ONE ON ONE – Arnold Mouw

AMT: Firstly, what is APMEC and what are its aims?       

Arnold Mouw: Good question! I think you know the FAPM (Federation of Automotive Products Manufacturers), was the body representing a great deal of Australian automotive manufacturers. The problem with the FAPM was it was primarily focused on the OEM side of the business. Even with Dayco – we were supplying to Ford and still do today – you would get some grants from the Government under the schemes available. The problem was that volumes got very low, and the FAPM today is in voluntary administration and disbanded to a large extent. So we formed APMEC, and quite a few of our members were members of the FAPM.

One of APMEC’s aims is to support all manufacturers of automotive parts, not just supplying OEMs, but those that make aftermarket components. Companies like Dayco, or Milford Industries, many of these businesses make parts for the aftermarket and several are already exporting overseas. What we’re trying to do as a Council is leave our corporate hats outside and ask: what can we do for the members to help them grow their business? Be it by export, be it locally manufactured parts that are needed. It’s a different model.

At the end of the day, there are around 260 companies belonging to the FAPM that manufacture automotive parts, and lots of opportunity around the world. A lot of these companies are already exporting worldwide, but the Government supports Ford, Toyota and GM with significant subsidies and grants and that doesn’t flow down. We don’t see anything from Ford that the Government gives them. So it is all about how we help the 260 automotive manufacturing companies specifically.

 

AMT: What sort of activities will APMEC be engaging in?

AM: There are several. Networking has been our primary starting point. I also went to a launch by the Mexican Ambassador and Trade Commissioner, as we’re looking at potentially having a session where he will present the opportunities in Mexico, which are significant. Mexico is going to make five million cars by 2020. They’re making close to three and a half million already, and importing a lot of components. Our dollar is in a better position than it has been in a long time. I think there are opportunities for all of our members. The Trans-Pacific Partnership (TPP) agreement is obviously significant. South-East Asia still represents opportunities to lead some trade missions in that part of the world. Dayco does business there, along with numerous APMEC members. People are also doing business in Europe.

 

The other question is: how do we network with each other? I just had a meeting with some Council members from Mackay Rubber which makes rubber moulded hose that hopefully Dayco can buy for our European operation or our South American operation. So how can we work together? Everybody has customers, but maybe we can add value by introducing them to other members. My distributor in Taiwan might want some products our other members make. So that’s part of the APMEC process.

The other step is industry representation. We recently met with Industry Minister Christopher Pyne in Canberra. We had a very good hearing because obviously, with the Innovation announcement, which was made shortly afterwards, he was extremely interested in our concept that for an Automotive Innovation Hub. What we’re seeking from Minister Pyne – and he seemed to be keen on it – is a $2m grant to support the building of this Innovation Hub that would allow our members to dilute the costs of prototyping. Let’s say the Mustang’s out and they want to do aftermarket parts; they could book access to the latest Mustang. They may want to look at shock absorbers or something else; in Dayco’s case, belt diagnostics and so forth. That’s the big picture we are focusing on.

We got a good hearing from Minister Pyne. Within five minutes of leaving, we had his Chief of Staff asking some questions, and the question on notice in Parliament the next day was on the automotive aftermarket, including some comments by Minister Pyne about the aftermarket and how many people it employs. We’ve made it clear we want to be seen as having a seat at the table when it comes to discussions about things that impact on the automotive industry, be it aftermarket or anything else. I think Minister Pyne’s acknowledged that APMEC could be a part of that.

Year one is going to be a little hard to gauge exactly, but we’ve got a few initiatives, and we’ve gained a lot of traction already.

 

AMT: You already had 80 members when you formed in September?

AM: Yes and we believe it will reach 100 pretty quickly. The target is getting all 260 members of the FAPM on board. We also want to ensure it’s not Melbourne-centric. There’s a good automotive manufacturing industry in Queensland, for example.

I think the key thing is everyone’s talking about the car industry leaving. The Government has poured a lot of money into it, and I don’t believe the Government or anybody forced the car-makers out. The problem is they are not making cars that people want to buy. If the Mazda 3 is the most popular car, or the Toyota Corolla or the Toyota Hilux, you’re not making a product people want to buy. That’s the crux of the problem. Yes, there are people who love the six-cylinder, rear-wheel drive, but they simply are not cars people want to buy. I know how many cars they make – we supply every FEAD (front-engine accessory drive) on every inline-six and V8 engine – and it’s not many. It’s not sustainable when you’re only making 14,000-15,000 cars.

