Quantitative Future

Feb 4, 2011

Is it time to say good-bye to 2007, 2008, 2009, even 2010 as the years of economic slowdown, downturn, recession and so on? You bet.

And while 2011 is just getting off the ground and it’s still winter, we’re all looking to the sunshine of better days just ahead to warm and brighten up the aftermarket. The economic pundits, including those in the automotive industry, are saying that economic sun will shine this year and get even better in 2012. So be it.

So, how might we fare this year? With a wide and in-depth understanding of the restyling business world in mind, a select group of industry suppliers, manufacturers and restylers accepted our challenge to offer their forecasts about the state of the industry today as well as their take on what could be through 2011. Some of the best insights and perceptive comments we’ve learned in a while follow. We all can learn well from what some of our industry peers have to say.

RE: 2010 saw an improved outlook over 2009. How do you see 2011’s economy affecting consumer discretionary spending through 2011? And, who do you think might comprise the strongest demographics of buyers for aftermarket restyling products?

At Thunder Mountain Truck Outfitters, we continue to see improvements in consumer spending. Locally, the economic climate is improving fairly rapidly. We have seen improved sales coming from all age demographics. Large-ticket items in our store in which a customer would come in first to look at on the first visit, would on the second visit consider it, on third visit present the idea to a spouse, on fourth visit to re-ensure himself and by the fifth visit make the purchase. This has turned into a sale on the first visit. It seems that people are still cautious to spend, but they have much more confidence [of late]. Our customers who have large fleets for trucks and who had put a hold on turning in those fleet trucks are again starting to order new vehicles.

– Shane Barrington, owner, – Thunder Mountain Outfitters, Logan, Utah

The reports we see show that the strongest growth in pickup truck sales is coming from commercial and vocational purchasers – individuals, companies and fleets that buy pickups for business and professional use. Our company is trying to capitalize on this growth segment by expanding its product offerings and sales efforts of commercial truck caps and retractable bed covers.

We are not expecting a strong resurgence of the ‘vanity’ truck buyer, but instead are counting on customers who see the real value of pickups that are equipped to fit into their lifestyle. The trucks themselves have reached new heights of comfort, luxury and drivability; and when properly accessorized, can easily outperform traditional passenger cars, minivans and SUVs as all-purpose family vehicles. Because of this, our primary demographic targets are home-owning families with active lifestyles.  Also important are people of all ages, married and single, who have special-purpose needs in terms of outdoor recreation, hobbies and lifestyles.

– Dennis DeLeonard, – vice president, Sales, Marketing & Business Development, – Truck Accessories Group LLC (TAG), Elkhart, Ind.

The new-car market is looking for another year of improvement in 2011. 2010 was certainly a positive sign as credit continued to improve and dealers were able to close more deals, which certainly leads to more high-end accessory sales for items like leather and sunroofs.

Our forecasters are really looking forward to the core age ranges of Gen Y entering the market for a new vehicle, and this should be a very good opportunity for restylers. Gen Y expects the ability to personalize everything from their coffee at Starbucks to their phone to their vehicles. This expectation of personalization options from the group will provide a very attractive market for accessories.

– Ron Leslie, national sales manager, – Katzkin Leather, Montebello, Calif.

In my opinion, consumer discretionary spending will stay on a modest uptick in 2011, but the aftermarket will see increasing competition over these funds from consumer electronics, for example. Consumers throughout the country that have a stable income and a history of saving will have the greatest ability to purchase. In many ways, the days of spending money you don’t have are over – I think this is a very healthy paradigm shift for long-term economic success, because people buying things they can’t afford hurts everyone -¦ except the bankruptcy lawyers, of course.

– Jason Braun, – executive vice president & CIO, – Meyer Distributing, Chicago

Bestop sees the trend continuing, cautious about gasoline prices and a few other macro issues, but generally [we’re] upbeat. Most OEMs have adjusted their marketing programs away from the first-time buyer because of the “jobless recovery,” but our products appeal most to the demographic that has kept working through these slow economic times. Bestop introduced nearly 50 new items at SEMA, expanded our media reach and worked extremely hard at keeping our costs in line.

– Jim Chick, – director of  sales and marketing, – Bestop Inc., Broomfield, Colo.

