Auto Service World
Feature   June 1, 2000   by Andrew Ross

COVER STORY: SOMETHING EXTRA – Premium, Performance and Profit Undercar Upgrades In Exhaust And Ride Control

Getting the most out of your exhaust and ride control business means offering customers more than straight replacement products and using the strength of brands to make it pay.

For most consumers, the thought of getting a new muffler is a grudge purchase. Even worse, they have probably never even thought of getting a new set of struts, until the technician informs them that they can’t put it off any longer, that is. There is a way to turn both of these unfortunate circumstances into more than a fight for the lowest purchase price possible.

Leaving aside the damage that making affordability assumptions for the consumer can do to your bottom line, there are ample opportunities to bring more to the party than just a standard replacement part.

What we’re talking about is upgrades, both middling and radical, and everything in between. Niche markets have been identified by a Frost & Sullivan report as one of the few bright spots in an otherwise heavily price-competitive market. Preliminary information from the report, which has yet to be released, identifies upgrade/performance products, off-road products, customizing products and products for imported vehicles as substantially less price-sensitive than the standard replacement segment. In the standard replacement segment, the report singles out technology: “Higher-technology products bring higher prices. They are more expensive to make, and offer vehicle owners greater value.”

“It relates to the varied needs of a consumer,” says Rodger Wagner, vice-president, KYB of America. “For example, our GR2 is used primarily by those folks who want to restore their car to an OE or better-than-OE ride without spending a lot of money. If they’re looking for a higher performance shock absorber, whether for an SUV or light truck without getting into real high performance, then the KG is the ride control line. So you have an either/or situation.”

Wagner says that it’s important to read the customer, but not to assume too much. Offering too many options can make the decision-making process too difficult. So, you probably wouldn’t want to offer a full-performance, adjustable shock to the family sedan driver. Then again, if they’re wearing driving gloves, you might.

KYB, for example, has its AGX line of adjustable shocks available for many Japanese applications as well as Mustang, Camaro and Corvette, and has also begun coupling these with Eibach lowering springs.

But there’s more to upgrades than just the traditional image of the speed and performance customer. With the population explosion in the SUV component of the vehicle fleet, it should come as little surprise that this is an increasingly strong market for all manner of aftermarket products. Ride control and exhaust products are no exception.

“There are people who buy a brand new truck and go directly to the muffler shop to have a Dynomax muffler put on,” says Simon Weller, manager, marketing and sales operations for Canada, Tenneco Automotive. He says that the SUV and pickup vehicle populations have changed the face of the upgrade market, and that the way jobbers and installers view the customer should change too.

With customer preferences blurring the lines in virtually every product category–you wouldn’t think middle-aged men would gravitate toward extreme sports, but there they are, and just look at the youth movement on the golf links–you can assume little about who wants performance.

In particular with SUV applications, performance is a relative term. Tenneco Automotive’s Reflex product, for example, may be thought of as a premium product, but the selling point is really about handling performance. In evasive maneuvers, 12% less body roll, 18% less dive under heavy braking are just two of the claims. Consider the number of exhaust and muffler options currently available for SUVs and the same point can be made.

While you may not find such a customer interested in top end performance, they may be interested in towing performance or just off-the-line performance.

The response of manufacturers to offer products at many price and performance levels for the SUV market is no accident.

“It’s a really developed market,” says Cary Bauer, general operations manager, IMCO (International Muffler Co.) “Now it’s 50% and I don’t know how much higher it can go.” Bauer says that in addition to providing an opportunity for consumers to better the performance of their vehicles, it provides a strong opportunity for jobbers and installers to improve their financial performance.

“At the upper end of the performance market, which is what we’re talking about, you definitely get a premium price on the product as opposed to a regular ‘turbo’ muffler. Whether the product is heavy aluminized steel or stainless steel welded, it’s definitely priced much higher and naturally the profit dollars go up accordingly.” Evidence of IMCO’s faith in the market is its agreement with Car Sound Exhaust System to represent its MagnaFlow stainless steel street performance mufflers. IMCO does not manufacture its own performance line.

According to Bauer, this helps counteract the overall trend in the exhaust market.

“The traditional exhaust market is down, I believe primarily because of the advent of the stainless steel exhaust system. Ten years ago the majority were aluminized and lasted four years. Since 1996, virtually all have been stainless steel and they last longer. And so the replacement market has been down some for the past three years and probably will be for the next two or three years.

“In the meantime you have the higher performance market on the other end doing very well. That’s where they can make greater sales and make more money.”

