New powertrain components to drive demand for remanufacturing of engines, Frost & Sullivan says

Demand for medium- and heavy-duty remanufactured engine components will receive a turbo-boost in the North American aftermarket thanks to the impact of EPA 2004/2010 emissions regulations, yet it will be increasingly difficult for some suppliers to keep up with the pace of change.

Frost & Sullivan expects the market revenues to reach $3.56 billion in revenue over the next five to seven years. Of all components, engine assemblies show the highest growth potential.

Medium- and heavy-duty engines have been enhanced by the addition of many electro-mechanical parts and variable geometry turbochargers (VGTs) included in the exhaust as recirculation systems (EGR) that will start entering the aftermarket in the next three-four years. Although EGRs, used for emission control in diesel engines, have been around for a while, tightening EPA norms on nitrogen oxide (NOx) reductions have led engine manufacturers to incorporate more sophisticated and advanced EGR system components into their powertrain systems, providing an opening for remanufacturers to grow in the aftermarket. 

Nonetheless, the global economic downturn of 2007-2009 impacted not only new truck sales, but also altered the maintenance cycles of many truck fleets; changing their expense patterns, and consequently constricting many of the cash outflows,  which is indicative of lower maintenance spends and prolonged service life.

At the same time, the improved quality and reliability of powertrain components has meant a longer increased service life and thereby restrained the demand for some replacement components, such as transmissions. There is also increased competition to remanufacturers from suppliers of new, non-OE parts that are being imported into North America from low-cost manufacturing locations elsewhere.

These products represent a threat to remanufacturers because they are competitively priced and seek to provide the same value proposition as remanufactured components. At the same time, many small remanufacturers lack the technological ability to supply many of the new engines currently entering the aftermarket.

The lack of cores is also emerging as a potential challenge because of the relatively new, but growing installed base of advanced engines in the medium- and heavy-duty aftermarket. Here, OEMs and their dealers in the OES channel have the upper hand. There are few established core management channels in the independent aftermarket for new heavy-duty engines, and over the last decade the North American remanufacturing industry has seen a considerable amount of consolidation as the large OEM suppliers push smaller participants out of business.

While, unit shipment demand for some remanufactured powertrain components will decline slightly over the next five to seven years due to an improved average service life, product availability, reliability and optimal pricing will remain key factors in attracting and retaining customers. Companies with diverse product portfolios are most likely to capitalize on the new opportunities available in remanufacturing new engines, turbochargers and related electro-mechanical components.  Prices will rise to support the higher-value content, but quality and reliability will be most important for remanufacturers taking on these new challenges.

Anuj Monga is a Senior Research Analyst for Frost & Sullivan’s Automotive & Transportation research practice. He focuses on monitoring and analyzing emerging trends, technologies and market behavior in the automotive aftermarket in the United States and Canada. For more information on this article or Frost & Sullivan Automotive and Transportation research, contact Jeannette Garcia, Corporate Communications- North America, at [email protected] or 210-477-8427.

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