What Is OEM?

OEM stands for Original Equipment Manufacturer. The OEM is the original producer of a vehicle's components, and so OEM car parts are identical to the parts used in producing a vehicle. Aftermarket parts are produced by other vendors and do not necessarily have a consistent level of quality or compatibility with the vehicle.

Understanding OEM

Consumers replacing damaged vehicle components may choose to purchase OEM parts in order to ensure replacement parts are fully compatible with the vehicle and produced at the same quality standards. As the original suppliers of a vehicle's components, OEMs often have their products sold by branded car dealerships and available for order through the automaker directly. OEM products are endorsed by the automaker and are often significantly more expensive than aftermarket parts. OEM products and aftermarket products both have distinct benefits and disadvantages for the customer. In the future, new technologies such as 3D printing may transform OEM supply chains and improve competitiveness.

For customers, many OEM and aftermarket products are nearly equivalent. Aftermarket components differ in quality but have many high-quality products available, often at a lower price than OEM parts. Competition with aftermarket manufacturers drives down prices and may eventually bring OEM prices in-line with aftermarket offerings. OEM products are usually only available for purchase directly through dealerships while aftermarket parts may be purchased online from a variety of vendors.

The OEM Market

OEM parts are usually guaranteed by the automaker to be compatible with the vehicle; installation of the parts may also be guaranteed in some cases. Aftermarket parts may or may not be compatible and many vendors do not certify compatibility. A broad range of companies produce aftermarket parts at many different price points, which allows for a wide range of choices but can also make for a confusing experience. OEM parts usually only offer one or two options for consumers, making the experience of replacing parts rather less complicated.

Fierce competition in the automotive parts industry creates a strong need for OEM and aftermarket manufacturers to distinguish themselves in the parts market. Among aftermarket manufacturers, this competition results in a wide range of prices and unique features of parts. The quality of some aftermarket parts equals or exceeds OEM products, while other parts companies compete by offering lower-priced products of inferior quality.

OEM companies, competing with aftermarket businesses, increasingly innovate supply chains and product lines to deliver a superior product at competitive pricing. Both OEM and aftermarket companies are actively using technologies such as 3D printing to efficiently create on-demand parts and make their supply chains more flexible. Rapid changes in product demand may be costly for traditional production to respond to and may require companies to maintain higher inventory levels. On-demand production is providing auto parts manufacturers with additional production options.

Value-Added Resale

An OEM is different from a value-added reseller (VAR), which is a company that purchases the original or component product from the OEM and then adds to its value by adding features or services to the product, or by incorporating it into a larger product, before finally reselling it, most commonly to end users.

OEMs most commonly sell their products business to business, while VARs most commonly sell to consumers or other end users. One of the most basic examples of the relationship between original equipment manufacturers and VARs is the relationship between an auto manufacturer and makers of auto parts. Various parts needed for the assembly of a car, such as exhaust systems or brake cylinders, are manufactured by a wide variety of OEMs. The OEM parts are then sold to an auto manufacturer, which adds value to the original product by making it part of an automotive vehicle. The automotive vehicle is then sold to individual consumers or other end users.

It's also possible for a company to be considered a VAR of the products of a company that is itself already considered a VAR. This most commonly occurs with companies that primarily provide services rather than goods.