The North American Selected Class 6-8 Engine Components Aftermarket

North American Class 6-8 Engine Components Aftermarket
Executive Summary
Introduction
The attached document presents the executive summary for the Class 6-8 North
American Selected Engine Components aftermarket.
The North American Selected Class 6-8

Engine Components Aftermarket
A961-18
March 2005
Schaeffler Group USA Inc.
Page 1
Contents
01: Product Segmentation
02: Study Focus
03: Scope and Definitions
04: Total Market Forecast, 2001-2011
05: Manufacturer Level Revenue Trends by Product Type (2004)
06: Manufacturer Level Revenue Market Potential by Product Type
07: Total Market Size and Potential by Revenue
08: Manufacturer-Level Prices by Segment, 2004
09: Total Revenues by Geographic Region, 2001-2011
10: Market Drivers and Restraints
11: Total Selected Engine Components Market Challenges, 2004
Copyright 2005 Frost & Sullivan
Contents (cont.)
12: Major Participants 2004
13: Conclusions
Page 2
01: Product Segmentation
Turbochargers
Oil Filters
Engine Bearings
Glow Plugs
02: Study Focus

This study discusses the North American Selected Engine Components
aftermarket. The goals of the study are to size the aftermarket and
discuss market potential in light of the following:
Major Factors Driving and Restraining the Market
Demand Analysis
Unit Shipments and Revenues for base year 2004
Unit Shipments and Revenue Forecasts from 2005 to 2011
Market and Technology Trends
Pricing Analysis by Market Segment
Competitive Analysis by segment including market share for 2004
Page 3
03: Scope and Definitions

This study is limited to the North American Class 6-8 vehicle aftermarket
Class 6-8 vehicles include trucks and buses of at least 19,501 lbs
North America is defined as Canada and the United States
Aftermarket includes the independent aftermarket and original
equipment service (OES) channels
Base year for research is 2004
Forecast years are from 2005 to 2011
Historical data are presented from 2001 to 2003
All revenues, prices and other financial information are presented in US
dollars unless noted
Compound Annual Growth Rate is calculated from the base year 2004
to 2011
$900
45
$800
40
$700
35
$600
30
$500
25
$400
20
$300
15
$200
10
$100
$0
Unit Shipments (Millions)
Revenue (Millions)
04: Total Market Forecast, 2001-2011
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Revenue ($ Millions)
Units (Millions)
Compound Annual Growth Rate (2004-2011): 8.3%

Page 4
05: Manufacturer Level Revenue Trends by

Product Type (2004)
Engine
Bearings
8%
Glow Plugs
1%
Turbochargers
34%
Oil Filters
57%
06: Manufacturer Level Revenue Market Potential

by Product Type
Revenues (Millions)
$1,000
$100
$486
$851
$165
$10
$270
$282
$531
$39
$50
$3
$3
$1
Total Market
Turbochargers
Oil filters
2004
Engine Bearings
Glow Plugs
2011
Total Market 8.3% CAGR
Engine Bearings 3.4% CAGR
Turbochargers 7.3% CAGR
Glow Plugs 2.4% CAGR
Oil Filters 9.5% CAGR

Page 5
07: Total Market Size and Potential by Revenue

$900
Revenue ($ Millions)
$800
$700
$600
$500
$400
$300
$200
$100
$0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Turbochargers
Oil filters
Engine Bearings
Glow Plugs
08: Manufacturer-Level Prices by Segment

Average Weighted prices shown
Total Market
Glow plugs
$17.92
$21.85
$5.17
$5.99
Engine bearings
$17.65
$20.66
Oil filters
$11.77
$15
$371
Turbochargers
$0
$100
$200
2011
$300
$400
$451
$500
2004
Page 6
09: Total Revenues by Geographic Region, 20012011
100%
90%
Canada
80%
70%
60%
50%
40%
30%
20%
10%
0%
U.S.A.
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
% U.S.
% Canada
10: Market Drivers and Restraints

Improving part quality reduces
maintenance needs
North American economy is
gaining strength
New emissions regulations
result in higher maintenance
needs for diesel engines
Costs for steel and raw
materials are rising sharply
Development of new
performance-improving
technologies adds to total costs
Truck owners/ operators aim for

extended service intervals
Increase in offshore
manufacturing reduces labor
and materials costs
Increase in number of imported
parts puts price pressure on
domestic suppliers
Page 7
11: Total Selected Engine Components

Aftermarket Challenges, 2004
Improving part quality
Increase in
imported
components
Selected Engine
Components Aftermarket
New
emissions
regulations
increase
maintenance
needs
Rising raw materials costs
12: Major Participants 2004

Turbochargers
Honeywell Turbo Technologies
BorgWarner Turbo Systems
Holset Turbochargers
Oil Filters
Fleetguard Inc.
Baldwin Filters Inc.
The Donaldson Co. Inc.
Champion Laboratories Inc.
Affinia
Advanced Filtration Systems Inc.
Engine Bearings
Glow Plugs
Federal-Mogul Corp.
Robert Bosch Corp.
Dana Corp.
Beru AG
The Mahle Group
WAP Inc.
King Engine Bearings
Federal-Mogul Corp.
Page 8
13: Conclusions
The revenue potential for the selected engine components aftermarket
will reach $854.3 million by 2011.
Selected engine components will experience revenue growth due to
the strength of the North American economy and new emissions
regulations resulting in higher maintenance needs for heavy-duty
diesel engines.
Demand for engine components will increase over the forecast period
as the number of trucks in service increases and as the number of
engines using exhaust gas recirculation (EGR) technology increases.
The cost of steel and other raw materials, along with advances in
component technology, will continue to drive prices higher for engine
components.
13: Conclusions (continued)

Manufacturers will face growing competition from imported engine
components arriving from Asia and South America.
Manufacturers must have original equipment (OE) supplier contracts
with heavy-duty engine manufacturers to compete effectively in the
aftermarket.
Manufacturers must strive to lower their production costs through
outsourcing and/or vertical integration to keep prices stable.
Customers in the Class 6-8 aftermarket are particularly sensitive to
price because their vehicles are used for profit-making purposes.
Technology will continue to be an important competitive factor in the
aftermarket as research and development advances the quality and
performance of replacement engine components.
Page 9
Total Class 6-8 NA HD Engine Components Aftermarket

Market Overview and Definitions
The Class 6-8 North American aftermarket for selected engine components
generated approximately $488.5 million in manufacturer-level revenues in 2004.
Aftermarket revenues are expected to grow at a rate of 8.3 percent annually as the
strength of the North American economy and new government regulations create
additional demand for replacement engine parts. Frost & Sullivan expects the market
to generate approximately $854.3 million by 2011.
North America is defined as the United States and Canada. The term aftermarket
includes the independent aftermarket and the original equipment service channel.
Revenues are reported from the manufacturer to the first level of distribution, in U.S.
dollars.
Trucks classes include the following vehicle weight limits, defined as per industry
standards:
Class 6: 19,501 to 26,000 pounds of Gross Vehicle Weight Rating (GVWR)
Class 7: 26,001 to 33,000 pounds of GVWR
Class 8: 33,001 pounds and up of GVWR

Class 6 and 7 trucks are medium-duty trucks. These weight classes include singleaxle vans, transit buses, beverage and furniture trucks and waste haulers, among
others. Class 8 trucks are known as heavy-duty trucks and typically include onhighway tractor-trailers, cement and dump trucks, fire engines and fuel trucks,
among others.
There are approximately 4.5 million Class 6-8 vehicles in service in the United States
and Canada. This includes 554,000 Class 6 vehicles, 1.26 million Class 7 vehicles,
and 2.64 million Class 8 vehicles.
Engines in this market segment are primarily diesel, although a limited number of
gasoline engines are used in Classes 6 and 7 for short-haul applications. The
following engine components are included in the study:
Turbochargers
Oil filters
Engine bearings
Glow plugs
Replacement rates vary for the selected engine components. Oil filters are replaced
several times a year, while turbochargers, engine bearings, and glow plugs may be
replaced every three to five years. In general, replacement rates should increase
over the forecast period. The main reason why is that new engines are being
designed for Class 6-8 vehicles to reduce exhaust emissions. This reduction will be
achieved by recirculating the exhaust back through the engine instead of discharging
it into the air. The result will be dirtier engines that operate at hotter temperatures
and require additional maintenance. The engine technology that is causing these
changes is called Exhaust Gas Recirculation (EGR).
EGR is the diesel engine industry's response to new U.S. Environmental Protection
Agency's (EPA) diesel engine emissions regulations that take effect in 2007. The goal
is to cut NOx and particulate matter engine emissions in heavy-duty trucks and
Page 10
buses by 95 percent. The rule requires a manufacturer-run, in-use testing program

that will apply to 2007 and later model year engines. Turbochargers and oil filters
are particularly sensitive to these changes. Frost & Sullivan believes demand for
these components will grow at higher rates than demand for other engine
components as EGR engines are serviced in the Class 6-8 North American
aftermarket.
Within these component markets, there are several key technological advances that
are designed to reduce emissions and extend the life of the parts. In the
turbochargers aftermarket, variable turbine geometry (VTG) and regulated two-stage
turbocharging are designed to regulate turbine output and improve the
turbocharger's performance. Since the turbocharger uses the exhaust flow from the
engine to increase total horsepower, these advances play an important role in the
effort to reduce diesel engine emissions.
In the oil filters aftermarket, the use of synthetic filter media and large-capacity
filters is growing to protect the engine from the higher levels of soot generated by
EGR engines. In the glow plugs aftermarket, manufacturers are preparing to
introduce sensors into their glow plugs that measure the fuel-to-air ratio in the
combustion chamber and feed the information to a controller on the engine that can
electronically adjust this ratio. This will allow the engine to restrict NOx exhaust gas
emissions to meet the new regulatory standards.
The strength of the North American economy heading into the forecast period will
create opportunities in the Class 6-8 aftermarket by increasing the number of trucks
in service, increasing the demand for freight-hauling and other trucking services, and
increasing the distances that these vehicles travel. Combined with the new engine
emissions standards, these factors will drive aftermarket sales over the forecast
period. However, the improving quality of engine parts, rising prices, and the trend
of longer intervals between engine overhauls will restrain sales from further growth.
The scope of this analysis is confined to turbochargers, oil filters, engine bearings,
glow plugs and fuel injectors installed in vehicles with a gross vehicle weight rating
of 19,501 pounds or more.
About 28 companies supply these components to the U.S. and Canadian
aftermarkets.
Page 11
Market Engineering Analysis

