Electrical Equipment for Internal Combustion Engines

SIC 3694

Companies in this industry

Industry report:

This classification covers establishments primarily engaged in manufacturing electrical equipment for internal combustion engines. Important products of this industry include armatures, starting motors, alternators, and generators for automobiles and aircraft, and ignition apparatus for internal combustion engines, including spark plugs, magnetos, coils, and distributors.

Industry Snapshot

The electrical equipment market for internal combustion engines is divided into two categories: original equipment manufacturers (OEMs) and aftermarket. The OEM market consists of companies that produce engines or engine parts for placement in new vehicles. The aftermarket segment targets consumers, often do-it-yourselfers, who buy replacement parts for an existing engine. According to the U.S Census Bureau, in 2009 the vehicle electrical and electronic equipment industry reported $13.7 billion in product shipments, down from $16.2 billion in 2006. Overall, the auto supply industry faced serious challenges at the end of the first decade of the 2000s and the early 2010s as a result of extreme price pressures, overseas competition, and overcapacity. According to the International Trade Administration (ITA), more than 50 auto supply companies filed for Chapter 11 protection in 2009 and around 200 suppliers were liquidated. Even the two largest U.S. parts makers, Delphi and Visteon, were in serious financial trouble. Delphi emerged from bankruptcy protection in 2009 as a private company under the control of its lenders. Likewise, Visteon filed Chapter 11 bankruptcy in the spring of 2009 and emerged in fall 2010.

In the late twentieth century, electronic parts and components manufacturers aimed to meet increasing consumer demand for safety, environmental, and convenience features. As electronic engine controls increased in sophistication, the dollar-value content of these systems in new vehicles continued to rise. However, profit margins remained extremely thin as auto manufacturers took advantage of oversupply and an abundance of suppliers to push for depressed pricing. The major industry consolidation that began in the 1990s continued well into the first decade of the 2000s as a result of the challenging marketplace. At the end of the first decade of the 2000s and the early 2010s, U.S. auto parts manufacturers also faced increasing competition from overseas manufacturers, particularly in Asia.

Organization and Structure

The automotive electronics industry can essentially be divided between original equipment manufacturing (OEM) and the automotive aftermarket. OEM manufacturing is for new autos, while the aftermarket is for used ones. In both segments, the manufacturers include the components groups or affiliates of the large automakers, as well as independent parts makers, which themselves may be divisions of much larger industrial entities.

Background and Development

Electronic systems became increasingly sophisticated following commercial production of the automobile began in the early twentieth century. The first electric starter appeared on a 1912 model, and by the 1930s six-volt electrical systems were standard. Electrical requirements increased as engines became larger and additional features, such as radios and multi-speed windshield wipers, were added. By the late 1950s, 12-volt systems had replaced 6-volt systems as a requirement. In the 1970s, electrical, or transistorized, ignition systems, which required less maintenance and were more reliable than mechanical breaker-point systems, were introduced.

The OEM parts industry entered a depression cycle in 1989, but revived in 1992 and remained strong into the mid-1990s. Tremendous financial pressure overwhelmed the Big Three automakers in the early 1990s and caused them to rethink their business practices. They gave their top suppliers greater responsibility for the design and engineering process. In return for taking on greater responsibilities, suppliers received long-range contracts that were often for the life of a car model rather than the one to three years that had been common practice. According to one estimate, the number of auto parts makers in the United States fell from 3,000 to 2,000 between 1983 and 1992. Nevertheless, the Big Three sought additional reduction in the proportion of auto parts that they manufactured themselves. To further reduce their number of suppliers, automakers began awarding contracts for entire components or subassemblies to so-called Tier 1 suppliers. In 1994 General Motors spun off Delco Remy, its automotive engine parts subsidiary, to a group of investors headed by a former auto executive. The same year, Chrysler sold a large portion of its Acustar parts-making subsidiary to Yamazaki of Japan, including eight plants in Mexico that made electrical wiring systems for cars and trucks.

As a result of this general restructuring of the auto industry in the 1990s, the U.S. Big Three automakers--Ford, Chrysler, and General Motors--concentrated their business on a select group of component manufacturers. Consolidation among the parts industry followed. The Big Three also had shed their non-core parts operations and purchased more parts assemblies from outside vendors to avoid the overhead costs for plant operations and materials necessary for in-house manufacture and assembly. There also was a move to standardize parts across disparate car model lines, which presented the opportunity for parts manufacturers to diversify into design work and develop universal parts.

