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Engine Installation Opportunities

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Much has been reported recently regarding the
need to grow the engine rebuilding and remanufacturing markets.
We’re all aware of the Automotive Repower Council (ARP) which
was recently formed to increase customer awareness on the alternatives
to buying or leasing a new vehicle. And Automotive Rebuilder
magazine has provided a number of features and columns dedicated
to ways to expand the market.

But just as important as being able to rebuild
more engines is the matter of who installs them. There are many
options available for the rebuilder and remanufacturer when it
comes to engine installation. In fact, the subject of engine installations
is so significant today to the rebuilding and remanufacturing
markets that the issue will be addressed in a panel discussion
at the Production Engine Remanufacturers Association’s
(PERA) annual convention Sept. 16-20 in Albuquerque, NM. Four
industry experts will lead the discussion on "Who will install
the motors."

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One of the panelists is Ken Navarre, president
of Michigan Motor Exchange, Westland, MI, a passenger car, light
truck and marine remanufacturing and engine installing operation
since 1945.

Navarre, one of the few PERs who offers installation
service, said engine installation has been very profitable for
Michigan Motor Exchange. "Installation of remanufactured
engines has been the backbone of our business," Navarre said.
"This has been our niche in the remanufacturing market and
it has enabled us to open a second and third location in the Detroit-area
market."

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Michigan Motor Exchange installs 25 engines
each week, which is about 80% to 90% of the total number of engines
it remanufactures. Navarre said providing installation service
was not solely to reduce the number of comebacks to his shop.
Rather, it was another opportunity to make money for the business.
"When we sell engines by carry-out, comebacks revolve around
the engines themselves," Navarre said. "When we install
a remanufactured engine, the whole car becomes our responsibility.
Comebacks overall haven’t changed.”

Navarre said he believes there is room for
more rebuilders to become involved in installations, providing
they have the desire and there is a market available. "When
looking through a phone book, I’ve noticed some areas have several
installers, and others have none," he said. "It really
depends on your location."

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Hiring qualified help is another factor a shop
should consider before moving into installations themselves. "Getting
the help needed is the biggest challenge today, more than ever,"
Navarre said. "With all the different electronics and technology,
installation has become more labor intensive. You can’t just set
up an assembly line of engine installations. And expect to have
a closer relationship with the vehicles’ owners.”

Navarre said his shop gets customer approval
for about $200-$300 worth of miscellaneous parts such as radiators,
thermostats, hoses and belts when selling an installation job.
Other items, like replacement motor mounts and other additional
costs must be approved before installation. "We call the
customer if there’s a need for additional items and work before
these are installed in accordance with Michigan state laws,"
he said.

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As engine technology changes, so to does the
amount of time needed to install an engine. More labor adds to
higher costs. "The increasing variety of vehicles and the
growing diversity of engines is making installation more difficult
to perform," Navarre commented. "Our mechanics have
to continually train and receive the proper education for these
different engines. Even the tighter work areas under the hood
are a problem our installers have to deal with."

According to Navarre, it takes about 14-16
hours to install one of his remanufactured engines. Total cost
for the customer averages between $2,200 and $2,600.

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Another option for rebuilders and remanufacturers
is finding a reputable installer as a customer. Jack Asvitt, owner
of Jacks Engine Supply & Machine, an engine rebuilder located
in Oakland, CA, will also be a panelist on the installation discussion
at PERA. Since Jack’s Engine Supply does not offer its own installation
service, Asvitt said it is critical for the survival of a remanufacturing
operation like his to work closely with the businesses that install
his engines.

"For many remanufacturers and machine
shops, having a good working relationship with one or more engine
installers may be the best scenario for their particular operation,"
Asvitt said.

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According to Automotive Rebuilder’s survey
of machine shops (see July and August issues), more than 71% of
the machine shops surveyed do not even have a service bay to perform
engine installations. About 7% of shops have one bay, 6% of shops
have two bays and 10% of the responding shops have more than four
bays.

Asvitt, who sells only to installers, garages
and dealerships (no retail) said the relationship between the
remanu-

facturer/rebuilder and the installer should be built on working
together. About 50% of Jack’s engines are sold to San Francisco
Bay area Ford and GM dealerships, as well as the import dealerships
for Volvo and BMW. "Because we remanufacture so many of the
same engines, we start to see a pattern with some of the problem
engines,”he said, adding proper diagnosis of the bad engine
should be addressed between the two parties. ìIt’s important
to know why the old engine failed in order to prevent it from
occurring again. When an engine fails, there’s always an underlying
reason," Asvitt said. "Sometimes the cause is obvious
and sometimes it’s not, so our first step is to look for reasons
why the engine failed."

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Asvitt said you can often tell what caused
an engine to fail by the clues found on the parts of the disassembled
engine. "If we see there is a common problem with a certain
engine, we tell our customers these things. We usually give them
a copy of the technical bulletin concerning a particular problem
so that we know they are kept up to date on such information.
We want to make sure the engine is installed correctly just as
much as they do."

Asvitt said he gets feedback from the dealerships
on problem engines as well. "The relationship with your installer
is really a two-way street," he said.

