Inside Trading

May 9, 2011

Rebounding new-vehicle sales and improved access to consumer credit have put a spring in the step of interior trim suppliers and installers, but the effect of recent economic turbulence lingers.

Significant economic challenges in recent years have impacted most all aftermarket accessory suppliers and installers, from wheels and tires and truck parts to performance and tuning accessories. Interior trim professionals, no doubt, have felt that impact as much as any others.

Now, mercifully, there is a widespread perception that the economy is on the rebound, and sales levels of all vehicle types – the underlying economic driver for nearly all aftermarket accessories – seems to bear out that perception, if only for the moment.

Many fear that recent instability regarding fuel prices and the effects of the disasters in Japan will bring with them a return of the “bad old days” of 2009, when gas prices at the pump created a substantial shift in vehicle buyer behavior and decimated the sales of high-dollar SUVs and gas-hungry pickups.

Despite uncertainty about the future, the current economic momentum is generating a great deal of excitement among the interior trim suppliers who spoke with Restyling in recent weeks.

“The market is rebounding and all indications point to an increase over 2010 sales, which is welcome news to all of us,” says Scott C. Wolin, business development/marketing/sales for Los Angeles-based Pecca Leather Inc. “The leather interior market has been strong and growing due to customers and dealers looking to upgrade and customize their vehicles.”

More opportunities, lingering challenges

Tom Corton of Santa Fe Springs, Calif.-based Roadwire, agrees that economic conditions are improving, creating a variety of opportunities for interior trim installers and dealers. But he says that completely thinking that instability in the market is over would be extremely foolish.

“The opportunities for interior trim products have never been better,” he says, noting that February was a surprisingly strong month for light truck and SUV sales. “However, that was before the gas prices shot up to $3.70 per gal. again, and now the market will quickly shift toward the smaller, less costly, more fuel-efficient and some hybrid vehicles.”

The desire on the part of vehicle dealers to add gross profit by installing interior trim packages remains high, especially for vehicles with sparse factory trim options. He notes the Hyundai Sonata as being a prime example.

“[The Hyundai Sonata] is red hot right now for such adds, along with many CUVs and SUVs,” Corton says.

Montebello, Calif.-based Katzkin Leather Inc.’s Ron Leslie, also highlighted the significant role that fuel prices play in the market for interior trim products.

“Fuel prices have a huge effect on the market, in general,” Leslie says. “Small, incremental changes don’t have much impact, but in the last 30 days [in March, for example] we’ve seen the fastest changes in prices I’ve seen. We saw a major shift in vehicle buyer behavior during the gas spike two years back, and it appears that we’ve hit that threshold again and we’re seeing buyer behaviors change.”

That’s leading to increased sales of more fuel-efficient vehicles like Honda Civics, Toyota Corollas and Hyundai Elantras, which isn’t necessarily a bad thing for installers and dealers. Especially when you consider who is buying them, adds Leslie.

“These are all vehicles that have high cloth penetration, which creates a lot of opportunity for installers and restylers,” he says. “And we’re seeing more affluent buyers who might have a Mercedes or a Lexus but want a less expensive, more fuel-efficient vehicle for a daily commuter. Those are the types of buyers that often both desire and have the means to purchase a leather package, and that may not be an option from the factory at that lower price point. If a restyler understands this and is out in front of their dealership partners, they can capitalize on that knowledge.”

Anthony Lanni of Bronx, N.Y.-based Auto Fantasies, a supplier of a wide range of dash kits and other interior trim parts, notes another notable trend: A substantial number of buyers, for the first time in years, is taking note of American-made, new-vehicle models.

“The trim industry is starting to rebound, and we are seeing a giant interest in American-made cars,” he says. “Many consumers are coming back to the Big Three, especially Ford, which has many new exciting products, like the new 2011 Explorer. We’re seeing a huge demand for products for this [SUV].”

Lanni also says the 2011 Ford Fiesta and Focus, the 2011 Jeep Grand Cherokee and the soon-to-be-released 2011 Chrysler 300 are all domestic top sellers to watch, as well as a number of new offerings from Chrysler, include the Sebring remix, the 2011 200 Sedan.

“We are already selling many dash kits for [the 200 sedan],” Lanni says. “The Big Three are back with a vengeance.”

Katzkin’s Leslie notes that while the interior trim market has generally been dominated by Toyota and Chevy models in recent years, ignoring emerging brands could be perilous to restylers over the next year or two.

“It’s not just the higher-profile emerging brands – Hyundai and Kia, which most people are aware of already – but also a brand like Volkswagen,” Leslie notes. “VW, over the next 12 to 24 months, will be making a major push with their new lines and with updated existing models like the Jetta, which doesn’t have a factory leather option.”

The more things change –

While opportunities for installers of interior trim products abound, one lingering effect from the past two or three turbulent years is that many restyling shops are smaller operations than they were before the economic downturn. That scaled back size is beneficial in keeping overhead down but can also limit a shop’s ability to seize new opportunities.

“Restyling shops are much leaner than they were a couple of years ago, which is a great thing, but not without its challenges, as well,” says Leslie. “We’re now seeing a need among our restyling partners to add installation and sales capacity, but they are understandably cautious about building back up to the levels of previous years.

“For these shops, it’s important to evaluate how best to do that quickly so they’re not missing opportunities,” he adds. “They’re being cautious, but this situation needs to be addressed sooner rather than later. It will take time before sales levels return, but it’s important to be ready to capture that as it does.”

While much has changed in the interior trim market in recent years, some aspects remain the same. Most importantly, consumers in the market continue to value personalization beyond what is offered from the factory.

