SEMA News - March 2010

A Look at Performance Parts Trends Through the Eyes of Experts

By Steve Campbell

	Racing and performance deliver the iconic images that people associate with automotive accessories and mirror the overall marketplace. The trends that occur in the performance segment often offer a preview of what will take place in the rest of the industry.

The automotive specialty-equipment industry was born in the racing and performance segment. In fact, the original name of SEMA, now the Specialty Equipment Market Association, was the Speed Equipment Manufacturer’s Association. While the name and the industry evolved to include an array of more than 7,000 businesses, racing and performance still deliver the iconic images that people associate with automotive accessories.

In large measure, that niche mirrors the overall marketplace, and the trends that occur in the performance segment often offer a preview of what will take place in the rest of the industry.

We recently discussed those trends in a series of interviews with executives from leading racing and performance companies as well as through a discussion panel that was hosted by SEMA’s Motorsports Parts Manufacturers Council (MPMC) and WyoTech technical schools. We were looking for insights into where the industry has been, where it’s going and the challenges and opportunities that lay on the performance horizon. Not surprisingly, technology was one of the chief topics.

“New vehicles are so much more technical,” said Scooter Brothers, SEMA Board of Directors chairman-elect and co-owner of Comp Performance Group. “Today, you’ve got a computer that’s telling the camshaft how many cylinders to operate and how to advance or retard the timing. It’s easy to take that stuff off and go back to the old way, but we’ve decided to embrace technology and move forward. In the past, you could afford to be wrong because product development was not as expensive as it is today. Our market now is pretty unforgiving. You’ve got to find a way to be great, not just good. There’s a lot more work there, but the paybacks are also a lot better.”

Rick Sparks, vice president of sales for Comp Cams, said that the company has seen some transition in its sales, with late-model fuel injection and valvetrain technology leading the way, and Tony Napoli Jr., owner of American Speed Centers, said that his company has also seen increases in late-model product sales.

	Innovation and overcoming obstacles is key to success in the performance parts market. Grant Products is introducing a new line of performance-vehicle steering wheels for newer models. The obstacle had been mandatory airbags. Grant’s new line allows the consumer to easily install original-equipment bags into the replacement steering wheels.

“Mustangs have always been strong,” he said, “and now the Camaro and Challenger parts are starting to sell. People are buying programmers and shifters, and we do a lot of exhaust on those new cars—not only for performance but for the sound. It’s mostly cat-back stuff, although we’re doing headers and the whole exhaust for some of the Mustangs. If people really want to get into them, they’ll do the exhaust and then a bolt-on supercharger.”

Napoli said that the low-end channel of the sport-compact market has fallen off significantly, but he’s still seeing sales in high-end parts, such as exhaust, turbos and internal engine parts for Subarus, Acuras and Mitsubishi EVOs. He’s also selling diesel truck parts and theorizes that the young people who first became involved in the low-end sport-compact market may have escalated into the diesel and high-end import market as they’ve grown older and more affluent.

“In the past,” he said, “contractors had diesel trucks, or guys used them for towing. But now people are using them as daily drivers, and they hot rod them big time.”

Jim Barber, president of Classic Automotive Restoration Specialists Inc., which focuses almost exclusively on the restoration end of the performance market, said that he’s seeing his customers move away from “bling” to focus on functional products. Speed and handling have become more important than simply adding parts for their looks, he explained. 

“I continue to see customers being conservative, thinking about how they can get the best use of their limited budgets,” Barber said. “What continues to surprise me is the SCCA racing segment. Perhaps it’s my part of the country, but I see more and more people participating in that racing segment.”

While the entire performance market has flattened somewhat, it still seems to be holding up well compared to the general economy, said Bret Voelkel, RideTech president. He believes that the late-model sport-truck market has seen the worst damage.

	Within the restoration segment of the performance market, customers seem to be moving away from “bling” to focus on functional products. Jim Barber, president of Classic Automotive Restoration Specialists Inc., said that speed and handling have become more important than simply adding parts for their looks.

“I think that is a reflection of the younger age of the owners,” he said. “They’ve been hardest hit by the general economic slowdown, and many of those vehicles had been financed. When the good financing deals went away, so did many sales.”

But while new-vehicle sales are off, the fact that people seem to be keeping their vehicles longer may eventually bode well for specialty-equipment manufacturers. As vehicles age, consumers are more likely to repair or refurbish them rather than buying something new. Doug Dwyer, executive vice president of Schiefer Media, said that a trend toward vehicle longevity could create a whole new category of parts.

“There’s a developing market in this country for premium-quality replacement auto parts,” he explained. “Not the cheapest parts, but good, branded products. The branding that we have created for years and our reputation for building performance parts can transfer to a premium replacement category. We just need to find the easiest way to get the product in front of people. Sometimes that’s the Internet, sometimes it’s brick and mortar, but it’s a real trend in our industry.”

Voelkel said that his company has seen a general migration to the repair or upgrade of existing systems as well as to less-expensive products. He said that people are less willing to buy a complete state-of-the-art suspension system and are instead fixing or upgrading what they already have. And Dennis Overholser, executive vice president of Painless Performance, said that the formerly considerable business his company did in the street-rod market has flagged somewhat, both because of the economy and because of the graying of that segment’s consumer base.