I honestly don’t believe a lot of commentators have talked about the vehicle. They talk about industry, innovation, but if I started making components nobody wanted to buy, the Government isn’t going to bail me out. The same applies to any industry. If you’re a food supplier making a product people don’t want to eat, you are not going to survive. The car industry has been a little unique, particularly in that it hasn’t flowed down. For example, Dayco used to make hydraulic power steering and air-conditioning hose assemblies here. That got moved to Thailand very quickly when the price wasn’t competitive. We’ve still got the building, so that’s why we headed down the aftermarket path, and 95%-plus of our business now is aftermarket.

 

AMT: I wanted to touch on that – obviously you’ve had first-hand experience with Dayco of the transition away from supplying OEMs.

AM: Yes, Ford was in excess of 65% of Dayco’s business probably 12 to 14 years ago. This year it will be less than 3%. And our business is growing.

 

AMT: How did you manage that shift?

AM: It was before my time as I have been with Dayco four-and-a-half years. The sales & marketing team here identified that while the old way of selling a belt was that the mechanic would open the bonnet, see the belt needed replacing, and go and buy a belt, today’s engines are much more complex. The team at Dayco saw an opportunity to supply timing componentry, so instead of just replacing the belt, when you’ve got the engine open you really should be replacing the pulleys and hydraulic actuators, the tensioners… the whole package. So that’s what they did. They started developing a timing kit for vehicle-specific engines and warrantying it at an OEM’s specifications. It quickly grew and now we have over 500 aftermarket applications. Our goal is that within three months of any new vehicle coming out, we have a kit available, with the same warranty conditions as any OEM manufacturer.

 

AMT: That sounds like a classic case of the value-adding model that commentators say Australian manufacturing needs to adopt.

AM: Yes, and then adding to the portfolio of products. When you think about our business, we sell products that go to the front end of the engine, the FEAD, and then the timing. Those are crucial. If they fail, you have a catastrophic engine failure that can cost anywhere up to $6,000. And we are not the only ones doing it, a lot of people in the industry have said “How do we add products?” So we keep adding products and application data. Our online cataloguing is probably the best in the industry. Everybody uses our online catalogue. We have 42,000 registered users.

The missing part for us was the harmonic balancer or crankshaft pulley, so in 2013 we bought Precision Parts in Wagga Wagga, which was a privately held business and was aftermarket focused. We didn’t have a harmonic balancer on the FEAD; it was only part that we didn’t supply. Now we export 75% to 80% of that business to North America. It’s a great story!

 

AMT: Has all the negative publicity surrounding the OEMs leaving affected aftermarket manufacturers?

AM: When Ford no longer buys from us, we’ll probably be in a better position from a cost perspective. We have to be TS certified, which is a cost to the business, and the volumes have got so low it really becomes uneconomical. We’re not alone in this regard. Ford used to pick up daily. Now they pick up once a week. The challenge for us is that Dayco can’t stop supplying Ford, because we have a commitment to support them throughout the runout of the Falcon, Territory and OES and we will do that. But afterwards we can focus totally on what is really our more profitable market, which is the aftermarket.

All the commentary about the car industry leaving… there’s a $5.4bn dollar aftermarket industry here. There’s lots of servicing of vehicles here. There’s a reason why GPC, the big American General Parts Company, bought Repco a couple of years ago The Burson Auto Parts IPO is another great success story. There’s a reason why people are investing those businesses. It’s a strong market; people like cars in this country. We’ve got a lot of innovation, a lot of high-quality producers, coupled with immense skills. That was one reason behind APMEC forming, to ensure that these companies have other avenues.

 

AMT: What would you like to see Government doing?

AM: I don’t believe there’s more money to be thrown after the OEMs. We’ve said to Minister Pyne we’re not here to just ask for money. How many more jobs did the money that’s gone into the car industry create? A lot of that money went back to Detroit, in royalties or whatever. It certainly didn’t flow down. Government needs to be supporting, guiding and helping to create interest in our industry and opportunities. It’s not just a matter of handing over cheques.

At the end of the day I’m responsible for Dayco being profitable and I honestly think the bulk of the people in our industry behave in that way. It is in my interest to stay profitable and to seek alternatives. The Government has to facilitate that. I think Government has a place, but it shouldn’t be dictating how our industry should go. We should be guiding Government on what the opportunities are for our business and for our members.

 

AMT: What would you say to a manufacturing company that’s still heavily exposed to Ford, Toyota?

AM: Well, if you haven’t changed now, you’re probably up for a rude shock. If you’re with GM and Toyota you’ve got an extra year. If you’re like us with Ford, it ends on 7 October. We’ve known about Ford for a long time. We have been planning for that exit.

I think you have to diversify and find a niche. Is it export? The problem with export is it takes a long time. You can’t just go to an expo and all of the sudden get a whole lot of business. It takes time to build those relationships. You have just got to find niches and opportunities. Aftermarket is an excellent place. If you’re making OEM parts, what parts can you make for the aftermarket?