Remanufacturers Put Autos on the Road Again : Firms See Future in Mass Production of Restored Vehicles
Along a drab commercial street here called Hanover Avenue, several dozen young workers scurry among a group of uninspiring cinder-block buildings that originally housed a Chevrolet dealership--long since gone bust in the whirlwind that struck the auto business early in this decade.
On one side of the complex there is what could pass as a graveyard for Volvos and BMWs, looking as forlorn as thoroughbreds being taken to the glue factory. But on the other side, things are different. A row of cars, looking brand-new, waits for buyers--thoroughbreds miraculously reborn, ready, again, for the race track.
New Segment of Auto Industry
More than just in a sense, that is exactly what has happened to the cars. And in their transformation from junk heap candidates to spanking, new-again road machines is the development of what some experts believe could become, in the next 10 to 20 years, a major part of the U.S. auto-making scene.
The old Chevy dealership belongs today to AIR Automotive, one of just two companies in the country with what experts say is the unqualified right to call themselves automobile “remanufacturers,” though at least one other company--in North Hollywood--does the same sort of thing.
Remanufacturing may sound like a fancy word for restoration , and, in truth, the finished product is fundamentally a car restored to about the same condition it was in when it came from the factory.
What makes remanufacturing different is scale. On what amounts to an assembly line, AIR Automotive workers dismantle 300 to 350 BMW and Volvo cars a year, then put them back together with 60% of their parts replaced and the rest either rebuilt or restored to as-new condition. It takes 225 man-hours to do it and the car is so stripped that, when dismantling ends and rebuilding begins, all that is left intact is the shell of the body.
While the scale of remanufacturing today is modest--even that might be an overstatement--the company’s founders make enthusiastic predictions about the potential for a true industrial empire with six regional AIR Automotive remanufacturing assembly lines around the country that might each turn out 1,500 rebuilt cars a year, supplied by a central parts-rebuilding plant. At the same time, though, they talk about retrenchment--the apparent contradiction testimony to the uncertainty about whether investment sources and car buyers are ready for an authentic industry that mass-produces rebuilt cars.
AIR Automotive’s finished products--which feels about the same as a new vehicle of the same make to a Times reporter who drove two Volvos and a BMW redone by the company--is sold with a 12-month/12,000-mile guarantee.
Except for the fact that its body style betrayed the model, the 1973 BMW 2002 (to which the reporter subjected the toughest test drive) could have been taken for the latest thing on the road. It lacks more than just the new-car smell, but the remanufactured vehicle is nearly the equivalent of the same model new. A big difference is that a remanufactured 10-year-old vehicle is still not the engineering equivalent of one built new today. There could be a lively debate over whether that is good or bad.
Prices for remanufactured products average 60% to 70% of the equivalent new models. Rebuilt BMW 2002s in general, for instance, can be driven away from here for between $10,000 and $12,000. More exotic BMWs cost as much as $20,000. A Volvo 244 or 242 can go out the door for $7,000 to $10,000.
Two Reasons
The premise that remanufacturing is an idea whose time should have come is based on two arguments, according to David Leggett, president and one of the originators of AIR Automotive and Robert Lund, a professor at the Boston University Center for Technology and Policy, who is perhaps the nation’s only impartial expert in the field.
The first contention is that in terms of energy and resource conservation, it no longer makes sense--hasn’t made sense in years, according to Lund--to continue consuming raw materials and energy resources by replacing old cars with completely new vehicles. “There is a need for a conservation ethic, or at least a conservation consciousness, in the country,” Lund said.
The second justification for remanufacturing strikes closer to the consumer’s pocketbook, Lund and Leggett agreed. As anyone who has shopped for a new car in the last year or two has learned, if a buyer cannot afford a minimum of $10,000 for an auto, there is--practically speaking--very little available.
Like the elusive American dream of home ownership, Leggett and Lund agree, more buyers are finding it economically impractical to buy a car new. Compounding this problem, they say, is an apparently growing consumer perception that the manufacturing quality of the automotive product--leaving aside the level of engineering--delivered for the new-car dollar is not equal to what can be had in the purchase of a thoroughly restored older model.
