SEMA News—December 2012 

BUSINESS
By Mike Imlay

New SEMA Market Update Now Available

Study Examines Q2 2012 Economic Indicators and More

	SEMA Market Update, Q2 2012, is the latest in a series of regularly published reports tracking economic benchmarks and trends affecting the $30 billion specialty-equipment industry.

SEMA members have come to rely on the association’s annual Market Report, a comprehensive research project summarizing economic, sales and new-vehicle trends of the past year affecting the $30 billion automotive specialty-equipment industry. Complete as that report is, however, SEMA backs it up with quarterly updates that track the latest trends and examine “Current Topics” through special sections to arm members with new research or information sources to better understand ongoing industry changes. The latest version, SEMA Market Update, Q2 2012, is now available.

“This report brings together some statistics about the economy, vehicle sales and industry information that’s updated continuously through the year and packaged quarterly,” explained Gavin Knapp, SEMA senior market research manager. “The quarterly update also allows us to put out information that perhaps doesn’t make for a full, freestanding report but nevertheless represents a current topic or area of potential interest to the industry. So, in addition to our regular quarterly trending, we’ve again included a special topics section, this time highlighting SEMA’s Industry Needs survey.

The full SEMA Market Update is of interest to the entire industry, from manufacturing to distribution to retail levels.

“The things that they’ll find include what’s going on with the economy in general, trends that affect retail and trends hitting the auto industry,” Knapp said. “It’s information that every segment of our industry can gain from.”

Mixed Economic Factors

Market Update first looks at such industry indicators as fuel prices, new-vehicle sales, the SEMA Consumer Demand Index for specialty-equipment products and SEMA financial benchmarking for year-to-date sales within the industry. It then focuses on overall economic indicators such as the nation’s gross domestic product (GDP), unemployment and retail-sales rates, industrial production figures and the condition of the credit market.

For Q2 2012, these indicators presented a mixed message on the economic front. Rising gas prices, the November 2012 election cycle and instability in the job market and overseas economies combined to create palpable uncertainty. Nevertheless, the report found several silver linings amid even these economic clouds. On the economy as a whole, Q2 saw positive growth—not large, but still trending upward from 2009. Sales figures within the specialty-equipment aftermarket seem to have followed suit.

The report tracks such industry indicators as aftermarket sales against growth in Gross Domestic Product (GDP) as well as auto sales. It predicts a continued rebound in specialty-equipment sales after the decline of 2007–2008.

New vehicle sales continued to rise in Q2 2012, boding well for the aftermarket. Despite rising fuel costs, statistics show that cars lost a small amount of market share to light trucks during the period.

“Consumer interest in our industry has remained rather steady over the last few years,” noted Knapp. “Obviously we’d like to see a big rise, but at least it’s not a decline. Things are sort of rolling along, and this pretty much reflects how consumers are participating in the overall economy as well. They’re just sort of steady.

“The report also contains financial benchmarking, in which we talk to industry companies to see what their results are. We found that, even though there have been some ups and downs in the economy, companies in our industry are indicating that their sales overall are up this year over last year. In addition, their expectations are that they’re going to see some growth over the next quarter.”

Again, however, Market Update identifies several potential challenges for the industry.

“Of course, the 800-lb. gorilla in the room is the price of gasoline, which we check into,” Knapp said. “Our study shows that prices are going up and consumption is going down. Obviously, that’s a trend that affects our industry. It’s not necessarily a death knell, but it’s something that we do want to look at and do want to track, because we know that as gas prices drop, people open their wallets and have more disposable income. They’re more likely to drive more, which can get them more engaged in their vehicles. By contrast, less enthusiasm in their vehicles may translate to less enthusiasm for the aftermarket.”

Unfortunately, Q2 unemployment also remained relatively high compared with historical rates. Current projections indicate continued improvement, but not quick or dramatic.

“It’s going to take a few years before we get back to where we were in previous years,” Knapp predicted. “However, we do see that income and spending have been on the rise, and those are also some positive indicators for us.”

Comparisons and Contrasts

In the area of consumer spending, Market Update provides some interesting comparisons with other types of retail beyond the automotive specialty-equipment marketplace. According to SEMA research, retail in general has been on a steady climb since 2009. Broad auto-parts retail—not just the specialty-equipment sector—has likewise seen overall growth during that period, although with a few more ups and downs than retail in general. And, while there was a slight drop in the retail and auto-parts graphs at the beginning of 2012, the numbers still remain much higher than they were in 2008.

