North American Class 6-8 Remanufactured Powertrain Components Aftermarket

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

2 NCDE-18

Research Scope

Heavy-duty commercial vehicles (GVWR Class 6-8) Vehicle Type

2013–2019 Forecast Period

2009–2019 Study Period

2012 Base Year

The United States and Canada Geographical Scope

Total Class 6-8 Remanufactured Powertrain Components Aftermarket: Production Forecast,

North America, 2012–2019

Source: LMC Automotive Forecasting, Frost & Sullivan

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

Total 419.0 451.0 526.0 560.9 528.9 559.7 585.0 595.7

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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

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Key Questions this Study Will Answer

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?


What is the short-to-medium term outlook for remanufactured powertrain components in the North

American Class 6-8 aftermarket?

Total Class 6-8 Remanufactured Powertrain Components Aftermarket: Key Questions This Study Will Answer, North America, 2012

5 NCDE-18

Key Participants Compared in this Study


OEM

Tier I—Powertrain

Component

Remanufacturers and

Developers

Independent Powertrain

Component Remanufacturers

and Developers

Distributors

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

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.

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Product Segmentation

Total Class 6-8 Remanufactured Powertrain Components Aftermarket: Product Segmentation, North

America, 2012


Engine

Clutch

Transmission

Gasoline

Diesel

Manual

Po

wert

rain

Automated

Turbocharger

Automatic

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• 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.

• Powertrain component responsible for controlling the transmission of power. On engagement of clutch components, they transmit power from one shaft to the other.

• A set of components together generating and delivering power. The components include engine, transmission, clutches, and drive shafts, among others.

Powertrain

• 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.

Engine

• An assembly of various sub-components that transfers the power from the engine to the line axle. Sub-components include gears, shaft, and clutch, along with other components.

Transmission

Clutch

Turbocharger

Product Definitions


8 NCDE-18

Core Supply Chain Definitions

Source: ERC; Russ Schinzning; Frost & Sullivan

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.

Distributors

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.

9 NCDE-18

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

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Executive Summary—Key Findings


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.

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.

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.

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.

4

OEM suppliers Caterpillar, Detroit Reman, Eaton, Honeywell, Cummins, and Meritor hold the

highest market shares, with independent suppliers struggling to penetrate the aftermarket. 5

3

2

1

11 NCDE-18

Executive Summary—Market Engineering Measurements

For a tabular version click here.

Note: All figures are rounded. The base year is 2012. Source: Frost & Sullivan

Compound

Annual Growth

Rate

1.7%

(CAGR, 2012–2019)

Market Stage

Mature

Market Revenue

$3.13 B

(2012)

Market

Units/Volume

0.90 M

(2012)

Average Price

Per Unit

$3,454.6

Market Size for

Last Year of

Study Period

$3.52 B

(2019)

Base Year

Market Growth

Rate

1.5%

Total Class 6-8 Remanufactured Powertrain Components Aftermarket: North America,

2012

Market Overview

Stable Increasing Decreasing

Number of

Competitors

~ 25

(active market competitors in

base year)

Market

Concentration

40–50%

(% of market share held by

top 3 companies)

12 NCDE-18

Supplier Manufacturer

OES Suppliers

Detroit Diesel Reman, CAT Reman, Cummins

ReCon, Eaton, Arvin Meritor, BorgWarner,

Honeywell Turbo Technologies

Independent Aftermarket

Suppliers

LKQ, Allison Transmissions, Jasper Engines &

Transmissions, ETE Reman

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.


0.0

20.0

40.0

60.0

80.0

100.0

64.0

25.8

2.8

7.4

Reve

nu

e (

%)

Engine Transmission

Clutch Turbocharger

Total Class 6-8 Remanufactured Powertrain

Components Aftermarket: Revenue by

Product Type, North America, 2012

Total Class 6-8 Remanufactured Powertrain Components

Aftermarket: Key Market Participants, North America, 2012

0 20 40 60 80

100

2012 2019

OES 83.6 87.5

Independent 16.4 12.5

Reve

nu

e (

%)

Total Class 6-8 Remanufactured Powertrain Components

Aftermarket: Revenue by Distribution Channel, North

America, 2012

13 NCDE-18

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.


