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Cv Shafts Market: Cv Axle Rebuilding Business: There’s Definitely More Competition

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When Dan Levine, president of Southland Clutch,
Inc., in National City, CA, started his rebuilt axle operation
three years ago, it seemed like a win/win situation. The projected
growth of front-wheel-drive vehicles and the number of vehicles
nearing service age were good reasons to pursue this market. Plus,
his initial start-up costs were minimal since he already had a
thriving clutch business.

However, as with many of those in the CV axle rebuilding business,
continued price compression on FWD components and lower profit
margins have given Levine a different outlook on his axle operation
today. "I’m not disappointed that I got into the market,
but I am disappointed that it’s become such a cut-throat, small
margin business," he said.

Like Levine, several other rebuilders such as Kevin Keillor of
Omaha, NE, Gary Giusto of Waterbury, CT, and John Bedard of Lockhaven,
PA, all shared similar hopes to profit from what seemed to be
a potentially lucrative market.

Keillor and his father started Omaha Constant Velocity, a CV driveshaft
rebuilding operation, four-and-a-half years ago. "The more
we looked into CV axles, the more we liked what we saw,"
says Keillor. "But once the bigger companies started rebuilding
on a larger scale, prices started to drop and that has continued
over the past several years. There’s definitely more competition
for the CV axle dollar today."

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"Price can go from one extreme to another," says Ted
Krueger, marketing and advertising manager for Rockford Constant
Velocity, a CV component parts supplier located in Rockford, IL.
"It depends on where the rebuilder or wholesaler is located.
Since 1994, Krueger says complete axle prices to the consumer
have dropped in excess of 150%.

"We’re going through what the rear wheel drive industry went
through about 10 years ago – a very vicious price war," said
Krueger. "A lot of your bigger companies, because of automated
capabilities, keep pumping them out faster and faster; the little
companies can’t keep up."

The influx of foreign product entering this country is also another
reason behind falling prices. The greater the number of options
to the consumer, the lower the price. "To the consumer, quality
and country of origin are subjective," explained Krueger.

Another major factor responsible for dwindling prices is that
there are too many rebuilders chasing the same customer and undercutting
one another to get the business. "The profit is down the
toilet because of the competition," says Giusto, vice-president
of Specialty Constant Velocity, Inc., Waterbury, CT. "I know
of one large rebuilder whose prices are unbelievably low,"
says Giusto. "He’s really putting the hurt on other rebuilders."

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Competition is not limited just to rebuilders. The emergence of
retailers and mass merchandisers who also carry replacement shafts
for many popular applications have also taken their toll on price.
"As soon as an AutoZone or similar operation comes into town
one of their tactics is to offer products at the lowest possible
price," said Rockford’s Krueger. "They can undercut
the local rebuilder primarily because they’re buying in such large
quantities."

Besides increased competition and the influx of foreign products,
Drive Plus’ Bedard says the availability and lower cost of FWD
component parts have also driven prices down. "Several years
ago, the parts for the components were three times more than what
they are now," says Bedard. "The price of most component
parts has come down, so the price of the complete unit has also
come down."

The bad news is that despite escalating demand for rebuilt CV
axles, prices have continued to decline. The good news is that
industry experts we spoke to predict that most rebuilders won’t
lower prices much more from this point.

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Supply and demand

Southland Clutch’s Levine says what’s occurring
in the CV market today goes against the typical laws of supply
and demand. "From what I hear the big guys are very busy,
but are not filling the pipeline. But they still continue to drive
the price down," he says. "The (primary) thing that
drives price down is oversupply. No matter how many rebuilders
say they can’t keep up, it seems to be a hollow comment because
if it were true, prices would go in the other direction."

The size of the CV driveshaft market is estimated to be between
seven to nine million units a year with a market value of about
$720 million. Specialty Constant Velocity’s Giusto predicts by
the year 2000, the number of units will grow another two to three
million a year.

"Some rear-drive cars are now using CV axle shafts,"
says Giusto. "Plus, you have a lot of sports utility vehicles
on the road with CV shafts in them. You can actually have a sports
utility vehicle with six CV shafts in it."