RE: Without touting any specific brand, but targeting your specific aftermarket area, what types of aftermarket product(s) will appeal to the aftermarket restyler and his/her clientele? That is, what will consumers want? Why?

We anticipate seeing “functional but stylish” products as strong sellers. Products such as weatherproof floor liners, tonneau covers for trucks and, of course, steps of many kinds: running boards, tube steps and power retracting steps. Consumers (those who purchase a vehicle to be functional, such as a work truck) will continue to look for products to better enable them to use their vehicle to work. These people will be buying toolboxes, tonneau covers, ladder racks and even snowplows. The enthusiast, (those who buy the vehicle for fun and pleasure, such as a truck to look nice or tow their toys), will be looking for custom wheels, steps, chrome trim and lift kits.

– Shane Barrington, – Thunder Mountain Outfitters

In the consumer segment, TAG marketing and product offerings are aimed at lifestyle satisfaction rather than specific age, income or geographic groups. We are working to show how our accessories (truck caps, tonneaus and retractable bed covers) help fulfill specific lifestyle needs. For example, for families that want to camp, hunt, fish, ski, kayak, bike or otherwise enjoy outdoor adventures, no vehicle suits their lifestyle better than a well-equipped pickup truck. Similarly, among consumers who are dedicated do-it-yourselfers, gardeners, go-kart racers, ATVers, garage sale shoppers or pet enthusiasts, pickup trucks with secure, functional cargo space offer an ideal transportation solution.

– Dennis DeLeonard, TAG

Interior personalization will be a driver to the huge Gen Y market. As I mentioned in the preceding question, this age group has grown up with the ability to personalize everything and they’ll certainly expect that option on their new vehicle. Simply choosing from factory gray or beige won’t be enough for this maturing group.

– Ron Leslie, Katzkin Leather

What appear to be in the greatest demand are products with function over fashion; the parts that have both are doing the best. I don’t think there is one category that is necessarily towering over the others, but consumers are simply not buying items in great quantity that serve no purpose. Innovation and quality of products are now once again imperative to success, and I think this is extremely beneficial to the industry and its reputation.

– Jason Braun, Meyer Distributing

Value. Consumers’ ability to hunt down and hold businesses or suppliers to their word is easier with mobile phone apps, blogs and other new ways to find and validate referrals. Consider how you research any durable good today – why would our aftermarket products be exempt from the process? After a restyler successfully competes for a consumer’s interest, he or she is in a great position to close a sale with great service. I am bored to tears with business owners who can’t get past Internet pricing as a barrier to making a retail sale. Until there’s a computer that will also install expensive, complex or interactive accessories, the restyler still has the best opportunity to create repeat customers and good word of mouth. Said another way, the restyler’s service level is a product, which includes appearance, work hours, ease of doing business. Anyone can post on the Web; installing…not so much.

Hands-on product that is definitely a DIFM (do it for me) item? Automated running boards for pickup trucks – appeals to both families and boomers who have many conveniences from the factory inside the cab, but could use a stair-step to get inside.

– Jim Chick, Bestop Inc.

RE: Going beyond your specific market niche, do you see other product areas or new technologies that aftermarket restylers should keep an eye on as a growing trend?

Beyond our product niche, I see products such as remote starters, aftermarket TPMS systems, backup cameras, and vehicle audio/video to be popular. These are areas that we currently do not put a lot of focus on. We will definitely be keeping an eye on these areas and adapting as needed. Mobile electronics and technology was definitely a hot spot at the 2010 SEMA show. This was an area in which I dedicated a lot of my SEMA show agenda to.

– Shane Barrington, – Thunder Mountain Outfitters

We think there is still considerable upside opportunity for electronic integration in vehicles: to include Web-based entertainment, GPS guidance, Bluetooth connectivity and other leading-edge technologies. On the flip side, we are also seeing an upturn in back-to-basics truck camping – using a properly equipped truck as an overnight adventure vehicle, with simple sleeping accommodations and other basic necessities.

– Dennis DeLeonard, TAG

I believe it’s simpler to determine the coming trends in restyling than most people think. If you look at the new high-demand items on premium/luxury models, you’ll often learn a lot about the items that’ll be in demand on mainstream vehicles. Options like night vision, collision avoidance systems, Wi-Fi and more are sure to be popular with mainstream vehicles in the very near future.

