Ten or 15 years ago, auto technicians would rebuild hard parts for customers right in the shop. Today, that system doesn't work, because consumers don't have time to wait and don't want to pay for the additional labor. Remanufacturing now solves these problems, and as such, it is one of the largest product categories in the automotive aftermarket. The entire remanufacturing industry generates approximately $65 billion in sales, with the automotive segment representing $37 billion of that total.
"This industry is a balancing act, and the business itself is not glamorous," said Rick Andrulis, executive vice president of sales and marketing at Springfield Remanufacturing. "You never sacrifice quality for cost considerations, so the margins are tight."
Remanufacturing begins with a greasy core that needs cleaning. This duty generally falls to entry-level people, who learn the business by doing the disassembly. Cores consist of hard parts such as engine blocks, crankshafts, valves, rod bearings and cam shafts. High-wear components such as sleeves, gaskets and bearings are always replaced.
Cleaner, Better, Cheaper
Remanufacturers can correct product flaws that occur after the typical 50,000-mile OEM warranty expires. The cost for a remanufactured part is generally 30-50 percent of what a new part would cost, because labor, energy and raw materials are conserved. Bill Gager, president and CEO of the Automotive Parts Rebuilders Association (APRA), said remanufacturing uses between 80 and 85 percent less energy than producing a new part. Labor, machining, and raw materials are saved, while chemical waste and energy consumption are drastically reduced - all of which help keep operations lean.
"Much of the cost savings can be attributed to the fact that the price of initial tooling and development are not in the remanufactured unit," said Tony Perticari, vice president of sales and marketing at Crown Remanufacturing, Inc. "This is not to say that we do not tool up for parts which are not readily available in the aftermarket. We simply salvage a good deal of the core, and this keeps the cost down."
"The OEs don't give much credence to problems which are not large enough to cause a recall, whereas the remanufacturing industry can address very specific, short-run engineering flaws," said David Deegan, vice president at Engine Lab of Tampa, Inc. In fact, OEs frequently look to remanufacturer suppliers to solve reoccurring part failures.
"Besides the cost savings, many remanufactured parts carry extensive warranties to boost consumer confidence," Perticari said. "This business has been around for 50 to 60 years, and most of the major companies possess the same sophistication and QS/ISO certification as tier one suppliers."
The average car owner is unaware of the environmental benefits of a remanufactured part. "There is a whole green pitch that the remanufacturing sector has overlooked for years. Consumers want eco-friendly products, and there's data showing that green companies grow faster than their competitors," said Michael Cardone, Jr., president & CEO of Cardone Industries, Inc.
"While it's difficult to get people to spend money on recycling, it's easy to sell remanufactured goods because the cost is lower. People don't realize that they're spending on recycling," Deegan said.
The cost for a remanufactured part is generally 30-50 percent of what a new part would cost, because labor, energy and raw materials are conserved.
The Automotive Repower Council is in the process of developing a national campaign to educate consumers about remanufacturing. By gathering feedback from consumer focus groups and distributors and installers, they hope to devise a message that will help consumers understand the value of remanufactured parts.
"The industry is under a shade tree when it comes to consumer awareness. I don't think most consumers realize how much of a remanufactured part is actually new. By the same token, many consumers will think they're getting a brand-new engine, when in fact, they are buying remanufactured," Andrulis said. Up to 90 percent of the replacement engines, transmissions, CV joints, starters, rack and pinion units, brakes, and alternators available on the market are remanufactured.
New parts are installed on new vehicles, where they eventually fail due to normal wear and tear, or design weaknesses. The cores then go to a remanufacturer, who rebuilds the part and puts it back on a vehicle. This can go on in perpetuity, unless the cycle is interrupted.
The vehicle scrappage provision in the Energy Policy Act of 2002 (S.517) recently defeated by the Senate would have threatened this cycle. The act authorized federal grants to state programs that provide monetary incentives for motorists to scrap vehicles 15 years old and older. This legislation would have hurt the industry on many levels, from taking cores out of circulation to eliminating the aftermarket's prime customer base of older vehicles.
"Nearly half of the vehicle population in the U.S. is 10 years old, or older, so it would have greatly impacted the industry. The legislation would have hurt low-income people, who can't afford new cars, and the environment because the average fuel economy of a new vehicle is much lower than it was 15 years ago," said APRA's Gager.
Europe's end-of-life vehicle directives require OEs to take back their products at the end of their lifecycle, and reuse all salvageable materials. "In the U.S., we already have this system in place through our remanufacturing sector," Cardone said. "If anything, we ought to focus on creating more stringent requirements for the handling of scrapped vehicles to insure the recycling of cores."
