And the rationale for purchasing these products include:
§A new version not fitting into an existing process (precisely)
§Avoid redtape to qualify new
§No capital or justification for new
§Extend life of discontinued product
§Extend life of current products
§Buying green – 18% premium seem to be ok
With the Diesel Engine Industry:
§World diesel engine industry revenues of $129 billion: Asia largest, NA fastest growing with heavy vehicles and increased use in light vehicles, stationary power fastest growing segment
§U.S. of $16.6 billion in 2008 growing 6.5% annually to 20.5 billion in 2013 with strong growth in light-duty, passenger; Off-highway slowing but helped by new emissions regulations
§NAFTA breakdown is Auto 5.1%, On-Highway 72.8%, Agriculture 5.1%, Off-Highway 11.5%, Gen/Ind. Stationary/loco/marine 5.5% (1.6 million non-auto diesel engines sold in 2006.)
Remanufacturing (vs. rebuilding which does not replace and recondition all components):
§Cat helped popularize reman beginning in 1972 -- customer acceptance, quality assurance, engines designed for reman -- product cost savings of 40-65% vs. new with 20% margin vs. 10% for new engines
ØLabor/ovhd 60% of cost – overall cost less than 70% of new build
ØDetermining core value (and sourcing cores) – critical part of business
ØUsually complete with fuel system
ØLong block demand – by reman or end-users without machine shops
ØPotential role in fine tuning engine electronics, emissions modifications
ØCost of “trim” to overall cost/complexity – accessories, pumps, emission-controlling hardware
Few facts for Over-the-Road Trucks:
§200,000 Class 8 engines in 2008 vs. 42,000 Class 7
§Big bore engines with 30-50% cost premium to smaller
§Cummins 2006-8 share 32% to 40% or 80,000 engines (Cat 28% - 13% getting out of business in 2010 with Paccar’s Kenworth and Peterbilt which was 67% of Cat’s business building own); rest from integrated truck makers
§New engine or OEM reman – too expensive for old truck (better to replace truck)
§Trend to vertical integration: Paccar – moving to own engines, Volvo & Mack make own engines, Freightliner (Mercedes – also Sterling, Western Star, Thomas Built Buses) has DD with DD15, 13, 16 (Cummins for medium+ISX heavy-duty engine)
§Potential need for independent reman for Cat CLASS 8 as they reduce support (also, most Paccar customers are independents and smaller fleets.)
§Paccar 9 and 13 liter, overseas built, assembled in Miss.
Overview of Green trends include:
New recognition of resource shortages – particularly as populous developing countries (China, India, Brazil, Indonesia develop) – with appeal for sustainability (reman engines with reconditioned used parts).
Emissions key items:
§Impacts in 2002, 2007, 2010, and 2014 Tier 4 emissions control standards for off-road
§Reman gets around requirements for new engines
§Risk:EPA may require reman engines to meet original emission standards (vs. current assumption that they do based upon original design)
The 2007-2009 Recession has become a positive for the reman and rebuild industries:
§More frugal buyers, delayed purchases and maintenance – good for reman as economy recovers
§Truck rotation, less new purchases – revival of reman with economy already seen
§AARA – significant funds for infrastructure construction
Overall trends continue:
§Continued entry of Japanese, Korean, and Chinese equipment and engine players
§Continued OEM vertical integration in the trucking arena
§Consolidation of the reman industry with Cat acquiring companies in rail, reman in the UK, and JVs in China, Singapore, etc.
* Note: Various data source have been used.Specific citations are available upon request.
Independents Team with National Power Supply to Challenge Goliaths of Remanufactured Diesel Engines
Remanufacturing emerges as the green, cost-performance choice for the $100 billion diesel engine industry – achieving over $1 billion in the U.S. alone.The big “reman” players are increasing their dominance, but small and passionate independents are fighting back.
YAKIMA, Wash.--(BUSINESS WIRE - April 20, 2010)--Demand for remanufactured diesel engines doubled in first quarter of 2010, as witnessed by National Power Supply (http://nationalpowersupply.com). Larry Pryor, President, noted, “We have seen an upsurge of inquiries with the recovery of durables. Our marketing activities had effect, but we are approaching a $1 million a day in demand [in the larger remanufactured diesel engines segment].”
“The uptrend in remanufactured engines arises from: (a) acceptance of the remanufacturing practice, (b) sustainability advantages, (c) rising cost of new engines with escalating emissions requirements, and (d) a frugality emerging from the global recession,” explains Paul Kang.
Caterpillar, Cummins, Detroit Diesel, Deutz and other large remanufacturers have gained market share from the 300+ local independent specialists. Caterpillar now has 18 reman facilities around the world, having discovered that profitability on remanufactured engines/parts can be double that for new.
These “goliaths” regularly dismiss the independents as they have distinct disadvantages: (a) higher parts and shipping costs, (b) local vs. global marketing, (c) inconsistent quality control, and (d) challenges of attaining trust from far-flung customers.
Yet better independents can win on quality, often complete faster and with more sensitivity to customer desires like increased horsepower. With low overhead, independents can beat the price from big OEMs by 20-40%. And “remanufactured in the USA with Pride” is appreciated by American workers and quality-desirous customers around the world.
Success of independents, despite ever increasing competition, is enabled by “cooperative networks” like National Power Supply that:
1. Market globally;
2. Answer and speak with callers;
3. Match customers with specialists in their particular engine;
4. Share parts purchase and shipping economies;
5. Select quality-minded independent partners and demand excellence;
6. Share inventory specials; and,
7. Thrive on thin margins.
National Power Supply and like may grow to lose their entrepreneurial zeal for pleasing customers. Then again, the Goliaths may open their eyes and take note of agile and empowered independents.
National Power Supply sells remanufactured diesel engines and generator sets for construction, mining, oil recovery, agriculture, forestry, marine, and specialized over-the-road applications. Caterpillar, Cummins, Detroit Diesel, and others are remanufactured with OEM or aftermarket components. The promise to customers is: “Saving You Money, Time & Concern!”