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Niche Market Opportunities

By Larry Carley

Opportunity is where you find it. Rebuilding passenger car and light truck engines and doing the machine work that’s necessary to repair and recondition such engines provides a good living for many of our readers. Even so, some say it’s getting harder and harder to maintain healthy profit margins in today’s highly competitive market.

From jet skis to go karts, the total universe of engines is larger than ever before. The trick is finding the niche that's going to be most profitable for you.

The proliferation of new engines in recent years has created real challenges for engine rebuilders who have focused primarily on small block Chevy and Ford V8s. Significant improvements in quality and durability at the OEM level have meant today’s engines are lasting longer than ever before — which has not been good for the replacement engine market.

At the same time, many shops have had to invest in new tooling and equipment to keep pace with the changes in engine technology such as overhead cams, smaller valves and guides, aluminum heads, smoother surface finishes, and lighter blocks. To remain competitive, many shops have also felt the pressure to upgrade their equipment so they can boost productivity, deliver higher quality work, and handle a wider variety of engines. There have also been significant changes in environmental regulations that have required major changes in the way parts are cleaned and waste is minimized and disposed.

In light of these changes, some shops have found that the road back to profitability has required them to change direction or branch out in some new directions. Some have discovered new-found profits by developing sideline businesses such as selling parts in niche markets or doing engine installations.

Others have created opportunities for themselves by expanding their menu of services, and accepting jobs that they formerly couldn’t do or turned away because of a lack of experience or expertise, or the right equipment. This includes small engine repair, motorcycle engines, marine engines, restoration work, or performance engine building. Others have found that specializing in certain types of engine work and refocusing their business away from general automotive engine rebuilding is the key to profitability.

In researching this article, we interviewed a variety of shops that have done just that: found and developed profitable niches that have helped revitalize their businesses. Though the approaches vary, the common thread is that each has found an avenue to provide a unique service that other shops don’t.

Defining your niche
It’s almost impossible these days to find or create a specialty that has no competition. As soon as you discover or develop a niche, you’ll have competitors. Others will see what you’re doing, recognize that you’re making money and they’re not, and try to copy you — often by offering the same type of service or product at a lower price in hopes of stealing away some of your customers. The key here is not being the lowest cost provider but providing the best service and value. Whomever can play that game best will be the ultimate winner.

Niche opportunities today include everything from performance, marine, agricultural, industrial and heavy-duty to small engines and motorcycles. Any gasoline or diesel engine application is essentially a niche that has the possibility for further growth and development.

Obviously, to succeed in any given niche you must have specialized know-how. In other words, you have to be an expert, or learn how to become an expert, on whatever type of engine it is you’re rebuilding.

One of the most common mistakes that can get a shop into trouble is taking on a job that it’s never done before. Sometimes you’re lucky and everything turns out fine. You gain valuable experience and are better prepared for the next such job that comes along.

Other times, you may think you know what you’re doing but for reasons that are unknown to you, which only become apparent later, you’re prevented from succeeding. The engine isn’t competitive, doesn’t run right, burns oil or fails altogether.

Rule number one, therefore, when developing a specialty is to do your homework. Learn as much as you can about the type of engines or specialty work you want to do from as many different sources as you can tap, i.e., employees, the experiences of others who are in the rebuilding business, through trade associations such as the Engine Rebuilders Association (AERA), the Production Engine Remanufacturers Association (PERA), from customers, even from your competitors (by learning what they’re doing right or figuring out what they’ve done wrong).

Though the machine work that is involved in many of these different niches may appear to be similar and even use the same equipment, tooling and fixtures, every type of engine has its own special requirements. Performance engine building, for example, requires much more attention to detail and tolerances. Reliability is what wins races and keeps customers coming back, so you have to know what kinds of parts to use and how to put them together.

It’s the same story with marine engines, truck engines, even small engines for go karts and junior dragsters — which are even more critical because small differences in a single cylinder engine can make a big difference in how it performs. So what it all boils down to is learning the various "tricks of the trade" and other well-kept engine building secrets that are necessary to be successful in any given niche.

This isn’t something you can acquire overnight. In many instances, it takes years to accumulate the experience and know-how to successfully rebuild certain types of engines. With this in mind, let’s look at a few of today’s niche opportunities and what those who are doing well in these areas are doing right.

Performance, restoration
Ray Zeller of Taylor Engine Rebuilding, Whittier, CA, says his shop does everything from Briggs & Stratton to blown top fuel engines. "If a customer can pay the bill, we can fix almost anything he can drag in here," said Taylor.

