Incentives have not yet reduced new vehicles to loss leaders, but they have put pressure on the sale of accessories, service and performance vehicles to help counter profit shortfalls.
General Motors Corp. estimates 15% of the $25 billion accessories business is done through dealers, meaning a whack of potential profit is lost to the aftermarket. Of the $3-billion dealer-channel accessories business, only 25% is done by GM, says Nancy Philippart, executive director-GM accessories, business channel, service and parts operations.
GM has been in the accessories business for a long time, but more in the parts aspect of it.
A GM accessories team was pulled together two years ago to go after a bigger piece of this pie. The strategy is to develop accessories along with the vehicle (as opposed to reverse engineering aftermarket parts), ensure they are integrated into the vehicle design, broaden the portfolio, and offer the richer mix of accessories at launch.
A few years ago, GM was lucky to have 40% of accessories available at launch, says Philippart. Today it's 95%. “So we're getting revenue right away and have first-mover advantage before the aftermarket gets in the game.”
Engineering accessories into the vehicle architecture means the running boards for the Chevrolet SSR, for example, fit into the overall design, are easier to install and the final product has higher quality, says Philippart. Purchasing power is leveraged, and validating the accessories as part of the regular vehicle reduces cost and helps on timing.
The first real attempt at integration was the '01 Chevrolet Avalanche, with running boards that could be installed in less than half an hour because the holes were already in the body.
The concept was turned up a notch with the Hummer H2, where the average transaction includes $2,000 worth of accessories — having a noticeable impact on the bottom line.
Toyota Motor Corp. is relying on accessories to boost profits on its spartanly priced Scion brand of vehicles, which start at $12,480 for the xA and $13,680 for the xB.
Toyota expects to sell $1,000-$3,000 worth per vehicle from the roughly 40 available accessories, ranging from $49 for a carbon-fiber shift knob to $595 for satellite radio. Toyota-authorized tuner parts include sport pedals, spoilers, color-lighted cupholders and decals.
Similarly, Nissan Motor Co. Ltd. engineered its Titan fullsize pickup to accept cargo-carrying accessories. The truck's optional “high-utility bed” comes with a track system to anchor boxes of various sizes and shapes, all sold by dealers.
Nissan expects large profit margin enhancements because no other auto maker is addressing cargo management in the same manner.
At GM, the emphasis on the accessories business is starting to pay off, says Philippart. After 15% growth last year, the group is on track for another 60% this year and again in 2004.
It is estimated that the aftermarket in general has a markup of about 300%. In 2001, the total specialty equipment market was worth an estimated $26 billion, says the Specialty Equipment Market Assn. (SEMA). It has been growing at roughly twice the rate as the auto industry in general.
Chrysler Group, in late 2002, gave notice it was relaunching its Mopar parts brand to go after a larger share of the aftermarket business. Admitting the parts giant had fallen behind, Mopar changed its logo, increased its advertising and presence at tuner competitions, and launched a new line of performance parts accessories geared to the tuner market.
Each of the Big Three now has a performance division. Ford Motor Co.'s Specialty Vehicle Engineering team is best known, having been around for 10 years and developing such products as the SVT F-150 Lightning and SVT Mustang Cobra.
Chrysler announced its new Performance Vehicle Operations in 2002 with the introduction of its first trio of concepts: the Dodge Viper SRT-10, Ram SRT-10 and Neon SRT-4, all now in, or headed for, production.
The auto maker also formed what it calls the Excitement Vehicle Team in February 2002, an ad hoc committee of 60 engineers working with SEMA to increase the presence of Chrysler Group products in the aftermarket tuner business.