Needs and wants drive the automotive after-market.
That simple truth has propelled it into a $185 billion a year industry that's comprised of three large categories: accessories and appearance parts, performance parts and replacement parts.
Although replacement parts accounted for about 85% of spending in 2002, accessories and performance, or specialty, parts make up the fastest-growing segment of the aftermarket.
A report by the Specialty Equipment Market Assn. (SEMA) says retail sales of accessories and performance parts increased more than 50% in eight years, from $16.7 billion in 1995 to $27 billion in 2002. This has dealers and manufacturers alike scrambling to get a bigger bite of the business.
Sandy Brawley of the Automotive Aftermarket Industry Association tells how three companies that snared bigger pieces of their markets shared several characteristics.
They were consumer focused, they expanded their category, they had disciplined implementations of their business plans, they used their assets wisely, and they had quality management and quality products, Brawley says in an Automotive Market Research Council presentation entitled “Increasing the Size of the Pie.”
Dealers can use those traits as guidelines to increase aftermarket sales because dealers can adjust quicker to aftermarket trends that SEMA says are fragmented, faddish and driven by innovations, lifestyles and niches.
That's especially true of the accessories and appearance segment of the aftermarket. It grew from 42.5% of specialty parts sales in 1990 to 57.6% of sales last year.
During the same period, racing and performance parts' market share declined from 31% of the segment to 18.2%. Wheels, tires and suspensions, or handling components, remained relatively flat with a 26.9% share of the specialty market in 1990 compared to 24.2% share in 2002.
Jim Spoonhower, SEMA's vice president of market research, attributed the increased accessories sales to:
- Consumers who want to make look-alike models look different
- Lifestyles that have consumers outfitting their vehicles to make them more enjoyable
- New-car innovations that spur the retrofitting of older vehicles with the latest bells and whistles such as communication and navigation systems.
“It's not a singular thing, there are number of things that come together that causes growth in the accessories and performance parts market,” says Spoonhower.
While the market share of performance parts declined, sales still increased. SEMA says retail sales of accessories and performance parts for compact performance cars grew from $295 million in 1997 to $2.4 billion in 2002. Youth are spending big bucks to spiff up these small, mostly Asian, sport compacts.
Nearly 60 million people aged 15 to 29 comprise the U.S. youth market. Mouthwatering is the amount of money those young people spent on aftermarket parts and accessories for their vehicles.
While 30.6% spent up to $1,000 (sometimes virtually all on wheels), 24% spent more than $5,000 accessorizing their vehicles. And almost 20% purchased $3,000-$5,000 worth of aftermarket accessories and parts.
The most popular items are performance tires, wheels, exhaust systems and cold air intakes.
Still, compact performance cars are not necessarily firing up the accessories aftermarket. That distinction belongs to trucks. They account for 75% of the market.
“Whether it's a pickup truck, or a minivan, (consumers) want it to be easier to use,” says Spoonhower. “When trucks were work vehicles, you didn't worry about what they looked like or how they rode. Now that they're more of a day-to-day vehicle, they need more amenities. They've become nice canvasses for accessories.”
DaimlerChrysler AG's Chrysler Group is an example of how manufacturers are trying to get a bigger piece of aftermarket buyers and share the wealth with their dealers.
In June, the company announced a complete line of performance upgrade parts for the Dodge Neon SRT-4, which the auto maker already bills as the quickest production car in North America priced under $20,000.
Chrysler also announced availability of a voice-activated cell phone, a navigation system and Sirius Satellite Radio. All three are now dealer-installed options on 2003 and 2004 Chrysler, Dodge and Jeep models.
Meanwhile, Honda started offering a dealer-installed factory performance package, which consists of appearance accessories, for the Accord Coupe in June.
“There's a market out there for people who want factory-backed performance packages,” says Honda spokesman Matt Pearson.
Almost a dozen dealer-installed appearance accessories are available with Toyota's Scion brand cars that went on sale in California in June. Each domestic manufacturer now has an in-house skunk works to pump up performance on selected models.
What's more, dealers are beginning to use accessories to move used cars off their lots.
“Appearance enhancements can help draw general traffic to the showrooms,” says Paul Taylor, chief economist for the National Automobile Dealers Assn. “We've also seen increased use of aftermarket equipment to make used cars more appealing at a time when many late model cars have been traded in.
Spoonhower adds, “If you've got 10 cars sitting on the lot, how do you get them to sell? Well, maybe in one you put a sunroof, in another you put different wheels, and in another you put a little different interior or custom trim. We're seeing more and more dealers using these kinds of enhancements, and the car companies are helping them to turn that inventory around.”
He predicts that, while trucks will continue to lead the specialty market, European station wagons and all crossover vehicles will be the next segment to get aftermarket wheels, performance parts and accessories enhancements.
Dealers managed to increase their share of retail outlet sales from 10.5% in 1997 to 11.4% in 2001 to maintain their fourth-place ranking.
With markups of almost 300% and a segment that's booming, the aftermarket is likely to become an even more important component of dealers' profit margins.