The aftermarket segment of the electrical auto parts business, which was devoted to replacement parts for used automobiles, presented a mixed picture as car owners kept their vehicles longer. The average age of cars on the road rose to 8.9 years by the end of the 1990s, compared to 7.4 years in 1986, which boosted sales of replacement parts. Some of the increase was offset, however, by the development of longer-lasting and better-made parts, which in turn decreased the need for replacements. Other offsets occurred due to the significant percentage of imported vehicles, since the share of the business for foreign vehicles remained relatively small. Additionally, the do-it-yourself (DIY) segment was tempered by consumer wariness of working on the increasingly sophisticated electrical systems in new vehicles. In the face of these negatives, sales of items like spark plugs held up remarkably well throughout the middle of the first decade of the 2000s. A push for increasingly tough auto emission regulations and the resulting equipment necessary for compliance also boded well for the future.

Growth in demand for engine and drive-train electronics continued to increase in response to the mandates of the Clean Air Act. Other factors being equal, older cars, especially those with more than 100,000 miles, causes more pollution than new vehicles because exhaust gases become dirtier as spark timing and other factors begin to vary. Environmental regulations requiring ignition designers to build more efficient combustion systems led engineers to scrap the traditional rotor-based distributor and develop a distributorless, all-electronic ignition system (DIS). General Motors introduced the first DIS in 1984, and the system gained popularity in the 1990s.

Rather than distributors, DIS utilized small ignition coils for each spark plug. An ignition computer triggered each coil individually, using engine sensors to time the pulses correctly. DIS systems eliminated the small variations in spark timing that resulted from mechanical wear of the distributor. The DIS compensated for plug misfires by signaling corrections in the fuel-air mixture and in the microprocessor-controlled timing mechanism. While DIS eliminated the distributor, it added one coil for each pair of cylinders. The improved gas mileage and reduced exhaust emissions offset the expense of additional coils and semiconductors. Throughout the late twentieth century, increasing numbers of new cars operated without distributors.

In the aftermarket segment of the industry, business trends remained subject to a variety of influences. On the positive side, the number of cars on the road increased steadily. According to one estimate, in 1996 there were 101 million vehicles that were three to seven years old on U.S. roads. Those were the cars on which most repairs were performed, and because fuel prices generally remained low, the number of miles driven increased dramatically. Additionally, by 1996 all new vehicles had to meet On-Board Diagnostics Series II emission rules (OBD II), and compliance often required additional equipment or repairs. In addition, sales in the key spark plugs segment rose to $806 million in 1995, an increase from $66 million than 1994 and $105 million in 1993.

Counterfeiting of parts posed a challenge for the aftermarket industry in the 1980s. General Motors contended that it and its suppliers were losing $1.2 billion annually to counterfeits. Among the parts most copied were electronic ignition modules. Although Congress attempted to deal with the problem in 1984 by passing the Trademark Counterfeiting Act, the counterfeiting business continued to thrive. In 1993 the Federal Trade Commission estimated that auto parts counterfeiting was a $3-billion-a-year business in the United States.

Estimates of the dollar volume of electronic engine systems are difficult to evaluate, since they can be calculated in several different ways. At the threshold of the twenty-first century, the automotive electronic parts industry totaled $54.4 billion in North America, Japan, and Europe, with increasing emphasis on electronic systems.

Continued outsourcing of component manufacturing functions bridged the late twentieth century and early twenty-first century. By mid-1998, only 4,060 auto part suppliers survived worldwide, a dramatic decrease from 30,000 suppliers 10 years earlier. U.S. carmakers decreased their relationships with suppliers an estimated 80 percent in the late 1990s. Ford Motor Company reduced its supplier count from 2,400 in 1980 to 1,400 in 1993 in its North American operations alone. Tier 1 companies added the responsibility of dealing with smaller subcontractors that had previously provided goods and services directly to the automakers. As small suppliers closed, large suppliers grew, expanding into new functional arenas. Some parts makers huddled in negotiations to purchase design firms, in order to increase their functionality potential in the outsourcing industry.

