The Future Is Now

Feb 1, 2013

Industry insiders offer a look into 2013 and how the restyling aftermarket may change.

If you had a crystal ball, what would you see happening in this year’s automotive aftermarket? Greater sales than last year or in the past few years? A change in consumer vehicle-buying trends and, therefore, what aftermarket products might soon be preferred? Younger buyers? More women buyers? More trucks? More small cars?

Thus, will this year be a big comeback for the industry, as total U.S. sales are expected to reach more than 15 million? Or could 2013 prove a dud? Or, will it be a roller-coaster ride that sees rising growth in some areas, while others drop away?

Restyling asked several industry experts to candidly consider where the aftermarket has been and where it looks to be headed this year. Some of their answers may surprise you or confirm your own predictions.

In a business world that has dramatically changed in just a few years, being well-informed is being well-armed for 2013’s new frontier.

Here, then, are what these experts have to say:

2012 saw a definite, if gradual, improvement in the automotive and aftermarket worlds as the economy moved forward. How do you see 2013 shaping up, from Q1 and into Q4?

In 2013, the auto sales pace will continue to grow toward a 15 million annualized volume which will likely happen in 2014. The rate of new vehicle sales growth will not grow as much in 2013 as 2012, but the deluge of new models will create a huge opportunity for aftermarket growth among the restylers who focus on new-vehicle accessorizing with their area dealerships. Aftermarket growth should be two to three times the new-car sales growth rate because of the increased opportunities with new models.
– Ron Leslie, vice president, Restyler Sales, Katzkin Leather, Montebello, Calif.

Bedslide is very enthusiastic about 2013. The 2012 SEMA show was excellent for us, and our distributors seemed upbeat on the future. We had expected a little post-election slump, but so far haven’t experienced that. With housing prices slowly moving up in most areas of the country, I’m expecting to see the same improvement through the entire year. Also affecting the market will be the many lease purchases in 2010 that will be nearing termination this coming year.
– Joel Ayres, vice president of sales and marketing for Takit/Bedslide LLC, Medford, Ore.

2013 may see a continuation of that gradual improvement trend. No big leap was to be expected due to the underlying unsolved debt issues that hold the economy back. Still, there are some hopeful signs especially in housing and construction.
– Hartmut Schroeder, president and CEO, Snugtop, Long Beach, Calif.

If 2013 is any snapshot of how 2012 ended for us, we are very optimistic and hopeful for continued growth.
– Nicholas A. Gramelspacher, vice president of sales and marketing at Meyer Distributing, Jasper, Ind.

We see many of the core categories being relatively flat from a retail standpoint, but we are looking to increase our share in the expediter market. New-vehicle sales continue to project strong numbers through 2013, and we think expediter growth opportunities exist in this environment.
– Steve Brown, product promotion manager, Alpine Electronics of America Inc., Torrance, Calif.

A very open-ended question: What changes might the restyling aftermarket retailer see in 2013 – be that anything from Internet sales, taxes, new- or used-vehicle sales to a change in consumer buying habits, finding qualified installers…whatever you envision?

Our dealers are still serving a cautious and reserved buying public. Consumers are buying quality and the basics with few extras. “You want french fries with this?” – upselling seems to be harder when spending-money is tight. Retailers will find better-informed customers who have already done their comparison shopping online and now want to “touch and feel” and talk to an expert. Product knowledge is king.
– Hartmut Schroeder, Snugtop

Definitely, Internet sales are here to stay, and many savvy restylers and jobbers have embraced this marketing tool and are doing some type of Internet selling. That said, most aftermarket consumers still shop the Net, but enjoy the personal contact with someone that is knowledgeable of the product and usually an enthusiast themselves. The key for manufacturers will be to help pull these Internet shoppers to the stores. Bedslide’s marketing the past couple of years has been to get that potential buyer interested and into our jobber’s stores. Everyone will also be following the court fights in individual states trying to collect sales tax on Internet sales. This will have an impact on future sales depending on final rulings.
– Joel Ayres, Takit/Bedslide

