SEMA News -- August 2009

By Zachary Krelle

Continuing America’s Love for the Automobile With Emerging Markets

 SEMA News-August 2009-Research 01
 

Dyed-in-the-wool enthusiasts, like the owners of these early Fords, have forged through the economic downturn to support their hobby.

In 2008, the restoration market held its ground and fended off economic troubles by sticking to its classic formulas. With the overall market shuddering in the wake of myriad disasters, enthusiasts looking to restore their automotive passion and collector cars came through decidedly.

What sets the restoration segment apart from others is the great appreciation for leaving cars alone—a stance some see as opposing various tenets of the specialty-equipment industry. While this is not entirely true, the purpose of this market is to return the majority of the vehicle to its original state with parts manufacturers that have recreated retired designs. The restoration market has survived by servicing vehicles that fall primarily under four principal categories:

  • Early antiques (pre-1920s)
  • Domestic pre-war brands from the 1920s to World War II
  • Domestic post-war brands
  • Imported Vehicles

Today, with almost 250 million cars and trucks registered on the roads in the United States and the retirement rate (the number of cars taken off the road by collisions, submissions to government agencies or removed from registration) not nearly keeping pace with the creation rate, the complete vehicle pool swells each year. At least, it did until 2008. Most people recognize the obvious nature of older cars becoming scarcer since they are no longer being produced; aside from reproductions and replicas, they continue to diminish in quantity. However, with each new year comes a year’s worth of new models, some of which will hit the heartstrings of future enthusiasts. Dennis Gage, collectibles ambassador and host of the “My Classic Car” television program, sees the opportunities: “While the cars get older, there are actually more of them out there every year. Cars that historically nobody cared about or were considered too far gone to restore are being brought back to life.”

Traditionally, the market has focused on high-volume models but is now venturing into more obscure steel and even new genres. The rolling rate now envelops newer cars, with some experts even considering the restoration of vehicles into the mid ’80s. If we expand to this perspective, there are over 7.5 million vehicles within the 1967 to 1985 range roaming the streets, breaking down and needing repairs.

Continuing along these lines, some states have higher proportions of these more modern older cars in their fleets compared to their total population. For example, California has the largest number of registered vehicles on the road, yet the state has a small percent of older cars currently registered. This is not a direct reflection of the complete number of classic cars and trucks in the state, but the number eligible for registration is lower and doesn’t include cars that are for off-road use only, fail smog inspections, etc.

Market Health

 SEMA News-August 2009-Research chart 1
 Market Share: Appearance and accessory sales have grown consistently for over a decade, but the sharpest increase in 2008 came from performance and drivetrain parts.

For the first time in more than 15 years, the restoration market did not grow during 2008. It did, however, hold its own and weathered the economic storm, coming in just 2.4% lower than during the previous year. Considering how other segments have performed within the industry and how other non-automotive industries have fared, the enthusiast-driven restoration market has proven its resiliency.

With an accumulated total of $1.451 billion in retail sales for 2008, the restoration market achieved the second highest effort in history. Jim Barber, president of Classic Automotive Restoration Specialists and council chairman of SEMA’s Automotive Restoration Market Organization (ARMO), found a positive view of the situation: “Call volume is down from 12 months ago; however, the quality jobs are still coming. We have eaten into our backlog to a certain degree. The slowdown has given my staff time to focus on cost-saving measures and better customer communication.”

Ernie Silvers, Egge Machine and Speed Shop CEO and ARMO Person of the Year, saw the atmosphere differently: “During the first few weeks of November, folks stopped buying. Period. When buying started up again, we noticed folks were working very creatively to cut corners by reusing components that are normally replaced and/or not replacing all components of their engines.”

For a market of products that are arguably not necessities, resorting back to idle projects is not bad. The projects have not dried up, and the opportunities to engage new and existing customers remain. Gage put the market into perspective: “I actually haven’t seen much change in the past 12 months. Most restoration suppliers were coming off a record year when we entered the economic downturn. While this year’s business has been flat to down, it is still very solid, and although no one is dancing on air because of this, there is also not the grim hand wringing that pervades other segments of the automotive aftermarket.”

Some of these other segments—namely the light-truck market—depend heavily on new customers and, largely, non-endemic customers. Being fickle and un-invested in the hobby leads them to ditch the market quickly. Restoration and collector-vehicle consumers, on the other hand, are less capricious and have more market loyalty—a deeper resolve to continue the hobby even if that means temporary concessions.

For those reasons, the restoration niche picked up market share in comparison with the rest of the industry. Some segments receded, while the restoration market remained fairly flat. Nevertheless, some question whether the restoration segment will endure much longer.

“This is the magic question without a plausible answer,” Silvers said. “The industry has been dying for the last 13 years, according to my peers. I find this interesting, because our business has grown each of those 13 years prior to the current economic meltdown. Go figure.”

Re-Restoring Opportunities

Times are certainly less than ideal, but opportunities exist, and companies can use the crisis to realign with their audience. Calling on old customers, reaching out to new ones and reestablishing a strong customer-service ethic will build sales and customer loyalty—something beneficial when economic conditions force people to make difficult financial decisions.

Barber highlighted an oft-missed opportunity: “I believe hobbyists are always looking for the next collectible and continue to scour the market for cars needing restoration. One thing I believe everyone misses is re-restoration. We do a number of cars that were ‘restored’ years ago. They are sold, and a new owner wants to take the car to the next level. I see this fairly often, and yet no one discusses it.”

