Custom Car Crystal Ball

Dec 2, 2009

Some aftermarket segments are blatantly healthier than others. For example, products that make large vehicles even less fuel-efficient aren’t moving very fast. A common industry assessment is that the younger aftermarket segments – specifically sport-compact performance and pickup truck customizing – will lose the most ground in the coming months. The rationale: disposable-diaper-demographic enthusiasts have less disposable income. Also, the truck aftermarket relies heavily on the construction industry, which could remain stagnant in the coming months.

With new-car sales down, the comparatively hot segment for the performance aftermarket appears to be the one that started the industry: rods. The “gray” areas (based on the typical enthusiast’s hair/beard color) – street rods, street machines and musclecars – appear to be where much of the aftermarket action will happen in 2009.

Older Cars/OlderCustomers Rule

Mass-marketers of consumer goods and many an MBA target the 18-34 demographic. Clothes, consumer electronics, athletic gear, music and movies currently crave the “extreme” buyer. But this mentality could mean death or at least dismemberment to performance-aftermarket manufacturers in 2009.

“Targeting younger enthusiasts is always a priority, but most of them are trying to buy a house and raise a family, so the resources aren’t always there,” says Dennis Overholser, founder and Executive Vice President of Painless Performance Products. “The older generation is also more affluent and can afford to have a specialty-built car or truck. The baby boomers relate to the 1948 and older cars more so than the younger generations.”

However, fully funded 401(k) consumers likely won’t be as lenient with their discretionary dollars. “Go” might trump “show”: good news for performance manufacturers, not so positive for restylers. As Overholser says, “I found it amazing just how many rusty cars and trucks were at the ’08 NSRA Nationals. Trends such as old-school flat black cars, rat rods and fresh-from-the-field vehicles will always have their place in the hobby. These are the affordable ones, and the owners have just as much, if not more, fun with them.”

Just as custom paint and brightwork appear to be luxuries that can wait, lower-ticket performance parts seem to be selling faster than higher-commitment ones. Overholser says that Painless’s small relay kits are moving the sales needle farther than the company’s full-harness lines. Interestingly, one of Painless’s only appearance items is also its recent bestseller: “We see the consumers purchasing more dress-up items like Power Braid wire covering.”

In the collector-car world, well-executed modifications that improve drivability actually add value at auction. Gary Bennett, VP of Consignment at Barrett-Jackson Auction Company, sees older cars increasing in demand: “I do sense a movement with more of our customers looking for a more classic/retro look and style; however, they still want the drivability and reliability of state-of-the-art technology.”

Everyone realizes that rare vehicles are more valuable restored, but desirable “drivers” benefit from modern steering, braking and induction. “Both resto/original compared to performance/modified vehicles are very strong in the market,” Barrett-Jackson’s Bennett says. “I don’t anticipate seeing a change in 2009. On the musclecar side, the trend has been consistent that the well-documented, correctly restored vehicles always attract the most attention and, as a result, the most money. Street machines, resto-mods, and hot rods continue to be very strong as well.”

Bennett adds that modifications done by a known professional builder pay resale dividends: “The quality of the build is always reflected in the price.” Boyd Coddington set the gold standard here; Chip Foose and Troy Trepanier are two other names that consistently attract attention. Industry awards such as the Riddler and documented celebrity ownership increase the paddle-waving for street rods, street machines and musclecars at auction.

Auction action for coveted classic American performance cars apparently hasn’t peaked. “What is happening is buyers are being more selective of their purchases,” Bennett says. “They are paying big money for great vehicles and mediocre money for mediocre vehicles. I anticipate record-breaking sales in 2009 for exceptional vehicles and mediocre sales for the less-than-exceptional.”

In other words, auctions provide a valuable barometer of aftermarket viability. “Barrett-Jackson is a true reflection of the marketplace,” Barnett says, “and we can only sell the vehicles that are offered to us by our consignors. Like the stock market, you never know what you’re going to sell until they’re presented, and the market will speak to that by what they bring.”

Manufacturing

Fairly priced, high-quality performance parts for Detroit Three pavement-shredders are expected to sell steadily in 2009. In contrast, cheap, bottom-feeder, price-dependant products appear more likely to become endangered species. (These products are often aimed at the younger, less affluent, enthusiast.)

Lesser quality and overseas manufacturing are one and the same in many consumers’ minds. But savvy manufacturers often have to rely on cheaper labor to maximize margins that are being sucked up by high raw materials and shipping costs. However, high transportation tabs – Pacific Rim shipping has more than tripled in some cases – are causing companies to reevaluate their manufacturing practices. Painless’s Dennis Overholser says, “We strive to use only U.S.-made parts, and nearly all are. But some small items are not readily available here, so we bring them in from some European countries.” Ultimately, most consumers now seem more interested in value – the combination of cost and quality – than a part’s country of origin, although “buy American” means more to the military-mandatory generations.

Distribution

Another global-economics opportunity is selling American performance abroad. Most aftermarket manufacturers still rely on distributors to service the jobbers, so manufacturers defer international-sales matters to their WDs. Overholser of Painless Performance elaborates: “We sell to many countries but mostly through our distributors. Shipping to gathering sites is most common, and most payments are done by wire or credit card.”

Working with WDs will become increasingly interesting in 2009. “Motivating the phone guys is a real challenge,” Overholser says. “Spiffs work, as does constant training, showing the benefits of your product over the completions.” Painless Performance supplements product training with consumer campaigns that build the brand and product demand.

WDs that sell direct-retail against jobbers is another concern for manufacturers. “More and more warehouses are opening their own stores and not relying on independent jobbers to move product,” Overholser says. This has manufacturers who aren’t already selling retail through an online shopping cart seriously considering it as a way to recover margin in the future.

When to cut bait on slow-movers and overstock is another dilemma for the Detroit Three muscular-performance aftermarket. Painless Performance has a system that minimizes dust-collecting parts: “Our accounting auditors require us to put items that don’t sell on a discontinued list,” Overholser says. “We willsell them until gone or offer them to an outside source for sale.”

Marketing

Manufacturers use more traditional means to reach the stereotypical classic performance-parts buyer: heavy on print and events. “Our ad budget covers all aspects of media and events,” says Overholser of Painless Performance. “We have found that traveling events, like the Hot Rod Power Tour, allow us to reach enthusiasts that we have not reached before.” Painless’s goal is building its brand and “letting the consumer know you have the product they need.” But tracking marketing ROI isn’t an exact science. Overholser admits, “We have tried to collect information from callers as to where they found out about us. It has proved not to be all that reliable.”

Projections

Industry veterans who didn’t want to be quoted for this article estimate that street rod/machine and musclecar enthusiasts’ spending will remain guarded for the next 18 to 24 months. Many aftermarket companies should feel fortunate if sales are flat for the foreseeable future. One survival tactic is continuing to release new products, even if on a sparser schedule. This keeps companies’ names out there, reinforcing brand equity – which is increasingly overlooked as investment entities buy aftermarket companies, focusing on spreadsheets instead of product and customers.

Still, Overholser is one industry veteran who’s staying positive. “The best decision I ever made was to get into the automotive aftermarket,” he says. “It has allowed me to meet people and visit places I would have not been able to otherwise.”