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According to Bob Frick, vice president of sales for Badger Front
Wheel Drive. Co., Madison, WI, rebuilders are typically replacing
a CV axle on a car that has 60,000 to 70,000 miles on it. "Right
now we’re experiencing the replacement of shafts on a vehicle
population base that may be representing 80% of the total vehicle
market," says Frick. "Two years from now we will be
dealing with a vehicle population requiring replacement that is
closer to 95-97% of the total vehicle population. The demand is
going to increase by 10-15% quite easily."

Based on the fact that the average age of a car or light truck
on the road in the U.S. has risen to 8.8 years, and that in 1995
an estimated 40 million used cars were sold and/or exchanged,
Rockford’s Krueger says there should be a wealth of opportunity
for aftermarket parts manufacturers to increase sales.

However, Phil Cromwell, facility manager of Undercar International,
a subsidiary of Dana Corp. in Tuscumbia, AL, says its studies
don’t indicate a large increase in market demand right now. "We’re
seeing the pipeline being filled up and we don’t expect a lot
of increases," he says. "We are seeing more demand for
the later model front-wheel drive axles, and on those particular
models there is a shortage of cores in the market; I anticipate
that will continue."

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A maturing market

As the market continues to mature, John Naumann,
president and chief operating officer of Constant Velocity Systems,
which manufacturers CV joint grinding equipment in Clifton Park,
NY, says prices should start to rise over the next 12 months.
"The market is not as attractive for new players to get into
because the return on investment is long," said Naumann.
"Within the next six to 12 months we’ll see price stabilization
and somewhat of a (price) increase."

According to Drive Plus’ Bedard, another sign of the market maturing
is the quality of the cores that are coming back. "The companies
who haven’t had the ability or the money to buy the right equipment
to compete have been falling by the wayside," said Bedard.
"Unfortunately, there have been a lot of CV drive axle companies
that have gone out of business."

Bedard also adds that many of the cores that are coming back to
rebuilders now are ones that actually have to be ëremanufactured.’
"During the initial growth of the business, we were getting
cores from core dealers that didn’t require the amount of work
that today’s cores do," he said.

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Core availability

Rockford’s Krueger says core availability is
not expanding proportionately to the number of vehicles entering
the market. "The best example of this can be seen in the
doubling of core prices over the past three years," said
Krueger. "Incidentally, this is also within the same time
frame that the practice of grinding CV joints (overall) has gained
economic prevalence.

"Although the used car market is going up, the number of
axles that can remain usable in that pool (because of over-grinding)
is going down," said Krueger. "In the next couple of
years, prices will go up again simply because a good core is going
to be really expensive."

"With the shortage in cores on certain applications, Specialty
Constant Velocity’s Giusto says there are a lot of manufacturers
who are retrofitting a part to make something else from it. "A
core supplier has to watch what he’s buying these days,"
says Giusto. "An educated core supplier will not get duped
into buying garbage. How many times a core goes through the loops
in terms of the number of times it has been rebuilt is a big concern
of core suppliers today," he said. Especially with second
generation joints, some core suppliers are concerned that they
are not going to be able to sell them to rebuilders.

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Point of installation

All of the rebuilders and parts suppliers interviewed
for this article reported that installers always prefer installing
the complete driveshaft with the inner and outer joint included,
compared to just replacing the CV joint by itself. It’s easy to
see why since shafts are faster and easier to install and there’s
less chance of a comeback because of a loose or leaky boot.

Specialty Constant Velocity’s Giusto says an axle replacement
takes considerably less time than a joint replacement which can
take up to two hours. "Axle replacement is quick and the
mechanics can roll the cars out of the shop a whole lot faster,"
he said.

Although the market for half-shafts has taken sales away from
individual CV joints in this country, Naumann says the CV joint
market is still promising overseas. "If you look at developing
markets like South America or Eastern Europe, they’re still in
the joint (repair/replacement) phase because labor costs are lower
on an hourly rate compared to the United States," said Naumann.
"Joints are still available at parts stores in this country,
but 80% of what’s being replaced is complete axles."

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Because installers prefer shaft replacement, jobbers, warehouse
distributors and retailers are all stocking shafts, or at least
the fastest moving shafts in their inventories. Consequently,
adequate coverage requires a lot of SKUs. Many suppliers are helping
their customers by providing computer software systems that will
make ordering and streamlining their inventory a lot easier.

