Understanding OEM in Automotive Manufacturing: Components and Assemblers

Original Equipment Manufacturer (OEM) refers to companies that supply specific components and parts for automotive manufacturers. These companies produce the precise parts and components that go directly into finished vehicles, often as a part of their overall supply chain. The importance of OEMs in the auto industry lies in the competitive nature of the market, where even small cost savings can significantly impact profitability.

The Role of OEMs in Automotive Manufacturing

Companies such as TATA, Mercedes, BMW, and Porsche are all considered OEMs in the automotive world. These companies are the end-product consumers, but they rely on numerous other companies to supply the parts and components that make up their final products. Examples of these suppliers include Bosch, Harman, Continental, and Autoliv. While these suppliers are not OEMs themselves, they provide critical components that contribute to the overall functionality of the vehicle.

Importance of OEM Components

According to industry estimates, the cost of components can make up approximately 40% of a finished car's total cost. This cost factor includes procurement from OEM suppliers, assembly by the car manufacturer, dealership mark-ups, and government taxes. The ability to save even a small fraction of this cost can have a substantial financial impact, leading car manufacturers to frequently switch suppliers to reduce expenses. This level of competition means that saving 5 cents on a gasket (which is a small manufacturing cost) can translate to significant savings on large production runs.

From Production to Assembly

The process of manufacturing a car involves a complex system of suppliers and manufacturers. Parts like glass, seats, switches, and wipers are sourced from various OEMs, with each part being critical to the overall assembly and functionality of the vehicle. These components are often manufactured in different countries, with each country contributing its expertise to the final product. The diverse sourcing of components ensures that the finished vehicle meets high standards of quality and reliability.

Examples of OEM Supplies

For instance, if you purchase a Porsche, it might be assembled by Steyr_Puch or Magna, but the parts themselves are still Porsche-branded. Bosch, meanwhile, supplies the rotors that are engraved with the Ford part number on your car. This demonstrates that the term 'OEM' is not solely about the end manufacturer but also about the specific parts and components supplied.

Original Equipment vs. Aftermarket Parts

The concept of OEM parts has evolved over time. Originally, car manufacturers sold parts that were identical to what they used to build the car. However, with the passage of time, outsourcing of parts became common, particularly for older models that are no longer in production. The term 'OEM' has thus expanded to include parts made by third-party suppliers that are designed to be compatible with the original equipment.

Consumer Considerations

As an end-consumer, it's important to understand the distinction between OEM and aftermarket parts. OEM parts are typically more expensive but often superior in terms of compatibility and quality. For example, a manufacturer-supplied distributor for a GMC pickup truck might cost over $250, while an aftermarket distributor made of machined metal could cost between $100 to $150, with even cheaper options available. Similarly, brake rotors made by Bosch are considered OEM parts, while cheaper, non-Bosch rotors often come with lower quality and longevity.

Conclusion: In the automotive industry, the role of OEMs is crucial for the efficient production and quality of vehicles. However, the choice between OEM and aftermarket parts depends on individual needs and priorities. While OEM parts offer superior quality, aftermarket parts can provide cost savings and better customization options.