Looking back at 2020 and guessing what trends will follow in 2021 is on everyone’s minds. But if I had to sum up the start of 2021, the word would be “shortages.”
The COVID-19 Pandemic was a grim reaper in multiple ways. The automotive industry was short on parts, raw materials, manufacturing capacity, and labor. Dealers were short on consumer demand for new cars, and miles driven was way down; which meant fewer transmission failures. While essential workers continued to show up, many businesses were short on workers and short on customers. And while governments gave away lots of cash in stimulus to allow the economy to survive; small businesses were damaged or destroyed. We all became short on patience and plans.
The global pandemic indeed disrupted every single supply line in the automotive industry. There was a bullwhip effect in that demand for products plummeted as miles driven decreased in the middle of national shutdowns. And these shutdowns hit at different times across North America as well as the globe. That meant that starting back up was erratic. This has created a spike in demand for parts while nothing was showing up at the shelves of parts distributors.
Oddly, the one segment in automotive that grew was the performance segment. While workers stayed at home due to layoffs, they started looking at those project cars and trucks and started buying parts with those stimulus checks and savings. This meant a periodic upswing in all kinds of powertrain performance sales. Well, at least until the supply of those ran out too.
Transmission rebuilding shops feel that OE manufacturers are having difficulty supplying new and OEM remanufactured converters. OE manufacturers are indeed feeling the same impact as the aftermarket. Although demand for new cars dropped for a few months; the demand has come back. Consumers are buying new cars again. Now that the assembly lines are up and running, there is still an interruption in the world supply of steel and other metals used in vehicle manufacturing. The just-in-time (JIT) supply chain concept was never designed to cope with a global pandemic.
The new aftermarket parts supply chain continues to experience availability issues with certain parts. As the pandemic situation with the COVID-19 improves, this will likely get better. The exception to the parts situation is as the OE manufacturers continue to do more short run converters, with numerous variations, it is more difficult for the aftermarket parts manufacturers to justify producing parts with limited sales potential. We, as converter rebuilders, will have to be even more creative to be able to repair these short run converters that seem to be coming out at an ever-increasing rate.
The core supply is a growing problem. As the older converter models are decreasing in sales; the fallout rate of these converters when rebuilding them is going up. This increases the demand for more cores to rebuild the same number of converters. Because of the introduction and variety of new design converters, it is also difficult to procure all the cores needed for late model converters.
I know the items above sound pessimistic, but even with all the challenges, it is still a great time to be in the converter industry. The shops I have talked to all say they are busier than ever. As the COVID-19 issue winds down; the aftermarket parts suppliers inventory problems will be resolved. The labor market already seems to be getting better than it was in 2020.
The greatest challenge is finding young, motivated workers to carry us into the future. A significantly positive trend is that the government and education systems have started to talk about apprenticeship programs. This will help our industry and other blue-collar trades as well.
Although torque converter remanufacturers may lose business to the large transmission rebuilder shops or production rebuilders; there is great opportunity in other areas. High performance, restoration, specialty converters, and industrial converters are just a few expansion areas. To meet these challenges, we will have to invest in modern equipment to be able to do more advanced fabrication; while developing new and creative procedures.
As the population of new short-run converters increases; there is a great opportunity for small regional shops. It is difficult for the larger companies to keep these low volume converters stocked in all their regional warehouses. And shipping a core to be rebuilt across the county takes time and considerable cost. The regional shops can rebuild and have the converter back to the customer in 1 or 2 working days.
I am reminded of a conversation that I once had with an OE torque converter manufacturer about a new design they were featuring. The talk shifted to rebuilding in the aftermarket, and the representative scoffed at the idea of a torque converter rebuilder’s ability to work on the assembly. I smiled at the young man and told him, “You just wait and see. These guys will have it figured out before your vehicles are falling out of warranty.”
All in all, the future looks bright for the converter shops that are willing to invest in new equipment and employees to develop new techniques and procedures for these new converters. The OE designers haven’t built a perfect car… Ever. We can continue to thrive while repairing the cars the consumers need and love to drive.