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Rebuilt Market Reviews - Clutches Market: New Rules And A Changing Field Of Players.

By Larry Carley

Anybody who's in the clutch rebuilding business today knows that it's an entirely different ball game, one with new rules and a changing field of players.

A proliferation of new passenger car and light truck clutches in recent years, plus an influx of low-cost new clutches from offshore manufacturers, has driven the cost of new clutches down to the point where the difference in price between new and reman hardly matters to many customers of replacement clutches.

Consequently, the demand for new clutches has soared, displacing the sales of reman clutches. This has forced many rebuilders to shift their product mix away from reman toward a higher percentage of new, or to add a line of new clutches where they didn't offer new before.

"Small rebuilders in the passenger car, light truck market are now doing about 60 to 70% of their business in new clutches," said Doreen Tomao, director of sales and marketing for Universal Friction Composites, Manheim, PA. "Many rebuilders have stopped remanufacturing nine inch and smaller clutches altogether and are only selling new clutches for these applications."

Bill Moreland, division manager for BWD, Ottawa, IL, said a few years ago BWD's sales were 80% reman clutches and 20% new. Today the mix is 60% reman and 40% new, and it's constantly changing. "The key is to stay flexible," said Moreland. "A rebuilder has to have both new and reman clutches today because there isn't enough of a price difference with many reman clutches to entice buyers who want new. Even so, there are still a lot of clutches that can be easily and profitably remanufactured because the new ones are so expensive."

Mark DeMayo of Ft. Wayne Clutch, a rebuilder located in Ft. Wayne, IN, said his company just recently added a line of new clutches. "We felt we had to add new clutches because building one clutch at a time was hurting us," DeMayo said. "To make money in this business, you have to do volume production. But there are so many different numbers now it's hard to do that. Now we're looking for the right mix between new and reman. We'll continue to rebuild what we can, and replace with new where we can't."

DeMayo said it's hard to compete with new clutch prices seen in many discount auto parts stores. "Selling new clutches isn't necessarily profitable, either," he confessed. "It's a tough market. With so many people selling new clutches, and prices so low, we've found the best way to compete is to offer service our competitors can't match."

Good 'ol days gone for good?

Though some people think the pendulum may eventually swing the other way, signaling a return to rebuilding, others are more pessimistic about the prospects of a return to the "good 'ol days" of clutch rebuilding. "There may be light at the end of the tunnel, but if there is, it's only a flicker," said Bill Murray of Murray Associates, Bluepoint, NY, who calls on about 60% of the clutch rebuilders in the U.S.

Murray said many rebuilders seem to be confused about what's going on today. "They've watched their market for passenger car reman clutches be eroded by all the new clutches coming into this country from offshore," explained Murray. "Yet they've done nothing to stop it. A lot of them are now starting to talk about what can be done to reverse the trend and how they should be promoting and marketing the advantages of reman clutches compared to new.

"These would include not only the price advantages but the environmental benefits of recycling," continued Murray. "It would include the improvements in quality and reliability over the original OEM design that are sometimes made when a clutch is remanufactured."

Murray said those who are still doing well in the clutch remanufacturing business today are mostly "niche" players who have found a profitable market in agricultural, marine or off-road clutches where customers will pay a good price for a reman clutch.

"A certain percentage of many rebuilder's sales are in some type of niche market because that's where the money is," said Murray. "The least profitable niche today is the passenger car market, especially front-wheel drive. It's too competitive. Next would be heavy-duty. It's more profitable, but still not as profitable as some of the more specialized niche markets."

The trend to new clutches has also lessened the demand for clutch cores, which has created a glut of cores and brought down prices. Though this is good news for rebuilders, and may encourage a move back to remanufacturing, lower prices are not good news for core suppliers.

