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Federal-Mogul's competitors size up potential market gains

Aftermarket strength
Here are some original equipment parts makers' aftermarket revenue as a percent of total revenue in 2000
Federal-Mogul 45%
Dana Corp. 23%
Freudenberg-NOK 20-25%
TRW 4%
Source: Companies and Deutsche Bank

Federal-Mogul Corp.'s pain may lead to competitors' gains in the aftermarket.

Rivals such as Freudenberg-NOK and TRW Inc. say they will pursue market share of the Southfield, Mich., aftermarket giant. Federal-Mogul's ongoing Chapter 11 bankruptcy reorganization may give them an advantage.

Federal-Mogul filed for Chapter 11 on Oct. 1, seeking relief from growing asbestos liability claims.

One possible edge: Federal-Mogul's absence at the recent Automotive Aftermarket Industry Week in Las Vegas was noted by rivals and customers, said Joe Day, chairman of sealing competitor Freudenberg-NOK, which launched its new Corteco aftermarket business at the show.

"There are a lot of aftermarket companies that are a little disappointed by their absence in this show. It puts a little bit into question either their commitment or their capability to support the industry.

"I'm not sure which it is, and I don't claim to know," Day said. "Their absence at this show to me is a big deal. I think it's going to benefit all of Federal-Mogul's competitors."

But Federal-Mogul's aftermarket chief says business is holding up.

While the company had sales representatives in Las Vegas meeting with customers, cost - especially in light of the bankruptcy reorganization and the sensitivity of creditors - contributed to the decision not to exhibit, said Joseph Felicelli, senior vice president of the company's worldwide aftermarket business.

Federal-Mogul representatives already had met with customers about the Chapter 11 filing, and executives also questioned whether the value of such industry events justifies high exhibition costs, Felicelli said.

Wishing and hoping

As to Federal-Mogul's vulnerability on the sales side, competitors are doing a lot of "wishing and hoping," he said. If anything, the Chapter 11 filing will allow the company to better focus on its original equipment and aftermarket businesses.

"Now we've got a chance to take operating earnings and invest them in the growth of the company, instead of paying them to lawyers," Felicelli said. "The fact that we will not have to pay the amount of money that had been coming out of the company day by day to support the asbestos litigation activities frees up a significant amount of capital that can be reinvested."

But an industry analyst said Federal-Mogul's problems and the bankruptcy reorganization could jeopardize business. Companies such as Dana Corp. and Freudenberg-NOK stand to benefit, Deutsche Bank analyst Ken Blaschke said

"Clearly, Federal-Mogul is at risk, both on the aftermarket and on the OEM side," Blaschke said. "The aftermarket would clearly have more near-term risk, because if you're a major retailer or (warehouse distributor), it's merely deciding to swap out Federal-Mogul products."

But sourcing changes by automakers wouldn't manifest in lost sales for a couple of years, he said.

Business strong

A TRW Inc. aftermarket leader says Federal-Mogul's situation could be an advantage when TRW relaunches its aftermarket chassis business next

October. TRW had sold that business and licensed its brand name to Federal-Mogul nearly 10 years ago.

"Federal-Mogul is certainly still strong with their Wagner brand in braking and their Moog brand in chassis, so I'm not going to just assume they're going to go away," said John Mullins, general manager of TRW Automotive's aftermarket operations. "But we'll exploit every opportunity that we can to maximize the penetration of the TRW program after October of next year."

The TRW brand has about 20 percent or $120 million of the $600 million aftermarket chassis business, he said. TRW's goal is $10 million in 2003 and the full 20 percent share in three to five years.

Federal-Mogul's Felicelli said the TRW license is set to expire but negotiations between the two companies are ongoing regarding a continued licensing arrangement.

Since the Oct. 1 filing, Federal-Mogul customers haven't defected and aren't expected to, Felicelli said. Sales rose by more than 5 percent in October and continued to strengthen in early November, he said, crediting the increase to an improved market, strong brands and new products. The aftermarket operations accounted for about 45 percent of Federal-Mogul's $6 billion in 2000 sales.

Said Felicelli: "I'm not aware of a single customer of any size that has chosen to change lines or not to do business with us as a result of our filing. So we have not lost any business, and again, we've picked up additional business."

You can reach Amy Wilson at awilson@crain.com

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