Chart 2.1 lists the Market Engineering measurements for the total Class 6-8 North
American selected engine components aftermarket. The market engineering research
measurement analysis summarizes the key variables, including price, revenues,
growth rates, and number of competitors in the market, and indicates the direction
in which the category is moving.
Page 12
Market Drivers
Figure 2-1 shows the major unit shipment and price drivers for selected engine
components in the Class 6-8 North American aftermarket. The strength of the
Canadian and U.S. economies and the impact of new diesel engine emissions
standards in the United States will drive unit sales and revenues for selected engine
components over the 2001-2011 forecast period. Published recommendations by
vehicle and engine manufacturers for more frequent replacements should also boost
unit shipments and revenues. The total market for selected engine components will
grow at a compound annual growth rate (CAGR) of 8.3 percent.
Page 13
Unit Shipment Drivers

North American economy is gaining strength
Economic conditions in the United States and Canada have improved in recent years.
This means that there are more Class 6-8 vehicles on the road delivering goods and
people to their intended destinations. These vehicles are traveling greater distances
because of the demand for trucking services, and that leads to higher sales of new
Class 6-8 vehicles. In fact, vehicle manufacturers in 2004, enjoyed their best year
for new Class 6-8 truck sales since 2000. This drives demand for future replacement
parts.
Since demand for replacement engine components in the Class 6-8 North American
aftermarket is directly related to the number of vehicles in service and the distances
that these vehicles travel, a strong economy contributes to strong sales and revenue
growth. Major economic indicators like the Gross Domestic Product (GDP) are good
indicators for what will happen to demand for replacement engine components.
Improving conditions in 2004, translated into strong sales years for nearly all
manufacturers. Most economic forecasts for United States and Canada are optimistic
over the next couple of years. That is good news for the aftermarket for these
components.
New emissions regulations will result in higher maintenance
The U.S. Environmental Protection Agency will require heavy-duty diesel engines to
reduce NOx and particulate matter emissions by 95 percent beginning in 2007. In
order to meet this standard, new engines will be designed to recirculate the exhaust
through the engine instead of discharging it into the air. This technology is called
Exhaust Gas Recirculation (EGR).
While EGR engines discharge fewer emissions, they also cause higher volumes of
soot to accumulate inside the engine and produce hotter operating temperatures. As
a result, oil filters will capture more harmful particles and should be replaced more
often. Turbochargers will be replaced or upgraded with the latest technology to
harness engine exhaust before it is discharged. Engine bearings will be re-designed
to withstand hotter engine temperatures. Glow plugs will be equipped with pressure
sensors to monitor the ratio of fuel to air in the combustion chamber.
Once these regulations take effect and the new engines are in operation, aftermarket
manufacturers will introduce new components designed to these specifications. This
will result in higher aftermarket growth rates over the forecast period.
Higher cost of new engines results in a higher number of older engines in service
needing replacement parts
The new controls that are required on heavy-duty diesel engines starting in 2007 will
cause the prices for new vehicles in general, and engines specifically, to increase.
This price increase offers an incentive to truck owners and operators to keep existing
vehicles in service instead of buying a new one.
North American sales of Class 6-8 trucks and buses are expected to rise in 2005 and
2006, then dip in 2007 as a direct consequence of this cost pass-through. Because
the number of older engines in service will be higher, demand for replacement
engine parts will grow since older vehicles will require more maintenance than new
vehicles.
Page 14
Truck and engine manufacturers recommend more aggressive maintenance

schedules
Class 6-8 vehicle and engine manufacturers have started recommending that truck
owners and operators perform preventive maintenance on their vehicles more often
than they have in the past. For example, the recommended replacement rate for oil
filters has been increased from every 25,000 to 40,000 miles down to every 15,000
miles. This is related to the emergence of EGR engines and the maintenance needs
associated with them.
However, the impact of these recommendations are somewhat offset by the desire of
vehicle owners and operators to reduce maintenance costs. There are engine
components available in the aftermarket that are specially designed to extend the
interval between replacements. Some owners and operators are likely to follow the
published recommendations, which will improve aftermarket sales and revenues. But
the improving quality of many engine components and the desire to reduce vehicle
maintenance will minimize this impact.
Higher duty cycles contribute to premature part wear
With the increasing urbanization of North America, Class 6-8 trucks are operating
under higher duty cycles. This means that vehicles start and stop with greater
frequency than on-highway trucks that travel long distances. Higher duty cycles
contribute to premature part wear for some engine components. Turbochargers and
glow plugs are particularly sensitive to duty cycles. The growth of cities and the
inability of transportation infrastructure to keep pace with this growth has made
roads and highways more crowded than ever and contributes to higher duty cycles in
Class 6-8 vehicles. Higher duty cycles cause engine components to be replaced more
frequently, which drives unit shipments in the aftermarket.
Price Drivers
Costs for steel and other raw materials have increased sharply
The price of steel rose 30 to 40 percent for aftermarket manufacturers of Class 6-8
selected engine components in 2004. Steel is a major ingredient in the production of
all selected engine components in this research service. The high cost of steel
resulted in a 8.7 percent price hike for selected engine components in 2004, which is
far higher than the 1 to 2 percent annual price increases that customers are used to.
Skyrocketing steel costs are blamed on heavy demand in developing Asian countries
- particularly in China and India - and a decrease in North American production
capacity because of recent mergers and acquisitions. Steel prices are expected to
remain at higher than pre-2004 levels throughout the forecast period and will
continue to have an impact on the aftermarket pricing of selected engine
components.
One consequence of the high increase in steel prices is that many suppliers to the
manufacturers of selected engine components are unable to operate at full capacity.
This is particularly true in the turbochargers industry, where turbine and compressor
wheels as well as many part castings are in short supply as these smaller companies
cope with related supply and price issues. This loss of production capacity also
contributes to higher aftermarket prices for Class 6-8 engine components. However,
the impact of this condition should decline over the forecast period.
Page 15
In addition to steel, inflationary forces drove prices higher for other raw materials
needed by manufacturers. Included in this list is the filter media used to make
heavy-duty oil filters.
Changes in product designs are needed to fit new types of engines
Manufacturers will incur additional costs with the growing penetration of EGR and
other emissions-reducing engine designs that are not related directly to technology.
New part numbers will be produced to accommodate the specifications of these
engines since the new engines are not likely to be identical to the old engines. Some
manufacturers are waiting to introduce new products until the new emissions
regulations take effect in 2007 so they can be sure of the designs and strategies of
heavy-duty engine manufacturers for meeting these standards. These costs are
minimal relative to expenses associated with raw materials and technology, but a
proliferation of changes within a short time frame will certainly impact prices.
Development of new performance-improving technologies adds costs to the final
product
Technology continues to improve the quality and reliability of engine components.
Increasingly, technology plays an important role in meeting safety and
environmental regulations. In the Class 6-8 North American aftermarket, technology
is the key to meeting new heavy-duty diesel engine emissions standards that take
effect in 2007.
In the turbochargers industry, manufacturers are emphasizing the importance of
Variable Turbine Geometry (VTG) as a way to improve output and reduce emissions.
Oil filters in the Class 6-8 aftermarket now use synthetic filter media that are capable
of capturing smaller dirt and soot particles. Manufacturers of engine bearings are
experimenting with the use of new materials that are capable of withstanding higher
amounts of engine dirt and heat. In the glow plugs aftermarket, manufacturers are
working glow plugs equipped with pressure sensors that measure the fuel-to-air ratio
in the combustion chamber so that this ratio can be adjusted electronically by a
controller on the engine.
These technological advances are important because they will be used in engines
that use Exhaust Gas Recirculation (EGR) to reduce emissions. However, the
development, production and marketing of these components adds costs to these
products that are recovered through price increases.
Page 16
Market Restraints
Figure 2-2 shows the major unit shipment and price restraints for selected engine
components in the Class 6-8 North American aftermarket. The improving quality of
engine components at both the original equipment and aftermarket levels has
allowed many Class 6-8 vehicle owners and operators to postpone preventive
maintenance. Inflationary forces in the aftermarket have caused prices to rise. In
addition, suppliers are struggling to meet manufacturers' demands for raw materials
and components. These factors will act as restraints on unit shipments and prices,
and hence the overall revenues for this market.
Unit Shipment Restraints

