Building Momentum

Nov 17, 2010

Like a big-block gaining rpms, engine builders are entering the winter months hoping business continues to establish momentum.

Varied responses regarding the state of the market show that, while things are not necessarily great all over, there is reason for optimism. The good news, as always, is that racers continue to race, and so builders need to continue to build.

Engine building product suppliers say the pulse of the market is strong heading into the race-related trade show season, and note that parts availability will be among the main factors driving the industry into 2011.

Other areas they encourage builders to watch include an influx of lower-quality parts from overseas, the importance  of maintaining proper stocking levels, and the need to connect with customers and establish long-term business relationships.

Mixed Bag for 2010

So, having entered the year 12 months ago with an air of uncertainty, which areas of the performance market were strongest for builders in 2010?

“The lower-priced part of the market was strongest for us,” says Don Weber, president of Engine Pro – Engine Parts Group Inc., Wheat Ridge, Colo. “This includes grassroots racing and less-expensive ‘value-oriented’ engine building of muscle cars, truck restoration and marine engine building.”

Jack McInnis of Dart Machinery, Troy, Mich., saw much the same.

“Whether it’s dirt track, drag racing, off road, etc., it seems like the professional-level racers have continued to be a strong sector in the market,” he says. “Also, the entry-level type of builds appears to have remained quite strong. It seems like the mid-range of the market is where the economy has had the greatest impact over the past couple of years.”

Trip Manley, vice president, Manley Performance Products Inc., Lakewood, N.J., also noticed different levels of involvement.

“Thus far, 2010 has been a very interesting year,” he says. “I’ve witnessed some customers really struggle, while others have managed to stay incredibly busy-”both in the drag race and oval track markets. The late-model engines from the Big 3 have been a wonderful shot in the arm and given aftermarket engine builders terrific platforms to develop for their customers.”

Joey Moriarty, president, Total Seal Piston Ring, also agrees.

“We serve many different customers, from street rods to professional racers in many separate series. It’s hard to say which area is the strongest, as we have all been hit to some degree by the economy. If I were to put my finger on one thing, it would be that segment of the market that is looking for quality products.”

Trey McFarland, sales/marketing manager for MAHLE Motorsports, Fletcher, N.C., also believes the new breed of muscle cars has helped the industry.

“The GM LS/LSX has shown some of the strongest growth among the domestic applications,” he says. “There are a number of versions of the LS engine with five different bore sizes and in most cases the cylinder heads being swapped around makes for an exponential number of combinations. Making big power with any of the LS combinations is relatively easy, which makes them a top choice for everything from street performance to marine.”

He has also seen a spark from diesel performance, as well as some of the smaller cars.

“The sport compact market continues to show strong interest,” he adds “This customer base is made up of younger, more impressionable individuals with a larger percentage of disposable income that are more interested in new, leading-edge technologies.”

Ted Hughes, team leader – program development for MAHLE Clevite Inc., Ann Arbor, Mich., notes that overall, internal engine work appears to be up.

“Head work has been very big with a lot of our customers, (as well as) valves and head gaskets with variable bore sizes and thicknesses-and, of course, Clevite engine bearings are still very strong, too,” he says. “We have seen growth in all segments of engine internals.  In our market, building engines for performance has gotten more common.  With the increased availability of parts, the price and complexity of a high-performance engine build has come down.”

Crane Cams wasn’t sure what this year would bring after the company shut down for several months in 2009 to restructure. Now looking back, Chase Knight, product manager for the Daytona Beach, Fla.-based company, says Crane was pleasantly surprised with 2010.

“Street performance was fair. Drag racing was very good. Oval track was very good. Tractor pulls were very good. Marine was decent. Muscle cars and restoration was good,” he says.

Up to the Challenge

Building on that optimism, Knight notes that parts availability could be a main challenge for engine builders this season.

“Overall, I think the biggest challenge will be supply,” he says. “Raw materials are more difficult to come by, and shelf time is at a minimum. You used to be able to order a crank and get it in a week-”now it may take a month. The basic supply chain will be the biggest challenge of all.”

Hughes agrees.

“Parts availability from all manufacturers is one challenge for builders,” he says. “Another thing is whether or not grassroots racers can continue to afford it in this economy. Traditionally they have been, but for how long?  Like most segments, expendable income remains a large factor.”

Yes, despite some experts proclaiming the Great Recession over, it appears the economy is still directly affecting at least parts of the performance market.

“As it has been for the past two years, the weak economy has caused cutbacks at all levels of racing,” Weber notes. “That means less building of engines for street vehicles, off-road vehicles and marine.”

A result of that, McFarland explains, is more “freshening up” and fewer total rebuilds. And the time between “refreshs” is lengthening, meaning builders need to offer engines that last more than ever.

“For race engine builders, building race engines capable of extended freshen-up intervals while maintaining or increasing power output is a main challenge,” he says. “In some cases this need is due to sanctioning body rules, but the economy is also a large driving force. Many racers are stretching the number of laps/miles between freshen-ups due to funding. Durability has always been a key design factor for MAHLE and recently many builders have moved durability up on their priority list.”

With the strains of the economy, also high on the priority list is meeting the exact needs of increasingly educated customers.

“I think it is more important than ever to develop the relationships with your customers,” says McInnis. “Providing products and services that exceed the customer’s expectations not only keep that customer coming back, but ensure that he will recommend your business to his friends as well.”