Roadwire’s Corton notes that because of the high profile of interior trim products in advertisements and other media, at dealerships and in a high percentage of vehicles on the road, consumers are more aware of aftermarket interior upgrades.

“Consumers that want and have seen personalized or custom interiors in vehicles now realize that the aftermarket offers so much more,” says Corton. “[Vehicle] dealers – are willing to display and offer custom options, not only to help gross profit but to give their customer something they cannot get from the OEs. New or used, more consumers are upgrading or personalizing their vehicles to what they want.”

Styles to follow

In the aftermarket, that desire for personalization is also driving a variety of new styles. Corton notes that two-toned designs, perforated inserts, embroidered logos or personal messages, and contrast-thread stitching are all among the most popular applications.

Wolin agrees, noting that a growing availability and variety of styles and colors is a key motivator for consumers looking for that extra bit of personalization.

“Today’s consumer is looking to differentiate their vehicle from others by adding unique colors, piping, stitching, perforation and unique materials,” he says. “We are building more Duo-Tone kits, kits with contrasting stitching and adding more perforation to provide our customers with a quality look and feel to our OEM Leather.”

While an overarching desire for personalization seems uniform across the country, our sources noted differences in product preference in certain regions or markets, largely caused by climate differences.

“There are regional differences in vehicle purchases and an installer-expeditor is targeting those vehicles and developing packages to target the needs of those consumers,” says Wolin. “The truck market has been very strong in the South and South Central and all-wheel-drive or 4x4s are popular in the mountain states. This has some effect on the interior trim packages that are developed for these specific types of vehicles but, overall, today’s consumer is looking for comfort and value.”

New horizons

As is the case in nearly any automotive market, products in the interior trim market have a wide range of possible applications for those shops with the resources and ability to apply them. In the case of interior products specifically, applications exist far beyond just new vehicles.

“The new-car dealers are a great way to take a base model and make it look like the upscale version for less money, and used-car dealers are a great venue for profit as many of these cars have used interiors that are beat up and worn,” says Lanni of Auto Fantasies. “By installing a leather package and wood dash trim we can make it look brand new. Today, we can custom make patterns for anything -¦ from classic car parts from the 1920s and ’30s to custom one-of-a-kind vehicles, to motorcycles, speedboats, even a helicopter and plane. The options are limitless.”

Roadwire’s Corton notes that every dealer has an inventory of used vehicles, and those vehicles are just as often potential applications for interior trim products.

All the opportunity in the world doesn’t mean a thing, though, without the resources to capitalize on it and follow through once the work is secured, says Katzkin’s Leslie.

“Dealer expeditors, especially the smaller ones, should be encouraged to make sure they have an adequate sales force in the field,” he notes. “Without that, you’ll always be at a disadvantage. If they’re a larger expeditor, it’s also important they’ve got the installer capability to support the turnaround times that dealers expect.”

As with many other accessory categories, restylers can make significant gains in terms of profit margin by packaging interior products together. By adding a seat heater, massage unit or even additional interior or exterior accessories to a leather interior, overall ticket prices – and profit margins – increase.

Auto Fantasies’ Lanni encourages restylers to go a step further and brand their accessory packages: “[There is] one simple rule: Sell a package,” he says. “If you bundle, let’s say, a wood dash kit, rear spoiler, leather interior, chrome pillar posts and maybe a video system together and call it the “Limited Edition” or “SS Edition,” then you are selling a unique package that is very hard for your competition to duplicate. We even make custom badges for some of our expediters so they can create a package that the dealer and the end user will refer to by name.”

The long view

Considering the interior trim market as a whole, says Corton, restylers should take a holistic approach when it comes to servicing local dealerships, even more so in challenging economic times. Superb customer service, expert workmanship and quality products are expected by all dealers, he says.

He adds that the most successful installers and expediters are knowledgeable about OEM pricing structures and package combinations. By preparing themselves with the most current information, vehicle dealers come to see an expeditor as a resource and asset with trustworthy information.

“This aspect of the selling process is often overlooked or avoided,” he says. “Taking the time to be prepared, with facts and figures, is not only professional, but creditable. Showing dealers that a sunroof-leather-seat heater ‘package’ is more appealing and profitable than ordering those options from the factory [can help in establishing the dealer as an asset].”

Corton suggests Edmunds.com as one of several industry sources for vital information regarding new and used vehicles.

Few would dispute that change in the interior trim market comes quickly, making staying on top of new developments key to any restyler’s success. Katzkin’s Leslie notes that with all the new vehicles on the market, it can be challenging for a restyler to keep up. Never fear: Many suppliers in the market offer support materials to help shops and their customers keep up.

“We offer collateral materials that show what is possible in each of these vehicles, and this is usually done within days of the vehicle being released and they are then updated regularly to be sure they’ve got the most current information,” says Leslie. “We make all of these tools available to our dealers, in close to real-time, which helps to elevate their sales efforts.”

Roadwire’s Corton notes that with a little help from their suppliers and further stabilization in the economy, restylers and expeditors should have a bright future in the interior trim business.

“We see no limit to the opportunities for professional and well-trained installer-expediters in the years ahead,” he notes. “There will always be new vehicles with product voids to be filled for wanting consumers. And for as many new models we see forthcoming, there are many more past vehicles to retro-fit, upgrade or restore to the consumer’s liking.”

In a time when “sure things” are lacking, a “good fighting chance” is often the next best bet. With the economy on the rebound, a wealth of new models on the road, and great new products to fit them, the interior trim may just be the smart – play.