2013 Machine Shop Market Profile Part 1 - Engine Builder Magazine

2013 Machine Shop Market Profile Part 1

Since that time, a lot of things have changed at this magazine and in this industry. What hasn’t changed is the fact that we have consistently surveyed the same machine shop/custom engine rebuilder (CER) population to get a snapshot of this industry from the experts – you, the engine rebuilder.
Numbers can give a cold, stark impression of the growth or decline of an industry, but we believe the information in this study is still the most reliable data available for tracking trends in the production of engines, cylinder heads and crankshafts, as well as specific business data. We thank every one of our survey respondents for taking the time to contribute to this report.

The data generated for this year’s Machine Shop Market Profile was collected through survey questionnaires sent to the machine shop/custom engine rebuilding membership of the Engine Builders Association (AERA). Four different questionnaires, consisting of four pages each, were developed to obtain the information contained in our profile.

We mailed questionnaires to the membership of the AERA and contacted a random sample of Engine Builder subscribers with an email survey containing key questions regarding production. In all, we heard from more than 180 locations that are performing machine work and building engines in the U.S. Analysis of the data was completed by Babcox Market Research.
The survey information reflects data for production year 2012. Part 1 of this two-part profile includes data on monthly production of engine blocks and cylinder heads, broken out by engine size as well as by gas and diesel configurations, crankshafts, core sourcing, shop equipment ownership and purchasing, and total production time spent in specific engine building areas.

As we’ve declared many times in these pages, there is no such thing as a “typical shop” – you know that each company is unique. However, you can use these averages to see how your business compares.

Nationally, the numbers look like this: the average machine shop produced nearly 21 gas and diesel engines monthly last year, up from 18 in 2011. Cause for celebration? A blip on the radar? It’s a nice return after last year’s slight downturn from a huge 2010. Of course, small variations in numbers can actually be dramatic percentage changes – this is the nature of statistical-based articles. The key, of course, is to look at the big picture with intense focus on some of the major points.

Increases were seen almost across the board, although six-cylinder gasoline engines (up 25 percent in 2010) saw a modest decline this year. Eight-cylinder diesels (another bright spot last year), fell slightly as well, but generally, the engine market appears to be doing quite well, all things considered.

V8 gas engines – which declined last year (partially, we believed, due to the “Cash for Clunkers” program and vilification of large engines in the wake of gas price increases) – jumped impressively. Four- and six-cylinder gas engines saw modest increases. The number of unspecified “other” gas engines fell rather dramatically last year from slightly more than 12 per year in 2011 to less than 2 per year in 2012.

Overall, gas engine production increased around 18 percent in 2012.

The diesel engine segment experienced another great year last year, except for the aforementioned V8s. The growth of 4-cylinder, 6-cylinder and “other” engines indicates that industrial, commercial and agricultural opportunities remain.

Overall, the number of diesel engines climbed to 3.1 engines per month, an impressive 24 percent increase from last year.

The average national monthly gas and diesel engine production of almost 21 units translates to 252 engines produced annually. This is down from the 264 reported in 2010, yet is still higher than the annual production of 216 engines produced during 2011 and the 152 engines produced during 2008 by the typical CER.

Projected onto a universe of 3,000 to 5,000 full-service machine shops, it’s estimated that CERs accounted for between 648,000 to 1.26 million gas and diesel engines built during production year 2012. Last year the market range for the same size universe was 924,000 to 1.08 million units.

If you add in an estimated 450,000 engines remanufactured annually by approximately 30 North American production engine remanufacturers (PERs), the combined total number of engines rebuilt in 2012 by CERs and PERs would be approximately 1.21 million to 1.71 million units. This compares to an upper range of approximately 1.53 million engines produced by PERs and CERs during production year 2011.

At an average retail cost of approximately $2,600 per engine, we calculate that the total rebuilt/ remanufactured engine market generated between $3.15 billion and $4.45 billion in rebuilt engine sales in 2012.

More rebuilders said they saw a production increase in 2012 – unfortunately, more also saw their production numbers decline. However, the bulk of our respondents (more than 76 percent, as a matter of fact) said production numbers stayed the same or increased. Of those who did report an increase, it was, on average, nearly 14.5 percent. The average decline was a relatively mild 9 percent.

Sales of rebuilt engines in 2012 trended in different ways. Import gas engines fell nearly 3 percentage points while domestic gas engines rose the same; the diesel market saw import engines hand the domestics a 2.1 percentage point decline.

We’ve used the word “diversification” a lot in Engine Builder recently. While certain shops specialize in a particular type of engine, increasingly we see the successful shops being the ones who can, frankly, do it all. With less competition, someone has to do the rest of the work, you know.

According to our survey respondents, the percentage of engine rebuilding falling into various categories in the typical shop breaks down like this: automotive gas – 46.2 percent; performance – 20.1 percent; industrial – 6 percent; medium-duty diesel – 7.5 percent; automotive diesel – 4.9 percent; performance diesel – 4.3 percent; marine engines  – 4.2 percent; heavy-duty diesel – 3.8 percent; motorcycle/mower/other small – 1.7 percent; and other types – 0.6 percent.

