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Associations Raise The Rev Limit For The Road Ahead
By Dave Wooldridge
There’s no question. Better quality engines with longer warranties, characteristic of the motors produced by vehicle makers since the beginning of the 1990s, have had a significant negative impact on the demand for rebuilt engine sales and machine shop services.
AERA (Engine Rebuilders Association) headquartered in Buffalo Grove, IL, and PERA (Production Engine Remanufacturers Association), headquartered in Arlington Heights, IL, have been faced with declining engine rebuilder membership for the past several years. This is the result of the higher quality and extended life span of modern engines, which has resulted in overcapacity and increased competitive pricing pressures often resulting in lower profit margins.
The engine equipment, parts supplier, and core supplier members of these associations have also gone through, or are presently going through, well-publicized consolidations, bankruptcies or simply shutting their doors. Despite the continuing consolidations among engine rebuilder suppliers there still exists overcapacity in many product lines. Continued pressure on pricing, in combination with lower demand for component parts due to quality issues, as well as smaller engines requiring fewer replacement parts, has made profit margins thin for many vendors of engine parts and equipment.
Despite these difficult times, the internal combustion engine is predicted to be the main power source of vehicles for a long time to come. The challenges for parts and equipment suppliers, as well as engine builders, are many. They include: lowering costs while producing higher quality products, expanding into profitable niche markets in addition to the traditional passenger car and light truck markets, improving customer service, improving availability of product, and investing in technology and training necessary to service the engine builds required of today’s and tomorrow’s professional and DIY customers.
To get an inside perspective on how the two major associations for high volume engine remanufacturers (PERA) and custom engine rebuilders/machine shops (AERA) see today’s and tomorrow’s business climate, we asked Joe Polich, executive vice president, of PERA, and Barry Soltz, president, of AERA, to give us their views on the issues facing their respective associations and engine builder and supplier memberships.
Engine Builder (EB): What is the value of your association to today’s engine rebuilder? What benefits do you supply engine builders and their suppliers? Why are these important today?
AERA’s Soltz: The value of the Engine Rebuilders Association (AERA) membership is probably at an all time high. Comparing membership fees and services offered against other aftermarket associations, AERA has the least expensive fees compared to the services offered. And the services just keep getting better. For example, this year our board of directors has authorized us to offer our Professional Specification Information Software (PRO-SIS) free to all AERA members.
If you’re in the engine business and not familiar with PRO-SIS, you need to understand what this software has to offer. PRO-SIS has more than 4,000 engines listed from Acura to Zetor, over 33,000 casting numbers, 2,200 AERA technical bulletins along with the technical drawings and diagrams. PRO-SIS has specifications and casting numbers for cylinder blocks, heads, crankshafts, connecting rods, camshafts and flywheels. Everything that AERA has published is in the PRO-SIS program.
Previously, members were required to purchase the software for a fee of $499 and pay a $249 annual support fee. Now, all members will be required to pay just the $249 annual support fee. For years, this software has been one of the premier benefits to AERA members. Since the board has determined we have recovered the development costs of the program, we can offer our members this great software FREE.
However, probably the biggest benefit today of an AERA membership is toll free access to our three ASE certified Master Machinists. With many shops expanding their services and working on engines that are new to them, it’s crucial for engine rebuilders to have access to our three full-time dedicated tech experts.
PERA’s Polich: The most important service we provide today’s volume engine remanufacturer is a forum to exchange information that will keep our members strong and better able to adapt to today’s ever changing market. In spite of the extremely competitive market, we are still able to foster some cooperation and exchange of information.
Our all new electronic information system under the SourcePERATM banner will revolutionize how our members, and the industry as a whole for that matter, accesses the information they need to identify engines and their components. Phase I, the replacement for our original CoreID Program, has been released with all our identification information mapped to make, model, year and engine.
Keeping up with all the changes in today’s engines has become perhaps the biggest technical challenge our industry faces. Knowing what engine goes in what vehicle and which cylinder head goes on which cylinder block with what crankshaft has never been more important. Our members are finding it too difficult to do all the research on their own and as a consequence, our program has become the center for exchanging this data. It only makes sense that PERA should be the glue that holds it all together.
