COVER STORY: GROWING IN A FLAT MARKET – FOCUS ON RIDE CONTROL AND EXHAUST

Taken together, the exhaust and ride control markets share this basic common theme. While there are important factors specific to each market, neither has been dynamic in recent days and both have been fraught with issues of pricing and vehicle population. Some of these can be traced back to decisions made years ago at the OEM level.

“Exhaust is considerably softer than ride control, simply because since 1985 premium materials have been installed on vehicles at the factory,” says John Hart, vice-president sales and marketing, ArvinMeritor Light Vehicle Aftermarket, makers of Maremont and Gabriel brand products. Referring to stainless steel’s popularity on OE exhaust systems, Hart says that many vehicles are going through their entire lives without exhaust replacement. “That has taken considerable volume out of the marketplace. It has also produced price pressure, and our shorter line competitors that offer a smaller basket of velocity priced items have taken market share. So, as well as a general market unit decline, there have also been some interesting shifts in market shares.”

At least part of this shift has been made possible by the lack of consumer brand awareness regarding replacement exhaust products. (The situation is different for the installer who places a value on having confidence that the parts ordered will work and fit properly.) “Consumers have very little interest in brand (of exhaust),” says Harvey Diedrich, vice-president North American aftermarket, Tenneco Automotive. “It’s out of sight, out of mind.” Even so, he says that point of sale materials can still have value for the consumer. “Pre-selling begins with point of sale. It lets the consumer know that the shop does install mufflers.” Diedrich says that there is still a perception among the public that the major chains are at least the first choice, if not the only choice. “That is there to some extent, though probably less and less as the old muffler specialists become more general in the repairs they offer. But there are a lot of ad dollars thrown at consumers to tell them that they should go there.”

That kind of advertising pressure on the independent aftermarket may be daunting, but it need not be the final chapter in the small business’ ability to compete with the large chains.

“Jobbers should encourage installers to get more involved with exhaust work,” says Malcolm Sissmore, vice-president, sales and marketing, UltraFit Manufacturing. “Those specialists aren’t so specialized any more.”

Jobbers, says Sissmore, have two issues to deal with in the exhaust market: a flat market and shrinking gross dollar profits. “So the jobber has to look at getting more dollars, and one of the ways to do that is to look at the more expensive exhaust pipes.” He says that the front pipes on many systems command a relatively high price, but that non-air gap versions of air-gap designs can offer jobbers and installers an entre into a previously undeveloped market.

“Front pipes are becoming more and more popular, because what is wearing out is not so much the tailpipes and such because of the stainless steel. Worn-out motor mounts put added stress on this flexible coupling and it fails from fatigue.” He says that the aftermarket part can still be sold at retail with a solid margin for about half the price of an OE unit. “And you’re talking about a much higher dollar item, versus a tailpipe that has to sell for $20.

“A jobber can also use that as a leader because an installer will phone around to find the least expensive front pipes because they’re such a high dollar part. If the installer knows you have the best price front pipes, you’ll get a reputation for having the best exhaust pricing, and you will also get the business for the rest of the parts.”

Sissmore says that this can be an avenue to take business from a car dealer, because many installers are not aware of the availability of these parts from aftermarket sources.

“I’m not sure on the conventional side what they can do to increase sales with their increasing market, since the market is getting smaller,” says Cary Bauer, general operations manager, IMCO International Muffler Co. “From that aspect it comes down to advertising and customer service. You’re going to have to take business away from somebody else.” A change in focus by large chains, from exhaust only to full service, presents the independent business with an opportunity, says Bauer.

“I think that gives the independent installer a foot in the door. It makes people think less about the big boys when they need some work done. And also, if they’re advertising more in general terms and if you have a true muffler shop, people may think of that muffler shop as more of a specialist.”

Being able to take business from competitors is the inescapable lot of the business trying to grow in a market that isn’t. In the world of ride control, that means being able to address many different facets of the consumer’s and the installer’s needs. Unlike the exhaust market, which thrives on issues of quality but is largely invisible to the consumer, ride control is a purchase that can have noticeable benefits. Step one in building a market is getting back to basics.

