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Scratching The Niche
Because demand for rebuilt and remanufactured engines will certainly never go back to what it once was, we have frequently encouraged you in these pages to look elsewhere for profits.
By Doug Kaufman
If you have been a reader of this magazine for any length of time, you'll know that one thing is certain: this isn't the same industry it was even just a few years ago.
Not so long ago, a car or truck that was more than six years old would have been considered a junker, and something over 10 years old may as well have been an antique. Anything that old was likely to be on its second or third owner, and perhaps on that number of rebuilt engine as well. Yet today, the median average age of cars is more than 9 years old, and almost 7 years for light trucks. As of 2006, vehicles that are more than 11 years of age or older account for nearly 36 percent of the in-use vehicle population.
Vehicles are being driven further, longer and harder than ever before, yet with advancements in technology, they last longer than ever as well. What may have been yesterday's "classic" car is now often seen as nothing more than the standard commuter transportation.
Engine Builder has been published for more than 40 years, and in that time, we've covered the rebuilding of everything from alternators to rack and pinion units. But like we said, this isn't the same industry it was when we started.
Luckily (despite any amount of industry consolidation), there is too much diversity in this industry to become complacent. Like the custom engine rebuilders who make up the bulk of our readership, we may not be the same magazine we were in 1964, but we remain committed to the business of building engines - whatever that includes.
Because demand for rebuilt and remanufactured engines will certainly never go back to what it once was, we have frequently encouraged you in these pages to look elsewhere for profits. No, it's not that we suggest you close up shop and begin harvesting cranberries, but we continue to impress upon you the importance of being in-touch with your business and understand the details that make you money - and those things that cost you.
Business or shop management software is no longer a luxury item or a "good thing to think about getting" for your engine building operation. It is an extremely important part of your business whether you realize it or not. Understanding the numbers is vital to setting your prices, which is, in turn, critical to maintaining your profitability.
But sometimes, even if you know all of your numbers and have paid attention to the details, you find you still can't make it work. What do you do then?
Diversify. Today's most successful engine rebuilders are experts at recognizing and capitalizing upon niche market opportunities.
In the annual Machine Shop Market Profile survey conducted each year by Babcox Research (see the June and July issues of Engine Builder for the results, or download the complete analysis at www.engine-builder.com) we ask engine builders what new market niches or new machine shop services they entered over the past 12-18 months - and these were the results:
Marine: 8 percent
Small Engine: 10 percent
Industrial: 8 percent
High Performance: 7 percent
Diesel Auto : 7 percent
Diesel Heavy Duty: 7 percent
Restoration: 11 percent
Other: 11 percent (including balancing, diesel high performance, antique and military engine rebuilding)
You've read about many of these topics in these pages on a regular basis. In fact, this issue contains an article about tractor pulling as well as a profile of the 2006 Machine Shop of the Year, a large diesel repair shop that isn't afraid to try something new.
Yet it's true that trying something new and succeeding do not necessarily go hand in hand. The old adage "If at first you don't succeed, try, try again," doesn't take into account the cost to try that new venture the first time…if it doesn't pan out, can you afford to try again?
When asked, Machine Shop Market Profile respondents told us the most profitable market they do business in is:
Marine: 7 percent
Small engine: 5 percent
Industrial: 13 percent
High performance: 17 percent
Diesel Auto: 2 percent
Diesel Heavy Duty: 22 percent
Restoration: 27 percent
Other: 8 percent
The great thing about getting involved with many niche markets in the engine building industry, say experts, is that your cost of participation may decline if you have the basic skills and equipment in place.
Scott Wichlacz, president of Manitowoc Motor Machining and Parts in Manitowoc, WI, may well be the King of the Niches. He has put his shop and employees into a position that allows them to service a wide (and ever expanding) array of markets. But even he looks carefully at the options before getting into something new.
"How capable is the shop to do some of the off-the-wall stuff?" he asks. "Is it feasible to even consider it? If you get too far off the deep end, you could find yourself in even more trouble."
Wichlacz reveals one of his latest profit centers. "Here's an example of a market some people might not have considered. Many ATVs and personal watercraft (covered in last month's issue of Engine Builder) have gone to four-stroke engines with needle-bearing crankshafts. Actually, whether they're two- or four-stroke engines, a lot of them have pressed-together crankshafts. They're small, but it's not unusual for us to repair 4-5 of them per week…and sometimes more than that. We charge up to $80 each to do them, and they're not really very difficult to do."