EB: What does your association plan to offer businesses in the future?
AERA’s Soltz: We are always striving at AERA to have the most comprehensive engine rebuilding specifications and the most technologically advanced methods for delivering that information to our members. We truly believe that the engine rebuilding business is one of the most technical and information dependent businesses. A single comeback or warranty claim can cost our members serious money – money that could have been saved by having the right information at the right time – the first time. Having this technical information and the ability to gather new information and share it, is why we exist.
One new product that comes to mind is our Flywheel Spec Manual. This handy reference tool contains 71 pages of hard to find flywheel specifications including cup and step flywheel dimensions, bolt torque values and notes on whether or not sealer is required for those bolts.
Also, we have designed a Connecting Rod Wall Chart. This large 32˝ x 36˝ laminated poster displays popular specs for quick and easy reference when posted in a shop’s rod-reconditioning department. Currently we have four chart versions containing approximately 50 of the most popular specs. Domestic Engines, Import Engines, Heavy-Duty Engines and a combination chart are available at this time.
PERA’s Polich: We are continuing the development of SourcePERATM with Phase II that will add our supplier’s parts information. This, in effect, will provide an electronic bill of materials. When a user searches for the identification information we provide, they will also be able to see who makes the pistons, gaskets, rings, etc. They won’t have to go to five or more catalogs to find those parts, plus being electronic, they get updated information on a more timely basis than a printed catalog could only dream of providing.
We’ll also be working with strategic partners to enhance the value of this program. We believe in doing what we do best – engine and component identification – and partnering with others who do what they do best. Technical information from an All Data or Mitchell On Demand would fall into this category.
EB: In a market that continues to consolidate, can you maintain or increase membership? If so, how?
AERA’s Soltz: I wish I could answer this tough question but in all honesty I don’t know. Our association will always strive to keep our existing members and bring new ones in. We have begun some efforts to bring in engine installers who need our technical information. It’s just too early to tell how many installers need our information.
PERA’s Polich: Given today’s shrinking marketplace and intense competitive pressures, it will be difficult to maintain membership, let alone increase it. We’ve lost over 25% of our remanufacturing members over the last five years and the vast majority of these companies are completely out of business, not just out of PERA. The only bright spot with our membership is on the supplier side. It has grown, but not nearly enough to offset the loss of remanufacturers. This obviously impacts PERA’s ability to maintain and introduce new membership services and what we can do in the way of conventions and seminars.
The only possibility for growth on the reman side is internationally. As we evolve to true "world" engines, our information will become as valuable in Europe and Asia as it is in North America.
EB: What will your trade show/convention offer in the future? What changes are planned?
AERA’s Soltz: First of all, we have been able to get our trade show back to Las Vegas for the next three years. We are excited about this because our largest attendance has happened in Las Vegas. The international buyers that Las Vegas attracts are unmatched in any other city in the United States. In addition, for 2003, the Production Engine Remanufacturers Association (PERA) will combine its annual Marketing and Technical Seminar meeting with our International EXPO. This will help the suppliers and production rebuilders save on travel for those who attended both conventions. It should also increase the number of engine rebuilders who previously did not have an opportunity to view equipment, parts and shop supplies and services at the PERA meeting.
PERA’s Polich: Conventions and seminars will get a lot of attention throughout the near future. The first change will be joining AERA in Las Vegas in 2003 for their International EXPO, which is a full operating equipment show. Although we will have separate seminars, our members will have the opportunity to visit the EXPO as a part of our program for the first time since 1991.
The expectation is that this will enhance attendance for both groups and put more customers on the show floor for the exhibitors. If this proves to be as successful as we all anticipate, we can expect something similar for AERA’s 2005 EXPO. With more time for planning we might even find ways to cooperate further during the show.
PERA’s annual convention is another matter. Attendance has really been suffering and we can’t seem to find the right formula to attract enough members to make this event the value it once was. We need more input from the members as to the content, location and even the continuation of this annual event. We were forced to cancel our convention last year (2001) due to the events of September 11. This year’s convention program did not fair very well in terms of attendance. Our Board will be spending a lot of time on this issue in the near future.
