THE AUSTRIAN AUTOMOTIVE PARTS AND EQUIPMENT SECTOR

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THE AUSTRIAN AUTOMOTIVE PARTS AND EQUIPMENT SECTOR Powered By Docstoc
					    THE AUSTRIAN AUTOMOTIVE PARTS AND EQUIPMENT
                      SECTOR
                           A MARKET RESEARCH REPORT


SUMMARY

US exports of automotive parts and equipment to Austria has risen
exponentially in this decade. Where total exports in 1991 were
measured at only $30 million, 1997 saw an export value of over
$430 million. The explanation for this development can be
summarized in two words: US investment. Not only do the
(Chrysler) Jeep and Voyager assembly operations in Graz import
significantly from the United States, but they have attracted
other US investors to Austria who do the same.

In the automotive aftermarket, direct imports from the United
States account for only around 5% of total sales value. The most
important replacement parts are chassis parts, body parts,
engine/transmission parts, and exhaust systems. The most
important auto equipment product groups are tires, motor oil, and
wheels. US products which do have a significant share of the
aftermarket include shock absorbers, mufflers, transmissions and
transmission parts, special hoses, filters, and some engine and
chassis parts.

Over half of the cars currently registered in Austria were built
in Germany - the most popular manufacturers are VW, Opel, Ford,
Mazda, Toyota, and Renault. Only 1.2% of all cars currently
registered were made in the United States. Of newly registered
automobiles (1996), however, 2.1% were US-made. This reflects
the 1.7% market share Chrysler achieved with the introduction of
passenger vans and jeeps assembled in Austria (these vehicles are
considered US-made in the statistics due to their US content).

Best sales prospects for US exporters are advanced navigation
systems, engine pre-warming devices, anti-theft devices, air-conditioning
units, and shock absorbers. There is also a market
for smaller, inexpensive accessories such as floor mats and
bumper stickers. The major competitors for US exporters are
German and European parts manufacturers, particularly those that
are involved in OEM production.

There are two major distribution channels for the aftermarket in
Austria: general importers with affiliations to manufacturers,
and independent parts dealers. The former dominate 70% of the
market with sales to dealerships and manufacturer-affiliated
repair shops. Independent parts dealers supply non-affiliated
garages, retail, and other parts sellers. Because margins at the
car dealerships have fallen dramatically in recent years, there
has been a push to increase income from other sources, including
service and repair. This has put pressure on smaller and non-affiliated
garages, which have lost customers and are searching
for additional income sources. Gas stations are also suffering
from a stagnating market, and have had to get creative in finding
revenue sources. Perhaps the most interesting development in the
market has been the success of parts retailers that supply
Austria's thriving grey market.

Explicit import barriers are insignificant, amounting to a duty
of 5-10% for most products, though EU local content requirements
can be a disincentive for using over 40% US parts.

Austrian standards for parts and equipment are anchored in law,
and are available through the Economic Commission for Europe.
There are five testing facilities in Austria authorized to test
specific auto parts and determine their compliance with European
standards.


A. MARKET HIGHLIGHTS & BEST PROSPECTS:

STATISTICAL OVERVIEW

Data table: all values in USD million

                              1996       1997     1998(est)

Total Market Size             1,919      2,194    2,413
Total Local Production        4,206      4,626    5,088
Total Exports                 3,890      4,302    4,706
Total Imports                 1,604      1,870    2,057
Imports from the U.S.           387        435      465

Notes on the above table: Figures represent import or production
value rather than sales value. Because official export statistics
are clearly under reported, the figure for total exports is an
estimate based on production statistics and reported export
quotients. Total market size is thus also an estimate. The
exchange rate used is the average for 1997: USD 1 = AS 12.20.
This rate was used throughout in order to enable comparison,
though the actual exchange rate for 1996 was USD 1 = AS 10.5. In
other words, the real dollar value of the market actually
declined between 1996 and 1997, though the value in local
currency increased.


