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Competing for Diesel Dollars with OEM Dealers

B&G Machine has been a machine shop in Seattle for nearly 60 years. We’re a family business, doing mainly industrial diesel engine work. We have a machine shop where we do blocks, heads, cranks, cams and connecting rods.

By David Bianchi

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About 13 years ago we – like many members of this industry – our business was struggling because our focus was only on machine work – our sales basically imploded and we needed to change. In our internal discussions, we put this dramatic change to two things: First, efficient engine design (including things like electronic fuel injection).  For example, an on-highway truck that would have had an in-frame overhaul at 200-300K miles now is going a million miles. So the maintenance intervals were virtually eliminated on the machine shop side. That market sector went away overnight.

Secondly, when the engines finally did come apart, OEM exchange programs were becoming prevalent for cylinder heads, cylinder packs, and the like. To survive, we figured we’d build industrial engines, primarily 3400 and 3500 series Caterpillars. Doing so would at minimum give us access to the blocks and the heads.

Today, on the machine shop side we work with a lot of different manufacturers worldwide on different strategies to handle repair processes. And in my travels around the world, I’ve been able to develop some insights into procedures and processes that can help you compete with OE dealers.

I’ll tell you, it’s not necessarily simple. I believe there a number of different aspects that are important, and getting a handle on each of them is necessary to providing the whole package. To compete with a local distributor or OEM dealer you’re going to need most of these services in-house or have access to the resources to take this segment on. If you do not have machining capabilities yourself, team up with a local shop. Your best shot at locating a good machine shop is by going to www.aera.org.

Build ‘Captive’ Engines in Growing Markets
First, what is a captive engine? There are certain engine configurations, usually industrial engines – engines in mining, aggregate, oil, marine, etc., that are captive to the OEM dealers. These are great for the independent because the national exchange programs generally don’t supply those engines.  There is a good population of these engines. These customers also appreciate good work and pay well. They want good service and you can sell them on quality. These are a good customers to go after if you’re trying to do something right.

I define captive engines as those primarily built at the distributor level where there’s not a nationwide exchange program. Good examples include CAT 3300, 3400 and 3500 series or Cummins KV Engines. For smaller engines, you might include B series Cummins, marine or industrial. These are good opportunities where it’s not entirely driven by price and you generally have a customer who is going to appreciate what you put into it.  

Stay away from high volume, low margin and slow paying customers – on-highway trucking is an example of this. For us, the on-highway stuff just went by the way side – it’s very difficult to get paid by this customer base and they want us to always cut prices. That’s just not what we want to sell.

Strong markets, the core of which you can penetrate with a strong product that is quality oriented, include mining, marine and oil and gas power generation. In Seattle we naturally do a bit of marine work, but we also do drill engines, mining engines, and power generation. We’re looking at more oil and gas work because we think there are some good opportunities. More domestic engine manufacturers are doing well in this market sector.   

Here’s a good example comparing a “fragile” engine and a “captive” engine: A 3406 truck engine compared to a 3406 bulldozer engine.  A 3406 truck engine is the same engine family as a D8N – a D8 is a dozer, and its engine is generally built at the local distributor level. It’s a good industrial motor. The 3406 on-highway engine is the same engine family, but it’s built all over the place and in large volume (including CAT Reman). It is almost impossible for us to be competitive with this configuration. By contrast, the dozer configuration allows us to compete against the local distributor – putting us on a more even playing field with good parts availability. The dozer configuration costs about the same to build, but allows us considerably more margin.

Identify Good Engineson Parts Costs
When you’re looking at an engine to decide if it’s one you want to build, parts costs are important. At the same time, you have to look at the qualification standards for the parts you’re going to use to build the engine. A great example is on the 3500 series CAT and its piston: it’s a $1,000 piston. Can you qualify that piston?  Are there other suppliers (in this case, yes – IPD – which specializes in quality aftermarket Caterpillar engine parts).

Once you’ve determined your parts costs, look at whether or not that part has a qualification standard – then look at alternate suppliers. Is it a part that’s available only from the OEM? Often, an equally excellent product is available from one or several other companies in the aftermarket. The aftermarket almost always offers a much stronger warranty for the same product.  

To some degree, you have to align with the OEM – I don’t have a problem with the OEM but I also don’t like to think of them as the only supplier. In the case of some engines, when it comes to things like harnesses and dampers, you need to build a good relationship with the OEM. At the same time, it’s good to have options with parts suppliers. Price is one thing – but there are a myriad of parts suppliers and they offer a good strong warranty package with a strong product line to accent the OEM parts and pieces. There are very strong products advertised in every issue of this publication. And better selection makes for better overall competition.

