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Engine Installation Opportunities

By Ed Sunkin

Much has been reported recently regarding the need to grow the engine rebuilding and remanufacturing markets. We're all aware of the Automotive Repower Council (ARP) which was recently formed to increase customer awareness on the alternatives to buying or leasing a new vehicle. And Automotive Rebuilder magazine has provided a number of features and columns dedicated to ways to expand the market.

But just as important as being able to rebuild more engines is the matter of who installs them. There are many options available for the rebuilder and remanufacturer when it comes to engine installation. In fact, the subject of engine installations is so significant today to the rebuilding and remanufacturing markets that the issue will be addressed in a panel discussion at the Production Engine Remanufacturers Association's (PERA) annual convention Sept. 16-20 in Albuquerque, NM. Four industry experts will lead the discussion on "Who will install the motors."

One of the panelists is Ken Navarre, president of Michigan Motor Exchange, Westland, MI, a passenger car, light truck and marine remanufacturing and engine installing operation since 1945.

Navarre, one of the few PERs who offers installation service, said engine installation has been very profitable for Michigan Motor Exchange. "Installation of remanufactured engines has been the backbone of our business," Navarre said. "This has been our niche in the remanufacturing market and it has enabled us to open a second and third location in the Detroit-area market."

Michigan Motor Exchange installs 25 engines each week, which is about 80% to 90% of the total number of engines it remanufactures. Navarre said providing installation service was not solely to reduce the number of comebacks to his shop. Rather, it was another opportunity to make money for the business. "When we sell engines by carry-out, comebacks revolve around the engines themselves," Navarre said. "When we install a remanufactured engine, the whole car becomes our responsibility. Comebacks overall haven't changed."

Navarre said he believes there is room for more rebuilders to become involved in installations, providing they have the desire and there is a market available. "When looking through a phone book, I've noticed some areas have several installers, and others have none," he said. "It really depends on your location."

Hiring qualified help is another factor a shop should consider before moving into installations themselves. "Getting the help needed is the biggest challenge today, more than ever," Navarre said. "With all the different electronics and technology, installation has become more labor intensive. You can't just set up an assembly line of engine installations. And expect to have a closer relationship with the vehicles' owners."

Navarre said his shop gets customer approval for about $200-$300 worth of miscellaneous parts such as radiators, thermostats, hoses and belts when selling an installation job. Other items, like replacement motor mounts and other additional costs must be approved before installation. "We call the customer if there's a need for additional items and work before these are installed in accordance with Michigan state laws," he said.

As engine technology changes, so to does the amount of time needed to install an engine. More labor adds to higher costs. "The increasing variety of vehicles and the growing diversity of engines is making installation more difficult to perform," Navarre commented. "Our mechanics have to continually train and receive the proper education for these different engines. Even the tighter work areas under the hood are a problem our installers have to deal with."

According to Navarre, it takes about 14-16 hours to install one of his remanufactured engines. Total cost for the customer averages between $2,200 and $2,600.

Another option for rebuilders and remanufacturers is finding a reputable installer as a customer. Jack Asvitt, owner of Jacks Engine Supply & Machine, an engine rebuilder located in Oakland, CA, will also be a panelist on the installation discussion at PERA. Since Jack's Engine Supply does not offer its own installation service, Asvitt said it is critical for the survival of a remanufacturing operation like his to work closely with the businesses that install his engines.

"For many remanufacturers and machine shops, having a good working relationship with one or more engine installers may be the best scenario for their particular operation," Asvitt said.

According to Automotive Rebuilder's survey of machine shops (see July and August issues), more than 71% of the machine shops surveyed do not even have a service bay to perform engine installations. About 7% of shops have one bay, 6% of shops have two bays and 10% of the responding shops have more than four bays.

Asvitt, who sells only to installers, garages and dealerships (no retail) said the relationship between the remanu-
facturer/rebuilder and the installer should be built on working together. About 50% of Jack's engines are sold to San Francisco Bay area Ford and GM dealerships, as well as the import dealerships for Volvo and BMW. "Because we remanufacture so many of the same engines, we start to see a pattern with some of the problem engines,"he said, adding proper diagnosis of the bad engine should be addressed between the two parties. ìIt's important to know why the old engine failed in order to prevent it from occurring again. When an engine fails, there's always an underlying reason," Asvitt said. "Sometimes the cause is obvious and sometimes it's not, so our first step is to look for reasons why the engine failed."

Asvitt said you can often tell what caused an engine to fail by the clues found on the parts of the disassembled engine. "If we see there is a common problem with a certain engine, we tell our customers these things. We usually give them a copy of the technical bulletin concerning a particular problem so that we know they are kept up to date on such information. We want to make sure the engine is installed correctly just as much as they do."

Asvitt said he gets feedback from the dealerships on problem engines as well. "The relationship with your installer is really a two-way street," he said.

