SEMA: Big Business for Automakers

SEMA: Big Business for Automakers

By Dale Buss

Every year when the vehicle-customization industry gathers at the Specialty Equipment Market Association (SEMA) show in Las Vegas, one group of attendees is always more engaged than the year before: auto company executives.

Tapping into the customization and specialization craze is boosting their top lines and beefing up their bottom lines more than ever before, producing juicy double-digit growth that normally isn’t part of the landscape in the highly mature U.S. automotive market.

At least 14 automakers were expected to exhibit at the SEMA show that began in the Las Vegas Convention Center on Tuesday. Understandably, each automaker is getting more and more serious about pursuing slices of what has become a $36.7-billion industry, according to figures compiled by Diamond Bar, California-based SEMA.

“It’s becoming one of the key elements to increase their profitability per unit,” says Myles Kovacs, president and co-founder of Dub magazine, the bible of the automotive-specialty-equipment business and a merchandise and marketing partner with several OEMs. “They’re looking at it as an important advantage in the marketplace.”

Expanding Portfolios and Revenue

For a few years, OEMS already have been increasing their emphasis on providing profile-lowering “ground-effects” kits, in-your-face wheel treatments, mind-blowing audio equipment and all manner of other devices that help consumers trick out their cars. Nevertheless, they still have captured only about 10 percent of the overall SEMA-proscribed market, which remains dominated by aftermarket companies, says Kim Irwin, Ford’s vehicle personalization and accessories manager.

“That’s a small piece, so we can grow in this business just by getting more share,” Irwin says. “Also, the pie overall is growing as more and more consumers are getting into the personalization fad.”

Ford, for example, is looking at about $700 million in revenues this year from its vehicle-personalization business, Irwin says, and about $220 million in profits -– the latter of which represents about 20 percent growth over last year; Mustang and F-Series trucks are leading the way. Mazda has experienced double-digit growth in sales of customization equipment and accessories in the U.S. market for four of the last five years. And Mopar, the Chrysler parts subsidiary, has seen sales increase by more than 20 percent a year for each of the last three years for its personalization business.

OEMs: Advantages and Disadvantages

At the same time, increasing their take from car personalization isn’t without its challenges. Some brands have been slow to engage dealers in the effort. Most significant is the fact that OEMs remain largely shut out from participation in the cutting edge of the market because they simply don’t develop, test and certify their equipment nearly as quickly as aftermarket competitors do. In an industry as fad-conscious and fast-moving as the arena of SEMA, that is a huge hindrance.

Yet OEMs bring considerable advantages to their efforts to grab more of the customization business. They have an integral understanding of their products that allow their designers and engineers to come up with ideas and equipment that only a vehicle’s creator could conceive. Only automakers can transform promising trends from aftermarket add-ons into popular production options. The OEMs alone can assure consumers that their personalization devices meet factory specifications, which is an important criterion to many “tuners.” And their dealership networks represent a substantial marketing and merchandising juggernaut that is proving more and more effective as auto dealers themselves play more to the SEMA market.

GM: Designing Accessories With New Models

Indeed, General Motors' recent success in the aftermarket parts business demonstrates the advantage an OEM can exploit. GM designs accessories at its GM Accessories Design Studio, which opened in 2005. The studio connects the accessory and vehicle designers to help ensure a factory-quality fit and finish as well as an integrated, tailored appearance.

“At GM, aftermarket doesn't mean afterthought," said Nancy Philippart, executive director of GM Accessories, adding the accessories are designed as the products are in development, not reverse engineered after a new model hits the streets. That means GM can cover accessories under its warranties.

GM, which will be showcasing nearly 28 concepts at SEMA, has expanded its accessory portfolio by more than 300 percent since 2002 and increased sales by double digits every year.

Mazda Model

Mazda has built “the most successful OEM accessory business in the country on a per-car basis,” says Jack Stavana, director of accessory operations for Irvine, California-based Mazda North America. Its personalization product line ranges from satellite radio to remote-starting devices, from auto-dimming mirrors to seat covers, from front masks -– “like a bra that goes on the front of the car," Stavana says -– to all-weather floor mats. The fastest-growing products tend to be electronics such as iPod-connection devices and rear-seat DVD players.

The brand starts out with a number of attributes in the customization market: Its average buyer is only 42 years old, second-youngest behind Toyota’s Scion brand, Stavana says, and younger consumers are the ones doing most of the personalization. And many Mazda vehicles practically scream to be tricked out. “It’s easy to want to accessorize a Miata or RX-8 rather than some beige sedan,” he says.

Then, Mazda maximizes its leverage as an OEM in at least two significant ways: emphasizing the factory origins of the devices and parts, and making dealers and their success integral to the company’s own.

“Our accessories are designed knowing vehicle dimensions and specs, so we know they’re going to fit -– and the customer knows,” Stavana explains. “Often, aftermarket accessories may not fit quite right or at all.” To buttress this advantage, Mazda offers a three-year warranty on personalization accessories that it or its dealers install –- versus the much more limited warranties that are typical of aftermarket parts.

