Finding your niche
- August 26, 2012
YOUR BUSINESS | Automotive
by Tim Wilson
For Alec’s Automotive Machine Shop in Vancouver, BC, staying relevant means being able to change with the times. The family-owned business has been rebuilding engines since 1948, and is now on its third generation.
“Twenty years ago our business was booming, but now it is a niche market,” says Rob Borden, owner and manager of Alec’s. “Back then a car could retain its value. Now paying $3,000 to rebuild the engine on an old Honda Civic isn’t worth it.”
To survive, Borden has focussed 50 per cent of his business on classic automotive as well as fleet and marine engine rebuilds–those investments are worth putting money back into. The other 50 per cent is devoted to specialty tooling for dealers.
“We are not auto service technicians,” he says. “This isn’t automotive repair. This is specialty tooling.”
At Alec’s, all of the tooling is specific to the job. These include valve refacers, hard seat grinding sets, cylindrical surface mills using stones and carbide cutters, as well as inserts for such things as rod honing.
“We don’t use lathes or do general-purpose milling, and you can’t use a generic cutter. Instead, we are very focused on things like pneumatics with carbide inserts for cylinder headwork, or machining specifically for boring a cylinder,” says Borden.
He relies on only one or two suppliers and very specific machine vendors like Sunnen and Sioux Equipment. He can’t go with a generalized solution.
“Most of the machine manufacturers [of these specialized machines] make their own tools,” he says. “This makes it difficult for us; if the tooling was more universal, with more suppliers, it could drive costs down.”
Driving the Little Guys
Technological innovation can spell opportunity for small players.
Today’s auto sector is different: more cost-competitive, and with a trend toward increasingly sophisticated technologies. Is there room for the little guys?
“Some smaller shops with specialized expertise may still be able to participate at a lower tier level,” says Dr. Peter Frise at AUTO21. “Instead of selling vehicle parts directly to automakers, they might be able to supply production equipment and/or similar services.”
However, Dr. Frise says that the technological challenges are “significant”. Like any business, the auto industry is open, but there are still barriers to entry and substantial on-going challenges to remaining competitive.
“In particular, companies wishing to be Tier One suppliers must demonstrate that they can meet production requirements for both quantity and quality immediately upon award of the contract,” says Dr. Frise. “For a small shop, that may be very challenging because of the quantities involved–it could be thousands of pieces per day.”
The other more difficult issue is geographic reach. The auto sector is global in its operations, and the automakers want their suppliers to be global as well.
“They don’t want to purchase a given component from one company in one location and from a different company in another location,” says Dr. Frise.
The automakers also often want their suppliers to be near their assembly plants. Consequently, the supplier companies must be global themselves, rather than simply demonstrate a willingness to ship their products around the world.
“In general, automakers are trying to rationalize and simplify their supply chains and that means that they want to deal with fewer, larger global suppliers,” says Dr. Frise. “That works against the involvement of smaller companies who only have a local presence in one market.”
There are also capitalization challenges.
“A large number of auto parts companies and even several automakers have experienced significant difficulty in securing working capital in recent years,” says Dr. Frise. “For a smaller player trying to enter the industry, I could see even tougher problems of this type.”
But there is good news, too: advances in tooling, machining, and software mean that smaller players can compete on a cost basis with bigger competitors, while also pumping out larger part volumes. SMT
Tim Wilson is a contributing editor based in Peterborough, ON.