Talks of global warming and the need for this country to become less dependent on foreign oil apparently hasn’t affected the light truck market. As a matter of fact, sales of pickup trucks and SUVs have been on a steady rise, which, in turn, has made the truck, van and SUV accessories and parts markets very fertile profit grounds for jobbers and WDs. It seems that if you’re not selling these items, there is no better time than now.
According to the 2003 Specialty Equipment Market Association (SEMA) Market Study Update, sales in the specialty automotive equipment industry have grown at rates that are two and three times what might be expected. During the last 10 years, the industry has had annual increases averaging 7 percent per year, while the total automotive aftermarket grew at an average annual rate of 4.5 percent.
Peter MacGillivray, SEMA’s vice president of marketing and communications, says the industry’s outlook is positive and that, at this point, recent gas price hikes have had minimal impact on the industry.
“In some cases,” he says, “higher prices actually have a positive impact on some of our businesses, as with products like cold-air intakes that enhance fuel economy. Over the years, SEMA member companies have had a keen ability to respond to whatever ‘technology curve balls’ that have come down the road. Hybrid vehicles are no different. I’m sure our members will find ways to make them look and perform better.”
SEMA announced this spring that, according to a national survey, automotive aftermarket executives are focusing on company growth in what they feel is an improving economic environment.
According to the survey, 78 percent of respondents expect the economy to improve in 2004. In addition, 96 percent are optimistic about the growth of their business, with 90 percent expecting increased revenues and 79 percent anticipating improved profitability. Among growth drivers, respondents view customer loyalty (44 percent) and niche markets (43 percent) to be the two most important core competencies.
MacGillivray also says the light truck market, as far as accessories and parts go, is significantly larger than in the passenger car arena. “It’s the largest accessories niche in our industry,” he says. “It’s really driven by the fact that there are more trucks on the road today than ever before. Trucks have been outselling cars for several years now, and that’s really driving the growth in that marketplace.”
According to the 2003 SEMA Update, specialty accessories and appearance products for all vehicles attained a volume of $5.36 billion at manufacturers’ price in 2002, which is more than half (57.6 percent) of the total $9.30 billion specialty equipment market. From 1990 to 2002, the specialty accessories and appearance products segment grew from $1.85 billion in sales volume at manufacturer’s selling price to $5.36 billion, an increase of 189.7 percent in 12 years. This sizeable increase has been driven by consumer enthusiasm for light-truck products, electronics, general restyling products and, most recently, by compact performance products.
Popular picks
So what are the most popular products in the light truck industry today? According to MacGillivray, it’s wheels and tires — for any segment of the specialty equipment industry — and the reasons are pretty consistent across all lines: They’re easy to install and make the most immediate and dramatic impact on a vehicle.
In 2002, according to the 2003 SEMA Update, the wheels, tires and suspension segment of the market generated $2.25 billion in sales at manufacturer’s price. Much of this growth continues to be dominated by custom wheels and performance tires.
The second most popular category caters to truck beds: tonneau covers, caps and liners. People also tend to put on accessories that make their trucks more utilitarian or more functional for their lifestyle, MacGillivray contends. “If they’re going off-roading, clearly winches are natural accessories,” he says, which brings us to the third best-selling product category, mobile electronics, which includes GPS systems and DVD players with drop-down screens, among other items.
MacGillivray says DVD players are significant sellers. “They’re popular in trucks and sport utility vehicles. With an SUV, you tend to have a lot of passengers, some who may be bored, so if you got a DVD player and several screens, they can watch movies.”
He says another cool — and hot-selling product category — is the exterior-mounted camera, which adheres to rear bumpers or hitches to facilitate backing up and maneuvering, like when hauling a boat. “That’s something we’ve seen some people do quite well with,” says MacGillivray. “There’s a company called HitchCam that sells that product, and it’s a nice dual use for the video screens. If you have video screens in your vehicle that you play DVDs on, you can also retrofit that device with the cameras so when you’re backing up, you just switch off the movie and turn to the cameras (for guidance).”
Accessories sold in the specialty equipment market for light trucks all depend on the use of the vehicle. “For a soccer mom, there are products available that help facilitate cargo storage,” MacGillivray says. “For an outdoors person who wants to haul a canoe or boat, there are products that fit that lifestyle, too … there are products for just about everybody.”
SEMA also announced this spring that the specialty equipment industry grew 7.7 percent to $28.9 billion in 2003. The market’s 2002 product sales, for items like appearance accessories, racing and performance parts, and suspension and handling equipment totaled $26.8 billion. Appearance accessories accounted for a majority share (57.7 percent), with nearly $17 billion spent on items like truck bedliners, graphics, body kits and sunroofs. Handling-improvement parts, such as performance braking systems, steering, suspension products, custom wheels and performance tires took the second largest share of the category at $7.27 billion, or 25.1 percent. Within the handling equipment sector, performance tire sales were $3.5 billion, running closely with custom wheel sales at $3.3 billion.