Greg Jackson, of Russell Auto Parts in Boerne, TX, said his core supply business has been hit hard by the influx of new clutches and the current decline in remanufacturing. "I had a rebuilder who used to buy all the 12_ Chevy clutch discs I could sell him," explained Jackson. "Three months ago he called and said he had a backlog of 8,000 cores and a two-year supply of reman product sitting on his shelves because his customers were now buying new clutches. Discs that I used to sell to rebuilders for $6 now sell for only four bucks. And discs that I used to pay $4 for from my sources I can now buy for $2.50," said Jackson.

Though the remanufacturing of passenger car and light truck clutches has declined significantly, there hasn't been a mass exodus of clutch rebuilders from the playing field. A few have gone by the wayside (Champion Parts Rebuilders and Blue Chip, for example), but overall numbers have not declined significantly.

Chris Jackson, of AMS, Fenton, MO, has a different perspective on the impact of new clutches in the aftermarket. He said he hasn't seen a decline in the number of clutch rebuilders, but he has seen a big drop in the number of clutches being rebuilt. "Rebuilders are still selling as many clutches as they used to, but fewer of the clutches are rebuilts," said Jackson. "Many rebuilders are buying new clutches to fill out their product lines. They're buying new where core availability is a problem or the clutch is difficult to rebuild.

"Some are selling the new clutches as rebuilts when in fact they're new," continued Jackson. "But a lot are also selling both a line of rebuilt product and a line of new clutches with good success. Rebuilders who have added a line of new clutches have found that it can help to increase the sales of their rebuilt products.

"We didn't think this would happen because we assumed there would be a cannibalization of rebuilt units as customers shifted to new clutches," said Jackson. "What's happened, though, is that the new line has allowed rebuilders (in some cases) to sell to customers who only wanted to buy new. Once they're in with a customer, they've been able to bring their rebuilt line in through the backdoor by getting the customer to try them. So, (some have) actually gained a net increase in rebuilt sales.

"The issue of new versus rebuilt is primarily quality and price," said Jackson. "The price of new clutches in many instances is so close to that of a rebuilt that many people are willing to step up to a new unit. There's a lot of labor involved in replacing a clutch, so when the price difference is close, mechanics often opt to put in a new clutch because they think its safer, which maybe it is and maybe it isn't."
Jackson says that trend could continue. "We're seeing a lot of new passenger car and light truck clutches for both domestic and import vehicle applications from Third World countries such as India and China that are inferior to OEM clutches, as well as rebuilt clutches," he said. "As more and more of these low-quality new units get into the market, it may diminish the quality perception that new currently enjoys. This should help the image of rebuilt clutches."

Jackson says that rebuilders who have bought these Third World clutches at a very competitive price have found that many come back under warranty. "They'd be better off selling a quality OEM clutch or a rebuilt of their own where they can control quality," said Jackson. "The main problem in the passenger car and light truck market today is a worldwide over capacity of clutch manufacturing. We have more manufacturers of clutches than ever before, all of whom are looking at the North American market as a way to increase their sales. This drives the price of new clutches down because supply exceeds demand. So, in the short term, I think we'll see a falling out of clutch manufacturers and distributors as far as the aftermarket is concerned."

Jackson says he thinks rebuilders should capitalize on the current situation by re-vamping their product lines. "In the passenger car, light truck market, there are probably 800 different clutch applications," explained Jackson. "But if you look at where most of the sales are, they're in the top 100 numbers. So, rather than worry about the 700 applications that constitute a very small portion of a rebuilder's total sales, they should concentrate on the highest volume applications.

"Rebuilders also should concentrate on rebuilding the clutches they can do profitably, and sell new clutches for those they can't. Rebuilders need to refocus their business, and be able to supply their customers with whatever type of clutch they want, be it rebuilt or new."

Jackson says many rebuilders have a lot of expertise when it comes to the technical aspects of clutch remanufacturing, but they lack the basic marketing skills that are necessary to succeed in today's market. AMS has a program to help rebuilders market their products under their own name, rather than the name of a distributor or manufacturer. Jackson said this approach capitalizes on the reputation and relationships a rebuilder has already established with his customers. He also says rebuilders need to put more emphasis on the quality they put in their clutches, and compare that to what's coming into this country from some of the Third World countries.

