It has been a year since the Japanese Big Three reintroduced B-cars in the United States, and the segment has been growing ever since. According to a recent WardsAuto.com article, year-to-date sales suggest that subcompact sales will reach levels not seen in more than 11 years.

First-quarter sales for subcompacts are running 95.1% ahead of the same quarter in 2006 at 107,942 units versus 53,328. "B-car deliveries are tracking at an annual rate of 535,105 units, nearly double last year's 274,272-unit total," states the article. Ward's Auto data indicates that the last time sales of subcompacts surpassed the half-million mark in the United States was in 1995, when 567,210 vehicles were sold. In 1996, sales dropped 48.5% to 291,860 units, as vehicles either moved up a segment due to an increase in size and/or price or were discontinued in favor of a new model.

Since the mid-'90s, sales of subcompacts have been on a "downward trajectory," reaching a 26-year low of 120,616 units in 1998. Rebecca Lindland of Global Insight says that upcoming new vehicles from Ford Motor Co., General Motors and BMW should keep subcompact sales high. She also said that "auto makers missed the ball when they aimed the latest crop of B-cars at the youth market." Lindland went on to say that manufacturers are under the impression that Generation Y wants to drive small cars, when in fact they would rather have their parents buy them a truck or an SUV.

Even with the growth in this market, the subcompact segment remains small compared with other vehicle categories, such as Ward's Auto Middle/Cross Utility and Large Pickup classes. In 2006, subcompact sales peaked in July and August at 33,530 and 33,667 units, when the national average for regular unleaded gasoline was near $3 per gallon. As this segment continues to grow, demand for aftermarket accessories for subcompacts will rise as well.

Source: Schweinsberg, Christie. (May 22, 2007). "Subcompact Sales Poised to Hit Levels Not Seen in More Than Decade." WardsAuto.com. Retrieved May 23, 2007 from www.wardsauto.com.

Record capital inflows and low interest rates have lead to a blistering merger and acquisition (M&A) market for financial and strategic buyers-the former looking for acquisitions which will yield synergistic benefits while the latter add value to the organization with the stated goal of reselling the business at some point in the future for a profit. M&A in the automotive aftermarket has behaved in the same way as broader M&A market transactions continued at a frenzied pace during the first quarter of 2007, according to a recent Aftermarket Analyst article.

The specialty-equipment industry-consisting of performance parts and accessories-represents a subset of the overall automotive aftermarket.

Buyers are very eager to invest their capital, but what makes the auto aftermarket so attractive to a potential buyer? According to the Aftermarket Analyst editors, the four main growth drivers in the auto aftermarket are:

1. Increases in the size of the country's automotive fleet
2. Increases in the age of the country's automotive fleet
3. Increases in the number of miles driven annually per vehicle
4. The higher cost and increased technology of new cars

The number of vehicles on the road in the United States has increased significantly in recent years, so there are now more vehicles than ever in need of aftermarket products. Between 1996 and 2005, U.S. motor-vehicle registrations increased more than 21.3% to 232 million total units. The aging of vehicles currently in use has also been a significant factor contributing to the growth in demand for aftermarket products. For example, as the average age of autos in use increases, owners are more likely to purchase aftermarket products to enhance or repair their aging vehicles.

The aftermarket is growing because the vehicle population is getting older, with approximately 39% of cars more than 10 years old. The average vehicle age has grown significantly over the last few years, with the average age for passenger cars reaching 10 years. Between 1996 and 2005, the average age of all passenger cars on the road increased from 8.6 to 10.0 years. The average age of light trucks increased from 8.4 to 8.7 years during the same period. This trend is expected to continue for the foreseeable future, further accelerating growth in demand for aftermarket parts.

An increase in total miles traveled has an obvious positive influence on the aftermarket in terms of consumable products, such as oil and tires. According to the Auto Aftermarket Industry Association (AAIA), total miles traveled has increased from 2.4 trillion miles in 1996 to 2.95 trillion in 2005. This reflects a 25% increase. More importantly, miles driven per vehicle is trending up, so each of these vehicles will need more service repair parts.