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Asvitt said he believes the worst thing a rebuilder/remanufacturer
can do is to simply sell an engine over the phone to just any
installer. "You’re really taking a big risk if you don’t
know your customer," Asvitt said. "These engines we’re
remanufacturing operate at higher temperatures and higher rpm’s
than the engines of old. With all the abuse today’s engines take,
it’s very important to have an installer who is on top of this
technology.”

Problems with the installation or misapplications
continues to be the biggest issue between the rebuilder and the
installer. According to machine shop members of the Engine Rebuilders
Association (AERA) surveyed by Automotive Rebuilder, more than
58% of the respondents said that 60% or more of engines returned
to their shop were due to customer installation or diagnostic/misapplication
problems.

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The good news is most respondents (35.7%) said
that only 1% or less of their rebuilt engines are returned on
warranty. About 13% of machine shops responding said 3% of their
rebuilt engines were returned on warranty, and only 3% of the
shops said warranty returns were more than 10%.

Asvitt said when acquiring a new installer/customer,
make sure you meet with them. "When I do get a new installer
customer, I’ll visit their garage or dealership and meet the technicians
who do the work. It’s important to have a good partnership with
your installers and know your customer." Asvitt said this
relationship will come in handy if there’s a problem with an engine
down the road. "When you give a warranty, you better be able
to back it up, he explained. "But occasionally a problem
will develop beyond our 12,000-mile warranty so we’ll try to work
something out with the installer to keep a good relationship with
them.”

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Randy Few, owner of The Engine Exchange, Raleigh,
NC, has been providing installations of primarily factory remanufactured
engines since 1994. "Our business is up overall," Few
reported. "It’s hard to tell if we are just stealing more
business from our competitors, or if the market is truly expanding."

With its three installation shops, including
a Greensboro, NC, and a Charleston, SC, location, Engine Exchange
installs about 80-100 engines a month.

Few said following the trend that Americans
are holding onto their cars longer, he is banking that the market
will expand. "I also got into this business because it appeared
to be a market that wasn’t being serviced very well,”he
said. ìIt didn’t seem to be anyone really specializing
in it."

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Few said cars and light trucks today are still
the most common vehicles that have remanufactured engines installed.
But he expects the number of minivans and sport utility vehicles
needing to be repowered will grow. "Basically, there’s just
a large proportion of these popular vehicles on the road, so we
expect to see a lot more work coming from these vehicles,"
said Few

Few also said shops like his that specialize
in engine installations may be the future for the market. "Of
course, the need and the cost of testing and diagnostic equipment
continues to increase, so a lot of your local repair shops are
going to be limited on the amount of cars they can install engines
in," he said. (For a list of some of the common diagnostic
equipment needed for engine installations, see the sidebar on
page 51). "You really have to have an understanding of electronics
today to take on this type of work,”said Few. ìThe
technology associated with today’s engines is making it more difficult
to be a sideline business for the smaller repair shops."

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This may be a reason why the nationally-known
transmission replacement specialist AAMCO has joined the engine
installation arena.

John Hagan, program manager for AAMCO, Philadelphia,
PA, said AAMCO is currently test marketing engine installations
at 20 of its franchise shops across the country. He said the company
is using a variety of suppliers of both rebuilt and remanufactured
engines.

Hagan, who said he could not provide detailed
information about the pilot program, did say the project is well
into the test market phase. "Our plan is to offer this service
nationwide at our 700 plus transmission installation shops,"
Hagan said.

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Hagan said the test locations did hire new
engine technicians, as well as provide training to current transmission
installers.

"AMMCO saw an opportunity to grow in the
market of engine installation where we did not feel there was
much competition nationwide," Hagan said.

Hagan said since AAMCO already had the garages,
space and equipment to handle transmission installations, offering
engine installation service was another way to grow the company.
"Rarely does a customer need both a transmission or an engine
at the same time," Hagan said. "But if they need our
service for a transmission, we hope this will persuade them to
use us when the time comes when they need a replacement engine."

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Hagan said so far the test program has been
successful, and he expects all AAMCO stores to begin offering
engine installation service in about a year.

Installers like Few view AAMCO’s plans
as a helpful boost to the installation market. And rebuilders
may find their local AAMCO shop as another source to sell their
engines to.

"On the one hand, it’s good for our industry
because the public recognizes their name. It could help in the
public’s awareness of this market and could grow car owner’s interest
in replacing their engine.”

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But Few added AAMCO’s project could
also be seen as a double-edged sword. "If AAMCO fails in
its pursuit to be a player in the engine installation market,
it may do more harm than good. The public may see failure as a
reason not to repower their cars."

Just as rebuilders and remanufacturers worry
that some installers aren’t installing their engines correctly
because they lack the training or equipment, Few said his interest
is having a flawless engine to work with. "My biggest concern
is having a quality engine to install," he said. "A
lot of remanufacturers out there are competing on price, so they
may have to cut corners. When they cut corners, the costs fall
on us."

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Few said he feels that engine remanufacturers
don’t assume all of the costs incurred by the installer due to
a poorly remanufactured engine. "Only their payment for the
labor is a factor to them," Few explained. "For us,
the cost is much greater. First there’s the lost opportunity to
install an engine for another paying customer while you make good
on the inferior engine. There’s also the loss of labor and money
you have to pay your installer to re-install the engine.

"And finally, there’s a loss of goodwill
between you and the customer. That can be the worse part of the
situation."

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