As you can see in the chart at left, the small block Chevy 350 continues to be the strongest engine out there. Other engine platforms made a moderate attack last year, but the Mouse continues to roar. The perennial king is ranked as the number one engine built by half our respondents. In fact, a GM engine of some kind is listed number one by 71 percent of our respondents. Fords account for 12 percent; Heavy Duty and Commercial engines account for 8.8 percent; imports for 6 percent; Chryslers for 2 percent; and “other engines” for 1 percent.

Each year we ask survey respondents to tell us about their engine building business by breaking down their operation into five specific machining processes – production of short blocks, long blocks, complete engines, cylinder heads (not used on long blocks or complete engines) and crankshafts (also not used in long blocks or complete engines). When we asked for the percentage of business in gasoline engines they did in each, we found things to be fairly stable from last year – with the exception of complete gasoline engines.

Cylinder heads became a bigger part of the typical shop’s production. In 2011, this category accounted for about 42 percent of the typical shop’s gas engine production – this year it’s nearly half. Cylinder head work remains the single biggest part but complete engines and heads together account for 73 percent of the typical rebuilding business.

For diesel engine builders, it’s a slightly different story. Declines are seen in short blocks, cylinder heads and crankshaft production numbers, while complete engines stayed even with 2011 results. Long blocks saw an increase. Complete engines and cylinder heads still account for 75 percent of total diesel engine rebuilding production numbers.

The national average number of gas and diesel crankshafts reground monthly by the typical CER increased in 2012, from 21 units in 2011 to 28.5 units in 2012.

Diesel crank production decreased in 2012 relative to 2011, falling from 4.8 to 3.6 total units per month. Gasoline crankshaft regrinding increased, percentage-wise, going from just over 20 total units produced monthly during 2011 to almost 25 total units produced in 2012.

These declines are, as we’ve seen in other segments, partially attributable to the availability of quality aftermarket components. The increases? We can also point to quality: well-made products can be rebuilt and customers don’t want to waste money if they don’t have to.

Cylinder head production numbers remained level year-to-year, although gas head production increased about 3 percent, going from 44 units monthly in 2011 to 45 units produced each month last year. V8 cylinder head production swung the pendulum; all other categories were down.

Diesel heads rebuilt monthly continued last year’s fall. Total diesel cylinder head production fell from 8.1 units rebuilt monthly in 2011 to 6.8 units in 2012, an overall 16 percent decrease. Six-cylinder diesel head production actually increased slightly but all other categories fell.

The percentage of cylinder head rebuilding that is aluminum increased in 2012, although not quite back to 2010’s level. Diesel cylinder head rebuilding also rebounded somewhat last year, though not to the level some expect and many hope.

As with complete engines, General Motors continues to dominate in the cylinder head rebuilding market, and to an even greater degree, according to our survey respondents. When asked what the number one cylinder head rebuilt in their shop was, 59 percent named a GM product, up from 57 percent in 2011.

However, other brands are making their presence felt as well. Import heads are second place with 13 percent of shops naming them as their top product. Ford and heavy-duty/commercial sit at 9 percent each. Chrysler has made a nice recovery – named number 1 by 6 percent of respondents, Mopar outshines the “other” category (3 percent).

Just as with complete engines, performance cylinder head work continues to be an important component of the typical shop’s work. When we asked what percentage of total cylinder head production is performance related, in 2012, almost 97 percent of respondents said they do some amount of performance cylinder head work.

“Repair before replace” is an increasingly common mantra in some segments of the cylinder head business. We found that a smaller percentage of diesel heads are being scrapped (although aluminum heads continue to be scrapped at a higher rate). When they are repaired, rebuilders continue to leave the work to the experts. Our survey results indicate that 36 percent of respondents say they do aluminum cylinder head crack repairs themselves and 35 percent do their own diesel head repair.

Welding is used as a repair method nearly 75 percent of the time with aluminum cylinder heads and 36 percent of the time with diesel heads. Pinning remains the most-often used method for

repairing diesel cylinder heads (done 65 percent of the time) but is used in only one-quarter of the aluminum head repairs.

Equipment suppliers may be the biggest winners, according to our survey respondents. The average amount spent on shop equipment in 2012 was $19,327, the most we’ve seen in more than five years. The average amount spent in 2011 was $11,274, and continues a very interesting cyclical pattern. Over the past eight years, the year following an increase shows a corresponding decline…but the rebound the next year has been dramatic. Our expectation for 2012 equipment purchases was that it would be exceptional – next year is likely to be off somewhat, but it is likely to be higher than the 2008 equipment sales level.

Shops indicate that the present value of their equipment (including depreciation) is over $191,000 and is approximately 15.5 years old. 2012 Survey respondents say 42 percent of their purchases were of new equipment and 58 percent of equipment was used.

In most cases, shop owners say they’re spending more time performing many of the necessary tasks to doing a complete engine build than last year. We attribute this to the fact they’re busier than they’ve been. Of course, new CNC or other updated equipment can ease that labor burden. Survey respondents say likely equipment purchases include various types of cleaning equipment, crankshaft polishers, CNC machining centers, valve seat and guide service equipment as well as other types of machining equipment.
To download the complete article with charts, click here.


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