration with clients to leverage visionary innovation that addresses the global challenges and related growth opportunities that will make or break today's market participants. For more information on Frost & Sullivan’s Automotive & Transportation research contact Jeannette Garcia, Corporate Communications at [email protected] or 210.477.8427 or visit www.frost.com.

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