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Rebuilt Market Reviews - Electrical Market

By Larry Carley

Though the overall demand for rebuilt alternators and starters continues to be relatively soft, particularly in the Midwest and Northeastern parts of the United States, sales, in general, have been up in the South.

Weather seems to play a major role in driving the demand for electrical products. Cold winters are hard on starters and hot summers increase alternator failures. Much of the country had a cold winter earlier this year, but summer has been unusually mild in the Midwest and Northeast. The South, though, has sweltered through some hot weather which helped stimulate sales for regional rebuilders supplying that market.

One theme echoed over and over again by almost every rebuilder we interviewed is that electrical rebuilding is a tough business to be in these days. "Fifteen years ago this was a fun business to be in," lamented Bob McClaren of Genco Auto Electric, Islandia, NY, who's been in the electrical rebuilding business for 30 years.

"Today, it is not fun," McClaren continued. "Between the EPA, taxes and insurance, the stress is unbelievable. And the pricing is crazy. I think we're a low-cost rebuilder, but I see guys who are selling their units for 15% less than mine. I don't see how they can make any money," he said.

The lack of profitability is a major concern with most rebuilders everywhere. "I don't know anybody who's making money in this business today," said more than one rebuilder we spoke with. Many blamed cutthroat competition. They said there's always somebody who will undercut a price by a couple of bucks to make a sale.

Rising costs were also blamed for squeezing profits. "How are we supposed to make any money when all our costs keep going up and the government tells us we have to increase our employee's wages?" said another rebuilder. Recently passed federal legislation raised the minimum wage to $4.75 per hour beginning October 1st, and boosts it another 40 cents to $5.15 per hour Sept. 1, 1997.

Prices have also been driven down by changes in distribution and consolidations. The backbone of the electrical business for many rebuilders has long been the traditional channel of wholesale distribution. But as warehouse distributors and jobbers are displaced by retail chains, many small- and medium-sized rebuilders have found their markets drying up. One midwestern electrical rebuilder who did not want to be identified classified his business as "a medium-sized operation that's getting smaller every day."

"Our work force has been cut from 47 people back to 25, and output has dropped from 3,000 units a week to less than 1,400, " he said. He attributed his unwanted downsizing to changes that have taken place in distribution.

"Small independent jobbers have been the mainstay of our business," he explained. "But in our area, a lot of them have gone out. Autozone and Western Auto are taking over here, which is bad news for rebuilders like us because these guys only source their rebuilt alternators and starters from one or two suppliers. Some retail jobbers will supplement their inventory by buying from a local rebuilder, but it's hard to find the ones that do."

How does he plan to cope? "If we have to, we can downsize to an eight- to 10-man shop and do okay. We do some installation work now, mostly for our customer's customers, who have had problems. We really haven't promoted installation work, but maybe we should.

"We could also bid on some government work. We've done that in the past. It's not real profitable and there's a lot of competition for government contracts. But if you get it there's usually plenty of time to complete the contract and you can use the work to fill in and keep your people busy."

Core brokers are feeling the pinch, too. Evaristo Isordia of Evaristo's Cores, Los Angeles, CA, said the market for cores has been really soft. "I'm not sure I'll even be in the core business five years from now," said Isordia. "It's harder to sell to customers now. Rebuilders are buying more and more new parts, the new units are harder to rebuild, and I'm seeing fewer opportunities for the small rebuilders. We really depend on the smaller rebuilders who buy our cores. When they're gone, so's our business."

Searching for profits

Low profits are certainly a thorn in the industry's side. Everybody agrees that prices need to be higher, but there seem to be few ideas on how to make that happen. Some say large retailers who have tremendous buying power have been driving prices on a downward spiral. Others say there's been too much price competition between rebuilders fighting for market share.

Last year, Champion Parts, Inc., Blue Chip and several other lesser known rebuilders abandoned the electrical market or closed up shop completely because they were losing money. Their departure was seen as a major shakeup for this industry. But for some it was good news, particularly those rebuilders who were able to pick up some of their former accounts.

Are there still too many players in the electrical market? We haven't heard of any other major rebuilders dropping their electrical lines, but neither have we heard of any who are getting into this market.