Taylor Engine Rebuilding has been in business for more than 50 years and employs eight to 12 machinists. He says that about 30 percent of his business is high performance engine work, 30 percent antique restoration work, and the remaining 40 percent is general automotive work. His performance work includes NASCAR Busch racing engines, pro stock and sprint car engines, while his antique work includes a lot of Model A and B flathead Fords.

"Our performance work is advertised by word of mouth only," said Zeller. "A satisfied customer is the best kind of advertising because they have credibility. Most of the business we get is by referral.

"We get $70 per hour for labor, which may sound high compared to other parts of the country, but not for Southern California. The cost of doing business here staggers the imagination. Environmental regulations have increased our cost to clean a typical V8 over 600 percent compared to 20 years ago.

Add to this the high cost of land, rent and insurance and you can see why we’re one of the few remaining full-service machine shops. In fact, we’re the only shop in a 150-mile radius that can line bore Japanese OHC heads."

Zeller said that because of the high cost of doing business today and the high cost of new equipment, general automotive work alone can’t generate enough revenue for his shop to pay for the equipment and overhead, let alone the machinists who run the equipment.

"General automotive customers just won’t pay for the true cost of machine work today," said Zeller. "They can’t grasp the real cost of what it takes to rebuild an engine. So we’ve had to turn to performance engine building and restoration work to maintain our profitability. Our rates are 10 to 20 percent higher than our competitors, but we always have plenty of work," he said.

Westech Auto in Silver Lake, WI, (www.westechauto.com) has found that specializing in restoration and performance work has its advantages, too. "We do lots of things here, but lately I’d say that 60 to 70 percent of our work is restorations," said Westech’s owner, Norm Brandes.

"I’ve always been into Chrysler Hemis. I have a 1965 Dodge Factory A car with a Hemi in it, but lately I’ve been doing some Viper engines, as well as Pontiacs.

Westech Auto has four machinists, a chassis dyno for engine testing and certification, and a unique approach to engine rebuilding. "The first thing we do when we restore an engine is establish a level of quality with the customer. We have a labor menu and check off all the things we think should be done.

"We then walk the customer through the menu and explain why each step is necessary. Getting their involvement and input makes the approval process much easier. And when their passion rolls, the dollars come out," Brandes related.

"We also keep our customers informed as the restoration work progresses," continued Brandes. On a Studebaker we did recently, we kept in touch with our customer by e-mail.

"This keeps them involved and excited about the project. We also take pictures of each step to document the work that’s being done."

Brandes said his secret to restoring performance engines is making everything right. That includes cutting decks flat, restoring bore centers and proper bore spacing, etc. "The process is like building a NASCAR motor," explained Brandes. "We check everything and give our customers a ‘birth certificate’ that lists all the specs their block is machined to (See Automotive Rebuilder, February 1999 issue, page 30). This adds another $200 to the job, but gives the customer the kind of documentation they usually can’t get anyplace else," said Brandes.

Niches, niches, niches
Weimer Machine in Berwyn, IL, is another shop that is doing well in a variety of niches, including restoration work, engine installations, personal water craft engines, fork lift engines, cylinder work for Harley-Davidson motorcycles, along with a crankshaft and cylinder head kit business. Weimer Machine has been in operation for 42 years and is a family-owned business with 20 employees. In addition to the fully-equipped machine shop, the business also has 15 service bays where it does engine installation work. It carries parts inventory valued at more than $1 million.

"When we were doing mostly wholesale general automotive work, we found we were working hard but not making any money," explained Weimer’s Rick Ceyer. "So we weeded out the slow-pay accounts, increased our labor rate from $40 per hour to $60 per hour, and started developing a variety of niches. We advertised in local papers and got involved in local car shows as sponsors to attract restoration work, which has recently brought in a lot of local car clubs.

"We also put together a catalog of crankshaft kits and cylinder head kits, and developed some really nice packaging. We have a showroom for walk-in customers so they can see the kind of engine restoration work we do," said Ceyer.

"Today probably 35 percent of our overall business is restoration work. A typical restoration job here takes about three weeks. The process includes blueprinting and balancing. We take pictures of each step, and give the photos to the customer in an album when they pick up their engine.

"Many restoration customers are leery of getting burned or have had bad experiences with other shops, so we break out every labor operation on the job ticket and even include the brand name of the parts that are replaced," said Ceyer. "We also require that the customer come in prior to assembling the engine for final approval of all the work that’s been done. Because of this, we have very loyal customers and a lot of referral business."

