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Many people believe that the largest global automakers not only manufacture their own vehicles but design and patent all of their components. We think of iconic cars like Chevy’s Corvette Stingray, the Shelby Cobra, and the Ford Mustang as being symbols of Americana. They stand for the strength of our country and of an entire generation. Those of us who were never lucky enough to get behind the wheel of these muscle cars were at least glued to our screens as we watched movie franchises like Fast & Furious bring their power to life under the skilled hands of expert drivers we imagined were our favorite stars.
But what if we told you that when it comes to the automotive industry, things aren’t always as they appear?
The Rise of the Automatic Transmission Aftermarket
Aftermarket parts and modifications have been around since the 1960’s, with the rise of custom cars and racing enthusiasts. Prior to then, replacement parts were all OEM. The problem was that they were priced significantly higher than the manufacturing cost, making repairs prohibitively expensive. The only alternative was to obtain used parts from wrecked vehicles, whose quality was suspect. For example, a consumer had to pay $500 for an OEM replacement fender, compared to only $75 for a non-OEM part.
All markets have competitors, and the automotive market is no different. Independent manufacturers saw an opportunity to fill a void and began to make and sell replacement parts at a significantly lower cost. This forced OEMs to drop the price of their parts by 30%. At the same time, many were encountering issues with quality. Remember when “made in Japan” meant buyer beware? More on that shift in an upcoming blog, but the industry was ripe for disruption.
Transmissions, like other auto components, won’t last forever, and markets demand alternatives, so independent manufacturers began to fill that gap.
OEM Counter Attack
Fearing the encroachment on their territory, OEMs mounted huge public relations campaigns claiming “buyer beware” when it came to aftermarket parts. They advised car owners to stay away, raising concerns about safety and quality. Insurance companies using aftermarket replacement parts felt the wrath of the insured, who claimed they would be harmed.
The Irony
It is quite ironic that most auto manufacturers today actually subcontract a good portion of their parts. Here are a few examples;
- Ford subcontracts door assemblies, suspension stabilizers, steering columns, starter assemblies, sunroofs, instrument panels, running boards, axle assemblies, mufflers, and exhaust systems, and airbags to Canadian, Japanese, Eastern & Western European and South American suppliers.
- GM subcontracts to over 70 suppliers, including spark plugs, instrument panels, trim, and audio systems. It subcontracts to Mitsubishi products for charging and starting, engine management, transmission control, and electric power steering systems. Many of these suppliers are offshore.
- Daimler AG (Mercedes, Chrysler) uses over 100 suppliers, including for shock absorbers and suspension components, interiors, sunroofs, sound insulation, cylinder heads, HVAC actuators, electronic power steering systems, front axel wheel bearings, gas tank heat shields, axle systems, and automatic transmission filter systems. Many of their suppliers are also offshore.
So there you have it, the American big 3 have come full circle to using outside manufacturers as part of their own processes. They, too, endorse the quality and cost savings of outsourced parts. And foreign manufacturers use similar strategies. Cars have become so complex that it simply makes sense to work with component specialists. While OEM manufacturers do not take advantage of the automatic transmission aftermarket, many source their manufacturing needs to countries like China, Taiwan, India or wherever they can find a manufacturer that has the capability and the capacity to supply their needs. Usually these OEMs work closely with factories as far as engineering goes, in order to make sure that the factory is making parts according to OEM specifications.
The “secret sauce” that makes each brand different is the design and the engine performance innovations for which the OEM typically holds patents. The body and certain specialized parts are typically designed and manufactured in-house, and they assemble in their factories, but they no longer manufacture a car from start to finish.
Automotive Aftermarket Size
The automotive aftermarket is a 380 billion-dollar industry in the United States, roughly 2.3% of our GDP. According to McKinsey, “The aftermarket is the part of the automotive industry sector comprising the automotive services and parts businesses. The service business (maintenance and repair of vehicles) generates about 45% of total aftermarket revenues in Europe, while retail and wholesale of vehicle parts make up the remaining around 55%. Together, the two businesses are an important part of the overall automotive industry as they deliver substantial revenue of approximately USD 760 bn globally (2015) or around 20% of total automotive revenues and higher profitability than most of the industry’s other subsectors.” In the United States, online sales of aftermarket accessories have shown year-over-year increases over traditional brick-and-mortar stores.
Some people still have a misconception about automatic transmission aftermarket, and there is a fear about buying parts that aren’t from the original car manufacturers. That’s not to say all manufacturers are created equal, but if you buy aftermarket transmission parts from a reputable manufacturer, you can be confident that not only are they every bit as good as what came with your car, but in fact, they may be the same part that came with your new car only with a different label.