A rebound for rebuilders? Locomotive rebuilding/remanufacturing has been hurt by war and recession; but the long-range outlook is bright for broadly-based companies that offer quality products

Railway Age, May, 1991

These may not be the absolute worst of times for companies engaged in locomotive rebuilding/remanufacturing.

But they are certainly not the best of times, either.

Major rebuilders/remanufacturers don't see a threat to their survival. But they do see the current fall-off in business as a possible threat to smaller companies which may not have the resources, the diversification, and the staying power to weather a prolonged downturn.

Suppliers see a number of reasons why orders have gone soft, and why just about all segments of the rail industry have been affected.

There were the staggering increases in fuel prices that followed Iraq's invasion of Kuwait last August. And there was the uncertainty that followed, as to how the situation would eventually play out.

There is the recession that has been nagging at the U.S. economy, producing the kind of softness in rail traffic that causes those in charge of budgets to hesitate before making major commitments. And, while rebuilt/remanufactured locomotives can be had for substantially less than the cost of new locomotives, still, the costs are not small.

There is the fact that hundreds of locomotives have been going into storage. This is partly due to the mushiness in traffic. But it's also because as railroads have acquired increasing numbers of high-horsepower locomotives, they are able to replace three old units with two new ones, and thus they're able to take older units out of service for reasons that have little to do with traffic levels. And there is always the tendency to say, "If you don't need it, don't fix it."

Finally, in recent years, a number of new companies have come into the rebuilding/remanufacturing business, increasing the competition for what has become a shrinking amount of business. Some of the newcomers are small, aiming strictly at niche markets. But one "newcomer" isn't small, General Motors' Electro-Motive Division, which, one remanufacturer notes, didn't appear to have much interest in this end of the business in years past "but they're sure competing aggressively now."

* Tight margins. What all of this has meant to rebuilders/remanufacturers is that margins are extremely tight. Mat's one thing for a company that emphasizes price, one supplier says, but it's quite another thing for companies that have tried to stress quality and reliability before price.

And yet, he adds, it's the companies that stress quality that have the best chance for survival, for a couple of reasons. First, they tend to be companies with a broader base. Second, buyers/lessors of rebuilt/remanufactured motive power demand quality, reliability and dependability; for some, these are the locomotives that make up the bulk of the fleet, and neither they nor other buyers/lessors want to trade old problems for new ones.

* Gauging the market. How big has the market been, how big is it?

It's extremely tough to gauge the market with any accuracy. The Association of American Railroads, for instance, has numbers on "rebuilt" locomotives that range from a high of 252 in 1984 to a low of 80 in 1988, but those are numbers for Class I railroads, and the major carriers are only a part of the market.

Too, a number of the rebuilders/remanufacturers are privately held, with no requirement that they tell anybody how busy (or how idle) their shops have been.

And there is the matter of definition: What is a rebuild? What is a remanufactured unit? What, for that matter, is an upgrade? How do you classify or count a $300,000 job? What about a 700,000 unit?

For its part, Morrison Knudsen says it did about 150 units last year. With the addition of its Mountaintop, Pa., facility in 1990, its capacity is well over twice that. For 1991, MK sees a decent level of business and operation into the third quarter, but there are uncertainties as to what the fourth quarter may bring because of the recession and because of numbers indicating that Class I railroads have about 10% of their motive power stored.

NM's facilities at Boise, Idaho, and Mountaintop are well-equipped shops, as are a number of others that are former Class I railroad shops, such as those operated by VMV at Paducah, Ky., by Livingston Rebuild Center at Livingston, Mont., and by Cleburne Railway Shops at Cleburne, Tex., shops previously operated by Illinois Central Gulf, Burlington Northern and Santa Fe, respectively.

For the most part, the new operators of these facilities have not had to make major expenditures for new shop equipment, and yet they have full-service shops capable of handling just about any job that has to be performed on a locomotive.

* At Paducah, a diverse base. VMV is a case in point. In the 1979-80 period, ICG spent about $8 million on improvements at Paducah, not long before it walked away from the operation and put it up for sale.

What VMV is operating today is a highly integrated facility that doesn't live or die according to the vagaries of the remanufacturing market. Paducah also does all classes of overhauls, component work, wreck repairs, and marine and power-generation-set work. Last year, about 25% of its sales were to "competitors" in the locomotive business, and its achieved goal has been to bring a certain balance to operations throughout the product stream. Its central location doesn't hurt, nor does the fact that it enjoys good transportation rates and good connections with major railroads.