Relative to average family-income levels, new vehicles have become more expensive, with the average unit costing about $22,000. The result is that consumers are increasingly seeking ways to protect or enhance their investment. At the same time, more middle- and lower-income families opt for well-equipped used cars, rather than stripped-down, smaller new cars. Consequently, demand for aftermarket products has increased dramatically. New-vehicle technology has increased the cost of replacement parts and vehicle complexity. As a result, fewer people are desirous or even capable of repairing their own vehicles-opting instead to have then serviced by professional mechanics.

Excess capital and low interest rates are the "fuel" that is powering the current M&A market. While their source of capital differs, strategic and financial buyers appear to be well suited for another strong year of merging or acquiring businesses. This is true not only for the broader U.S. M&A market, but also for the auto aftermarket, which remains poised for growth and continues to be an attractive industry for investment.

Source: "Market Update: M&A in the Auto Aftermarket" (May 15, 2007). The Aftermarket Analyst newsletter by The Capstone Financial Group. www.capfg.rsvp1.com.

You probably have a good idea of who your existing customers are, their similarities, needs, etc. Future customers, on the other hand, may have unique needs that require a new approach in order to get them to buy your products. In a recent article by the National Federation of Independent Businesses, the author maps out 12 different customer profiles. In each of the 12 descriptions below, the author indicates a "customer tip-off"-what a customer might say to you—and a "conversation starter"—the appropriate response recommended by the author.

A customer is standing in front of you. Maybe he has a question or a complaint. Or maybe he is thinking about a purchase and wants to discuss a product issue. What do you say to best serve the customer and bring about a win-win resolution of the conversation?

Sounds like a simple question, huh? But the fact is that many customers have their own conversational temperaments and preferences. How you speak with your customer is often more important than what you say.

How do you engage your customer in the right conversation? First and foremost, listen carefully, and you'll learn which core need he wants met. Then you can build your conversation around that need.

Here are 12 of the most common core needs you'll observe in your customers:

1. The boss. This customer wants to be in charge. He  wants things done his way. Customer tip-off:  "Mr. Jones, about this widget... I need to have three things happen this afternoon." Conversation starter: Imagine he is a respected supervisor. Speak deferentially. Ask questions to be sure you understand his problem. Make notes if necessary.

2. The competitor. The customer is checking around to see what he can get from the competition. He will spare no effort to identify the "best deal." Customer tip-off: "Give me a few days to consider this package." Conversation starter: Reiterate what makes your service unique or valued, or offer a small incentive for an immediate decision.

3. The explorer. This customer may not even be certain he wants to buy or obtain service, but a minor incident convinced him to get in touch with you. Customer tip-off: "I noticed that my widget seems to get very warm after I plug it in." Conversation starter: Invite your customer to disclose any possible questions or concerns. If authentic problems are suggested, offer guidance or repair. If not, provide reassurance; that's often satisfaction enough.

4. The miser. If the customer is buying a product or a post-purchase service, he is out to save every possible nickel. Customer tip-off: "If you come to service the widgets on your own schedule, can I save some money?" Conversation starter: Bring the conversation around to the value of your product and your service. Remind your customer that he is making an investment.

5. The negotiator. He believes hard negotiation is the key to just about every successful business transaction. Customer tip-off: "Let me propose this: You handle this problem for me and then throw in four months worth of supplies." Conversation starter: This customer wants to negotiate, so negotiate. For example, you could say something like "I want you to begin this very important service program, so let me give you a package of sampler supplies and a 10% coupon for your next call."

6. The novice. He has had little or no experience with your product or business. Yet he's on your doorstep with a seeming willingness to buy or seek assistance. Customer tip-off: "Can you tell me about these new widgets that I'm hearing about?" Conversation starter: Ask a few questions to determine the extent of your customer's knowledge. If it's low, provide him with a simple tutorial. For example, say something such as, "Let me tell you about four important things you should know about this widget product."

7. The preacher. Almost evangelical in his tone, this customer has firmly-and quickly expressed-opinions about sellers, quality or your product. He'll want to spend time expounding on his views. Customer tip-off: "Every single time I have bought a widget over the last five years, I have the same problems." Conversation starter: This customer requires extra careful listening. Don't hesitate to agree where the facts are clear, but your most important role is to empathize with your customer. Statements such as, "I'm beginning to understand what you're saying" or "It sounds like you are very angry" can help. Once you get beyond the opinion and the emotion, you can address the issues at hand.