Because makers of new vehicles--import and domestic--have priced themselves beyond the means of many customers, so this line of reasoning goes, remanufacturing on a truly large scale may represent the best option for someone who wants a car that runs and looks as well as a new model, but costs two-thirds as much.
The concept of remanufacturing is not new. Rebuilt car parts--from whole engines and transmissions to water and oil pumps--already play a major role in auto repairs. And in the truck, bus, railroad locomotive and airplane businesses, remanufacturing of the whole vehicle at one time has long been a major industry component. Some makers of new trucks and buses, Lund said, operate their own remanufacturing divisions, selling rebuilt vehicles as well as new models.
And so, remanufacturing’s advocates reason, why not whole cars , too?
Here in Allentown, as in North Hollywood and Missoula, Mont., the few pioneers of auto remanufacturing are posing that same question. And, to a company, they also find themselves asking that, if this is a concept whose time has come, where are the masses of customers and large-scale infusions of investment money that will be necessary to transform the business from a cottage to a smokestack industry?
While customers have been eager to buy each company’s products, all three concede that true mass volume--which would permit them to purchase replacement parts in large quantities and possibly lower the per-unit cost of remanufactured cars--has not appeared.
Both Leggett of AIR Automotive and Peter Seabury, president and founder of Golden Beetle, a Missoula company that remakes rear-engine Volkswagens, said that if business volume does not grow in the next six months to a year, there is a chance that these budding bastions of a new industrial phenomenon may fall by the wayside or face retrenchment. It isn’t because remanufacturing cars doesn’t make good sense, both men said, but because they have been unable to convince the investment bankers that high-volume remanufacturing of cars has a place on the American scene in the foreseeable future.
“Today, nobody (in the wider business world) is talking about it,” said Leggett of the energy and conservation issues that are the two major societal advantages to remanufacturing. “But there will come a time, and we can wait forever.”
Leggett said that AIR Automotive can probably continue operations indefinitely without large increases in volume, though the premise on which the company was founded will remain untested.
The North Hollywood firm, MIK Automotive, rebuilds Honda 600 cars for use as commuter vehicles. It is neither licensed as an official remanufacturer nor set up to be able to consider itself a member of the fraternity. MIK turns out 50 to 75 remanufactured Hondas a year versus the 400 a year claimed by Golden Beetle and 300 to 350 annually at AIR Automotive.
MIK gets about $3,000 each for its finished Honda 600, a product sold almost exclusively in Southern California and suitable only for use as an economy commuter vehicle. Golden Beetle charges $4,450 to $4,950 for remanufactured VW Beetles and as much as $7,950 for a remade VW camper van.
The three firms do business a little differently. AIR Automotive seldom remanufactures cars strictly on speculation--preferring to wait for a firm order. Most of the time, the company remanufacturers vehicles brought in by their owners. Seldom does the firm buy old BMWs and Volvos. Leggett said that isn’t because the speculative cars would not sell, but because the company cannot afford the inventory.
Golden Beetle actively buys VW products in Montana, Idaho, Minnesota and Wyoming--paying an average of about $650 for a car that may be in abysmal condition but whose chassis and motor are salvageable, Seabury said. The company adds about 100 hours of labor, $1,200 in body and cosmetic parts and $950 in mechanical parts.
All Foreign Models
For the moment, none of the remanufacturers handles any American makes--because, they said, most American cars are not made well enough to sustain vigorous remanufacture. Leggett, however, said that some American nameplates eventually may be added to the AIR operation, if the dream of true mass production is ever realized.
Top American contenders under consideration now, he said, are the Checker (a heavy-duty car built primarily as a taxicab by a company that went bankrupt in 1982), the K-model cars still being made by the Chrysler Corp. (Leggett said K-cars may work out because Chrysler has done an adequate rust-proofing job on the body shells) and original Ford Mustangs built in the 1960s--primarily because of their rising value as classics.
