Long Haul Truck Opportunities

The findings of a recent study of the heavy duty truck starter and alternator market put it in stark contrast with the equivalent market for light vehicles, and show some promising opportunities for distributors.

Noted research firm Frost & Sullivan’s study of the heavy-duty truck market, North American Class 4 -8 Starters and Alternators Aftermarket, describes some important facets of the market and reveals certain key opportunities for aftermarket players looking to carve a position for themselves in the heavy-duty marketplace.

“This was the first time we have done this,” says analyst Avijit Ghosh. “Previously we had only done the light vehicle study.”

Ghosh says that the scope of the study was strongly directed to the truck market, not heavy-duty vehicles in general. Only on-highway and vocational vehicles were included; off-highway workhorses were not.

Overall, says Ghosh, the starter and alternator market for these vehicles is tilted slightly toward remanufactured suppliers. In fact, he says, the combined split of the starter and alternator market is 57.5% to 42.5% in favour of remanufactured products.

In financial terms, the 2007 total markets for reman and new were estimated at US$540.4 million and US$458 million respectively.

The study also looked at the starter and alternator markets separately, a fact that revealed some important differences in the way the markets for new and remanufactured products for those markets behave. Ghosh says that one of the inter esting points they uncovered was the greater movement of alternators versus starters.

“The major finding here is that [the demand for] alternators is a lot more than the starter market. There is approximately 65/35 for both new and remanufactured. In the light vehicle, it is closer to 42/58 for starters, so this is a finding that is particularly different from what there is in the light vehicle category.”

Ghosh says that there is one key reason for the higher replacement rate of alternators versus starters.

“Alternators work throughout the day with the Class 4 to 8 truck. Starters are only used a few times a day, as these are typically [used in] short-haul and long-haul trucks.”

Findings in this study are in contrast to the equivalent light vehicle aftermarket, where remanufactured units dominate.

A study by Frost & Sullivan in 2006 highlighted some points that particularly stand out, in light of the new heavy-duty market study.

“Remanufactured units take the lion’s share of total aftermarket revenues, while new units have a minimal share,” said the study, pegging the market at that time to be more than 90% remanufactured. “The overall aftermarket for starters and alternators has been contracting in terms of unit shipments and revenues. This is primarily due to factors such as the increasing average life of starters and alternators that come as original equipment (OE) fitment with vehicles. This has a negative impact on the replacement rate.

“Remanufactured units face the challenge of increasing product complexity in the face of flat prices and the need to maintain quality. Distribution channel participants continue to expect price decreases. Other customer service factors, such as payment terms, extensions, and promotions, eat into [already] wafer-thin profit margins. Margins for remanufacturers are shrinking every year. Added to that, competition for cores is increasing because metal prices have gone up — scrap metal now is so valuable that people are buying up scrap starter and alternator cores to sell as scrap metal rather than for use by remanufacturers. Thus, surprisingly, the core market is tightening up. That is being offset to some degree by new units coming in and creating new cores, but it is becoming more and more difficult for remanufacturers to obtain certain hard-to-find cores.

“With globalization, many low-cost Asian countries — especially China, India, and Korea — are exporting their products to North America. Manufacturing costs and labour costs are very low in these countries, enabling them to offer products at much lower prices than North American manufacturers and remanufacturers. New units have been a threat for quite a few years now, but quality and reliability issues that plagued the offshore manufacturers’ new units earlier seem to have been debugged. Market participants feel that the quality and reliability of Chinese-made new starters and alternators have increased, which is now working against remanufactured units. New units do not involve core charges.”

The trend toward “new” is being echoed within the heavy-duty aftermarket, according to Ghosh.

“We are forecasting the reman segments to decline and new to grow. The main factor is [that] the price difference between new and remanufactured units is becoming [smaller].

“The price difference is, on average, 15% to 20% lower with reman than new, and this price difference is becoming lower; people are selling more new parts,” says Ghosh. “The new parts are also expected to last longer and carry better warranties. There is also no core investment.”

He says, too, that the difficulty in collecting cores, combined with the logistics and costs of shipping them, are further tilting the balance in favour of new units.

However, while it is interesting to see how the light vehicle aftermarket for these components has continued to trend toward new, it is important still to view those points in context of the new/remanufactured market split, which is very different in the two markets.

As noted, the light vehicle market is characterized by the dominant position of the remanufactured units, while remanufactured and new products have a much more balanced split in the Class 4 to Class 8 truck market, which is expected to approach 46.5% new by 2014.

The opportunity for distribution players, whether for new products, remanufactured, or more likely a combination of both, lies in a shift in the distribution and service patterns within this market.

“In Class 4 to 8, there are mostly owner-operators and then you have the fleet operators. These are the two basic end-user segments. Most of the owner/operators used to service their own trucks; outsourcing was to mostly independent repair facilities and the OES channel.

“That was the lower portion of the market; most of the service was done by the owner-operator and the fleets. Now the outsourcing of service is growing, because of increasing truck complexity and new technology.”

Ghosh says too that fleets do not have the technicians on staff to repair all of these systems.

“As a result, it provides opportunities for distributors to sell more to these channels, instead of selling directly to the owner-operators or fleets.”