“Use it up, wear it out, make it do” was a wartime slogan inspiring the home front to not waste anything of importance. Such frugality is part of the American nature and it’s the basis for every successful business. Cutting costs and extending the operation lifetime of their capital assets are second in importance only to attracting customers. Indeed, such frugality results in the cost-cutting that allows for the price reductions that attract customers in the first place. In addition to meeting the needs of direct customers, there are the requirements of government regulations—especially in regard to emissions standards as defined by Tier 4 regulations.
A key component of any transport company or earthwork contractor is the engine in its trucks and heavy equipment. Any owner of trucks or heavy equipment would want to extend the useful lifetimes of this equipment as much as possible. A key to doing so is to extend the operational life and improve the performance of each vehicle’s drivetrain, starting with the engine itself. This creates the demand for remanufactured engines. But all companies are in business to make money; the advantages derived from remanufacturing must make an immediate, obvious, and significant improvement to a company’s bottom line. And this benefit is a direct result of the quality of the final, remanufactured product and depends on the conditions and criteria that the process must meet. The accumulated benefits of remanufacturing engines across the industry drive the market demand for this service.
Remanufactured vs. Rebuilt vs. Crate vs. Used
There are several similar terms that get used in regard to re-utilization of engines, which can be confusing since they do not describe the same process or product. These include “rebuilt engines,” “remanufactured engines,” and “crate engines.” Each method has its pros and cons, and an owner has to evaluate carefully which approach is best for his vehicle fleet.
The terms “remanufactured” and “rebuilt” are often used interchangeably but they are quite different. Think of remanufacturing as starting from scratch. Remanufacturing makes an engine as close to new as possible. An engine is remanufactured to the original design and specifications (or improved specifications if a more advanced technology is utilized) and is retested prior to install to ensure that it at least meets the original engine’s performance standards. On the other hand, a rebuilt engine is rebuilt only to make repairs down to the level of engine failure. Rebuilding an engine involves only the engine’s worn out or broken parts. Only those engine components that have been damaged, broken, or worn out are replaced. All other engine components are left alone and remain intact. Thorough testing of a rebuilt engine is not necessarily required prior to installation. And it is rare that a rebuilt engine will incorporate new technology that results in an improvement in performance.
Then there are crate engines and used engines. Owners often wrongly assume that a crate engine has either been rebuilt or remanufactured. And this simply is not true. A crate engine is a brand-new engine designed for late-model vehicles and equipment. Fresh off the assembly line, it is ready for installation upon delivery. Though a crate engine may represent a technological advancement over an existing engine, this is because a crate engine naturally incorporates the latest design advances as part of its current manufacturing process. Crate engines can also be specialized for high performance instead of standard applications. Used engines, on the other hand, are pre-owned and come as is without any repairs, rebuilding, or remanufacturing performed on them. As such they tend to be relatively inexpensive but come with limited warranties (typically no more than 30 days). Used engines are cheap but risky investments.
So which option is the best choice for a vehicle or equipment fleet? For quality, remanufacturing cannot be beaten. Remanufacturing is far more detailed, comprehensive, extensive, and sophisticated than merely rebuilding. This results in extended life and superior performance. Though typically less expensive than remanufacturing, the results of a simple rebuild are inferior and this cost savings represents a false economy. The real savings come from comparing remanufactured engines to those that are newly built. Here a remanufactured engine is both less expensive, and of at least equal if not superior quality compared to newly manufactured engines. And this quality difference is reflected in the warranties covering the ownership of remanufactured engines.i Warranties for remanufactured engines are typically equal to those that are newly manufactured, and of course, the comparatively limited warranties for used engines are not for consideration.
The Business of Engine Remanufacturing
Engine remanufacturing is typically performed by the original equipment manufacturer (OEM) instead of small independent auto works or machine shops. The primary reason for this is the inherent complexity of modern diesel engines. These are sophisticated and complex machines, often requiring a delicate balance and fine grade workmanship to function properly, let alone at peak efficiency. Complexity and sophistication raise barriers to entry into the remanufacturing business. Not only is this a mechanical process involving the placement and rehabilitation of an engine’s moving parts, a remanufactured engine has to incorporate ever more advanced electronics, sensors, and controls. Similarly, the exhaust controls needed to minimize air pollution in accordance with Tier 4 standards add another layer of complexity on the process. A small operation could find it difficult to provide all of the necessary remanufacturing services.
