Volume 10, Issue 1 - January/February 2008
Industry Explores Possibility
of Manufacturers Entering Aftermarket
by Les Shaver
Dave Burns, co-owner of Ray Sands Glass in Rochester, N.Y., doesn’t like the thought of a world where auto manufacturers dominate the aftermarket. He and his independent auto glass colleagues already have battled insurance companies, networks and even larger national competitors. So, the thought of auto manufacturers trying to tighten their design rights over glass or use other methods to push into the aftermarket frightens Burns.
“Prices will go up,” Burns says. “I don’t see that being very good for the general consumer.” Whether it’s legislation, litigation or design, these automotive producers—many of them hemorrhaging money—have shown a desire to extend their reach and poach some of the aftermarket business. In some areas, their main vehicle to move into the aftermarket is design rights. The fight over design rights revolves around the automobile’s visible spare parts (which includes auto glass). Auto manufacturers are pushing to extend the amount of time their proprietary design of these parts can be protected. During this time, aftermarket manufacturers are not able duplicate these parts.
Today, vehicle manufacturers can legally protect the design of visible spare parts, such as bonnets, bumpers, lights and doors, in a majority of European Union (EU) member states. Manufacturers argue that the design of these parts makes a vital contribution to the identity of cars and its commercial success. At a time when the EU is rightly fighting counterfeit products from other parts of the world, it is inconsistent to allow copying of car parts in the EU itself.
The car industry is in favor of maintaining and, where necessary, reintroducing design right protection of at least 10 years across the EU. Abolishing these rights altogether would harm the automotive industry’s competitiveness, lead to a loss of jobs in Europe and create no consumer benefits.
In no place are these aims more apparent than Europe. There, the European Automobile Manufacturers Association (ACEA) is playing tug of war with the European Parliament Affairs Committee. The vehicle manufacturers want design rights of ten years on car spare parts. The Legal Affairs Committee of the European Parliament has said there’s only limited design patent exception for spare parts intended to restore the original appearance of complex products. In the United States, the Quality Parts Coalition, which represents the interests of the independent parts industry, the repair industry and the insurance industry, is asking Congress to establish a similar repair clause in U.S. design patent law.
Auto glass professionals in the United States, like their counterparts in other aftermarket industries, certainly hope the government holds the line against manufacturer forays into the aftermarket. They’ve seen companies like General Motors (GM) and Ford try to make moves into the retail auto glass business. But so far these car producers haven’t pulled market share away from the retail glass industry. And, that’s had nothing to do with government intervention. Market forces and the ease of duplicating glass products has been the problem. But there’s still concern in the glass business about the motives and reach of manufacturers—regardless of whether it’s well-founded or not.
“They’re looking for more revenue bases. They would like to control the aftermarket,” says one shop owner in the Northeast. “I think they would like to have all of the glass replacement be done in their shops using their glass. They’re looking for work for their parts departments and their service bays. Their ultimate goal would be for you to only get a battery from them, and tires from them and mufflers from them.”
There have been some instances of car manufacturers trying to push into the replacement space. Carlite had a program where Ford dealers provided the glass and they partnered with a retailer to install it. GM cut a deal with PPG in which the glass manufacturer supplies its dealerships with glass.
“That [the PPG deal] started with warranty parts,” says Burns. “Now it’s for all of them [the parts]. GM has an active plan to get dealerships into the glass business.”
If the auto manufacturers can pull in more business, that’s bad news for glass shops. “If they can get market share, since the market is not expanding, it comes at the expense of other people’s share,” says Dave Taylor, chief operating officer of Cindy Rowe Auto Glass in Harrisburg, Pa. “It takes business from them.”
Even without market share, some glass shop owners say they already feel the impact of the auto manufacturers. Usually that influence shows up in price.
“It [OEM glass] used to be priced the same, but now we have to pay a lot more for Carlite and Mopar,” says Clyde Stephens, owner of Visions Glass in Perham, Minn. “We have to pay a lot extra for them.”
The bigger problem is that Stephens doesn’t see insurers paying the premium for these parts. He says Allstate wants a 15- to 20-percent discount and State Farm pays 20 percent. “The way the pricing is going, you can’t afford to be putting in premium parts when the insurance companies won’t pay for it,” he says. More auto manufacturer control over design rights of their glass could mean other things as well. By limiting aftermarket competition, glass became scarce. That makes OEM glass even more valuable (see related sidebar below).
“Glass isn’t like a General Motors fender,” Burns says. “In the glass business, everyone makes everyone else’s parts.”
Just one slight tweak here or there and the design of glass is different. “The design rights are kind of iffy,” says Russ Corsi, a former executive with PPG. “You can make some slight modifications to the design of the glass and it will still work just fine. For example, you can change the overall thickness by .1 mm or you can make the ceramic band slightly wider. Maybe you put a DOT pattern in they didn’t have and you’re no longer using their design. There are ways around that.”
Auto manufacturers know this. So they protect their OEM glass with tooling, not design rights. “OEM car companies put it into the contract that you can’t make replacement glass from their tooling that they paid for,” Corsi says. “They try to control the tooling because any glass that is run off of that tooling you have to pay them a royalty or sell it through their distribution.”
In fact, some glass manufacturers will put in two different sets of tooling for glass that could fit the same opening in a vehicle. One is for the OEM line; the other is for the aftermarket line.
“The only difference is that specs are a little looser for aftermarket,” Corsi says. “You may allow the bend to be off slightly more or there may be contamination type more defects. It’s nothing that affects your ability to put the glass into the vehicle. It’s just a little more liberal on what you accept. In many cases the quality is exactly the same. Sometimes it isn’t, but you have a little bit of leeway so you can still use it.”