Note: Graph in center represents unit shipment data for 2009–2019.

Outside graphs represent revenue.

2019

$3.52 B

Total Class 6-8 Remanufactured Powertrain Components Aftermarket: Unit Shipment and

Revenue Forecast, North America, 2009–2019

500

550

600

650

700

750

800

850

900

950

1000

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Un

it S

hip

me

nt

(‘0

00

)

2012

$3.13 B

CAGR: 1.7%

14 NCDE-18

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.

(0.50)

0.00

0.50

1.00

1.50

2.00

2.50

3.00

(5.0) (4.0) (3.0) (2.0) (1.0) 0.0 1.0 2.0 3.0 4.0 5.0 6.0

20

19

Reve

nu

e (

$ B

illi

on

)

Revenue CAGR (%)

Medium Growth Low Growth High Growth

Hig

h R

eve

nu

e

Mo

dera

te R

eve

nu

e

Engines

Turbochargers

Transmission

Clutch

Decline

Note: Bubble size represents unit shipments. Note: All figures are rounded. The base year is 2012. Source: Frost & Sullivan

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Engine Transmission Clutch Turbocharger

Market Growth

Pricing Growth

Competitive Environment

Technology Advancements

Source: Frost & Sullivan Low High

Medium-

high Medium

Medium-

low Legend:

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

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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 Current Future

Market Status

• Estimated manufacturer-level revenue of $3.13 billion and

enjoying low-to-medium growth driven by the entry of

more sophisticated powertrain systems with increased

electro-mechanical content into the aftermarket.

• Increased presence of competitively priced new

replacement products threatens growth for

remanufactured units.

• Estimated manufacturer-level revenue forecasted to

reach $3.52 billion by 2019.

• Economic recovery will increase spending on truck

maintenance, and growth in Class 6-8 vehicles in

operation will increase the installed base of vehicles

that could potentially require a remanufactured

powertrain component.

Competition

• 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.

• Vertical integration and in-sourcing of remanufactured

powertrain system components by Class 6-8 truck

manufacturers will further intensify competition.

Distribution

• 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.

• 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 Trend

• Higher fuel economy, emissions controls, and safety

regulations will drive continuous improvements in

powertrain technologies that will enter the aftermarket.

• 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.

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Reverse Supply chain

Remanufacturing System Model OEMs are trying to create powertrain system components with easy-to-replace parts that make the

remanufacturing process more efficient.

Customer

Vehicle Repair

(Garage)

Relationship with

Core Supplier

Parts Distributor

Remanufacturer

Parts Distributor

Powertrain System Design

OEs are standardizing component

assembly parts to make them easier

to replace for remanufacturers.

Product Development Supply Chain

Remanufactured Product

En

d o

f Life

Pro

du

ct

Material Flow

Information Flow Source: Frost & Sullivan

Vehicle Repair

(Garage)

Core Validation OEs share product specifications

with parts distributors to help ensure

that returned cores are viable.

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CAT

Reman

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

Quality Focus

Once the dealer inspects and accepts the

old product, the core deposit is returned to

the customer.

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.

Core Stewardship

Dealerships transfer the core to the OEMs

warehouse to reaffirm the inspection. The

OEM refunds the core deposit to the

dealership.

Industry Best Practices: Leveraging OE Relationships Caterpillar subsidiary CAT Reman receives core supplies from OEMs for remanufacture because it made the

original production part.

Core Acquisition and

Inspection

Integrated

Remanufacturing and

Distribution

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

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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

http://www.frost.com/prod/servlet/me-research.pag

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Interested in Full Access? Connect With Us

Name Jeannette Garcia

Corporate Communications

(+1) 210.477.8427

[email protected]

Research Authors

Anuj Monga

Senior Research Analyst

Automotive and Transportation

Aftermarket

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