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Can We Expand Demand: There Is A Better Alternative To Buying Or Leasing A New Or Used Car

By Tom Glover

Can the engine rebuilding industry increase the size of the market for replacement remanufactured engines over the next several years? Can engine rebuilders and their parts and equipment suppliers expand consumer awareness about a rebuilt engine being a preferred alternative to buying or leasing a new car or truck, or installing a used engine? Chuck Barnett, president of Dura-Bond Bearing Co., Carson City, NV, and a board member of the Automotive Repower Council (ARC) thinks we can.

For the past several months, Barnett has been spearheading an effort to develop and find funding for a national campaign to let the general public know that there is a better alternative to buying or leasing a new or used car. This effort has lead to the formation of ARC, an independent council organized to expand the demand for rebuilt engines. Barnett is hopeful that a national promotional campaign will be launched in early 1998. Details of the media exposure have yet to be worked out.

Barnett points to information from several studies and news stories describing the changes in the way automobiles are built and in the automotive buying habits of today's consumer. For example, a recent Wall Street Journal article reports that the purchase of a new car has gone from third place on the list of family economic priorities to 11th, and that people are keeping their cars longer. This fact, Barnett says, bodes well for the alternative of replacing a worn or failing engine in an older car with a rebuilt powerplant, as opposed to replacing the whole car.

In a recent presentation to production engine remanufacturers (PERs) , Paul Ballew of J.D. Power and Associates pointed out that vehicle scrappage rates have been declining, while spending on parts and service for used vehicles has been steadily increasing since 1987. There are demographic and socioeconomic studies which show that perhaps as much as 80% of consumers will not be able to afford the purchase of a new car by 2000-2004, which is when demand for parts and service, according to Ballew, may expand significantly.

The typical life expectancy of an automobile is now 15-16 years while that of a truck, minivan or sport utility vehicle is about 17 years. Indeed, in the opinion of many in the industry, there are a number of benefits connected with rebuilt engines, some old and some new, but all of them a positive advantage for consumers. And, the time couldn't be more right to publicize them.

Of course, there have always been good economic reasons to rebuild automobile and truck engines, but they seem to be more compelling than ever today. Joe Polich, executive vice president of the Production Engine Remanufacturers Association (PERA) believes that the time is perfect for a campaign to let the public know how great a rebuilt engine can be from a performance, quality and economic standpoint. "Today, it's taking about 60% of a family's income to purchase a new car," said Polich. "With vehicle quality improving and cars lasting longer, it makes it easy to justify putting another couple of thousand dollars into a car and driving it for another four or five years."

Environmental issues are also marketing opportunities for the engine rebuilding industry. If the consumer, as well as local, state and federal legislators, can be made to see the environmental benefits of engine rebuilding, as well as the cost, performance and durability aspects, it's just one more reason, and a good one, for stipulating the purchase of a rebuilt engine. Rebuilt engines couldn't fit better the concern for the new "Three Rs" - Renew, Recycle and Reap the benefits."

Unfortunately, too few consumers and politicians understand that rebuilt engines are indeed a renewable resource. It could only help to grow the demand for rebuilt engines by helping consumers understand that not only are rebuilt engines a sound economic decision, but one that represents the 'responsible' thing to do when faced with the decision of buying a new or used vehicle. It's a decision that can make the world a better place to live in as well as saving a bundle of money in the process.

Such an appeal to environmental advantages of rebuilt engines is seen by some as an untapped resource. "One of the most marketable reasons to buy a remanufactured engine is that it's 'green,' " explained Norris Marshall, president of Marshall Engines, Inc., Kearney, NE, and ARC's first elected chairman. "There are substantial raw material and energy cost savings to remanufacturing, yet very few people get any mileage out of the concept that we're recycling, and have been, for many years. Our industry is one of the original 'recyclers,' yet we don't play on that at all," he said.

As anyone in business understands, however, talk is one thing, and an actual increase in sales is quite another. Rebuilders, parts suppliers, association people and our own extensive annual market studies of custom and production engine rebuilders point to the fact that the market for rebuilt engines has been fairly flat for the past few years, somewhere between 2.9 and 3.2 million engines. Of a total U.S. vehicle population of about 200 million, that means only about 1.5% of all registered vehicles receive a rebuilt engine annually.