Despite a soft market and tough competition, some rebuilders are gaining market share. They're doing it "the old fashioned way" through hard work and persistence. They're putting more emphasis than ever before on servicing their customers. They're increasing their product coverage, quality, fill rate and expanding their geographic marketing area.

Others are branching out and diversifying into heavy-duty, industrial and agricultural electrical rebuilding. Many small rebuilders are finding a profitable niche by doing more installation work. Rural electrical shops in particular are in a strong position because most have little or no local competition.

Offering an installation service has a number of advantages say those who do so. Profits are better because you can get a higher retail price for your units. You can also make money on labor and related electrical work. Warranty returns are lower because you can diagnose battery and charging system problems. But the downside is having to work directly with the public. For some, that's more hassle than they want to handle.

Mike Cohen of Ampere Automotive Corp. in Chicago, IL, said his sales have grown this year because his company has full line availability, ships in the high 90s, builds a top quality product and puts a strong emphasis on servicing the customer. Ampere sells only to wholesale customers in a 1,000 mile radius around Chicago.

"The market today is very mature and fragmented," said Cohen. "So we have to be flexible and able to change with the times. Whatever they put on vehicles next year, or two or three years from now, we must be able to rebuild it. Our customers won't understand if we tell them we can't do something. That's why we have to stay on top of the changes that are taking place in our industry. I think the larger rebuilders are in the best position to do that because of the tremendous data base you need to rebuild everything today."

Jack Bickart of Perfection Hy-Test in Eaton Park, FL, said his company hopes to grow their electrical business. Currently, only about 20% of Perfection's business at its Florida facility is electrical. The rest is mostly clutches. Bickart said alternators and starters for domestic passenger car and light truck applications are rebuilt in Florida, and heavy-duty and industrial products are done at Precision's Oklahoma plant.

"We're building a new facility in Darlington, NC, so we can gear up to go after much larger customers than we have currently," he noted.

Quality issues

Bickart said the electrical market in his area has a lot of potential and could be quite profitable. The key to making money in his opinion is limiting returns. "If you can't control returns, your customers control your profitability. Too many returns will put you out of business no matter what kind of product you're rebuilding," he said.

Warranty returns because of improper diagnosis and installation is an ongoing problem and serious concern for many electrical rebuilders today, said Bickart. "A lot of units come back because the installer failed to determine why the old unit failed," he said.

Bickart said returns are not necessarily the result of poor quality, though that may sometimes be the case. "You don't see many brushes or bearings failing on rebuilt units," said Bickart. "If an alternator stops producing current, it's often because of an electronic failure in the rectifier or regulator which is usually caused by something else.

"Maybe the battery is bad, the connections are bad or there's some other electrical problem in the vehicle," he continued. "That's why the original unit failed, and that's why the second or third unit that was put on the car failed. So until somebody diagnoses and fixes the underlying problem, any unit that's installed on that car is going to fail."

Several rebuilders cited quality as a major issue today, not only the poor quality of some low cost rebuilt products, but also the inconsistent quality of component parts from various suppliers. Rick Keister of Worldwide Automotive, Winchester, VA, said quality is more important than ever in today's market. Worldwide rebuilds mostly import alternators and starters, and has enjoyed a strong year. Keister says that maintaining a high level of quality has been a challenge, though, because of "inconsistencies" in the component parts Worldwide has purchased from various suppliers.

"We want consistent quality in the parts we buy," said Keister. "That's more important to us than price. We're trying to work with suppliers who can guarantee us that, and if they make a change in whom they buy their parts from, we want to know about it so we won't be surprised."

Several rebuilders blamed quality problems they were having on suppliers who keep switching vendors. Many components are now being manufactured in China where labor costs are considerably lower. Many diodes are manufactured in Mexico, and one supplier said virtually all button-style diodes are made overseas.

Though some rebuilders complained about the quality of Chinese-made parts, others said no such blanket statements should be made about China or any other country because quality depends entirely on the vendor who makes the parts. "You can get good parts or bad parts from any country, and that includes the USA," said one supplier.

