Issue link: https://read.dmtmag.com/i/166113
More Modern Problems I LEGAL LINE try not to look back very often, but since I will be giving a presentation at the Convention in Banff this year, I thought reading what I wrote after last year's Convention in Miami might provide insight into the progress made, or the lack thereof, since last fall. This, of course, includes the hard side of the business and the soft side as well. Unfortunately, it seems that there are two opposing trends in the hard (parts) side of the business: proliferation and consolidation. Both are driven by the realities of the market, technology and the ever present and helpful government(s). These trends have potential long-term consequences for our industry for a host of reasons. First, the consolidation trend is most evident in the engine parts market, where fewer manufacturers are supplying more and more of the OEM and aftermarket. Why? First, economies of scale dictate consolidation, and that "scale" now must include substantial investments in R&D, in production facilities, partnerships with lower tier vendors, and the staggering cost of regulatory compliance. The latter was brought home to me recently when I was sending clients and associates some materials from the latest Society of Automotive Engineers "Off-highway" magazine. The lead article described the complexity and costs of the add-ons for emissions compliance. Indeed, the photos with the lead piece depicted about a 300-horsepower diesel with IDA UNIVERSAL September-October 2013 exhaust after-treatment apparatus almost as large as the engine itself. It is one thing to bolt this equipment on a display engine, but it is something entirely different to package it in a truck, dozer, loader or other "real" application. In this reality ignorant regulatory climate, the downstream effect is starting to mimic the incredibly burdensome California Air Resources Board (CARB) and US EPA requirements. Long-term durability/performance testing of engines and power trains enable them to be certified as emissions-compliant, and thus saleable, without being fined and prosecuted. The aftermarket is starting to feel the heat in another business. For example, in "CARBland," no aftermarket product related to emissions can be legally sold, unless it has been certified. In a simple example, a high-performance aftermarket intake system for a Honda or Toyota must be tested at great cost and certified before leaving the shop floor to keep the CARB watchdogs quiet. Undoubtedly, this climate will be first felt in truck and off road, with any product that touches the fuel and air: turbochargers, fuel injection new and reconditioned replacements, control systems, and similar products. Next will be the "working parts," such as pistons, rings, valves and liners – in essence, anything that could "influence" or "upset" combustion or after flow and create a risk of different, and thus unlawful, emissions. Robert W. McIntyre IDA Association Legal Counsel Here, then, lies the potential for a governmental requirement that every such part be "tested and certified" in the same manner it is by the OEM, even if it were made by the same lower tier as the OEM. This will be a get-rich ticket for the OEMs, and they already know it. They have already started restricting access to control software and hardware. Next, it will be not so subtle hints to the regulators that the aftermarket is incapable of supplying "emissions legal" engine parts and, thus, should be regulated out of business. Combine this with the ever present pressure on the OEM's suppliers to forgo sales to the aftermarket distribution world, and the supply chains start to wither and die. On the other hand, many OEM suppliers have developed robust aftermarket presences themselves and, thus, could be at risk for more regulation and conflict with their "best" customers. In this mix is stirred the disparate size of many companies – from the largest companies, with in place resources for certification, which drastically cuts that expense, to the smaller companies with equal engineering and Continued on page 64 13