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Cv Market Travels Fast Track: Power To The Front Wheels Is The Drive System Of The Present And Future

By Tom Glover

Although sport utility vehicles, many still with rear wheel drive, are the hot sellers right now, few will dispute that power to the front wheels is the drive system of the present and future. A market for rebuilt front wheel drive axles and CV joints will be around for a long, long time.

With few exceptions, CV shaft rebuilders report that their business is good, and still growing. They're also pleased to see that the downward spiral on pricing of rebuilt CV shafts seems to have stabilized - at least for the moment. "We haven't had a price change since last September, and nobody seems to be dropping their published prices right now," said Mark Veldhuis, general manager of Fred's Driveshaft, Inc., Clearwater, FL.

Veldhuis is, however, aware of the toll that price cuts have had on profitability over the past few years. "We're building more axles than we ever have, and we have more people working here than we ever had, but we have less profit than we ever had. What's wrong with this picture?" Veldhuis asked with a chuckle.

Many rebuilders pin the blame for the fall-off in prices they've experienced over the past few years on the fact that rebuilding CV joints is not a mature industry. "As with any product that's in its 'early years,' I won't say infancy anymore, axle rebuilding has gone nuts in the last three to five years," said Skip Rullis of CV USA, a large-scale grinding service for outboard CV joint components in Saratoga Springs, NY. "To a large extent, our prices are volume and contract related. But if our customers - the rebuilders - experience their margins going down, we have to accept a similar situation for us."

A few other suppliers we interviewed said that they were experiencing collection problems with some accounts, a sign, they felt, that the market is undergoing a shake-out. Some believe that market forces are working just as they should, citing that the price leveling has come about because a lot of shops with no history in CV joint work got into the booming business and cut their prices to gain a foothold, causing everybody else in the game to cut prices, too.

How secure a foothold the newcomers achieved varies a lot. But, some of them now find that they cannot survive on low profit margins. "Some of the marginal rebuilders are deciding to get out of the business," said Richard Lovely, general manager of Powerline, Inc., a CV shaft and rack-and-pinion rebuilder in Roebuck, SC. "The people who have decided to be in this business for the long term have adjusted their cost structures to stay competitive at the going prices. They're going to weather the storm and sell value as opposed to price," Lovely said.

Fred's Driveshaft's Veldhuis observed that competition improves efficiency. "Everybody is having to find better ways to do things, but you know, that's the nature of competition."

Naturally, the price of cores, the "raw material" of the joint rebuilding business, plays an important role. Equally obvious is the fact that rebuilders need to purchase many new parts, especially when their orders call for late model applications that haven't shown up in volume at salvage yards and repair shops yet.

Core pricing

As with all product lines, the price of new parts influences the price for cores. "All of our core prices are eventually related to the price of new," explained Cranston, RI, core supplier Bob Grady of Rebuilders Automotive Supply Co., Inc. "When we're not competitive with new, the rebuilder will go with new," said Grady. "But that's only part of the equation, and the demand changes dramatically from time-to-time, too." Grady also says that it's not always easy to determine why sales are up or down. "You don't know, for example, whether it's because the pipelines are filled, or if customer sales are actually off," he said. "We always watch and try to figure that out."

Any business has to keep its finger on the pulse of supply and demand, especially when its activity involves recycled parts. And Grady is quick to point out that he has to respond to market forces the same as anybody else. "Rebuilders sometimes think that core suppliers are in control when it comes to pricing. But there are many influences we have to respond to, like the availability of new, as well as the pressures of large buying chains such as Western Auto and Auto Zone. We don't really set the prices, but we get the credit or blame for it all the time," Grady said.

One of the companies that unabashedly takes credit for the decline of prices is a fast-growing newcomer rebuilder - Car Component Technologies (CCT) of Bedford, NH. Its vice president, Mark Bourgeois, and his three partners founded the company three-and-one-half years ago with 12 employees. They now employ 370, and they're on their third plant expansion.

