Remanufacturing Global Outlook · Light-Duty Reman Market Size (Manufacturer-level) China and Brazil will account for nearly 15% of global remanufactured components revenue by 2022

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Remanufacturers Association

6th China Remanufacturing Summit

Joe Kripli – APRA President & Vice

President of Remanufacturing for

Instrument Sales and Service, Inc.

Remanufacturing Global Outlook

100+ employees serving our

customers

120K square feet of

Remanufacturing,

Manufacturing and Logistics

Founded 1949

5,600 active customers

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APRA

• Founded in 1941. The scarcity of automotive & truck parts during World War II helped the industry grow.

• Today APRA consists of over 1,000 companies worldwide.

• We are the only association that represents the world wide remanufacturing industry.

• Our Website is: www.apra.org

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What is Remanufacturing?

• Remanufacturing is the process used to

restore a component or part into “good as

new” condition – to meet or exceed OE

performance standards – through

disassembly, cleaning, reassembly and

testing to ensure a product of the highest

quality level.

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Rigorous Remanufacturing Process

Powered by Six Sigma Lean

Processes

Certified ISO TS 16949:2009

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Compare the Parts

USED

PARTS

REPAIRED

PARTS

NEW

PARTS

REMANUFACTURED

PARTS

Complete disassembly

and reassemblyNO NO Not Applicable YES

All components either

new, remanufactured

or qualified

NO NO YES YES

High availability NO Not Applicable YES YES

100% final test NO Partly True YES YES

No safety risks NO Partly True YES YES

Environmental friendly YES YES NO YES

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IT IS ALL ABOUT THE CORE

CustomerDistribution Center

Transportation

Sorting and Scraping Plant

Goods flow

SortingprocessRemanufacturing

Core

REMANproduct

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Global Reverse Logistics

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New Frost & Sullivan

Remanufacturing Marketing Study

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Top Five Predictions for RemanufacturingMarket demand for light duty applications alone is expected to grow to $50 B by 2022 at 6.6% CAGR

1 United States to continue to dominate the global remanufactured aftermarket

Source: Frost & Sullivan

2 Asia-Pacific region is forecast to grow faster than other parts of the world

3 China, Brazil will be most attractive countries for remanufacturing demand

4 Mexico, Eastern Europe emerging as low-cost reman hubs for North America, Europe

5 Bosch, BorgWarner, Delphi show the strongest potential in light duty remanufacturing

Notes: IAM = independent aftermarket, U.S = United States

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Regional Attractiveness for RemanufacturingNorth America and Western Europe are still the most attractive markets for remanufacturing because of their maturity, while a

continuing preference for rebuilding and the threat of counterfeiting continues to hold the industry back in emerging countries.

Regional Attractiveness

(Ranked on a scale of 1 to 10 where 10 is highest)

VIO growth 4 3 9 6

Average vehicle age growth 8 7 5 6

Degree of Market Maturity 2 6 10 9

Acceptance of Remanufactured Parts 4 8 9 8

Revenue growth 4 6 9 7

Ease of doing business 10 10 5 3

Presence of global remanufacturers 10 6 2 3

Core availability and logistics 9 7 5 4

Preference for rebuilt or repaired components 8 6 2 2

Impact of Counterfeiting & Grey Market 7 6 2 2

TOTAL Ranked Score (100) 66 65 58 50

Remanufactured Automotive Aftermarket: Regional Attractiveness, Global, 2015-2022

Note: Comparative Ranking on a scale of 1 to 10. Source: Frost & Sullivan AnalysisKey High Low

1 2 3 4

12

Light-Duty Reman Market Size (Manufacturer-level)China and Brazil will account for nearly 15% of global remanufactured components revenue by 2022.

Remanufactured Automotive Aftermarket: Reman Market Size by Region, Global, 2015 and 2022

Note: The base year is 2015. Source: Frost & Sullivan

Remanufactured Automotive Aftermarket: Reman Market Share by Region, Global, 2015 and 2022

2015 2022

RegionTotal AM CAGR

RemanCAGR

Global 4.9% 6.6%

NA 2.5% 3.7%

W Eu 2.2% 8.0%

E Eu 2.5% 8.6%

S America 5.1% 12.3%

China 14.7% 15.0%

ROW 4% 6.3%

Note: CAGR = compound annual growth rate

Note:

NA = North America (US+Canada+Mexico)

SA = South America (Brazil,+Argentina+Others)

ROW = rest of world (Rest of Asia-Pacific+Africa)

2015 2022CAGR

(2015-22)

Global Market Size

$32B $50 B 6.6%

Remanufactured parts growth to total aftermarket parts growth ratio will be highest in Europe and South America

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Remanufactured Automotive Aftermarket: Growth DriversRising vehicle population, continued economic growth, consistent price difference, and improved consumer awareness

are the biggest drivers for the remanufacturing industry.