The consolidation movement led automakers to embrace greater standardization of parts and components across model lines. Rather than customize each component for a specific car or truck, auto manufacturers accepted common designs for a variety of models. Hidden "under the hood," electronics assemblies did not distinguish one car model from another in the perception of the consumer, making electrical components readily adaptable to standardization. Suppliers might amortize research and development costs and expenses connected to tooling over larger volumes, and might reduce inventory levels of the wide variety of low-volume parts. Japanese automakers, especially Toyota and Nissan, initiated this consolidation trend. By 1998 each reported outsourcing 75 percent of engineering functions.

Emissions Control.
The legislative environment of the 1990s proved a boon to replacement part companies, because tougher emission standards related to the Clean Air Act of 1990 and other environmental legislation increased consumer demand for aftermarket parts. Efforts by several states to enhance their emission inspection programs were expected to contribute to improved vehicle-maintenance practices. The Environmental Protection Agency estimated that the 20 percent of all vehicles that fail emission tests were responsible for some 60 percent of all toxic emissions. The cost of bringing those vehicles to prescribed standards was estimated to run into billions of dollars, much of which flowed to parts companies.

In contrast, some technological advances affected the aftermarket sector adversely because parts and components were built with extended life-expectancies. Electronically driven systems in particular proved to be very reliable and consequently needed less maintenance. Just as the introduction of electronic ignition systems erased demand for points and condensers, the advent of the distributorless ignition system (DIS) resulted in a shrinking market for distributor caps and rotors. The introduction of the emission-reducing catalytic converter also tended to prolong the life of spark plugs because of its requirement of unleaded fuel. By 1997 spark plugs that could last 100,000 miles were common.

In addition, small, four-cylinder engines, which require fewer plugs than their six- and eight-cylinder counterparts, became more prevalent. Similarly, the compact engines of many new vehicles tend to discourage changing plugs, which some contend require the abilities of a contortionist. New technologies superannuated much traditional auto maintenance as few cars needed such items as breaker points, and the annual tune-up became a thing of the past. The number of service stations declined, and there were fewer outlets performing preventive maintenance. For some engine parts, quality had improved so they would never be replaced during the auto's lifetime, barring an automobile accident.

The influx of foreign cars into the U.S. auto market also had a negative impact on U.S. parts makers in the aftermarket. Some professional installers and do-it-yourselfers working on imported vehicles continued to feel that it was better to use original equipment version (OEV) products than the aftermarket offerings of U.S. parts manufacturers in certain applications. In addition, some potential DIYers were reluctant to work on their imported vehicles and opted to take their cars to dealer service departments that used OEV parts. Some observers commented that, as with other consumer products, brand loyalty was declining among many auto owners who were more concerned with buying quality parts at a competitive price. Despite these limitations, domestic parts-makers have made important strides in supplying the import aftermarket.

In the aftermath of the terrorist attacks on the United States on September 11, 2001, the auto industry's Big Three helped jump-start auto sales by promoting zero-percent financing options. As a result, U.S. auto sales were 16.8 million units during 2002 despite a stagnant overall economy. Although this reflected a 2 percent decrease from 2001 (17.2 million units) and a 4 percent decrease from 2000 (a record 17.4 million units), in the face of serious questions regarding the health of the U.S. economy, auto sales were touted as a bright spot on the otherwise dismal fiscal landscape. By 2003 sales had begun to slow, and auto makers were decreasing production numbers and thus auto parts orders.

During the first half of the first decade of the twenty-first century, profit margins ran razor thin in the automotive industry, and automakers worked hard to turn a profit on volume alone. As such, automakers pressured OEM suppliers to hold down prices. Nonetheless, while under tremendous price pressure, OEM suppliers also faced increased material costs and attempted to run on margins that were equally thin, if not transparent. When the auto makers reduced production volume in 2004, the parts makers were left scrambling with the same low prices for fewer orders.

Maryann Keller of Automotive Industries predicted in March 2005 that automakers were nearing the end of the days that they could demand extreme price concessions from parts manufacturers. According to Keller, "The auto parts industry cannot continue to financially support the auto companies. Higher prices, fewer suppliers and less engineering help are the consequences of years of shortsighted behavior toward suppliers that have pushed many companies to the brink."