Ceyer said fork lift engines can also be a great opportunity for any shop in a metropolitan or industrial area. The Chicago area has a lot of industry and businesses that use fork lift trucks. He said to find new business, all you have to do is check the phone book for industrial listings, then send a flyer to the plant manager describing your shop’s capabilities and asking if they need any fork lift engine repair work.

The small engine market has also been good. The nearby lake means there’s a good market for rebuilding personal water craft engines. "We do the machine work on small engines and sell parts, but do not do the final assembly," said Ceyer.

Ronald Boles of General and Automotive Machine Shop, Inc., Huntsville, AL, says, "You must find a niche or get pushed into one." Boles said his company started back in 1945 grinding crankshafts, then got into the parts business, then switched gears again and got back into engine rebuilding.

"Fifteen years ago we decided that to make money rebuilding engines and selling parts, we had to become a distributor and service shop for the OEM engine manufacturers. So now we are distributors for about a dozen OEM engine manufacturers including Honda, Kohler, Wisconsin, Owens, Lombardini Diesel, Kobota and Perkins. We also do electric generators, and recently added Cummins, so we’re into large engines as well as small ones."

Boles said being an OEM representative brings in a lot of warranty work as well as repair work that other machine shops turn away. But to do this, you also have to make a considerable investment in parts inventory. We sell parts from Kentucky to the Gulf Coast, but mostly within a 100-mile radius.

"You can usually make more money doing this type of work than general engine rebuilding, until you get competition. The market overall is too crowded, so you do what you have to do to survive. One of the things that’s making matters worse is the merger mania among part suppliers, which is not good for small businesses," Boles concluded.

Small engines
Mention the words "small engine repair" and you typically think of lawnmowers, lawn-and-garden tractors, maybe even chainsaw motors, portable generators and the like. But the hot opportunities today in small engine work are go karts, junior dragsters, personal water craft, i.e., jet skis and motorcycles (especially Harley-Davidson).

Dave Monyhan with Goodson Tool Supply Co., Winona, MN, said that Goodson created a special tools and supplies catalog for the small engine "power sports" market in the summer of 1997. He said with the kinds of tools and supplies needed to work on small engines now available, more shops are getting involved in this type of engine work.

Ralph Johnson, sales manager for Wiseco Piston, Inc., Mentor, OH, says there are many niche opportunities in today’s small engine market. In addition to the company’s automotive line, Wiseco supplies pistons for many of the small two and four-stroke engines, including ATVs (all-terrain vehicles), snowmobiles, motorcycles, personal water craft, and outboard marine engines, but not Briggs & Stratton.

The most popular ATV engines, says Johnson, are those made by Honda, Yamaha, Kawasaki, Suzuki and Polaris. For snowmobiles, it’s Arctic Cat, Polaris, Ski Doo and Yamaha. For personal watercraft, the most common engines are by Sea Doo, Polaris, Kawasaki and Yamaha.

"Two things that people who are rebuilding automotive engines need to keep in mind with respect to rebuilding small engines such as these are that clearances and cylinder finishing procedures are different," said Johnson. "To achieve the correct piston clearances, you have to measure the piston and then bore and hone the cylinder to size.

"We also recommend a plateau type of bore finish. Rebuilders can get the proper clearances from Wiseco, OEM service manuals, or other aftermarket parts and equipment suppliers. Many people who do small engines use a Kwik-Way boring bar and they have a lot of information on how to do the smaller cylinders. Something else you have to do on two-strokes is to chamfer the edges of the ports after the cylinder has been bored, otherwise it will affect the rings."

Johnson said sleeving two-stroke cylinders is another good niche opportunity for engine rebuilders. But once the sleeve has been installed, you have to go in with a die grinder and carefully match the ports with the sleeve, otherwise performance will really suffer.

Jim Hailmann of the Pushrod Factory in Reeds Springs, MO, is an example of a shop owner who went from doing general automotive machine work to specializing exclusively in go kart engines. "I developed arthritis in my elbows and found I couldn’t manhandle the large automotive engine blocks anymore, so I turned to small motors," said Hailmann. "My son was into go kart racing so I decided to start doing nothing but 5 hp Briggs & Stratton engines."