THE OEM MARKET

The history of the Austrian OEM market is interesting. The
development of this sector began in the 1970's, when the Austrian
government came up with a plan to combat both the trade deficit
and the oil crisis: through various tax breaks and subsidies, the
production of an automobile "made in Austria" would be supported.
Though this "Austro-Porsche" was never built, the original
assembly parts industry that did grow out of that program has
more than matched expectations. To use a calculation that was
fashionable in the 1970's, we can today compare the value of
Austrian OEM exports to the value of total automobile imports
into Austria and come up with a positive balance (OEM exports
were worth 112% of the value of automobile imports in 1995).

In fact, the production of OEM automobile parts is currently the
most important manufacturing industry in Austria. Over 90% of
the $4.87 billion production value (1996) is exported to major
European car producers, including Opel, Mercedes, BMW, and
VW/Audi. Austria is also home to AVL List GesmbH, a world leader
in analytical instruments for the development and testing of
automobile engines.

As Austria's role in supplying European auto manufacturers with
original assembly parts grows, Austrian and foreign firms are
continuing to invest in production facilities here. With
investment comes import trade, thus it is realistic to expect
growth of imports to continue at around 10% annually through the
end of the century. By far the most imports come from Germany
(49% in 1997). US imports have risen dramatically over the past
decade due in large part to significant US investment in auto
assembly and auto parts production in this country, making up 23%
of the 1997 import market.

Though US imports are growing, there are several reasons why we
expect them to increase at a slower rate than generally expected
in the industry. First, most US subsidiaries begin by importing
extensively from the United States, but over time attempt to
reduce US-origin content to meet EU local content requirements.
Second, the economic crisis in Asia will have a small but not
insignificant negative impact on exports of those automobiles
assembled in Austria with the highest US-content. Finally, the
trend in Europe toward cars with diesel engines comes at the
expense of US gasoline-motor exports. An estimated annual growth
rate of 7%, however, is still respectable.


THE AFTERMARKET

Total aftermarket sales in 1996 amounted to $2.83 billion. The
total sales of replacement parts in 1996 was $1.48 billion, a
5.4% increase over 1994.

The most important replacement parts (in terms of value) in 1996

Chassis parts                 22%
Body parts                    22%
Engine/transmission parts     17%
Exhaust systems               16%
Electrical parts              13%
Small parts                   11%

In Austria, every automobile must pass a rigorous test every    year
in order to remain registered. This examination includes
emissions levels, safety features, but also the state of the    body
(rust, etc.), and can be performed by a testing institute or    at
an authorized service station. Cars falling short of the
criteria must be repaired before they can be registered. As     a
result, cars tend to be in better general condition in Austria
than in the United States.

Automotive equipment sales had a value of $1.35 billion, a 3.6%
increase over 1994.

The most important equipment product groups    (in terms of value)
1996 were

Tyres                            33%
Motor oil                        24%
Wheels                           11%
Sport accessories                04%
Comfort accessories              04%

Austrian cars have two sets of tires (and in many cases   wheels,
too), which are switched for summer and winter driving.    For cars
with diesel engines, which made up 53% of Austrian cars   newly
registered so far this year, the motor oil must be of a   higher
quality (due to higher temperatures in a diesel engine)   and must
be added regularly.

The Austrian aftermarket is dominated by products from within the
EU and Germany in particular. Because the statistics do not
differentiate between OEM and aftermarket, there are no exact
figures available for the market share of US products. However,
in conversations with major importers and trade associations, we
have arrived at an estimated share of only around 5% of direct
imports. This is due in part to the international character of
this industry, in which US-name products are imported from Europe
or Asia; in part to the different requirements made of
automobiles in Austria; and in part to the dominance of German
and European cars here.

CURRENTLY REGISTERED AUTOMOBILES AND TRENDS:

In 1997, there were 3.78 million automobiles registered in
Austria, of which over half were imported from Germany. Only
around 1% were made in the United States, but 22.8% in Japan.

All registered automobiles (up to and including 1997) according
to country of origin

Germany                  53.0%
Japan                    22.8%
France                   11.0%
Italy                    04.8%
GB                       02.3%
USA                      01.2%
Spain                    01.1%
Other                    03.8%

The most popular cars in percent of all registered automobiles up
to and including 1997

VW (Germany)             19.3%
Opel (Germany)           11.9%
Ford (Germany)           08.5%
Mazda (Japan)            06.6%
Toyota (Japan)           05.3%
Renault (France)         04.9%

The average length of service for an automobile here is 12 years,
which means that approximately 8.5% of the Austrian fleet is
renewed yearly. Thus an average of around 280,000 new cars are
sold annually in Austria.

