Hunting for success, part 3: Barriers to remanufacturing

This blog is part 3 of a 4-part blog series.
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In the third part of this four-part blogs series, Mike Rayne & Ramesh Subramoniam of FTI Consulting discuss barriers to remanufacturing.

After years focusing on selling new products, a general understanding of remanufacturing, the aftermarket, and what addressing it entails, is lacking among OEMs. Often, OEMs attempting to enter the aftermarket confront push-back from their dealers who believe that a partnership between their parent and an independent remanufacturer would erode their market share and revenues.

In reality, those dealers do not have the market they fear losing. Second and third tier vehicle owners, for example, do not go to dealerships for replacement or remanufactured parts. They go to convenient local independent distributors with whom in many cases they have had long and positive relationships.

OEMs frequently are also concerned about diluting their brand by getting into the all-makes-and-models program required to support the broad array of remanufactured products that will attract customers.

Again, in reality, the all-makes strategy already has moved from an exclusively independent aftermarket offering into the mainstream of original equipment (OE) remanufacturers, and quite successfully. For example, according to Transport Topics, Navistar’s Fleetrite brand, encompassing brands from Ford to Mercedes, grew from $10 million to $150 million over the last six years. Moreover, Tier 1 component manufacturers have learned to reverse engineer other OEM products, and can now remanufacture products they did not design or develop to the same quality specifications, and in the same factories, in which they make their own.

Tier 1 OEMs that have ventured into the all-makes-and-models sphere, have increased market share without damaging their brand value.

Today, with the increasing electronic sophistication of almost all vehicles, customers need technical support as much, if not more, than parts. To provide that support, independents require access to proprietary technologies and information, and access to special tooling, not to mention training in both. Without that access, independents may be doomed to a low-tech, low-margin future. This looming reality should trump the independents’ fear of losing their identity by being swallowed up by large OEMs. If they wait too long to find an OEM partner, independents may find that their competitors have already made their peace with them, leaving the laggards on the outside, looking in.

That’s a dangerous place to be. The lower-technology remanufactured products those independents may be left with are under extreme price pressure. This product category increasingly is being led by the gray market and, for some product families, by foreign OEMs offering low-cost new units, further collapsing the independents’ margins and eating away their market share.

This blog is part 3 of a 4-part blog series.
« Previous | Next »

Read the original and full article at FTI Journal.