“When you look at ride control, there are two things that drive the market,” says Tenneco’s Diedrich. “You need to understand driver needs and you need to build the parts per job.” On average, says Diedrich, only three struts or shocks are replaced per job. This means half the cars get new ride control at all four corners, while the other half only get two replaced.

Diedrich says that it is important to discuss with the consumer how they use their vehicle and their plans for ownership. This naturally evolves into the need to be able to offer a range of products at a range of prices. “We try to give customers the opportunity to work with the consumer. Each of these products, as you step up, offers the jobber more profitability.” He says it’s not about selling up or selling down, though. “The people who are being successful are matching the product to the consumer.”

“There is a parallel between vehicle age and defining the consumer,” says Hart. “Customers with older vehicles with struts on all four corners become a real selling challenge of the installer. Vehicles toward the end of their life tend not to get any work done. So, having a range of products is an important aspect in ride control as it is in exhaust.

“The one thing about ride control versus exhaust is that the decay is insidious. It’s not terribly noticeable over time. You just end up with a bouncy old vehicle.”

KYB’s Rodger Wagner says that his company has found that simply being able to offer alter-natives can build sales. Wagner adds that it hasn’t necessarily been at the expense of other products in jobbers’ inventories.

“The reality is that just about everyone we contact is a (Gabriel or Monroe) customer. What we suggest is that they put us in alongside their current supplier. That may seem like a crazy thing with proliferation, but what we find is that they are improving their ride control sales without any adverse impact on their existing line.” Still, Wagner is anxious to dispel one of the biggest misconceptions about KYB.

“One of our biggest obstacles is the perception that all we sell is Japanese product. The fact is that we are a full-line manufacturer,” says Wagner, adding that an advertising campaign at the consumer level in Road & Track magazine, the company’s first, is intended to build brand awareness and dispel misconceptions.

Wagner says that key areas of growth for the company have come because of its introduction of high-performance ride control products–AGX and Monomax–over the past two years.

This points to a sometimes-overlooked opportunity for jobbers and installers alike. While the standard replacement markets for ride control and exhaust have been moribund over the recent past, the performance market has seen robust growth.

Diedrich says that evidence of the consumer’s willingness to enhance their vehicle’s ride can be found within the market performance of Tenneco’s
up-market Reflex product. In a shining example, one tire store had Reflex units make up 38% of its total ride control sales, far above the company’s average. He credits the sales approach of the store over and above local market conditions. “It’s about attitude and believing in the product.”

“From my perspective, the part of the market that is growing is the high performance and high performance-related accessories,” says Bauer. “For a jobber or an installer–all the way down the food chain–it’s important to be in this business. This has grown significantly over the past three or four years. If you want to do more business, you’re going to have to do it in the growth part of the business. We’ve always been in the performance side of the exhaust business, but to a lesser extent.” He says that the company is expanding its performance offering with a program launching this spring.

“With performance exhaust customers, it’s about sound characteristics and performance and appearance. These customers are interested in the technical attributes. Price becomes less important than the attributes of the product,” says Hart. He says that while the trend has been more apparent in the U.S. over the past few years, it has moved into Canada and is making its way across the country, due to limitations on performance modifications that result from underhood technologies in use as well as emissions testing programs. “We’ve seen the U.S. phenomenon moving through Canada with dual exhaust conversions for trucks, chrome tips, and import performance that is a combination of wheels, tires, and mufflers.

“In certain market demographics, this has become a really hot number. It’s about sound more than anything else, and over and above that it’s about appearance and bragging rights. It’s hot, and it’s really hot in certain demographics.”

All of this occurs within a market that suffers from a surfeit of target vehicles. Vehicles in their prime aftermarket years, six to 10 years old, are in short supply due to lagging new vehicle sales in the early to mid-1990s. That is an inescapable fact affecting the aftermarket today and over the next year or two. This combined with lower replacement rates on exhaust and strut-equipped vehicles has made these two markets a game of trading market share. This makes growth tough.

The good news is that by addressing basics such as proper inspection of vehicles and straightforward communication with consumers, good market share growth is well within reach.

Furthermore, the thing about market share growth is that, when the market does begin to grow, those who have addressed these basics tend to grow even faster.