The key to the remanufacturing process is the engine core, which serves as the platform for the remanufacturing process. Control the engine cores and a remanufacturing business can control the remanufacturing market. Most big-name engine manufacturers are trying to do just that. Many of them have a goal of core loss of less than 1% (that is, at least 99% of their engine cores should have to come back to the OEM for remanufacturing). Core management includes databases that record the account numbers, product licenses, purchases, contracts, return histories, and locations of the truck and equipment fleets utilizing their engines. This streamlines the process of returning the engines cores back the OEM for remanufacturing. These factors have resulted in pushback from independent shops and garages who want in on the remanufacturing market. The result was a memorandum of understanding signed by truck and engine makers and commercial aftermarket organizations. Under this MOU, smaller operators can easily gain access to service information for equipment and trucks from the model year 2010 going forward. At the end of the day, it is whoever can provide the best remanufacturing service that will get the job.
Remanufacturing is performed at or near the end of an existing engine’s useful life. Accumulated wear and tear will eventually degrade the engine’s performance requiring either replacement or remanufacturing. Along an extended timeline, the whole point of remanufacturing is to provide an engine that an owner can continue to utilize for a significant amount of time. However, if the owner does not anticipate using or keeping a truck or piece of heavy equipment for an extended future, or if the vehicle or equipment in question is marginal to his overall operations, he may want to reconsider the option of remanufacturing. The same decision is made in a variety of operations. For example, a homeowner who intends to stay put long-term will prefer to rehab his house with top of the line materials using the best available workmanship. Homeowners preparing for quick resale may prefer to rehab their house with less expensive (and lower quality) cabinets, carpets, plumbing, etc. In both cases, the owner is making a perfectly rational financial decision.
These financial decisions are what drive market demand for remanufacturing services. External market forces also play a significant role in the remanufacturing decision. The construction industry is cyclical, with highs and lows corresponding to overall economic activity. During a major recession, work can dry up resulting in significant (if temporary) loss of cash flow from site work contracts as commercial and residential real estate developers pull back on proposed projects. As a result, an owner may prefer to have an engine remanufactured instead of buying new in order to reduce capital costs. For this reason, remanufacturing demand has seen steady and strong growth for the past 15 to 20 years despite (or perhaps because of) several economic downturns that have occurred during this time period. Once economic good times return, the revenue generated by additional contracts may allow an owner to utilize newly built engines.
And as in all purchases, caveat emptor. The key piece of information an owner needs to get from a potential remanufacturer is his remanufacturing protocol. A thorough review of this protocol (which should be provided in writing) will tell the owner exactly which engine parts will be replaced, and how the remanufacturing process will be performed. The protocol, a review of the remanufacturing company’s history and reputation, and the associated remanufacturing warranty are required reading for any truck or equipment owner. This, along with an understanding of new technology entering the design of remanufactured engines, will allow an owner to make a rational and informed purchase decision.
The Process of Engine Remanufacturing
How are engines remanufactured, and what is considered to be a successful remanufacturing effort? It is all a question of how good the final product is. A successfully remanufactured engine should at the least have the same (if not better) operational life expectancy as the original engine. Improvements in life expectancy can be achieved by incorporating into the remanufacturing those technological advances and mechanical improvements that have occurred since the manufacture of the original engine. Taking advantage of these design improvements will also result in better performance. However, every new (and improved) part must meet the OEM’s physical characteristics and operational specifications or the part cannot be integrated back into the whole and is therefore unusable. Once assembled, end of line testing will be performed to ensure that these improved performance goals and projected lifetimes are met.