EPA [Environmental Protection Agency] is starting to put teeth into the DPF delete/ “offroad products” [DPF designates the EPA’s recent Diesel Particulate Filter rule, meant to bring diesel emissions into new compliance]; fines are being handed out and some products are being pulled off the market. This was a very large percentage of business for many WDs [wholesale distributors] and installers.  Luckily for us we are very diverse and it will not impact our plan and growth strategy for the upcoming years
– Nicholas A. Gramelspacher, Meyer Distributing

In 2013, vehicles will continue to increase in complexity. This complexity puts an increased demand on restylers to maintain ongoing training throughout their organization, but also makes it much more difficult for competitors to compete with the restylers who maintain and enhance their levels of technical skill.

Gas prices are one of the big determiners to a major shift. If we see a major spike in gas past a new consumer threshold (whatever that number may be, $5, $6, $7) then we could see a rapid change toward smaller vehicles and a huge influx of buyers for hybrid vehicles.
– Ron Leslie, Katzkin Leather

We are seeing the resurgence of the car lease, which presents challenges for add-on product installation at the expediter level. Truly plug-and-play products can help to make installation viable in these vehicles.
– Steve Brown, Alpine Electronics of America

Regarding products: Do you see any shifts from, say, the 2010-2012 aftermarket product trends among consumers, fleet buyers and/or commercial users such as tradespeople (plumbers, electricians, landscapers, etc.) that will have an impact on what aftermarket  retailers might likely see and prepare for in 2013?

Expediter in-dash electronic sales tend to center on the all-in-one, audio/video/navigation (AVN) category. In the aftermarket retail category, the audio/video (AV, without navigation) market is the fastest-growing category, due in large part to the explosion of smartphone-based navigation. The near future holds a shift from AVN to AV as these systems allow more seamless integration with the customer’s phone. In addition, a shift to larger in-dash screens in lower-priced car models is causing increased demand for ever larger aftermarket screen options in the aftermarket.
– Steve Brown, Alpine Electronics of America

The biggest fact is that the sales of trucks to fleets have increased greatly in the past two to three years. Very few fleets were replacing trucks after the 2008 meltdown. Now we see fleets turning over bigger than ever, which means more sales among many products – toolboxes, lighting, tanks, pumps, steps, grille guards, to name a few.
– Nicholas A. Gramelspacher, Meyer Distributing

Among consumers the trend change has been toward education. Consumers are dramatically more educated during the car shopping/buying process now. They have instant access to multiple quotes and the dealers that communicate best and quickest are winning. Restylers who can service their dealers fastest and educate them about offerings best are performing the best.

In fleet/commercial, there has been a big change in the vehicle they desire. It’s still a truck. But, they want that truck with luxury appointments like leather, heated seats and navigation.
– Ron Leslie, Katzkin Leather

Now that the election circus has left town, people are getting back to work and businesses will tackle projects that have been put on hold. Fleet vehicles are getting very old and need to be replaced, urgently. Fleet buyers are looking for higher-quality products, a better fit and maximum value for their money.
– Hartmut Schroeder, Snugtop

The fleet and commercial buyers continue to show signs of improvement as fleets are being replaced after several years of stretching their usage time out before replacing. At some point they have to replace these vehicles, since it is the major tool for their businesses. With increased oil production in North America, Bedslide has seen increased sales in these areas with our product.
– Joel Ayres, Takit/Bedslide

Small cars are getting bigger. I think the huge aftermarket opportunity in the economical vehicle segment will continue. But it’s important to notice that the Civic of today is as big as an Accord of just 10 years ago.
Trucks and Jeeps are both going upscale with all the modern refinements of luxury sedans. The penetration of leather in full-size trucks could reach 40% in the coming years because buyers are demanding the luxury of leather. Katzkin was offered as the first OEM leather package on a Jeep in 2008 and Jeep owners continue to demand more leather-equipped models.
– Ron Leslie, Katzkin Leather

