“2016 SEMA Market Report”

SEMA News—October 2016

RESEARCH

By Chad Simon

“2016 SEMA Market Report”

Specialty-Equipment Industry Reaches Record $39.18 Billion in Sales—Up 8% From Previous Year

  2016 SEMA Market Report
The “2016 SEMA Market Report” is available free to association members at www.sema.org/2016marketreport. The report contains multiple types of data from different sources, including government and outside vendors, who use industry data from manufacturers to develop these estimates, as well as consumer interviews.
   

The annual “SEMA Market Report”—more than 20 years running—is SEMA’s yearly take on the automotive specialty-equipment industry. The 2016 report concentrates on market sizing and sales estimates for 2015 but also reflects historical trends from the previous five years. Looking ahead, SEMA analyzes this historical data to forecast next year’s trends. The report contains multiple types of data from different sources, including government and outside vendors, who use industry data from manufacturers to develop these estimates.

From the consumer perspective, SEMA utilizes 20,000 consumer interviews—of whom about 5,000 purchase within the specialty-equipment industry—regarding what they buy, where they buy and for what vehicles they purchase parts. The “2016 SEMA Market Report” is available free to association members at www.sema.org/2016marketreport.

Market Gains More Steam

In the early ’00s, it was the norm for specialty-equipment sales to outpace auto sales and gross domestic product. Specialty-equipment sales subsided during the Great Recession but have since bounced back, while auto sales went through the roof during the economic rebound and now have settled down to a normal growth rate. According to the 2016 report, the specialty-equipment industry has continued its steady climb from the ruins of the recession and is now in its sixth year of growth, setting a record at $39.18 billion in sales—up 8% over the previous year.

“We are projecting the growth to continue,” said Gavin Knapp, director of SEMA market research. “Within our consumer market data section, we have one-year projections for some of our larger product categories. Each category is projected to grow except for mobile electronics, which appears to be on a downswing. Cars have become very electronic from the factory, whereas back in the day, you might have had a radio head unit that was simple to swap out. Now the OEMs are putting in much better stereo units, and they’re integrating those with all the other electronics in the car, making it more difficult and less necessary for consumers to swap them out.”

Youth Participation Dominates

2016 SEMA Market Report
In 2015, the automotive specialty-equipment industry set a record at $39.18 billion in sales. The majority of those purchases came from auto-parts chains at 33% (combining physical location and online), followed by independent specialty stores (11%) and dealerships (8%).
 
   

Sales increases nearly across the board indicate high consumer interest in the specialty-equipment market. It’s interesting to note that, according to the data, despite all the doom and gloom regarding the difficulties of attracting youth, people under 30 are far more likely to accessorize than those who are over 50. This fact bodes well for the industry’s continued viability, indicating that young people are still showing interest.

“For younger people, it’s really about lifestyle,” Knapp said. “Once you get a little farther along in life and you have kids, your priorities change. Younger people do different types of modifications than older people, and they work on different cars.”

Enthusiasts also vary based on the amount of discretionary money available. Some have a car or multiple cars in the garage that are hobby cars, but according to Knapp, that’s not most enthusiasts, especially since such a large percentage of them are young and don’t have the space or can’t afford an extra car.

“Their daily drivers are their hot rods,” he said. “They can still be as enthused as everybody else; it’s just that the car they’re wrenching on also has to get them to school or to work or wherever they need to be.”

The Recession’s Impact

  2016 SEMA Market Report
Each product segment continued to grow in 2015, with wheels, tires and suspension up almost 11% over the previous year.
   

Although the industry keeps performing better year after year, it hasn’t always been that way. Certain categories, such as accessories, depend more on discretionary spending, and when the economic downturn hit in 2008, the accessory side of the business crumbled because consumers pulled back and closed their wallets. At the same time, the hardcore enthusiast base keeps the industry propped up even through down times, because enthusiasts will still spend on hard parts such as engine and suspension components. While accessory sales (wheels and tires, for instance) contracted during the downturn, now that market is experiencing the opposite due to the economic rebound.

“Even though the economy isn’t perfect and there are some question marks out there, consumers are feeling more comfortable about their job prospects because unemployment has dropped,” Knapp said. “Many of those people may not be our hardcore enthusiasts, but wheels and tires are kind of like a gateway drug. It’s something people can do to customize their cars and give them personalized appearance with no requirement to wrench on them. That’s why those types of products fluctuate with the economy while others remain steady, because our hardcore guys are going to do what they do because it’s their life.”

Another factor impacting the industry—but in a positive way—is the current downward trend in gas prices, because consumers are more likely to increase their horsepower or upgrade to larger wheels since they have more money to spend. Also, fuel economy is a major deciding factor in car choice. Consumers are now buying more light trucks and utilizing them because they’re less worried about spending gas money, whereas during the recession, light-truck sales were hit especially hard due mainly to high fuel prices and scant job prospects.