Improving part quality reduces maintenance needs
Demands from vehicle and engine manufacturers for components that are made
better and last longer have led to improvements in the quality of many parts,
resulting in fewer replacements. The use of new alloys and chemical treatments have
reduced component wear and corrosion. Vehicle owners and operators are able to
travel greater distances between overhauls, when many components are typically
replaced. Cost pressures give them an incentive to reduce maintenance expenses.
Failure rates for turbochargers are lower as the use of cast aluminum and other
alternative materials has grown. In the oil filters aftermarket, the use synthetic filter
media and bypass filtration has extended the useful life of oil filters and reduced the
need for as many replacements. Engine bearings are not replaced as often because
Page 17
the engine is not overhauled as often. Advances in the glow plug product line have
reduced premature failures caused by overheating.
Manufacturers of Class 6-8 engine components are captive to the demands of vehicle
and engine manufacturers. Higher standards will continue to drive improvements in
component quality, which reduces the need to buy replacements in the aftermarket.
Truck owners and operators aim for extended service intervals
Because of the commercial nature of vehicles in the Class 6-8 segment, their owners
seek to reduce maintenance costs. The more money spent on maintenance, the less
profitable is the vehicle. Vehicle owners and operators are aided in this effort by the
general improvement in the overall quality of engine components. Although
postponing maintenance leads to more costly expenses in the future, the short-term
result is lower revenues and unit shipments for selected engine components.
Rising costs cause customers to delay purchases
The rising cost of steel and other raw materials caused the prices of most all engine
components in the Class 6-8 North American aftermarket to rise substantially in
2004. Price sensitivity is high in the Class 6-8 segment, and that causes warehouse
distributors and fleet managers to delay their purchases instead of holding parts in
inventory.
Steel prices increased by 30 to 40 percent in 2004, because of high demand in
developing Asian countries like China and India and a decline in production capacity
in North America. Engine component manufacturers increased prices by as much as
12 percent at the first point of distribution, which is passed down the supply chain to
vehicle owners and operators. Prices for filter media and other raw materials also
increased in 2004.
There was a general acceptance in the aftermarket that costs had increased, and
that some of these costs would be recovered through price hikes. Unit shipments
were moderately depressed as a consequence of these price hikes. However, it is
unlikely that steel prices will return to pre-2004 levels over the forecast period, and
raw materials costs will continue to impact pricing and consumption in the
aftermarket.
Reductions in production capacity limit output
Suppliers to engine components manufacturers in the Class 6-8 North American
aftermarket saw their production capacity diminish in 2004. As a result,
manufacturers were unable to source many of the components and materials they
needed to produce aftermarket replacement parts. This restrained unit shipments
because manufacturers in some industries were unable to produce enough
components to meet the aftermarket demand.
Supplier capacity was a bigger factor in certain product categories than others, and it
is related to the price of steel and raw materials. In the turbochargers aftermarket,
turbine and compressor wheels are in short supply, as are most castings. The supply
of certain parts of oil filters is also low, relative to manufacturer demands. Higher
materials costs have reduced the ability of suppliers to procure the materials needed
to make these parts for aftermarket manufacturers. However, conditions should
improve over the forecast period.
Page 18
Price Restraints
Increase in offshore manufacturing reduces labor and materials costs
A growing percentage of selected engine components for the Class 6-8 North
American aftermarket are not made domestically. Increasingly, these parts are
manufactured in Asia, Latin America, and even Africa because labor costs are so
much lower in these regions. Lower labor costs allows manufacturers to avoid large
price increases.
Manufacturers are under pressure in the Class 6-8 aftermarket because of rising
costs and customers' sensitivity to price. Most companies are unable to recover all of
their costs by raising prices. Moving production to countries where labor costs are
lower has become key to keeping prices at comfortable levels for vehicle owners and
operators.
BorgWarner Turbo Systems is opening a factory in China. Honeywell Turbo
Technologies is currently expanding in China, India, and Eastern Europe. Holset
Turbochargers also has production facilities in Brazil, China, and India. The Mahle
Group produces all of its diesel engine bearings in Brazil.
Raw materials are also purchased in foreign countries when prices are substantially
lower and it is logistically possible to transport them to production facilities at a cost
savings.
Increase in number of imported parts puts price pressure on domestic suppliers
North American aftermarket suppliers are under growing competitive pressures from
foreign-based companies that export their components to the United States and
Canada. Their costs are typically lower, and so are their prices. It is harder for
domestic manufacturers to raise prices when there is a growing proliferation of
lower-priced alternatives.
A large majority of glow plugs sold in the North American aftermarket are
manufactured overseas and exported to North America. Many of these companies
are based in Asia, but they are also found in other parts of the world. In the
turbochargers industry, there are two companies from Brazil that are forming
partnerships with domestic manufacturers to compete against established suppliers.
In the engine bearings aftermarket, companies from Japan, Austria, and China are
exporting components to the United States and Canada.
In some cases, the quality of imported components is inferior to what the major
suppliers manufacture and does not meet the expectations of American and
Canadian customers. However, the quality and marketing of imported engine
components will improve over the forecast period, making them a more attractive
choice for vehicle owners and operators purchasing engine components in the
aftermarket.
Page 19
Unit Shipment and Revenue Forecasts

Figure 2-3 and Chart 2.2 present unit shipment and revenue forecasts for selected
engine components in Class 6-8 North American aftermarket for the 2001-2011
period. Revenues are provided at the manufacturer level.
Page 20
Sales and revenues have climbed over the past few years as economic conditions
improved following the Sept. 11, 2001, terrorist attacks. In 2001, revenues totaled
an estimated $399.1 million. By 2004, revenues had grown to approximately $488.5
million. Sales are expected to reach $854.3 million in 2007, registering a compound
annual growth rate (CAGR) of 8.3 percent.
Engine component demand in North America is determined by the number of
vehicles in service and the distances that these vehicles travel. Engine component
sales will grow in the coming years as economic conditions improve the demand for
trucking and bus services. This increases the number of Class 6-8 vehicles in service
as well as the distances they travel. The result is a corresponding increase in
maintenance needs, which is met through sales of aftermarket engine components.
In addition, the market penetration of new engines using exhaust gas recirculation
(EGR) technology to reduce tailpipe emissions will drive aftermarket sales. The
reason is because EGR engines generate more soot and operate at hotter
temperatures than today's diesel engines, and additional maintenance is required to
keep them running at peak capacity.
Revenues jumped sharply in 2004 in response to higher demand for engine
components and steep price increases passed on by manufacturers. This followed
several years of slow growth and very small price increases. In 2004, the
transportation industry recovered from its post-9/11 recession and demand for
engine components surged. At the same time, manufacturers began to feel the
effects of the North American steel shortage caused by rising steel consumption in
Asia and a decline in domestic production capacity. Steel prices rose 30 to 40
percent for North American manufacturers, and some of these costs were recovered
through price increases. The result was a 14.9 percent surge in revenue in 2004.
Demand for engine components and component prices will remain relatively high
over the forecast period. As the number of EGR engines in service grows, demand for
replacement engine components will increase. The need to develop new components
to fit these engines and new technologies to ensure their compliance with
environmental regulations will serve to keep prices on the rise. As a result, revenues
will show healthy growth throughout the forecast period.
Page 21
Trends by Geographic Region

Figure 2-4 and Chart 2.3 show the percentage of revenues in the Class 6-8 North
American engine bearings aftermarket for the United States and Canada.
The North American engine components aftermarket relies on the number of light
vehicles in operation in the United States and in Canada. The truck parc in both the
Page 22
countries has been increasing due to longer-lasting vehicles and high new vehicle
sales. In 2004, United States had approximately 4.1 million Class 6-8 vehicles in
operation, while there were approximately 369,000 Class 6-8 vehicles in operation in
Canada. The United States accounted for 90.9 percent of the total engine
components aftermarket revenues, while Canada accounted for 9.1 percent.
Revenues are higher in the United States than in Canada in relation to each country's
percentage of the total truck parc. Revenues from higher replacement rates for
turbochargers in Canada are largely offset by increased revenues for engine bearings
in the United States. The different climates of the United States and Canada affect
how often some engine components are replaced.
For example, turbochargers tend to be replaced slightly more often in Canada than in
the United States because the snow and related cold-weather conditions in Canada
increase the duty cycles of Class 6-8 turbochargers. This means that the vehicle
starts and stops with greater frequency. Higher duty cycles are associated with
higher turbocharger failure rates, and this is why Canada has a slightly greater
percentage of aftermarket revenues for these components.
By contrast, engine bearings tend to be replaced slightly more often in the United
States than in Canada because dust is a greater problem for engines in the warm
weather of the southern United States than in Canada. Dirt and dust may inhibit the
performance of engine bearings as stationary surfaces and interfere with the turning
motions of the camshaft and crankshaft. As a result, the United States has a slightly
greater percentage of aftermarket revenues for these components.
Revenue growth will be higher in the United States than in Canada over the forecast
period. The reason is the pending introduction of new heavy-duty diesel engine
emission standards by the U.S. Environmental Protection Agency (EPA) in 2007. In
order to meet stricter emissions regulations, U.S. vehicles will be equipped with
Exhaust Gas Recirculation (EGR) engines that recirculate NOx and particulate matter
emissions back through the engine instead of discharging them into the air. This
results in engines that run hotter, accumulate more dirt and soot, and require a
higher level of maintenance.
These regulations do not affect Class 6-8 trucks operating in Canada.
Page 23
Trends by Product Type

Figure 2-5 and Chart 2.4 shows the total Class 6-8 North American aftermarket
revenues broken down by component.
Oil filters accounted for the largest percentage of revenue among engine components
included in this research service. In 2004, oil filters made up 57.7 percent of
Page 24
revenues for selected engine components. This figure is expected to rise to 62.2
percent in 2011. T he reason is that oil filters are replaced many more times than the
other components, and thus generate the largest percentage of revenues. These
revenues are generated based on higher units shipped, driving revenues. Oil filters
are replaced between two and six times annually. By contrast, turbochargers, engine
bearings, and glow plugs may be replaced every three to five years or longer.
Oil filters is the only component in this study that will see its share of revenue
increase over the forecast period. All other components will lose revenue share to oil
filters.
Turbochargers have the highest average unit price among engine components
included in this study, with an average cost of $371 in 2004. Unlike oil filters, engine
bearings, and glow plugs, turbochargers are very sophisticated components that
include hundreds, and perhaps thousands, of distinct parts. Turbochargers are
counted as one component, although there are many different components within
each turbocharger. To be counted as an aftermarket replacement component, each
turbocharger must be replaced with a brand new unit or must be fully
remanufactured. Therefore, a turbocharger that has a single part replaced or that
has had minor repair work performed on it is not counted as part of the aftermarket
in this study.
Turbochargers accounted for 33.7 percent of Class 6-8 North American selected
engine component aftermarket revenue in 2004. This share will drop to 31.6 percent
of revenue by 2011 because of the volume of oil filters that will be sold over the
forecast period.
Engine bearings accounted for 8 percent of aftermarket revenue in 2004. This share
will drop to 5.8 percent in 2011. Unit sales of engine bearings will grow at a lower
rate than unit sales for oil filters and turbochargers. Additionally, average prices for
engine bearings will increase at lower rate than average prices for oil filters and
turbochargers.
Glow plugs account for just 0.6 percent of revenue in 2004 and will continue to
account for less than 1 percent of revenue over the forecast period. The main reason
is that only a small percent of Class 6-8 vehicles in North America contain glow
plugs, and this percentage should show continue decline over the forecast period.
Additionally, the average unit price of glow plugs is lower than all other selected
engine components.
Page 25
Demand Analysis
Figure 2-6 and Chart 2.5 shows the number of Class 6-8 vehicles in service in North
America for 2004. Demand for Class 6-8 selected engine components depends on the
number of vehicles in operation and the distances that these vehicles travel annually.
The greater the number of trucks in service, then the greater is the number of
vehicles that will soon require aftermarket engine components. The greater the
distances they travel, the more frequently these engine components will be replaced.
There were approximately 4.5 million Class 6-8 vehicles in service in the United
States and Canada in 2004. Vehicle sales have been rising rapidly over the past
couple of years, and travel distances are getting longer following several years of
Page 26
decline. These dynamics will increase the size of the aftermarket in the coming
years.
Replacement rates vary by component. Oil filters are replaced more often than other
selected engine components, ranging from two to six times annually depending on
the engine. Other components are typically replaced every three to five years, or
when the engine is overhauled. The average replacement intervals for selected
engine components include:
Turbochargers - every 500,000 miles, or every three to five years
Oil filters - every 15,000 miles, or two to six times annually
Engine bearings - every 500,000 miles, or when the engine is overhauled
Glow plugs - every 10,000 to 40,000 starts, depending on duty cycle

