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Copyright © 1999 FleetWatch magazine and FleetWatch On-Line. No part of this publication may be reproduced without the prior written permission from the publishers. Views published are not necessarily those of the publishers. |
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September
1999
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Extending vehicle life and squeezing the last usable ounce of potential out of your capital equipment is part of the daily grind in road transport. But it is becoming an increasingly costly affair and not everyone plays by the rules reports FleetWatch correspondent, Andrew Parker, as he looks at the state of play in the once vibrant engine remanufacturing arena. During the isolation days, South Africa was renowned as one of the most proficient remanufacturers and refurbishers of commercial vehicles in the world. Remanufacturing and refurbishing of vehicles in this country was something of a necessity for a number of reasons. Firstly, trade sanctions against the country were having the effect of limiting the country’s access to modern technology so we had to make do with what we had. Secondly, and let’s put sanctions aside, the economic woes of the late 1980s saw inflation in the transport and automotive sectors running way ahead of the CPI rate. Something like 30% against less than 20% at one stage. It was pretty obvious that under these conditions, getting a second wind out of a truck was a viable proposition. To some extent, this latter point is still true today. But the differences in CPI and industry inflation is nowhere near as acute. The rules of the remanufacturing game have also irrevocably changed. Like much of the country, the remanufacturing industry has undergone its own transition. For a start, the ubiquitous ADE is no more. Once treated with scepticism and then later admired for its rugged durability, ADE is one of the more high profile victims of South Africa’s emergence into a brave new global world. However, with a large number (we have been given figures of ‘over 40%’, ‘around 70%’ and ‘120 000 or so’) of heavy commercial vehicles on South African roads powered by ADE engines, ADE is going to remain a feature of the local industry for some time to come. Some pundits put their viability at between five and eight years - ten on the outside. Parts can be expected to remain available during this period but are also expected to become more expensive as time goes by. After this, ADE technology will have moved way beyond its sell by date and for all intents and purposes will become a non-entity. It seems rather sad in a way. Our home-grown technology (well, almost) thrown onto the scrap heap of technological history. Fortunately, the wheels of progress do not suffer the pangs of nostalgia and we have moved into a more productive and efficient technological age of electronically managed, cleaner burning diesel engines. Let’s move into the now and the future and state at the outset that the local engine remanufacturing industry is somewhat fragmented. For various reasons, some of the big names like EuroJap and Recon-O-Merc are with us no more and the marketplace is awash with dozens of engineering shops all trying to scratch a living. Most of these focus on petrol engines but quite a few take on diesel engines as well. However, after having spoken to some of what we are led to believe are the leading players, we are left with the feeling that there are very few reputable and capable players left in the market. Probably around half a dozen at the most. These include such luminaries as New Power Engines (NPE) which re-works petrol and small diesel engines for Nissan and Toyota and has taken over the diesel engine rebuilding business from ADE; Viva Automotive Engineering; Duratech (remember them? yes, they are alive and kicking!) and Metric Automotive Engineering. Overtraded market Darryl Yorke, Metric’s MD, says traditionally remanufacturing has been an overtraded market - and still is: "One of the factors that has led to this is that machine tool equipment suppliers have been putting a proliferation of players into business on very favourable terms. The problem here is that while technically competent, a lot of these guys have little or no business experience." This is in turn leads to price wars, undercutting, poor business practices and so on. Sounds familiar? It should. The transport industry is riddled with this kind of excrescence. The truck rental and vehicle tracking markets are just two examples. When the chicken comes home to roost, everybody looses. "So far," Yorke continues, "we have seen the demise of a number of automotive rebuilding shops and machine tool suppliers. This now means the market is sitting with a massive overhang of repossessed used machine tools and trade-ins. It’s like musical chairs but there's not enough business to keep the game going. Consequently there is not a great deal of customer satisfaction out there and quality standards vary from extremely good to abysmal." Quality standards Little wonder then that choosing an engine rebuilder presents its own particular challenges. It is possible for engine shops to acquire an SABS mark but a call by FleetWatch to the SABS told us there are only three or so certified diesel engine rebuilders in the country. Duratech was the first to achieve that status. That doesn’t seem a train-smash for, according to Steve Gatenby, general manager marketing for NPE, there is no real value attached to the SABS mark: "No one adheres to it anyway," he says, adding that engine remanufacturing in South Africa is not a good business: "There is a lot of price undercutting going on which means people are using cheap pirate or grey parts in order be competitive. Let’s be fair, there is a call for cheaper rebuilds - but as the old saying goes - you gets what you pays for." So how do you know who to give your valuable truck engines too? Like anything else, you have to do a bit of homework. Check out the company and see how long it has been in existence. Visit the place and have a look for yourself. Have a gander at the company’s customer profile. Who