Moreover, 80 percent of the personalization equipment that Mazda sells is “port-installed” by the company once it reaches U.S. shores from Japan. “So when the car comes off the boat, based on a dealer order, we install the accessories for them before shipping the car to them,” Stavana says. “So dealers are very comfortable with this. They have to have confidence that what we’re putting on the car is saleable and, in fact, enhances the car. And customers see that it’s coming from Mazda, whether it’s factory- or port-installed.”

Even for the 20 percent of parts that are dealer-installed, customers can have the confidence that they’re genuine Mazda parts, Stavana says. Dealers gain because they can offer customers the chance to wrap a customization gambit into their overall monthly payment. “So for $1.50 a month you can have a rear spoiler in your payment,” Stavana says.

Domestic OEMs admit that they’ve struggled with how to develop synergies with their dealerships that would enable both parties to benefit from the customization bonanza. That is the case, Ford’s Irwin concedes, even though substantial customer research shows that consumers would prefer to buy their accessories at dealerships.

“We haven’t participated in this to the fullest extent,” Irwin says. “We’ve done mainly bedliners and bug shields and floor mats -– traditional product offerings. That’s where most OEMs have played for some time. The area we’re concentrating now is an aftermarket opportunity where we haven’t played before.”

Ford is unveiling its new and significantly bigger push at SEMA. There, the company planned to launch a whole new brand of accessories, Customs, which will be available exclusively through its dealers. Customs will be available through 12x7-foot lighted displays in participating dealers that will be built around a kiosk with a touchscreen that will allow consumers to trick out a Ford vehicle on a virtual basis. “It’ll be kind of like at Target when you use the bridal registry,” Irwin says.

Ford dealers will get the Customs “store within a store” free of charge as long as they log certain levels of accessory orders. Consumers also will be able to shop online and schedule dealer appointments for installation of their customization gear.

Chrysler currently captures “only small part of the market” for accessories in part because it hasn’t been able to generate dealer enthusiasm for the opportunity, says Jon Clark, Mopar performance manager. “People who’ve been buying that Dodge Ram or 300C or Charger RT have been trying to get the hell out of that dealership and driving down the street to customize the car.”

Now, however, Clark says that Mopar’s “task is getting dealers energized and getting them to understand the profit opportunity that is there.” Objective No. 1, he says, is to encourage dealers to “pre-load” vehicles with Mopar-supplied accessories such as chrome wheels, a “second-stage” leather interior and Mopar’s Kicker brand of audio equipment, which can supply up to 768 watts of power.

OEMs are also learning how to tap into the customization market by accommodating aftermarket-parts suppliers as well as competing with them. Honda, for example, works with SEMA to provide behind-the-scenes vehicle-measuring sessions on new products before they go on sale. “Accurate measurements allow aftermarket suppliers to bring their products to market at roughly the same time as the new-vehicle launch,” says Honda spokesman Chris Martin.

In a similar vein, Toyota –- for the first time being the sponsoring OEM for this year’s SEMA show, following the Big Three last year and Honda in 2005 –- has been designing new vehicles with customization in mind. The front structure and rear hitches of the new Tundra pickup, for example, were buttressed and easy behind-the-dash access to wire harnesses was ensured specifically to accommodate aftermarket add-ons such as snow plows, says Mark Amstock, Toyota’s national SUV marketing manager.

Toyota also has created catalogs for tuners that feature both factory-made and authorized aftermarket parts. “Lots of things we can’t make and market ourselves, such as lift kits, or we’d have to recertify our cars to include them,” Amstock explains.

Some customization suppliers also are major original-equipment vendors. Harman Kardon products, for example, account for about 78 percent of all the branded audio systems that are factory-installed in American cars, according to Christopher Dragon, a brand-marketing director for Harman Consumer Group, in New York. Yet Harman Kardon also is a major aftermarket audio supplier.

In fact, OEMs depend on a dynamic base of aftermarket-equipment suppliers to provide all manner of customization choices that the factories simply can’t provide to American consumers. Their product cycles remain years long, while accessories suppliers can pick up on trends and turn around new products within months, in turn feeding more interest in the trend -– and more enthusiasm for vehicles that lend themselves to tuning.

The adoption of iPod technology in new vehicles exemplifies this reality. Some aftermarket suppliers of devices that connect iPods to vehicle audio systems already have developed and fielded multiple generations of products. Meanwhile, there remain some prominent OEMs that still haven’t even demonstrated a first take on original-equipment iPod dockers. “We build the head units for Porsche, but they have still deemed the iPod unimportant,” Dragon notes.

Another obstacle for OEMs is that they must carry out stringent testing and validation of accessories if they’re going to be factory-authorized –- rigor that aftermarket companies usually don’t apply. Kovacs, of Dub magazine, has suggested that automakers come up with new “aftermarket specs” that would be less difficult to achieve than their standard factory specifications but still better than aftermarket standards.

“They’re open to it,” Kovacs says of some OEMs, “but it will take some time.”

Photos:

Rapper 50 Cent's tricked-out Pontiac G8 is introduced to the media during the SEMA aftermarket auto show in Las Vegas, Nevada, Monday, October 29, 2006. 50 Cent worked with Unique Autosports and General Motors to customize the vehicle. (Photo by Isaac Brekken for General Motors)

Michelle Krebs:  is Editor-in-Chief of AutoObserver.com. Follow @AutoObserver on Twitter.