Figure 2-7 and Chart 2.6 show the number of Class 6-8 vehicles expected to be in
service in the United States and Canada over the forecast period. The vehicle
population will reach 5.3 million in 2011, registering a compound annual growth rate
(CAGR) of 2.5 percent. In the short-term, vehicle sales in North America will grow at
a faster rate as U.S. owners and operators seek to buy new trucks and buses before
the new heavy-duty diesel engine emissions standards take effect in 2007. The
reason for this modest sales surge is that vehicle prices are expected to rise once the
higher cost of producing engines that comply with the new regulations is passed on
to vehicle buyers. Sales will slow when these vehicles hit the market in 2007.
However, vehicle sales will slowly climb back to historic growth rates in succeeding
years.
Page 27
This growth in the vehicle population will also increase demand for engine
components in the Class 6-8 North American aftermarket. There are two additional
reasons why demand for engine components will grow. They are overall economic
growth in the United States and Canada and government regulations that affect the
way diesel engines are made.
With the economic recovery under way in North America, there will be greater
demand for trucks to deliver goods to their intended markets. This is a major driver
of unit sales in the aftermarket because it puts more trucks on the road, and the
trucks travel more miles than they would otherwise. In bad economic times, the
opposite effect is felt.
Major economic indicators like the Gross Domestic Product (GDP) are good indicators
for what will happen to demand for replacement engine components. Improving
conditions in 2004 translated into strong sales years for nearly all manufacturers in
this segment. Most economic forecasts for United States and Canada are optimistic
over the next couple of years. That is good news for the Class 6-8 North American
selected engine components aftermarket.
Government regulations will also help aftermarket sales as new U.S. diesel engine
emissions regulations take effect in 2007. In an effort to reduce NOx and particulate
matter emissions in heavy-duty trucks and buses by 95 percent, as required by the
regulations, manufacturers are producing engines that use Exhaust Gas Recirculation
(EGR) technology. This design reduces emissions by recirculating it back through the
engine instead of discharging it. While this approach is effective in reducing exhaust
emissions, it also results in engines that are dirtier and run at hotter temperatures.
These conditions increase the need for additional engine maintenance, which will
lead to higher aftermarket sales for engine components.
Page 28
Pricing Analysis and Trends

Figure 2-8 and Chart 2.7 show the pricing trends for the Class 6-8 North American
selected engine components aftermarket for the 2001-2011 period. The data shows
the average price for all the engine components in this research service.
Page 29
Manufacturer-level prices for Class 6-8 aftermarket engine components in North

America have increased in recent years, with a particularly large price increases
passed through in 2004. For some components, like turbochargers and oil filters,
prices have been rising more rapidly because of the cost of steel and other raw
materials. Prices for other components, including engine bearings and glow plugs,
have increased at slower rates.
The average price for selected engine components across product types was $16.17
in 2001. This price rose to $18.02 in 2004 and is forecasted to reach $21.93 in 2011,
registering a compound annual growth rate (CAGR) of 2.8 percent.
Customers are particularly sensitive to price in the Class 6-8 aftermarket because of
the commercial value of these vehicles. Most are used in the daily operations of
businesses, and any costs associated with maintaining the vehicle affects profits.
Price is often the top consideration for large volume customers like truck fleet
managers when they choose suppliers. This is particularly true for components that
do not use a high degree of technology, like oil filters, engine bearings, and glow
plugs.
Price drivers will outweigh price restraints, resulting in a trend of increasing prices
over the forecast period. The increase in offshore manufacturing, growing
competition from imports, and efforts to reduce production costs will only partially
offset the short- and medium-term impacts of rising raw materials costs and changes
brought about by U.S. environmental regulations. The price of steel and the need to
produce engines that comply with new regulations are costs that must be absorbed
over the next couple of years and they have a direct impact on the price of selected
engine components. By contrast, offshore manufacturing, imports, and production
efficiencies serve to restrain prices from further growth, but they do not allow
manufacturers to lower prices and their impacts are spread out over a greater
number of years.
Page 30
Competitive Structure
Figure 2-9 shows the competitive structure of the Class 6-8 North American engine
components aftermarket. The key competitive factors include:
Original equipment platforms
Price
Technology
The number of original equipment platforms that a manufacturer supports has a

major effect on its aftermarket sales. The reason is because a large volume of
aftermarket sales are made at the vehicle or engine manufacturer's dealership. In
the Class 6-8 segment, this could be a Freightliner truck dealer or a Mack Truck
dealer. It could also be a Caterpillar engine dealer or a Cummins dealer. These
Page 31
dealerships typically have service centers where engine components are often
replaced.
If a manufacturer supplies a selected engine component as original equipment when
the new truck or new engine is first sold, the same manufacturer is likely to furnish
aftermarket components to replace them. For example, in the turbochargers industry
Holset is original equipment on the Cummins engine while Fleetguard is Cummins'
original equipment supplier for oil filters. When this engine is taken to a Cummins
dealership for repairs, Holset and Fleetguard will make an aftermarket sale if the
turbocharger or the oil filter is replaced. Without an original equipment platform,
manufacturers of engine components must compete almost exclusively in the
independent aftermarket through warehouse distributors. This eliminates a large part
of potential aftermarket revenues for such companies.
The percent of aftermarket revenues controlled by the dealership distribution channel
varies by product type. Approximately 50 percent or higher of revenues for
turbochargers, oil filters, and engine bearings are earned at the dealership level.
Price remains an important competitive factor in the aftermarket because most
vehicles are commercial trucks and buses used by businesses to earn profits. High
maintenance costs reduce profits, so customers in the Class 6-8 aftermarket tend to
be more sensitive to price than customers in the light car and truck aftermarket.
Large-volume customers like warehouse distributors and truck fleet managers may
switch suppliers if prices increase, and manufacturers often match the prices of
competing suppliers to avoid losing business. In general, price competition is fierce.
Aftermarket pricing is heavily affected by volume discounts and rebates. In many
product categories, customers rarely pay the list price for engine components. Oil
filters are often sold at a loss in the aftermarket to entice customers to purchase
other components with higher profit margins. Customers expect that discounts will
be offered based on the volume of components purchased, and higher discounts are
typically offered if the customer sole-sources all components from the same supplier.
Pricing is becoming more important because of current inflationary trends in the
market. Manufacturers' production costs are increasing because of rising prices for
raw materials and technological advances. But manufacturers are typically unable to
pass on all of their cost increases to customers, so they must find other ways to
remain competitive without raising prices.
Technology is an important competitive factor in the Class 6-8 North American
aftermarket because of its role in improving product quality and meeting regulatory
standards. Manufacturers that are unable to offer the latest technological innovations
to customers will be unable to compete against those that do so. This may require
substantial investments in capital as well as research and development.
The quality of engine components is better now than it has ever been. This reduces
aftermarket sales because it results in fewer replacements. However, it also provides
an opportunity to generate repeat business from satisfied customers. In the oil filters
aftermarket, the use of synthetic filter media to capture smaller particles represents
a technological advance that has improved quality. In the glow plugs aftermarket,
the use of regulating coils has reduced the level of premature failure caused by
overheating. In the turbochargers aftermarket, there are regulated two-stage
turbochargers that have reduced the lag time between performance at low speeds
Page 32
and at high speeds. All major manufacturers in these product categories sell
components that incorporate these advances because their customers would
probably switch suppliers if these products were not available.
Technology will increase in importance as a competitive factor over the forecast
period because of advances related to new diesel engine emissions standards.
Manufacturers that are unable to supply engine components that satisfy the
technological needs of these new systems will see their market shares decline
sharply.
Page 33
Market Structure Notable Acquisitions and Divestitures