Dealers see that there isn’t a large difference between OEM and aftermarket glass either. “Glass for all practical purposes is a generic product,” Taylor says. “Everyone makes glass and no OEM manufacturers make glass that is errorless.”
Car manufacturers could, of course, put language in their contracts prohibiting their glass manufacturers from producing OEM parts. And, there are a lot of OEM manufacturers.
“The car companies have never given exclusivity to a glass company,” Corsi says. “They always split it up. Even on a vehicle, you can find three pieces from three different glass manufacturers. They’re strictly going by price. They’ll go to lowest price.”
But then the glass manufacturers without OEM contracts will still be able to produce it. Even with car manufacturers sometimes using two or three glass manufacturers for an individual car, this kind of contract still wouldn’t make a dent in the aftermarket. Why is that? Places like Yugoslavia, Turkey, Australia, China, Peru, Ecuador, Mexico and, of course, the United States have people that can produce glass. “There are way too many glass suppliers who can copy a part and send it into the aftermarket,” Corsi says. “There’s no way the car companies can tool all of that. It’s physically impossible.”
“They haven’t had a lot of just success just going out and hiring an installer or two and just putting them in a service bay,” Taylor says. “That hasn’t worked for them. They can’t monopolize the market. There are too many market dynamics and laws in place.”
One of those market dynamics is the supply chain. Right now, it doesn’t seem like the manufacturers can efficiently send the glass through the chain. “There’s going to have to be another distribution channel set up,” Burns says. “Ford doesn’t have any distributors. Neither does Chrysler.”
Then there’s the issue of employees. The dealer service departments aren’t really equipped with staffing to do auto glass either. “They’ve tried to train their technicians to do that but that’s not an easy thing to do,” Corsi says. “They can’t afford to pay a glass tech full-time. If they can’t do glass full-time, they have to do other work.”
In the long run, Corsi doesn’t really see dealerships as a threat to take on more glass work. “I don’t see the dealers becoming a competitor,” he says. “It’s just something that’s done so infrequently. Most people don’t go to the dealer unless it’s a warranty job. And even then they don’t always go back to dealership. Glass warranties from dealership is limited to laminate or if there’s a defect. If you break the glass after you drive off the lot, they can’t warranty that.”
Even if dealers did become competitors or they controlled the flow of aftermarket glass glass shop owners predict they’d still face one powerful foe: the insurance industry.
Since shop owners say insurers aren’t really paying enough for premium parts now, imagine how much they’ll drag their feet if prices for those parts go up—and there aren’t really good alternatives out there.
“I don’t think the insurance companies will like that,” Burns says. “Insurance companies and dealerships don’t get along very well.”
If the insurance industry decides to make a stand on glass, they could set the tables for quite a showdown.
“The auto manufacturers have a lot of clout on the hill,” Burns says, referring to Congress. “They keep a lot of people busy and working. But the insurance companies have a lot of clout too.”
“OEM used to mean something,” Stephens says. “It does not mean as much anymore because there’s so much grey area.”
But others scoff at that sentiment. “You can make subtle changes to glass and it’s not that noticeable to the end consumer,” says Dick Morrison, who provides consulting about glass to auto manufacturers and other organizations, like the Society of Automotive Engineers. “But, in reality, some of these changes are short-changing the end consumer.”
Morrison uses a green tinted aftermarket windshield produced by an overseas manufacturer to prove his point. He says this aftermarket windshield probably won’t fit as well as its OEM competitor and its green tint probably won’t protect car occupants from the solar heat.
The European Automobile Manufacturers Association (ACEA) says it has a study from Eurotax Glass to prove the value of OE equipment. The study found that spare parts were, on average, 7.3 percent higher in countries with design protection. The ACEA says that this proves that even when replacement parts are cheaper than their OEM counterparts, the extra money ends up with insurance companies, parts distributors and car repairers.
Morrison makes the same point—one with which many glass shops are sure to find fault.
“If a repair company in the [United States] buys a replacement product, they buy it at a much lower price,” Morrison says. “But when they put it into the market and distribution system, I do not see a reduction in price below the original price. You’re paying the same amount of dollars, but you don’t get the same quality.”
“There were some glass companies using General Motors’ trademark and selling it in aftermarket,” says Russ Corsi, a former executive with PPG. “There are some companies in China using PPG’s and LOF’s trademark. It was really stealing the trademarks as far as counterfeiting. It’s hard to counterfeit [the glass]. It’s basically two pieces and PVB.”
The European Automobile Manufacturers Association (ACEA) does call the problem counterfeiting and still sees it as an issue. “The counterfeiting of automotive products is a major and rapidly growing problem, affecting automotive parts, accessories, packaging— and even entire vehicles,” ACEA says on its website. “The bulk of the problem consists of trademark and design rights infringement with products from other regions—mainly Asia (especially China), the Middle East and South America—but also in southern and Eastern Europe.”
The ACEA sees a lot of problems with counterfeiting. “Counterfeit copies of intellectual and industrial property devalue the original investment, constitute an unfair competitive threat and can, in the case of the automotive industry, also pose safety hazards,” the association says on its site.
If there is a problem with counterfeit glass, Corsi says there are a number of ways auto manufacturers can discover whether it’s legitimate or not. They can measure the stress level, color of the glass and its light transmission to determine who made it.
“American companies have traceability to know what the plant date is,” Corsi says.
The NAGS Question
Bud Oliver, NAGS director of operations, notes that the group has considered this differentiation, but suspects it would create confusion among industry participants.
“There’s already a lot of confusion around [the OEM versus aftermarket issue]—and we think that [pricing them differently] would create more confusion.” he says. “It just doesn’t seem practical.”
Les Shaver is a contributing editor for AGRR magazine.