The New Age of Remanufacturing

While the push and pull between new and remanufactured product is surely as old as the aftermarket itself, the activity in the market has reached a new level.

For many years, across most categories traditionally the domain of the remanufacturer–starters and alternators, water pumps, clutches, brake callipers and, of course, engines and their bolt-on components–reman has maintained a price advantage.

In the past few years, however, new castings and now whole new assemblies have become more price-competitive than ever, and this is changing the game. Some times the effect is predictable, other times surprising.

For Rob Munro, owner of Valley Speed Machine Shop in Kamloops, B.C., it is both a blessing and a curse.

“On some engines, like an 87 to 95 TBI engine, there is only about $200 difference between buying new from the dealer and the reman,” he says, adding that customers often go the OE route, perhaps half a dozen in the last month.

To combat this trend and prior price competition, he long ago moved to more custom performance work and restoration jobs.

“A crate motor from GM will only appeal to one of three different combinations, so it may not be for everybody. We build a custom motor; it is tailored to what you want. We are able to build a motor customized to [the customer’s] performance needs.”

Still he sees the appeal.

“If I am a consumer and I look at transmissions the same way, am I going to send it to a local guy or buy a new GM one and take advantage of the warranty? I’d go the GM route.”

On the plus side, however, the increased availability of castings has allowed him some opportunities. A 6.5 diesel engine used to be problematic to rebuild–castings were often cracked–but new castings are relatively inexpensive and of good quality. That puts him in the catbird seat, able to offer a customer a complete motor for about $6,500 versus the $10,000 that GM is asking, he says.

“If I was a [production engine rebuilder], I’d be more nervous because you are only offering a select few motors.”

The evidence is clear from recent experience in the aftermarket. Several large production engine rebuilders (PERs), which are focused on high volume, standard specification engines, have disappeared over the last few years.

“With the average four-to-five-person custom automotive shop, I don’t think the new game is going to hurt them as much as [it will] the PERs.

“And when you see PERs offering balancing and custom performance shops, it is only a matter of time before they become large custom shops.”

Of course, when most in the aftermarket think of remanufacturing, the first parts they think of are rotating electrical (i.e., starters and alternators), chassis, and driveline parts like steering racks and CV shafts.

They are not the first examples of traditional reman product categories to see pressure from new products. Clutches, for example, long ago became almost a new-or-nothing proposition, as new options became more price-competitive and technicians declared their desire for greater product confidence by migrating to new units.

More recently, water pumps have seen a migration, and possibly for the same reasons. In addition to the obvious desire for fewer warranty repairs owing to the significant labour component in the repair, there is more at work here.

“My feeling on the new–and we do have new–I don’t think it is going to be as quick a change as it was with clutches, callipers, master cylinders, and water pumps,” says Bob Sinclair, corporate sales manager, Dixie Electric.

“My reasoning in that is that if you go to just about every city in Canada, there is a local business rebuilding starters and alternators. But you would probably have to search for a local guy who will do water pumps, clutches, or master cylinders.”

In addition, he says, the inherent value in some of the cores keeps the wheel turning in the reman sector. Accordingly, he cautions jobbers to be diligent about core returns, lest they feed that local competitor.

“So if there is new out there, and the jobber sells new and doesn’t get the core back from the guy, it is going to go somewhere, and it will probably fall into the hands of the local rebuilder.”

That means that he will have a cheap core and the subsequent remanufactured units might end up on the service station shelf on consignment.

“So that ends up as competition to the jobber,” adds Sinclair.

Still, it remains a fact that there is more “new” than there used to be, and that is creating pressures on the distribution chain.

“[With] all this transitioning, somehow we always end up on the short end,” says Mark Mandel, president of Base Automotive Warehousing Ltd.

“As the price of new comes down and the price of the reman goes up, sometimes I think it goes up to force people to take the new. It puts us in a really awkward position, especially with electronic cataloguing.

“It is tough to make sure that the customer is aware of all the options. It started with clutches quite a few years ago. We’re right in the middle of the transition in water pumps.

“We have been forced to carry the good, better, best, and now we have to carry good, better, best, and new. There has to be a breaking point.

