SEMA News - April 2010

By Steve Campbell

An Insiders’ Look at Where the Truck Roads Lead

  SEMA NEWS-APRIL 2010-BUSINESS TRENDS 
 

One of the newest and most exciting forms of off-road racing is “The King of the Hammers”—a cross between all-out desert sprints and the tactical sport of rock crawling. Purpose-built machines such as this one pound and scramble over 100-plus-mile courses, clawing for the upper hand.  

   
The entire automotive landscape has changed over the past two years, but the effects of higher fuel prices and a deep recession may be most evident in the truck, sport utility and off-road segments of the industry. Super-sized SUVs have been particularly hard hit, with sales dropping precipitously and one previously vaunted brand vanishing into the dust of a receding market. Still, while ruts and rocks obscure the way, brighter vistas are coming into view.

In many cases, people own trucks and high-capacity vehicles because nothing else will do. Whether they’re tradesmen hauling bulky cargo or moms transporting gangs of kids, people must still get their loads to their appointed destinations. And while the entire ultra-large SUV segment may eventually succumb to market forces, smaller versions of pickups and utility vehicles—including the crossover segment that began to bloom even before the recession hit—can more than make up for the shortfall in the automotive specialty-equipment market.

“Small is beautiful,” said Douglas McColloch, editor in chief of Four Wheeler magazine. “There is likely to be a contraction in the number of truck-based fullsize V8 SUVs over the next few years in favor of higher-mileage unitbody all-wheel-drive midsize vehicles running smaller-displacement direct-injection engines. The market for a genuinely small pickup—à la ’80s-vintage Toyotas and Nissans—is ripe for the taking.”

For specialty-equipment businesses, perhaps even more telling than vehicle downsizing is a trend toward vehicle retention.

“We’ve seen a resurgence in the pre-owned truck market,” said Seth Gortenburg, owner of Chux Trux Inc. “It appears that enthusiasts are either keeping their vehicles rather than trading them in or are purchasing pre-owned instead of new. Many of the conversions that we are currently working on are not for the current body style.”

At the same time, the automakers are incorporating increasingly useful but also complex technology in each new vehicle iteration. Aftermarket manufacturers must therefore also continually upgrade and innovate to stay abreast of the marketplace. Specialty-equipment manufacturers must learn what affect such developments create and then adjust their products accordingly.

  SEMA NEWS-APRIL 2010-BUSINESS TRENDS 
 

The automotive landscape has changed over the past two years, but brighter vistas are on the horizon. Many people own trucks and high-capacity vehicles because nothing else will do, and smaller versions of pickups and utility vehicles—including the crossover segment that began to bloom even before the recession hit—can make up for the shortfall created by a flagging economy and rising fuel costs.  

   
“Electronic stability control will change the way truck owners outfit their vehicles with aftermarket products,” said Melanie White, marketing manager for Hellwig Products.” Consumers will need to be educated about how aftermarket products such as sway bars can help stabilize their vehicles and improve their vehicle’s handling.”

The automakers have also incorporated aftermarket-driven advances into their latest truck and SUV offerings. In years past, consumers sought specialty-equipment products to remedy the shortcomings of showroom vehicles. Recognizing
opportunity, some automakers have refined their products to directly target certain hardcore segments.

“The OEMs are coming up with real four-wheeling vehicles, such as the new Jeep JK Wrangler,” said Rick Pewe, editor of 4-Wheel & Off-Road magazine. “You can drive it over the Rubicon Trail or in Moab and then drive across the country to another hardcore ’wheeling area. It has selectable lockers, a four-to-one transfer case, 33-inch mud terrain tires—it’s already done for you as a factory offering.”

The upshot of those developments and the effects of the recession is an evolution in the marketplace, including adjustments in product development to accommodate consumer spending and consumer perceptions. There has been movement away from expensive specialty systems, for instance.

“The emergence of the leveling kit has opened up a lot of opportunities,” Gortenburg said. “People who want the aggressive look but either didn’t want to invest in the bigger kits or still wanted to park their trucks in the garage can now affordably fit larger tires and wheels.”

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The recession has led some consumers to shy away from more expensive lift kits in favor of leveling kits, which allow the addition of plus-one or plus-two tire sizes at an affordable price.   

   
The shift is not limited to suspension products, according to McColloch. He cited a whole range of parts that have either maintained market share or actually seen sales increases, including off-road lights, shock absorbers and intake and exhaust systems, while more specialized products, such as complete IFS lift kits and larger off-road tire sizes have suffered because of the recession. 

At the same time, recreational truck owners have become more involved in family pursuits, such as camping, boating and family off-road travel. That upsurge can be a boon for those who manufacture and market towing products.

