November 2010, TruckingInfo.com - Feature
Why use new parts when used parts are half the price?
Why use used parts when good-as-new parts cost just a little more, but come with warranty? You could use new parts that are as cheap as good-as-new parts, but some aren't as good as they are cheap. Some good parts are cheap, and some cheap parts are good, but it's hard to find good cheap parts that are as good as new parts and come with warranty.
If only it was that simple.
Once upon a time, fleets could depend on pricing based on the history of a component. If it was new, you get the part for, say, $100. A remanufactured part would cost $80, and a rebuilt part might cost $60. But the emergence of products manufactured in "low-cost countries," such as China, India, and Mexico, has blurred the pricing structure to where brand-new parts can be had for less than the cost of a reman part. This has had an impact on North American remanufacturers - especially those handling low-cost, commodity-type parts. Offshore Competition
Joe Stillson of Precision Rebuilders in St. Clair, Mo., used to sell a ton of reman air valves, among other things. Today he's almost unable to compete on price alone with new parts made overseas.
"Our air valve department today is just a couple of benches," he says. "When I came here 20 years ago, our air valve department took up 20 to 25 percent of our production space. Valves used to be the fattest calf in the field. Now it's just a couple of workers."
Precision Rebuilders used to sell air compressor governors in lots of 250, 500, and 1,000, and push them out the door all day long. Stillson says they don't sell 500 a year today. It's the same with spring brakes, starters and alternators, and other commodity items that used to be the remanufacturer's bread and butter.
"Twenty years ago, a typical starter to a warehouse distributor was about $125, exchange, with a $150-$200 core charge attached," Stillson says. "You can now buy a brand new 42MT starter for about $150. Some of them were pretty junky at first, but they've done the Chinese homework in reverse engineering the things, they use better tooling, and now they are producing decent quality parts."
Producers in low-cost countries, Stillson says, have a significant advantage over U.S. producers, and can pump product into this market at a fraction of the cost. And quality is not as much of a concern as it used to be, he says, as these companies learn from their mistakes. "They see the market and the opportunity, and if they can go from earning $30 a year to 50 cents an hour for 40 hours a week, they'll want to hang on to that. They are doing everything they can to correct their mistakes."
North American remanufacturers still have one ace up their sleeve, and that's transportation costs. Shipping small stuff like air valves and the like around the world is still quite inexpensive, but moving large heavy items like axle carriers, engines, and transmissions is not quite as cost effective. And recent fuel price volatility and shipping container shortages have caused some companies to rethink the benefits of offshore suppliers.Reman or Rebuild?
A remanufactured part and a rebuilt part are similar, but not exactly the same, explains Bill Gager, president of the Automotive Parts Remanufacturers Association in Chantilly, Va. The differences arise because at one time, there was a difference in the tax base between rebuilt part and remanufactured parts. The Federal Trade Commission had its own definition, too. Today there is an unofficial distinction based on the level of effort that goes into restoring the part, Gager says.
"A remanufactured part is completely disassembled, and all the worn and broken pieces are discarded or recycled. The parts have to be thoroughly inspected and cleaned, and the worn or broken bits are replaced or reconditioned to basically a new spec," he says. "And usually they're performance tested before they are shipped. A rebuilt part is one that has generally just been repaired, which is to say, the broken pieces are replaced. It might have been cleaned up, and repainted before it's returned to market, but that's about it."Green Challenges
Gager says parts remanufacturers are among the original "green" industries.
"We keep a lot of material out of junkyards and landfill sites," he says. We recycle and reuse components, sometimes several times, which greatly reduces our environmental footprint."
But some remanufacturing processes attract unwanted attention. Many of the chemicals used to clean parts, for example, are deemed hazardous materials, and are therefore subject to regulation.
"Nobody can keep up with all the environmental regulations," says Stillson. "We've hired a very good consultant to keep us compliant, and the processes we've implemented are very costly. So be it, but we still get inspectors in here that don't know the rules as well as our guy does. I'll just say I'm glad he's doing the talking, because he's caught the auditors and inspectors on a few mistakes where we might have been fined, except that we were right and they were wrong."
Environmental compliance is another large part of the cost structure that's absent in many low-cost countries, although sensitivity to the environment is increasing in some countries. The Buying Decision
Parts procurement is very price-sensitive. Some offshore parts are getting close to OE quality - and they can be dramatically less expensive. When you can get a new part (albeit a foreign one) at the price of a remanufactured part, which are fleets going to choose?
Darry Stuart of DWS Fleet Management Services in Wrentham, Mass., notes that there is value for the fleet in all sorts of parts buying decisions, if they know up front what they want and need. Stuart provides his fleet clients the benefit of 35 years of fleet management experience by acting as a "limited-time executive," transferring knowledge to fleet staff on a limited-time basis.
"How much a fleet should pay for a part, and where it comes from, is dictated by what the fleet will do with the part," Stuart says. "How much are they willing to pay for the peace of mind that the part has warranty and a reputable supplier? If you're going to slap a part on a truck that never leaves the neighborhood, what value is a national warranty? How long does the part need to last? If a fleet buys a part to keep a truck running for three to six months, a rebuild will be fine in most cases. If a fleet wants three or four years out of it, they may have go up-market."
Stuart says there is opportunity for small reman shops and parts rebuilders to service local markets, but standing behind the product is key. There's little tolerance for poor quality these days, giving how inexpensive decent quality has become.
The days of the "Krylon rebuild" are over," he says, referring to old parts painted to look like new.Electric, Electronics
It's a bit different in the electronics and electrical side of the reman business.
Joe Kripli, global business enterprise leader at Wabco Reman Solutions, say the objective is to maintain the original OE quality level in the remanufactured product. Given the sophistication of truck systems today, there's little room for B-team electronics.
"We don't fundamentally change the design or the component integrity when we reman an ECM or an ABS controller, for example," he says. "We use all the original design-specified components or their latest upgrades. Plus, we have the benefit of 20-20 engineering hindsight in that knowing the warranty history of the component, we can design out the troublesome parts and rebuild the unit with appropriate replacements. That means you're sometimes getting better-than-OE reman components."
In addition, the remanufactured part automatically gets the latest revised software level, ensuring that the finished product has