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Updating The Asian Import Engine Market: The Learning Curve For Part Identification

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"The learning curve for part identification
is awesome" says Bob Gibson as he describes the difficulties
of imported engine core identification. As vice president for
sales and marketing at Engine Masters, Inc., a Dallas, TX, production
engine rebuilder, Gibson knows that the demand for import engine
rebuilding is growing, and that he’ll do what it takes to be a
part of that growth.

But its not always easy. "In a lot of
cases, there’s no casting numbers, so its all visual identification,"
Gibson said. "Plus, you can have mid-year changes, in which
case the VIN number doesn’t help you one iota! You’ve got to know
the production date too."

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Gibson has praise for the help that the Production
Engine Remanufacturers Association (PERA) and the Engine Rebuilders
Association (AERA) have provided the rebuilding industry in the
past. "They’ve always done well in educating the industry
in the nuances of ‘domestic iron,’ " Gibson said. "But
no one is sharing that kind of information for imported engines.

"The six to 12 remanufacturers who have
a real level of competency with core identification are guarding
it with their lives! If anybody wants to get into rebuilding import
engines, they’re going to have to research every piece the way
we did it – the hard way!"

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Another production rebuilder, Recon Automotive
Remanufacturers, Inc., of Philadelphia, PA, finds that difficulty
in parts identification can slow a company down. "The Japanese
do code their blocks, but as far as cylinder head and crankshaft
identification, there’s virtually none, and if there is, it’s
meaningless," said Bruce Barcusky, Recon’s catalog/product
development manager. "If a core is not identifiable, we ask
the customer to send us their old core. Of course that helps us
with our research, so its a win-win situation," he said.

All of the industry sources we talked with
ñ both production rebuild shops and custom engine rebuilders,
as well as parts manufacturers, agreed that the demand for rebuilt
import engines is on the rise. That makes sense considering that
import vehicle nameplates account for about a third of the cars
sold in the U.S. The rebuilders who have traditionally made a
living rebuilding domestic engines say that their import engine
rebuilding program is now 10% to 15% of their total production.

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In defining domestic and import, however, there
are gray areas, such as how to classify the Mitsubishi engines
that are standard in one of America’s most popular vehicles, the
Plymouth/Dodge/Chrysler minivans. "We’re not the strongest
players when it comes to imports," said Mike Schwenk, vice
president of Jasper Engine and Transmission Exchange of Jasper,
IN. "But we do the Mitsubishi 3.0L on a regular basis. However,
we really don’t consider it to be an import engine."

With high demand, can high profitability be
far behind? "That’s pretty much Economics 101," said
Engine Masters’ Gibson. "The demand for rebuilt import engines
right now is greater than the supply. And even though the magnitude
of the demand for domestic engines is still greater, the availability
of the import rebuilt is so scarce that it keeps profitability
high."

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Other rebuilders agree that there’s more profitability
in rebuilding import engines, but some find that the difference
is getting less, including Malcolm Sissmore, vice president of
operations at ATK North America, a Santa Anna, CA, rebuilder which
has a strong import engine rebuild program. "There has been
a better profit margin in imports, but with more and more rebuilders
getting into them, the competition is stronger and the prices
are getting compressed, so the profit margin gets squeezed,"
observed Sissmore.

Aside from the Mitsubishi engines for Chrysler
products, the most widely rebuilt import engines are for Toyotas.
"It’s because of their market share," said Sissmore.
"But it’s also because Toyota has notoriously had head gasket
issues, especially on its 3VZE engine." The Izusu "Z"
series, which goes into its light truck line is also a widely
rebuilt power plant, along with Honda engines.

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Engine Masters’ Gibson points out that the
rebuild volume for any particular engine does not always parallel
the number of registrations of vehicles equipped with that motor.
"Sometimes demand for a rebuilt engine is driven by what
kind of a vehicle an engine was delivered in," he says. "For
example, pickups, vans and SUVs have a different perceived value
than sedans. People will pay $20,000 for a car or a truck. In
10 years, they’re ready to scrap the car, but the truck gets a
new engine."

Most also agreed that while the lineup of domestic
and imported cars being sold looks more and more alike, there
have traditionally been differences in their engines. Yamato Engine
Specialists of Bellingham, WA, specializes in rebuilding import
engines, although roughly 10% of its business is in domestic power
plants. Owner Asiff Dhanani observes that the engines built for
Detroit products follow a different design philosophy than those
for imported cars.

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"There are a lot more moving parts in
the imported engines," Dhanani explained. "They’re a
lot more complex and have tighter tolerances that we have to hold
for longer periods. I’d also say that the technology moves a lot
faster on the import engines, where you get into variable timing
and complex hydraulic systems." To Dhanani, the import designs
are both more complex and superior to the domestic engines.

Chet Staron, president of Topline Auto Engine,
Inc., Chicago, IL, seems to share this view. "I think that
the entire aftermarket agrees that Japanese engines are built
to more concise standards than their domestic counterparts,"
Staron said. "Their tolerances are tighter, and they’re running
at higher rpms," he said. In contrast, he pointed out that
"most domestic engines, the V6s and of course the V8s, are
"loafing" most of the time."

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But Staron also observes that the precision
of imported engines can work against them. "What usually
ruins an import engine is poor maintenance, so when a timing belt
or water pump belt breaks, the valves crash and it destroys the
head and the piston," he said.