Newly registered cars (1996) according to country of origin

Germany                  50.2%
Japan                    14.2%
France                   13.1%
Italy                    5.4%
GB                       5.2%
Czech Republic           2.9%
Korea                    2.6%
Spain                    2.2%
USA                      2.1%
Sweden                   0.9%
Netherlands              0.7%
Hungary                  0.4%
Russia                   0.2%


Comparing the country shares of all registered cars and those
registered in 1996 points to an interesting trend. Though German
cars continue to dominate the market, the popularity of Japanese
cars has dropped significantly from 22% to only 14.2%. Winners
are European producers, including France, Italy, Great Britain,
and the Czech Republic.

The most popular cars in percent of new registrations 1996 (and
countries of origin)

VW (Germany)             17.1%
Opel (Germany)           11.3%
Ford (Germany)           9.4%
Renault (France)         6.1%
Audi (Germany)           5.4%
Fiat (Italy)             4.2%

American cars produced in the United States, including Buicks,
Cadillacs, Chevrolets, and Pontiacs, are being sold here, but
together make up less than 0.5% of the market (1996). Chrysler
automobiles have been able to capture a significant share of the
market, mostly due to their assembly operations in Graz. Though
the vehicles are assembled in Graz, the US-content is high
enough that the cars are considered US imports in the Austrian
statistics. In 1996, Chrysler could claim 1.7% of new
registrations (compare this to 0.8% of all cars currently
registered). The share of US-made automobiles will also likely
benefit from the coming introduction of the Mercedes "M", which
will be imported from the United States.
BEST SALES PROSPECTS:

    Advanced electronic navigation systems

    The market for advanced navigation systems for passenger
    vehicles is expected to grow by around 50% annually through
    the year 2000. The current technology consists of in-car
    navigation products with a CD-rom player; a small monitor;
    and a computer that is hooked up to a compass, a satellite
    signal receiver, and the car's speedometer. Prices are
    still quite high - the cheaper model costs around $2,500,
    and the more expensive ones around $4,000. An interesting
    technological development is expected to further boost the
    growth of the market, namely, affordable radar systems built
    into the navigation system. These have several
    applications, including audible warning of collision danger,
    automatic adjustment of cruise control speed, and signaling
    capacity in case an accident. The current market leaders
    are Phillips, Blaupunkt, and Becker (all major auto radio
    producers).

    Engine pre-warming devices

    A second future trend is the built-in engine pre-warming
    device. These devices operate with a timer or a radio-receiver, and
    pre-warm the engine before the driver enters
    the car. Especially during the winter, this is a pleasant
    accessory, for it reduces the need to scrape snow and ice
    off the car. They also are purported to increase the life
    expectancy of the engine, as they eliminate the need for a
    cold start.

    Anti-theft devices

    The fall of the iron curtain in 1989-90 and the elimination
    of intra-European Union border controls are not only a
    triumph for liberty and the human spirit, but unfortunately
    also a boon for cross-border auto thievery.   Whereas "only"
    2,033 cars were stolen in 1990, there were 2,755 cars
    reported stolen in 1997, marking a 35% increase. The rates
    at which police were able to apprehend the thief are
    revealing: in 1990, 24% of the cases were solved; in 1997,
    that rate had dropped to 16.8%. Higher-priced cars such as
    Mercedes and BMW are beloved targets of auto thieves. For
    this reason, most higher-priced cars have some kind of
    drive-off prevention mechanism in the key/starter. This
    mechanism does not prevent a thief from forcefully entering
    the car or towing it away.

    Air conditioning units

    Five years ago, it was unusual to see a car in Austria with
    air conditioning. Today, it is a very popular feature in
    new cars. Not only does it increase comfort for summer
    driving, but it has even been found to increase fuel
    efficiency, as the windows can remain closed during the
     drive. Air conditioning units are also being built into
     older models, or are added after purchase to avoid paying a
     higher vehicle tax.

