Carmakers may suffer more from EU Commissioner Mario Monti's planned changes in repair services than they will from changes in the way new cars are sold.
The new block exemption regulation makes it easier for dealers to buy spare parts directly from suppliers instead of carmakers.
Manufacturers have protested against Monti's moves to liberalize new-car sales for fear they will intensify competition and push prices down. They have had less to say on the critical issue of spare parts sales. Yet, according to the EU Commission, a car owner will spend as much on servicing his vehicle throughout its life as on purchasing it.
A large share of the money spent on spare parts goes to boost the earnings of the vehicle's manufacturer.
'I'd say volume carmakers derive half their operating profit from spare parts and the other half from financial services,' Jürgen Gerlach, a Munich-based partner at consultant Accenture, said. 'The fact is, they don't make money on new-car sales.'
In the current distribution system, analysts say carmakers sell to dealers 'original' parts under their own brand at a huge mark-up price. This is because consumers believe that original parts bearing the car manufacturer's brand are better quality and worth more.
Monti wants consumers to be able to buy original parts directly from suppliers. He says the price would be cheaper since car manufacturers will no longer take their cut as intermediaries. That cut can be significant.
A supplier executive who asked not to be named said a spare part that his firm sells for, say, 110 to the carmaker is resold for 250 to the dealer, who then charges the customer 500.
Credit rating agency Standard and Poors estimates that carmakers derive between 20 and 40 percent of their operating profits from the sale of spare parts.
The liberalization of spare parts distribution might cost carmakers '5 or 6 percent of their operating profit,' said analyst Virginie Casin of Standard and Poors in London.
As a result, Gerlach said volume carmakers will come under pressure to reassess the way they operate. 'They will rely even more on suppliers for innovation and component systems,' he said. 'They will become much more car configurators and brand managers. In five year times, we could even see engines originating from suppliers.'
In his proposal, which is scheduled to be voted on by the Commission in late June or early July, Monti has proposed to extend the 'original' label to all parts that are manufactured by suppliers on the same production line as those parts going to a new vehicle. The Commission cites the example of windscreen wipers manufactured by Bosch and used by Volkswagen on the Golf.
Car dealers have always had the right to buy parts directly from suppliers. In practice, they rarely did, for fear of antagonizing their franchiser. Monti's attempt to let dealers sell several brands and set up shop anywhere they wish in the EU ought to increase their autonomy.
Carmakers tend to play down the profits from derivative businesses such as spare parts and from financial services, whether it is consumer credit, leasing or insurance. Renault Chairman Louis Schweitzer was one of the most open, acknowledging a few months ago that he was 'preoccupied' with the issue.
'The parts are where the margins are,' he said.
For Thierry Dombreval, Toyota Motor Europe's recently appointed head of sales and marketing, 'the question is somewhat artificial. If you don't sell cars, you don't sell parts.'
Suppliers see an opportunity. Valeo, for example, earns 1.6 billion annually from sales of replacement parts such as headlamps and wipers. Spare parts sales account for 16 percent of its revenue and the French supplier expects that percentage to grow as a result of the new rules.
Valeo is already gearing up to improve its distribution of parts to dealers and repair shops. Other suppliers expected to benefit include Bosch, Hella, TRW, Tenneco and Arvin Meritor.