Rebuilders with a lot of experience in the
world of domestic engines aren’t intimidated by tighter tolerances
or the complexity of the import designs, but they are aware that
they may have to learn a few new things. Dan Minick, who manages
Minick Engines of Abilene, KS, said about 15% of the 300 engines
he rebuilds a year are import designs. "Maybe it does take
a little more knowledge," Minick said. "The Mitsubishi
2.6L with its balance shafts is kind of a complicated engine,
and so are some of the Toyotas with dual overhead cams and scissors
gears. If you haven’t seen that before, it can be kind of overwhelming.
But once you break your teeth on one or two of them, they’re not
that much different. A motor is a motor!"

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Another widely held view is that import and
domestic engines differ not only in parts identification, but
also in where the rebuilder has to buy parts, and what they have
to pay for those parts. Jasper Engine’s Schwenk has run into problems
because he’s forced to buy a lot of import engine parts from the
dealerships. "We replace all of the valvetrain parts, including
valves and springs, and there isn’t an extensive supply of those
parts in the aftermarket, he said. "So we (often) have to
go buy those parts from the dealership. Schwenk’s implication
is that although quality levels are high, the customer has to
be willing to pay more, too.

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Barcusky of Recon has had the same experience.
"I don’t know if its a marketing stance that the aftermarket
parts manufacturers have taken where they say that they’re not
going to market a part that they perceive has not gone out of
warranty, but it sure seems that way," he said. "The
last place you want to go is to the dealership, but if that’s
the only way you can satisfy demand, that’s the way it has got
to be."

The issue of dependence on Japanese nameplate
dealers for import engine parts is one that Topline Auto Engine
has met head on. "The Japanese were trying to confuse everyone
(with parts proliferation and confusing core identification) and
make them go to the dealers for parts, said Staron. "We can’t
do that in this country ñ it’s much too competitive!"

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Staron pointed out that there are more than
100 million Japanese cars in this country, "and I don’t think
that the American aftermarket (consumer) will continue to go back
to the dealers for these components."

His remedy to the problem has been to invest
heavily in high tech engineering aids and machinery that has allowed
Topline to duplicate the Japanese parts designs. In the process,
his company has gone from being primarily a rebuilder to a major
aftermarket parts manufacturer. "Today, we’re selling pistons
to piston companies, and oil pumps to oil pump companies,"
Staron explained. "These guys used to be our suppliers, but
now they’re our biggest customers. Even though we have been a
pretty substantial rebuilder, we’re actually putting that part
of our business out of business."

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Three years ago Topline was remanufacturing
5,000 VW cylinder heads a month. "But nobody could assure
us that the cores we were getting were ‘virgin’ (not cracked or
warped) because nobody could visually inspect a cylinder head
core and tell if it’s a virgin," Staron said. "We found
that the only solution was to use new cylinder heads, so we put
$4.5 million into a facility to make them. The design of the dies
was all done by laser, digital EDM and five-axis machines."

Topline has expanded into duplicating other
parts for imports as well as domestic cars; cams, lifters, oil
pumps, etc., using the same state-of-the-art engineering and manufacturing
equipment that some feel gave the Japanese a leg up in automotive
engineering in the first place.

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"We can do a lot with computer simulation,
digitizing and CAD-CAM engineering," said Staron. He added
that he’s been able to reverse engineer castings so that one casting
design for an oil pump, piston or cylinder head, for example,
can fit several applications, thus cutting down on part number
proliferation. "The trick for any manufacturer who wants
to compete with the Japanese is to take the mystery out of the
product! You have to have that philosophy," Staron said.

When it comes to distribution and installation
practices there seems to be very little variation in the way imported
and domestic rebuilts are distributed and installed. "From
a reman standpoint, I don’t think there is a difference. Some
are going to two-step distribution, and some are going direct
to installers, just like with domestic engines," said Zack
Bawel, sales manager at Jasper Engine and Transmission Exchange.

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Recon’s Barcusky believes that the market for
rebuilt engines works against specialization. "The way the
whole aftermarket has become means that you can’t really survive
by being a distributor just for imports, or just for domestic,"
Barcusky explained. "The differences in distribution (between
import/domestic rebuilt engines) may be more regional than anything,
but they’re disappearing."

Parts suppliers like Topline also see little
difference in distribution practices. "The market is currently
two-step, but it will go to one-step soon," said Topline’s
Staron.

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To date, rebuilders don’t experience much competition
from import OEs setting up company rebuild operations. Most of
the rebuilders we talked to weren’t sure which manufacturers are
really in the game, which would lead one to think that there’s
not much happening in the arena. But secrecy may be in operation,
said Recon’s Barcusky. "I’m not aware of any contract with
independents to rebuild for the OEs. But if there are, they’re
probably keeping it very quite, which is the way the Japanese
have always operated in this country," he observed.

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Another marketing practice on the part of the
Japanese manufacturers has been to cut low-mileage engines out
of Asian cars and ship them to this country, where they are sold
as used engines at a considerably lower price than remanufactured
engines. The practice obviously creates competition for US rebuilders.
But it’s not formidable competition, and it seems to be lessening.

ATK’s Sissmore, whose company at one time was
involved in bringing used Japanese engines into this country,
said it used to be a problem, but not anymore. "The engines
used here and those used in Japan are almost night and day different,
and you can’t use them unless you want to ignore emissions standards
or do a whole lot of modifying," he said.

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Engine Masters’ Gibson observed that the US
market is moving toward six cylinder engines, which limits the
appeal of used, four-cylinder powerplants from overseas. "The
six hasn’t been a viable product in Japan, and they don’t have
all of the mandated emission standards that we have," he
said. Import engine specialist Yamato’s Dhanani also said he doesn’t
believe used import engines are a threat to his business.

Despite the challenges inherent in rebuilding
import engine designs, Engine Masters’ Gibson continues to see
opportunity in them. "We might over-build the market, but
I don’t think that’s going to happen in the next two or three
years. Those who get there first will gain a foothold!"

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