8. The researcher. He wants to gather information about his prospective purchase or his post-purchase problem in a studious, almost academic fashion. Customer tip-off: "I have some questions about this widget." He may even have a notebook in his hand. Conversation starter: Listen carefully to his questions. Ponder your answers. If you're not certain about a point, or want the opportunity to continue the conversation later, indicate that you'll research the answer and get back to him.

9. The sampler. This is the classic kick-the-tires customer. He wants to try and test. Customer tip-off:  "Do you have a demo widget that I can use for 10 or 15 minutes?" Conversation starter: If you can make a test possible, offer to assist your customer. If not, redirect the conversation to your guarantees or top-notch service.

10. The skeptic. This customer doesn't take advertising or product claims at face value. The result is often a stream of pointed, sometimes trivial questions. Customer tip-off: "So tell me again where this was manufactured." Conversation starter: Help your customer make a priority list of truly important product qualities or issues and focus his attention on the top priorities. If your product or service is known for one or two key strengths, bring the conversation back to those strengths time and again.

11. The socializer. This customer likes to buy and even looks forward to seeking customer service. Customer tip-off: "What a beautiful necktie, Mr. Jones. Was that a gift?" Conversation starter: This customer wants a personal relationship. Engage in chitchat. You're not wasting time talking about the weather, your children or your customer's weekend plans.

12. The speed demon. Whether he's got many things on her mind, children in tow or adhering to a tight schedule, this customer is in a hurry. Customer tip-off: "I hope you can help me quickly." Or you will notice his anxiously tapping his foot or appearing slightly agitated. Conversation starter: Brisk, authoritative, but friendly tone of voice. Fast answers to first questions. If asked, he wants genuine assurance that you'll address his need quickly.

Source: The National Federation of Independent Businesses. (May 9, 2007). "Know Your Customer." Retrieved May 21, 2007 from www.nfib.com.

Earlier this month it was reported in eNews that PPG had just released its Sungate EP automotive glass windshield, which they said significantly reduces the transmission of solar energy into a vehicle, keeping the interior cooler and improving fuel economy. The new technology employs a glazing process built into Sungate windshields, which reduces front seat temperatures 27 degrees F (15 degrees C) and air-breath temperatures 16 degrees F (9 degrees C). This reduces air-conditioner workload, along with fuel consumption and carbon-dioxide emissions, the company said.

Some SEMA members raised some questions about this new technology. Specifically, the question was asked whether the glazing interferes with radar detectors. According to PPG, the coating used in the Sungate windshield does interfere with a directional signal, such as a radar detector. However, the company has taken a measure to prevent the use of radar detectors in Sungate EP windshield-equipped vehicles.

"We have made provisions for that capability with deletions of the coating in the targeted areas of the windshield where the relevant signals are present," noted Mukesh Rustagi, general manager market manager of automotive OEM glass products for PPG Industries. He goes on to say that the technology is similar to what they already use in the Mercedes Benz S-Class and the BMW 7-Series, both of which have these deleted areas that enable the radar detectors to work through the windshield.

"The benefits of the Sungate windshield, and now of the Sungate EP windshield, are clearly noticeable to the consumer when they enter a vehicle that has been parked in the sun. The initial comfort level is better and the time to cool down is much faster when the vehicle is equipped with a Sungate windshield," Rustagi says.

Source: SEMA Research & Information Center

Rapid solidification rate (RSR) technology enables production of fine-grained (nanometer-scale) and amorphous metals with uniform chemistry. These unique microstructures result from very high cooling rates that are unattainable through gas atomization or other methods. Ervin Industries has developed a rapid-solidification powder technology that is capable of producing high-purity, fine-grained or amorphous particles in the size range from 10 to 1200 micrometers with highly spherical morphology.