“Towing—and specifically more towing capacity—is a big deal,” Pewe said. “We’re seeing more and more people doing it the right way, setting up a vehicle to ride correctly rather than having the tail down. A lot of people are using air suspension to level their vehicles under tow, and they’re dispersing the weight better with weight-distributing hitches.”

Another recreational niche that has seen significant growth is the “overlander” market segment, in which truck owners enter into longer-term hunting, fishing, camping or backcountry trekking expeditions.

“There was an explosion of overland-related products at last year’s SEMA Show,” McColloch said, “and I imagine we’ll see this market segment expand in the coming years. The prospective truck owner doesn’t need to spend a lot of time and money re-engineering his truck to accommodate 44-inch tires in order to build a capable backcountry exploration rig.”

McColloch also predicted significant growth in the diesel truck market—though perhaps not in its current guise. Just as a trend toward smaller vehicles seems to be developing, the diesel market may also be evolving toward a more economical version.

  SEMA NEWS-APRIL 2010-BUSINESS TRENDS 
 

One recreational niche that has seen significant growth is the “overlander” market segment, in which truck owners enter into longer-term hunting, fishing, camping or  backcountry trekking expeditions.  

   
“We will almost surely see a proliferation of small-displacement, high-mileage, direct-injection diesel engines in midsize trucks and SUVs over the next decade,” McColloch said, adding as a caveat that both state and federal governments must first agree upon emissions standards that can be relied upon by the automakers. “Nearly all of the OEMs—and/or their European partners—have some truly awesome diesel powerplants ready to bring to market,” he said. “The only hang-ups are uncertainty over government regulations and some perceived softness in American consumer demand for diesel, which has begun to slacken with the proven success of small cars, such as the Volkswagen Jetta TDI, which can deliver up to 50 mpg on the highway.”

That perception of softness may be partially a result of what happened to the price of diesel when fuel prices skyrocketed. A large part of diesel’s appeal has always been its economic advantage over gasoline.

“It used to be that you had to have a diesel truck if you were pulling anything,” said Bob Carpenter, editor of 8-Lug HD Truck magazine. “But the cost of diesel fuel and the added cost to the initial purchase price for diesel-powered trucks has led a small percentage—maybe 5% but growing—to go with heavy-duty gas-powered trucks. That is one reason why we dropped the word ‘diesel’ from of our magazine title and replaced it with ‘HD,’ so we can cover those trucks, too.”

Hybrid and electric trucks are another phenomenon that the marketplace is anticipating. Several of the automakers market such vehicles, but they’ve not caught full fire with the public. Gortenburg said that his company is seeing quite a few hybrid crossovers come in for accessories such as towing and convenience products, but the pickup-buying public hasn’t followed suit.

  SEMA NEWS-APRIL 2010-BUSINESS TRENDS 
 

Soft and hard-plastic truck-bed covers are among the products that continue to do well in today’s economy. Tonneaus not only provide lockable bed storage but have also been shown to aid fuel economy.  

   
“There’s a lot of stuff that could be great about an electric 4x4, where you have torque right off the bat,” said Pewe, “You’d have a completely unique suspension because you don’t need axle shafts; you have the wheel motors. We’re not there because we don’t have the need or the technology yet. Electrics aren’t so great if you run out of juice in the middle of nowhere.”

For the most part, truck racing is also in status quo. The NASCAR truck series has drawn a consistent audience, and the various desert and short-course off-road series continue to draw well—although desert aficionados have been clamoring for a less-expensive grassroots alternative for some time. McColloch said that the Stock Mini and Stock Full classes in the SCORE series allow for some “average guy” competition, and White noted that Ivan Stewart’s “Pro Truck” is designed as a cost-effective vehicle for both short- and long-course off-road racing. But the real news in the dirt is the King of the Hammers series, which  McColloch said combines the thrills of high-speed desert racing with the technical skills of rock crawling and has grown from a small cult following to a full-on race series that will likely attract close to 100,000 fans this year.

“The King of the Hammers is basically about 135 miles of hard-core rock crawling and real desert racing,” said Pewe. “It’s one day and 100 entrants, and you have to qualify ahead of time. All of the desert racers thought they’d easily win it, and all of the rock guys thought the desert racers didn’t know how to crawl. So far, the rock guys have been right.”

Whether for recreation or competition, all off-road activities require one common denominator: land. Conflicts over land use between enthusiasts and environmentalists are likely to continue, but divergent communities—including the businesses whose livelihood depends upon off-road and outdoors consumers—could unite under a single banner to make their voices heard.

