SEMA News - February 2010

By Annie Kang

The New Course of the Specialty-Equipment Industry

  SEMA NEWS-FEBRUARY 2010-BUSINESS
 

The SEMA-CAR Industry Research reports and webinars are part of the association’s Vehicle Technology Briefing Program, which is focused on providing members with the latest information on the challenges and opportunities impacting the future of the specialty-equipment industry.

   
As the automotive industry continues to adapt to changes in the economy and consumer spending habits, SEMA-member companies are faced with the decision to either race ahead with the new course of the specialty-equipment market or to fall behind with the old status quo. In SEMA’s recent webinar—“The Major Determinants of U.S. Automotive Demand: Factors Driving the U.S. Automotive Market”—moderator John Waraniak, SEMA vice president of vehicle technology, urges members to focus on the upside of the industry’s current downturn.

“I strongly believe that now is the time to be energized—to leverage and capitalize on new niche markets and business opportunities that are coming ahead,” said Waraniak. “There will be fewer giants, more start-ups and infinite possibilities for those companies and entrepreneurs that don’t want to waste this crisis and are finding innovative ways to leverage this once-in-a-career convergence.”

The webinar reported results from the last of a three-phase study funded by SEMA and prepared by the Center for Automotive Research (CAR). Presented by Brett Smith, CAR director, automotive analysis group, and Bernard Swiecki, CAR senior program manager, the final stage of the report provided member companies with a look at the major factors affecting the automotive industry and their impact on specialty-equipment suppliers.

Webinar attendees received a somewhat hopeful picture of the U.S. automotive sales market. The CAR study found that August 2009 experienced a 1% improvement over August 2008 in U.S. light vehicle sales. Unit sales for August 2009 was 1,262 (in thousands) compared to 1,250 for August 2008. Light-vehicle sales have been steadily growing since January 2009, when unit sales were at a yearly low of 657.

“We did have Cash for Clunkers in full effect so at least part of that result is driven by those incentives, but you can tell that we were on a fairly steady climb out of this sales disaster a few months before Cash for Clunkers hit, so it does appear that we have come back out,” said Swiecki. “We have seen automakers’ inventory go down and, therefore, production starting to ramp up.”

The report provided a breakdown of U.S. light-vehicle sales by light trucks and passenger cars. A year-to-date (YTD) look at 2009 vs. 2008 showed a -27.9% year over year (YOY) change in total light vehicles, a -30 YOY% change in light trucks and a -26 YOY% change in passenger trucks.

“For most of this year, we saw cars and light trucks with identical sales decreases,” said Swiecki. “So trucks by a small margin continue to do poorly, and we have a slight improvement in passenger cars, although it isn’t all that significant when looking at it from an annualized basis.”

The CAR study also analyzed the percentage change in sales of light vehicles per OEM: August 2009 vs. August 2008. GM (-20.1%) and Chrysler (-15.4%) stood out with the greatest decline, more than the total industry of -12.2%, while Ford (17.2%) and Honda (9.9%) showed the largest growth.

Having also completed a segment breakdown of the market share based on vehicle type, the study revealed that SUVs are down the most YTD through August, with vans and pickups also demonstrating a significant decline. Crossovers proved to be the segment that is down the least.

“To a degree, we have a substitution effect taking place,” said Swiecki. “What we are seeing is crossovers acting as a replacement for quite a few of those lost SUV sales and also as a decent replacement for quite a few large cars.”

According to Swiecki, a recovery in pickup sales should be expected. He forecasts that with an economic recovery, pickup sales will improve because they are used for agricultural purposes, construction and other trades that are tied to the overall U.S. economy. “There are not nearly as many substitutes for pickups,” he said.

Swiecki notes that SUVs are a different case. “We do not expect as pronounced a recovery, if at all a recovery, in SUV sales, especially if fuel prices return anywhere near last year’s level of three, even over four dollars per gallon,” he said. “We expect SUVs to be the significant loser while pickups recover—again crossovers being a very good substitute for that product.”

Apart from crossovers having the smallest market share decline, the other category showing the least drop-off is small cars. “In both of those situations, what we see is the market favoring vehicles that are fuel-efficient,” said Swiecki. “Small cars simply because they are fuel-efficient and crossovers because they are good substitutes for vehicles that are not fuel-efficient.”

The report also analyzed the top sales leaders by segment YTD. The Toyota Corolla and the Honda Civic were by far the top sellers of the small-car segment. For mid-size cars, the leaders were the Toyota Camry and the Honda Accord. The Jeep Grand Cherokee and the Ford Explorer topped the list of best-selling midsize SUVs. In the minivan category, the Honda Odyssey came in first, with the Dodge Caravan and the Chrysler Town & Country following. The competition within the CUV segment was more intense, allowing for a much smaller portion of the segment sales for market leaders. The Honda CR-V was the best seller, with the Ford Escape and Toyota RAV4 coming in second and third respectively.

The fullsize pickup leaders were the Ford F-Series and the Chevrolet Silverado. The international offerings of the Toyota Tundra and the Nissan Titan did not perform well, with the Titan in particular experiencing a bad sales year. “This is an area where the Detroit Three have remained very strong in the face of international competition,” said Swiecki.

Smith took over the presentation to provide both a mid-term and long-term outlook for the U.S. automotive market.

“The mid-term outlook is defined by one thing—the recovery from the credit bubble,” said Smith. “The banks and the autos were absolutely the beneficiaries of the credit bubble.”

The CAR study also revealed the following good news:

  • GM and Chrysler still exist and have emerged from bankruptcy very quickly.
  • GM will cut fixed costs by up to $5,000 per vehicle.
  • GM has an adequate pipeline of new product starting next year.
  • The U.S. government is committed to the long-term success of GM and Chrysler.
  • The government is re-examining its support for suppliers.
  • Cash for Clunkers was here: it was confusing, it was chaotic but it was a success.

The following automaker conclusions were provided as well:

  • The U.S. market will mostly recover by 2013.
  • GM and Chrysler market will shrink by one-third and one-half, but both are definitely much healthier companies.
  • Ford is gaining with a shot at becoming potentially the highest selling carmaker in North America.
  • OEMs Toyota and Honda remain solid performers.
  • There will be new overseas automakers arriving in North America soon, opening the door for more competition.
  • The supplier sector is still in danger, but it is consolidating, production is back up and the fact that there is still a functioning, viable supply base bodes well for the future.

The in-depth analysis completed by the CAR report provided attendees with both hopeful and grim data. Regardless of the nature of the news, it is clear that change is taking place within the U.S. automotive industry and the specialty-equipment segment. The webinar was presented to assist SEMA-member companies to better prepare for the changes to come.

“These are the times you need to be building up and creating your portfolio to compete when the recovery is taking place,” said Waraniak. “I realize that’s a tough thing to do, but again, the companies that do this are the ones that are going to win. To paraphrase my favorite American philosopher—Yogi Berra—‘If you don’t want to win, no one will stop you.’”

To download an audio or PDF version of the webinar, along with a PDF of the complete CAR report, visit www.sema.org/webinar. Downloads are free for SEMA members.

 

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