After-market for automotive 'bling bling' going nuts
Multi-billion dollar part of car business
Deirdre McMurdy
Financial Post
Saturday, December 06, 2003
(Scott) Munro
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Driving a brand-new car straight off the lot used to be a big deal. You'd take it for a bit of a cruise, let the folks and your buddies check it out -- and maybe drive it around the block. Everyone would comment on that great new car smell as they checked out the trunk space.
These days, however, that ritual is considerably more complex-and costly. The first place most new car owners drive their vehicle is to an after-market automotive supplier for big ticket upgrades.
"People pull in here right from the dealer and plop down $10,000, maybe $12,000 for a top-end entertainment system," says Scott Munro of Kromer Radio, who installs an average of five systems every day in Toronto.
"They'll have eight screens installed, infra-red headsets, surround sound -- the works."
Sophisticated navigation systems, satellite radio equipment, digital audio broadcast capability, MP3 players, rear-vision cameras and bumper sensors are also increasingly popular installations in new vehicles.
"Everyone wants something unique, wants to express themselves as an individual with some custom item or service," notes auto industry analyst Dennis DesRosiers.
"It's a big status thing -- and it's become a multi-billion dollar part of the auto sector."
That consumer trend has gained momentum as automakers have attempted to whet demand with low-cost financing deals and a variety of rebates and incentives. The cost of acquiring new cars and trucks is so low, the number of registered vehicles in North America now outnumbers licensed drivers.
Statistics gathered by Ford Motor Company indicate that three out of 10 households have at least three vehicles, a 27% increase in just four years.
At the same time, computer and technology companies such as Microsoft are entering the fray, attempting to offset the bottom-line impact of a maturing desktop computer market, by focusing increasingly on the 50 million new vehicles that are produced globally every year.
The vice-president of Microsoft's automotive business unit recently declared that the company plans to have its operating system in every car on Earth some day -- and it's already well down that road. The MSN platform is currently installed in 23 different car models including the BMW 7 series, Daimler, Volvo, Subaru and Toyota.
The company's "Tbox", which is expected to hit the market in the next year or so, would connect all the disparate technologies in a car from phones to audio and navigation systems.
Not only would a fully wired vehicle automatically turn on the windshield wipers as the first drop of rain lands, it would pay tolls, demand an oil change, and warn about traffic obstructions, while proposing alternate routes.
"The car has become the ultimate point of convergence-transportation. Communication and entertainment are being seamlessly blended," says Mr. DesRosiers. "It's about multi-tasking on wheels."
He adds that manufacturers are also scrambling to build on the consumer demand that typically surfaces first in the booming aftermarket.
They are adding a growing array of technology based options in an attempt to differentiate their products in an increasingly commoditized market.
They are also extremely eager to boost wafer-thin dealership margins by offering an expanded roster of installation and service opportunities.
Among the new technologies developed for the high-end market-but ultimately destined to become a standard feature some day is the Cadillac XLR's active cruise control. Radar sensors automatically apply the brakes if the vehicle ahead slows down, or if an XLR driver is abruptly cut off.
John Wood, an engineer who specializes in developing new technology for General Motors Canada, says that the company is also part of a consortium that backs the application of wireless Bluetooth technology.
"We're at the table and keeping our options open," he notes. "We're just waiting to see where the market is going to take wi fi."
Satellite navigation systems, are another example of features that initially became popular in the aftermarket (ranging in price from $3,000 to $5,500. They've now become a common feature in many luxury vehicle models and they are also a popular money-spinner, generating monthly fee-based revenues of about $20 a month depending on the range of services provided.
On that front, General Motors' On-Star navigation and communications system has moved to a hands-free voice-activated technology, with microphones embedded in vehicles' interiors.
Incorporated in the communications package is a "personal calling service" which replaces hand-held or even head-set cellular phone usage.
"About half of the navigation systems are just for the wow factor -- a new toy for some middle-aged guy with a wad of cash," says Mr. Munro. "The other half go to sales people and others who work on the road and really use their full capacity."
But even as the level of sophistication has accelerated, the cost of customization has declined. According to Tom Daley of ARA Auto Accessories in Calgary, an automotive MP3 player that stores 200 songs per disc cost $700 a year ago, and now sells for $300. Satellite radio gear that was $1,400 18 months ago, is currently priced at $500, he adds.
(Although satellite radio service is illegal in Canada pending a national radio policy review by the Canadian Radio-television and Telecommunications Commission, Mr. Daley says that many Albertans -- especially those in remote rural areas where traditional reception can be weak -- have the equipment installed domestically and then provide a U.S. address to activate service for a monthly fee of about $15. Kromer Radio, on the other hand, will install satellite radio equipment but doesn't sell it.)
Manufacturers, of course, are also quick to raise the bar on both technology and price as mass appeal builds. Alpine Electronics has just launched a new hard-drive MP3 player for in-dash installation that retails for about US$1,000. It's "Quick Search" function allows users to search for tracks by genre, artist, album, song or play list using a paddle switch.
"First it was eight-track tapes, then cassettes, then DVDs. Now no-one wants to bother with a bunch of CDs rattling around the car," says Mr. Daley. "The MP3 players are huge sellers."
So too are surround-sound audio systems. Although they are often associated with younger, male drivers, Mr. Munro says that Baby Boomers are also quick to spend as much as $5,000 on mobile sound quality.
"The young guys just want it loud. The Boomers want it loud but with clean, crystal quality," he notes. "And above all they don't want any cosmetic change to the interior of their vehicle."
That said, he adds, there's been no real advancement in speaker technology in recent years, although he does recommend digital audio broadcast (DAB) technology (about $1,000) for superior, traditional radio reception and some value-added features like text listings of artists and song titles.
While such safety features as air bags have become common, factory-installed features, there are several other after-market items that have gained popularity.
As sport utility vehicles and other urban "trucks" have become commonplace, the demand for sensors and rear-view cameras has soared because of the parking problems they pose. A bullet sized camera with a quarter-inch lens and screen display costs about $1,500. Installation of four sensors on a rear bumper that beep and show flashing green, amber and red indicator lights-cost about $580.
A Canadian company, SmartTire Systems of Vancouver , addresses both safety and environmental concerns with its tire sensors. According to communications director Randy Halischuk, about 50% of all tires are under-inflated increasing the risk of crashes and dramatically decreasing fuel efficiency (it drops by 1% for every three pressure per square inch of under-inflation).
The system which sells for about $300 installed, features a small screen, which can be plugged into a lighter socket-which informs drivers of tire pressure, heat and deviation from ideal inflation. It also flashes and beeps if a tire is about to blow or go flat.
"Our sensors have become standard equipment now in Bentley's and Aston-Martins," notes Mr. Halischuk. "That means they'll soon be installed in lower cost models. That's how it works: from after-market, to luxury models to mass market."
It's a life cycle that may be short, but for vendors -- sweet.
HOT WHEELS:
- DVD entertainment systems cost $1,500 for a package with one seven-inch, flip-down screen and run as high as $5,500 for four screens.
- Navigation systems with global positioning satellite service starts at $3,000 and run to $5,500.
- MP3 players cost $300 to $1,200.
- Back-up sensor systems run $600 to $1,500.
- Satellite radio gear is $500; digital audio broadcast receivers cost $1,000.
- Tire sensors, installed cost about $300.