“Most of the street rods are expensive,” he said. “And let’s face it: Guys like me in their 60s and 70s are dying off every year. While the street-rod market will never completely go away, it’s going to have a steady decline. On the other hand, the 4WD market seems to still be growing. It takes far less cash to go four-wheeling, and it’s very family-oriented. Especially with the economy the way it is, a lot of families are taking vacation time with their 4x4 and going to the mountains or desert or camping. You can do that inexpensively and have a good time.”

	Exhaust systems are among the top sellers for late-model performance vehicles, such as Mustangs, Camaros and Challengers. While newer vehicles receive mainly bolt-on parts because of warranty concerns, enthusiasts still tend to delve deeper into the performance-parts bin.

Barber has also seen changes in his restoration business as the economy foundered. The unlimited-dollar projects have greatly diminished, he said, and while the economy has not stopped people from spending money on their passions and hobbies, it has caused them to refocus. 

“Several years ago, I had customers putting $100,000 jobs on credit cards,” he said. “Those days are gone, along with taking out a second mortgage to restore a vehicle. The majority of our customers took profits from the stock market to build their dream car, and that has slowed down tremendously.”

Still, it’s important that manufacturers and retailers not become overly conservative because of the economy. While the past two years have certainly been difficult, businesses must be prepared when a recovery begins.

“Many manufacturers have made serious cutbacks in advertising, inventory and staff in reaction to the economic slowdown,” Voelkel said. “As the market regains some momentum, they may struggle to react to any significant sales increases. The stronger companies have used this period of slow sales to invest in new products, processes and promotional programs in order to prepare for the next wave of sales activity. These companies will be in the best position to satisfy retailers and their customers with new products, more efficient business processes and dynamic promotional programs.”

Sparks advised that speed shops in particular must stay on top of trends and ensure that their sales teams can offer more to customers than they’re likely to receive on the Internet. Though they’ve been at a price disadvantage for several years, speed shops can make up for pricing through experience and the ability to interact with customers. In fact, the Internet can be a valuable sales tool for savvy retailers.

	Technology has been a boon to the performance industry. For instance, General Motors unveiled the E-Rod at the 2009 SEMA Show. The 430hp LS3 crate-engine package meets emissions requirements in all 50 states. It will be available through GM dealers, authorized GM Performance Parts retailers and via the GM Performance Parts website.

“Nearly 75% of people shop online for parts,” said Dwyer, “but a significant number of them actually buy their parts at a brick-and-motor store. They prefer to do the research online and then walk into a place where they can put their hands on the part. They educate themselves on the Internet and then find a retail store to buy from. My feeling is that they’ll pay a premium of up to 10% in order to have the product in their hands and talk to someone, but they want to be educated first. I recommend that marketers create ads that drive people to the retailer’s website, educate them there and then deliver that educated consumer—one who can’t be swayed by erroneous information—to the point-of-purchase location.”

The ads that are developed in those initial stages are a crucial part of the equation, said Doug Evans, senior vice president of the Performance Group at Source Interlink Media. Traditional media—magazines, television and radio—provide the initial contacts that eventually drive people to the web.

“Something like 70% of web searches are driven by reading a magazine article or seeing a television program,” he said, “so you can’t abandon traditional media and do only Google search words. You simply won’t have as much success as you
could have.”

Competition from overseas—particularly in the form of cheaply made knock-offs—has become a serious threat to the complete U.S. distribution chain, from manufacturers to distributors to retailers. But technology again becomes a
significant force on the side of domestic companies that deliver passion and innovation to the marketplace.

“Typically, the people who bring knock-offs in are looking for the low-hanging fruit,” Brothers said. “They don’t want to do the hard things. On the other hand, we pride ourselves on creating difficult and more challenging products. If we move fast enough technologically, those guys are always going to be copying what we used to have. Our customers are not satisfied with what we used to have. They want the latest and greatest parts, and that’s a tool that we can use against knock-off competitors. The only thing they have is price, but we can give our customers value and technically advanced parts.”

A portion of the technology explosion has come about because of fuel-cost fluctuations and environmental concerns. The automakers have invested billions of dollars in the development of electric, hydrogen and hybrid powertrain systems, and those systems have begun to figure into the plans of specialty-equipment businesses.

“As these technologies evolve, we’re going to work with them,” Brothers said. “Somebody is going to make a faster, stronger solenoid or make fuel flow better in a hydrogen engine. And as long as there’s more than one, somebody’s going to race them. People are going to find ways to take advantage of that competitive spirit. Manufacturers will make parts, and people will buy them. The competition and the market will be the same.”

	While lower-end sales in the sport-compact segment have fallen off, high-end parts, such as exhaust, turbos and internal engine parts for Subarus, Acuras and Mitsubishi EVOs, remain strong.

In Dwyer’s opinion, however, fossil fuels are simply too inexpensive—and too important from a tax perspective—to be replaced on a large scale in the near future by any of the newer technologies.