Wichlacz says his shop has a fixture for pressing them together, so instead of taking an hour or so to do each one, it takes around 15 minutes. "If you have a little know-how and a few pieces of equipment you can often get into these small, profitable jobs with a minimum of investment," he says. "You can buy some of it or it may require you to make some of your own fixturing, but a lot of these ideas don't require a $40- or $50,000 investment. It's certainly a lot easier to do non-traditional jobs on the equipment you already have. Pretty much everyone has a press and, in this case, that's the basis for what you need. Everything else is pretty reasonable."
Before leaping straight into a new market, Wichlacz reminds us to carefully consider the real costs involved. "That's always the issue with a niche market, he says. "The key, of course, is to determine how much you're going to have to stick into it before you see a return on your investment. You don't want to drop $20-, $30- or $40,000 into an idea and HOPE you get enough work."
Of course, it you haven't already been using your existing machinery to take care of non-traditional jobs, you're not trying hard enough. From every one of our Machine Shop of the Year winners to nearly every business expert we've interviewed over the years, you've heard the same thing: using your existing equipment to service new markets is the best scenario. Sometimes that may require modifications to the machines, the tooling or simply to your way of thinking.
"Spark plug thread repair is another great service," says Wichlacz. "With the aluminum heads being destroyed (the Ford Triton, for example), installing the repair kits can be very profitable. The heads aren't cheap, and you can charge good money for an OEM-authorized repair, especially if you're willing to go in the field and do the repair onsite. You can get a nice amount without taking the heads off. Even if you spend a couple of hours, you're likely to make more than you would in the shop doing a few valve jobs."
Similarly, Wichlacz says broken bolt removal has proved to be a great source of profit for his shop. "We do it and we get paid for it. It's not the kind of operation that you have to say, 'I can only charge $20 to remove a broken bolt.' If it takes three-quarters of an hour and costs $60, that the way it is. I actually enjoy removing broken bolts, but not everybody wants to do that stuff."
He continues: "That another thing to think about with niche marketing - the underlying part of every niche opportunity is that somebody has to be willing to do the work. If you're picking up on something new, especially if it's difficult or undesirable, you have to remember that someone in the shop is going to have to do the work.
Another key to remember, says Wichlacz, is that it's better to be the first guy on the block to offer these niche services. "Don't wait until everyone else is doing it. Be the first one out there, and you may have the business to yourself. You'll be able to charge for it and you'll be ahead of your competitors."
Of course, this requires an active level of participation in things other than the actual shop work. You need to go to the conventions, see what's new, and spend some time doing research. Speak with the parts and tool representatives to learn what new techniques are being developed and what opportunities are out there.
Although Wichlacz says 80 percent of his niche market work comes to his door, it is the result of decades of hard work beating the bushes for business. After more than 20 years of actively seeking out those jobs, Manitowoc Motor Machining and Parts has the luxury of word of mouth - but that doesn't stop his sales staff and employees from continuing to seek the business.
It's all about selling your abilities. Are you missing opportunities to let potential customers know that you can handle their repair needs? Often, a simple question such as "Do you have parts that you can't seem to get repaired?" can open the door to you. A brochure that lists your services - not exclusively engine-related, necessarily - can be given away at local trade expos and business gatherings.
Selling inside your business can be equally as important as outside sales, and meeting their needs in even the smallest way can pay off in much bigger ways. Get them into your shop and then take them on a tour of the facility. They'll often see the other things you can do and get ideas for other work they need done.
"The idea for the shop tour actually came from my guys," Wichlacz says. "For example, we rebuild starters, generators and alternators, so a customer will come in for that and if they've never been through the plant or gotten as far as the front desk, we'll show off our skills. A lot of our regular customers have no idea we can do so many other things."
Even if they never come into your facility, don't miss an easy opportunity to promote the variety of work you do. Especially because most small shops will never hire an outside sales person, or don't have the time to go out and do it all themselves, your shop's on-hold message should be utilized as a regular part of your sales team. "Even I don't do it as well as I could," says Wichlacz, "but my on-hold message is a great sales tool."
Whether your approach to niche marketing is on a market segment (agriculture, industrial, performance, etc.) level, a subcategory (drag race engines, modified stock car engines, drifters, etc.) level or something even more specific (Hemi stroker engines) the keys to participation are fairly basic: identify your interest and market your skills. True success is still likely to require considerable effort, but with the proper preparation you'll be in better shape to survive and even thrive when others are struggling.