Suppliers, What Will You Do, If Detroit’s Big 3 Go Under?

How about selling the same products that you currently make, to new markets and new customers.

US automotive parts suppliers to the Big 3 have seen their revenues shrinking for years now. Some have developed relationships with Transplants and New Domestics. If you have, you have probably discovered that even with these new customers your margins are not what you would like them to be.

I am going to share some ideas on how to generate new revenues near term, because there are customers out there who are looking for you and their business is booming.

The automotive industry has long been an attractive customer due to its sheer volume. But it is a tough business to make a profit in due to the unique demands of the industry (JIT inventories, freight, packaging, year to year cost downs, etc.).

Another industry factor is the long period (2-3 years) from design win to start of production, on a new program and then there is no guarantee that the program will launch on time or at all.

If you want to provide a quotation you are required to provide a “Cost Break Down” as your response to an RFQ. You provide all of your costs, material machine rates, labor rates, outside purchases, overhead, SG&A and margin, etc. on their form. Your competitors provide this same information and it is all plugged into your customer’s database.

Forget about the marketing 101 principal that says a product’s selling price is not based upon product cost, but the products value. Your selling price is dictated to you by the customer and then you are expected to provide cost downs or productivity improvements over future year’s volumes.
So what can you do?

Implement a new marketing strategy, called Diversification!

Sell the same types of products that you currently make, to new markets and new customers. Find and develop new customers who are easier and friendlier to do business with. Win new customers who have short design to production cycles, (lower volume, yes, but higher margins).

Selling present products to new markets / new customers is not new or novel, but a good number of automotive parts suppliers do not know how to go about this. So here are some ideas.

Here is an example of market diversification which I am currently involved in so I will refer to this client company as company X. Company X is an automotive parts supplier who manufactures hypoid bevel gears, differential bevel gears, ring gears and worm gears. Their high quality products go into axle, steering, transmissions and engine applications.
Through a proven process, we discovered the following potential, new markets / customer for their products:

o Snow removal, lawn and garden equipment
o Recreational vehicles, (ATV’s, snowmobiles, jet-ski’s, motorcycles, golf carts).
o Health & Fitness equipment (hospital beds, X-Ray equipment, electric wheel chairs, fitness equipment, stair lifts, handicap assist products).
o Specialty vehicles, (utility, fire & rescue, off road vehicles)
o Marine engines, I/O drives, outboard motors
o Commercial and agricultural equipment

So how do you get there?

Start with a self assessment, what is it that you really make (it’s not auto parts). At Company X we realized that they do not sell to an industry; they sell to a subset of industry called automotive. They realized that they make precision gears and that automotive was just one market niche for their products. Build a profile of your ideal customer. Identify your core competencies. You already have a customer database so you know who your best customers are. Ask yourself, why are these your best customers? What is it that I do really well? This analysis will provide you with information that will help you identify potential new markets for your products.

You can find new customers by using the North American Industry Classification System (NAICS) codes or you can use the older Standard Industrial Classification (SIC codes). This will allow you to drill down into customer groupings or market niches, which use your products or services. Next you need contact these potential customers. This is where your sales & marketing team goes to work. They will need to develop a plan to penetrate these new market niches and customers.

I like outsourcing the identification and lead generation to an agency who provides qualified leads for the sales team to follow up on and then aggressively pursue those leads.

One of the most important methods to reach out to new customers is through the web. Make sure that you website has the right content and usability to reach your new customers and that it is searchable to their needs. Having the right key words, specific to those new customers are critical. This can be outsourced if you do not have the skill set.

Some of today’s hottest markets to diversify into are:

o Wind Energy
o Aerospace Manufacturing
o Defense and Government Contracts
o Medical equipment

Also check with you state for financial help to diversify. Here in Michigan companies can attend a monthly summit meeting and complete a comprehensive questionnaire. Those who demonstrate the potential to diversify can receive a $10,000 matching grant from the state’s Economic Development Job Training program to assist in their diversification process.

YOU CAN DO IT, DO IT NOW.

IT’S SURVIVALTIME – DIVERSIFY!

You can win new business with sustainable revenues, build new customer relationships and achieve sustained growth. Most important, you will survive this storm and if the Big 3 survives, you will be healthy and ready to deal with them from a position of strength. You are no longer captive or dependent on one market niche or customer.