Hailmann says he gets $700 for a completely rebuilt stock class engine. The rules limit the type of modifications that can be made, but even so, there are many changes that can be made to squeeze the most out of these little engines. Hailmann says he’s been doing small engines for three-and-a-half years now, and that it is the "best thing I’ve ever gotten into." His nearest competitor is more than 50 miles away, and business is great.

Brian Carlson of Carlson Racing Engines in Linden, TN, (www.carlsonmotorsports.com) is another engine builder who has found happiness and profitability in the small engine market. His specialty is Briggs & Stratton engines for go karts and junior dragsters. Participation in both motorsports has been growing rapidly in recent years thanks to the relatively low investment that’s required to get into these forms of racing compared to full-size auto racing.

"It’s a huge market and growing every day," said Carlson. "We have to turn away business every day," he said. "Five years ago you had to make your own fixtures and tooling for these engines. But today you can buy almost anything you need, including a flow bench designed specifically for Briggs & Stratton engines."

Carlson said small engines require a much higher degree of precision than a typical passenger car engine. "If you’re off a few thousandths here or there on a Chevy 350 V8, it’s no big deal. But on a small one-cylinder engine, it can make the difference between an engine that’s competitive and one that isn’t."

There are obviously a lot of tricks involved in race-prepping Briggs & Stratton engines, including having an intimate knowledge of the rules established by the governing body that sanctions the racing (including the gray areas and "loop holes"). In most go kart classes, the rules prohibit changes to bore and stroke, the cam profile, deck surface height, etc.

Inspectors use go/no-go gauges to check everything, so knowing what the limits are and machining to make the most of those limits can find hidden horsepower. Few people race box stock engines.

In junior dragster racing, which involves half-scale rail dragsters powered by single cylinder Briggs & Stratton engines, more modifications are allowed. Some of these engines produce as much as 28 hp on alcohol and propel the dragster to speeds of 70-plus mph in an eighth mile.

Carlson says that although his "official" labor rate is $40 per hour, he can’t charge that much. "It’s more a labor of love for me," he confessed.

"What I charge is $305 for a basic blueprint job plus parts. This includes reworking the cylinder, wrist pin and rod, deck, port work, modifying the carburetor, dyno testing and break-in."

Hog heaven
Harley-Davidson motorcycles are an American icon, as well as a legend. Though some people say Harley engines are primitive compared to the latest technology that’s available in the Japanese bikes (Honda, Kawasaki, Suzuki and Yamaha), those who love the classic V-Twin Harleys say the Harley engines require a lot of know-how to rebuild and rework correctly.

Leo Croisetiere of R & L Engines, Dover, NH, says you have to go through a learning curve to get up to speed on Harleys. It’s not something a novice can jump right into.

"We’ve been doing Harley engines for 19 years," said Croisetiere. "With some basic knowledge and a few special tools, you can start with jugs and head work. But you need a cylinder head center and must be proficient with guides and seats to make money. To move into bottom end engine work and flywheels, you need more training and tools."

Croisetiere said his shop got into Harley’s because it’s lucrative work. "The typical Harley owner pays well and pays in cash," explained Croisetiere. "Cost is less important than quality work and service. A basic street valve and port job runs $450 plus parts. Better yet, the business really isn’t seasonal. We see this kind of work 12 months a year.

"In our area, we have two Harley dealers within 30 miles. Some dealers are hard to work with because they want to do the work themselves. But one of our dealers gives us a lot of work because they know we know Harleys and have a good reputation. We stick to the machine work only and do not do any assembly."

Croisetiere said he also works on Japanese motorcycle engines, but probably does 10 Harleys for every Japanese engine. The biggest opportunity here is doing custom port work to increase power.

Another shop that has found its niche in Hog Heaven is the B.C. Gerolamy Co., Rancho Cordova, CA. Owner Barry Gerolamy started out 30 years ago doing a mix of automotive and racing head work. "We were involved with British road racing and Nissan racing, and still do some work on Nissan heads," explained Gerolamy. "But we also did a lot of Harley heads, and today we do Harley almost exclusively."

Gerolamy said he has four machinists and a fully-equipped machine shop that fills about half his 5,000 sq. ft. facility. The other half is occupied by his "cylinder head abrasives" business, which supplies various types of abrasives to customers worldwide, including many NASCAR teams and high performance engine builders.

The Harley market, according to Gerolamy, is divided into two categories: street toys and drag racing. The hottest opportunity now is modifying "big motors" – 120 to 140 cid – for street bikes. "Reworking stock heads has been our bread and butter for the last 10 years," said Gerolamy.