By the middle of the first decade of the 2000s, the number of companies within the industry had fallen to approximately 700, down from nearly 900 in the late 1990s, and by 2008, the industry shipped $13.8 billion in products. The largest companies (employing over 1,000), comprised only 2 percent of the industry's establishments and accounted for 60 percent of revenues. Even the big players struggled to make a profit during the middle of the first decade of the 2000s. Visteon, the parts maker spun off from Ford in 2000, posted losses of $1.5 billion in 2004 and a total loss of $3.2 billion since 2000 and had to be bailed out by Ford to avoid closing. The country's largest auto parts manufacturer, Delphi, lost $4.8 billion in 2004 and $750 million in the first half of 2005 before filing for bankruptcy, forcing union workers' hands with job cuts and wage concessions. After navigating legal settlements with employees and supply agreements with GM, in 2009 Delphi emerged from bankruptcy under the control of its lenders.

Auto parts makers found themselves in a difficult position at the beginning of the 2010s. Carmakers wanted advanced products, but at lower prices, while the cost for steel and other raw materials soared. The aftermarket sector continued to struggle with the increasing complexity of automobile engines, which scared do-it-yourselfers away from self-maintenance. Although motor repair and maintenance had advanced beyond the skills of most drivers, the do-it-for-me (DIFM) market was increasing in popularity. In Aftermarket Business, James E. Guyette noted that "Because of the increased complexity of repair, the more difficult--and more expensive--repairs are becoming more of the exclusive domain of the DIFM segment, a trend expected to continue."

Current Conditions

According to Dun & Bradstreet, 742 U.S. establishments were engaged specifically in manufacturing electrical equipment for internal combustion engines in 2010. Together these companies generated $2.2 billion in annual sales and employed 30,778 people. Although more than 81 percent of businesses were small, employing fewer than 25 workers, more than 62 percent of industry revenues came from larger companies (those employing more than 100 people). The largest category in the industry in terms of sales was the manufacture of alternators, which accounted for about half of sales in 2010.

Based on figures from the ITA, the U.S. market for OEM auto parts increased 36.5 percent in 2010, reaching $141.5 billion. The U.S. automotive aftermarket, including the service sector, was also on the rise and was estimated at $190 billion in 2010. Although these figures suggested that the industry had begun a recovery from the economic recession at the end of the first decade of the 2000s, the ITA predicted that "automotive parts suppliers and automakers face another couple difficult years, and most analysts don't see the automotive market improving significantly until 2012."

Industry Leaders

In a highly anticipated move in February 1999, General Motors Corporation spun off its Delphi Automotive Systems parts manufacturing business, with an initial public offering (IPO) of 100 million shares. Troy, Michigan-based Delphi Corp., a subsidiary of General Motors for 90 years prior to the IPO, was immediately ranked as the largest independent maker of auto parts worldwide, with sales of $28.1 billion in 2003 and 190,000 employees. Delphi survived an accounting scandal in the first quarter of 2005 when the company admitted to misrepresenting its financial status by overstating profits by approximately $166 million and cash earned by $447 million over six years. Later in the decade the company filed for bankruptcy and in 2009 emerged as a private company, Delphi Automotive LLP. Maintaining GM, Ford, and VW as its major clients, Delphi registered $18 billion in 2010 sales.

Visteon, which was spun off from Ford, was another large auto parts manufacturer, headquartered in Van Buren Township, Michigan. Visteon went an entire decade without turning a profit after Ford cut the company loose in 1999 and suffered under the same price pressures and skyrocketing material costs as Delphi. In the first part of 2005, Ford signed a deal with Visteon to share some of the company's burden, which would have brought the company to the break-even point for the year. After emerging from Chapter 11 bankruptcy in 2010, the company reported annual sales of $7.4 billion. Sales to Ford accounted for 25 percent of revenues. By that time, the company had divided into three different departments: Electronic Products, Climate Control, and Interior Products.

Also prominent were Dana Holding Corp. of Toledo, Ohio, which filed for Chapter 11 bankruptcy reorganization in March 2006. Dana reported $6.1 billion in sales in 2010 with 22,500 employees and clients that included Chrysler, Ford, GM, Hyundai, and Nissan. Another significant player, TRW Automotive Inc., headquartered in Livonia, Michigan, reported $7.9 billion in 2010 revenue.