Each engine remanufacturing effort involves several basic steps. The first step is to remove the bottom half of the engine block (typically referred to as the “short block”). The short block is often sent to an automotive machine shop where it is disassembled, cleaned, and assessed to determine its current operating condition. The individual condition of the engine’s internal parts determines if they are to be repaired or replaced. The most common procedure is the replacement of the piston rings, bearings, and the pistons heads themselves. The internal surfaces of the piston cylinders and the cylinder heads are typically reconditioned and smoothed to ensure a proper seal is maintained with the piston heads. Once every part has been removed, cleaned, repaired, or replaced, the engine is reassembled.
Sounds simple, but the increased complexity of heavy-duty diesel engines greatly adds to the complexity of the remanufacturing process. Tight specifications and stringent tolerances are imposed on every engine part, but especially for key components such as exhaust gas control valves, diesel fuel and air filters, fuel pumps and fuel injectors, diesel exhaust fluid pumps, etc. These all have to be state of the art components.
Speaking of “state of the art,” the actual rooms where engine remanufacturing is performed are akin to doctor’s offices in their required level of cleanliness. Performance standard and operational tolerances will not be getting anything but tighter and more stringent in the future. To meet these ever-higher standards, remanufactures will require a highly skilled workforce that is continuously being retrained and reeducated. These skilled workers will need dedication and meticulous focus on the performance of their duties. Parts suppliers for replacement components will also need to keep up with ever-changing industry standards concerning machine tolerances, material compositions, and lower emissions standards. Over time, remanufacturing capabilities will have to become more specialized and less generic, requiring continual investments in both technology and training.
The process can only get more difficult and complicated due to the ever-increasing sophistication of the electronics systems associated with the engines. Ironically, advances in the technology of electronic controls can make the task of remanufacturing both easier and harder at the same time. Older systems and assemblies often required more expertise to adjust and set up to ensure maximum efficiency. But in modern electronics, a lot of the hard work is hidden within the “black box” of the electronic device, allowing for simpler adjustments or no need for adjustment at all. Diagnosing both electronic and mechanical issues is also easier with advanced electronic diagnostic tools. However, the use of advanced electronic diagnosis tools requires a significant investment in both equipment and training.
The Economics of Engine Remanufacturing
The decision to remanufacture comes down to opportunity costs. The owner must decide on the basis of both cost and convenience. He often has to trade off one for the other. Typical remanufactured engines that meet the OEM standards and specifications can cost between 60% and 75% of a new engine. But as the saying goes, time is money. Equipment downtime waiting for a new or remanufactured engine is the time when that truck or piece of equipment is not making money for the owner. Therefore, the purchase decision must take into account lost revenue from the various downtimes and which choice gets that equipment up and moving faster. One possible time saver is a prepared and ready to go exchange component. Instead of remanufacturing the actual engine that is taken out of the equipment, an identical remanufactured engine is sitting on the shelf back at the remanufacturer’s warehouse ready to go. The owner ships the old worn out engine to the remanufacturer who then remanufactures it for a future customer while immediately shipping the identical remanufactured engine he had in stock. This method provides all of the convenience of buying new but at the reduced cost of remanufacturing.
Cost for either type of engine varies with its horsepower. For example, articulated trucks are equipped with engines that operate from 320 horsepower (hp) for a CAT 725C2 up to 511 hp for a CAT 745C (Source: Caterpillar Performance Handbook #47, January 2017). A mid-range CAT C15 Acert diesel engine used to operate a CAT 735C articulated truck at 452 hp can cost (at current market rates) $37,500 surplus. At 60% of this value, a remanufactured version of this model would cost $22,500—a net savings of $15,000. A more powerful 511 hp CAT C18 diesel engine used to operate a CAT 745C articulated truck can cost about $58,750 surplus (at current market rates). A remanufactured model would cost only $35,250—a cost savings of $23,500.
Lost time waiting for a replacement engine (new or remanufactured) can also be quantified. But this depends on a host of unique local conditions specific to the job site. In addition to labor and fuel costs per hour of operation, the amount of earthwork that can be performed during each of those hours depends on local soil characteristics. For example, soil excavation productivity rates depend on such factors as bucket size and type, arm reach, excavation and loading cycle times, mass excavation or trenching, type and hardness of soil, etc. Factoring in the unit costs being paid per cubic yard of excavated soil allows the operator to determine the amount of money lost due to down time waiting for an engine: number of days downtime x hours per work day x soil excavation productivity in cubic yards per hour x cost per cubic yard excavated. Downtime calculations are unique for each potential job and have to be calculated separately.