We are seeing the greatest success in the vehicles traditionally known for being ripe targets for aftermarket add-ons: large trucks and SUVs. We don’t see that trend changing significantly in 2013, but with many fresh products in the four-door sedan market, we are seeing a lot of expediter activity with these models, as well.
– Steve Brown, Alpine Electronics of America

Do you see competition getting more keen (maybe, even more fierce) among aftermarket suppliers/manufacturers? Whether yes or no, why do you think that?  And do you think aftermarket retailers/jobbers will see more or less competition?

[Regarding more competition]: Absolutely, and much of this centers around compatibility with the ever more complex and advanced systems built-in to many of today’s cars. We believe that expediters want solutions that work reliably and maintain the car’s factory functions while expanding their capabilities.
– Steve Brown, Alpine Electronics of America

Bedslide was the original truck sliding cargo tray; since that time we have seen many competitors come into the market. For me, that says we have been doing our part to raise awareness of this product segment through our marketing and our retailing partners. One of my first mentors said that if you have no competition, then you are making a product no one wants. Competition keeps us all on our toes with constant product improvement and innovation as well as providing top-notch service. Most athletes will tell you they do their best when being pushed by their competition. Some competitors, when we experience a tighter economy, are not as ethical; but I feel these types will eventually lose out in the marketplace.
It doesn’t appear to me that there are as many new jobber stores opening up. We’ve seen consolidation, buyouts and closings, but very few new stores opening up. The retailers that are left are some of the best in their areas. That’s why they are still here.
– Joel Ayres, Takit/Bedslide

Competition will remain aggressive among aftermarket manufacturers and aftermarket retailers. But, I see a definite separation occurring at both levels. Some manufacturers and retailers are investing to stay ahead of the changing OEM technologies and some are trying to focus on the lowest possible costs/price. This will create two very different types of manufacturers and retailers.
– Ron Leslie, Katzkin Leather

We see more consolidation among aftermarket manufacturers in the years to come. Strategic buyers and private equity buyers are taking advantage of credit availability and access to outside capital to facilitate mergers and acquisitions.

Brick-and-mortar retailers will see more competition from online retailers who are squeezing their margins on “bread and butter” accessories.
– Hartmut Schroeder, Snugtop

Finally, what is the most important advice you can offer restyling retailers as they tackle 2013?

Truck accessory dealers should maintain a professional website, social media presence, cultivate a local following, encourage online reviews (e.g., Yelp, etc.).
The basics still work: professional appearance of the store and personnel, product knowledge, after-sale service and proper phone etiquette are some key elements to a successful retail business.
– Hartmut Schroeder, Snugtop

Don’t budget your sales efforts to your manufacturing capacity.  Budget your manufacturing capacity to your sales opportunity.

Restylers are remarkable at getting the impossible done from an installation standpoint. Many restylers need to invest into their dealer sales, marketing and communications efforts so that they can maximize their market opportunities. The results aren’t instant in many cases, but through a dedication to growing a professional sales organization that is the face and strength of the organization, restylers will ensure that they are defeating competition, maximizing value and reaping the market’s incredible opportunities.
– Ron Leslie, vice president, Katzkin Leather

Diversify. Look at adding to your business. If you have a lift in your shop, you should be selling bolt-on catalytic convertors – it’s a huge business. Generators, power sports and, even, snow plows are easy to install now, too; if you live in an area where it snows, we can provide entry into these new categories with no additional overhead.
– Nicholas A. Gramelspacher, Meyer Distributing

Without sounding cliché, “keep a positive attitude and believe you will be successful.” So much of success depends on the attitude of the owners, the employees and the suppliers. This positive energy will be conveyed to the customer and make the sale easier.