Impact

HighLow Certainty

Strong growth in global

VIO primarily driven by

Apac region .

Increasing number of global

remanufacturers setting up

facilities in China and Brazil

demonstrates high growth

potential in these countries

Consistent price spread of 30 to

35% between new and reman and

supported by a competitive

warranty favors reman

No trade restrictions within North

America and Schengen zone in

Europe favors core logistics

benefitting reman in NA and EU

Remanufactured Automotive Aftermarket: Growth Drivers, Global, 2015

High

Low

Apac avg. vehicle age is 3.4

years in 2015 which is

expected to increase to 5

years by 2022 The growing 7+ year-

older vehicle population in

NA and EU will favour

remanufacturing


Improving awareness on value

proposition of reman parts

The Federal Vehicle

Repair Cost Savings Act

of 2015 to favor

reman in the U.S

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Region Trade Laws Core Logistics Business Barriers

No trade restrictions Lower core logistics barriers

Market understands value proposition of

remanufacturers, and so is widely accepted.

Intense competition in market

No legislative barriers within the Euro

Union (Schengen zone)

No core procurement, management,

or logistics issues

Competition is generally intense, but regional

and country specific.

Legislations prohibit export of used

parts or cores

Once remanufactured parts are sold

into Russia, cores are not returned

due to the lack of collection

programs.

Currently, no global remanufacturer has a

remanufacturing base in Russia; no major

plans known

Strict government mandate prohibits

the import of remanufactured parts and

export of cores or used parts.

Core logistics is not a problem, but

there is a need to educate the

aftermarket on proper core

management practices

Legislation discourages global remanufacturers

from setting up factories.

Legislations prohibit import of

remanufactured parts and/or cores into

China; remanufactured parts cannot be

used for warranty replacements

Core logistics awareness remains low Difficult to do business without a local partner

Legislations prohibit the import of

cores or used parts into Brazil

The aftermarket does not understand

the core procurement process

Global remanufacturers are setting up

operations because the country is migrating

away from repair/rebuild components to

higher-quality remanufactured parts

Global Legislative Landscape and

Ease of RemanufacturingMovement of cores remains a challenge in countries such as Brazil and China

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The cause for Mechatronic Evolution in light

duty truck and passenger car market

Government regulation

– Tighter emission standards

– Increased safety

requirements

– Increased CAFE fuel

economy standards

– Recycling Requirements

TECHNOLOGY EXPLOSION - Traditional mechanical systems are being

replaced by electronic and mechatronic systems

Technology Impact– Increased number of electronic

modules (ECM, BCM, TCM, Safety, Security, etc.)

– Increased engine performance (direct Injection, turbocharging, hybrids)

– Driver convenience products increases(bluetooth, navigation, web-enabled, video)

– Complicated system integration (CAN network)

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Technology Impact on the Industry?

• New diagnostic & training requirements at the repair level– System integration of multiple electronic products

– CAN-BUS communication

• Flashing/Software update requirements

• Life cycle production concerns– Past model electronic component shortages

– Life time buy requirements (how do you know how many you need?)

• Core handling changes – Cannot damage connector or case

– Cannot damage electronic components

– Electro-Static Discharge (ESD) concerns

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Effects of ADAS

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Global Remanufacturing FootprintCurrently, China and Brazil have only 15% of the global remanufacturer’s plants which is forecast to increase in future


Note: Manufacturing locations share based on reman footprint of top 20 global suppliers

Future expansion in reman footprint

CHINA

Volvo, Mercedes, General

Motors expected to set up

reman plants by

2017-18

BRAZIL

Delphi purchased a reman

facility and will launch

first phase of reman

products in 2016

EASTERN

EUROPE

Remanufacturers

increasingly shifting reman

base from west to east

Europe e.g. Bosch &

Remy operating in

Hungary, Valeo in Poland,

Knorr-Bremse & Meritor

in Czech Rep

MEXICO

Will continue to remain the

preferred production hub

for U.S remanufacturers

24%

9%

24%

37%

6%

% Share of Global Remanufacturing Locations, 2015

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REMANUFACTURING HOTSPOTS

Future Hotspots For Remanufacturing

Next 9 Markets

Eastern Europe

Mexico

Middle East (Egypt)

North Africa

Pakistan

Philippines

South America

Turkey

Vietnam

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Market Attractiveness - ChinaIncreasing opportunities for remanufacturing makes China the most preferred reman destination in future

