Get back in the engine business! - Parts Central - Home

Get back in the engine business!

BY JOHN SCHLACHTER Vice President, Sales LKQ Remanufacturing

There's no doubt that the remanufactured engine business is tough. 20 years ago, there were lots of companies selling engines ? you might remember some of them ? Sun Engines, Four Star, Cloverland, Gopher, Sequel. Now days, there's very few companies left.

You may have dealt with some of these companies in the past. Most "parts people" that have been around for a while will have a horror story about selling an engine and the deal going sideways. In those days, lots of parts professionals hated selling engines because they lost money on core, warranties, or worse lost customers after selling them an engine and having an issue.

Well, the time is right for you to get back in the engine business. ATK makes it easier to sell engines profitably and with less headaches.

First, let's talk about the industry. We have some nice tailwinds. The car parq is growing - with nearly a quarter of a billion cars on the road. People are keeping their cars longer than ever and driving more miles per year than ever before. Vehicles are becoming unbelievably expensive, and are being financed for as long as 84 months.

Lange Marketing estimates that due to the downturn in new car sales in 2008 and 2009, there will be 220 billion drive miles transferred annually from newer vehicles to older vehicles and light trucks. Pushing those drive miles onto an older vehicle population means more breakdowns!

There is no doubt that we are bullish on the engine business and we think if engines are not a part of your business in the next 10 years, you're going to miss a lot of revenue.

ATK is part of LKQ's remanufacturing division. LKQ got in the remanufactured engine business about 10 years ago when they started stocking engines at some of their salvage facilities. The business grew and some of our vendor partners became available as acquisitions. Our first was PROFormance Powertrain located in Springfield Missouri. This 160,000 square foot plant has a long history in the business, and has built engines for Chrysler in the past.

Then LKQ acquired ATK ? an engine company going back to the 1930's. ATK operated 2 facilities in Mexico and one in Dallas. These facilities are still producing parts to support our program, and ATK is still a strong brand name in the aftermarket.

And finally our latest acquisition, a small engine company in Bellingham Washington called Yamato Engines. Yamato has been around for years, and specialize in Japanese import engines ? an important part of our product mix.

These acquisitions have made LKQ the largest producer of remanufactured gas engines in the aftermarket. What else does joining these strong companies together do for you?

First, our plants can now focus on a much smaller number of SKU's. This lowers our cost, and improves our quality at the same time.

Second, as you can imagine, LKQ generates a huge quantity of engine core. There will always be difficult core for us to get, but all of our plants have a much easier time securing this precious raw material. And because it's easier to find core, we offer most customers a core guarantee. We will never charge you back for damage, non like for like, or missing parts on the core you return. Just make sure your core is assembled and in the original container, and you will receive full credit back on your core.

Speaking of containers, ATK is moving quickly to durable plastic dunnage. This protects your unit in transit, the core on the return trip, and keeps your back room from becoming an oil slick. Engines, cylinder heads, and rear axle assemblies are all packaged using these containers.

There are still some engines shipped in crates ? like marine engines. We sell marine engines with no core charge, so those will always be packed in wood versus plastic.

So with a core guarantee you won't lose money on core. ? But what about the dreaded warranty claims?

Like every engine remanufacturer, our standard warranty covers defects in workmanship or materials. If we make a mistake, we'll pay for it. Most stores or shops frequently ask what our defect rate is. So let's talk about defects. In the warranty world ATK tracks three different things.

First we measure incidents ? an incident is ANYTHING that a customer calls about with regard to an installation or part performance. For example a customer may call about a damaged gasket set they got with their engine. That call won't require a bunch of diagnostics or an engine replacement, but it may help us with tagging, packaging and other issues we can correct.

We log an incident on approximately 14% of our sales.

Our next measurement is replacement rate. These are warranty claims where a part replacement is required and provided under warranty. We authorize replacement after we work with the technician to determine that a repair is not possible.

Our REPLACEMENT rate is just under 7%

And finally, we measure our approved and denied claims AFTER that 7% of parts gets returned for a complete tear down inspection. We go backwards through our process to measure and inspect the part to see if a manufacturing error or faulty part could have been responsible for the failure. If either of those conditions is met we approve the claim. Approved claims represent a true defect rate.

Our approved claim or TRUE defect rate is 3.5%.

That may sound like a lot of mumbo jumbo ? so let's break it down this way. If you sell 100 engines you can count on 7 of them getting replaced during the warranty period and half of those 7 being denied claims. Those three and a half engines are the claims that don't qualify for any labor reimbursement, and those are the claims that create all the heartburn. How can 3.5% of our product fail and not be manufacturing defects? These are units that are:

Not installed correctly ? Introducing dirt, foreign objects, or not performing key steps will cause the part to fail prematurely. Abused by the vehicle owner ? Run out of coolant, failure to change oil, racing, you name it.

As an engine remanufacturer, we depend on distributors to take our parts to the aftermarket. Denied warranty claims put our distributors in the middle between us and your customer. That's never been a comfortable place to be ? and it sometimes gets expensive!

ATK takes the sting out of denied claims with our exclusive no-fault warranty coverage. Almost all of the light duty replacement parts we offer are available with no-fault warranty coverage. So what does nofault coverage do?

Our no fault warranty guarantees part replacement AND labor regardless of the cause of failure during the warranty term. We will still ask the shop to do diagnostics and make a repair if it makes sense, so it does not provide for an engine if one is not needed. But if it is, we will rush a replacement unit to the shop making the repair, and quickly reimburse that shop for the R&R.

There is no doubt that no fault warranty provides unprecedented protection for our distributor on denied claims. That's part of our promise.

ATK also tries to prevent as many warranty claims as possible. We see shops make the same common mistakes on certain engine applications all the time. In order to combat this we make outbound proactive calls to any installer, advising that there is a special process or consideration that needs to be made when they install our engine. Oftentimes there is a bulletin that we can fax or e-mail to the shop to further protect us from a possible claim.

We innovate on solutions to common problems too. One example is the 4.7 Chrysler engine. It has a natural tendency to drop valve seats at high mileage. These valve seats then get smashed into small pieces that damage the combustion chamber, valves and pistons. An engine will fail very quickly after losing a seat. One additional side effect is the debris from that seat will enter and become lodged in the plastic intake manifold.

When that engine gets replaced the old plastic intake is re-used, all that garbage that is in the intake will likely eventually get sucked into the newly installed engine. This will cause the replacement engine to fail as well.

To combat this, ATK has engineered a screened intake gasket. This exclusive solution protects the engine from ingesting debris ? without impacting engine performance.

What else do we do to prevent claims? We use an early warning system to catch multiple claims on the same engine families with similar issues. We can freeze inventory, do part rework, or whatever is required to get a known issue fixed, and corrected inventory back in the field.

And finally many of the more popular engine applications are available as dressed versions. These units come complete with oil pan, front cover, and in some cases valve covers. Less stuff for the installer to have to clean and install means fewer warranty claims.

All in all, we feel that ATK has the best warranty and technical support in the business.

So what do you think? Is it time for you to get back in the engine business?

If you're ready, contact ATK to find out more. There's never been a better time.

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