During the first half of the first decade of the 2000s, pay levels in auto parts manufacturing varied widely for basically the same type of work. Wage disparities were attributed primarily to union contracts. In unionized plants, employees earned approximately $50,000 per year, which was approximately double the earnings of non-union workers.

In 1999 the United Auto Workers (UAW) Union estimated that the unionization rate at parts manufacturing plants had declined from 20 percent to 10 percent over a three-year period beginning in 1996, and the overall auto parts industry employed 400,000 non-unionized workers. The growth of spin-off parts companies, many of which were previously owned by one of the Big Three automakers, contributed significantly to the size of the non-unionized population among auto workers. Union leaders, apprehensive of wage erosion among the union ranks, increased recruiting efforts at non-union establishments and further initiated negotiations for non-unionized parts workers to receive wages equivalent to unionized employees of the Big Three car makers. As parts makers struggled to compete with the low production costs overseas, labor issues were significant to both employer and employee as a matter of survival in the global marketplace.

According to the U.S. Census Bureau, in 2009 the electrical equipment segment of the auto parts industry reported 51,816 employees, down from 58,922 in 2007. About 68 percent of employees were production workers earning an average wage of $19.23 an hour. Dun & Bradstreet estimated that the electrical equipment for internal combustion engines sector employed 30,778 people.

America and the World

Globalization of the auto parts industry accelerated in the twenty-first century. Trade relationships expanded between Mexico, Canada, and the United States as a result of the North American Free Trade Agreement (NAFTA), while new auto-producing nations emerged in Asia. In the wake of ongoing consolidation, Tier 1 suppliers had an increasing international presence, which was spurring competition among suppliers worldwide. The rapid consolidation of the parts industry in general, combined with the increased involvement of electronics firms, including an overwhelming majority of Japanese-based firms, afforded a critical edge to Japanese contenders in the parts arena.

Between 1999 and 2004 the United States lost $47.4 billion in OEM business to other countries. The trend continued into the early 2010s. According to the International Trade Administration, automotive parts imports for the United States were up 44.3 percent in 2010 from 2009, reaching $90.9 billion. Mexico, Canada, Japan, Germany, and China accounted for combined 78 percent of total imports. Imports from China alone increased 35 percent. However, U.S. exports of automotive parts were valued at just over half that, at $58.1 billion, representing a 36.2 percent increase from 2009. Eighty-four percent of the exports went to Canada, Mexico, the European Union, and Japan.

According to Robert Sherefkin in the March 14, 2005, issue of Crain's Detroit Business, parts makers, including those involved in manufacturing electrical components, were expected to continue to lose market share to overseas operations, especially those based in Asia. According to Sherefkin, manufacturing costs were 77 percent less expensive in Mexico and 86 percent less expensive in China, making it difficult for U.S.-based operations to compete. By 2010 all of the major parts makers in the United States garnered a majority of their sales from overseas.

Research and Technology

Government regulations requiring reductions in auto emissions helped drive trends in research and technology for the industry. The three government-regulated auto pollutants are hydrocarbon, carbon monoxide, and oxides of nitrogen exhaust emissions. The catalysts that break them down in the exhaust stream must have a carefully balanced chemistry to work properly. Essential to this process are electronically controlled fuel injection and ignition systems with feedback from various sensors. Research in diesel engine electronics began in order to comply with updated federal and state emissions regulations in 2007, with more regulations scheduled to take effect in 2010. The innovative systems incorporated "brain box" technology, featuring electronic control modules (ECMs). ECMs offer centralized control of fuel emissions and fuel consumption and provide control of engine pressures and fluid levels. ECM technology provides greater fuel efficiency and lower maintenance, as well as reduced emission hazards.

During the middle of the first decade of the 2000s the auto industry continued to work on more fuel-efficient designs that could still provide power and reliability. In 2004 Citroen introduced the C3 Start and Stop. The C3 is a European product that provides stop-start using a 14-volt belt-driven starter-alternator combination, thus eliminating the need for a starter motor. Starting is quieter and quicker, so the engine shuts off whenever the vehicle is idle and restarts automatically when the brake is released. Citroen claimed that the C3 cut fuel consumption 6 to 10 percent.

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