"We brought a lot of new things to this business and put some life into it and surprised everybody," said Bourgeois, adding, CCT rebuilds about 95,000 shafts each month, all for domestic consumption. When the current plant expansion at CCT is completed, the company will have the capability to increase its volume to 200,000 shafts monthly.

One of the strategies of this relatively new player has been to price its finished product, no matter what the configuration, at a single figure across-the-board. "Our single price is in the $50 range, which of course is adjusted for size of the order and freight, but the base price applies whether it's for a Chrysler, Subaru, Toyota or Chevy," Bourgeois said.

Bourgeois also sees the price squeeze leveling off, and credits this to the size of the market. "We don't have to lower prices anymore because the market is so big and most people have a hard time filling it," he said. "We're filling in the high 90% range and giving same- or next-day turnaround for orders. I don't think the prices need to go down. What people need is quality, high-fill rates, quick service and better turnaround times. That's what makes everybody money," he said.

Still grinding away

Bourgeois' other strategy for success has been a no-holes barred embrace of the sometimes controversial concept of grinding worn components, and using oversize ball bearings to compensate for the material taken off. "We have 16 grinders - both the Constant Velocity Systems (CVS) and Oliver (Instrument Co.) machines - on the floor right now and another nine machines on order. You can't not own grinding equipment and sell an axle for $50 across-the-board and be successful. You just have to make that investment in the grinding equipment to achieve the highest quality and lowest cost in the business," said Bourgeois.

But while more and more rebuilders are grinding joints, the questions continue about where to draw the line on how much to grind, if any. Denver, CO, rebuilder, CVJ Axles, is one rebuilder that does build-up and regrind the cages, but it doesn't grind housings or races.

"I've had some of the parts tested for Rockwell hardness, both before and after grinding," said CVJ spokesman, Steve Skirrow. "The Rockwell hardness number on the ground joint was 15% below what it was when we sent it in, which is inconsistent with what good engineering practices call for. I think there's a lot of concern about case depth (hardness)," Skirrow said.

Powerline's Lovely heads another company that stays away from grinding. But Lovely agrees with people on both sides of the issue that the matter has been debated for far too long, and it's time to get definitive data on whether grinding does indeed negatively impact case hardness and, consequently, long term reliable performance.

Lovely chairs the Automotive Parts Rebuilders Association's (APRA) CV and Racks Division which recently formed a committee to spearhead a program to send a group of joints and components to the Rochester Institute of Technology for an independent, in-depth analysis of the effect of grinding on case hardness. "They'll do cutaways and perform hardness tests at various points in the tracks," said Lovely. "We're going to try and come up with an analysis that shows how deep the case hardening is when the joint is new, where it is when the joint is worn, and what the case hardening is when the joint has been ground," he said.

Lovely's cautionary approach is born of experience. He says he wants to avoid what has happened in the automotive/light duty truck clutch rebuilding business in the past, where problems with some rebuilt products prompted some consumers to purchase new rather than rebuilt parts. "I've been in the rebuilding business for a long time and I've seen it happen to product lines. I fear that a lot," Lovely said. However, to be fair, the increase in new clutch sales is also being driven by the price competitive nature of new clutches as much as any performance comparison issues.

Indeed, getting at the truth about grinding is also on the minds of those who make their living by supplying the machines that do the grinding. The CVS-5000 is a popular grinding machine from Constant Velocity Systems of Ballston Spa, NY. This piece of equipment is a sophisticated CNC grinding machine designed specifically to grind CV joint components, including the cage, race and housing. The unit sells for more than $100,000.

Constant Velocity Systems has built more than 140 of these units since 1992 and has been shipping out an average of three new machines each month for the past two years. "We were at the APRA CV and Racks Clinic in Chicago (May 4-5, 1996) and found that everybody there, myself included, wants to get this issue put to rest once and for all," said CVS sales coordinator Mike Glassman.

Despite the misgivings of some, the use of grinding seems to be expanding, and its advocates like to point out that the market place has settled the issue. CV USA's Rullis' seems to speak for many in the industry. "As far as I'm concerned, there is no controversy," he said. "The only discussion should be, 'does a reground/remanufactured joint last as long as a brand new one?' My answer to that is, 'why should it?' But in terms of 'are rebuilt joints short-lived and do they fail prematurely?,' my answer is that if that were the case, we as a vendor offering a lifetime warranty would be getting the joints back. And that's just not happening. We have occasional failures, and those tend to be from Hondas which use a design that doesn't lend itself to the machining process."