In theory, Leggett said, any car can probably be remanufactured, though many models are so poorly built that profit margins would be unacceptably thin for rebuilders. “We wouldn’t do it on a Vega,” he quipped, referring to a 1970s-era Chevrolet that became a symbol of poor quality among American vehicles.
Leggett said that when he and Peter Fuller--his key partner among the nine owners of AIR Automotive--started talking about founding their company, their hopes and aspirations were based on ecological frustration. It began for Leggett, a 29-year-old Florida State University dropout, when he was working 10 years ago in a junkyard as a car dismantler.
It bothered him, he said, that engine blocks, body shells and high-quality castings and stampings that generally do not wear out were being tossed into the crusher to be melted down. Automotive experts agree that, except under unusual circumstances, many of the core components of a car have an essentially unlimited service life if they are properly maintained. Pistons and exhaust valves may wear out, for instance, but the engine block and cylinder head in the average motor will last almost indefinitely.
It seemed, Leggett said, irresponsible to waste the energy, engineering work and materials that had produced the basic car components. In 1978, when Leggett and Fuller met, they decided to fill a void in the auto market they were convinced that, from both environmental and consumer standpoints, had to exist. “I was operating in a vacuum,” he said.
“I was thinking of it as a sophisticated used-car shop. As time went on, I realized that no one in the automotive world was doing it in a structured way.”
The environmental issues of auto remanufacturing unfortunately have emerged at a time when attention of the country is directed elsewhere, Lund said. If auto remanufacturing had been as sophisticated during the oil emergencies of 1973 and 1979 as it is now, Lund said, things might have turned out differently and remanufacturing might already be a major force on the automotive scene.
But with the price of oil dropping on the international market and American car makers asking for and getting government waivers of gas-mileage standards, conservation has faded again into the background of national consciousness.
Less Energy Used
Lund said research he has done for the U.S. Department of Energy and the World Bank concludes that remanufacturing requires about 20% of the energy that is consumed in making new products.
“And you save something on the order of 85% to 90% of the raw materials that went into the automobile the first time around,” he said. In addition, Lund said, remanufactured cars may be ideal economic vehicles for Allentown and other towns in the Northeast that have seen traditional smokestack industries fail increasingly in the last few years. But AIR, which has about 50 workers, is so far unable to prove the point that significant employment could result from true mass production.
While Lund filed seven reports with the Energy Department, a spokesman said the agency has no research under way on auto remanufacturing and noted that the current administration of the department is unfamiliar with the work done for it by Lund.
How new-car makers will take to a significantly sized remanufacturing industry remains to be seen. Leggett said BMW and Volvo’s North American importers have been generally cooperative with AIR. Spokesmen for both firms said their companies are intensely interested in what AIR Automotive is doing, though neither is likely to grant the company factory-authorized remanufacturer status.
A Volvo spokesman said the Swedish auto maker believes the emphasis on its products by AIR has promotional value as testimony to the durability of Volvos, but at the same time the company refused to allow an interview with the corporate vice president who has followed AIR and remanufacturing most closely. BMW said through a spokesman that it does not perceive AIR or remanufacturing in general ever becoming a threat to new-car sales, primarily because the design and engineering of today’s BMWs is, the company claimed, significantly better than that of the 2002 models that were discontinued in the mid-1970s that AIR remanufactures. Volvo and BMW said they expect peaceful coexistence and harmonious relations with the Allentown company.
But at MIK Automotive, Keefurt recently received a letter from Honda officials threatening to take legal action against his company for advertising the Honda name. A Honda attorney said the matter is under review. He would not say what, if any, legal action Honda may take against MIK.
All three car remanufacturers realize they could be seriously harmed if the companies whose cars they rebuild tried to cut off their access to parts. MIK has to buy its parts directly from Japan because American Honda refuses to import them. Golden Beetle uses many parts made as replacements for original equipment by “aftermarket” companies. Volkswagen of America, VW’s importer, said through a spokesman it was unaware of Golden Beetle’s existence and had no opinion on remanufacturing of its cars or anyone else’s.
