SIC 3694 Electrical Equipment for Internal Combustion Engines
SIC 3694
This classification covers establishments primarily engaged in manufacturing electrical equipment for internal combustion engines. Important products of this industry include armatures, starting motors, alternators, and generators for automobiles and aircraft, and ignition apparatus for internal combustion engines, including spark plugs, magnetos, coils, and distributors.
336322
Other Motor Vehicle Electrical and Electronic Equipment Manufacturing
The electrical equipment market for internal combustion engines is divided into two categories: original equipment manufacturers (OEMs) and aftermarket. The OEM market consists of companies that produce engines or engine parts for placement in new vehicles. The aftermarket segment targets consumers, often do-it-yourselfers, who buy replacement parts for an existing engine. In 2003 the vehicle electrical and electronic equipment industry generated $17.5 billion in sales, down slightly from $17.7 billion in 2002. Overall, the auto supply industry faced serious challenges in the mid-2000s, caused by extreme price pressures, overseas competition, and overcapacity. The two largest U.S. parts makers, Delphi and Visteon, were struggling to show a profit, and many smaller manufacturers either folded or were swallowed up the conglomerates.
Electronic parts and components met increasing consumer demand for safety, environmental, and convenience features. As electronic engine controls increased in sophistication, the dollar-value content of these systems in new vehicles continued to rise. However, profit margins remained extremely thin as auto manufacturers took advantage of oversupply and an abundance of suppliers to push for depressed pricing. As a result of the challenging marketplace, major industry consolidation, which began in the 1990s, continued during the 2000s. By the middle of the 2000s, U.S. auto parts manufacturers were also facing increasing competition from overseas manufacturers, particularly in Asia.
The automotive electronics industry can essentially be divided into two parts: original equipment manufacturing (OEM) and the automotive aftermarket. OEM manufacturing is for new autos; the aftermarket is for used ones. In both segments, the manufacturers comprise the components groups or affiliates of the large automakers, and independent parts makers, which themselves may be divisions of much larger industrial entities.
The application of electronic systems into automobiles evolved to increasing levels of sophistication since commercial production of the automobile began in the early twentieth century. The first electric starter appeared on a 1912 model and, by the 1930s, six-volt electrical systems were standard. Electrical requirements grew as engines became larger and additional features—for example, radios and multi-speed windshield wipers—were added. By the late 1950s, 12-volt systems had replaced 6-volt systems as a requirement. In the 1970s, electrical, or transistorized, ignition systems, which required less maintenance and were more reliable than mechanical breaker-point systems, were introduced.
The OEM parts industry entered a depression cycle in 1989, but revived in 1992 and continued strong into the mid-1990s. Tremendous financial pressure assailed the Big Three automakers during the early 1990s and caused them to rethink their business practices. They gave their top suppliers greater responsibility for design and engineering in the process. In return for taking on these greater burdens, suppliers received long-range contracts—often for the life of a car model rather than for one to three years, as was formerly the common practice. According to one estimate, the number of auto parts makers in the United States fell from 3,000 to 2,000 during the years from 1983 to 1992. Yet the Big Three sought additional reduction in the proportion of auto parts that they manufactured themselves. In order to reduce further the number of suppliers they dealt with, automakers began awarding contracts for entire components or subassemblies to so-called Tier 1 suppliers. In 1994 General Motors spun off Delco Remy, its automotive engine parts subsidiary, to a group of investors headed by a former auto executive. Also in 1994, Chrysler sold a large portion of its Acustar parts-making subsidiary to Yamazaki of Japan, including eight plants in Mexico that made electrical wiring systems for cars and trucks.
As a result of this general restructuring of the auto sector, which occurred in the 1990s, the Big Three automakers—Ford, Chrysler, and General Motors—cut the number of suppliers they dealt with and concentrated their business on a select group of component manufacturers. Consolidation among the parts industry ensued. The Big Three also shed their noncore parts operations and purchased more parts assemblies from outside vendors, thereby avoiding the overhead costs for plant operations and materials necessary for in-house manufacture and assembly. There also was a movement toward standardization of parts across disparate car model lines, which presented the opportunity for parts manufacturers to diversify into design work in order to develop universal parts.
The aftermarket segment of the electrical auto parts business, devoted to replacement parts for used automobiles, presented a mixed picture as car owners kept their vehicles longer. The average age of cars on the road escalated to 8.9 years by the end of the 1990s, compared with 7.4 years in 1986, a circumstance that boosted sales of replacement parts. Some of the increase was offset, however, by the development of longer-lasting and better-made parts, which in turn decreased the need for replacements. Other offsets occurred due to the significant percentage of imported vehicles, since the share of the business for foreign vehicles remained relatively small. Additionally, the do-it-yourself (DIY) segment was tempered by consumer wariness of doing any work on the increasingly sophisticated electrical systems in new vehicles. In the face of these negatives, sales of items like spark plugs held up remarkably well throughout the mid-2000s. A push for increasingly tougher auto emission regulations and the resultant equipment necessary for compliance also augured well for the future.
Growth in demand for engine and drive-train electronics increased further in response to the mandates of the Clean Air Act. Other factors being equal, older cars—especially those with more than 100,000 miles—pollute more than new vehicles because exhaust gases become dirtier as spark timing and other factors begin to vary. Environmental regulations requiring ignition designers to build more efficient combustion systems led engineers...
To continue reading
Request your trial