Figure 2-10 shows the most recent acquisitions and divestitures that have taken
place in the Class 6-8 North American selected engine components aftermarket.
There have been several key divestitures and acquisitions over the past two years.
So far, these changes in the competitive landscape have had little impact on the
aftermarket. However, they could stimulate additional activity in the coming years
that would have much broader implications for who controls market shares in
different product categories.
In 2004, Dana Corp. sold its Automotive Aftermarket Group to The Cypress Group for
approximately $1 billion. The sale included Wix oil filters, which is a well-known
aftermarket brand in Class 6-8. Wix is now controlled by Affinia, the name given to
Cypress' newly formed aftermarket business unit. The sale should have little impact
on Wix's position in the aftermarket. Its distribution structure has not changed, and
there is nothing new planned for this product line.
However, the sale specifically excluded the distributing and marketing operations of
Dana's piston rings, gaskets, engine bearings, and other engine products. Dana's
Clevite-brand engine bearings have been retained as part of the Automotive Systems
Group.
Dana decided against divesting its engine components aftermarket business because
it wanted to keep the factories and other assets associated with these products. But
if Dana decides to divest Clevite at a later date, then another company would
assume control of its 46 percent share of North America revenues for Class 6-8
engine bearings. If Federal-Mogul could buy Clevite, it would control about 95
percent of revenues in this segment. If The Mahle Group could buy Clevite, it would
become the top supplier in this market and Federal-Mogul would have the secondlargest share.
Borg Warner Inc. purchased Beru AG from global private equity firm The Carlyle
Group and a group of family shareholders in 2004. The combined purchase price was
approximately $476 million. Beru is the world's largest producer of glow plugs,
Page 34
although its share of the North American aftermarket is relatively small. For
BorgWarner, the deal represents an opportunity to expand its diesel engine
technology in anticipation of growing worldwide demand for diesel-powered light
vehicles. For the Class 6-8 North American glow plugs aftermarket, the impact of this
transaction is not likely to be noticeable.
Also in the oil filters aftermarket, UIS Inc. in 2003 completed the sale of Champion
Laboratories Inc. to The Carlyle Group for approximately $800 million in cash.
Champion manufactures Luber-finer oil filters, which controlled an estimated 10
percent of North American aftermarket revenues in 2004. The Carlyle Group now
controls Luber-finer through its subsidiary United Components Inc.
Page 35
Product Analysis
There are two major types of products that are available to customers in the Class 68 North American aftermarket - new units and remanufactured units.
A new unit is counted when the selected engine component is replaced with a brand
new component. A remanufactured unit is counted when the component is repaired
to the manufacturer's original specifications using new parts, then returned to the
owner in like-new condition. Among selected engine components considered in this
study, only turbochargers are sold as remanufactured units in the aftermarket. Oil
filters, engine bearings, and glow plugs are rarely, if ever, remanufactured.
The decision of whether to purchase a new or a remanufactured component is based
on price and the availability of new parts. In the turbochargers aftermarket, the cost
of a remanufactured product is about 70 percent of the cost of a new unit. But there
is considerable variability in the price of remanufactured components based on the
vehicle in which the component is installed and the number of salvageable parts in
the component that is replaced. In some applications, the cost of a remanufactured
component could be as low as 30 to 40 percent of the price of a new unit. This offers
a valuable incentive to purchase a remanufactured engine component instead of a
new one.
The remanufacturing process typically involves a comprehensive cleaning,
replacement of worn parts, testing, and reassembly of the engine component. For
turbochargers, unit shipments and revenues of remanufactured components outpace
unit shipments of new components by a ratio of 3 or 4 to 1.
Page 36
Technology Trends
Technology continues to improve the engineering of engine components for the Class
6-8 North American aftermarket. Many of these improvements are made in response
to government regulations that mandate cleaner-burning engines.
The major technological trend that will impact the aftermarket in the coming years is
Exhaust Gas Recirculation (EGR). EGR is the heavy-duty diesel engine industry's
response to new regulations taking effect in 2007 that require manufacturers to
reduce exhaust emissions by 95 percent. EGR recirculates the exhaust output back
through the engine instead of discharging it through the tailpipe. This results in
reduced emissions, but also increases the volume of dirt and soot the engine
collects. It also results in hotter engine temperatures. These conditions require
additional technological advances to ensure optimal engine operation.
In the turbochargers product line, variable turbine geometry (VTG) and regulated
two-stage turbocharging are proving effective at improving the overall performance
of turbochargers as well as reducing NOx and particulate matter emissions.
VTG uses guide vanes located in front of the turbine wheel to regulate turbine
output. When the guide vanes are closed, the flow of exhaust entering the turbine is
reduced, and boost pressure is increased. At higher engine speeds, the guide vanes
gradually open and the required boost pressure is achieved at a low turbine pressure
ratio. The guide vane adjustments can be controlled by series of pneumatic or
electrical regulators. This type of output control leads to greater power, lower fuel
consumption, and better emissions controls.
Regulated two-stage turbocharging reduces the lag between operation at high
speeds and low speeds, when there is insufficient waste gas to power the
turbocharger. It consists of two turbochargers of different sizes connected through a
bypass. At low speeds, when the exhaust flow rate is low, the high-pressure turbine
receives the flow and produces a quick, high-boost pressure rise. At higher speeds,
the bypass shifts the exhaust flow to the low-pressure turbine to retain the same
output.
In the Class 6-8 oil filters aftermarket, manufacturers are experimenting with
different filter media in place of paper. Synthetic media can produce better filtration
because of its ability to capture smaller particles. Fiberglass and polyester have wide
acceptance as synthetic filter media, as do certain metals, like zinc. Synthetics are
found more often in high-performance filter products.
Manufacturers of engine bearings are looking at different types of materials that can
withstand hotter engine temperatures caused by EGR and that can be used in place
of lead to make the workplace safer for employees.
In the Class 6-8 glow plugs aftermarket, manufacturers are designing glow plugs
equipped with pressure sensors that can measure the fuel-to-air ratio in the
combustion chamber. This information is transmitted to a controller on the engine
that can electronically adjust this ratio. These "smart" or "intelligent" glow plugs
allow the engine to restrict NOx exhaust gas emissions because they receive only
enough fuel to generate combustion and nothing in excess of this need.
Page 37
Frost & Sullivan Competitive Strategy Leadership Award

Frost & Sullivan is pleased to present the 2005 Competitive Strategy Leadership
Award to BorgWarner Inc. for its advances in the marketing and design of
turbochargers in Class 6-8 trucks.
Over the past decade, the companys BorgWarner Turbo Systems business unit has
won a large following among commercial truck owners and managers, thanks to the
success of its Turbolader and Switzer labels. As a result, BorgWarner now rivals the
long-time industry leader for the top share of this market.
Frost & Sullivan estimates the North American aftermarket for turbochargers in Class
6-8 trucks to be worth $164.8 million in manufacturer-level revenues in 2004,
including sales of new and remanufactured components. With the impact of new
exhaust emissions standards, this market will soon grow at a rate of 8 to 9 percent
annually as truck owners and operators invest in newer products that bring their
vehicles into compliance with these regulations.
BorgWarner had approximately 35 percent of this market in 2004, which is up about
10 percentage points over the past five years. Frost & Sullivan believes that
BorgWarner will soon become the leading aftermarket manufacturer of Class 6-8
turbochargers in North America.
The reasons for this shift are easy to identify. BorgWarner clearly has a more defined
focus on the aftermarket than its competitors, with commercial diesel trucks as its
largest target market. Indeed, 95 percent of its revenues from the turbocharger
product line come from sales into the Class 6-8 truck segment. In addition, The
company's AirWerks program upgrades and retrofits turbos for cars and trucks not
equipped with the right engines for turbocharger applications, thus increasing the
size of the aftermarket in this segment.
BorgWarner also benefits from a more streamlined distribution system than its
competitors. The company sells most of its turbos to warehouse distributors, who are
able to get the product to end users at a lower price than original equipment service
dealers. BorgWarner selects the best distributors on the continent to sell its product,
and backs up that commitment with any needed support. This is why other
manufacturers recognize BorgWarner as the price leader in North America when it
comes to Class 6-8 turbochargers.
But having the most competitive price doesnt mean that BorgWarner offers a lower
level of quality or service. Just the opposite is the case. The companys product
designs in advanced variable turbine geometry (VTG) and regulated, two-stage
turbochargers represent top-of-the-line solutions to the most complex challenges of
turbo operations. For example, BorgWarner's two-stage turbocharger reduces the lag
between operation at high speeds and low speeds, when there is insufficient waste
gas to power the turbo. The company's use of improved alloys like cast aluminum
has extended the life of compressor wheels and other component parts.
BorgWarner also operates a sophisticated remanufacturing facility where
turbochargers are recycled and returned to service in the aftermarket. Its
overhauling procedure includes comprehensive cleaning, replacement of worn parts,
testing, and reassembly. Since remanufacturing accounts for a majority of
aftermarket revenues, this capability should keep BorgWarner at the top of the heap
in aftermarket sales.
Page 38
Unlike many aftermarket products, turbochargers are not a commodity. Their

production requires a high level of expertise. BorgWarner's capabilities in technology,
sales, and marketing position the company favorably to take advantage of future
growth opportunities in the turbochargers aftermarket.
Frost & Sullivan Business Development Strategy Award
Frost & Sullivan is pleased to present the 2005 Business Development Strategy
Award to Wellman Automotive Products, Inc., for its production and marketing of
diesel glow plugs for the North American aftermarket.
For decades, Wellman has been an established private-label manufacturer producing
some of the most well known brand names in this segment, including Autolite,
ACDelco, Champion, and Delphi. But in 2003, the company changed its business
strategy by introducing its own line of glow plugs under the WAP label. Wellman is
targeting independent wholesalers and fleet managers with its product, and its goal
of capturing revenues from its larger rivals is backed up by aggressive sales
promotion to the largest commercial accounts on the continent.
Wellman is presently advertising its product line in various fleet directories and is
planning an upgrade to its Web site that will help customers do business with the
company. In the meantime, its distributor base has been promoting WAP glow plugs
at various trade shows to help Wellman get its brand name out to potential
customers.
In an industry dominated by mega-suppliers that produce glow plugs as a small
fraction of a broad product line, Wellman Automotive Products specializes exclusively
in glow plugs. In fact, the company introduced the first glow plug ever designed back
in 1948 for Caterpillar and International engine applications. And Wellman has been
a pioneer in dual-coil manufacturing since the 1980s, which saves money for
customers by extending the life of the part. Ninety-five percent of Wellmans
revenues come from the sale of glow plugs, and every plug is hand-inspected and
tested twice before it leaves the shop to make sure it meets the Wellmans strict
quality standards.
Because Wellman manufactures and distributes its products in North America, its
labor costs typically exceed its better-financed competitors. Still, the companys
manufacturer-level prices tend to be below the industry average. This is especially
noteworthy in an economic environment marked by large increases in the costs of
raw materials. It is rare that a small, private manufacturer is able to compete with
large, multinational importers. But Wellman has a long track record of meeting the
manufacturing needs of its customers at the best possible price.
However, the most impressive aspect of Wellmans business development strategy is
its overall mission and organizational structure. The company is owned by the
nonprofit agency Shares Inc., whose primary purpose is to improve the lives of
mentally and physically disabled people. Wellmans profits finance job-training
programs in Indiana, and Wellman also employs many of the programs participants
in packaging and sorting roles. The company understands that community
involvement is an important part of any business strategy, and the goodwill
generated by these efforts has value in the marketplace.
Page 39
Wellman continues to private label glow plugs for its traditional customer base. But
that business has now taken a back seat to WAP. And with industry forecasts
projecting future growth in the volume of diesel engines across North America,
Wellman is positioned to thrive in the automotive aftermarket.
Frost & Sullivan Market Leadership Award
Frost & Sullivan is pleased to present the 2005 Market Leadership Award to
Fleetguard Inc. for its technological advancements in the design of oil filters and for
leading the aftermarket in total sales volume and revenue.
In the highly competitive oil filters industry, Fleetguard has consistently
demonstrated superior financial results. Thanks to the work of its sales and
marketing team, its market share particularly in the heavy-duty segment has
continued to grow even during periods of economic uncertainty. Growth rates of 3
percent in 2001-02 and between 6 and 9 percent in subsequent years have outpaced
the industry as a whole and are evidence of high conversion rates to Fleetguards
brand.
Frost & Sullivan estimates that Fleetguard controls about 32 percent of revenues in
the Class 6-8 oil filters aftermarket. That accounts for approximately 7.7 million filter
sales in 2004 and revenues of approximately $90.3 million. Those are impressive
figures in an industry marked by strong competition from reverse engineers and low
profit margins.
But the company doesnt just lead in sales. Fleetguards technological innovations
have extended the service life of its products and resulted in cost savings for its
customers. In 2005, the company will introduce to the aftermarket a sleek, new, allplastic filter that reduces the number of component parts. This move is also
consistent with Fleetguards ongoing vertical integration efforts. By producing its own
manufacturing commodities, the company reduces its costs and improves its
engineering capabilities.
Fleetguard also takes advantage of a broad, multichannel distribution system that
includes sole-source supply contracts with major original equipment manufacturers.
It dominates the original equipment service channel, with more than 15,000
dealer/distribution outlets worldwide. Its four distribution centers in the United
States and Canada ensure that product is also readily available to the independent
aftermarket.
Because of its relationships with the major engine manufacturers, Fleetguard is
positioned better than any of its competitors to design products that meet the
airborne emissions standards of the U.S. government. This is a valuable advantage,
since many of the newly designed engines recirculate exhaust instead of discharging
it. This process creates additional soot within the engine and puts additional
pressures on oil filters to help keep the engine clean.
The company is recognized by competitors as a leader in the development of new oil
filters and admired for its high sales volumes and revenues. And with its strong
research and engineering capabilities, it will be even more difficult in the future for
Fleetguard's competitors to replicate its premium filtration products.
Page 40
Frost & Sullivan Best Bang for the Buck Award

