EXCLUSIVE: Q&A with Delphi on its diesel aftermarket business
Delphi Product & Service Solutions offers vehicle electronics, consumer electronics, service technologies and diesel products in Europe, North America, South America and Asia-Pacific. Last month, Matthew Beecham talked to Frank A Ordoñez, President, Product & Service Solutions, Delphi Corp and Mike Rayne, Managing Director, Diesel Aftermarket, Delphi Diesel Systems Ltd, about how Delphi’s aftermarket business has developed over the past few years and extended its reach into new geographic markets.
just-auto: Delphi entered the aftermarket in Europe and then North America. What were the considerations in establishing a presence in each region?
Frank A Ordoñez: Delphi has been established in the automotive industry for over 100 years. For about 60 years of that last century, we have participated directly in the automotive aftermarket through legacy brands such as ACD Spark Plugs, Saginaw Steering Systems and Harrison Radiators.
In the mid-1960s, GM made a strategic decision to consolidate all of the aftermarket activities and move them to what is now known as General Motors Service Parts Operations. So at that point, Delphi lost its identity in the aftermarket and became exclusively an OE manufacturer. At the time of Delphi becoming an independent company in 1999, GM’s board decided that Delphi needed a complete business model. As a result, we started an aftermarket operation.
Yet the separation agreement between Delphi and GM prevented us from starting operations in North America until 2001. In the meantime, we established a key division in Europe, acquiring Lucas Diesel Systems from TRW and AP Lockheed, also based in the UK.
just-auto: How does Delphi’s diesel business fit in within its OE and aftermarket operations?
Frank A Ordoñez: We bought Lucas’ diesel business, as we needed to get into the diesel business. In fact, this was a spectacular acquisition enabling us not just to enter the diesel aftermarket but the OE side, too. To be a complete supplier to our customers, we needed to have both sectors. Mike Rayne and his team have since taught us a lot about the aftermarket.
Today, the diesel value proposition is very compelling. We now have 4,500 service centres around the world, of which 1,200 are based in Europe. That is growing by leaps and bounds as the common rail gets into the aftermarket. So with Mike's vision and the help of our European team we are in the throes of expanding our service centres to support everything that Delphi does and not just limit it to diesel.
We also acquired AP Lockheed in the UK. They have also shown us a lot of valuable processes, teaching us the strategy to participate in the European aftermarket.
just-auto: How did you start aftermarket operations in the US?
Frank A Ordoñez: In the US, we tried very hard to do an acquisition although never really succeeded. So we had to start from scratch and used our newly-acquired European expertise to help us establish an aftermarket operation.
just-auto: And in South America?
Frank A Ordoñez: We started from scratch there, too. It has grown very well. Yet the synergy of being able to sell product directly from Europe into South American market is an urban myth. The vehicle specifications are not the same.
just-auto: Yet the aftermarket is global...
Frank A Ordoñez: You better believe it’s a global business. Our chassis and friction aftermarket operates out of Europe. That is where the engineers in that area are based and where our knowledge of the market is. In US, we are running vehicle electronics. Again, that is where the engineers in that area are based and where our knowledge of the market is.
We control the product line centrally and execute locally in every region of the world. For example, if our South American business wants to get into the brake systems then they can talk with our global chassis product line manager. Using his knowledge of the industry and contacts, he will help them develop a brakes product line. That is what I mean by a global business.
just-auto: What are your aspirations in China?
Mike Rayne: We are going to put 500 distributors in China. The second largest market in the world is Korea which has 30% dieselisation and following a similar path to that seen in Europe. We have already got full distribution capability in Korea.
Frank A Ordoñez: We have also got a network developing in India, Australia, Central and South America, Mexico, etc. In South America, we have a big push on gasoline engines with over 80 franchises established in São Paulo area. We are planning to mix them with the diesel franchises. As you know, Bosch runs their service centres around the world. Mike has identified that as a strategic initiative for us in that we have to get more franchises around the world. We want to bring up those franchises to the level whereby when a customer walks into the shop he should get the feeling that it matches the quality of a franchise dealership and that the quality of service will be comparable. That is what we have got to do.
just-auto: And in Eastern Europe?
Mike Rayne: The Eastern European market is currently at 68 million vehicles, of which 20% of the car parc is diesel. The Czech Republic and Slovakian markets are growing at the same rate as Europe overall. We are also seeing the migration of 6 – 8 year old cars from Western Europe into Eastern Europe. So we are actually servicing much of the Western European car parc in Eastern Europe. While China is extremely exciting as a focus for Delphi, Eastern Europe is right there behind it.
just-auto: Looking at the distribution channels in Europe, what are the big changes you are seeing at the moment?
Frank A Ordoñez: We have gone from dealing with 18,000 wholesale distributors to just seven powerful buying groups co-operating on a global basis. So I would say that you will see an even stronger focus on the buying groups. And you are going to see the need to develop the vehicle diagnostic technology which, in turn, requires knowledge and therefore training. These are the big changes
Mike Rayne: At the end of the day, the buying groups must come to terms with that training and the level of investment required. So this is a learning curve.
Frank A Ordoñez: The issue for the groups is that they are being threatened by the original equipment dealers who are acting more like aftermarket businesses. It is a war of customer retention.
just-auto: What is your vision of the European aftermarket in 2010?
Mike Rayne: We are going from parts to integrated systems. For example, let’s look at the exhaust aftertreatment which is now standard on diesel. There, you have two or three areas of the vehicle, any of which fail will automatically shut the vehicle down completely. In order for the repair technician to understand the interrelationship between the engine management system and the exhaust aftertreatment, he must keep up with the game. We spend a lot of time in Europe and the United States helping our distributors recruit young people who have the ability to really understand the technology. A lot of young people these days say they want to work with computers.
But there are more computers under the hood of a car than in most of the professions and trades these young men are going into. In the UK, we have a programme with Kingston University to support young people learning the business. We also operate a training school in Leamington Spa focused on automotive technology. So we are really focused on trying to bring new talent into the industry in order to ensure that the distributors have got people that they are going to need to service tomorrow’s cars.
just-auto: Despite the fact that the greening of diesels cars has come a long way since the early 1980s, changing consumer opinions and perceptions of, dare we say it, ‘dirty diesels’ will take some time, especially in North America?
Frank A Ordoñez: The reason for that is there was a diesel vehicle launched in 1984 in the US that damaged the diesel industry for a long time. It has been hard to change consumers’ perceptions of diesel since then. But now common rail is coming in and North Americans are starting to understand it then people are amazed how quiet these vehicles can be.
Mike Rayne: The challenge is exposure. Because there haven’t been any diesel cars in the US, the market has not been exposed to the advantages of diesel technology. Our diesel technology has come a long way, hitting every environmental legislation requirement worldwide.
Delphi is one of the five largest aftermarket suppliers worldwide, and supplies over US$2 billion of parts annually. Its aftermarket products include vehicle electronics, shock absorbers, air conditioning, diesel, brakes, and steering and suspension. It is also involved in the consumer electronics arena, supplying car radios and DVD players. More specifically, Delphi’s range of diesel aftermarket products include rotary and common rail pumps, pump repair parts, original equipment and all-makes nozzles and remanufactured injectors. Delphi Diesel Aftermarket also offers diesel diagnostic and test equipment.