PHINIA Focuses on Growth of Aftermarket Business
In July, PHINIA completed its spinoff from BorgWarner, named a new CEO and pledged to focus on fuel systems, electrical systems, and the aftermarket business. Talk about a lot of change over a short period of time. With the company’s creation, its mission is to deliver high-quality, innovative systems and components for OE and aftermarket customers across commercial and light vehicles and industrial applications, while leveraging fuel technology as a pathway to carbon neutrality. So, how does the PHINIA team plan to accomplish those goals?
AftermarketNews Editor Maddie Winer sat down with PHINIA’s new President and CEO Brady Ericson as well as Neil Fryer, vice president and general manager of its global aftermarket business, and Jenna Boone, vice president and general manager of PHINIA’s aftermarket business in North America, during the 2023 AAPEX Show to find out the company’s priorities for 2024, how the spinoff from BorgWarner has affected its business and how it’s looking to gain market share by being a greater resource for its customers.
Winer: To start off, I want to talk about the spinoff that was completed in July from BorgWarner. How has it affected your aftermarket customers?
Brady Ericson, President & CEO: I think it’s been very beneficial in many ways. From our customers to our suppliers and our employees, they’re excited. They know that we’re now committed to growing our products and services. We’re committed to the aftermarket and investing in it. They know that we’re going to take our profits and our free cash flow and reinvest it in our business, where before it was a question of whether it was going to get reinvested in other product lines.
Our customers know that we’re committed to supplying them parts for decades to come in a market where they have suppliers that are exiting the product category. For us, we see that as a good opportunity to pick up share and expand our product offerings. They are willing to buy from us because they know that we’re committed to the space.
Winer: Is one of your goals to gain market share?
Ericson: Absolutely. We’ve been doing it, and I think the market is going to continue to consolidate, which will give us opportunities. We have been gaining market share over the years because we have great products, great service and we’re committed to supporting our customers, whether it’s through training programs, our inventory management systems, and having our fill rates at 95-plus percent. They trust us as a reliable partner.
I think what a lot of people learned over the last four or five years is that having a reliable partner is probably one of the most valuable things because there are a lot of unreliable players out there. If you have fill rates of 50%, 60%, your business is suffering.
Again, our strategy is to continue to grow our aftermarket business and make it a larger percentage of our overall business. We’re going to continue to look at acquisitions and continue to add product lines to our portfolio.
Winer: When you say acquisitions and adding product lines, are you referring to adding product lines through acquisitions or creating totally new lines?
Ericson: It’s a combination of both. We’re looking at the most efficient way to capture opportunity. In some cases, it’s going to be organic by developing a supplier to bring a new product to market, or maybe acquiring an OE business that has a significant aftermarket business or maybe acquiring a pure aftermarket manufacturing business that will then address some of our portfolio gaps.
Winer: Delphi and Delco Remy have been focused on ICE solutions. Yet the company’s [PHINIA] tagline is “powering a carbon-free tomorrow.” So, what does that roadmap look like?
Ericson: Well, for us it’s also around improving efficiency today as well as helping our customers transition to the carbon-neutral and carbon free fuels of tomorrow. These include ethanol, biofuels, renewable fuels and all the way to carbon-free fuels like hydrogen in the future. Our view is that a liquified or gaseous fuel for mobility is going to be around for the rest of the century. It is very effective in transportation and mobility in general. We feel that it’s going to be around for decades if not the rest of the century.
Are electric vehicles and battery electrics coming? Yes. But they’re not going to be the best solution for all applications and use cases.
Winer: We know the majority of vehicles on the road are ICE vehicles, but EVs are slowly increasing. How is PHINIA balancing its innovations for ICE vehicles and EV vehicles?
Ericson: EVs are coming, but again, we are not participating in battery electric vehicles on the OE side, so we’re not going to be in battery packs. We’re not doing electric motors; we’re not doing high-voltage electronics from the OE side.
We’re focusing on making these combustion engines more efficient today and helping them transition to those carbon-free and carbon-neutral fuels of tomorrow. That’s where a lot of our focus is.
Our strategy is around product leadership. And product leadership is not just technology leadership, or technology for technology’s sake. Product leadership is defined as technology that brings value to our customers that they’re willing to pay for. The value that we’re talking about can be seen in our 500 bar GDi systems that allow our customers to meet emissions and improve fuel economy, and actually reduce their after-treatment because it’s so efficient. They can actually reduce the cost of the vehicle, making them more competitive. That’s the kind of value we are looking for.
On diesel applications, we’re actually leveraging our GDi technology and converting it to a diesel application for off-highway applications. It’s a value-based direct injection system. Right now, the heavy-duty systems are 2,500-bar, 3,000-bar. Off-highway and some other applications can’t afford the most advanced solutions. They’re very cost sensitive. So, we’ve actually adapted our GDi systems to diesel and can give them a 350 to 500-bar system for their diesel application. It gives them significant benefit at an affordable cost.