Frost & Sullivan is pleased to present its 2005 Best Bang for the Buck Award to
Champion Laboratories Inc. for its leadership in the aftermarket pricing of oil filters.
In this highly competitive industry, the company has maintained its price advantage
through substantial increases in the cost of raw materials and growing demands from
customers for products that are designed better and last longer.
Through its Luber-finer brand, Champion Laboratories offers quality that is
comparable to products found in the original equipment market at below-average
prices, providing valuable savings to fleet managers, maintenance shops and do-ityourselfers. Thats because its engineering processes have quickly adjusted to
technological innovations introduced into new engines to meet regulatory emissions
standards.
In 2003, for example, Champion added the Z-Guard bypass filter to the Luber-finer
product line. Z-Guard is equipped with a restriction valve that opens when the filter
is clogged or full-loaded. As a result, drivers can extend their drain intervals, which
means they change their oil less often and enjoy reduced maintenance costs. And
with todays newer engines generating more soot than they used to, a low-cost
bypass filter is the most cost-effective way to keep a new engine running cleanly.
Champion also offers a more economical line of full-flow filters that meet the needs
of the most price-sensitive customers in the aftermarket, including large truck fleets
and professional installers. One of Champions largest customers, the Petro truckstop chain, installs Luber-finer oil filters in its 24-hour service stations.
Luber-finer oil filters are also available through engine and truck dealerships,
warehouse distributors, and major retail outlets like OReilly Auto Parts, Pep Boys,
and NAPA. Its proximity to end users ensures that customers can always get product
whenever they need it.
Because of its long history in the oil filters business, Luber-finer has a tremendous
volume of institutional knowledge of lube filtration products. In fact, Luber-finer
invented the original bypass oil filter in 1936.
Over time, it has successfully implemented lean manufacturing practices and
protocols. In 2003, Champion completed a major plant expansion at Luber-finer's
Illinois production site. The project included improvements to the heavy-duty product
line, yielding greater plant capacity and cost savings through the acquisition of better
equipment. High employee loyalty and low overhead costs have also kept its prices
in check.
Champion Laboratories acquired Luber-finer in 1979. Although Champion engages in
price competition against larger, better-financed filter companies, it still finds the
resources to offer valuable, new innovations to the marketplace. Its newest Luberfiner products use a high-tech zinc composite as part of its filter media. This
development effectively maintains the oil's acid content at acceptable levels for a
longer period of time, resulting in longer part life and decreased costs for end users.
With profit margins deteriorating in aftermarket for oil filters, it is perhaps more
difficult than ever to underprice competing manufacturers. However, through design
efficiencies and cost containment, Champion Laboratories keeps engine oil cleaner
for less than anyone else.
Page 41
Class 6-8 NA Engine Bearings Aftermarket

Market Overview and Definitions
The Class 6-8 North American engine bearings aftermarket generated an estimated
$39.3 million in manufacturer-level revenues in 2004. This market has experienced
slow growth in recent years, and this trend is expected to remain in place over the
forecast period.
Engine bearings provide the stationary surfaces on which an engine's crankshaft and
camshaft turn, and where the connecting rods attach to the crankshaft. Because
these are friction bearings, they must be kept well oiled. Consequently, they are
made with oil holes and grooves. Friction bearings are sleeve-type units that have no
moving parts. By contrast, ball bearings and roller bearings are called anti-friction
bearings. They are used as wheel bearings, for example. These are not discussed in
this report.
This chapter classifies engine bearings as follows:
Crankshaft main bearings
Connecting rod bearings
Camshaft bearings
Crankshafts and camshafts rotate on their bearings. Connecting rods are located
between the pistons and the camshaft, converting the reciprocating motion of the
pistons into the rotary motion of the crankshaft. Since the crankshaft rotates in the
connecting rod bores, bearings are used in these bores. Together with an oil film,
bearings allow the crankshaft and camshaft to turn smoothly, and allow the
crankshaft to turn inside the connecting rod bores.
Engine bearings are usually replaced when the engine is overhauled. This interval
varies from every 250,000 miles to every 800,000 miles, depending on the
conditions of use and the owner of the truck. On average, the typical engine in Class
6-8 vehicles is overhauled after 500,000 miles in Class 8 vehicles and every 125,000
to 250,000 miles in Class 6-7 vehicles. Engine bearings may also be replaced
between overhauls because of premature failure, which may be caused by poor
engine maintenance like failure to change the oil or perform needed tune-ups.
Main bearings are often sold in sets of six, since most of the engines in this segment
are six-cylinder engines. However, there are also four-cylinder and eight-cylinder
main bearing sets available for purchase. In many cases, the main bearing set is part
of an overhaul kit that also includes gaskets, thrust washers, and other wearable
parts that are replaced when the engine is rebuilt. Main bearings can also be
purchased as a single bearing. Camshaft bearings are usually sold in the same
fashion as main bearings, either as a bearing set, as part of an overhaul kit, or as a
single bearing. Connecting rod bearings are included in most overhaul kits.
Typically, all engine bearings are replaced at the same time, even if just one bearing
is in need of immediate replacement, because of the labor involved in dismantling
the engine. However, camshaft bearings are typically replaced less frequently than
main bearings and rod bearings. One reason for this is that they tend to wear less
often than main and rod bearings. Also, camshaft bearings are less accessible than
main and rod bearings, requiring further disassembly of the engine to replace parts.
As a general rule, camshaft bearings are replaced after every second overhaul.
Page 42
The design and function of engine bearings has changed little in the recent past.
However, manufacturers are considering the use of different materials in the
construction of engine bearings, including various aluminum alloys, and important
changes will likely take place over the forecast period. These changes are being
driven by the introduction of new engines in 2007 that generate more heat and
greater compression. Some manufacturers are also trying to eliminate the use of
lead in their production processes, which also drives efforts to find different materials
with which to make engine bearings.
The strength of the North American economy helped aftermarket sales of engine
bearings in 2004. Demand for freight and delivery truck service grew, resulting in
more miles traveled by trucks in the Class 6-8 segment. The more miles traveled by
Class 6-8 trucks, the more often their engines are overhauled and their engine
bearings replaced. However, the improving quality of engine bearings at both the
original equipment and aftermarket levels now results in the replacement of fewer
engine bearings. Products tend to last longer than they used to, and this trend will
continue to affect aftermarket sales over the forecast period. There is also evidence
that trucks are traveling greater distances between overhauls, which delays the
purchase of replacement parts and impinges negatively on the aftermarket.
The scope of this analysis is confined to engine bearings installed in vehicles with a
gross vehicle weight rating of 19,501 pounds or more. Revenue and unit shipments
are provided at the manufacturer level, that is from the manufacturer to the first
point of distribution. Revenue and unit shipment forecasts are presented from 20012011. The geographic scope of this research is North America, which includes
Canada and the United States.
Four companies supply engine bearings to the U.S. and Canadian aftermarket. The
top two manufacturers generate 92 percent of the revenues. They are Federal-Mogul
Corp. and Dana Corp.
Page 43
Market Engineering Analysis

Chart 5.1 lists the Market Engineering measurements for the total Class 6-8 North
American engine bearings aftermarket. The market engineering research
measurement analysis summarizes the key variables, including price, revenues,
growth rates, and number of competitors in the market, and indicates the direction
in which the category is moving.
Page 44
Unit Shipment and Revenue Forecasts