This technology is used to produce high temperature "super alloys" (maximum of 3,000 degrees F) for use in aerospace and commercial applications, the company says. They also note that the particles can be processed in multiple atmospheres including air, helium, nitrogen or vacuum. In addition to this, the company notes the following benefits:

* It is capable of producing both metal and ceramic powders with a theoretical packing density of 65%.
* It has a melt size capable from development batch to production sizes-75 lbs. to 6,000 lbs.
* It is directly converted from "melt" to powder, which results in minimal post processing and reduced exposure to potential contamination sources.
* The process is chemistry controlled, ensured by use of high-quality precursors, which produces spherical powder with fewer attached particles than other methods, resulting in better powder flow.

This technology may have benefits in the specialty-equipment industry as companies look for new materials to manufacture their products. Ervin Industries is looking to license its new RSR technology, and more information can be found on the company's website, www.ervinindustries.com/metalparticles.htm.

Source: Yet2.com. "Rapidly Solidified, Spherical Powder Production Technology." Retrieved May 23, 2007 from www.yet2.com.

Consumers turn to the Internet to research the cars and trucks they plan to buy. Roughly one in five (21%) new-car buyers say that the Internet influences their vehicle-buying decision, according to SEMA data. Cars.com, an automotive research website for new vehicle buyers, recently advised consumers of its top vehicle picks based on overall cost of the vehicle: fuel economy combined with sticker price.

More car shoppers are making fuel efficiency a top priority, according to Cars.com. They say that while gas mileage typically takes center stage, combining the sticker price of a car with its predicted lifetime fuel cost can offer consumers a guide to their overall savings during the lifetime of a car. As a result, Cars.com looked at the top 10 vehicles in various vehicle segments that they say deliver the best bang for the buck based on vehicle price and average lifetime fuel costs.



The list above was compiled by combining the base sticker price with a fuel cost estimate based on the car's estimated gas mileage. Fuel-cost estimates assume the car will be driven 15,000 miles per year, with 45% of those miles on the highway and 55% on city streets. The cost of regular unleaded gasoline in the estimate is $3.13 per gallon, and it assumes the car is owned for eight years. Premium fuel costs are estimated at $3.44 per gallon.

"Hybrid cars get a lot of attention when gas prices start to rise. They certainly can save money at the pump and are typically better for the environment," said Patrick Olsen, Cars.com managing editor. "However, not everyone can afford to own a hybrid, and some consumers have needs that are not met by hybrids. If your primary goal is to save money, there may be better options."

Sources: Cars.com. (May 22, 2007). "With Gas Prices Skyrocketing, Cars.com Identifies Cars that Deliver Best Bang for Your Buck." Cars.com press release courtesy of PR Newswire; SEMA Research & Information Center

Forecasting the demand of specialty-equipment parts and accessories provides an invaluable tool for strategic market planners and helps answer one ongoing question: How will industry sales do in the coming months? To help answer this question, SEMA commissioned the market-research firm TechnoMetrica to survey consumers in order to gauge their specialty-equipment purchase intentions over the next three months. Their nationally representative sample of 1,000 consumers-which represents approximately 114 million U.S. households-showed a drop in the number of consumers planning on purchasing specialty equipment over the next three months.





In May 2007, 21% of adult American drivers (or approximately 21 million households) indicated that they had plans to purchase specialty-equipment, a 4% increase from April. By product, wheels, tires and suspension components were the most popular specialty-equipment products consumers were likely to purchase (16% or 16 million households), followed by specialty accessories and appearance products (9% or 9 million households) and racing and performance products (8% or 8 million households).




It is interesting to note that as the age of drivers gets higher, the plans to purchase industry products goes down. Over a third of the 18–24 group intends to modify their vehicle, while only 13% of drivers 65 and older plan to do so. The pattern holds true even as we look at the three major segments of products that make up the industry. As you look at the table above, notice that the percentage of consumers planning to make a purchase has risen in some cases (as indicated by the +/- in parenthesis).



The graphs above and below show three-month moving averages of the types of vehicles marked for accessorization and the preferred distribution channels for purchase of those surveyed. For example, the top bar in each bar cluster represents the average over the last three months whereas the bottom bar represents the average over the first three months of 2007.