Be smart about your expenditures, but do not pull back so much that you become a self-fulfilling prophecy for declining sales. Some of the most successful retailers the past few years were those that remained positive, didn’t listen to the news or the whiners in our industry, and looked for ways to improve their business – whether it was finding new product niches or just making sure they were being the best in everything they did. Now is the time to be smart, aggressive and positive – those retailers will be the winners in 2013.
– Joel Ayres, Takit/Bedslide

Pay attention to the OEM trends – consumers are being bombarded with ever more sophisticated OEM in-dash systems, and it’s causing an increased awareness for more advanced aftermarket solutions. Car manufacturers are using these systems to market their cars, and we think this consumer awareness and demand is positive for the entire industry.
– Steve Brown, Alpine Electronics of America


Tracking legislative trends

Some legislative proposals follow predictable patterns.

The following comes via the Specialty Equipment Market Association’s government affairs team, led by Steve McDonald, SEMA vice president of government affairs, based in Washington, D.C.

Among the greatest challenges of any business is the effort and skill required to stay current or even ahead of what is popular. Predicting trends and following their progress are key elements to success not only in business but also in politics. Just as businesses are subject to consumer sentiments and economic fluctuations, timely legislative initiatives and popular regulatory proposals can be shaped by any number of national variables and are often broadly applicable. The following are several important legislative trends affecting the aftermarket industry that continue to feature prominently in state and federal government agendas.

[Editor’s Note: For additional legislative trends that can affect your aftermarket business, go online to this article in February 2012’s www.restylingmag.com. We’ve included even more information there!]

State sales tax

Congress is considering legislation that would require companies selling goods via the Internet and catalogs to collect sales tax in the same manner as “brick-and-mortar” retailers. The legislation would allow states to force retailers to collect sales tax from consumers even when the companies otherwise have no physical presence in that state. The legislation provides a “small-seller exemption” which varies from $500,000 to $1 million in total sales or less. Under a 1992 U.S. Supreme Court decision, states cannot currently force retailers to collect use taxes unless the company has a physical presence in the state. While the issue has been debated for years, the discussion in Congress has intensified with expanding Internet sales and a corresponding loss of state tax revenues.

Lighting equipment

Lighting technology has never been better, thanks to halogen bulbs, light-emitting diodes (LEDs), high-intensity discharge (HID) systems and other technological advances. How lights are regulated depends on where they are located on the vehicle. The federal lighting standard establishes performance requirements for basic equipment such as headlamps, tail lamps and side reflectors. A state may regulate equipment not covered by the federal standard, frequently called “optional” or “accessory” lighting. SEMA continuously monitors the federal and state proposals to revise laws and regulations so that they do not unnecessarily preclude options based on style and performance. The association also keeps its members and the public informed on the law. For example, in recent years NHTSA has been shutting down the market for HID conversion kits: NHTSA determined that it is impossible to produce a product that converts a halogen system to HID system which is compliant with the federal lighting standard. NHTSA is concerned that the conversion kits can produce excessive glare to oncoming motorists.

Land use/off-highway vehicle recreation

Many businesses market equipment that is used by offroad enthusiasts. Importantly, the same equipment is used to improve and individualize the performance of enthusiast vehicles. The enthusiasm for these products is dependent, in part, on the availability of public lands for offroad use. Threats to off-highway vehicle (OHV) access typically take form in legislation passed by Congress or regulations issued by the U.S. Forest Service, Bureau of Land Management or other federal and state agencies. Roads and trails may be potentially closed when lands are designated as “wilderness (roadless),” unnecessarily large amounts of lands are closed to protect endangered species, or other restrictions are placed on federal and state lands. Access may also be limited by “monument designations” when federal agencies seek to restrict recreational use.

Given the continued growth of the offroad enthusiast community, SEMA continues to support land use decisions that are reasonable and enjoy local community support while opposing unnecessarily restrictive land-use policies. The association also has pursued national efforts to restore the Bonneville Salt Flats in Utah and protect racing events at the Johnson Valley Off-Highway Recreation Area in Southern California.