EB: What do you see as your engine builder membership’s most pressing need?
AERA’s Soltz: The need to understand if they are making a profit on all of the jobs they are performing, and the need to understand how to make a profit on the jobs that they perform.
PERA’s Polich: I see three major challenges for our engine remanufacturers:
1) Sales: More sales would sure solve a lot of problems for our remanufacturers. You’d think that with the loss of so many PERs (production engine remanufacturers) and CERs (custom engine rebuilders) the survivors would be busier and be able to increase margins. But the reality is that in spite of the drop in capacity, sales have dropped even more. This loss of sales has created even greater competition chasing the same customers putting further pressure on margins.
2) Due to this pressure, our remanufacturers need to find even more ways to reduce costs and increase efficiencies without sacrificing quality and service. Our remanufacturers are struggling as it is, so if they cannot raise prices, reducing costs through better efficiency is the only way to increase profit margin.
3) A closer relationship with the installer community must be forged. The installers have more direct contact with the end user of our products, and therefore, by default, are one of our most important sales forces. If they are unwilling to install remanufactured engines then we as an industry have a serious problem. Better understanding of one another’s issues will forge a much closer working relationship to everyone’s benefit – the remanufacturer, the installer and especially the customer.
EB: What is your involvement/relationship with parts suppliers in terms of membership services.
AERA’s Soltz: We feel we have a great working relationship with many of our supplier members in the sharing of technical information. These members have the same access to our toll free tech experts as active rebuilders do. In addition, we offer excellent advertising values in our directory and three engine specification manuals to all supplier members along with our annual trade show.
PERA’s Polich: The next focus for PERA will be the addition of the electronic bill of materials to SourcePERATM. This part of the program will help ease the burden of getting new parts and changes in existing parts out to the industry on a timely basis. Too often today it takes much too long for our members to learn about new parts or changes. The remanufacturers then have to make tough decisions on whether to pass up building late-model engines or pay a steep penalty in buying parts from the OEs when some of those parts may actually already be available from our supplier members.
Our program formats provide lots of opportunity for suppliers of parts, equipment and shop supplies to interact with our engine remanufacturers. Those suppliers who participate in these programs are able to open doors where most phone calls don’t. The suppliers learn first hand who is responsible for making what decisions. This is very valuable information when you deal with companies as large as many of our engine remanufacturers.
EB: What do you see as your parts and equipment manufacturer/supplier memberships most pressing need?
AERA’s Soltz: They need the engine builders to not be intimidated by change. They need the rebuilders to update their equipment and diversify their offerings. However, both could use a larger demand for rebuilt engines.
PERA’s Polich: Solving the problems for the engine remanufacturers will go a long ways toward solving the problem for the suppliers. They are faced with many of the same challenges as the remans. Overcapacity for the current level of demand has heightened pressures to cut prices. Many suppliers, like many engine remanufacturers, are really struggling over low profit margins, and some are fighting for their very lives.
EB: What changes do you think engine builders and their suppliers can anticipate in the near future?
AERA’s Soltz: Everyone will have to think outside of the box. Doing the things you’ve always done and the way you have always done them for the last 30 years may not cut it in the future. We all will have to be more efficient and knowledgeable. We all will have to spend more time in the areas of our business that bring in the most profit.
PERA’s Polich: I don’t see any significant recovery in the near term. We saw a nice increase in business in the first quarter of this year, but that has since evaporated. All members, whether they are engine remanufacturers or suppliers will continue to knock heads over sales. I see further contraction on both sides of the equation before it gets better.
Long term is a different picture. I believe the industry will return to better times, but until Detroit quits giving all the incentives on new cars, it will be difficult for demand to increase too much. Although, in general, the vehicle fleet in the U.S. is older than ever, more than half of registered cars and trucks are actually less than seven years old. Given the life expectancy of new engines, we will have a longer wait before seeing these vehicles and engines in our members’ shops.