“You simply can’t carry four lines of every product,” he says. At some point enough is enough. “The rules are changing midstream and that is causing problems.”

Further to that, it seems clear that in some cases there are “new” customers, and “reman” customers.

In some cases, it’s not such a critical distinction.

“It doesn’t seem to be changing too much,” says Seward Shomphe, manager of the NAPA store in Cheticomp, N.S. The 5,000-square-foot store caters to a highly local customer base in this town of 3,500. The store does not even have a delivery truck. “There’s not that much difference in price, but they don’t have much choice,” he says. “They’re a hundred miles away from the next nearest place.”

Across the country, a very different situation exists. Doug Coates, vice-president of sales at Lordco Parts Ltd., an independent 80-plus store chain in British Columbia, says that the recently added new rotating electrical has really taken off.

“On the electrical, we are extremely excited by new,” he says. Growth has been exceptional. “I think it’s because most of our service-providing customers want the best part. It is an industry trend. The premium shops don’t want comebacks, so if they can eliminate warranty they will, providing that the price difference isn’t tremendous. We are proud of the fact that we are carrying premium brands.”

While he has heard about extreme price competition from eastern Canada colleagues, he says that he seems to find less price pressure in the west. “They just want the best parts. They want OE fit, form, function, and reliability.

“The thing that is neat is that we are still growing our reman. It’s pretty exciting.”

Still, says Coates, it was not a decision taken either lightly or quickly. He says he sees too many in the aftermarket being quick to jump. “But we’ve never been a white box operation. We have always been a branded house, so when we look at different product the brand is still important to us.”

That is the key, says Joel Fenwick, vice-president of purchasing for Fenwick Automotive. As one of the largest and oldest remanufacturers in North America, it is a company that, Fenwick says, takes a very methodical approach to any new-versus-reman shift.

“For the rebuilder it is significant, because it represents a challenge on many lines. The challenge for us as a rebuilder is how to make it work by adding a new line, while maintaining a nice balance between the two.

“And when it comes to new, in many cases, anyone can come out of the woodwork and be a me-too player in a new line.

“So for us, when it comes to new, the edge we are looking for is the quality edge. New doesn’t always mean good quality.

“In virtually every new aftermarket part you run the gamut of very good quality parts to pure junk. What we do is travel the world and seek out OE manufacturers that are capable of making parts to our designs.”

In-house engineering and testing as well as third party testing are the hallmarks of a top-level supplier these days, whether new or reman product is involved, says Fenwick.

While many, including Lordco’s Doug Coates, expect that the next category to make a big push for new product is the CV shaft, Fenwick isn’t so sure it’s going to be either quick or complete.

Fenwick says that remanufactured product uses OE joints that are ground to accept new oversize cages and bearings, while new units are something different entirely. “Whereas the OE CVs and outer joints would have dozens of different race and cage and size combinations, specifically for the load capacity of that joint, manufacturers of new CVs have slimmed that down to as few as eight designs.

“You can imagine what it means to have a Honda Civic inner race combination going into a Ford CV shaft.”

That is why pricing on some of these parts is so low, he says. “And also hardness depth on the inner races on original can be as deep as 60 thou. And on new joints, that can be less than 20 thou.” That means they can’t be ground for reuse, making them valueless as a core.

Then there is the fact that nearly 2,000 part numbers are required to properly serve the aftermarket demand. Fenwick says that it will take a while for new product to be able to handle the full scope of the category cost-effectively with new product.

The fact remains, however, that there will likely be more newly manufactured product in the aftermarket tomorrow than there is today.

“It is definitely a challenge but not necessarily a threat,” says Fenwick. “Remanufacturers react very quickly to changes in the industry.”

“It is absolutely changing,” echoes Mandel. “It’s evolving for sure. In the old days I used to think I was ahead of the curve. It’s not as clear-cut as it used to be. Things are changing very quickly.”

“You can take a step back and ask how these things affect what we’re doing. Maybe what we’ve been doing isn’t the right way, but carrying three or four lines of any product just doesn’t make sense to me.”