What about mechanical parts? MacGillivray says there are always innovations in performance parts. He points out that towing is a significant category. “A lot of people buy trucks and SUVs because they’re towing boats, horse trailers, a number of different things, so you see a lot of products, whether they’re superchargers, turbo chargers, or enhanced cooling or braking equipment, that all kind of revolve around the towing industry,” he says. “You’re much better off when you build or enhance your vehicle to set it up for towing.”
All the products he mentioned would also hold true for vans. “The beauty of a lot of these products is that they’re interchangeable across different (larger vehicle type) platforms,” he says.
Mark Halloran, manager of one of six Levine Automotive parts stores in the New York/Connecticut area, says his light truck business is accelerating quickly.
The independent jobber distributes auto and truck parts as well as autobody supplies like paint. According to Halloran, about 20 percent of his business comes from light truck accessories, while hard parts bring in 60 percent. “SUVs and four-wheel drives are a bigger trend, at least in this area with the weather,” he points out.
Larger vehicles were once considered only working vehicles: pickup trucks for farmers and contractors, vans for delivery trades and SUVs for those whose work required a vehicle between a pickup and a van. Today, they represent approximately half of all new vehicles sold.
“A lot of people who buy these vehicles want to accessorize and customize them,” says Halloran, “and there is more of an accessory market for trucks, vans and SUVs than for passenger cars.”
Sixty percent of Halloran’s business is selling parts to garages that fix trucks, vans and SUVs, while 40 percent is to DIYers in that same market. “When it comes to parts that customize, you see more people doing it themselves,” he points out.
Halloran says garages really started ordering parts for these vehicles within the last two years. His opinion is that SUVs became mainstream when dealers started offering zero percent financing during the drooping economy after September 11, not to mention the fact there are more options and styles to choose from.
He thinks the light truck market, as far as profits go, is similar to passenger cars, but that it will eventually increase because more people are buying SUVs than ever before. “They’re becoming more of a mainstay, and they’re a little more versatile than cars, which is why they’re such hot sellers.”
He thinks jobbers are learning very quickly that this is a lucrative market. “As SUVs are becoming more affordable … I definitely think the industry is aware that people are buying more of them, and the market will bare that,” he advises.
Though sales of these larger vehicles has been on the rise, MacGillivray says it seems as if car dealers are making more money on the accessories they’re selling than on, in some cases, the vehicles they’re selling. “Because of zero percent financing, incentives are really peeling away profit margins for dealers,” he says. “They’ve got to keep the lights on and make payroll some way, and they do that through accessories.”
To back up his claim, the 2003 SEMA Update states that franchised new-car dealers have been experiencing profitability problems due to shrinking margins. Dealership gross profits have steadily eroded since 1992, going from 13.8 percent down to 12.6 percent in 1999.
It further states that the only product groups that new vehicle dealers have gained market share with are appearance/body accessories and custom wheels. In both cases, the increase was only 0.2 percent. In all other product groups, new vehicle dealers either held their own or lost ground.
But in the parts market, the profitability of accessories for any vehicle is high. “People are willing to pay to have their vehicles look unique,” says Halloran. “I think accessories are especially profitable on SUVs because people are willing to pay a little bit more. They feel an SUV is bigger and warrants a little higher price tag.”
As far as mechanical parts go, he believes profitability is equal to the car market. He says since SUVs basically have the same engines as cars, those parts have the same markup.
Halloran sells a lot of brush guards, grille guards, rain deflectors and vent shades. “As far as accessories, those are the most dramatic look people can achieve on a reasonable budget,” he says.
Dennis Firestone, owner of American Truck Accessories, Inc., in the Kansas City area, sells pretty much everything except accessories for SUVs. He views the SUV as an “off market” of the truck. “Trucks can have a lot of things put on them that an SUV can’t, so we’re not talking about products like running boards, grille guards, floor mats, mud flaps … these things fit trucks, vans and SUVs,” he says. “Truck-specific parts are ladder racks, tonneau covers, things that you can use to turn a truck into a work vehicle, shelving you can put into vans, a lot of products that don’t relate at all to an SUV.”
He says trucks and SUVs are in the same category, but a lot of people in the industry, particularly retailers or wholesalers, have to stock specific products for SUVs. As for him, he doesn’t carry many.
Firestone thinks the truck and van accessories markets are larger because there is a wider variety of aftermarket products available. As for SUVs, “You use it as you would a car; you can use it a little like a van or a truck because it has the room to carry more than a car, but the SUV doesn’t really transcend into trucks and vans.”
He says jobbers who carry products for SUVs can sell to the truck and van markets as well, but he finds specializing, if you’re a small business, more important. “In other words,” he says, “try to fit the crack. Big WDs mass merchandise, but if you want to find a product that fits between the crack and you want to go after it strongly, there is an opportunity for a WD to do that type of work.”
Adding on advice
The best thing someone wanting to sell truck, van and SUV accessories and parts could do is offer variety, according to Halloran. “The average SUV owner wants to have a variety of things to choose from. They want their vehicle to look a little bit different than someone else’s and the point of accessories is to make a vehicle more unique.”