Even a one to two percent increase would be a significant advance for the engine rebuilding industry. Studies have shown that national campaigns such as those being considered by ARC result in across-the-board increases for those directly and indirectly providing the products. So launching and funding such a campaign would benefit not just PERs or machine shops/custom engine rebuilders, but also installers, core suppliers, distributors, retailers, etc.

Improving on the product

Marshall draws on his experience as an engine rebuilder and adds reengineering to the economic and environmental advantages offered by rebuilt engines. "Occasionally we see engines that have an OEM design problem that perhaps doesn't show up for 70,000 or 80,000 miles," explained Marshall. "With the quality of vehicles being made today, the rest of the vehicle may last for 150,000 to 200,000 miles, but occasionally the engine won't. If a problem like that does show up, in most cases our industry, as a whole, attempts to fix it and to keep it from showing up in the rebuilt engine."

But all of the benefits cited above concerning a rebuilt engine beg the fundamental question, i.e., 'How do we as an industry inform the public about all of these attributes of rebuilt engines? Whose job is it to tell the rebuilt engine story? How do we fund this ambitious undertaking?'

Automotive Repower Council

The answer to that question has been the formation of the Automotive Repower Council. Although the National Engine Parts Manufacturers Association (NEPMA) has provided seed money to get ARC to where it stands now, ARC has been organized as an independent council presently administered by executive officers and a 20-member board composed to represent parts suppliers, rebuilders, distributors, installers, the trade press and the executive directors of PERA, NEPMA and the Automotive Engine Rebuilders Association (AERA). Elected officers of ARC serving one year terms are: Norris Marshall of Marshall Engines, Kearney, NE, chairman; Dave Carracci, executive vice president of Rol Manufacturing, Inc., Perrysburg, OH, vice chairman; Dave Deegan, president of Engine Lab, Tampa, FL, secretary; and Jerry McCabe, director of marketing service for AE Clevite, Ann Arbor, MI, treasurer.

ARC held its first meeting in Chicago on Oct. 13 to review the legalities of forming and administrating the council, to review promotional campaign proposals, and to discuss ideas for funding a national promotional campaign. ARC members want to make sure that rebuilders and their suppliers across the country understand the message which will be contained in any promotional campaign strategy, and how it will benefit them individually, as well as the rebuilding industry as a whole.

ARC feels that if it is going to obtain the funding support of rebuilders, suppliers, distributors and installers, it has to develop a national campaign that will actually increase rebuilt engine sales and successfully promote the concept of a rebuilt engine as one that is a viable, quality oriented, cost effective alternative. The council is presently involved in putting this "sales presentation" to the trade together.

Cost effective is also a major ARC concern as it pertains to funding a national campaign. As has been cited in editorials which appeared in this magazine (see Final Wrap, April, June and September issues), how to find an equitable way to fund this campaign, which conservatively carries an estimated initial annual cost of about $1 million to $3 million, has yet to be decided. The council is presently investigating a number of funding possibilities and researching how other industries have promoted their products on a national basis.

ARC members we spoke with feel that if the right campaign and funding proposal are developed, our industry will want to support them. It is one of the few alternatives that offers rebuilders, suppliers and others associated with rebuilt engines industry-wide, the opportunity to work cooperatively to increase sales for everyone. In light of increasing OEM participation in the aftermarket, and the over capacity that exists in our industry, is there a better alternative to promoting demand for rebuilt engines?

PERA's Polich says his association is very interested in ARC's plans. But he agrees that the effort needs to be a team approach. "The whole industry, from remanufacturers to associations to suppliers, installers and distributors have to make a concerted effort to grow the marketplace. Rebuilders can then put specific programs in place to attract customers to their own company's products," he said. "It's taken a long time to get everybody to recognize that all we're presently doing is beating each other up for market share; that has to stop."

As a past president of PERA, Marshall has some ideas of how it can be done, with emphasis on the need to involve all segments of the industry. "The job of publicizing remanufactured engines can't fall squarely on the shoulders of the associations, or on the shoulders of just the remanufacturers or parts people," Marshall observed. "It needs to be coordinated through a council such as ARC," he said.