Figure 5-1 and Chart 5.2 present unit shipment and revenue forecasts for the Class
6-8 North American engine bearings aftermarket for the 2001-2011 period.
Revenues are provided at the manufacturer level.
Page 45
Unit shipments and revenues of Class 6-8 engine bearings have shown little growth
over the past few years because of slow economic growth and improved product
quality. In 2001, revenues totaled $35.3 million. By 2004, revenues had increased to
approximately $39.3 million. Sales are expected to reach $49.7 million in 2011,
registering a compound annual growth rate (CAGR) of 3.4 percent.
Demand for engine bearings in the Class 6-8 North American aftermarket is directly
related to the number of vehicles in service and the distances that these vehicles
travel. Engine bearing sales will show flat to slightly increasing growth in the coming
years as new trucks are sold and existing vehicles age and accumulate additional
miles. But with trucks traveling greater distances between overhauls and truck
owners and operators delaying maintenance on their fleets, this growth will be
minimal. The introduction of improved motor oils to withstand the heat produced by
Exhaust Gas Recirculation (EGR) engines also reduces wear on engine bearings.
Figure 5-2 and Chart 5.3 presents percentage of revenues by product type.
Revenues for main bearings will outpace revenues for connecting rod bearings and
camshaft bearings because prices for main bearings are higher than for rod or
camshaft bearings. However, unit sales for main bearings and connecting rod
bearings will mirror each other to a large degree because engines typically use the
same number of each bearing, and these bearings are typically replaced at the same
time when the engine is overhauled.
Page 46
Main bearing revenues in the Class 6-8 North American aftermarket totaled
approximately $24 million in 2004. This total is expected to reach $30.3 million in
2011, posting a CAGR of 1.2 percent. Revenues for connecting rod bearings totaled
approximately $12.3 million in 2004. This total is expected to reach $15.8 million in
2011, posting a CAGR of 1.1 percent.
Unit sales and revenues for camshaft bearings are lower than for main and rod
bearings because camshaft bearings are replaced with less frequency. Generally
speaking, camshaft bearings are replaced at every second overhaul unless
premature failure causes them to be replaced sooner. Revenues for camshaft
bearings in the Class 6-8 North American aftermarket totaled approximately $2.9
million in 2004. This total is expected to reach $3.7 million in 2011, posting a CAGR
of 1.2 percent.
The following factors will drive sales of engine bearings in the Class 6-8 North
American aftermarket:
Increasing market demand for freight hauling service
Higher cost of new engines equipped with emissions controls

Increasing market demand for freight hauling service
With the economic recovery under way in North America, there will be greater
demand for trucks to deliver goods to their intended markets. This is a major driver
of unit sales in the aftermarket because it puts more trucks on the road, and the
trucks travel more miles than they would otherwise. In bad economic times, the
opposite effect is felt.
Page 47
Major economic indicators like the Gross Domestic Product (GDP) are good indicators
for what will happen to demand for replacement engine bearings. Improving
conditions in 2004 translated into strong sales years for nearly all manufacturers in
this segment. Most economic forecasts for the United States and Canada are
optimistic over the next couple of years. That is good news for the Class 6-8 North
American engine bearings aftermarket.
Higher cost of new engines
By 2007, engine manufacturers must meet stricter standards for NOx and other
airborne pollutants emitted by new internal combustion engines. The cost of
complying with these mandates is likely to push up the cost of the engine and, by
extension, the cost of a new vehicle. This added cost gives truck owners and
operators an incentive to keep their older engines in service instead of buying new
vehicles. Keeping older engines in service helps aftermarket sales of engine bearings
since older engines require more maintenance than a new engine.
Unit sales of engine bearings in the Class 6-8 North American aftermarket will grow
at a CAGR of 1.1 percent over the forecast period. The following factors will restrain
the market from further growth:
Trucks traveling greater distances between overhauls
Price increases discourage sales

Trucks traveling greater distances between overhauls
Higher quality and performance in today's engines means that vehicles can travel
farther between overhauls. Since engine bearings are usually replaced during
overhauls, fewer overhauls results in fewer engine bearings sold in the aftermarket.
Some trucks can travel 800,000 miles or more without showing symptoms of
disrepair, and an overhaul may be performed just to keep problems from developing
in the future. The use of motor oils with additives that offer greater protection to the
engine is one reason why vehicles have reduced their maintenance schedules. In
other cases, cost is a factor. Overhauls may be skipped to reduce maintenance costs,
particularly if the vehicle is operating well.
Price increases discourage sales
Engine bearing manufacturers passed on a 4.9 percent price increase to their
customers in 2004. While this is larger than the 1 to 2 percent price increase most
customers have come to expect, it does not cover manufacturers' increase in steel
and other raw materials costs. However, fleet managers and other large customers
are discouraged from holding parts in inventory when the price is relatively high and
may delay purchases until the price drops again.
Page 48
Trends by Geographic Region

Figure 5-3 and Chart 5.4 shows the percentage of revenues in the Class 6-8 North
American engine bearings aftermarket for the United States and Canada. This
aftermarket relies on how many light vehicles are in operation in the United States
and in Canada. Both the U.S. and Canadian car parc is growing, with increasing new
vehicle sales and longer lasting vehicles. The United States has 4.1 million Class 6-8
vehicles in operation, while there are 370,000 Class 6-8 vehicles in operation in
Canada.
Page 49
The replacement rate for engine bearings is slightly higher in the United States than
in Canada. The reason is that the warmer weather conditions in the United States
lead to dirtier and dustier engines. When an engine is excessively dirty, the engine
bearings may be perform poorly as stationary surfaces on which the camshaft and
crankshaft turn. The oil film may dry up, and the turning motions of the camshaft
and crankshaft become inhibited. In extreme cases, this can cause engine failure.
In addition, new diesel engine emissions regulations will take effect in 2007 for Class
6-8 vehicles in the United States. This will cause an increase in preventive
maintenance for U.S. trucks as vehicle owners and operators try to keep their
engines in good condition so they can delay the purchase of new trucks.
For these reasons, the aftermarket revenue share of the United States tends to
exceed its percentage of vehicles in service, while the aftermarket revenue share of
Canada is typically lower than its percentage of vehicles in service.
Page 50
Pricing Analysis and Trends

Figure 5-4 and Chart 5.5 show the pricing trends for the Class 6-8 North American
engine bearings aftermarket for the 2001-2011 period.
Page 51
In 2004, manufacturer-level engine bearings prices for Class 6-8 trucks ranged
between $4.59 and $44.40, depending on the type of bearing purchased and
whether it was purchased as a set or as a single bearing. The average unit price
rested at $17.65. Manufacturer-level pricing has been increasing at a rate lower than
for most other Class 6-8 North American aftermarket parts, and is forecast to rise to
$20.66 in 2011, posting a compound annual growth rate (CAGR) of 2.3 percent
during the 2001-2011 period.
Main bearings are the most costly of the three types of engine bearings included in
this service. The larger size of the main bearing and the material used in the bearing
phalanges make them more expensive than connecting rod and camshaft bearings.
In 2004, the average price of a main bearing purchased in the Class 6-8 North
American aftermarket was $26.43. Main bearings in this segment are usually sold in
sets of six, which reduces the average unit price significantly. A single main bearing
can cost up to $44.40. The average price for main bearings will grow to $30.71 in
2011, posting a CAGR of 2.2 percent.
The average price for a connecting rod bearing in 2004 was $13.55. Connecting rod
bearings are usually sold as a connecting rod pair, which includes an upper shell and
a lower shell. The average price for a single connecting rod bearing will grow to
$16.07 in 2011, posting a CAGR of 2.5 percent.
The average price for a camshaft bearing in 2004 was $7.15. Like main bearings,
camshaft bearings are usually sold in sets instead of single units. Therefore, a single
camshaft bearing will cost more than the average price. The average price for a
camshaft bearing will increase to $8.37 in 2011, posting a CAGR of 2.3 percent.
Prices across product categories increased by 4.9 percent in 2004 in response to
manufacturers' higher raw materials costs. This is significantly higher than the 1 to 2
percent annual price increases common in this segment. Customers are more willing
to accept such increases during periods of inflation, although some purchases are
postponed during periods of rising prices.
In general, prices are 20 to 25 percent lower when engine bearings are purchased
from warehouse distributors (WDs) than when purchased during servicing at the
vehicle manufacturer's or engine manufacturer's dealership.
The following factors will drive prices of engine bearings higher in the Class 6-8
North American aftermarket over the forecast period:
Increases in the cost of steel and other raw materials
Changes in product designs that are needed to fit new types of engines
Increases in the cost of steel and other raw materials
Raw materials costs for manufacturers of engine bearings rose by 6 to 8 percent in
2004, with the rising cost of steel as the main reason for this increase.The causes for
this increase in steel prices include heavy steel consumption in Asia - and in China, in
particular - and a lack of domestic production capacity resulting from industry
mergers and consolidations.
Expectations for the future price of steel vary by manufacturer. Most expect steel
prices to remain at historically high levels for at least the next 12 to 18 months.
Beyond that, some expect prices to return to near pre-2004 levels while others
believe that steel prices are not likely to return to pre-2004 levels even after
inflationary pressures subside. An independent analysis favors this latter view, as
Page 52
current production and consumption trends do not support a return to lower prices.
As a result, raw materials costs will continue to play a major role in the pricing of
engine bearings in the Class 6-8 North American aftermarket over the forecast
period.
Changes in product designs needed to fit new types of engines
With U.S. government mandates for cleaner-burning engines taking effect in 2007,
suppliers of engine components must design products that will fit the specifications
of these new engines. Some of the costs associated with this process will
undoubtedly be passed on to customers.
In 2007, engines installed in new vehicles will have to meet standards that require
reduced nitrogen oxide (NOx) and particulate matter exhaust output. In response to
this mandate, engine manufacturers have redesigned their engines to emit less
exhaust. One consequence of these new engine designs is that they produce more
heat because the exhaust is recirculated through the engine instead of being
discharged into the atmosphere. The challenge for engine bearing manufacturers is
to produce affordable products that will fit these engine designs and are capable of
withstanding hotter temperatures.
The following factors will restrain the average price of engine bearings over the
forecast period:
Competition between WDs and vehicle manufacturers in the distribution

channel
Off-shore sourcing of labor and materials

Competition between WDs and vehicle manufacturers in the distribution
channel
The independent aftermarket puts pricing pressure on vehicle and engine
manufacturers who sell aftermarket parts through their dealerships' service centers.
At the dealership, the cost of replacement engine bearings is 20 to 25 percent higher
than they are when purchased from a WD. A WD buys engine bearings directly from
the manufacturer and stores them for resale to fleet managers, jobbers, and
independent service garages.
Vehicle and engine manufacturers have a large share of the Class 6-8 North
American engine bearings aftermarket because of warranty agreements that are
included with the sale of the truck or the engine. However, a volume dealer like a
WD can supply engine bearings at a lower cost, and many WDs are also rebuilders.
Growth in the WD channel of distribution restrains the average price of engine
bearings from higher growth.
Off-shore sourcing of labor and materials
All major manufacturers in the Class 6-8 North American engine bearings
aftermarket have production facilities located outside of North America. Many
aftermarket engine bearings sold in the United States and Canada are still
manufactured domestically, but both Federal-Mogul Corp. and Dana Corp. are
procuring labor and materials overseas in an effort to control costs.
Costs for labor and materials can be substantially lower in Asia, South America and
other foreign sites. Factories in Latin America, Europe, and even Africa now supply
the North American aftermarket. The Mahle Group produces all of its diesel bearings
Page 53
in Brazil. For the market leaders, such practices take on greater importance as an
increasing number of engine bearings are exported to North American from Asia and
Europe.
Price drivers will outweigh price restraints, resulting in a trend of increasing prices
over the forecast period. Competition between the main channels of distribution and
the continuing shift of production sites away from North America will only partially
offset the short- and medium-term impacts of rising raw materials costs and changes
brought about by U.S. environmental regulations. The price of steel and the need to
produce engines that comply with new regulations are costs that must be absorbed
over the next couple of years and they have a direct impact on the price of selected
engine components. By contrast, competition between distributors and moving to
lower-cost production sites serve to restrain prices from further growth, but do not
allow manufacturers to lower prices.
Page 54
Distribution Channel Analysis