“When you take the taxes out of the price of gasoline, it’s so cheap and efficient to run that it’s going to be difficult to figure out how to economically compete with it,” he said. “If gas is $3 a gallon, and $1.20 of that price is taxes, you have to replace that tax with something else if you don’t use gas. Gasoline is going to be with us for a long time. I have a bet with my sons that they’ll be driving cars burning gasoline 20 years from now.”

Still, the industry will address alternative-fuel vehicles and the technologies that drive them. It’s obvious that the automakers are taking those systems seriously and so are many specialty-equipment businesses.

“We’ve had everything from monster trucks to dune buggies on the cover of Hot Rod magazine since 1948,” said Evans. “Most of our portfolio of more than 60 automotive titles came out of Hot Rod because of a particular industry trend. While I don’t see electric cars showing up in Hot Rod anytime soon, I do have a plan sitting on my desk right now for an electric-car magazine. One of our jobs in the media is to anticipate trends and then be in a position to help this industry capitalize on them while providing entertainment to our readers.”

Just as the face of magazines, vehicle types and vehicle technologies continue to evolve, and so does the American work force. The front edge of the baby-boom generation has entered retirement age, and while a portion of those 50- and 60-somethings have forestalled their planned exodus to a life of leisure because of the recession, they see the delay as only a hiccup until a recovery fattens their wallets.

“There are currently about 70 million people over 55 years of age who hold technical jobs—carpenters, plumbers, car mechanics—and it isn’t going to be long before their real-estate values and 401Ks allow them to look at retirement again,” said Dwyer. “When the baby boomers start to retire, there are going to be gaps that no one is around to fill. Even if all of the 15 million people who are currently unemployed took one of those jobs, there’s still not enough people to fill them all. It’s going to change the way people treat retirement, how businesses retain people and how their hours are affected. I don’t see how we’re going to be able to train people to do the jobs that are going to be out there, but it’s going to be great for those who have the skills.”

	The 4WD market seems to have retained its strength. The hobby is attractive to families who use their 4x4s to vacation in the mountains, deserts or other camping areas even in the face of a weakened economy.

Dwyer believes that a much greater emphasis must be placed on technical education and on-the-job training rather than funneling every possible student into a four-year college or university program. The country needs to focus on secondary education that teaches people the skills used in the technical jobs that maintain a whole gamut of diverse industries. Schools such as WyoTech, which offers students nuts-and-bolts training as well as life skills and career guidance, are crucial to filling the void.

“We get students who don’t even know what a screwdriver is, so we still have to take them back to the early parts of technology,” said John Hurd, president of the WyoTech Sacramento Campus. “But we’ve had to adjust to current and even advanced technologies so that we can introduce more hybrid technology and advanced diagnostics. You have to know how to tune engines and chassis to work together, and the adjustments we’ve made have allowed us to add to the programs. While we used to have things put together in a six-month program, we now go through nine-, 12- and 15-month programs so that students can raise their level and become better employees.”

SEMA has also focused resources on education as well as helping member companies take advantage of partnerships with the automakers. The SEMA Memorial Scholarship Fund directly benefits students who are currently enrolled in auto-related curricula, and programs such as SEMA Measuring Sessions and Technology Transfer give member companies a leg up in designing and perfecting the products they sell.

The economy has undoubtedly been a major shaping force within the racing and performance sector of the industry, and companies have worked hard to overcome its challenges and take advantage of its opportunities. Voelkel put a nice exclamation point on the changes that have taken place and how they may actually benefit both consumers and businesses.

“This is an opportune time for hot rodders to obtain better information, better parts and better pricing than at any time in recent history,” he said. “There has also never been a better time for a small, motivated company to optimize its position as an expert in its field by being flexible in accommodating its customers’ needs.”

Racing & Performance Reps Report: What’s Hot

When we asked a select group of manufacturers’ representatives what was selling particularly well, they pointed to a mix of traditional top draws and some of the newer technologies in the performance parts arena.

Irv Cohen, partner at SS Sales & Marketing Group: Exhaust and Intakes. People who are buying semi-performance vehicles off the lot are looking for more power than what the factory is allowing. Putting an exhaust or an intake on can increase their horsepower more than what the factory has established in the manufacture of the part.

Les Rudd, CPMR, principal of Bob Cook Sales: Fuel Injection. The automakers went to fuel injection years ago, but it’s taken a while for the aftermarket to catch up. Now that it’s easier to tune with a laptop without having to take the car to a specialist, the technology has advanced enough and become simple enough that fuel injection has become a do-it-yourself item. Finally, it’s becoming affordable.

Wade Cobb, principal of Hapco: Complete Turn-key Power Packages, including turbos and Computer Upgrades. As individual items, filtration, exhaust and computer modifications are king. The economy may have caused a challenge for most, but high-end customers have the ability more than ever to drop a vehicle off and have it completely upfitted or even go as far as to have a new platform built and pick it up when completed. Beyond the high-end customers, most of the transactions are bought as pieces to a puzzle: an air intake today, next week an exhaust kit, then the computer chip. The desired result is the same: Customized power beyond the factory.