Registration made easy

One of the more favorable legislative trends this year includes exemptions and special designations for specialty vehicles in several states. The best of these examples are in states that adopt SEMA’s Street Rod and Custom Vehicle Model Legislation that creates specific registration categories for historic and specialty cars. Both Massachusetts and Texas recently last year joined 20 other states by enacting versions of the association’s model bill. New York and New Jersey also considered the bill in 2012.

Other favorable accommodations were introduced in Wisconsin and Michigan to allow for the expanded use of collector vehicles. While these victories exemplify the willingness of legislatures to work with automotive enthusiasts to expand and preserve the rights enjoyed within the hobby, it remains important to work in all states to ensure these privileges are protected.

A beautiful noise

It is no secret that automotive enthusiasts are often proud to display custom aspects of their vehicles. A louder-than-stock exhaust system is often the first aftermarket addition an enthusiast makes to his or her vehicle. However, the appropriate decibel level a vehicle’s exhaust may produce without becoming a nuisance is not a universally agreed upon concept. Efforts to curb the freedom of a consumer to choose were reintroduced in legislatures again in 2012 including a Vermont bill to ban aftermarket exhausts that produce sound levels higher than those of a stock muffler. In New Jersey, a broadly written bill would prohibit any modified muffler that produced unusual noise levels.

In order to avoid such ambiguous language, which can lead to improper enforcement, SEMA has crafted legislation that sets noise limit at 95 decibels and outlines specific measurement guidelines proposed by the SAE (Society of Automotive Engineers). Bills following these specific guidelines were introduced in West Virginia, Hawaii and Iowa during this 2012’s legislative sessions.

Exhaust systems are not the only aftermarket parts to be targeted by restrictive legislation recently. The Hawaii House of Representatives moved to consider a bill to limit the size of speakers that may be installed in vehicles. This initiative, although a first, may not prove to be unique in the future as the sophistication of mobile audio systems improves and the technology that allows for increased integration of mobile electronics grows in popularity among enthusiasts.

As legislators began the process of creating agendas for 2013, these trends are likely to become more clear. Although many of the most prominent of these issues may never be uniformly resolved, the work to advocate for positive and effective pro-business laws within each legislative body remains an essential pursuit. As new issues arise and old ones are packaged in novel ways, the need to track and understand legislative and regulatory trends remains as important as ever. For more information about this legislation and others, consult the SEMA Action Network website at www.semasan.com.

CAFE standards

The federal government issued final regulations implementing an agreement reached with auto industry representatives and California regulators on fuel economy and carbon dioxide (CO2) emissions limits for model year 2017-2025 vehicles. The fleetwide average will rise from 34.5 miles per gallon (mpg) at the end of 2016 to 54.5 mpg for model year 2025, a nearly 5% annual increase with slightly lower standards for light-duty trucks. The agreement preserves California’s authority to regulate CO2 emissions and other greenhouse gases while creating a single national standard. CO2 emissions and fuel economy are linked since carbon dioxide is a byproduct of fossil fuel combustion. The automakers pursued an agreement to increase fuel economy which would also preserve affordability, vehicle choice and jobs.

Clean vehicle incentives

During the November election, the price of gasoline once again emerged as a national issue, topping the list of many voters’ concerns. Incentive programs to reduce emissions and consumer dependency on petroleum are not unique to the federal government, however. Legislation to reduce the sale of gas guzzlers and remove older ‘gross polluters’ was introduced in Rhode Island and Massachusetts. In New York, proposed legislation would create the Clean Vehicle Incentive Program consisting of rebates and surcharges on the purchase of new motor vehicles based on their emissions.

