Continued Growth Predicted For Reman Market

The reman powertrain components market, including engines, transmissions, clutches, and turbochargers, earned revenue of $3.19 billion in 2013 and is expected to reach $3.52 billion by 2019, according to a recently published study by Frost & Sullivan.
The research company cited the environmentally friendly image and the reliability factor of reman parts as two of the reasons for this growth.
The report cautioned that “increased sophistication in the functionality of heavy-duty engines and variable geometry turbo­chargers will raise the unit prices of remanufactured components.” But it could be argued that those same forces will be raising the cost of new components as well.
“Without a doubt, there are tremendous growth opportunities in all distribution channels for automotive electronics and turbochargers. This is driven by the continued proliferation of electronic content in vehicles, combined with the expanding application of turbochargers to reduce emissions, improve fuel economy, and increase overall powertrain efficiency,” explains Jeff Green, senior product manager, electronics and distributor products, Cardone Industries.
Honeywell Turbo Technologies recently released its Global Turbo Forecast, which estimates the industry will generate $12 billion in revenue by equipping 49 million vehicles with turbochargers annually by 2019. The continued growth of turbocharging technologies will be driven by requirements for manufacturers to meet global environmental emissions regulations and bolstered by strong demand in emerging markets.
Turbochargers can help downsized engines improve fuel economy as much as 20 to 40% in gas and diesel engines, respectively, when compared with larger naturally aspirated engines, and still provide the same or better engine performance. In addition to improving fuel efficiency, downsized turbocharged engines also reduce harmful exhaust emissions.
“Continued pressure to improve the driver experience and meet future industry requirements is spurring the positive trend seen in this year’s forecast, which includes double-digit growth in both North America and China,” says Honeywell Transportation Systems president and CEO Terrence Hahn. “We expect the industry to produce more than 200 million new turbo-equipped vehicles during the next five years, driving continued demand for well-designed, boosted engines that reduce fuel consumption and improve vehicle performance.”
“Growth in vehicle electronics is touching nearly every part of the car, each equipped with 30 or more electronic control units. By some estimates, 40% of the component content of a new car is now comprised of electronic modules, and that percentage will grow over the coming years as more features are added for convenience, safety, connectivity, improved fuel economy, and emissions,” explains Mark Shasteen, vice-president of CTDI’s automotive division.
Reman components also provide the bonus of reducing downtime, since they can be installed in less time than it would take to complete a major component repair. For any customer, downtime is not an option, so having a reliable supplier of reman components can be key.
“Cardone’s remanufactured products are ‘Engineered for Sustainability,’ meaning that Cardone parts are sustainable to the environment as well as the aftermarket, because we bring late-model technology to the aftermarket first. Aftermarket new competitors have to make a significant investment of time and money to tool up [intricate parts], as well as new drive-by-wire and brake-by-wire technologies. Because of parts proliferation and the fact that newer parts tend to fail less often, the demand for high volume is not there, which leaves little ROI for aftermarket new competitors to produce products like this,” explains Eric Griffin, senior director of product management, Cardone.
“Truck manufacturers are also interested in widening their participation in the remanufacturing industry, hence providing added opportunities for remanufacturers to partner with OEMs to keep pace with technology changes and offer differentiated products,” says Anuj Monga, automotive and transportation research analyst at Frost & Sullivan.
Another plus for buyers is that there will be some assurances of product quality, especially with powertrain components, as major component suppliers and truck makers take the lead role in growing this market.
“We expect significant growth as we continue to expand our coverage of existing product applications, as well as introducing more products previously only available through the OE dealer network,” says Green.
“With consumers keeping their cars longer, remanufactured parts for electronic control modules are often the best and sometimes the only option to meet vehicle lifecycle demands,” adds Shasteen.
“We get the cores that fail, remanufacture them, and get them back out into the marketplace. New manufacturers don’t have the advantage we have in seeing what fails, so they are not able to target problem applications like we can. These advantages help us ramp up production much faster than aftermarket new suppliers,” says Griffin.
“Another point to consider is that aftermarket new companies basically copy the OE design, which in most cases is perfectly acceptable. However, since Cardone sometimes receives many cores that all have the same failure mode, our engineers are able to enhance the design to prevent the same failure from reoccurring in our reman replacement parts. Also, some aftermarket suppliers substitute cheaper materials into their designs, whereas Cardone uses the actual OE core. We do remanufacture aftermarket new products as well, but we account for any discrepancies we see between the aftermarket and OE designs,” he adds.
The best opportunities for jobbers exist in educating customers about the benefits of the growing reman market. “Jobbers should remind customers of the value proposition of reman. Not only are they saving the environment by using reman; they are saving money. They should also point out the quality advantages, where we see recurring failures and adjust the designs to fix those issues. Every part we introduce to the market is tested on the car for fit and function, and then every part we produce after that is tested on computer simulators before it leaves the factory,” explains Griffin.
During the next five years, fleet managers are expected to spend more on remanufactured components than they ever have before, even as they buy fewer parts. According to the study, North American suppliers will ship fewer remanufactured engines, transmissions, and clutches due to “improving original equipment quality and increasing competition from new replacement parts.” In contrast, the report’s authors say the number of shipments of remanufactured turbochargers will increase 2.1% annually.
Even as the overall number of shipments falls, Canadian and American parts buyers will see an increase in unit pricing, which the study predicts will range from 1.5% to 5.5% per year. That increase means producers of remanufactured components will see their revenues rise. In 2012, suppliers and manufacturers of remanufactured components earned revenues totalling US$3.13 billion. By 2019 that figure will be US$3.52 billion.
“I think there is a plethora of opportunities for servicing this market and, of course, people are keeping their cars longer so this invites even more opportunity,” says Shasteen.
A big factor will be the availability of information and training for technicians to first, carry out diagnostics, and second, in terms of the service solution, ensure they get the right part on the car. With vehicle sales climbing and the interweaving of communication protocols getting more complex, service centres need to step up to the challenge of repairing cars with more and
more electronics.
The study’s authors say that price increases will be driven by a number of factors, including the increased amount of electro-mechanical content in the systems to make them compliant with fuel economy and emissions regulations.
The study also looks at the state of competition within the market, and predicts independent remanufacturers will enhance their competitive position as they develop their technological expertise and enjoy greater access to cores, while at the same time it warns that market consolidation will happen with large remanufacturers and distributors acquiring smaller competitors unable to keep up with the pace of change.
“Some of the challenges to be faced in this market will be access to information for independents. This is going to be just one of the many challenges facing technicians and jobbers. Having the right tools and being able to service all the various generations of the components is going to be challenging,” adds Shasteen.
As content continues to expand, the market will continue to grow and, given the depth of service required, there will be plenty of opportunity for jobbers to build sales in this channel.