Remanufacturers of those products cannot recover their high production costs despite an increase in their prices. Recently, prices have assumed greater significance with an escalation in commoditization and threat from low-priced offshore products.

New analysis from Frost & Sullivan, "The Changing Face of the North American Automotive Remanufacturing Industry," finds that the market will generate significant revenue growth with the proliferation of products, continued demand for remanufactured engine control units and rack-and-pinion steering gears, rising popularity of higher-priced technologically advanced products such as electric power steering (EPS) rack and pinion steering gears, and the rising popularity of higher-priced diesel engines and automatic transmissions.

Aftermarket participants may get a respite from the challenge posed by offshore products due to continued inconsistencies in metallurgical and heat treatments that cause the parts to fail prematurely.  Moreover, the longer delivery time for foreign parts and the technological improvement of domestic products will most likely curb the threat from foreign products, the Frost & Sullivan report said.

Despite the failing of offshore products, domestic participants cannot rest easy as end users will most likely gravitate toward the original equipment service channel due to the lack of qualified technicians in the independent aftermarket, the report said. 
To stay afloat in such a challenging market, remanufacturers need to identify and meet market demand by competitively pricing the most needed stock keeping units (SKUs) and selling them in smaller batches, the report said.

Remanufacturers may also increase their revenues by better differentiating their products from new parts in their marketing efforts, Frost & Sullivan said.  For instance, remanufacturers could leverage their wide range of products, broader application coverage, and the environmental benefits of the recycled parts.

Competitively priced, durable and reliable parts for older- and later-model vehicles have helped remanufacturers cement their position in product categories such as engine control units (ECUs) and rack-and-pinion steering gears.  Future technological advancements will enable aftermarket participants to increase their market presence in additional product categories, the report said.

"Due to the rising influence of mechatronics, remanufacturers are investing heavily in R&D to deliver products on time while also identifying the parts and technologies that will drive future growth," said Frost & Sullivan Industry Manager Avijit Ghosh.

Remanufacturers must also begin building electric power steering (EPS) rack and pinions, as their installation rates have increased in newer vehicle models, Ghosh said.  However, hydraulic power steering (HPS) rack and pinions will continue to account for the majority of aftermarket sales, he noted.

Meanwhile, the aftermarket for diesel engines will most likely outpace the gasoline engine aftermarket, Ghosh said.  The North American diesel engine market has considerable room for growth given that only 2 to 3 percent of the region's vehicles came equipped with diesel engines in 2006.  This opportunity to increase the diesel vehicle population will generate replacement opportunities in North America, he said.

"Remanufactured ECUs will continue to dominate replacement demand in the aftermarket due to the large price difference between new and remanufactured ECUs," Ghosh said.  "Remanufactured ECUs are priced in the $40 to $150 range, while new ECUs may cost $600 to $800."

The remanufactured market will most likely phase out manual transmissions due to the growing dominance of automatic transmissions at the OE level, Ghosh said.  This trend will drive demand for remanufactured automatic transmissions in the aftermarket.

During the next five to seven years, remanufactured starters and alternators will become prominent aftermarket products due to their lower price point and competitive warranties, he said.