Then there is the matter of the cost savings derived from extending the life of an existing truck or piece of equipment and the avoidance of the capital costs of purchasing something new. For example, a $1,000 purchase made five years from now at a discount rate of 10% results in an equivalent present value of only $621 today (a present value interest factor, PVIF, of 1.6105). But the savings derived from pushing back a new purchase are in part offset by missing out on new technological advances that can significantly increase field productivity and improve an operator’s bottom line. Many of these factors may be difficult to calculate, but all have to be at least considered. So, choosing between a new engine and a remanufactured engine is not just a simple matter of comparing purchase prices.
Remanufactured Engines and Tier 4 Regulations
The last, but far from least, hurdle that a remanufactured engine has to overcome is the need to meet emission requirements under Tier 4 regulations. Mark Wagner, product market manager for remanufacturing, John Deere Construction & Forestry describes the impacts of Tier 4:
“The changes to the emissions systems on our engines have definitely added complexity to the engine remanufacturing process. We have found that this complexity is steering more customers toward a drop in remanufacturing solution, versus having the engine rebuilt. We continue to develop our tooling and processes to keep up with the changes and to position ourselves so that we are able to deliver remanufacturing solutions when the customers need them. In some markets where emission requirements are lower, we see customers trending toward spending more money on their older machines to extend the machine’s life before trading to a newer machine with more complex emission systems. Similarly, in areas where government contracts require the use of higher tier level machines, we see those customers tending toward keeping their fleets newer and not spending as much on repairing the older machines. It matters a lot as to where the customer is typically working and what the legislation dictates in that particular area.”
US Environmental Protection Agency (USEPA) emission standards have had a major impact on truck and heavy equipment manufacturers for almost three decades. These impacts translate into possible concerns for the buyers of remanufactured engines. Tier 4 standards can impact American equipment manufacturers even if they are making engines for foreign markets where these or similar rules don’t technically apply, and individual states can have stricter standards than those mandated by Federal rules.
Tier 4 rules apply to all off-highway trucks and equipment with at least a 50 hp engine. This means any kind of equipment, including on-site electrical power generators, air compressors, and light sources. Used equipment manufactured prior to the implementation of Tier 4, however, is grandfathered in. But there are fewer and fewer of these with each passing year. However, pre-Tier 4 engines can only be remanufactured if they are upgraded to meet Tier 4 standards. Some flexibility is allowed under the replacement rules. If an operator retires a pre-Tier 4 engine he is allowed to replace it with another pre-Tier 4 engine provided he removes another pre-Tier 4 engine from his fleet and replaces it with an engine that meets Tier 4 standards.
Under the enforcement provisions of Tier 4, a fleet owner can find himself subjected increased frequency of inspection and potentially higher fines for noncompliance. He may be forced to mothball a vehicle until such time as its pre-Tier 4 engine is upgraded with concurrent losses in revenue. And certain government projects, especially in noncompliance air zones with overall poor air quality, may require contractors to exclusively use Tier 4 equipment.
Major Supplier
From large components like engines and axles down to smaller components like alternators and electronic injectors, John Deere Reman provides a full line of remanufactured powertrain and hydraulic solutions for John Deere Construction, Forestry, and Agricultural equipment. The benefits of using a reman repair solution are numerous and are centered around providing a like-new exchange component, which can be installed in a machine quickly to minimize downtime, at a price that is 25 to 40% less than the cost of a new component. When installed by a John Deere dealer, these components come with a one-year unlimited hour warranty which covers the reman component, the labor to install it, as well as any collateral damage that may result from the failure of the reman component. John Deere Reman components use only genuine OEM replacement parts and approved remanufacturing processes to ensure it is as durable as it was when it was new. If there have been any design changes to that version of the component, the updated parts will be installed during the remanufacturing process. Finally, before leaving the reman factory, every component is tested to new specifications to ensure it delivers the same or greater performance and reliability of a new component.