In Detroit, a spokesman for the Motor Vehicle Manufacturers Assn., a trade group of domestic auto makers, discounted the mass-market potential of remanufacturing. The spokesman said he did not believe any American car company would be interested in getting into the remanufacturing business and said the association would remain committed to the concept of saturating the market with newly made vehicles.
AIR buys mostly factory parts--but its volume requires that it make the purchases from new-car dealers at higher rates than dealers pay at factory parts depots.
The goal of becoming a factory-authorized remanufacturer for either Volvo or BMW has so far proven elusive, Leggett said.
All three firms said truly high volume could permit them to strike their own parts deals directly with manufacturers that supply the original equipment. They could make their own components and rectify design problems that crop up in new equipment.
Keefurt noted that two modifications MIK Automotive makes to the camshaft performance of the Honda engine significantly increases intervals between overhauls.
If remanufacturing started to challenge the new-car industry for sales, however, the cordial relationships like those enjoyed by AIR could easily change, Leggett said. He said that Volvo and BMW normally sell all of the cars they bring into the United States and seldom have had to resort to sales and discounting.
AIR started in Belvidere, N.J., about 25 miles from here, six years ago. Fuller and Leggett moved to Allentown seven months ago, hoping that by taking over the old Chevy dealership, they could take a crack at development of the mass-production concept.
AIR, though, has discovered two obstacles that still stand in not only the company’s way but in the path of the budding industry. The first is a problem of public perception. Despite the fact that a remanufactured car runs almost as well as a new model, it is still a used car. There is no getting around that, Leggett said, noting that the high mileage registered on the speedometers of the cars AIR sells is something in which the company takes a great deal of pride.
But because remanufactured cars are still in some respects used cars called by another name, building public trust in the remanufacturing industry has been hampered by the loathsome reputation of used-car sellers in general.
Banks sometimes have been initially reluctant to finance remanufactured cars, said Leggett and MIK’s Mike Keefurt, because the cars carry price tags significantly above the normal value of comparable vintage used cars. They generally do not qualify for preferential new-car financing rates. Keefurt has found it essentially impossible for his customers to get bank financing for the rebuilt Hondas MIK turns out because the model was discontinued several years ago by Honda and did not have a good reputation for durability even when it was being sold new.
Keefurt’s customers, he said, often spread the cost of a rebuilt Honda between two credit cards. MIK probably represents the only car dealer in Southern California for whom the major financing sources are MasterCard and VISA, he joked.
Even in their facility here, Leggett and Fuller said they cannot develop the factory operation they say will be necessary to keep remanufactured cars cost-competitive with new vehicles. AIR and Golden Beetle both said that remanufactured cars must be able to hold to 60% or less of the price of a new vehicle or buyers will conclude that the remanufactured car isn’t worth the price. Leggett said the market has turned out to be very price sensitive and that a remanufactured car selling for, say, 58% of the new-car price moves quickly while one retailing for 65% may sit unsold for months.
In recent months, AIR has acquired American distribution rights to the OScar, a fiberglass-bodied Danish sports car with Volvo running gear that retails from $20,000 to $29,000. Leggett said that if no investment capital source turns up soon, AIR may shift much of its energy to distributing the peppy little sports car.
Golden Beetle’s Seabury said his firm may have to institute a significant price increase if volume cannot be built up because the cost of parts means profit margins are too slim. Leggett said AIR faces the same problem. A single major warranty repair can easily destroy AIR’s profit margin on a single car, he said.
AIR is able to select its customers carefully. “We are able to pick out the jerks and we send them down the road,” Leggett said. Customer relations are good, he said, even with the man whose finished BMW was being road tested by an AIR mechanic who totalled it in a collision. AIR remanufactured it again at no charge.
If AIR Automotive, Golden Beetle and other companies that may come into the auto remanufacturing industry can wait long enough, Lund said he is certain their patience will be rewarded. But Lund said patience will continue to be a necessary quality for anyone in the business.
He said he does not believe remanufacturing cars will be a mass-market concept in the next five to 10 years, though it probably will be by the end of the century. “The first thing that must be achieved is growing public acceptance of the concept, and that involves perceptions of value and what you get for your money,” Lund said.