– Ron Leslie, Katzkin Leather

Sure, there will always be opportunities to venture into new product categories. Speaking broadly, businesses should look for products that they can sell that are complementary to their current mix because this allows for ease of entry and immediate scalability. For instance, like selling bolt-on accessories alongside other traditional restyling products.

– Jason Braun, Meyer Distributing

Products that minimize task saturation in the cabin. Most gadgets distract drivers while trying to help. Examples of good technology: audible that learns your habits, adjusts its volume along with ambient cabin noise, integrates itself with cell phones.

– Jim Chick, Bestop Inc.

RE: Will the kinds of cars coming from the automakers in 2011 change the types of aftermarket products that manufacturers will have to create? And how fast will aftermarket suppliers have new product ready to go to retailers and their customers?

The biggest change to a 2011 model that I have seen was to the 2011 Chevrolet Silverado 2500 HD Duramax Diesel. The wheels’ bolt pattern is an 8 on 180. When the 2011 was released, I think there were only like three wheels available and most of them were in black; today, there are only a few more available. I have at least a dozen clients waiting for custom wheels right now, and the available options are very limited.

Another issue we have seen on the 2011 Duramax is that the urea chemical tank is mounted right under the passenger front door. This has made it a challenge for a few different step manufacturers. The most complex problem has been for the AMP PowerStep and the Bestop PowerBoard. The urea tank is mounted right where their bracket needs to go. This has forced them to engineer a new bracket system. We have had, or currently still have, customers waiting for the power step/board. The aftermarket accessory manufacturers have definitely been under the gun when it comes to a few 2011 models. The 2011 Ford Super Duty has also posed some issues and forced us to wait for certain accessories.

– Shane Barrington, – Thunder Mountain Outfitters

As vehicles get smaller, the need to accommodate cargo will grow; roof rack systems, hitch-mount carriers, and even lightweight trailers will likely become more important. Also, as the list of portable electronics grows, the need for auxiliary power sources will grow, too: inverters, converters, outlets, generators, even solar panels are likely to become more important.

As a truck accessory manufacturer, we are hopeful that today’s smaller cars will eventually lead to purchases of pickups that can be used to perform the functions small commuter vehicles can’t handle: towing, offroading, cargo-hauling, camping and the pursuit of active outdoor sports that require a substantial amount of gear, like hunting, skiing, biking and the like.

– Dennis DeLeonard, TAG

Interiors will continue to be a key driver to move consumers up the trim line for most mainstream makes. Therefore, restylers will maintain the ability to add leather and sunroofs to low- and mid-trim line vehicles. This market dynamic shows no sign of changing in the immediate future.

– Ron Leslie, Katzkin Leather

Manufacturers will need to stay in tune with automakers, and being able to provide first-to-market products is already a huge differentiating factor to success. Of course, quality of design cannot be rushed. So, whoever can get it done first that has the best quality product has a big advantage.

– Jason Braun, Meyer Distributing

Really? Green cars are the windmills of the auto industry. Makes a few people satisfied they’ve helped the environment, but phenomenal subsidies are required to sell them – counter-intuitive to the peacock factor or styling beyond what the factory provides. Americans who like cars as an extension of personality will keep doing so until gas hits $4.50/gal.

– Jim Chick, Bestop Inc.

RE: Will/Should suppliers offer such deals as new discount programs or free/reduced shipping, etc., to help move product and to support their restyler clients? Is this important or necessary to do?

Very necessary and very important. As I mentioned in the preceding question, incentives have made a difference for my business. Most of our customers are still shopping on price. We still try to add value before we reduce price of a product, but at times the only thing that will close the deal is an old-fashioned discount. If discounts are handed down to the jobber level, there is a good chance it will be handed down to the end customer. If a supplier or manufacturer offers a discount or promotion it is usually not making a better margin for the jobber, it’s helping close a deal and the end user will get the benefit.

– Shane Barrington, Thunder Mountain Outfitters

Start-up discounts and other tactical tools are just that – tactics that are occasionally appropriate depending upon local market conditions and the local competitive environment. As such, they should be considered on a case-by-case basis.