Badger’s Frick, for example, says his company’s computer software
program allows the user to track each facet of inventory and move
it from a raw material state through the system and into a rebuilt
axle. "We’re able to help our customers keep their finished
product and their component parts inventories very lean,"
he said.

Racks

There are those who feel that the CV driveshaft
story parallels that of its counterpart, the rack-and-pinion steering
unit. In fact, three years ago one rebuilder we spoke with characterized
the market as the "Rack War of ’94." Like CV shafts,
rack-and-pinion fell victim to the same market pressures, i.e.,
diluted prices, too much competition, lack of cores on certain
models, etc.

"I think rack-and-pinion has led the way," said Roger
Almstrom, product manager for Moog Automotive, a division of Cooper
Industries in St. Louis, MO. "A year-and-a-half ago, racks
took a considerable drop in price at the WD level.

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Price vs quality

What some consider ridiculously low prices
in the CV driveshaft market is a sign that there are those rebuilders
who are sacrificing quality for price. "There are still rebuilders
popping up on street corners in every major city that don’t have
the proper equipment and are creating substandard products,"
said Drive Plus’ Bedard.

Moog’s Almstrom says the number of rebuilders who continue to
sacrifice quality to compete on price places the entire industry
at risk. "I do believe we are in danger, as an industry,
of bringing quality down to meet some of the ridiculous price
points that exist," he said. "We risk having customers
say, ëI’m not going to tolerate that type of quality, I’ll
just go buy new.’ My hope is that we’ll be able to retain a price
that will allow a quality product out there for everyone."

Kind of a grind

A major factor that has allowed rebuilders
to reduce their production costs and offer more competitive prices
is a large scale move to grinding joints. An increasing number
of rebuilders are now using some type of machine equipment to
recondition worn or damaged cages and housings which has significantly
reduced the number of cores that would otherwise have to be discarded
or replaced.

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According to Constant Velocity Systems’ Naumann, grinding equipment
can allow up to 95% of all joints to be reused. "Where the
market is now, the traditional rebuilding method is not cost effective,"
said Naumann. "The margins in the product have come down
so much that our customers really need to have their (processing
costs) down and their efficiencies way up.

"The process that ensures the highest quality at the lowest
cost is the machine grinding process," he continued. Naumann
says his company has recently developed three new higher production
machines – each specific to a cage, housing or race. "The
more time spent per piece, the more expensive it is to produce,"
said Naumann. "These machines are quicker and more efficient
than other models."

Naumann says his company has also developed a measuring device
that replaces manual measuring. "The operator puts the piece
on the stationary measuring device, and it will accurately measure
it and feed that information back to the machine or computer for
any adjustments."

While more and more rebuilders are grinding joints, the question
remains as to where to draw the line on how much to grind. "I
think grinding will continue to be a factor in our industry,"
says Badger’s Frick. "Our sales of component parts to customers
who grind continues to be steady.

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"We do sell new cages to people who grind CV joint housings
and they’re grinding the housings and putting a new cage in,"
Frick added. "We feel that they’re creating a good quality
product."

According to Rockford’s Krueger, more than 900,000 axles per year
are serviced by remanufacturers that employ grinding. "In
order to cut costs, there are companies who will grind the living
daylights out of whatever they can and put oversized bearings
on it and then kick it out the door," says Krueger. "Once
you do that, you can’t put them back into the same pool."

"Ninety-five percent of our customers are not grinding the
heck out of the joints," observed Constant Velocity Systems’
Naumann. "They are grinding the recommended amount; I am
not aware of much of a concern about (ground) second generation
joints coming into the core system. For my customers, quality
is number one and efficiency is number two. If a rebuilder can
rebuild by buying all new parts and still sell axles at a profit,
then more power to them."

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Although increasing in popularity, grinding continues to be a
topic for debate. At the center of the debate is whether or not
rebuilders can grind a CV joint housing without negatively impacting
case hardness. "Any time you grind away on something that
has limited depth of hardness, you are going to take away some
of that hardness," said Omaha Constant Velocity’s Keillor.
"The question is whether or not, when you’re done, you still
have a dependable part. As far as I’m concerned, you do – as long
as you have competent people doing the grinding for you."