Mike Deverall of Transpo Electronics, Orlando, FL, said quality tends to be more of an issue with suppliers who distribute parts and don't make their own parts. "They're at the mercy of their vendors," explained Deverall.

Deverall says Transpo manufacturers most of the parts it sells, and that the company has also been able to meet not only the new ISO 9000 standards, but also the QS 9000 standards required by the domestic vehicle manufacturers. "Working directly with the OEMs has really helped us improve our quality," he said. "They've taught us a lot."

Specifications

Ampere's Cohen says his main beef with suppliers today is that they don't publish technical specifications for the parts they sell. "You can't find out the hardness of a bolt, what kind of material is in an insulator or even a brush holder," said Cohen. "They don't give you schematics for rectifiers or regulators. Sometimes they don't give you any specs because they buy the parts from somebody else who doesn't provide them with any specs. Other times, they don't give you any specs because they think their part has a competitive advantage that they don't want to reveal. It's silly."

Cohen said accurate and detailed specifications are a must in today's rebuilding environment. He said Ampere has the R&D capabilities to do fairly sophisticated component testing so parts can be evaluated to control quality. "Sometimes it takes 25 phone calls to get the specs we need, but we're persistent," he said.

Al Weiner of Renard Manufacturing, Miami, FL, a supplier of rectifiers, diodes and other components, said his company's sales were up 10 to 12% over a year ago because "people are now realizing they need to buy quality parts." Weiner faulted rebuilders for exacerbating the quality problem by pressuring suppliers for cheaper and cheaper parts.

"Rebuilders aren't making any money, so they go to their suppliers and tell them they can't afford their parts," explained Weiner. "They tell them they want parts that cost less. They keep beating down their suppliers until somebody weakens and agrees to sell for less. The supplier might give the guy a part for $4 that actually costs him $5. He's losing money on the deal to get the guy's business, and hopes he'll make it up when the guy buys other parts from him. Meanwhile, he's under pressure to find a lower cost source of supply. The end result is nobody makes any money and quality is driven down."

Weiner said his company is doing everything it can to assure the best possible quality. And on the issue of specs, he said Renard has spec sheets for all their diodes and makes the specs available to any customer who wants them. He also said he plans to make the information available on computer disk so rebuilders can more easily compare various diodes and specs.

"One of the problems we see in the industry today is that some suppliers are using numbers to sell component parts," said Weiner. "They tell a rebuilder that their part number 'X' is better than their competitor's part number 'Y' based on specification numbers. But unless you really understand what the specs mean and how they compare to the OEM requirements, it's very confusing. So our spec sheets include not only our own specs but also the OEM specs for comparison."

Weiner said OEM manufacturers won't give the aftermarket their component specs, so component parts have to be reverse engineered to establish specifications for various applications. Once these specs have been determined, then parts that meet or exceed the OEM specs can be selected to remanufacture the alternator.

Parts proliferation

The proliferation of new alternator and starter designs seems to have tapered off according to most of the people we interviewed. Most rebuilders complain that there are still too many different types of alternators (especially for import applications), which makes it hard to provide full coverage. Yet those who specialize in imports are glad there's so much diversity because it creates a niche that many rebuilders can't fill.

The two most popular domestic units continue to be the Delco CS series and Ford IAR alternators. Some say these two units alone account for 60 to 70% of all aftermarket alternator sales! It's no wonder, then, that many rebuilders say these two units have been their salvation.

Both are high-output, compact units. The rectifiers often fail due to overheating, but Ford is also said to have a major connector problem. Because there's such a demand for these two units, many are being rebuilt with new parts and/or being replaced with new.

Delco has its own reman program, and Bosch is building new Ford units in Mexico. Core prices are also higher. On the East Coast, the price of Delco CS cores has jumped from $25 last summer to the $30 to $35 range - which discourages rebuilders from buying them.

No one foresees any major changes in alternator designs, but the OEMs always have a way of surprising the aftermarket. And although there has been talk the OEM will reduce part proliferation because design and tooling costs hurt them just as much as it hurts the aftermarket, few see little chance of that happening soon.

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