– Dennis DeLeonard, TAG

It’s critical to always push your company to provide the best value possible for your customers. Opening additional shipping locations to reduce freight, inventing new options that can drive sales and developing new products need to be firmly on top of all manufacturers’ “To Do” lists.

– Ron Leslie, Katzkin Leather

Suppliers shouldn’t give away the farm if it puts them in the “red.” Businesses of all kinds need to forego short-term spikes in sales when this jeopardizes any chance at a bottom line. At the same time, creative marketing that generates profitable sales is always a great idea.

– Jason Braun, Meyer Distributing

Most distributors will be competing for a strong start to the new year. All have much more sophisticated CRM (customer relationship management) programs to craft programs for every customer.

– Jim Chick, Bestop Inc.

RE: For restylers/jobbers, where do you see competition coming from in 2011? That is, from nearby restyling shops, from Internet sales to consumers, from car dealers, etc.?  

Where is completion coming from in 2011? For Thunder Mountain Truck Outfitters, our biggest competition is the Internet. It’s hard to compete with their prices. Again, try to add value by offering what a website cannot: Offer installation, offer an extended warranty, offer a knowledgeable sales staff and, my favorite, offer the “experience.” We try to not only sell the product, but we sell the “experience.” Allow people to enjoy shopping in your store and make them proud to say, “I bought mine at…”

I am personally seeing  more and more local competition. I am sure other shop owners across the country are seeing the same thing. A local auto glass shop whose sales are down, will see your business doing well and think, “We should do accessories, too.”

– Shane Barrington, – Thunder Mountain Outfitters

Local retailers will continue to compete with online retailers, and will have to emphasize elements of the transaction that online retailers can’t provide, including personal expertise, in-stock inventory, installation services, local warranty support, etc. Restylers who have survived the recent economic recession may find some of their longtime competitors are no longer in business; they should realize, though, that new players are likely to test the waters as the economy rebounds. Established businesses should have a strategy to make sure they hold onto or grow their share as the retail environment starts to recover.

– Dennis DeLeonard, TAG

For restylers that offer products that help dealers and are mostly items that require installation expertise not found at dealers, their future is very bright because of their high degree of technical aptitude. The Internet will continue to provide opportunities for restylers to capitalize in a variety of ways. As the market opportunity grows over the coming years, restylers need to make sure that they are expanding to capture the market opportunity or other restyling shops will develop to service the market.

– Ron Leslie, Katzkin Leather

The Internet: If you don’t have a website, get one now and get in the game. This does not mean sell online, but simply offering a modern view of your business to consumers. Consumers using the phone to inquire or wasting gas driving around town physically looking at parts is out of style.

The good news for restylers/jobbers: When the U.S. government starts enforcing online retailers to collect sales tax across the board in the very near future, the huge disparity in profit margins gained by e-tailers avoiding sales tax will be leveled. Cash-strapped governments are coming to collect what is due, and this will be a massive help to brick-and-mortar operations who have been unfairly burdened by this since the Internet’s inception.

– Jason Braun, Meyer Distributing

Jobbers and restylers: Internet won’t go away just because you’re mad at it. What you really mean is you’re mad at manufacturers and suppliers you can’t compete with. I would definitely avoid manufacturers/suppliers who are now competitors as a result of the slow economy. Manufacturers who cut across from being a supplier to selling direct to consumers pose a large risk. In almost any case, there are good, quality alternatives.

Also, many jobbers compete with themselves – lack of up – to-date cataloging, POP, product knowledge. Most have been in survival mode for 36 months: [They] need to look up and around the joint.

– Jim Chick, Bestop Inc.

Anything else you’d like to add regarding how you see 2011 shaping up? Or, can you offer what you see as the most important piece of advice for restylers for 2011?

All restylers need to have a strong sales plan to attack their market opportunities. They need to make sure that they work a plan to provide a higher level of service to all of the potential customers in their serviceable area. If they don’t provide the service necessary or stretch themselves too thin, competitors will develop and capture their business. This is a hard thing to do coming off of such a bleak period in the business, but it’s critical to grow your business with the market opportunity or someone else will fill the need.

– Ron Leslie, Katzkin Leather

2011 is going to be another year of the survival of the fittest, and so is the next decade. For those businesses owners that are creative, open-minded and that get up earlier and stay later, keep it up, the future is yours.

– Jason Braun, Meyer Distributing -¨