Those are the kind of things that we’re looking at—bringing technologies to customers that bring value. It’s the same thing when we look at new product lines that we look to add to our portfolio.
Winer: Talking about bringing value to the customer, I know Delphi has a training program. Can you tell me about any new updates to that?
Jenna Boone, VP & General Manager, North America Automotive Aftermarket: Yes, we have the Delphi Academy. In Europe, they’ve launched a program called “Masters in Motion.” What we’re doing is looking to pick that framework up and leverage our Delphi Academy that we already have to fill in any gaps that we have here in North America.
Neil Fryer, VP & General Manager, Global Aftermarket: The “Masters of Motion” program [in Europe] is based on the interviews of technicians to get feedback from them. The major feedback that we got was that when they have a problem they don’t know how to solve, the first place they look is YouTube. So, we said, we’re going to produce 100 YouTube videos this year that are two to three minutes in length about how to solve a particular problem. I think the most recent one is, “How do you recalibrate an ECU after you change your air filter?” You would think that when you’re changing the air filter, you just change it and that’s it. No. You have to recalibrate the system to make the car work properly afterward. It’s those kinds of things that we focus on. Even if air filters are not really a mainstream product we have, we can help technicians to do a good job and get the brand out there. So, we’re going to roll that out in North America.
Ericson: This a great example of where we add value for our customers beyond the products we supply. Adding training support and other services helps us expand our product offering moving forward.
Winer: Interesting. So, training in 2024 is going to be a big focus for PHINIA?
Ericson: Yes, and that’s because if you have a training video, you can say, oh by the way, here’s this Delphi part that goes into [the repair]. A technician then will say, ‘I remember that training video, and they put a Delphi part in there, so I should, too.’ It’s a way to grow sales and gain brand recognition.
Fryer: Within our product ranges, we have some propulsion-agnostic product ranges, like suspension and braking. We have a wide range of sensors, and we see sensors as a big opportunity because now our suppliers have sensors that go around the propulsion system in an EV. And those are things that start to fail and need to be replaced at some point. We’ll offer those within our overall sensor range as well.
As Brady was saying, our service to our customers will encompass EV and give them solutions alongside internal combustion engines. Because, of course, those workshops see one EV every two months. Most of the time, they see internal combustion engines, but that will change as the times move on. Give them what they need to be successful today and prepare them for the things that are coming through training for those products.
Ericson: Neil said this as well, but I think one of the biggest challenges independent shops have is diagnosing and fixing a vehicle the first time.
So, on a sensor, techs can’t just start swapping out sensors left and right. That costs them a lot of money. But if you have the right diagnostics, you have the right training videos, you can fix the vehicle right the first time and lower the overall cost for the customer, you can gain their confidence. They’re going to come back over and over again, and it improves the shop’s reputation.
That’s why we think the training, videos and everything else is so important for us to have that strong reputation. And Delphi has a great reputation in the aftermarket.
Winer: You mentioned your steering and suspension products. What are you planning for those lines in 2024?
Boone: We’ll have more of a focused effort and continued growth there. We launched in 2018, so we continue to offer a new range of products and continue to move on really converting our brand. A lot of people are really loving the brand now that we’ve started to grow it, so that’s a huge focus for us. And it’s EV agnostic. So as Neil was saying, we’re offering Tesla parts in that line already. We simply look at the VIO, what the customers need, and then release to the market. So, we’ll continue to do that.
Ericson: I think we’ve got about 20% of our revenues that are propulsion-agnostic. So, it’s not combustion or electric propulsion related. It’s steering, suspension, braking, other kinds of services, diagnostic equipment and support. Those are areas that I think we have good growth opportunities in as well.
Winer: Tell me about your plans for the remanufacturing side. You all mentioned that earlier.
Fryer: It’s definitely part of our sustainability strategy. As a company, 10% of our revenue today comes remanufacturing parts, whether that’s diesel fuel injection parts or others. Remanufacturing is part of our DNA; part of our heritage and we see opportunities to expand that in the future. We’ve managed to save 10 million tons or 10,000 tons of auto parts from the landfill from parts we’ve remanufactured over the years. We’re reusing those products and bringing them back to the standard they were when they were new.
Boone: It’s important from a service standpoint too, because as people fall out of the market and go more towards EV, reman will become very important to be able to supply parts for vehicles on the road.
Winer: To conclude, can you tell me about PHINIA’s aftermarket parts strategy for 2024 and what customers can expect?
Boone: Fuel is our wheelhouse in North America, so we’re going to continue to offer fuel, continue to look at our product ranges, and then really get focused on our Sparta fuel line. This is a new line that we’re offering for higher mileage, older vehicles. It’s for those consumers that are needing to keep their vehicles running longer. We continue to focus on steering and suspension and launch products into the range that are needed for customers, and we’re working to really help get our product out there.
We talked about training, which is another product that is very important for us. Really, we’re continuing to focus on some more offerings for the independent aftermarket and diesel. We’re trying to make better connections into that diesel premium market, looking at offerings for more makes and models.