Performance Agenda Performs

  2016 SEMA Market Report
The majority of consumers (41%) rely on word of mouth from friends and family when researching a product, narrowly edging out search engines at 40%. Retail websites and advertisements are also popular information sources, each at 35%.
   

On the car side, Mustang and Camaro redesigns and the new Challenger and Charger have catapulted the musclecar and performance agenda back to the forefront over the past several years, driving interest and sales. It goes without saying that they pack more horsepower and are sportier than compact cars, which have stayed steady over the past decade, partly due to a lifestyle shift.

“This is obviously good news, because these vehicles are traditional markets for our parts,” Knapp said. “Modifications, such as performance enhancements and suspension lifts, which might be detrimental to mileage, are now less of a concern. We’ve also seen a shift toward The Fast and the Furious lifestyle, and musclecars cross over into street performance, which is the engine that drives the industry. While there are a lot of compact vehicles on the road, some of the enthusiasm for accessorizing them seems to have transferred to other areas.”

Light-Truck Sales Rebound

2016 SEMA Market Report
With 2015 retail sales of $11.29 billion—a 13.3% increase over the previous year—the street performance segment is the engine that drives the specialty-equipment market.
 
   

A large part of the specialty-equipment market is based on new-vehicle sales, because enthusiasts tend to accessorize new vehicles very quickly, so when new light-truck sales dropped, commercial use of trucks also took a big hit.

“Gardeners, handymen and construction workers stopped spending,” Knapp said. “Rather than buying a new rack, they made do with the old rack, because revenues decreased for them across the board. But there was also a shift in the mindset, and part of that led to a pretty big recovery and shifted light trucks back to being utility vehicles, so we’re seeing a lot of that pent-up demand being realized over the past couple of years.”

The Ford F-Series seems to have dominated the light-truck market for the past three decades, but combined GMC Sierra and Chevy Silverado sales numbers are actually larger than those of the F-Series. Changes in vehicle sales correlate to new model launches and redesigns, which tend to result in considerable sales jumps. Take small CUVs, for example. The reason for their rise is availability, because they are a relatively new segment.

“The OEMs have been flooding the market with small CUVs, and consumers are taking them up,” Knapp said. “They have voted with their wallets that they like to have that bit of a higher stance and more available room for storage while still maintaining a relatively small vehicle with a car-like ride.”

Retail Versus Online Sales

  2016 SEMA Market Report
The Ford F-Series remains the top-selling vehicle in the United States. However, the Chevrolet Silverado and GMC Sierra combined (824,683) sold more units than the F-Series (725,726). The Chrysler 200 Series experienced the largest rate of growth in 2015 at 51.6% over the previous year.
   

Retail chains are still the most popular choice for sourcing parts because of their access and convenience. There are more of them around, and people know their names.

“The AutoZone up the street is an easy first place to go,” Knapp said. “Consumers know the name brand, so it resonates with them even online. The hardcore guys are more likely to go to independent shops. Non-enthusiasts might feel more intimidated going to an independent shop versus a chain.”

According to overall research, consumers increasingly buy products online because they enjoy the convenience of viewing multiple products and comparing them side by side. Others want to be able to physically see and touch a product. Enthusiasts may feel that they have enough information. They’re smart enough and have enough experience that they can see something online, buy it, and know what they’re getting.

Certain products, however, lend themselves more toward online sales, particularly if they are simple to install. The number of consumers who purchase online is going to be lower for products that are complicated to install, because they’re going to have to be capable of working on their vehicles.

“If they can just buy something, pull it out of the box, plug it in and use it, it’s a pretty easy online sell,” Knapp said. “But it’s a lot harder if they have to make it fit and function with the rest of their vehicle, especially for those who aren’t fulltime wrenchers, and they’re a big part of our market. We tend to focus more on our hardcore enthusiasts, but there are actually more people we might consider non-enthusiasts buying within our industry.”

Despite the prevalence of internet retailers and the public’s affinity for shopping online, there will always be a place for having a physical retail location.

“We definitely know that younger consumers are more adept online,” Knapp said. “We know they will research online and then go into the store to buy. We also know that there are people who shop in the store and then go online to buy. Retailers are all developing online presences. If they’re not, they’re going to have problems, even in the current market, but I don’t see the disappearance of brick and mortar any time soon.”

SEMA Show Attendance Mirrors Industry Success

The SEMA Show in Las Vegas is considered a mecca for this industry. It’s the place where specialty-equipment manufacturers, OEMs, buyers, retailers, media, warehouse distributors and car builders converge once a year to conduct business and find new products. Reflecting the overall health of the industry, attendance this year is expected to hit an all-time high—more than 160,000 overall.

“The fact is that the SEMA Show is growing,” Knapp said. “Registrations in terms of attendance and number of exhibitors keep climbing. It shows that there’s a lot of enthusiasm. We know that professionals are keeping their ears to the ground, because they see a lot of potential for continued growth.”

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