  SEMA NEWS-APRIL 2010-BUSINESS TRENDS 
 

Towing has become more popular over the past few years, and consumers have gradually become more cognizant of proper techniques. Products such as weight-distributing hitches, air suspension systems and helper springs remain popular for these applications.  

   
“SEMA does a commendable job of lobbying on behalf of the off-road market segment,” said McColloch, “but I’d love to see the varied 4x4 advocacy groups convene a summit with the intention of forming a truly nationwide organization with the financial and political wherewithal to compete vigorously—and negotiate compromises when necessary—with the larger, better-funded environmental groups, such as the Sierra Club or the World Wildlife Federation. I’ve often wondered if those of us in the off-road community have made the best of our opportunities to form partnerships with other outdoor enthusiasts who enjoy recreating in the backcountry.”

As the soft murmurs of economic recovery creep into conversations within the industry, retailers might pay closer attention to these trends. “People don’t spend the kind of money on their trucks that they used to,” Carpenter said. “Retailers are going to have to find a way to make a profit without the easy big-ticket items. They will have to be more efficient, more up-to-date and more helpful in order to win a customer’s business.”

They’re also going to have to diversify and educate themselves about new technologies. They’ll need to maintain inventory, tailor space to sales, embrace the Internet where necessary but provide personalized service whenever possible. Above all, they’ll need to deliver quality.

“Retailers need to guard against fly-by-night companies with prices that are too good to be true,” said Nick Gramelspacher, director of sales for Meyer Distributing. “A $50 leveling or lift kit gets you exactly that much quality, design and history.”

George Lathouris, Keystone Automotive Operations senior category manager said that his company sees steady sales through tried-and-true products that it has sold for many years. And Mandi Woodell, Weathers Auto Supply Inc. purchasing manager, said that soft- and hard-plastic truck-bed covers remain strong, even with a wealth of manufactures in that category. Woodell said that toolbox sales have diminished within her company as pricing in the category has climbed, but she thinks that part of the attrition may stem from encroachment by big-box retailers, which are quick to pounce on specialty sales when a market grows large enough to be seen as a more generalized accessory.

Lathouris pointed out that such product migration can go both ways. While big-box stores may elect to include some specialty products, specialty retailers can turn to replacement parts as an often-overlooked profit center.

“We don’t talk enough about some of the replacement products that everybody needs for trucks,” Lathouris said. “Whether a part is used under the hood or goes into the brake system, it’s tremendous business that is just not being taken advantage of by aftermarket retailers. All of us are always looking for the hot new trend, but stuff breaks as people hold on to their vehicles for longer periods. That becomes a selling opportunity. Some of the aftermarket shops should acknowledge those opportunities, embrace them and fill in those parts.”

They just need to follow where the roads lead.

Reps Report: What's Hot

As in previous stories on market trends, we asked a select group of manufacturers’ reps what was selling particularly well in the truck, SUV and off-road segment.

Greg Bernheisel, Considine Sales & Marketing vice president and partner:

Tubular products, such as grille guards and especially nerf bars, remain hot to this day. Tonneau covers and floor protection have also been growing, and people want to protect the interior of their vehicles. Tonneau covers help with gas mileage, and they also give you security. You can haul more stuff, and keep it hidden. The economy and gas prices play a big part in what people are going to put on their vehicles today. There are still a lot of opportunities out there, though, with the expansion of products and even territories.

Mike Bolio, RepForce Inc. accessories and performance parts representative:

Programmers are very hot right now, as are air intakes. Fuel economy is one reason, but people also want performance, especially in the diesel market. Both of those lines are easy add-ons, as are tubular parts. They’re big but very competitive markets. Mats and roll-up tonneau covers are doing well for us, and we’ve got a new water methanol injection system that we’re working with. Fleet business is an opportunity, and dress-up products are big. But right now, in this economy, function is the biggest consideration.

Chuck Lenhart, R&R Marketing Consultants Inc. sales representative:

New-truck sales being down has led to a resurgence of sorts in older vehicle product applications. This has presented a challenge for some vendors who have reduced production of some items thinking that sales may have peaked. Quality products from mainstay brands are always the best bet. Superchips and Edge programmers are solid product lines, and air-intake systems and fuel-mileage improvements from companies such as Airaid and Poweraid are still very much in demand. Revtek Suspensions, which makes quality leveling kits, is filling a need. Energy Suspension replacement bushings are also very much in demand and so are Baer Brakes. On the accessory side, Revolution airbag steering wheels from Grant Products are hot, and Bulldog Winch has an outstanding product line. Edelbrock’s new E-Force superchargers are really making a splash on the performance side. Really cool stuff!  

 

 

 

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