• Avg. vehicle age is 3.4 years

• Reman quality not at par with US or EU

• Top 3 categories that are remanufactured: engines,

transmissions, starters & alternators

• Import of reman parts and/or cores is not permissible

• Usage of reman parts for warranty replacements not

permissible

• Certain provinces only allows JVs with local cos

• Govt. is in process of relaxing import policies

• Setting up reman factories across China will be made

easier by government


Reman Market (2016) Reman Market (2022)

More repair centric market and dominated by

regional remanufacturers/ rebuilders

Increase in reman acceptance with entry of

more global remanufacturers

Demand Factors (2016) Demand Factors (2022)

• Avg. vehicle age reaching 5 years

• Reman quality will significantly improve with more

global remanufacturers setting up reman base

• Strong environmental concerns

Legislative Factors (2016)

• Currently, Cummins, CAT, Bosch, BorgWarner(Remy),

Delphi, and WABCO Reman are the among the few global

suppliers who have reman presence in China

• It is expected that Volvo and Mercedes-Benz will start

reman operations in the near future

• GM is in process of setting up a reman operation

through JV

Global Supplier Presence (2016) Global Supplier Presence (2016)

Legislative Factors (2022)

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Comparative Benchmarking of Key RemanufacturersBosch and BorgWarner (post Remy acquisition) appear to be the most competitive remanufacturers globally because of their strong regional,

application and channel coverage.

CARDONE Bosch Delphi BorgWarner ValeoBBB

IndustriesMeritor Cummins

Region

CoverageNA

NA, EU,

China,

Brazil

NA, EU,

China,

Brazil

NA, EU,

China, BrazilNA, EU

NA, SA,

ME,

Australia

NA, EUNA, EU,

China, Brazil

Vehicle App

Coverage

Light /

Medium

Light /

Medium /

Heavy

Light /

Medium /

Heavy

Light /

Medium /

Heavy

Light /

Medium /

Heavy

Light /

Medium /

Heavy

Medium /

Heavy

Medium /

Heavy

No of Reman

locations2 15 17 10 5 3 4 4

Reman product

line coverage~40 ~ 30 ~ 15 ~6 ~ 12 8 ~ 20 5

Core

Management

Practices

Offers

Customized

programs

Offers

Customized

programs

Company or

Customer

owned

programs

Standard for all

customers

Company or

Customer owned

programs

Offers

Customized

programs

Standard

Program

Offers

Customized

programs

Competitive

Advantage

Huge

category

coverage

OE brand

image

OE brand

image

Strong IAM

base

OE brand

image

Huge WD

base

OE brand

image

OE brand

image

Remanufactured Automotive Aftermarket: Comparative Benchmarking of Key Remanufacturers, Global, 2015

Source: Frost & SullivanNote: NA = North America, SA = South America, EU = Europe, ME = Middle-East

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Key Conclusions and Future Outlook

• Global manufacturer-level

reman revenue is estimated at

$31.7 billion in 2015.

• Europe is the only mature

region expected to offer growth

for remanufacturers (8.1%).

• Turbochargers, electronics,

ECUs, Rack & Pinion

Steering Gears and Steering

Pumps are the parts with the

highest growth potential,

particularly in the US market

• Repair / rebuild: Installers in

China are four times more

likely to repair or rebuild a

component than to purchase a

remanufactured replacement

part, but this is changing as

customer awareness grows

• In addition to Mexico and

Eastern Europe, North Africa

could emerge as a production

region

• The key challenges include

reman of technologically

advanced electronic controls,

the threat of low-cost new

parts and used parts with

competitive warranties

• Trade restrictions on

remanufacturers in China,

Brazil, Russia, and Turkey

pose significant business

barriers

Remanufactured Automotive Aftermarket Outlook: Key Conclusions and Future Outlook, Global, 2015-2022

Growth Challenges Part Categories New Trends

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Remanufacturing Value Proposition

LIFE CYCLE SERVICE SOLUTION

Maintain a cost effective supply of service parts

MAINTAIN COMPETITIVE POSITION

Protect against new market entries

WARRANTY COST REDUCTION OPPORTUNITY

Utilize Reman Product for warranty replacement

IMPROVE END OF LIFE MANAGEMENT

Reduce capital locked up in long term inventory holding

PROTECT THE ENVIRONMENT

Support sustainability with the ultimate ‘recycling’ option - “GREEN”

Before - After

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Thank you. APRA looks forward to

working with you.

Documents

Remanufacturing Global Outlook · Light-Duty Reman Market Size (Manufacturer-level) China and Brazil will account for nearly 15% of global remanufactured components revenue by 2022