Asvitt said he believes the worst thing a rebuilder/remanufacturer can do is to simply sell an engine over the phone to just any installer. "You're really taking a big risk if you don't know your customer," Asvitt said. "These engines we're remanufacturing operate at higher temperatures and higher rpm's than the engines of old. With all the abuse today's engines take, it's very important to have an installer who is on top of this technology."

Problems with the installation or misapplications continues to be the biggest issue between the rebuilder and the installer. According to machine shop members of the Engine Rebuilders Association (AERA) surveyed by Automotive Rebuilder, more than 58% of the respondents said that 60% or more of engines returned to their shop were due to customer installation or diagnostic/misapplication problems.

The good news is most respondents (35.7%) said that only 1% or less of their rebuilt engines are returned on warranty. About 13% of machine shops responding said 3% of their rebuilt engines were returned on warranty, and only 3% of the shops said warranty returns were more than 10%.

Asvitt said when acquiring a new installer/customer, make sure you meet with them. "When I do get a new installer customer, I'll visit their garage or dealership and meet the technicians who do the work. It's important to have a good partnership with your installers and know your customer." Asvitt said this relationship will come in handy if there's a problem with an engine down the road. "When you give a warranty, you better be able to back it up, he explained. "But occasionally a problem will develop beyond our 12,000-mile warranty so we'll try to work something out with the installer to keep a good relationship with them."

Randy Few, owner of The Engine Exchange, Raleigh, NC, has been providing installations of primarily factory remanufactured engines since 1994. "Our business is up overall," Few reported. "It's hard to tell if we are just stealing more business from our competitors, or if the market is truly expanding."

With its three installation shops, including a Greensboro, NC, and a Charleston, SC, location, Engine Exchange installs about 80-100 engines a month.

Few said following the trend that Americans are holding onto their cars longer, he is banking that the market will expand. "I also got into this business because it appeared to be a market that wasn't being serviced very well,"he said. ìIt didn't seem to be anyone really specializing in it."

Few said cars and light trucks today are still the most common vehicles that have remanufactured engines installed. But he expects the number of minivans and sport utility vehicles needing to be repowered will grow. "Basically, there's just a large proportion of these popular vehicles on the road, so we expect to see a lot more work coming from these vehicles," said Few

Few also said shops like his that specialize in engine installations may be the future for the market. "Of course, the need and the cost of testing and diagnostic equipment continues to increase, so a lot of your local repair shops are going to be limited on the amount of cars they can install engines in," he said. (For a list of some of the common diagnostic equipment needed for engine installations, see the sidebar on page 51). "You really have to have an understanding of electronics today to take on this type of work,"said Few. ìThe technology associated with today's engines is making it more difficult to be a sideline business for the smaller repair shops."

This may be a reason why the nationally-known transmission replacement specialist AAMCO has joined the engine installation arena.

John Hagan, program manager for AAMCO, Philadelphia, PA, said AAMCO is currently test marketing engine installations at 20 of its franchise shops across the country. He said the company is using a variety of suppliers of both rebuilt and remanufactured engines.

Hagan, who said he could not provide detailed information about the pilot program, did say the project is well into the test market phase. "Our plan is to offer this service nationwide at our 700 plus transmission installation shops," Hagan said.

Hagan said the test locations did hire new engine technicians, as well as provide training to current transmission installers.

"AMMCO saw an opportunity to grow in the market of engine installation where we did not feel there was much competition nationwide," Hagan said.

Hagan said since AAMCO already had the garages, space and equipment to handle transmission installations, offering engine installation service was another way to grow the company. "Rarely does a customer need both a transmission or an engine at the same time," Hagan said. "But if they need our service for a transmission, we hope this will persuade them to use us when the time comes when they need a replacement engine."

Hagan said so far the test program has been successful, and he expects all AAMCO stores to begin offering engine installation service in about a year.

Installers like Few view AAMCO's plans as a helpful boost to the installation market. And rebuilders may find their local AAMCO shop as another source to sell their engines to.

"On the one hand, it's good for our industry because the public recognizes their name. It could help in the public's awareness of this market and could grow car owner's interest in replacing their engine."

But Few added AAMCO's project could also be seen as a double-edged sword. "If AAMCO fails in its pursuit to be a player in the engine installation market, it may do more harm than good. The public may see failure as a reason not to repower their cars."

Just as rebuilders and remanufacturers worry that some installers aren't installing their engines correctly because they lack the training or equipment, Few said his interest is having a flawless engine to work with. "My biggest concern is having a quality engine to install," he said. "A lot of remanufacturers out there are competing on price, so they may have to cut corners. When they cut corners, the costs fall on us."

Few said he feels that engine remanufacturers don't assume all of the costs incurred by the installer due to a poorly remanufactured engine. "Only their payment for the labor is a factor to them," Few explained. "For us, the cost is much greater. First there's the lost opportunity to install an engine for another paying customer while you make good on the inferior engine. There's also the loss of labor and money you have to pay your installer to re-install the engine.

"And finally, there's a loss of goodwill between you and the customer. That can be the worse part of the situation."