Fred's Driveshaft is another company that grinds joints, using six grinding machines that the firm's owner designed himself. "There's no point in trying to engineer these things so that they're better than OEM," said Fred's Veldhuis. "What we're trying to do is offer the end user a good value for the dollar. He's going to pay about $100 for a rebuilt axle versus a new one for $450 to $500. And the car that needs a new axle usually has 60,000 or 70,000 miles on it, so the rebuilt axle is a good value if it lasts two or three years; if it lasts another 30,000 or 40,000 miles, the customer is satisfied with it."

A related issue, testing rebuilt joints and establishing what the standards should be, is another bone of contention in the industry. So far, the standards proposed by the Society of Automotive Engineers (SAE) have been thought to be excessive and prejudicial towards independent rebuilders. They have not been accepted by representatives of APRA, as well as many other independent rebuilders who have read them. "Even some of the OEM engineers agreed that their products wouldn't be able to meet the standards as proposed," said Lovely, who recently attended an SAE committee meeting on the issue in Detroit, MI.

Even those who favor the eventual establishment of voluntary standards - and Lovely is one of them - admit that the greatest roadblock is that there is no equipment on the market capable of testing CV joints built to the standards. "Until I see a tester that tests the joint to the point that honestly tells me whether a joint is good or bad, or whether it's going to last or not, it's going to be hard to set a standard," Lovely said.

Others such as CV USA's Rullis, point to the fact that even if the standards were set and the necessary equipment to test these standards was available, durability could not be accurately measured. "A lot of axles fail because the boot gets torn," said Rullis. "How do you factor that in? The testing machine might be able to duplicate driving conditions, but driving conditions of which area?" he asked.

Bourgeois of CCT says that when it comes to grinding, he believes the marketplace is the best testing ground. "They can make all the standards they want, but when it comes right down to it, if your product fails a lot, your customers won't be happy and they'll quit buying it. If I can build a high-quality product at a competitive price, and ship it and deliver it on time, people are going to buy it, no matter what the standards are," Bourgeois said.

Part proliferation

Part proliferation has always plagued people in the rebuilding business. CV replacement part suppliers told us they are working on opportunities for consolidating inventory and applications. An example of such a company is Valley Drive Systems of Rockford, IL, which has instituted a cross-referencing and modification service to help its customers utilize "orphaned" parts in different applications.

Bernie Powers is Valley Drive's international sales manager. "We're not the only people doing this," said Powers. "But we believe we have the best technical support available. He points to the technical manual his company makes available to its customers, as well as the full-time technical support staff which handles customer core identification and technical questions. Powers cited an example of how a supplier can help its customers.

"We had a rebuilder customer who had a bunch of races and cages they had no use for," explained Powers. "We started asking them to identify the various applications they were selling. We were eventually able to identify those parts through our extensive cross-reference database and ended up selling the company shafts and housings that allowed it to use those races and cages on another marketable application," Powers said.

According to recent market statistics from APRA, there are 250 CV joint and axle rebuilders that are members of the association, and an almost equal number on its "perspective" list. One conservative estimate claims that about 17 million axles are replaced annually. "I think the price war is just about done, and now we're going into a settling stage," said Lovely. "I see a steady 7% to 10% growth for rebuilt CV joints and axles for the next four to five years."

Likewise, Fred's Veldhuis sees growth on the horizon, but he's concerned that profitability be maintained. "The growth potential is still far from peaking," Veldhuis observed, "but people in this business have to pay attention to the bottom line and stay profitable so they can continue to service the market.

"If profitability gets squeezed out there's going to be less research and development and more companies being forced out of business," continued Veldhuis. If that were to occur, he says the consumer would suffer because there wouldn't be the availability of rebuilt axles that is required to service the needs of the aftermarket.