Off-Road Darwinism

Nov 30, 2009

Like stocks that outperform the Dow, the off-road segment has outpaced the rest of the automotive aftermarket in recent years. To see where the off-road aftermarket has been and to predict where it’s going, we quizzed representatives from four prominent manufacturers. We narrowed the discussion’s focus to market trends and parts for the 4×4/truck segment, since it’s less regionalized than sand buggies, desert pre-runners and other niches.

Assessing recent growth and strategizing for sustained success are the bottom lines. Product trends, the value of off-road motorsports, in-house manufacturing versus outsourcing production, e-commerce and the benefits of traditional WDs and jobbers are common bottom-line concerns.

John Currie, President, RockJock 4×4

Currie Enterprises made a bold move by launching its RockJock business unit. Having accrued decades of brand equity (Currie Enterprises celebrates its 50th anniversary in 2009), brothers Ray, John and Charlie reluctantly agreed that off-road products diluted the Currie brand. As a result, RockJock was created for the off-road line, with the Currie division focusing on the company’s enduring area of expertise: axles.

John Currie shares that 2006 was RockJock’s best year; 2007 sales came in slightly under it. The 2008 goal is to match last year. “Jeep owners don’t seem to be as affected by the economy,” Currie says. “They’re older and have more disposable income. The segments that rely on the construction industry seem to be suffering. For example, the long-travel buggy companies couldn’t build them fast enough. They’re flat now. Pickup lifts are also hurting.”

Tough decisions didn’t end at splitting the Currie operation into two divisions. Over a year ago, installations were discontinued. “Too much creative energy went to customers’ vehicles,” Currie says. That space is now devoted to R&D.

Obviously, the actual products are the single-most important key to aftermarket success. Currie looks at what’s already available, then decides if RockJock can do it better. Also, re-evaluating existing products sometimes requires making orphans of prodigal sons.

“The body protection market is saturated,” Currie says. “When we originally introduced our RockCrawler II bumper, nobody else had a clean, functional design: high-clearance/maximum approach angle, with a winch mount. Now multiple brands of bumpers are made from the same design overseas. They sell retail for about what it costs us to make them. (We do the design and job out the manufacturing.)”

Manufacturing costs and the amount of space required to stock a full body protection line pencils out to “low cubic dollars” for RockJock. So, the company is abandoning these parts and prioritizing suspension and steering components for Jeeps and FJ Cruisers. Current-model vehicles aren’t the only profitable platforms, though. “We’re selling more JK products every day, but TJ is strong,” John Currie says. “We’re still developing TJ stuff, looking for the best way-”which is often the simplest.”

In the near future, John Currie sees the industry being entirely web-driven: “I can find our part numbers faster on the Net than I can in the catalog,” he says. Currie also predicts the off-road aftermarket undergoing a readjustment similar to the housing market. “We’ve had a good run for the last 10 to 15 years,” he says. “This will weed out the weaker companies.”

Scott Frary, Off-Road Sales Manager, Eaton Performance/Detroit Locker

Off-Roaders are more knowledgeable about traction devices than pavement-pounding gearheads (many of whom still think that every muscle car automatically has a “posi”). Still, differentials are a confusing segment for off-pavement enthusiasts and many in the supply chain who serve them. “We have a large basket to sell out of,” says Eaton’s Detroit Locker off-road sales manager Scott Frary.

Although the Detroit Locker differential is nearly synonymous with knobby-tire traction and is its company’s best-seller in the off-road market, the product has compromises. “Not everyone wants to shift into 4-low to get off the line in slippery weather,” Frary says. “Wives tend not to like the one-wheel peel.”

Education is key to this segment’s viability; manufacturing products and properly matching them to consumers’ needs determines customer satisfaction. Detroit Locker accomplishes this both through jobber training and by pressing enthusiast flesh-”spectators at organized rock competitions are Detroit Locker’s customers. The company exhibits at select events and sponsors crawlers Cody Waggoner and Clay Egan. However, Frary sees a shakedown on the horizon, as rock-racing attracts more competitors and marketing money. “You need to be close to the action or rockcrawling is like watching paint dry,” he says.

Bringing the off-road action to the people-as Mickey Thompson realized more than two decades ago-might make or break competitive rockcrawling. Potential sponsors are waiting to see if successful events such as the Salt Lake City Super Crawl and the King of the Hammers carnage in California’s remote Cougar Buttes can be duplicated in major metropolitan areas. If not, competitors and sponsors might turn to the newer, more tele-genic rock-racing events sanctioned by MOROC and XRRA.

“There are more venues to spend money than ever before,” Scott Frary reinforces. “There’s the old saying about 50 percent of the advertising working but not knowing which 50 percent.”

In addition to supplying WDs and jobbers with the product information vital to move the Detroit Locker line, the company also makes co-op advertising money available to them. “We have a policy, and our co-op is often a one-product ad,” Frary says. “However, we’re flexible and are open to out-of-the-box ideas.”

Dave Schlossberg, Owner, Poly Performance Inc.