Major auto manufacturers are not waiting for these proposals to become realities, however. As global oil production remains subject to unpredictable fluctuations, prices at the pump remain higher than ever. As the cost of operating a vehicle continues to require consumers to search for more fuel efficient options, manufacturers respond to new market demands. Large automakers are pouring resources into developing new technologies to increase efficiency while maintaining the performance and quality expected by American consumers. Most of these manufacturers are already pressing for production of vehicles that use traditional gasoline more efficiently while also introducing new and alternative fuel technologies.

The push for increased fuel economy has already resulted in companies moving away from the traditional mantra of ‘no replacement for displacement’ in favor of swapping V8s for turbocharged four- and six-cylinder engines. The trend of legislation and regulation pushing for increased fuel economy is one that will continue to shape the new-car market and production offerings of major manufacturers for the foreseeable future.

Tire fuel efficiency

The National Highway Traffic Administration (NHTSA) is expected to soon roll out a tire fuel efficiency consumer information program. The program is required under a 2007 law. In 2010, NHTSA established test procedures to be used by tire manufacturers when rating the fuel economy and safety and durability characteristics of replacement tires. However, the agency was still debating (as of at least December 2012) how to convey the information to consumers at the point of sale and online. The premise for the program is to allow consumers to compare ratings for different replacement tires and determine the effect of tire choices on fuel economy or the potential trade-offs between tire fuel efficiency (rolling resistance), safety (wet traction) and durability (tread wear life). The 2007 law included a SEMA provision exempting tires that have been produced or imported in annual units of less than 15,000 and do not exceed 35,000 tires in total brand name production.

Hobby cars as revenue sources

It has been four year since the collapse of the global economy, and the fallout from the ensuing credit crunch is still reverberating across the country. As budget shortfalls become a perpetual concern, states and municipalities continue to search for ways to raise revenue. As a result of the perceived luxury status of collector cars, registration exemptions and specialty use provisions become easy targets. In Virginia and Washington legislatures attempted this year to raise funds by modifying annual fees imposed on the registration of collector vehicles. Additionally, in Maryland, a bill was introduced to increase the age of vehicles that qualify for registration as historical motor vehicles, thus decreasing the number of vehicles eligible for a reduced rate. As all levels of government across the nation continue to work to protect public services while operating on reduced budgets, the exemptions classic car hobbyists and enthusiasts enjoy will continue to come under threat.

Vehicle miles traveled

As federal and state governments push to incentivize the development and production of more fuel-efficient vehicles alongside those that use alternative fuels, they increasingly cannibalize their own sources of revenue. The less Americans consume at the pump, the less money is contributed to budgets by means of fuel tax. The consequence of this predicament has not gone unnoticed. Pilot programs to develop a method of charging drivers a fee for vehicle-miles-traveled (VMT) has been proposed in many forms. Global Positioning Satellite units similar to those used in tracking commercial shipping trucks have been tested in private applications. This proposal has since been met with substantial concern over privacy rights and even constitutional violations.

In Michigan for example, legislation was introduced to prohibit the state from imposing a VMT tax on vehicles and would specifically disallow any global-positioning-satellite-based toll that would provide for the location tracking of private motor vehicles. Preemptive legislative initiatives such as this are a telling sign that many states see the VMT taxes as a rising issue and view it as a possible threat in the near future.

The burden of increased government regulation

Increased government regulation is a major point of contention in politics today. The accumulation of requirements that must be followed when providing goods or services to a consumer has become increasingly burdensome. Many states create excessive and often costly roadblocks that inhibit the timing and efficiency of a business. In Maryland and New York, bills to further regulate and track the manufacture and use of tires by imposing additional identification numbers goes beyond the sufficient checks to ensure quality and safety. In Michigan, Oklahoma, South Carolina and Georgia, legislatures considered bills that would require installers to inform consumers of the use of mechanical aftermarket parts in the repair of their vehicles. The time and paperwork required by these proposed regulations burden the already complicated process of auto repair and places a negative stigma on many parts that are often designed to be safer and more affordable than original manufacture equipment.