Technology Raises Cost of Remade Engines

By Jim Galligan, Staff Writer
This story appears in the June 4 print edition of Transport Topics.

The low-cost replacement engine market may be changing.
Remanufactured engines long have provided fleets with a middle-of-the-road replacement option between a more costly new engine — when available — and less costly but likely less durable, rebuilt product. That was before new generations of diesel engines with their emissions-controlling hardware and aftertreatment systems entered the market.
These new engines will add complexity and cost to the remanufacturing process, possibly complicating decision-making for fleets in need of replacement engines, industry executives said.
The trade-off between cost and value always has been one of the defining differences when replacing an engine. How much do you want to spend on a replacement engine, and how long will it last?
The choices are usually remanufactured or rebuilt. Replacing with a new engine is an option only in select circumstances, said one industry executive.
A remanufactured engine typically will cost anywhere from 40% to 60% of the price of a new engine, said Bill Lucas, marketing consultant for Cat Reman, Caterpillar’s remanufacturing division in Peoria, Ill.
“One of the key cost factors with remanufacturing is processing the core” and determining core credit value, Lucas said.
Other suppliers put the costs in the same ballpark.
A rebuilt engine will cost less than a remanufactured one depending on how much work must be done, but remanufactured engine suppliers are quick to stress that there are several differences between a remanufactured and a rebuilt engine.
“ ‘Rebuilt’ means to repair what is needed, [and] the owner is returned his original engine,” Lucas said. “ ‘Reman’ means the core engine is completely disassembled, losing all identity to [the] original assembly or application. All components are returned to their original performance specifications.”
“Losing all identity” means the key components are pulled from the core engine and put into the parts stream. If they are used again after cleaning and/or repair, it would likely be in another engine core.
“When we reman, we pull everything out and remanufacture it back to the original equipment performance standards,” said Mark McCracken, manager of aftermarket parts support for International Truck and Engine Corp., Warrenville, Ill.
Remanufactured engines also usually come with a warranty. In Cat’s case, Lucas said, it is the same as the new-engine warranty, with the understanding that there may be exceptions, depending on the engine model.
Tom Schrader, vice president of marketing for Jasper Engines & Transmissions, Jasper, Ind., the largest independent supplier, said its remanufactured midrange products come with a two-year unlimited mileage warranty.
The type of engine fleets choose for replacement depends on numerous customer- and application-specific factors. Unless an engine fails in a relatively short period, usually under the warranty or just past the expiration date, repowering a truck with a new diesel engine often is not an option, McCracken said.
Because most midrange diesel trucks accrue relatively low annual mileage, the engines may go years before failing or needing replacement. By that time, the original engine model may be out of production, and finding one may be possible only if extra engines have been inventoried somewhere.
This situation will become even less likely in the future as the time between model changes shortens, McCracken said.
“With the current [Environmental Protection Agency] emission cycle, most engines are
only in production between three and four years,” he said. Because it’s usually about seven years before the International engine cores begin coming in for remanufacturing, “the chances are almost nil that new engines will still be in production five or six years out. At that point . . . you have two choices: pull [the engine] and rebuild it, or buy reman,” he said.
The addition of the emission-reduction systems on current and future diesel engine models will have the most effect on remanufacturing because they will add complexity to the process and boost the cost, several executives said.
“It’s necessitating a lot more new content than we’ve ever seen before. So, the value is approaching close to what it was new,” McCracken said.
“The more complex they are, the more challenges they present to us,” Jasper’s Schrader said. “The more [we add] what we refer to as the trim on the engines — the accessories, pumps, etc. — it adds challenges for us.”
Also, the addition of the emission-controlling hardware is stressing more components, and the demands they place on engines are raising engine failure rates and pushing more engines into the remanufacturing supply chain sooner than before.
“We’re already seeing it,” Schrader said. “We’re getting . . . lots of calls on the ’04 stuff.”
The emission-controlling hardware will have to be remanufactured along with the core engine.
“If the electronics or [exhaust gas recirculation] systems are integral to the engine, we would include them in the remanufactured product,” said David Goodwin, chief
executive officer of Reviva, a diesel engine remanufacturer based in Minneapolis, and former president of the Production Engine Remanufacturers Association. “The component would be remanufactured, reclaimed and qualified, or purchased new. It depends on the item and its condition.
“If the assembly or component is not integral to the engine, then the decision to supply it as a separate product would be dictated by our ability to remanufacture it or source a quality, competitively priced replacement and our customer’s demand,” he said.
They will be more expensive, Goodwin said, “but the amount of increase would be impossible to generalize [now].”
Jasper’s Schrader compared the cost increase to a pre-emission 7.3-liter engine and its equivalent today. “We could provide commercial fleets with drop-in engines for about $4,800. These engines today are in the $6,000 to $7,000 range,” he said.
The EPA does not require remanufactured diesel engines to be certified as meeting original emission standards. It is presumed that, as engines are restored to their original specifications, they would meet the emission levels to which the engine model was originally certified.
But what about in the future? The 2007 and 2010 emission standards are much more stringent than in the past, and there is a growing demand to reduce pollution. New diesel-powered vehicles are a primary target. What would happen if the EPA demanded that remanufactured engines also be certified as meeting the original emission level?
International’s McCracken said he did not think that demand is likely.
“I don’t know that EPA will jump into this as they do with new ones,” he said. “The EPA has been very reluctant to hamper free competition in this sector. The more they require certification, the more they hamper people’s abilities to supply this base.”
On the other hand, it would definitely raise the costs further.
“If the EPA does mandate that aftermarket [remanufactured engines] will have to demonstrate the same compliance as new, that will be more expensive,” McCracken said. “If [a remanufactured engine] used to
be 65% to 75% the cost of new, it now is up to 85% to 90%, given high fallout rates and new content. As we go forward, if we are mandated, we could see costs approaching 135%
the cost of new because all of the recovery procedures will have to be validated.”
An aftermarket certification process would likely benefit the large original equipment engine remanufacturers over smaller independent suppliers because the original equipment manufacturers already have certified their own original product.
“If they require certification of the same [emissions] as with new product, only the OEMs can do that,” McCracken said.
For now, there is trust that the market for remanufactured engines will grow, said Reviva’s Goodwin.
“As the cost of replacing a truck goes up, relative to the size of truck, I believe there will be long-term trends to retain ownership of the current truck and not to replace it. In the long run, I think there will be significant growth in the number of owners holding onto trucks for a longer time. It’s a product that’s going to be around a while,” Goodwin said.