"But this business can change overnight. Harley recently came out with a new motor so people are waiting to see what happens. There have been some engineering problems, but when the bugs are worked out the new motors could be a big opportunity."

Harley motors are not as forgiving as small block Chevy motors according to Gerolamy. "Harley’s have a hemi head so you must check clearances carefully if you’re installing a high lift cam. You also have to know how to set these engines up correctly or you’re going to have problems."

Gerolamy says he’s seeing more competition in Harley engine building, and that several small shops in the area that were doing European cycle engines have now started doing Harleys. "That’s why I never put all of my eggs into one basket," he said.

Marine market
The marine market is divided into outboard engines, which are more like motorcycle engines, and inboards, which are more like ordinary automotive passenger car engines. Flagship Marine Engine Co., Punta Gorda, FL, has been doing both types since 1963 exclusively, and sells its engines in 24 states according to Flagship’s Tom Fileman.

"There are a lot of marine engine builders in Florida, and a lot of automotive rebuilders who are trying to do marine engines," said Fileman. "Our niche is the higher priced quality end of the business. We sell a Chevy V8 marine engine for $1,200 to $2,000 with a one-year warranty on engines rated up to 375 hp. For engines rated up to 800 hp, the warranties range from six months to 90 days."

Fileman said a lot of rebuilders with little or no experience in the marine market will try to sell a passenger car engine as a marine engine (often with no warranty) for as little as $600. But these engines often don’t hold up because they don’t use marine quality parts.

"Marine applications are very demanding, and there’s no way to build a marine engine inexpensively," said Fileman. "You have to use top quality parts that will hold up. One hundred hours in a boat is roughly the equivalent of 25,000 miles in a car because you’re often at full throttle under constant load," he said.

Fileman also said that new emission laws are now affecting the rebuilding of marine engines. Starting in 1998, all new marine engines must meet certain emission levels. Fuel injection has replaced carburetion, and computerized engine controls are now used to control fuel delivery and ignition timing.

"Some of these new ‘emissions-compliant’ outboard engines can cost upwards of $12,000," said Fileman. "So anyone overhauling one of these newer engines had better know what they’re doing.

"We’ve seen motorcycle and small engine rebuilders who have tried to do marine engines with bad results because they didn’t use the proper clearances or the correct materials. So the key to this business is being an expert in what it takes to build marine engines."

Vincent Mancini of Recon Automotive, Philadelphia, PA, a supplier of reman engines and components, says his company launched a line of inboard marine engines eight years ago in response to customer requests. "To promote the line, we started attending local boat shows," explained Mancini. "We also developed a marine catalog and a point-of-purchase counter mat and brochure. We’ve had a great response and are selling to marinas that do engine installations as well as to other engine rebuilders."

Mancini said the market is expanding thanks to a growing interest in boating. The high cost of new marine engines has also helped to fuel a growing demand for more affordable replacement alternatives.

"What we do is take a high quality passenger car engine core and convert it to a marine engine," said Mancini. "We don’t use any block that has been sleeved or repaired. The crank can be no more than 10 over, and no more than 40 over on the block. We then install a special marine cam, gaskets, new valves and springs, brass freeze plugs, hard seats if needed, and hypereutectic pistons with moly-faced rings.

"We have a separate assembly line for these engines and a special area set up within the plant. The engines are sold outright with no exchange needed with a one-year warranty."

Mancini said that old marine cores are usually too corroded to rebuild anyway. So if you’re doing a custom rebuild, pay close attention to the condition of the coolant passages. And if you’re doing a block only, the coolant passages in the heads should also be inspected.

On applications where twin inboard engines are used, one engine typically rotates in the opposite direction to offset the prop torque generated by the second engine. Rebuilding a reverse rotation inboard engine requires a number of changes, including polishing the crank in the opposite direction as usual, using special oil seals with reversed flutes to prevent oil leaks, reversing pistons and rods left to right, and installing a cam with a special reverse rotation profile.

To keep the distributor and oil pump turning in the same direction as before (no reverse rotation distributors or oil pumps are available for these applications), a gear drive must be used for the cam so it will turn in the same direction as before. Or, a cam with a special reverse distributor drive must be used along with a reverse rotation gear on the distributor shaft.

From the examples we’ve described above, it’s obvious that some niches can be very profitable. The trick is finding the niche that’s right for you, and then developing the know-how, experience and expertise to make that niche work profitable for your shop.

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