Published on March 5, 2014
Strategic Analysis of the North American Class 6-8 Remanufactured Powertrain Components Aftermarket Enhanced Component Remanufacturing Will Push Revenue by 2019 NCDE-18 December 2013
Research Scope Base Year 2012 Study Period 2009–2019 Forecast Period 2013–2019 Vehicle Type Heavy-duty commercial vehicles (GVWR Class 6-8) Geographical Scope The United States and Canada Total Class 6-8 Remanufactured Powertrain Components Aftermarket: Production Forecast, North America, 2012–2019 Vehicle 2012 2013 2014 2015 2016 2017 2018 2019 Class 4 (000s) 37.9 41.3 46.7 50.2 57.5 64.4 62.5 63.6 Class 5 (000s) 34.5 36.1 39.8 42.1 45.4 50.6 49 45.2 Class 6 (000s) 63.5 72.1 75.3 74.3 71.3 71.9 78.3 78.1 Class 7 (000s) 62.1 67.5 65.4 68.9 67.5 73.8 77.2 80.9 Class 8 (000s) 221.0 234.0 298.8 325.4 287.2 299.0 318.0 327.9 419.0 451.0 526.0 560.9 528.9 559.7 585.0 595.7 Total Source: LMC Automotive Forecasting, Frost & Sullivan NCDE-18 2
Research Aims and Objectives Aim The aim of this study is to provide executive analysis of growth opportunities in the North American medium to heavy-duty CV powertrain remanufactured components market. Objectives • Calculate the size of the class 6 to 8 remanufactured powertrain components aftermarket for engines, transmissions, clutches, and turbochargers through primary research interviews with leading market participants, and forecast its direction over the next 5 to 7 years by analyzing market drivers and restraints. • Understand the competitive structure of the remanufactured powertrain aftermarket and identify the key success factors. • Profile key competitors and analyze their market strategies. • Identify shifts in product preferences and within distribution channels to determine which competitors are best positioned for growth. Source: Frost & Sullivan NCDE-18 3
Key Questions this Study Will Answer Total Class 6-8 Remanufactured Powertrain Components Aftermarket: Key Questions This Study Will Answer, North America, 2012 What is the short-to-medium term outlook for remanufactured powertrain components in the North American Class 6-8 aftermarket? What are the key market trends shaping the direction of the aftermarket? Which distribution channels are growing the fastest and why? Who are the key industry participants and what is their value proposition? What are the challenges faced by the market participants and how do they plan to address them? Source: Frost & Sullivan NCDE-18 4
Key Participants Compared in this Study Volvo Group North America LLC, Daimler Trucks North America LLC, Navistar Inc., PACCAR Inc. Caterpillar Inc., Cummins, Meritor, Honeywell, Eaton, BorgWarner, Detroit Diesel LKQ, Blaylock Turbochargers, ETE Reman Fleetpride, TruckPro, NAPA, CARQUEST OEM Tier I—Powertrain Component Remanufacturers and Developers Independent Powertrain Component Remanufacturers and Developers Distributors Truck makers who offer the final product fitted with powertrain systems Tier I participants manufacture the individual components of trucks. Some of them also remanufacture these products for replacement demand. Remanufacturers of individual components who primarily supply to the aftermarket Primary business is distribution of automotive parts to the end user. Source: Frost & Sullivan NCDE-18 5
Product Segmentation Total Class 6-8 Remanufactured Powertrain Components Aftermarket: Product Segmentation, North America, 2012 Diesel Engine Gasoline Powertrain Manual Transmission Automated Automatic Clutch Turbocharger Source: Frost & Sullivan NCDE-18 6
Product Definitions Powertrain • A set of components together generating and delivering power. The components include engine, transmission, clutches, and drive shafts, among others. Engine • Powertrain component that produces mechanical motion by converting energy. Types of engines included in the study are diesel and gasoline engines, with variation based on the fuel used for generating power. Transmission • An assembly of various sub-components that transfers the power from the engine to the line axle. Subcomponents include gears, shaft, and clutch, along with other components. Clutch • Powertrain component responsible for controlling the transmission of power. On engagement of clutch components, they transmit power from one shaft to the other. Turbocharger • Turbochargers are used for producing higher power from an engine by providing more air and more fuel for combustion cycle than otherwise possible by atmospheric pressure alone. Source: Frost & Sullivan NCDE-18 7
