A greener energy plan?

Though not yet introduced before Congress, President Obama’s Energy Plan has the potential to plant seeds of change in the aftermarket, ones which may grow into lush opportunity for industry members.
Fuel efficiency requirements, reductions on foreign oil dependencies and more efficient and environmental business practices and technologies are just a small taste of the changes sought in the President’s Energy Plan.
Obama’s renewed focus on energy and environmental concerns may be a respite from the Bush administration’s agenda regarding greener initiatives. The current President’s plan is a strongly redirected effort compared to how some have categorized the past eight years — an almost indifference to growing global warming, pollution and oil usage concerns.
But riddled with strict, progressive and seemingly expensive demands for OEMs — most already facing financial uncertainty — the plan’s enactment will put in motion a ripple effect of change that will eventually hit the aftermarket. And though concerns and drawbacks exist — including new inventory challenges — the proposal may in fact serve as a much needed industry sales and sophistication boost.
“The plan will require OEMs to produce significantly more advanced vehicles, which would slightly hurt the do-it-yourself (DIY) segment of the aftermarket and benefit the do-it-for-me (DIFM) segment. Realistically, the average person can’t work on their own cars now, save simple maintenance procedures, because cars are already very complex,” says Andy Sutton with Standard Auto Parts, Baltimore, MD. “Producing more complex vehicles would transform a portion of the DIY segment into the DIFM segment. Theoretically, that should increase perceived value and enable DIFM providers to raise their prices.”
The engineering improvements and vehicle technology enhancements needed to meet the stricter environmental requirements will also improve the sophistication of the industry, says Skip Potter, executive director and CEO of the Chesapeake Automotive Business Association.
“We are moving from a blue-collar industry to a white-collar industry. Technology has changed our need for mechanics to a need for technicians,” he says. “The pressure for business growth on slimmer margins is forcing seat-of-the-pants management aside and replacing success with much more sophisticated styles at all levels of management from store manager to owner.”
The plan will certainly challenge aftermarket companies, but also offer an opportunity for continued industry advancement and improvement, says Jay Burkhart, senior vice president, Global Aftermarket, with manufacturer Federal-Mogul Corp.
The plan will mean “more distribution complexity and ultimately translate into additional electronics. The aftermarket has experienced significant growth during periods of increased distribution complexity — distributors, jobbers and service providers specialize in offering the right parts and services at the right place and time,” he says. “If you look back in history, it has been during periods of significant technological change that the industry has established and grown its share of the service and repair market.”
“The introduction of new technologies creates opportunities for the aftermarket. The transition to more fuel-efficient vehicle configurations could represent another change opportunity for progressive business owners who have made the necessary provisions and investments. The aftermarket companies who are successful will invest in the research necessary to develop viable product line options for customers who have these higher technology vehicles," Burkhart says.
Impact and change will be felt differently in each segment of the industry, but working together as a cohesive unit is necessary for future success, Potter concludes.
“We are all in this together, interconnected as competitors, customers and suppliers,” he says.
The PlanThe greatest American challenge is finding energy independence, not only for the sake of national security, but to ensure the stability of our planet and economy, Obama says.
To get there, he proposes an elaborate, demanding and extremely fast-tracked plan for change that will require immediate action from the automotive industry, among others. The plan is expected to be introduced before summer, but no official legislation has yet hit the Congressional floor. But he is already making more progress than any American president since Carter by positioning energy as a focal issue in his domestic policy plans.
The initiative will put millions into gaining national energy independence, accelerating low-carbon technology efforts, supporting green career opportunities and reducing the vehicle carbon footprint, according to the Obama/Biden Web site, www.mybarackobama.com.
OEMs will have to increase fuel economy standards by 4 percent each year, boost hybrid and electric car saturation in the market to 50 percent of the country’s fleet by 2012, and follow a to-be-developed National Low Carbon Fuel Standard that will require suppliers to reduce the carbon in their fuel by 10 percent in 10 years, according to the site.
New vehicles must be able to run on flexible fuel options, and $4 billion in tax credits will be awarded for the creation of fuel-efficient cars.
But is the automotive industry, or more applicably, the aftermarket, equipped to handle such change? Difficulty is expected, but the plan is feasible, Burkhart says.
“Automotive technology has a history of being driven by both legislation and customer needs. Fuel economy mandates and customer requirements are in sync here. The technologies are and will be introduced, in spite of the present economic environment,” he says. “The capital requirements facing service providers will certainly be a challenge, but the industry has addressed similar challenges in the past.”
Distribution difficulties The parts complexity to come in the future will pose a heightened inventory challenge for resellers who are already scaling back because of economic constraints.
“Newer technologies would probably require more part numbers, but recently newer technologies have meant relatively small, high value parts. Shelf space probably won’t be significantly impacted, but distributors can expect to have more money tied up in inventory,” Sutton says.
