Remanufacturing Continues to Show Strong Growth

Canadian jobbers will see increasing profits from certain remanufactured automotive parts, even as engine technologies increase in sophistication and reliability. That is the consensus of several studies looking closely at the fast-evolving remanufacturing marketplace in North America.

Anuj Monga, senior research analyst, automotive and transportation, with the research firm Frost & Sullivan, says, “Remanufacturing of components such as engines, transmissions, and clutches is expected to see a slight decline, mainly due to the increased quality of their parts, and thereby an enhanced service life, which has further led to a slight change in replacement rates over the last few years.”

That same increasing engine sophistication will, however,
see an increase in the need for remanufacturing of certain
parts segments. One which Monga zeros in on are turbocharger systems, especially variable geometry turbochargers, which
she says are getting more complex in both fit and function.

“From our analysis, we expect the overall demand for these components to increase at a CAGR of roughly 1.7% over the short to medium term, while the demand for turbochargers alone is expected to increase by 6.1% in the same time.”

According to Frost & Sullivan’s Strategic Analysis of the North American Class 6-8 Remanufactured Powertrain Components Aftermarket, the current North American market is valued at US$3.13 billion, and the firm forecasts that will increase to US$3.52 billion by 2019. Much of that growth will happen from increased spending on maintenance and an increasing number of vehicles that will require remanufactured powertrain components.

“The average vehicle age continues to increase, which means many vehicles are on their second or third owners,” says Eric Griffin, senior director of product management with Cardone Industries. “The reman value proposition provides an economic alternative to new product while still providing the same performance.”

Griffin’s observation is supported by a study put out by
Global Industry Analysts (GIA) in 2013. That study found that the remanufacture market space provides a number of cost
savings advantages. Remanufactured products offer cost
savings in the range of 45 to 60%, compared to newly manufactured products, and remanufactured automotive components are some 35 to 45% cheaper than new parts. This makes them particularly attractive to owners of older vehicles who are looking to extend a vehicle’s useful life while at the same time easing the strain on the pocketbook.

“The recession of 2008 really gave lifeblood back to the remanufacturing market,” says John Treece, owner and founder of Atlantic Automotive Enterprises (AAE). AAE is a wholly owned subsidiary of CRP Industries Inc. AAE specializes in new and remanufactured steering racks, power steering pumps, gear boxes, and related electric components.

“The vehicle fleet age is increasing and getting older,” Treece continues. “People are holding onto their cars longer, and that translates into more repairs. And the older the vehicle, the more important the value proposition of a repair becomes. If someone has a vehicle that is worth $3,000 and they need a $1,000 repair, there comes a point where, if they don’t have an economical alternative to fixing that vehicle, another decision gets made. In a recession, people will hold onto their vehicles longer, and that is good for remanufacturing. And remanufactured parts have an economic value to them. They are less expensive than an OE dealership part.”

If there is a challenge to be faced by independent remanufacturers of auto components right now, it’s the growing use
of complex electronics and computer controls being integrated into powertrain technologies and other vehicle components.

“The increasing sophistication we are witnessing being built into these heavy-duty engines, and even turbochargers, is posing a stiff challenge for remanufacturers, especially the independent ones,” says Frost
& Sullivan’s Monga. “Add to it the fact that the core demand for sustainable remanufacturing in this case
is stifled since most of these parts are very new to the aftermarket; their skill and core management capabilities will be really tested.”

“Some parts segments have not yet seen a shift in technology,” adds Cardone’s Griffin. “In other product categories, technology is shifting towards electronic content, such as electronic power steering (EPS), ECMs, and different controllers. In these cases, reman still provides a value proposition since it does not make economic sense for someone to build – tool up – a complete new unit on these sophisticated units. Cardone is able to leverage its electronics remanufacturing capabilities in these categories that are crossing over from mechanical or hydraulic to an electronic category, like EPS.”

Griffin continues that turbochargers will be a product segment that will see a significant growth in remanufacturing, driven by the new CAFE standards mandated by the federal government in the United States for improving fuel economy and emissions. Still, there are plenty of product categories
that will continue to grow and remain profitable for both remanufacturers and jobbers.

“Cardone also continues to see growth in calipers, as most vehicles produced now have four-wheel disc brakes,” Griffin continues. “As the vehicle park continues to grow and shifts from vehicles with two-wheel disc to four-wheel disc, this
category also keeps growing.”

AAE’s Treece says one of the challenges right now for the steering remanufacturing industry is the increasing use of complex electronics in steering technology. Electronics is moving steering away from being a purely mechanical-hydraulic system.

“The key challenge right now is the technological revolution that is occurring in all categories of remanufacturing,” Treece adds. “Engines are becoming more electronically controlled, and certainly it is happening in steering. It is a complete shift. An interesting note to be aware of [is that] as of 2016, all Ford 6-cylinder vehicles on a global platform at the OEM level will all have an electronic steering system of some type. Hydraulic-
mechanical steering systems are out. In everything going forward, it will be electronic steering, or as we like to call it,
electronic power steering.”

This shift to electronic controls in vehicle mechanics with remanufactured parts will pose challenges for jobbers, but
also new opportunities. Jobbers will be called upon to have
a greater technical knowledge about these new and more
complex remanufactured parts, and to have that knowledge
at the ready for their customers.

“High-tech parts especially are a great profit opportunity for reman, because the cost difference between new and reman is much greater on these products, that tend to be expensive anyway,” says Cardone’s Griffin. “If the second or third owner of a vehicle can save $100 or more on a replacement part, they are more willing to try reman. A challenge for reman is some people’s perception that electronic parts cannot be remanufactured to OE quality, but that’s because they don’t understand the reman process or our stringent testing standards.”

“With the rise of electronic parts, jobber education is going to be vital,” adds AAE’s Treece. “[For] the garages and the installers, this is all new to them and jobbers can bring to them valuable knowledge about part functionality, troubleshooting, etc. If the jobber can bring that critical information to their customers, it will help keep customer loyalty and help in the sale of these upcoming and new complex remanufactured parts.”

Frost & Sullivan’s Monga says jobbers and warehouse distributors are going to be the entry point both for the distribution of these new complex remanufactured parts. In fact, he sees new market opportunities where large jobbers and warehouse distributors might work directly with remanufacturers. “We have seen some of the major warehouse distributors engaging in private labelling for a number of parts and this trend is expected to grow strongly in the coming years as well,” Monga adds. “Jobbers influence the choice of brand, and their relationships, especially with the independent remanufacturers, could fetch them good deals, considering the bargaining power they hold in an otherwise very competitive and mature aftermarket.

“Additionally, the growing complexity of powertrain components will mean more customers will now engage in ‘Do-it-for-Me’ service and repair, which will keep more business coming for the jobbers and the installers going forward.”

Mike Palm, vice-president of marketing and brand management at CRP Industries, says that the remanufacturing market offers new and synergistic opportunities both for CRP and
jobbers. The acquisition of AAE adds additional value to CRP’s offerings in a range of product categories, and will complement the reman products that AAE offers and will be carried by jobbers across North America.