Good opportunities can be found in cylinder packs. We build our own packs, so it allows us to control costs, but doing the packs is just one part of the equation. It’s fairly straightforward and easy to do.  We also balance our cylinder packs to help take vibrational fatigue out of the engine. The cost associated with doing the packs is one part of it; warranty is another – the big part is being able to give something that’s a little bit different. Balancing the cylinder packs and minimizing that vibration is a big deal and customers really respond well to that.

Marketing a Better Engine
It’s important to articulate what you’re selling and why it’s something better than what the other suppliers can provide.  The first question always seems to be about warranty. It’s likely you’ll be able to count on support from your aftermarket parts suppliers, often with coverage for both parts and labor.  They may support the product with a little more interest than the dealer you’re competing with.

We typically find the OE offers a 6-month, parts-only warranty. That is a six month warranty for the part only – not all the parts needed to fix a warrantable failure.  Many of our aftermarket suppliers offer exceptional warranties of one year, parts and labor, they are there for us when we need them, so we’re not shy at all about using non-OEM suppliers.
We have our engines running at 52 mines in the Western part of the U.S., under very demanding conditions. Whenever I’m making a presentation to a new customer, 100 percent of the time I hear “What’s your warranty?” It’s kind of a tough question because it really depends on the parts.

Their next question almost always segues into the first: “Do you use genuine parts?” That’s almost always the perfect one-two. I usually answer: “It’s up to you. We’ll do all the machine work and we’ll provide the best assembly and anything we can. If you would like to use these parts, it’s a 6-month, parts-only warranty. If you would like to use THESE parts, it’s, in some cases, up to a 2-year warranty. Regardless of which parts you choose, we provide a one-year warranty on the engine.”

They look at the difference between 6 months and one or two years and think it makes a lot of sense. The example I use is dropping a valve – you can have a $26 dollar valve that takes out the side of the engine and causes a major failure – there’s no warranty coverage with a 6-month parts-only warranty. With the aftermarket supplier,  you have some good technical support and a better partnership.

We feel we’re in a nice position. We’re not the OEM dealer – we’re actually competing with them, but we can let the customer choose what parts he wants to put in the engine. In addition, the aftermarket has a lot of good field technicians who have spun off and are very capable of taking care of local issues or problems outside on your behalf.

It’s nice to be able to offer a lot of different parts in the engine and it’s great to think that your assemblers are better than any others – the reality is that may or may not be the case. What IS the case is that most of your local OEM distributors don’t have any significant investment in equipment or any ability at all to machine components. So, with that, they often don’t know the specifications – surface finish requirements, deck height requirements, concentricities – that really make an engine great.

So after an overhaul, the engines don’t last like a new engine would last. That’s a big part of what we sell: all the technical parts of the machine work and doing things like balancing, having the right bore concentricities, and having the right bearing clearances when you build the engine.

If you don’t have a relationship with a local machine shop, you should find one and develop it. There is a member locator on www.AERA.org that will enable you to find the closest source for this machining.  Of course, you could just send it to B&G – we’d love to help, but that’s not always practical.  You can offer a standard exchange head, or you have your own casting and offer a nice custom rebuild.

Much of B&G is a machine shop – that’s where our background is. We started in 1953 with a cam grinder. If you don’t do the machine work yourself, a good machine shop in your area can help you eliminate common problems with diesels.
Fretting is typically a major concern on the camshaft, counterweights, the rods and the block – virtually every component. Without addressing the fretting, the engine’s going to go back together and have premature failures. It is very important that you document and machine all the critical components in the engine.  

When we finish the block we’ve gone through a thorough inspection – the inspection takes about 8 hours to check a block of that size – completed machining of the major components and recorded their critical dimensions and then it’s final cleaned. It’s a lot of work but it’s what’s going to make that block run like new.

Cylinder heads are another place you can offer “better than exchange” quality. When we build an engine with several cylinder heads, we often match machine the exhaust manifold side of the heads. The idea here is to eliminate the corrosion where the manifold bolts on. After the engine has gone through a couple of life cycles the manifold can crack and you can get broken bolts. This process almost eliminates this fatigue.

In the eight years since we’ve been doing match machining, I haven’t seen so much as a broken exhaust stud on a manifold. When you match machine and make the surfaces right, it makes for a much better cylinder head, especially in a set. Depending on where the application is (i.e., in an enclosed engine room), this can be critical. In a marine application, for example, it’s important not to have an exhaust leak.

If it’s at all possible, we balance the engine components. And from a marketing standpoint, we’ve been fairly aggressive about letting our customers know the benefits of balancing. By maintaining the tolerances and mating the rods and the pistons, when it’s all finished we’re going to balance that rotating assembly so that engine has minimal vibrational fatigue.