“These first couple of months are not necessarily an indication that there’s a continued downward trend,” explained Knapp. “For comparison, we also look at other discretionary income spent by consumers—for instance, in electronics and appliance stores. This is a sector that hasn’t seen renewed growth. Obviously, some of this reflects retail stores; some of it can be blamed on the Internet. That’s something that we should be watching in our industry, too, because the same type of shift might happen to us as well. However, if you look at other discretionary spending—sporting goods, hobby stores, music stores—they have seen the same positive growth that the industry as a whole is seeing. We can learn from that.”

The report notes real growth in the GDP index. Economists project continued steady growth for the U.S. economy over the next several years.

Market Update also tracks consumer consumption vs. income. The research indicates that consumer spending has grown faster than actual rebound in income.

Turning to industrial production figures, Market Update shows them actually rising to the point of pre-recession levels. In fact, when full motor-vehicle and parts figures are added to the mix, the overall picture is better than in 2007. This indicates that the nation is seeing a big resurgence from a manufacturing point of view.

		Executive Summary According to SEMA Market Update, Q2 2012, the second quarter of the year continued to send mixed messages on the economic recovery, although the U.S. economy was still forecasted to grow over the next few years. Disposable income continued to rise, helping to offset changes in gas prices. Instability in the job market and overseas economies, along with the November elections, created additional uncertainty. On the plus side, automotive indicators continued to show strong growth, with another boost in Q2 new-vehicle sales.

On the credit front, the report found that loan rates, including bank auto-loan rates, have continued to fall. Moreover, financial obligations among the general population have also declined, leading to increased savings.

“People are owing less money and therefore have less debt hanging over their heads,” said Knapp. “On the one hand, that might mean loans are harder to get, so it’s harder to buy a new car. On the other hand, having less debt may open some disposable income.”

Another interesting aspect of the report centers upon how that disposable income is being spent on new vehicles. Tracking new-vehicle sales and the types of vehicles currently being purchased, Market Update finds that the passenger car segment lost a small amount of market share to light trucks during the second quarter. According to Knapp, the crossover segment continues to hold steady amid gas price fluctuations, as do SUVs, although the latter comprise a much smaller portion of the market.

Current Topics: Needs Survey

In addition to economic and market snapshots, each quarterly SEMA Market Update tackles a current topic. For Q2 2012, SEMA’s research team chose to focus attention on the annual SEMA Industry Needs Survey—a project intended to help the association and its members better understand challenges facing the industry at large. Invitations to participate in the yearly survey were sent to all of SEMA’s industry contacts, members and non-members.

“This is actually one of our SEMA projects where we go out and interview several thousand people working in our industry and ask them about a variety of topics, including the economic challenges they face,” explained Knapp, who also noted that half the respondents ended up being SEMA members.

The survey identified 10 issues at the forefront of industry minds, ranging from the increasing costs of business to keeping up with emerging vehicle technologies. As might be expected, the list closely reflected general concerns about the economy, but it displayed several positive concerns as well.

Another upbeat indicator for the industry: Most companies surveyed said that they will likely hire new employees this year. Sales jobs topped the list of potential hires.

Each quarterly Market Update includes a “Current Topics” section. The Q2 report focuses on SEMA’s recent Industry Needs Survey. Industry respondents cited increasing costs as number one among their top 10 challenges.

“People are looking for new markets and opportunities,” Knapp said. “They’re looking at keeping up with vehicle technologies, not simply that costs are increasing or that there’s a tough economy. Once again, there’s a forward-thinking outlook: People are asking what they can do to increase their business and not just hold on.”

In addition, respondents were asked about their sales expectations for 2012. Approximately two-thirds said that they anticipated sales to be up over 2011 levels. Asked about business cycles and new hires, a full 80% said that they expected their businesses to take on new employees.

“That’s a good number that points to growth,” said Knapp. “In the report, finding qualified employees also shows up as one of the big challenges. That’s a positive for our industry—it underscores that people are looking to hire at this point.”

SEMA’s researchers further asked respondents what they’re doing about marketing, especially in the digital arena. A large percentage—roughly two-thirds—said that they plan to shift at least some of their resources toward the digital world.

Obtaining Your Copy

Whatever your business within the specialty-equipment marketplace, you’ll find SEMA Market Update, Q2 2012 a valuable resource. The report is available free to SEMA members ($199.99 for non-members). To download your copy, go to www.SEMA.org/research and see 2012 SEMA Market Update–Q2 under the “Recent Research Reports.”