Figure 5-5 and Chart 5.6 illustrate how engine bearings are sold in the Class 6-8
North American engine bearings aftermarket. There are two main channels of
distribution. They are warehouse distributors (WDs) and vehicle manufacturers'
dealership service centers.
In 2004, about 62.8 percent of revenues were generated through the vehicle or
engine manufacturers' service channel. Most vehicles are serviced by the vehicle or
engine manufacturers' dealer network for the first and second overhauls. In some
cases, the vehicle may be on lease from the dealer and the replacement of engine
components may be part of the lease contract. The vehicle owner or operator might
take the truck to a Freightliner or a Mack Truck dealership, or to a Caterpillar or a
Page 55
Detroit Diesel dealership, to have the engine overhauled. The manufacturer of the
engine bearings makes the part to the dealer's original equipment specifications.
Aftermarket brands are typically not sold in this channel.
Class 6-8 vehicles are more likely to enter the independent aftermarket at the third
overhaul than at the first or second overhaul. Typically, the truck may has been sold
once or twice by this time and is under the control of a different owner. This channel,
which is administered by WDs, controlled 26.7 percent of revenues in 2004. In this
market, the WD may be a heavy-duty distributor who specializes in Class 6-8
vehicles. The WD distributor buys and stores engine bearings from the manufacturer
for resale to jobbers or independent garages. A jobber is someone who buys engine
bearings from a WD for resale to independent garages, fleet managers, or other end
users, and assumes the logistical responsibility for getting the product from the WD
to the buyer.
A third channel of distribution is a direct sale from the manufacturer to a rebuilder,
who could also be a WD. Large companies that specialize in engine overhauls will buy
engine bearings and other needed parts directly from the manufacturer, thereby
eliminating the WD from the distribution structure. This arrangement accounted for
approximately 10.5 percent of revenues in 2004. Sometimes, the rebuilder will sell
parts to another independent garage.
Page 56
Competitive Structure
Figure 5-6 shows the competitive structure of the Class 6-8 North American engine
bearings aftermarket.
In 2004, Dana Corp. sold its Automotive Aftermarket Group to The Cypress Group for
approximately $1 billion. However, the sale specifically excluded the distributing and
marketing operations of Dana's piston rings, gaskets, engine bearings, and other
engine products. Dana's Clevite-brand engine bearings have been retained as part of
the Automotive Systems Group.
There have been no major acquisitions or divestitures in this market for more than
five years. The key competitive factors include:
Production capabilities
Reputation
Price
At the dealership level, where most engine bearings are replaced, competitors must
have the production capabilities to manufacture engine bearings to original
equipment specifications. Vehicle and engine manufacturers demand original
equipment parts for replacement in their service facilities. Aftermarket brands are
sold almost exclusively to warehouse distributors and rebuilders through the
independent aftermarket. Without the production capabilities to manufacture both
products, it would be impossible to build an installer network capable of competing
with established suppliers.
Reputation is an important competitive factor in an industry with two dominant
suppliers. Because engine bearings are replaced infrequently, high premature failure
Page 57
rates would cause high-than-expected maintenance costs for end-users, who would
consequently switch to another manufacturer's product. To compete successfully in
the Class 6-8 North American engine bearings aftermarket, a reputation for quality
and reliability is critical. This is especially true for a new entrant into the market.
Price is an important competitive factor for customers and end-users who buy engine
bearings in large volumes. All manufacturers faced high raw-material cost increases
in 2004, but they were typically unwilling or unable to pass all of these costs on to
customers through price increases. The 4.2 percent price hike in 2004 did not cover
all of engine bearing manufacturers' cost increases. Customer sensitivity to price
requires manufacturers to absorb small losses in times of inflation. Pricing strategies
that overlook this factor are likely to alienate customers, leading them to change
suppliers.
A total of 7 companies supply engine bearings to the Class 6-8 North American
aftermarket. The aftermarket is controlled by independent suppliers with two
companies collecting more than 92 percent of revenues. They include:
Federal-Mogul Corp.
Dana Corp.
The remainder of Class 6-8 engine bearings suppliers in North America is comprised
of foreign-based companies that export engine bearings to the United States and
Canada.
Page 58
Market Share Analysis

Figure 5-7 and Chart 5.7 show the market share analysis of the Class 6-8 North
American engine bearings aftermarket. Major participants include:
Federal-Mogul Corp.
Dana Corp.
The Mahle Group
Page 59
Dana Corp.
Dana Corp. held 46 percent of revenues in this market in 2004. Its Clevite brand
name competes head-to-head against FP Diesel in the independent aftermarket. Like
Federal-Mogul, Dana has original equipment platforms to produce engine bearings
for engine and vehicle manufacturers' dealership service centers. It is still unclear
what impact the recent divestiture of Dana's Automotive Aftermarket Group will have
on Clevite's production, sales, and marketing. Dana decided against divesting this
product line largely so that it could keep its factories and other income-producing
assets associated with this business. A future sale is still a possibility but, for the
moment, Dana appears to be committed to funding its engine parts aftermarket
business at comparatively historic levels.
Federal-Mogul Corp.
Federal-Mogul held 46.4 percent of revenues in the Class 6-8 North American engine
bearings aftermarket in 2004. Its FP Diesel brand is a well-known label in the Class
6-8 independent aftermarket, and the company also makes engine bearings for
resale in vehicle and engine manufacturers' dealership service centers. With Dana
Corp.'s recent divestiture of most of its aftermarket business, Federal-Mogul is now a
much bigger company than Dana and is more likely to have the financial backing to
produce and market engine bearings for this market. Federal-Mogul is leading an
effort to remove lead from the manufacturing process, and has a laboratory in Ann
Arbor, Mich., that is dedicated solely to the material analysis of engine bearings.
King Engine Bearings is a reverse-engineering operation that produces replacement
rod, main, and camshaft bearings under the King label. The company held less that 1
percent of revenues in 2004. Like The Mahle Group, its North American sales are
almost exclusively into the car and light-truck market. The company is based in
Israel, and is recognized as a price leader in the sale of engine bearings. Its U.S.
subsidiary is located in New Jersey, which serves as the main point of distribution for
King's North American sales. Although it has the smallest share of this market, King
is also growing the fastest.
The Mahle Group
The Mahle Group held 3.6 percent of revenues in 2004. Although its share of this
market is small, The Mahle Group is a respected competitor in the engine bearings
aftermarket. Most of its sales are into the car and light-truck market, with only a
small percentage of its business coming from the Class 6-8 segment. The Germanbased company manufactures engine bearings under the Metal Leve label. It has a
much smaller presence in the vehicle and engine manufacturers' dealership service
channel, which is dominated by Federal-Mogul and Dana. The Mahle Group is large
enough to make a bid for Clevite which, if accepted, would substantially change the
dynamics of this market.
Others
Others include:
Daido
Miba
Esco
and various offshore suppliers.
Page 60

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North American Class 6-8 Engine Components Aftermarket

The North American Selected Class 6-8

Schaeffler Group USA Inc.

Copyright 2005 Frost & Sullivan

Schaeffler Group USA Inc.

01: Product Segmentation

Copyright 2005 Frost & Sullivan

02: Study Focus

Copyright 2005 Frost & Sullivan

Schaeffler Group USA Inc.

03: Scope and Definitions

Unit Shipments (Millions)

04: Total Market Forecast, 2001-2011

Compound Annual Growth Rate (2004-2011): 8.3%

Schaeffler Group USA Inc.

05: Manufacturer Level Revenue Trends by

Copyright 2005 Frost & Sullivan

06: Manufacturer Level Revenue Market Potential

Total Market 8.3% CAGR

Engine Bearings 3.4% CAGR

Turbochargers 7.3% CAGR

Glow Plugs 2.4% CAGR

Oil Filters 9.5% CAGR

Schaeffler Group USA Inc.

07: Total Market Size and Potential by Revenue

Copyright 2005 Frost & Sullivan

08: Manufacturer-Level Prices by Segment

Copyright 2005 Frost & Sullivan

Schaeffler Group USA Inc.

09: Total Revenues by Geographic Region, 20012011

Copyright 2005 Frost & Sullivan

10: Market Drivers and Restraints

Truck owners/ operators aim for

Copyright 2005 Frost & Sullivan

Schaeffler Group USA Inc.

11: Total Selected Engine Components

Rising raw materials costs

Copyright 2005 Frost & Sullivan

12: Major Participants 2004

Robert Bosch Corp.

The Mahle Group

King Engine Bearings

Copyright 2005 Frost & Sullivan

Schaeffler Group USA Inc.

Copyright 2005 Frost & Sullivan

13: Conclusions (continued)

Copyright 2005 Frost & Sullivan

Schaeffler Group USA Inc.

Total Class 6-8 NA HD Engine Components Aftermarket

Class 6: 19,501 to 26,000 pounds of Gross Vehicle Weight Rating (GVWR)

Class 7: 26,001 to 33,000 pounds of GVWR

Class 8: 33,001 pounds and up of GVWR

buses by 95 percent. The rule requires a manufacturer-run, in-use testing program

Schaeffler Group USA Inc.

Market Engineering Analysis

Schaeffler Group USA Inc.

Schaeffler Group USA Inc.

Unit Shipment Drivers

Truck and engine manufacturers recommend more aggressive maintenance

Schaeffler Group USA Inc.

Unit Shipment Restraints

Schaeffler Group USA Inc.

Schaeffler Group USA Inc.