Moriarty notes the importance of top-notch service as well.

“The challenge is supplying customers with the parts, reliability and performance they demand, at a price that the builder can make some money on, but also competitive enough so that they entice the customer to work with him. That is always the battle, I guess, but in this economy, everything is a little tighter.  We all have to work hard to find that competitive edge.”

So it looks like shops need to continue to operate at their highest level.

“We work with engine builders every single day. And while I can’t really speak for them, I do know they all need to be on top of their game; just like we do,” Manley says. “We live in an extremely competitive world today.”

X-Factors

While a shop owner can control the inner-workings of his organization, there are often outside factors than can have an effect on everyday production and the bottom line as well. So, what are some of the X-factors-”positive and negative-”affecting engine builders today?

Dart’s McInnis believes parts quality is one.

“I think the influx of cheap, low-quality imported parts is hurting the market to some degree. Builders who try to lower their prices in this way ultimately end up with very disappointed customers who don’t come back, or even give up on the hobby altogether when the engine they invested their money in goes bad,” he explains. “On the other hand, the parts from reputable manufacturers keep getting better and better. The power levels and reliability that can be achieved today with good aftermarket components is truly remarkable.”

Crane Cam’s Knight echoes those comments.

“There are a lot of performance engine parts popping up these days that aren’t the greatest quality-but they are low-priced!” he says. “They might meet the immediate demands of finding a bargain, but they don’t last or they need to be machined-so they aren’t necessarily the bargain that people think.”

Total Seal’s Moriarty also notes the competition from crate engine programs.

“Outside of the economy, currently the biggest negative factor is the crate motors that are out there. Everyone pushing the crates is pushing a large cost savings with them, but all the crate programs I have seen have had the opposite effect, and injected a whole new set of problems for sanctioning bodies and tracks alike,” he says. “The performance industry (for builders) was built by engine builders and parts manufacturers that are both being threatened by this push from the outside.”

When it comes to outside factors affecting this season’s builds, the economy still tops many lists.

“Again, (the main factor) is the weak economy,” says Engine Pro’s Weber. “The unemployed are not in the customer base, and those who are employed are uncertain about the future and careful with their disposable income.”

Manley from Manley Performance agrees-but finds a silver lining.

“The economy is still a factor… no doubt about it,” he says. “Customers are still being very cautious with their spending habits. However, this dynamic has been present for two years and I believe many customers have simply ‘worn their engines out,’ meaning, they’ve spent the least amount possible to keep their engines running. Eventually, these engines need to be rebuilt, and I believe we are approaching that time. This fact, combined with a more positive economic outlook, should increase business for our engine builders in 2011.”

MAHLE Clevite’s Hughes says: “The economy and whether the manufacturers can ship product are two big factors for engine builders. Those that have continued marketing in both a standard and a non-standard capacity have seen the most growth or stability. The shops that promote their own programs tend to also see continued success.”

And part of that success, says McFarland of MAHLE Motorsports, circles back around to being able to obtain the needed parts.

“In an effort to reduce inventories, many manufacturers and distributors are running specials on parts that they ended up with excess inventory on when demand slowed quicker than normal earlier in the year,” he notes. “On the flip side, with distributors and manufacturers reducing inventories, as the build season kicks into high gear, parts availability will become an issue.”

Outlook: Clearing

Even with challenges left to be conquered, these internal engine parts suppliers are expecting a successful 2011 for engine builders.

“We are cautiously optimistic. The economy seems to be slowly improving and racers are a dedicated lot,” says McInnis.

“I’m optimistic on 2011,” says Manley. “Keep in mind, the world changed dramatically starting in the fourth quarter of 2008. A ‘weeding out’ process definitely ensued, but this was to be expected. The strong will survive; and be stronger as a result. There continues to be some terrific opportunities in the aftermarket. People have not lost their love affair with cars (and boats and motorcycles) and they still want to race.”

Knight agrees.

“I think 2011 will be quite favorable,” he says. “Business should continue to increase-we’ve grown every month this year. I see everything as being very, very positive.”

But it won’t come without time and effort.

“I’m a parts guy, not an economist, but it seems likely that 2011 isn’t going to be a much better year for the performance industry than 2010. Personally, I feel that 2012 is when we will start seeing an improvement,” Weber says. “Until then, the engine builder needs to maximize his bottom line by selling not just his labor services, but parts as well. In addition, he should be willing to do whatever other services he can provide such as freshening up engines.”

McFarland sees much the same.

“We are most likely going to be climbing out of the current recession into 2012 and possibly beyond. This will have many customers rebuilding instead of buying new, and racers stretching rebuild intervals. They will be doing more of their own research and looking for more value when they do decide to spend.”

Moriarty adds that shops going over and above can expect a bright future.

“It’s clear to me that regardless of which segment they represent, the builders that are remaining active are those that are not only supplying quality products for their customers, but also value-added services. Whether it’s additional technical help over the phone or actual on-site assistance (helping at the track), our customers that are doing the best are those that are willing to go the extra mile for their customers.”

But the best news is that, at least in some circles, the positive transition has begun.

“We believe that we are already seeing a rebound in the sport compact market,” Hughes notes. “While others have pulled back from supporting the market, those that have continued are now being rewarded. The market is maturing and more and more people are changing how they build their cars.”

But they are still building.