Core Supply Chain Definitions Distributors Cores A core, an essential part of any remanufacturing process, is an old component retrieved from a failing vehicle undergoing repair. Quality of a core is the most important attribute for remanufacturing suitability. Procurement of cores can be a challenging task, mainly because of their myriad of functionality, appearance, and completeness of different cores. On replacement of an old powertrain component with a new or remanufactured part at an independent repair shop or a dealership, the distributor takes the old part and refunds the core charge to the mechanic. The old part is then returned by the distributor to the supplier (remanufacturer) for the refund of the core deposit. Core Brokers Core brokers are an indispensable part of the remanufacturing value chain in the United States since they act as core consolidators. Brokers procure cores from different sources, such as peddlers and crashed vehicles, OEM/OES surplus, and dismantlers, and later on sort these according to customer part numbers. A bid list is sent to the brokers from remanufacturers containing the part numbers and quantities needed. Following agreement on pricing, cores are sold and shipped to the remanufacturer. Source: ERC; Russ Schinzning; Frost & Sullivan NCDE-18 8
Contents Section Slide Numbers Executive Summary 4 Research Scope, Objectives, Methodology, and Background 12 Definitions and Segmentation 19 Market Overview 27 Total Market - • Demand Analysis 39 • External Challenges: Drivers and Restraints 44 • Forecasts and Trends 50 • Market Share and Competitive Analysis 60 Total North American Class 6-8 Remanufactured Engines Aftermarket Breakdown 69 Total North American Class 6-8 Remanufactured Transmission Aftermarket Breakdown 77 Total North American Class 6-8 Remanufactured Clutch Aftermarket Breakdown 85 Total North American Class 6-8 Remanufactured Turbocharger Aftermarket Breakdown 91 Conclusions and Future Outlook 98 Appendix 102 NCDE-18 9
Executive Summary—Key Findings 1 Total manufacturer-level revenue will increase from $3.13 billion in the 2012 base year to approximately $3.52 billion in 2019, with increasingly sophisticated components such as variable geometry turbochargers driving most of the growth. 2 Unit shipments of remanufactured engines, transmissions, and clutches will decline because of improving original equipment quality and increasing competition from new replacement parts, but sales of remanufactured turbochargers will rise by about 2.1% annually. 3 With well established core management systems, the OES channel held about 73% of aftermarket revenue in 2012 and is likely to gain additional share in the coming years, as increasing powertrain system complexity makes remanufacturing more difficult for independent suppliers. 4 Rising prices—from 1.5 to 5.5% annually—will drive revenue higher. The increased amount of electro-mechanical content in remanufactured powertrain system components to make them compliant with fuel economy and emissions regulations will make products more expensive to distributors, installers, fleets, and truck owners. 5 OEM suppliers Caterpillar, Detroit Reman, Eaton, Honeywell, Cummins, and Meritor hold the highest market shares, with independent suppliers struggling to penetrate the aftermarket. Source: Frost & Sullivan NCDE-18 10
Executive Summary—Market Engineering Measurements Total Class 6-8 Remanufactured Powertrain Components Aftermarket: North America, 2012 Market Overview Market Stage Market Units/Volume Market Revenue $3.13 B Mature 0.90 M (2012) Base Year Market Growth Rate $3,454.6 $3.52 B (2012) Compound Annual Growth Rate 1.7% 1.5% Market Size for Last Year of Study Period Average Price Per Unit (CAGR, 2012–2019) (2019) Market Concentration Number of Competitors 40–50% ~ 25 (% of market share held by top 3 companies) (active market competitors in base year) For a tabular version click here. Decreasing Stable Increasing Note: All figures are rounded. The base year is 2012. Source: Frost & Sullivan NCDE-18 11