"If rebuilders can show their customers that there is a lot of variation in quality in new clutches, and at the same time convey the quality they put into their own rebuilt product, they can be successful selling against new clutches," Jackson said.

The heavy-duty market

As topsy-turvy as things are in the passenger car and light truck clutch business, the heavy-duty segment of the market shows remarkable stability. Reman clutch sales still predominate, though new clutches continue to make inroads all the time. Kevin Keller, sales and marketing manager of D&W Rebuilders, Baltimore, MD, says the heavy-duty clutch business has been "fantastic." Keller said D&W is in the process of expanding to a larger facility so they can increase production. D&W sells only to distributors in a seven state, 350-mile radius. Ninety percent of D&W's business is heavy-duty clutches, with about 60% of that being Spicer clutches.

"We've only added three new accounts this year, but we've seen a big increase in business with our existing accounts," said Keller. "I'd attribute the jump in business to a more aggressive sales and marketing effort. Our main competitor also went out of business a year ago, so we've picked up a lot of his business, too."

Keller said the demand for heavy-duty foreign truck clutches has picked up the past year, along with agricultural, industrial and off-road clutches. "We put a lot of new parts into the clutches we rebuild, so our clutches are expensive," said Keller. "We also offer a one-year, 100,000 mile warranty on our Spicer clutches, and 120 days or 10,000 miles on most of the others."

Most of the heavy-duty rebuilders we spoke with said business has been good, but that the OEM reman programs (Spicer namely) continues to be a thorn in their side. Spicer continues to take cores out of the market for their own reman program, which makes it harder for independent aftermarket rebuilders to get them. At the same time, Spicer has discontinued their angle spring design, as well as the sale of parts to the aftermarket.

Spicer has also introduced new clutch designs, such as the Easy Pedal and Solo Clutch, which have considerable patent protection to discourage aftermarket suppliers from duplicating the OEM replacement parts. Though some say this could be viewed as a "restraint of trade" issue, no one seems willing to take on the expense of a legal challenge at this point.

Future prospects?

Whether the influx of new clutches from Third World countries, declining profit margins on new clutches, and lower core prices will eventually tilt the passenger car and light truck market back towards reman clutches remains to be seen. Many rebuilders are hoping for just such a change. But it's unlikely clutch rebuilding will ever be the same again because of fundamental changes that have taken place in the aftermarket as well as OEM clutch designs.

OEM clutch suppliers are now selling direct to jobbers or installers who used to buy from rebuilders or jobbers. The proliferation of new clutch designs also means the days of huge single number production runs are history, and that means higher remanufacturing costs for rebuilders. And although there are still many clutches that are profitable to rebuild, light-weight crimp style "throw-away" clutches may never be viable candidates for rebuilding.

The niche players will likely continue to expand their markets as well as to develop new ones. Those who are in the more competitive passenger car and light truck market will likely continue to shift their product mix and juggle the numbers to find the best combinations of new and rebuilt units for their particular customers.

And the small rebuilders? They'll continue to rebuild anything that comes in the door, using their service flexibility to full advantage. Dan Pelley who operates Clutch Dynamics in Lansing, MI, says he's a small rebuilder who wants to stay small. He started rebuilding clutches part-time, 16 years ago. He left his "day" job as an industrial design engineer to pursue the clutch business full-time eight years ago.

"We rebuild anything that comes in the door, be it car or truck," said Pelley. "Being small has been a perfect niche for a guy like me because I can give my customers the kind of service they can't get anyplace else. So, I don't have to go out looking for customers, they come to me. There are other small rebuilders around, but we're so spread out we don't step on each others toes."

Pelley said he works mostly with parts stores and transmission shops, but also does some DIY business, too. He says he avoids fleets because they're not profitable. Pelley says the clutch rebuilding business has been "really good" to him. "I can't think of any other business where you can make such a good percentage of profit."It all goes to show that, despite a difficult market overall, there are those that find a way to prosper.