He also offers advice for any garage wanting to sell these types of products: The best way is to have a catalog in the waiting room or on the counter, so customers can thumb through it while they’re waiting. If they are interested in a product, the sales people benefit because the shop has to call the jobber for the part.
“The biggest thing for us is we make sure we get our catalog out there to garages,” says Halloran.
A different avenue for accessorizing
Firestone, who owns a small WD, carries a limited selection of aftermarket products. Being in a hub of three major warehouses that have all pretty much come into the picture during the last five to seven years has taken away a lot of his business.
He explains that he used to be somewhat of a niche business — supplying a couple of products that weren’t distributed by the majors.
Side note: Yes, he is related to the tire moguls. According to Dennis, if you go back far enough — past the founders, back to the people who came from another country — they are related. “When they got to this country,” says Firestone, “my side of the family went one direction and theirs went the other.”
Having been a WD since 1992, Firestone handled some products (a tonneau cover and a bedliner) on an exclusive basis for the area. If jobbers wanted to purchase the product, they’d have to buy it through him. Today, his warehouse is no longer the exclusive supplier of those products. “It’s just evolution,” he says.
He considers product outsourcing by manufacturers to any and every WD to be a trend in the market. “There are two things changing the marketplace today,” says Firestone. “One being Internet sales. The other is that there are more and more people wanting to market the same product, so that changes the price. Internet sale sites have less overhead, so they change the price too.”
According to the 2003 SEMA Update, “Since mail order companies aren’t limited geographically for their customers, they can specialize in product lines that might not be practical for localized wholesale and retail operations.
“In 2002, mail-order companies represented $1.3 billion in specialty equipment sales at manufacturer price. Mail order accounted for 14.4 percent of industry product sold. We continue to see shifts in the buying patterns of industry consumers. As additional emphasis is placed on accessories rather than performance parts, we’ll probably see a continuation of the current trends.
“In addition, we’ll soon need to track sales through the Internet. During the last several years, we’ve seen the speed shop and performance retailer consistently losing market share. At the same time, specialty-product installation retailers and mail order have been increasing their market share.”
Says Firestone: “The world goes around, and the key is to stay ahead of the evolution if you can.” And how is he doing that? By moving from warehouse distributor to Internet salesman. “There will always be retail sales outlets,” he says, “and I think those are affected very little by Internet sales, but I believe that Internet sales are the future of where manufacturers can move more product. In fact, that’s my crusade, trying to make factories aware that if they want to move more product beyond their normal sales channels, then they should look at the Internet as an option.”
Firestone began dabbling in the Internet about four years ago; now he has five websites. He’s also added many product lines, which he gets directly from the factory. “I don’t go to warehouse distributors,” he says. “I have factories drop ship products direct to the consumer. To me, that’s just the other form of sales. There are retail sales, but not all parts of the country have retail outlets. So if you live in one of those areas and you want to buy a product and you don’t have an outlet near you, then your other option is to go on the Internet to buy it.”
Being in the Midwest, Firestone finds that about 45 percent of his light truck accessory sales come from the East coast, 20 percent from the West coast, and the rest is split between the Midwest and Central states.
Not on the shelf, mister
One big difference Firestone notices between selling truck accessories and selling auto parts is an auto parts store pulls parts off of their shelves, whereas those in the truck accessory business don’t usually stock product. With auto parts, customers are usually buying a replacement part and/or something that’s pretty exacting. When selling accessories, a customer may come in to purchase a cover for his truck bed. “They have options in this purchase,” says Firestone. “There’re several different types of hard covers, soft covers, folding covers. More than likely, jobbers will not have inventory because there are too many.
“When you walk into an auto parts store, you expect to walk out with the product. When walking into a truck accessory store that a jobber has, you don’t expect to walk out with it. Instead, you’re going to order it; that’s where the WD comes in.”
Since there are so many of these products that are model, make, year and sometimes color specific, a jobber likely isn’t going to stock enough to fit every truck. “My jobbers don’t have 200 of anything on their shelves,” Firestone says. “They carry universal products, like trailer balls.”
Halloran agrees. That’s basically what he offers — ordering. “Customers have a catalog that we can order from,” he says, “and we’ll ship next day, which is usually fast enough to satisfy them.
“It’s quicker than ordering on the Internet, and we don’t charge shipping. That’s how we compete because there is really no way to keep that much inventory in stock, especially when one piece of inventory can sit for so long before somebody actually picks that part out.”
Truckloads of opportunity
The 2003 SEMA Update stated, “Personal transportation is very important to Americans, and as they find out that there are acceptable changes that can be made to their vehicles that make life easier, more productive or just more fun, they are willing to invest in automotive specialty equipment products.”
And car manufacturers are getting into the game, too. According to MacGillivray, OEMs are working with SEMA and the specialty equipment industry by giving manufacturers access to design data for vehicles so they can design aftermarket products before they hit the show floor. “For example,” says MacGillivray, “when the all-new Ford F-150 was introduced last year, there were already more than 100 products available for that vehicle, something that wouldn’t have happened three or four years ago.”
The light truck market is booming with big business — you’re more than likely to reap benefits by the truckload if you are a part of it.