Executive Summary—Top-Level Strategic Fact Sheet/Market Snapshot Continual technological improvements will benefit OEMs in the aftermarket and support growth in the OES channel. 100 80 60 40 20 0 OES Independent 7.4 2.8 100.0 2012 83.6 16.4 2019 87.5 12.5 Revenue (%) Revenue (%) Total Class 6-8 Remanufactured Powertrain Components Total Class 6-8 Remanufactured Powertrain Aftermarket: Revenue by Distribution Channel, North Components Aftermarket: Revenue by America, 2012 Product Type, North America, 2012 Total Class 6-8 Remanufactured Powertrain Components Aftermarket: Key Market Participants, North America, 2012 Supplier OES Suppliers Independent Aftermarket Suppliers 60.0 40.0 64.0 20.0 Manufacturer Detroit Diesel Reman, CAT Reman, Cummins ReCon, Eaton, Arvin Meritor, BorgWarner, Honeywell Turbo Technologies 25.8 80.0 LKQ, Allison Transmissions, Jasper Engines & Transmissions, ETE Reman 0.0 Engine Transmission Clutch Turbocharger Note: All figures are rounded. The base year is 2012. Source: Frost & Sullivan NCDE-18 12
Executive Summary—Total Market Unit Shipment/Revenue Snapshot Rising prices for Class 6-8 remanufactured engines and turbochargers that comply with EPA 2010 regulations will push market revenue higher. Total Class 6-8 Remanufactured Powertrain Components Aftermarket: Unit Shipment and Revenue Forecast, North America, 2009–2019 CAGR: 1.7% 1000 950 $3.13 B Unit Shipment (‘000) 900 $3.52 B 850 800 750 700 650 600 550 500 2012 2009 2010 2011 2012 2013 Note: Graph in center represents unit shipment data for 2009–2019. Outside graphs represent revenue. NCDE-18 2014 2015 2016 2017 2018 2019 2019 Note: All figures are rounded. The base year is 2012. Source: Frost & Sullivan 13
Executive Summary—Revenue Growth Analysis By Product Type A growing installed base of EPA-compliant powertrain systems in the aftermarket will support growth for remanufactured Class 6-8 turbochargers, engines, and transmissions. Low Growth Decline High Growth Medium Growth 3.00 High Revenue 2.50 2.00 1.50 Moderate Revenue 2019 Revenue ($ Billion) Engines Transmission 1.00 Turbochargers Clutch 0.50 0.00 (5.0) (4.0) (3.0) (2.0) (1.0) 0.0 1.0 2.0 3.0 4.0 5.0 6.0 (0.50) Revenue CAGR (%) Note: Bubble size represents unit shipments. Note: All figures are rounded. The base year is 2012. Source: Frost & Sullivan NCDE-18 14
Executive Summary—Comparative Analysis by Segment Turbochargers is the most attractive market segment from a growth perspective. Total Class 6-8 Remanufactured Powertrain Components Aftermarket: Comparative Analysis by Product Type, North America, 2012 Engine Transmission Clutch Turbocharger Market Growth Pricing Growth Competitive Environment Technology Advancements Legend: NCDE-18 High Mediumhigh Medium Mediumlow Low Source: Frost & Sullivan 15
Executive Summary—Key Conclusions and Future Outlook Effective core buyback systems and advanced technological exposure make Class 6-8 truck manufacturers and their powertrain system suppliers the leaders in the aftermarket. Parameters Market Status Competition Current • Estimated manufacturer-level revenue of $3.13 billion and • Estimated manufacturer-level revenue forecasted to enjoying low-to-medium growth driven by the entry of reach $3.52 billion by 2019. more sophisticated powertrain systems with increased • Economic recovery will increase spending on truck electro-mechanical content into the aftermarket. maintenance, and growth in Class 6-8 vehicles in • Increased presence of competitively priced new operation will increase the installed base of vehicles replacement products threatens growth for that could potentially require a remanufactured remanufactured units. powertrain component. • High entry barriers include increasing product complexity, making it more difficult for independent participants not aligned with the truck manufacturers to penetrate. • Threat of new competitors is low. Distribution Market Trend