Combining backgrounds in engineering and off-road enthusiasm, Dave Schlossberg launched Poly Performance in 2001 to mail-order DIY rock-buggy parts to customers in the midwest, south and east. He also launched Poly Performance Manufacturing with partner Drew Burroughs to fill product voids in the market. Currently, about 30 percent of Poly’s sales are of its branded products. Schlossberg wants to improve this higher-margin area: “It’s all about growing the brand,” he says.

Poly Performance is interested in “the latest and greatest widgets,” regardless of who designs and manufactures them. All product discussions begin with price point; Schlossberg is committed to traditional multi-step distribution. (Quadratec is one of Poly Performance’s largest wholesale accounts.) “We design our products so everyone can make money,” he says. “We begin by asking if it’s cost-effective to make a product. We figure out a price point and engineer in margins. But just because you can [make a product] doesn’t mean you should.” Poly Performance jobs out its soft goods, laser-cutting and metal-finishing processes to control costs.

“Half the fun is building your vehicle,” Schlossberg continues. “The other half is taking it out.” Concerning product lines, Schlossberg sees body protection contracting for the hardcore customer. As such, Poly Performance is emphasizing builder parts to give DIY enthusiasts the pre-fabbed brackets and tabs they need to make their own bumpers, skidplates and custom suspensions.

In the competitive arena, Schlossberg sees desert racing and rockcrawling combining to produce a hybrid type of vehicle. This means engineering aspects from both rockcrawling and desert racing will consolidate to create a dual sport vehicle. These vehicles will be able to handle high-speed desert running as well as slow-speed crawling.

Poly Performance embraces the challenges presented by the current economic “hiccup.” “Slow and steady wins the race,” Dave Schlossberg says. “But if we match 2007 this year, we’ll be ahead of the game.”

Rusty Megois, Owner, Rusty’s Off-Road

Founded as a 4×4 install shop in 1977, Rusty’s Off Road mutated into a manufacturer in 1995 when it couldn’t find existing products that filled customers’ needs. The company now manufactures specialty products for Jeeps and e-tails select lines from other manufacturers through its website.

Although gas prices might keep some enthusiasts at home, Rusty Megois hasn’t seen bottom-line evidence yet. He claims that enthusiasm is still at a high level: “Jeepspeed is bigger than ever, and off-road racing seems to really be growing-”CORR is now on prime-time TV, WSORR is in its second year. We sell Jeepspeed-style parts all over the country. Even though the races are in the Southwest, a lot of people want that look.”

Rusty’s success is built on a somewhat anti-bandwagon approach-”not embracing the new at the expense of the old. “The JK Wrangler parts are selling pretty good, but not like some people thought they would,” Megois says. “We still sell a lot of early CJ and fullsize Wagoneer suspension kits. Of the Wranglers, the TJ products sell the best. XJ Cherokees are still our biggest vehicle.”

Rusty’s experienced annual double-digit growth for much of this millennium and grew 30% in 2007 alone, doubling their UPS business in the process. Megois is using 2005 and 2006 sales figures as a more-realistic barometer for 2008 and 2009 projections. Major changes for 2008 include carrying fewer vendors’ lines in Rusty’s online catalog and increasing contract manufacturing. “The customer doesn’t care about the problems the manufacturer is having, and it makes us look bad if a company we do business with is having inventory problems,” Megois says. “You must have the product to sell it.”

Rusty’s has also increased its in-house manufacturing capabilities and is aggressively bidding on outside jobs to keep its machines running. “Rusty’s can now design, fabricate, powdercoat and box your products,” Megois says. “This part of our business is growing, and we hope to add more equipment so we can handle more new customers.”

Conclusions

Cautious optimism is the off-road segment’s mantra for 2008 and 2009. Clichés such as “lean and mean” and “weeding out” are part of most conversations. Still, the fundamentals remain the same. Products that answer a perceived need are the industry’s lifeblood. Price-sensitivity is more important than ever, and companies who aren’t well-versed in overseas manufacturing will find it increasingly hard to compete. Maintaining margins that support manufacturers, WDs and jobbers is also an industry priority. Although end consumers appreciate Internet price-panderers’ shopping carts, they’re becoming increasingly aware of the customer-service trade-offs that accompany low-balling. Part numbers that can’t support profits for their manufacturers, distributors and jobbers will likely disappear unless they can be produced more cost-effectively or the market can withstand a price increase.

One concern specific to the off-road market is land closures. Many manufacturers such as Detroit Locker allocate resources toward the Big Picture: supporting efforts to keep public land open for motorized recreation. Politics affect the industry’s bottom line here.

But boys (and girls) always find a way to play with their toys. If the credit crunch delays new-vehicle purchases, enthusiasts will work on their existing rigs. But Rusty Megois cautions, “4×4 manufacturers and shops that do business as usual may not make it. We have learned to change with the times and do whatever it takes.” John Currie prognosticates, “History shows that people are weary about spending money in an election year.” Dave Schlossberg volunteers, “More money can create more problems-increasing sales makes it harder to maintain efficiency.” Scott Frary adds, “We want growth we can live with without hurting our processes long-term.”

The underlying message: off-road manufacturers, WDs and jobbers that can adapt to change will survive and ultimately thrive.