     Shock absorbers:

     A recent study showed great differences between the
     frequency at which people in European countries changed
     their shock absorbers. In France, shocks are changed most
     often, due to low prices and the raging success of quick-stop service
     stations. Austria was one of the countries in
     which the study saw significant room for growth. This could
     be achieved with a concerted effort on the part of all
     manufacturers to raise consciousness about the benefits of
     regular shock absorber replacement. The shock-absorber
     market is currently dominated by the US brands Monroe and
     Gabriel.

     Decorative accessories

     Though sport decorative have been less of a growth industry
     than comfort accessories, there are some niche markets which
     could be promising, primarily small, inexpensive accessories
     such as stylish floor mats, bumper stickers, etc.

     Cellular phone loudspeaker systems

     The Austrian parliament recently passed a controversial law
     forbidding the use of mobile phones while driving unless the
     phone is attached to a loudspeaker system in the car that
     enables the driver to telephone with both hands free for
     driving. As cellular phones are very common in Austria,
     there will be strong demand for these "hands-free" systems.
     That being said, there are already very inexpensive bare-bones systems on
     sale in promotional actions, so the best
     prospects for the future will be innovative devices, perhaps
     combining phone, radio, and navigation systems.


B.   COMPETITIVE ANALYSIS

OEM market:

US firms looking to sell to producers of original assembly parts
are also at something of a disadvantage, as the most important
product produced (in terms of value) is the engine, and engine
sub-parts are generally too heavy for economical shipping. A
second disadvantage facing US exporters is the 60% local content
requirement for most automobile parts necessary for them to be
considered EU products and thus avoid import tariffs when passing
over the EU eastern borders.

Aftermarket:
The fact that such a large proportion of passenger vehicles
currently registered in Austria are of European origin sets the
stage for tough competition in the product categories that
account for the greatest part of automotive parts and equipment
sales. This situation is compounded by the dominance of
authorized dealerships as purveyors of parts and equipment. At
present, US firms that do not have an affiliation with a European
auto manufacturer can best compete by concentrating on niche
markets and auto parts that are not dominated by OEM manufacture
goods.


DISTRIBUTION CHANNELS:

US firms interested in selling to the Austrian OEM market should
contact the Commercial Service office in Vienna for a near
complete list of production facilities that can be contacted
directly.

The automotive aftermarket has two distinct channels of
distribution: general importers with affiliations to an
automobile manufacturer, and independent parts importers and
wholesalers. The former have the lion's share of the market,
around 65%, and supply primarily service stations and auto
dealers with manufacturer affiliations. The independent parts
importers and wholesalers sell primarily to independent garages,
gas stations, as well as retail and DIY stores. This office can
supply contact lists for both manufacturer affiliated and
independent parts dealers.

According to a recent study, there were over 7,500 entities
offering automotive equipment or replacement parts in 1996, with
combined sales of over $2.8 billion.   Let's take a closer look
at the major players:

1.   Service stations    and auto dealers with a company affiliation

Around 50% of all service stations in Austria are manufacturer
affiliated, but they account for between 65-70% of the business
in auto repair. Affiliated garages must build in manufacturer
authorized parts, and these are purchased through the
manufacturer's general importer. Many affiliated service
stations are part of an auto dealership, and serve as an
important additional income source as margins on new cars become
tighter.

When Austria joined the EU in 1995, it became evident that
Austrian automobile prices were significantly higher than in
neighboring EU countries. Some Austrians traveled to Italy to
buy their cars, which didn't please the car manufacturers, who
were much happier having the Austrians pay Austrian prices for
their cars. Italian dealers were warned against selling to
Austrian customers, which was not exactly a marketing coup, nor
did it fit well in the EU's single market philosophy. The
inevitable result was a (relative) fall in car prices in Austria,
which are now near the EU-average. "Deals" of up to 10 or even
12 percent off the list price were unheard-of 5 years ago - today
they are normal. With decreasing margins, the number of
authorized car dealerships is dwindling, and those that are
surviving have had to get creative. The bulk of their income is
not from new car sales, but from the sale of service (most
dealerships are either allied with a service station or do the
service in-house), parts, equipment, accessories, and used cars.
For example, many will offer some kind of mobility guarantee or a
discount on the recommended service appointments with the
purchase of a new car.

