Twenty-five years ago, on October 1, 1996, Corteco went into business. Over the course of a quarter-century, the commercial company developed extremely well in the independent spare parts business – and has set a course for continued success. In an interview with “Sealing World,” three executives briefly recall Corteco’s past before looking ahead to its future. They are Jason Meier, Senior Vice President, Jürgen Friedl, Vice President, Corteco Europe, and Thomas Mettke, General Manager, Corteco Hirschberg GmbH.
Corteco supplies wholesalers in the independent aftermarket (IAM) with sealing and vibration control technologies, steering and suspension components, and interior filters for cars, all in original equipment quality. So do all the parts come from Freudenberg’s manufacturing operations?
Mettke: Our product offering target is to have in excess of 75 percent of the vehicles in operation covered with our range. This means we leverage the strength of our Freudenberg Business Groups as well as external strategic supply chain partners to accomplish this goal.
Let’s briefly look back at 1996. What was the rationale for Corteco’s founding?
Friedl: Freudenberg had previously focused almost exclusively on original equipment and the replacement parts needs of original equipment manufacturers, or OEMs. This focus on the OEM meant that Freudenberg skipped an attractive part of the life and repair cycle: the independent aftermarket (IAM). Once vehicles enter the second or third stage of their “lives”, when they are five years, or better yet, eight years old or older, the owners turn to the independent repair shops. By founding Corteco as the dedicated IAM brand with the broad application coverage that the market demands, Freudenberg was now able to profit from serving the whole repair lifecycle of the vehicle.
Mettke: The broad-based IAM distribution sector with many hundreds of customers requires logistical structures and planning processes that are completely different from what Freudenberg had before Corteco was established.
Friedl: In the independent aftermarket, availability beats price. That means we need a comprehensive selection and the right logistical services to deliver parts in large and small quantities just-in-time. And we have to do it ad hoc, we don’t get a head start. We certainly know the repair rates for individual types of vehicles and their applications, but we don’t know when a vehicle is going to break down and need repairs. We need a specially aligned organization to handle this, along with a broad, rapidly available selection and considerable flexibility.
What are the success factors there?
Mettke: The replacement parts business is based on trust, on personal support. This requires proximity to the customer and a competent field staff. Medium-sized customers like to see an executive presence from time to time. Aside from these personal factors, we get good reviews for our broad selection and high quality, not to mention service speed and flexibility. Overnight express deliveries are one example, making it possible for a workshop to perform a rush repair the next morning.
What role do digital services play?
Friedl: A major role. When it comes to digitalization, Corteco is very well-positioned. We have a set of digital tools to provide additional decision-making aids, especially for replenishment and category management, to determine which components we basically take into our program and which of them are stocked.
Can you please give us some examples?
Friedl: At Corteco, we have been using digital tools such as AddOne software for inventory management and replenishment for years. In customer service, we use the TecOrder interface. They make it possible for us to process orders completely digitally “end to end”: from order to invoice, including all the relevant freight and customs documents, even for exports. In the “Wishdate” project now underway, we are moving the customer’s desired delivery date to center stage for material flow, scheduling and order confirmation within our ERP system. We are also working on the introduction of Price Fx software to assist in price harmonization and optimization efforts in each region for our nearly 70,000 products.
In addition, with an external services provider, we are taking a close look at the “click rate” in the basket of goods in our customers’ online shops. If customers are looking for competitors‘ products, it could be an indication of potential gaps in our portfolio, a market price discrepancy, or even lack of brand awareness. In all of these scenarios, we have data to drive our actions.
We have also created a special team that not only analyzes data but actually generates catalog data on its own. This mainly relates to research into the applications behind our products. As a result, technicians at independent service shops can reliably find and order the single correct Corteco parts number in a specific situation based on the vehicle’s details.
Today the Corteco Division consists of two brands: Corteco and TransTec. What is the difference between them?
Meier: The merger of the TransTec and Corteco brands under the umbrella of the global Corteco organization in 2013 marked a milestone in the development of our business. TransTec is involved in the replacement parts market as well and pursues the same quality philosophy, but serves a distinct type of customer. TransTec’s customers are application specialists – professional rebuilders of vehicle applications such as transmissions and steering systems and distributors selling parts to specialty repair shops. TransTec must create a rebuild kit for these applications, providing all the components necessary for the repair, whether seals, gaskets, metal rings, filters, or fastening elements. Whereas, Corteco serves generalist repair shops via distributors selling parts for everything from spark plugs to exhaust systems.
Is it correct to say that the Corteco brand has mainly exploited its strengths in Europe to this point, while TransTec has a longer established market leadership position in North America?
Meier: That’s correct. One of our major strategic initiatives is based on that fact: We want to take our two established business models and drive them even more forcefully to success on the other continent. The outlook for TransTec in Europe is favorable for a number of reasons. For one thing, the share of vehicles equipped with automatic transmissions is rising sharply. In turn, the prospects are good for duplicating the successful European Corteco model in the Americas as the vehicle parc is highly fragmented with many global OEM brands.
How are you positioning yourself for electric mobility?
Friedl: First things first: In Europe, we do three-quarters of our business with vehicles up to fifteen years old. Corteco is due to start dealing with the electric cars registered today eight years from now. We have the same lead time with the OEM business. Yet we have naturally been preparing proactively for the change in powertrains for some time. One building block is the expansion of our chassis and steering offerings. We are working closely with our strategic supply chain partners on this topic.
Mettke: Another thought on the time horizon of our business: We are still storing replacement parts for Volkswagen’s Golf 1 from the 1970s. That is to say, the internal combustion business will likely be around as a source of revenue for us for decades. One more observation on the topic of electric mobility: Even batteries and fuel cell systems will be renovated, that is, reconditioned. This kind of remanufacturing is also opening up new opportunities for us in the future.
Let‘s turn to the current business situation. To what extent has it been affected by the Covid-19 pandemic?
Meier: Considering the many challenges, the Corteco Division has performed and is continuing to do well at the moment. Our revenue and our profitability are above the results that we achieved before the Covid-19 crisis. After the downturn in the spring of 2020, the market and our business quickly recovered in the third quarter of 2020. Overnight, we had to switch from reduced hours to extra workloads, including Saturday work and overtime. The fluctuations and the spikes in demand along the entire supply chain have been enormous over the course of the pandemic.
Our brand is built upon People, Product and Processes. Here, we are very fortunate to have great employees as the backbone of our organization. I would like to take a moment to acknowledge their hard work and to thank them for their dedication and flexibility! Currently, the clearest challenge is ensuring product availability. On-time delivery and product availability are the crucial criteria for many customers in their choice of suppliers. These issues are often more important to them than brand loyalty and pricing.
Here you are talking about the desires of the customer. Has the customer base changed?
Meier: Yes, it has. Until now, the customer base of the independent aftermarket has been characterized by regionally based companies, with whom we can negotiate on an equal footing. But in recent years, we’ve observed numerous mergers and acquisitions in various regions causing market consolidation and thus impacting the overall competitive situation. This trend is expected to continue and will certainly be both a challenge but also an opportunity to gain market share for the well positioned suppliers such as Corteco.
