When disposable income is low, consumers repair vehicles instead of buying new ones
Los Angeles, CA (PRWEB) May 23, 2012
The Engine Rebuilding and Remanufacturing industry operates countercyclical to the economy as a whole. When consumer spending is strong, demand tends to fall because motorists will be more likely to replace worn out vehicles rather than extend their useful life through rebuilding and remanufacturing (R&R) services. Alternatively, when consumer spending is weak, R&R demand generally increases because such services constitute a cheaper alternative to outright vehicle replacement. This latter condition is expected to benefit the industry at an annualized rate of 4.8% during the five years to 2012. Engine R&R firms are largely small, independent ventures operating as stand-alone enterprises or as part of a larger automotive services garage. According to IBISWorld industry analyst Josh McBee, “The flexibility of existing mechanics to add or remove R&R services to their offerings makes the industry relatively porous, so key characteristics tend to move in line with overall demand more drastically than other industries that enjoy more consistent levels of demand.” In general, per capita disposable income, the average age of the vehicle fleet and gas prices help determine demand for R&R work. Most recently, rising disposable income from recessionary lows is expected to decrease the age of the vehicle fleet, as consumers return to buying new cars. As such, revenue from R&R is expected to fall 6.2% in 2012, eventually settling at an estimated $2.2 billion.
Revenue declines are forecast to continue for this mature industry. As revenue falls, profit will remain hindered by persistently high steel prices, which raise operating costs through higher prices paid for parts, tools, machinery and raw inputs. "Without trade to bolster sales, operators will rely on improved operational efficiencies to salvage their profit in the wake of falling demand from downstream markets consisting of consumers, businesses and the government," says McBee. As such, IBISWorld forecasts Engine Rebuilding and Remanufacturing industry revenue to fall during the five years through 2017.
The industry exhibits a low degree of market share concentration. Concentration is expected to decrease during the five years to 2012 as new firms enter the industry in light of high demand for R&R services. The Great Recession limited consumer spending, while high gas prices at the same time pressured vehicle owners seeking to replace inefficient cars with newer ones. For some, R&R services provided a viable way to prolong the useful life of their vehicle without spending as much as the cost of a brand new or used replacement. Market share concentration is expected to increase somewhat, as recent entries into the industry will likely exit in light of lowered demand in the wake of falling unemployment and renewed spending activities. For more information, visit IBISWorld’s Engine Rebuilding and Remanufacturing in the US industry report page.
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IBISWorld industry Report Key Topics
Companies in this industry primarily rebuild and remanufacture automotive engines and engine parts for motor vehicles. Remanufacturing is the process of returning a used, worn out engine to as close to new as possible, whereas rebuilding generally describes a process that makes greater use of serviceable parts rather than new ones. Recycling, repairs and restorations are excluded from the industry.
Key External Drivers
Industry Life Cycle
Products & Markets
Products & Services
Globalization & Trade
Market Share Concentration
Key Success Factors
Cost Structure Benchmarks
Barriers to Entry
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