So everybody seems to agree that shared funding is required. Unfortun-ately, the need for shared funding can also be a roadblock to launching the effort. Marshall has done extensive research into the concept of promoting the entire category of rebuilt engines and determined that a non-brand specific promotion for rebuilt engines would indeed pay off. "There's very little doubt about whether you'd grow the market if you promote it," explained Marshall. "But the problem always ends up being funding. We're working on that."

Many who own rebuilding shops are ready to do what it takes to grow their business, and some have signed on to the efforts of engine rebuilder associations to educate the public on a national level. One such rebuilder is Russell Duffin, one of ARC's board members and owner of Duffin Engine Service in San Antonio, TX. He's found that activities of OEMs and the financial community have had a negative impact on independent remanufactured engine sales, and he's ready to fight back. "The leases and all of the other 'creative financing' schemes (used by the OEM and their dealer networks) have to be hurting us," Duffin commented. Duffin is looking forward to being part of ARC programs to tell the remanufactured engine story.

Meanwhile, Duffin will continue to talk up the undeniable advantages of a rebuilt engine on a local level to all his existing and potential customers. "One of my favorite pitches," said Duffin, "is to point out that, sure, it costs $1,000 to $1,500 to rebuild an old engine, but that's what, about three new car payments? So I ask people whether they want to make three new car payments, or 48 to 72 car payments to get new car performance."

Duffin is also fond of pointing out that a used car has a used engine in it. However, a quality rebuilt engine provides the equivalent of a 'new' engine. "And if you like the car, and the rest of the vehicle is in good shape, then a reman engine is going to be the right decision," he said.

Mike Wanas is president of Honest Engine, Patterson, NJ. He is quick to deliver several arguments in favor of rebuilding rather than repairing. One is that repair jobs are often based on a wrong diagnosis of the problem. "When the car comes in on a hook, it's not running, and when the mechanic tries to diagnose an engine that's not running, there's a certain amount of guesswork. He's going into it blind," Wanas explained.

"Unfortunately, in many cases the cause of the problem is misdiagnosed. This is where mechanics get a bad rap," explained Wanas, who said that often the best remedy for a faulty repair job on an older, high-mileage engine is a quality rebuilt engine, tested and rebuilt to OE specifications. Wanas also noted that it's sometimes faster and cheaper to replace an older or significantly damaged engine that isn't running with a rebuilt unit rather than just replacing specific parts.

Perhaps such feelings suggest that the installer/service garage also should participate at some level in the funding efforts being considered by ARC. At the ARC meeting it was noted that AAMCO Transmissions is presently test marketing an engine installation program with about a dozen of its transmission franchise locations. AAMCO is optimistic about the potential revenue that installation of rebuilt engines would provide its franchises.

AAMCO has engaged a new advertising firm to develop public relations and media programs to educate the public about the economic and performance benefits of a rebuilt engine. If AAMCO decides to expand the program after evaluating the results of its test market campaign, it could benefit the entire industry and likely encourage other large installation operations to become involved with promoting rebuilt engines.

In any event, ARC board member Barnett believes that proper public relations and advertising campaigns such as those presently under consideration by ARC are imperative for the future long term viability of the engine rebuilding industry overall.

He said that the alternative to not implementing a national campaign to promote the independent engine rebuilding industry, which is flat at best, is continued price cutting, market share warfare, and continued over capacity resulting in less profits for everyone.

"Our industry can either find an answer to some of its internal squabbles, be proactive and try to create a positive image for a rebuilt engine that increases market demand," said Barnett, "or many engine rebuilders and suppliers will possibly go out of business." The bottom line, he added, is that ARC has to convince rebuilders and their suppliers of the viability and benefits to them that a national advertising campaign will have on their businesses.

Without the industry's support, little will be accomplished. However, with the support of a broad coalition of industry participants, it's very likely that consumers as well as local, state and federal lawmakers would become more enlighten about the environmental, performance and cost benefits provided by rebuilt engines. That could lead to a more favorable business climate from both a demand as well as a cost-of-doing business perspective.