As far as marking the joints once they’ve been ground, many rebuilders
said it would be a nice gesture, but didn’t know if it was feasible.

On the other hand, Undercar International’s Cromwell says his
operation does mark the joints once they’re ground. "We know
when we get our own core back whether it’s been ground or not,"
he says.

Mark Kelly, manager of research and development for Undercar International,
said marking their joints is not a problem for them. "We
apply a permanent yellow ink on the housing of our joints,"
says Kelly. "Up until recently, our previous method of marking
was using a die grinder to engrave three little vertical lines
on the housing."

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To study the effects of grinding, the Automotive Parts Rebuilders
Association’s (APRA) CV and Rack Division spearheaded a program
to send a group of joints and components to the Rochester Institute
of Technology (RIT) for an independent, in-depth analysis of the
effect of grinding on case hardness.

According to Mark Veldhuis, president of Precision Shaft Technology
in Clearwater, FL, the results of the depth hardness test, which
were revealed at APRA’s CV and Rack Division meeting in April,
proved to him that all of the joints were equally hard past .020".
"In fact, very minute differences would be apparent up to
about .030"," said Veldhuis.

From other tests that were revealed at the meeting, Veldhuis says
it was also evident to him that there is more than enough integrity
of hardness to support at least .010" of grinding, which
is what most rebuilders are removing per side, to accept a .020"
oversize ball.

"I think some of the studies that we made through APRA confirmed
that there is nothing wrong with grinding," says Veldhuis.
Veldhuis noted that hundreds of thousands of joints are ground
every month. If grinding caused the kinds of problems some people
are suggesting, many of these joints would be coming back to rebuilders
as warranties, and that, he says, just isn’t happening.

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Another issue facing the CV market has been a push to establish
standards for testing rebuilt CV joints. So far, the standards
proposed by the Society of Automotive Engineers (SAE) have been
thought to be excessive and prejudicial towards independent rebuilders.
After a year-and-a-half furlough, the SAE committee to develop
recommended procedures for rebuilding and testing CV shafts has
resumed regular meetings.

According to Marcy Lucas, associate engineer in the Standards,
Develop-

ment and Research Division of SAE, the committee has met twice
so far this year and has another meeting scheduled for September.
"The last version of the standard (J1620) was difficult to
use, so we’re looking at revising it so it’s much easier to use
and understand," said Lucas.

While still in the proposal stage, Lucas says the committee is
seeking more input from the industry. For more information about
serving on this committee, Lucas can be contacted at 412-772-8557.

New technology

To compete in this market, rebuilders will
not only need more accurate grinding and measuring equipment,
but better testing equipment, as well. "We’re the only company
that offers products like the Axle Master, which is a testing
device whereby you can put the axle on the machine after it’s
been remanufactured and it will tell you if you have a problem,"
said Rockford’s Krueger. "Such problems would not be detected
unless it was in the car. We have machines that will test, digitally,
the amount of wear, and these machines will become smaller and
more affordable," he added.

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Undercar International’s Cromwell says his company is planning
on designing its own gauges for measuring CV joints. "Once
we grind, we’ll know exactly how much metal we’ve removed,"
Cromwell explained. "That’s critical to bringing the product
back to OE spec again."

On the horizon

As the market continues to mature, industry
experts predict that the larger operations will get even bigger
while the smaller rebuilder will find his niche. "The big
are getting bigger because we’re still on an upward climb in terms
of the size of the industry," says Badger’s Frick. "We’ve
also seen rebuilders who have carved a niche for themselves as
being experts in a certain area, and they are able to get a higher
price for a higher quality product than what would normally be
available."

Undercar International’s Cromwell adds another way rebuilders
can stay competitive is to open small warehouses which can offer
more customers immediate access to the inventory they need. "Those
are the types of things rebuilders will have to do to capture
more of the business," he said.

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Moog Automotive’s Almstrom says he sees two markets emerging –
a market for the mom-and-pop operation and one for the large rebuilder.
"I think that a customer for one is not necessarily a customer
for the other," he said. "But in the end, the market
will determine who will and who will not survive."

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