Here’s Why Ford Is Launching Its Auto Parts Brand

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Recently, Ford Motors (NYSE:F) launched “Omnicraft”, an enitrely new brand of auto parts for all makes of non-Ford vehicles. Through this venture, non-Ford customers can purchase parts and get their vehicles serviced at Ford dealerships. This is Ford Customer Service Division’s first new brand in the last five decades and presents a huge opportunity to its dealership to service non-Ford vehicles. While margins in selling new vehicles, especially in the non-luxury segment, are low, automobile dealers usually find profitable opportunities in after sales service. Through this venture Ford is looking to grab a piece in the steadily growing auto parts market and incentivize its dealership by opening up the opportunity to service non-Ford vehicles.

New Revenue Stream, Incentivising Dealership

The average age of a vehicle on road in the U.S. is 11 years and with this longer lifecycle the demand for auto parts is growing. According to a research by the Fredonia Group, the North American automotive aftermarket is likely to grow by 3.2% annually and likely grew to nearly $85.5 billion in 2016. While the growth in this market is not exponential, Ford is well poised to capture this steady growth and establish itself as a strong player in this market. Growth in the auto parts segment is higher than automotive sales in the U.S., as ageing vehicles require more service and replacement parts. According to a report in the Financial Times, U.S. auto sales grew only 1% annually in the last decade while sales at major aftermarket auto part chains grew 7% per year.  Omnicraft will expand globally and its parts will be sold at Ford and Lincoln dealerships, number 3,200 in the U.S. and 10,500 globally. This can generate another steady revenue stream for the company and incentivise its dealers.

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With sales of new vehicles slowing, as consumers move away from auto ownership to ride sharing, automobile companies are looking at various alternative ways to grow revenues. Ford has already branched out as a “mobility solutions” provider and its foray into auto parts for all make vehicles can generate a steady revenue stream for the company. With its dealers being able to service non-Ford vehicles. the compan can target the vehicles of competing makers for additional service revenue, offering  faster expansion in the long term.

 

 

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