Pipeline: Battle of the Pipe Benders

Thanks to more corrosion-resistant steel, exhaust systems are lasting longer. Most vehicle owners can avoid a trip to Muffler King for several years, and most Americans who lease rarely get to stew over such cost and inconvenience.

What's good for the consumer is not necessarily good for the automotive exhaust aftermarket, where suppliers have migrated toward original equipment work in recent years.

Arvin Industries Inc. and Tenneco Automotive are North Amer-ica's top exhaust suppliers, with Arvin historically having the OE edge and Tenneco taking the aftermarket lead.

But with a declining aftermarket, Tenneco has targeted OE aggressively and now claims to be close to Arvin.

"I hope the day comes when we can claim to be in the No. 1 position," says Timothy Jackson, general manager of Tenneco Automotive, which is now free of Tenneco's non-related packaging business by virtue of a spin-off. "We no longer see them (Arvin) saying they're twice as large as their nearest competitor."

Mr. Jackson says Arvin and Tenneco supply nearly 75% of North America's exhaust systems. The rivalry between them is, to put it mildly, spirited.

Tenneco's grandstanding must be taken with a grain of salt. The company enjoys an edge in exhaust systems for light trucks, so its OE growth is proportionate to the pickup and sport/utility vehicle boom.

But two players do not a market make. Adding to the dynamic is the recent $340 million acquisition of AP Automotive Systems of Toledo by Faurecia, the French interiors and exhaust producer that is among the European suppliers eager to get in while the gettin's good in North America.

What better way to win name recognition than to buy a company that enjoys business with General Motors Corp. and Ford Motor Co.?

Faurecia is Europe's leading exhaust supplier. With AP's U.S. presence, Faurecia emerges as the third-largest exhaust supplier worldwide and could provide new competition for the global leaders, who once again are Arvin and Tenneco.

Also, Japan's Calsonic Corp. already produces exhaust systems in North America.

The new players could be the whip that OEMs love to wield in driving down price.

Even if that's the case, Tenneco has new contracts to ease the pain: GM's Epsilon platform (high-volume midsizers including Chevy Malibu) launching in '03, Nissan Xterra, Toyota Tundra and Honda Odyssey.

Don't forget the intensifying environmental demands for reduced emissions, which ensures plenty of work for exhaust suppliers.

Tenneco's Mr. Jackson admits his company isn't growing at Arvin's expense. Instead, he sees the smaller players losing share.

Arvin has several new contracts, including Ford Excursion, Toyota Solara and Cadillac DeVille and Concours. Arvin and Tenneco used to share the exhaust contract for DaimlerChrysler minivans; for the new 2001 models, Arvin won it all. Arvin also supplies a titanium exhaust system for the GM Precept hybrid sedan concept, and it has an exhaust joint venture in the Czech Republic, a key developing market.

As for North America, that market is going through developments of its own.

Arvin has led the original-equipment muffler market, but Tenneco is gaining ground. Faurecia's recent acquisition of AP Automotive in Toledo gives the French supplier a solid third in the North American muffler market.

1. Arvin

2. Walker (Tenneco)

3. Faurecia (combined ECIA and AP Parts)

4. Calsonic

Source: CSM Worldwide Inc.

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