Turning Full Circle

by Brian Taylor

In the beginning – when the internal combustion engine provided Man with a new means of transport, repairing and refurbishing components was the normal method of keeping them going. Simply replacing a faulty component with a new one was considered very wasteful. Indeed, it was not often possible to get hold of such an item without waiting months, and in many cases commissioning someone to make it to special order was the only ‘new component’ game in town as far as acquiring a new component was concerned.

So getting the maximum life out of all of the components originally fitted to vehicles was the best option. And today, after decades of replacing with new, and despite the outpourings of those businesses involved in the making and designing of new components, it appears the industry is turning full circle and looking to remanufactured components as the environmentally friendly route to affordable mobility. Free market economies are having to come to terms with the environmental factor, which has changed the rules -big time.

Change is in the Air

In fact, all sorts of change is in the air at the moment. Some of the key component manufacturers are also turning circles of their own which reflect this change. Delco Remy is an example. It grew up as one of the principal GM components divisions with a business that was largely o.e., mainly heavy duty and mainly restricted not only to GM - but to GM domestic product. But it wasn’t always like that. Its true origins go back to Frank and Perry Remy who in 1896 founded a business to make rotating electrical machinery for the automotive industry.

And it’s changed again. After gaining independence from GM in 1994 with two American factories, the company has grown by acquisition and investment to a point where it now has over 30 plants in 12 countries – including an important remanufacturing plant in the UK. And since 1997, Delco Remy has been an independent corporation quoted on Wall Street.

Since the breakaway from GM, its other makes content has increased and its reliance on o.e. content has reduced. In 1998 the aftermarket accounted for 43% of its corporate turnover. It has now become a worldwide market leader in rotating electrical components for motor vehicles. And to a very large extent, as far as rotating electrics are concerned, the aftermarket is served by remanufactured exchange units. The UK plant remanufactures over 300,000 starter motors and alternators a year and has an annual turnover of £14 million - the units being sold under its own name as well as being supplied to other branders. It’s a big business.

Remanufacturing Future – As Good as New and Used as New

Eric De Poortere, Vice President Aftermarket Sales & Marketing for Delco Remy, Europe, believes remanufacturing is on a continuing growth curve - seeing the main drivers as lowering costs and environmental pressures. He sees this growth occurring in the aftermarket being driven by the pressures on the affordability of mobility. But his thoughts about the future are more radical than many. Because he also believes that remanufacturers will increasingly work with vehicle assemblers. Not only as sub-contractors for aftermarket activities, but as tier one suppliers, providing quality remanufactured components for fitment to new vehicles leaving the assembly lines.

He also has strong opinions about where the aftermarket is heading. He says,

ADD ERIC DE POORTERE PIC

“I believe with certain product groups, remanufactured products will become the only aftermarket offer. It will vary from market to market but the likely components will be starters, alternators, air conditioning units, engine management systems, clutches and calipers. And these are the same products I see entering the tier one supplier segment. We can prove that our remanufactured components are not only as good as new but in many cases they are better”.

As far as the provision of information required for remanufacturing these components is concerned, vehicle assemblers will be more open with their sub-contracted partners than they will be with other third parties. So to ensure a future in this scenario, successful remanufacturers must clearly develop close relations with vehicle assemblers and relevant o.e. partners.

Global Consolidation and Low Cost Production Centres

But Eric De Poortere also believes that the remanufacturing industry is due for a shakeout.

“I predict remanufacturing will move towards the developing nations to keep production costs down. Central and Eastern Europe is seeing growth now, but the Far East and Africa will soon see some activity. And these moves will be in line with continued consolidation of remanufacturers. The bigger remanufacturers will be buying up medium and smaller operators who will simply not have the capital available to offer a complete range resulting in them being unable to compete.”

“Car parc diversification will be a major challenge in the future. Keeping up with expanding part number catalogues will be very difficult. And increasing core demand will result in a core shortage. So core identification and collection on a global scale are the absolute keys to success in the future, together with the better utilisation of that core. One core, with adjustments – can be used for various different applications as long as it is correctly identified and the technical expertise is available to achieve this”.

Some Strategic Thinking Required

But many industry observers believe vehicle assemblers will have to change in strategic terms before remanufacturing can take its rightful place in the aftermarket. Currently the assemblers make profit from selling new vehicles as well as new parts into the aftermarket. The profit from one supports the other, and parts profit is particularly important to offset the cost of vehicle sales at franchised dealer outlets in the mature and therefore more competitive markets throughout the world. And it is important to remember that these businesses work on a global basis and national industry strategic rules do not apply. If the aftermarket profit pool is to change dramatically due to environmental legislation (which is increasingly becoming the case) and re-using core, then it will affect the cost of acquiring new vehicles in the first place. Unless, that is, vehicle assemblers become the major player in remanufacturing, and indeed become involved in all profit centres associated with providing personal mobility. Watch Jacques Nasser.

Of course, as vehicle assemblers themselves continue to consolidate, the use of common components is bound to increase, with model and marque differentiating factors being focussed on visible appearance and on-board support systems for varying levels of driver comfort and convenience. This will keep assembly costs within check to some extent. The larger consolidated remanufacturing businesses can then use their economies of scale to capitalise on the higher volumes per part number. And when multi-core use becomes a design feature, remanufacturing can begin to take its rightful place at the table rather than pick up the crumbs. But they will need to work in close partnership with vehicle assemblers - or perhaps within their ownership portfolio. And they will be high volume global businesses, utilising high-tech but the lowest cost remanufacturing centres.

Now this is far from the current situation. So it might be time for some strategic thinking by remanufacturers as well. America in particular is a big country and this size sometimes clouds the horizon. But big change is out there. America will not be immune from it. Many existing and profitable remanufacturers may well need to remanufacture their own businesses in the near future.(1/00)