Major changes may be just two years away – when distributors will need to begin stocking updated lines for new vehicles coming off of warranty, he says.
“The development of viable aftermarket product lines depends on the ability to commonize the multiple OE technologies in the market. The number of OEMs is expanding, and the technology proliferation is occurring in many directions simultaneously,” Burkhart says. “Until the market stabilizes and the best technologies are identified, the aftermarket segment will have to increase its speed to meet the needs of the customer. Nevertheless, the industry has never shied away from this challenge in the past and in fact has benefited from these periods of increased distribution complexity.”
Adapting to the parts lines to come in the future — meaning a major boost in inventory size — will mean more financial commitments from resellers, but also the opportunities for enhanced sales, says Jeff Blocher, Wix Filters brand manager.
“As technology gets more and more sophisticated, our products have to follow. And when this happens, they get more expensive. Technology drives expense into the chain that some folks aren’t used to,” he says.
“It is a good thing in the sense that we’ll have more parts we’ll have to build and put into the marketplace and different applications to cover. But at the same time, we are going to have to gear up to build them. There will be some trade-offs. Is it good? I guess we’ll see in the long run. But this is what we’ll have to do to survive.”
Change and adaptation at the repair shop level will also be needed, as newer vehicle technologies and advancements will pose training and service challenges, says Bob Redding, Washington representative for the Automotive Service Association.
“One could certainly say that there are opportunities if shops assure that their staffs will be trained and have the proper equipment,” he says. “We want to continue working with the OEs to make sure that we have available to us the same types of training as the car dealers and that we can repair these cars.”
The Automotive Aftermarket Industry Association (AAIA) will be keeping a close eye on the bill and is most concerned with a potential vehicle scrappage provision that could be included, says Aaron Lowe, AAIA’s vice president of government affairs. If a “Cash for Clunkers”-type clause finds it way into the plan, it will meet with strong AAIA opposition, Lowe says.
Though the idea has been around for more than two decades, it has always been rejected by Congress, says George Zauflick, vice president of government relations for Cardone Industries. A vehicle scrappage provision “would diminish the availability of affordable transportation and repair parts to the low-income drivers. Clunker programs will pose a significant environmental crisis as millions of scrapped vehicles will be shredded and dumped in land fills,” he says. Also, the program would “compete with good charitable organizations such as Purple Heart and the Salvation Army that rely on used-car donations.”
Encouraging consumers to maintain older vehicles is a better way to go, Zauflik says. “We do support tax credits for motor vehicle owners to help them upgrade, repair or maintain an older vehicle using energy-sensible remanufactured parts,” he says.
AAIA agrees. “We’d like to see vouchers for people who take better care of their cars, especially low- and middle-class people. This will save fuel, lower emissions and would be a more appropriate way of spending money than vehicle scrappage. These things could be valuable to reducing emissions and reducing a vehicle’s carbon footprint.”

Staying afloat Obama’s plan comes at a time when economic hardship has peaked, leaving many companies without the luxury of financial stability, strong research budgets or confidence in taking risks with new product developments.
Though aiming — and expected — to reform the automotive industry and propel it forward, the plan could in fact pull the segment farther back, some industry insiders fear.
“In a changing world, only the strong survive. Change is what creates opportunities and the most intelligent, energetic and best capitalized among us will take advantage of them,” Potter says. “But sure, more companies will go out of business.”
Many are concerned about how manufacturers — many of which are facing dire financial realities — can afford to meet such requirements.
“OEs have a great financial risk to develop the technologies to get to these standards. And it seems there are a lot of costs that they can deal with at this point,” Blocher says. “Unless the government will fund some of the research that goes into these things. Even to borrow it, the credit market is so tight. If the government jumps into it and starts to regulate, you would think there have to be some sort of incentives to be able to get there.”
The need for progressive environmental initiatives is apparent. But as economic stability remains a question mark, is it sensible to put so much focus on green advancements? Sutton thinks so.
“It has to be the top focus of the government. If we look to history, we see that [President Franklin Delano Roosevelt] led the country out of the Great Depression with the New Deal, which included a significant investment in the nation’s infrastructure,” he says. “If a similar investment was made in the development of environmentally friendly technologies, we could create new jobs, help clean and restore the environment and stimulate the economy at the same time. I see environmentally friendly technology as an emerging industry that is growing in a recession, which makes it ripe for investment.”
Those companies willing to make an investment in their own future will remain successful, Sutton says.
“These stipulations have been simmering for the past few years. They won’t cause any companies in our industry to go out of business overnight, but any companies that were to go out of business as a result of these new regulations were not built to last in the first place and would have succumbed over time,” he says.
Despite the challenges posed, Obama’s Energy Plan offers more opportunity than obstacles to the aftermarket.“I think the overall effect on the aftermarket will be positive because of the increased perceived value to the consumer and the ability to command a higher price,” Sutton says. “New technologies breed efficiency, which leads to economic growth.”