2.   Independent service stations

Around half of the service stations in Austria are non-affiliated. They are not
restricted in terms of which cars they
can repair, nor in terms of the parts they build in. Non-affiliated garages
tend to be small shops that are struggling to
survive as larger manufacturer-affiliated garages lure away their
traditional customers. Many have also been forced to seek
additional income sources such as car wash systems and used car
sales.

Another kind of independent service station that is just
beginning to become popular in Austria is the quick-stop style
garage where only a particular service is offered (an oil change,
for example). The US company Midas has a small Austrian
operation, and there are 2-3 Austrian chains that are also
attempting to start up in this field.

3.   Automotive parts/equipment/accessories retail

Another trend that is gaining importance in Austria is the DIY
market for automotive parts and equipment. This may seem
strange, because automobiles have now become so complicated that
the average person cannot just pop the hood and fiddle around
with the engine until it's running properly. Here's the
explanation: The DIY market for automotive parts and equipment,
much like the DIY market for home repair and renovation, largely
supplies the Austrian grey market. Instead of bringing your car
to a garage, you bring it to a friend who works at a garage, and
he fixes it on the weekend for a price that you can both live
with.

4.   Gas stations

Currently there are about 3,200 gas stations in Austria - in
1971, there were 5,600. With cars getting smaller and more fuel
efficient, albeit more numerous, the market for fuel is
stagnating. A station that sells less than 1.5 million liters of
fuel annually cannot survive. Based on that assumption, it is
likely that the number of gas stations will further decrease to
around 2,000 over the next 10 years. Again, we see that the
survivors have gotten creative. Today, only around 50% of gas
station revenues come from fuel sales - the rest comes from
convenience store items (food, drink, tobacco, etc.), souvenirs,
and car wash services. Some gas stations have even opened a
little restaurant for weary travelers. Automotive parts and
service are, for the most part, no longer within the competence
of most gas stations, as today's cars have gotten too complex.
However, auto accessories that are easy to install and not too
expensive could be an interesting sideline for gas station owners
trying to boost their earnings.
IMPORT BARRIERS:

Import duties for automotive parts and equipment into the EU vary
depending on the product in question, and are available through
the Commerical Service office in Vienna. In general, the duties
range between 5-10%. A secondary barrier is the local content
regulations, which are an important consideration for the export
of products of EU origin to third countries with which the EU has
an association agreement: for automobiles, EU content must be
over 60% of the material value in order for the vehicle to avoid
tariffs when passing over the EU eastern border.


STANDARDS AND STANDARDS TESTING:

Austrian standards requirements for automotive parts and
equipment are established by law and are fully EU-harmonized.
The pan-European directives establishing standards for individual
parts and equipment are available through the Economic Commission
for Europe at the following internet address:

http://www.unece.org/trans/main/welcwp29.htm

The following facilities are authorized Austrian testing
facilities for automotive parts and equipment (a list of the
products which each facility is authorized to test for compliance
with ECE standards is available through the Commercial Service
office in Vienna):

Bundespruefanstalt fur Kraftfahrzeuge
Trauzlgasse 1, A-1210 Vienna, Austria
Tel. (43 1) 278 8386
Fax (43 1) 278 8386 12

Osterreichisches Forschungszentrum Seibersforf GesmbH
A-2444 Seibersdorf, Austria
Tel. (43 2254) 780-0
Fax (43 2254) 740-60

Technische Universitat Graz, Institut fur
Verbrennungskraftmaschinen und Kraftfahrwesen
Infeldgasse 25, A-8010 Graz, Austria
Tel. (43 316) 873 7581
Fax (43 316) 46 21 75

Technische Universitat Wien, Institut fur
Verbrennungskraftmaschinen und Kraftfahrwesen
Getreidemarkt 9, A-1060 Vienna, Austria
Tel. (43 1) 588 01-4917
Fax (43 1) 586 6294

TUV Osterreich
Krugerstrasse 16, A-1015 Vienna, Austria
Tel. (43 1) 514 07-0
Fax (43 1) 514 07-240
********

				
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