Mid-sized vehicles were the most common target vehicles for enhancement or modification (19%), followed by compact cars (18%) and trucks (16%). However, the current three-month moving average of each of these is 22%, 14% and 17%, respectively. We see differences in this month's percentages compared to the current three-month moving average for preferred distribution channels as well. This month, car dealerships were the most popular purchase destination among those planning to enhance their vehicles (31%), while chain auto-parts stores captured second place (25%) and independent parts stores held third (13%), but the current three-month moving averages are 25%, 27% and 16%, respectively.

Source: SEMA Research & Information Center

A new Mercedes-Benz B-class small car could enter the U.S. market as early as 2011, according to a recent AutoWeek article. The automaker said that if they were to bring the B-class here, it would be the next generation model due in 2011. The article also noted that Mercedes may bring an SUV smaller that the M-class to the United States as well.

Ernst Lieb, CEO of Mercedes-Benz USA, commented that with rising gas prices and a move to smaller passenger cars, the B-class could have potential in the U.S. market. However, the article notes that a decision isn't likely to be made anytime soon because the automaker plans to focus on the next- generation C-class that will hit dealerships this summer. Lieb says that Mercedes is still determining whether its buyers are truly interested in the B-class.

"Today when I talk to customers, I really wonder if they are ready for a small car," he said. "Younger customers who have been in Europe and driven the car as a rental car are very open to it. The more traditional Mercedes customer is a little hesitant."


Mercedes planned on bringing the B-class to the United States in 2006, but discontinued its plans due to unfavorable currency exchange rates. The car would have been priced under $26,000, and the current model (shown in the picture above) that is now on sale in Europe is 10 inches shorter than the C-class sedan. Lieb also said that their plan to bring in a small SUV depends on whether the company can competitively price it for the U.S. market.

Source: Kurkylko, Diana. (May 21, 2007). "Baby Benz: Mercedes Considers Bringing B Class to United States" AutoWeek. Retrieved May 23, 2007 from www.autoweek.com.

TRW Automotive recently unveiled its Electrically Powered Steering (EPS) Belt Drive system that will launch on North American models in 2008, according to a TRW Automotive press release.

Belt-drive steering technology, also referred to as "rack drive," brings the fuel efficiency and carbon-dioxide reduction benefits of an electric steering system to higher rack load vehicles as compared to TRW's current Column Drive EPS system, already launched on more than 30 vehicle models, the company notes. As with all TRW electromechanical steering systems, the Belt Drive system only consumes noticeable power when steering assist is needed, providing considerable fuel-consumption benefits and reduced CO2 emissions.

As the name implies, the EPS system requires no hydraulic pump, hoses or fluid. The assist power is applied directly to the rack with a belt and ball-nut mechanism. In addition, the energy consumption of an EPS system is just 10% of a conventional hydraulic power steering (HPS) system as power assist engages only when needed, helping to improve fuel economy of an EPS-equipped vehicle.

TRW's EPS Belt Drive system can provide premium performance across a wide range of vehicle platforms with rack assist forces of 11 kilonewtons (kN), the company says. Power assist is applied directly to the rack allowing for a responsive, low- inertia, low-friction steering system with a direct-steering feel.




Dr. Aly Badawy, vice president engineering, steering and suspension, said: "The product is delivered as a fully tested, ready-to-install unit, and all steering belt, pulley, pump, reservoir and hydraulic lines are eliminated, making the product easy to install and maintain."

"The Belt Drive EPS system can be programmed with steering-assist functions in line with vehicle manufacturer's requirements; options include speed sensitive, positive and responsive steering feel and the possibility for vehicle manufacturers to fine-tune the steering characteristics. And with a Belt Drive system, these benefits are now available for small- and medium-size sport-utility vehicles, minivans and light trucks."


Source: TRW Automotive Holdings Corp. (May 22, 2007). "TRW Automotive To Launch Belt Drive Electrically Powered Steering in North America & Europe." TRW Automotive Holdings Corp. Press release courtesy of PR Newswire.

SEMA is writing a report on the Chinese specialty-equipment market. If you are selling in China and would like to be featured in the report, or if you offer a service to SEMA members seeking to sell in China, please let us know. We would love to interview you and include you in the report's list of resources. To participate, contact Linda Spencer at lindas@sema.org.

SEMA members, would you like to be notified when this free report is ready? Just email us at tradeleads@sema.org.