Future • OES is positioned to lead in the aftermarket because of its strong core collection programs and technological expertise, making it harder for suppliers to independent channels to compete. • Higher fuel economy, emissions controls, and safety regulations will drive continuous improvements in powertrain technologies that will enter the aftermarket. • Vertical integration and in-sourcing of remanufactured powertrain system components by Class 6-8 truck manufacturers will further intensify competition. • Independent remanufacturers will enhance their competitive position as they develop their technological expertise and enjoy greater access to cores. • WDs and buying groups to gain share as independent manufacturers improve their competitive position and more new replacement products become available. • Market consolidation with large remanufacturers and distributors acquiring smaller competitors are unable to keep up with the pace of change. • Remanufactured product quality improves and supports long-term market growth. Source: Frost & Sullivan NCDE-18 16
Remanufacturing System Model OEMs are trying to create powertrain system components with easy-to-replace parts that make the remanufacturing process more efficient. Vehicle Repair (Garage) Product Development Remanufactured Product Customer Supply Chain Powertrain System Design Core Validation OEs share product specifications with parts distributors to help ensure that returned cores are viable. Parts Distributor End of Life Product OEs are standardizing component assembly parts to make them easier to replace for remanufacturers. Reverse Supply chain Parts Distributor Vehicle Repair (Garage) Remanufacturer Relationship with Core Supplier Material Flow Information Flow NCDE-18 Source: Frost & Sullivan 17
Industry Best Practices: Leveraging OE Relationships Caterpillar subsidiary CAT Reman receives core supplies from OEMs for remanufacture because it made the original production part. Integrated Remanufacturing and Distribution Customer buys a CAT Reman product at a fraction of the price of a new unit. The price includes the core deposit, which is refunded to the customer when they return the old part. Text Established Distribution Network The remanufactured parts/assemblies are shipped to OEMs for re-sale through their dealerships and warehouse distributors. Strategic Locations The cores are shipped to 1 of 17 CAT Reman facilities across the world for remanufacturing. Quality Focus Once the dealer inspects and accepts the old product, the core deposit is returned to the customer. CAT Reman Core Stewardship Dealerships transfer the core to the OEMs warehouse to reaffirm the inspection. The OEM refunds the core deposit to the dealership. Core Acquisition and Inspection Caterpillar has been supplying Class 6-8 OEMs as an contract remanufacturer since 2004, acquiring competitors in the United States and overseas. The company continues to buy local suppliers around the world to benefit from their knowledge and infrastructure. Source: Frost & Sullivan NCDE-18 18
Market Engineering Methodology One of Frost & Sullivan’s core deliverables is its Market Engineering studies. They are based on our proprietary Market Engineering Methodology. This approach, developed across the 50 years of experience assessing global markets, applies engineering rigor to the often nebulous art of market forecasting and interpretation. A detailed description of the methodology can be found here. Source: Frost & Sullivan research NCDE-18 19
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Global Perspective 40+ Offices Monitoring for Opportunities and Challenges NCDE-18 21
Industry Convergence Comprehensive Industry Coverage Sparks Innovation Opportunities Automotive & Transportation Aerospace & Defense Measurement & Instrumentation Consumer Technologies Information & Communication Technologies Automotive Transportation & Logistics Energy & Power Systems Environment & Building Technologies Healthcare Minerals & Mining Chemicals, Materials & Food Electronics & Security Industrial Automation & Process Control NCDE-18 22
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