Over the course of the past decade, owners of restored vehicles have increased their spending on appearance parts and accessories, mainly to update their vehicles’ image. During 2008, however, there was an uptick in spending for performance and drivetrain parts. Suspension components, wheels and tires remained uniform.

Industry Voice: The Next Collectibles

 SEMA News-August 2009-Research chart 2
 Annual sales: For the first time in recent history the Restoration market contracted during 2008; a modest change compared to other economic measurements and a tell-tale sign of the segment’s resiliency.
Each new generation of automotive trends yields new classics to which enthusiasts migrate. Take the Ford Model T, the ‘32 Ford Roadster, the ‘55 Chevrolet Bel Air and the ’65 Chevrolet Impala as pace-setting standards. Some of the credit belongs to automotive engineering achievements, and some is attributed simply to youthful nostalgia. Much like the diverse opinions of enthusiasts, members of the industry harbor various impressions about the next icons.

Barber noted his top picks: “We are seeing a surge in second-generation Camaros and Firebirds—especially Trans Ams. I believe the obvious are the ZR-1 Corvette as well as the Buick Grand National; however, I think some of the sleepers will be the WS-6 Trans Ams, anniversary Camaros and several sport trucks such as the [GMC] Cyclone and Typhoon, not to mention the special-edition trucks such as the Chevy SS and the Harley and Lightning-series Fords. The Monte Carlo Super Sport of the mid-’80s seems to be holding fairly steady and is poised to climb.”

Gage sees the once-neglected marques as hidden gems: “The aftermarket now makes it possible to do restorations that simply weren’t possible 15 or 20 years ago, and the prices that these cars are fetching make it a worthwhile proposition. There is also a greater appreciation for cars that weren’t necessarily all that popular in their time, such as four-doors and lower-end models like Biscaynes, Satellites and Falcons. There are more cars in play in the hobby than there ever have been, and these numbers will actually continue to increase for the foreseeable future.”

Looking down the road, Gage expanded to late-model possibilities: “Definitely cars of the ‘70s and ‘80s. There are even cars of the ‘90s that are developing a cult following. The Japanese collector-car trend hasn’t really caught fire yet, but it will. I think performance sedans like the Taurus SHO and the full-body Impala SS will continue to increase in popularity. Also, performance luxury cars like the Lincoln Mark VII are already collectible.”

Emerging Markets: Early Japanese

 SEMA News-August 2009-Research 02
  Obscure domestic brands and vintage imports have created opportunities for enthusiasts to venture into new territories and for specialty equipment companies to support new markets.

Some see the emerging classic Japanese-vehicle market as another front for market potential. For the past decade—much longer in some cases—small gatherings of enthusiasts met to display the latest trends in vintage Japanese car and truck markets. Events like the Japanese Classic Car Show and make-specific meetings such as the Toyota Owners and Restorers Club’s Toyotafest and Motorsport Auto’s Z Car West Coast Nationals have provided owners the rare opportunity to showcase their hobby. Each year, the shows and product support grow larger.

“This is already taking place,” Barber said. “At this year’s ARMO New Product Showcase held in April at Spring Carlisle, we had ARMO member companies display new products for Japanese vehicles.”

Ben Hsu, co-owner and editor of Japanese Nostalgic Car, the first major domestic publication covering the market, sees the interest firsthand. Hsu commented on the growth of his magazine’s print and web-based products.

“Online membership is up 175%,” he said. “Since last April, we have seen a 292% increase in magazine subscriptions. The economy seems to have affected our ad sales more than our subscriptions.”

He also highlighted the opportunities: “Roughly 90% of our readers like to hot rod or restomod their cars, but the retro look is very important, so you might see engine swaps with modern cars but not the extreme body/interior modifications often associated with import/compact tuners. The remaining purists are perhaps the most dedicated and will go through great lengths to find new old stock (NOS) parts.”

Between youthful nostalgia and the curiosity for automotive history, the owners of these vehicles display similar profiles compared with traditional ones. Hsu noted that these owners are “…the post-boomer generation that grew up after the 1973 oil crisis and drove Datsuns, Toyotas and Mazdas as their first cars. A subset of tuners who were into the import/drifting scene that are genuinely interested in the heritage of their preferred marques.”

The difference, however, is the widely accepted notions of value. The biggest challenge is that most people still don’t consider vintage Japanese cars collectible or worthy of restoring. Many simply junk perfectly good examples, so their numbers decrease every year. Manufacturers may find that the interest doesn’t match that of, say, musclecars yet, and even the U.S. branches of the OEMs don’t do much to recognize their heritage.

By addressing emerging markets, manufacturers, retailers and service providers can strengthen the popularity of the entire industry. Younger generations of enthusiasts are joining the ranks and helping to keep the passion for collectible vehicles alive. They help pass along the restoration bug to newer generations and demographics.

As a final note, Silvers remarked on the classic restoration market, but his sentiments were just as true in both the new trends in classic domestic and foreign niches.

“Egge Machine Company will continue to encourage folks to ‘drive the wheels off them’ and enjoy themselves,” Silvers said. “And we’ll keep making the internal engine components so the engines can be rebuilt. As we have for the last 94 years, we’ll continue to do our part to help perpetuate America’s love for the automobile.”

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