Michael Broderick was elected to the position of chief executive officer (CEO), Federal-Mogul Aftermarket Division, on June 25, filling a role that was established in March when the Federal-Mogul Board of Directors announced its decision to modify the company’s corporate structure to create a separate and independent aftermarket division. Broderick joined Federal-Mogul after accruing 20 years of experience in the automotive aftermarket in positions of increasing responsibility at two of the world’s largest aftermarket parts and service products distributors. He was most recently president of CARQUEST U.S., a leading automotive aftermarket distributor. Prior to joining CARQUEST, Broderick held senior executive sales and operations positions during his 16-year tenure at AutoZone. In today's Executive Interview, Broderick gives us a progress report on the transition to a separate Aftermarket Division and the benefit it has for both the company and its customers.
The Federal-Mogul Board of Directors announced in March plans to split the company into two operating divisions, a move that officially took place in September. How is the transition going so far?
The operational segmentation into two business segments took effect on Sept. 1, and the transition is going very well. We executed the segmentation four months early. We are now structured to make quicker decisions. We've aligned the segment to focus on key categories, such as friction, chassis, wipers, engine and service products; and have dedicated product engineering and whole channel manufacturingand that's for OE, OES and the aftermarket.
The effects of the segmentation are extremely powerful, especially in the aftermarket. We're receiving a lot of positive feedback about the changes we've madenot just since my tenure but since the announcement of the segmentation earlier this yearsuch as focusing on fill and focusing on brand strategy. The team has done a great job of bringing these to the table.
What are the fundamental differences in this new strategy versus the previous structure?
When you have a powertrain organization, it's very OE-centric. The OEs give you three-month lead times. In the aftermarket, there's no such thing as three-month lead times; there are three-day lead times. In the past, a compromise between OE and aftermarket sometimes didn't work well for the aftermarket customer if the OE customer was put first. And now we are talking to all our customers, including OE and OES, and asking, “How do we do a better job of delivering all of our products to our customers equally?” not satisfying one at the expense of another.
What will be the biggest benefits to your customers that result from this new operating structure?
Consistently high order fill rate. Four months into the job, fill rate is something we've been complimented on by our customers. Having product engineering dedicated solely to our aftermarket products will enhance our product differentiation and product performance. What's yet to come is the brand strategy of our premium brands, and how do we drive that into the marketplace, just like we used to.
What benefits will the company realize from this new strategy?
Innovation, engineering, focusing on the aftermarket and on all our customer segments. What I've quickly recognized is that the team knows they need to be empowered to do the job, whether it's marketing, engineering, research and development these are all areas we're going to continue to invest in to drive our relevance in the marketplace.
We’re now much less hierarchical as an organization. The value internally is the voice of the employee. It's very different than it's been in the past. In the short-term, there are challenges, but it’s a very healthy environment internally for Federal-Mogul to move to.
Will there be any changes to the company's marketing and communications strategy in conjunction with the new corporate structure? If so, what changes will be made?
I'll start with internal communication. We are empowering our people to do their jobs. They know what to do. We have excellent people working for us. We're doing a tremendous amount of work internally so that we can get the message to all people who are working inside our organization, address issues and align our processes to better serve our customers.
We're going to continue to invest in technology to drive our products into the installer base. This is an opportunity to inform our customers of the value our brands bring to them that maybe some of our competitors aren't doing. It's more than just price. There are other services we bring to the marketplace that our competition doesn't. We need to bring that, from a communication perspective, to the forefront. Price is important but quality products and services we provide are also important. We have a great sales organization. They're extremely well informed and well-trained, and we’ll continue to provide a lot more training internally and externally.
We also expect to promote greater identification with Federal-Mogul’s premium brands by creating a better connection with the end-customer so they understand the value proposition of our premium products and so that we better understand their needs.
With the release of the company's second quarter financial results, it was noted that OE sales, particularly in the BRIC markets, increased, with a slight decline in aftermarket sales. What is the outlook for Federal-Mogul's aftermarket business going forward?
We just released third quarter results and we are stabilizing, especially in the U.S. marketplace. I'm not satisfied with 4 percent sales growth, but I believe it's a more positive message than we've had in the past. With regard to the rest of the world, obviously Europe is under stress. With the tools we're bringing to the marketplace and the assortment of products we're bringing to the marketplace, we're going after market share. That's my goal in the short-term. And that will carry forward when their economy gets a little bit stronger. When the economies of Europe and the rest of the world get stronger, it will just bode better for us.
But I will tell you, it's extremely competitive. Pricing, margins, inventory optimization those are every day, every minute conversations. There's a lot of pressure in the marketplace. Although I can call the U.S. "stabilizing," it's not a question of us sitting on our laurels. We're fighting every day right now.
We are continuing to pursue growth in China, India and other global markets where we continue to see solid sales growth. The car parc in China and India are fantastic opportunities for profitable growth in the future as we get our distribution network established and build recognition for our global brands. We will continue to build our resource base in the markets while expanding car parc coverage, launching great brand-building campaigns and growing our sales base.
Taking on market share in a down economy is a great strategy and the company has the resources to do it. What, at a high level, are some of the tools you plan to use to take market share?
New product initiatives. We are expanding MOOG chassis product launches in Europe, for example. We've added 500 new products and new SKUs in Europe. It's being received very well. Thankfully, the work was started before my time here. We’re reaping some of the benefits right now. Although it's very early on, I'm optimistic.
Will there be any growth through acquisition?
If something comes along, we'll look at it. We have a nice footprint worldwide. We'll continue to focus on core issues like enhancing our footprint, keeping our products and services relevant, keeping our costs down, keeping the team focused and focusing on the customer.
We're introducing new brand strategies that are different than we've done in the past. We're investing in inventory, investing in fill, investing in technology. The engineers and the scientists we have and the work that they're doing to provide solutions to the aftermarket, that's what we're going to keep doing. We've been a leader, and we're going to continue being a leader.
Are there any major distribution changes to improve the fill rate?
We are investing in inventory. No logistical changes, not yet.
Can you update us on the brake friction and wiper blade restructuring program that was announced at the end of the second quarter?
There are four plants involvedthree plant closures and one downsizing. We're on schedule, and we'll continue to be on schedule. The team is very focused on keeping its priorities. In this case, to enhance our capacity utilization within our friction and wiper manufacturing plants.
What do you see as the key trends in the automotive industry that will impact the automotive aftermarket over the next five to 10 years?
The economy is a big one, and I'm interested to see how that plays out. I think from a technology standpoint, that's another play. When you look at a car over the last 10 years and how the look and feel of a car and the performance requirements are changing, we have an opportunity there.
We need to be a great supplier. You don't have an opportunity to fail anymore. It's extremely competitive. There are no more passes.
There's a lot of legislation coming down. You look at what's going on in California and Washington, and the friction opportunity for Federal-Mogul. We have an opportunity as a technology and R&D leader to separate ourselves from the rest of our competitors. Friction is such a big part of our business.
Tell us a little about your background on the parts counter.
At AutoZone, I literally grew up on the counter. I was raised through their management ranks and I rely on that. Before I meet with a customer, I travel through stores to understand what's going on, what's their strategy and how their communications are flowing through to their counter people.
I have a tremendous amount of respect for the people on the counter. I think they're excellent at what they're doing they're solving peoples' problems. That's where I grew up and I feel very comfortable there.
They really are an extension of your sales team, aren't they? They educate, they influence.
Yes. I think they're geniuses in a lot of ways. I think that people don't recognize that. With the Federal-Mogul product assortment, there are six different choices for a set of brake pads. That counter professional can make a big difference.