are they and what do they do? Speak to the customers and see what their experiences have been. Does the engine shop provide a warranty? Are they using genuine parts? It is not a difficult exercise at all and one well worth the effort. At this point in time, the engine rebuilders still out there are facing some interesting challenges. The most pertinent perhaps is tooling up to cope with the expected demand for remanufacturing the new-age engines. Another, and this is also eminent, is how to maintain reasonable cost structures given the high price of imported spares. Tooling challenge Let us start with the tooling challenge. Needless to say, machine tools are notoriously expensive. A machine which cost around R100 000 ten years ago will cost you a million and a bit today. Add to this the following dilemma: What must an engine remanufacturer tool up for? South African operators are today using a wide range of European, American and Japanese source engines. It is crazy to expect an engine shop to cope with all of these so they are going to have to niche themselves. Now there’s the nub. Do you go for the Isuzu, Toyota, Nissan, Volvo, Scania or Mercedes-Benz models or jump into bed with the Americans - and then you have to bring in Cummins, Caterpillar and Detroit-Diesel? Local volumes are small enough as it is. To tool up to work on one or two of these is going to be a bit of a tricky situation - if not economically impossible. If you think about it, the dealer networks have had to spend prohibitive amounts already just to service these new vehicles. Now we want to start rebuilding them! Ok. So much for machine tools. Now let us have a look at the parts basket. We have already mentioned the fact that most truck engines out on the road are still powered by ADE and will be for some time. That’s a given. A major problem for the future of these engines is that as time goes by, many of the required parts are going to have to be imported - no doubt at high cost. Importing high cost parts for old style engines? A ludicrous proposition and something of a ‘double-whammy’ for ADE engine owners. The high cost of imported parts for source engines is already a bone of contention for operators and suppliers alike. Whatever route an operator decides to take now or in the longer term, it is going to cost considerably more to maintain and replace the drive train than it does right now. That is another given. Refurbish or replace Whether to refurbish or replace can be a tricky question and there are any number of anomalies to consider. Duratech general manager, Jimmy van Niekerk, says generally speaking, in financial terms a remanufacturing exercise shouldn’t cost more than 40% of the new price. He notes that it becomes uneconomical if the costs go over 60%. Interestingly enough, Gatenby reveals that obtaining important technical data from the OEMs is not all that easy: "They are not all that keen to give the remanufacturing industry what it deems is sensitive data," he says. If this is the case, one can forget the remanufacture of new-age engines as they are a far cry from ADE engines. Given all this, where is the market going? On the surface it would seem like it is on the down but, not so says Duratech's Van Niekerk who reckons remanufacturing is alive and well and given the economic realities of replacing equipment, is set to grow in the future. Duratech can, however, talk from a wider base in that it provides a wider service than mere drive line refurbishing. It also provides third party maintenance for a number of fleets. Essentially geared toward ADE, like most everyone else, they are looking to expand and will be undertaking a re-tooling exercise in due course. "To do this, we will be guided by the new market sales," Van Niekerk says. SABS mark counts for something Van Niekerk is proud of Duratech’s achievements in the remanufacturing arena and in contrast to Gatenby's statement, says that in spite of the fact some companies are cool over the SABS mark, he is adamant it does count for something: "We were the first to get certification in this industry and regard ourselves as the ‘grand old man’ of remanufacturing in this country," he says. He stresses that it is important for operators to have some standards to measure against: "Remanufacturing is an expensive business. The conscientious operator wants value for money. The SABS standard requires engines to undergo extensive and rigorous, prescribed testing procedures. These engines are as good as new and carry a certificate of approval. You just can’t argue against this and simply say the SABS isn’t worth anything." Needless to say all products remanufactured at Duratech’s Babalegi plant carry a comprehensive warranty and are insured against major failure. Unlike most of the engineering shops we visited, Duratech is able to provide complete bumper-to-bumper refurbishment including, gearbox axles and cab. Technical upgrades are included in the exercise. Unlike NPE’s Gatenby who complained that OE’s were coy with their technical data, Van Niekerk says Duratech is getting a lot of support in this area. "They have been really kind to us," he says. While everyone we spoke to expressed concern over the current and future cost of parts, Tony Brugioni, MD of Viva Automotive Engineering, added yet another stick to the fire. He says while the cost of reconditioning an engine can be expected to be much higher, it will also take longer to get them back on the road due to the poor availability of parts. ‘Hang-on’ parts such as thermostats, pumps and housings are particularly scarce. "Because of the high cost, not many people want to keep a stock of parts on the shelf," he says. While it is obvious that this sector is facing huge new challenges, there is a way forward and perhaps the modus operandi as spelt out to us by a technician at Metric Automotive Engineering holds the key to future survival. "There’s only one way to stay ahead in this game. You stay abreast of technology, run a clean, legit business, always use genuine parts and train your staff." So there it is. Alternative Articles |
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New
Challenges Face Remanufacturers