"Right now we see the bulk of our sales in the four- to 10-year-old vehicle category," Perticari said. "However when you consider the improved quality of the vehicles produced today and the longer warranties offered, it is conceivable that cars will be on the road for 20 years or longer in the near future."
Legislation surrounding on-board diagnostics, or OBD II, is the other major challenge facing the industry. Aftermarket manufacturers and remanufacturers must have access to critical OBD II service tools and information in order to produce components that will operate properly with the vehicles' sophisticated on-board computers. However, the OEMs are fighting to maintain total control of the software driving OBD II, and other electronic control units.
"The danger with OBD II is that the OE suppliers are contractually bound to withhold design specs from the independent aftermarket for a given number of years," said Deegan. "We also face problems with component sourcing. We're seeing some major engine repairs on 2000-01 models already, but 70-80 percent of the parts needed to do those repairs have to come from the OEs, which affects my pricing."
Of course, necessity is the mother of invention, and there are those in the industry who see opportunities in government regulation. "Most businesses groan when the government raises standards and piles on regulations, but I see it as a challenge. Make it tougher, we'll just stay one step ahead," Cardone said.
Andrulis, who serves the heavy duty and agricultural markets, believes that environmental legislation has actually helped his business. "While you can't install a non-EPA-certified engine in a truck, there's nothing to stop you from re-tooling the existing one. In the EPA's view, all we're doing is supporting an existing product line."
Catastrophic part failures are diminishing, to the point where eventually products won't fail.
The biggest challenge currently facing the remanufacturing industry is finding a way to rebuild the electronic and hydraulic systems installed on today's cars. "We frequently remanufacture electronic control units that were engineered 10, 15, 20 years ago. As a matter of course, the units are upgraded with current technologies, and our customers benefit from the improved performance and durability of the resulting product," Perticari said.
A few years ago, a Cardone customer discovered a problem in one of his electronic control units. Repairing the unit involved replacing all 270 resistors on the circuit board, which took days to accomplish by hand. Rather than give up, Cardone's engineering department developed the ASR 9000 robot, which is able to replace the chips in 15 minutes. "We've invested millions in develop-ing custom tools and processes. ABS systems and electronic control units are very complicated, but in some cases remanufacturing is the only option for repair, because the technology changes every 18 months," Cardone said.
"Crown is always looking for ways to improve the sealing properties on hydraulic units," Perticari said. "Newer and more environmentally-friendly methods of cleaning and recycling waste are also important to any quality remanufacturer."
Some remanufacturers offer what is known as rebuild and return, or the R&R option. This process tracks the components of a core through the remanufacturing system, so that the original part is returned to the customer. Classic car enthusiasts favor this method because they have a sizable investment in maintaining the original parts on their vehicle.
Trimming the Fat
Lean remanufacturing means doing things faster by increasing efficiency in operations. To help companies adopt lean strategies, the Rochester Institute of Technology began offering a university program, specially tailored for remanufacturers, which teaches cleaning, assembly and testing techniques. The National Center for Reman-ufacturing and Resource Recovery is another organization that helps small to mid-sized companies who may not have the in-house resources to tackle industry issues.
"One thing we're looking into is helping companies diversify their product offerings to cushion against slumps in the automotive market," said Gager. "We're looking at how we can streamline the process of turning a used core into a finished product, while simultaneously shrinking the margins of error that cause product failure." Warranty returns are another headache. Often a product is returned with no detectable flaws. This is usually the result of poor diagnostics at the installer level, according to Gager.
"Product consolidation is an ongoing process by which we seek to reduce the number of SKUs our customers stock, while not compromising the coverage and availability they need to serve the repair sector," Perticari said. "The bottom line is we cannot afford to have non-value- added costs in our products."
"Catastrophic part failures are diminishing, to the point where eventually products won't fail. In a sense, the industry is working towards its own demise," said Andrulis. "We're already looking to shift some of our business to Third World markets, where the vehicle population is older."
Up to 90 percent of the replacement engines, transmissions, CV joints, starters, rack and pinion units, brakes, and alternators available on the market are remanufactured.
Salvaging the Future
As the computerized content of vehicles increases, mechanical components are being replaced by electronically controlled systems, and the remanufacturing process grows ever more complex. Reman industry experts agree that to stay ahead of the competition businesses must constantly improve processes in order to prevent costly ergonomics injuries, reduce inventory, and recycle as much core content as possible. Or to borrow the words of one Cardone employee, "salvage, salvage, salvage!"
Reprinted with kind permission by the Automotive Aftermarket Industry Association