It’s never, of course, quite as simple as all that. The aftermarket’s past is littered with products which have been unable to maintain their profit margins.

In the upgrade aftermarket, whether exhaust or ride control, the “sell” and the “product” must work hand in hand to maximize profitability. While this applies to every category, it is particularly important when you’re trying to sell on more than price. It is a delicate interplay of product, price, programs and brand.

“From our perspective, premium is everything,” says Tenneco’s Weller. “Selling premium brands comes with a lot of attachments, quality fit, coverage, technology. An example would be QuietFlow mufflers, Sensa-Trac and now Reflex. If we didn’t offer premium products, we wouldn’t be able to reinvest in our research.

“The average selling price for the jobber is higher, so it generates higher gross profit dollars. Programs (for installers and consumers) also come with premium products. When you talk about brands, you have to dig into the psychology of why people buy what they do. It enables a jobber to sell because there’s instant recognition. There’s a comfort zone there for the consumer.

“We’ve spent an inordinate amount of money promoting the Monroe brand and that’s become a silent salesperson. People can relate to it.

“I guess our best supporting proof (of the importance of brands) is the move by Canadian Tire to branded parts.”

The topic of brand raises some important points regarding personal preferences, of both the installer and the car owner. Some brands are more apt to be recognized and valued by certain customers, while others are not. Weller says that in the performance market, brand is critical and the customer is educated.

“It is a niche market. The people who buy it know everything there is to know. If people want Rancho, they don’t really shop around.” He says that he sees truck owners using the brand in regions where it isn’t even distributed.

Brand’s importance can be sliced even finer than just truck versus car, though. Some brands, such as KYB’s AGX, do better with the Japanese import owner for reasons of recognition.

For many enthusiasts who look to Europe for their performance vehicle, Sachs-Boge is a brand they recognize and trust.

“What gives us a reputation, or leverage, in the marketplace is that we’re the original supplier of Ferrari clutches and shocks,” says Kenny Ross, pr
oduct manager, suspension division, Sachs North America.

“People who are really in tune with Formula 1 see our name on the car and they’re automatically thinking that it’s a premium product.”

It’s not that the company only supplies ride control for European vehicles, but that is where the strength of the brand recognition currently lies. Its position as the OE supplier of ride control to the C5 Corvette is a message that is yet to have a wider impact on the brand’s image.

“When I hear the word performance, I think of a BMW 3 Series with the Pro Gas on it,” says Ross. He says that not every customer is looking for that kind of performance, but some are.

“As an overall part of the business, performance probably makes up 20%. It all depends on each individual’s need. You just want to make them aware of what you have to offer for their driving needs.”

KYB’s Wagner agrees, and goes one step further (or perhaps one step less, depending on how you look at it). Wagner says that getting the right mix in your inventory means looking closely at your customer base.

“A jobber’s customers are going to decide what his mix is going to be. He can tell by his current sales and that is going to determine what his mix is going to be.” That applies to customers of both the street performance and more pragmatic trailer towing truck type.

If the fit looks good, the upside for the jobber can be considerable. Like many markets, price-fighter lines have found their way into the ride control market. While this can help fill a need with some customers, it does have a detrimental effect on dollar margins.

Wagner says that it’s important for jobbers to realize the impact this has on their business. “Would you prefer to make 30% on a $30 product or on an $8 product? Differentiation is the key to retaining profitability,” he adds.

Weller says that a great deal of the focus on price is unnecessary. “We’ve taken a market that has a replacement need, and turned it into a commodity market for no apparent reason.”

The facts seem to support this point. While jobbers and installers have a keen sense of what products cost, the standard replacement customer does not. Yet, often the aftermarket behaves as if they do.

“They really don’t,” says Wagner. “All the surveys and the focus groups we conduct say they leave it up to the installer. It’s a well-known fact that the consumer doesn’t go out to buy a set of shocks. The average owner doesn’t have a clue.

“The installer is really our customer and we’ve got to prove to him that this is a quality product at a very competitive price and he doesn’t have to worry about comebacks.”

The equation is different for the truly dedicated enthusiast. They are brand aware and brand loyal and are aware of pricing, too, even if they are prepared to pay a premium price. In either case, it is important that neither jobbers nor installers shortchange themselves by treating customers like price-sensitive ones without strong evidence of the fact. The age of the car alone does not count as evidence of either ability or willingness to buy premium products.

Effectively embracing a sales philosophy that considers the importance of brand recognition, the value of brand equity, and the willingness of the consumer to accept the recommendation of the installer, can mean more profit for you and your customers.

It can also result in a more satisfied consumer, which is what upgrades are all about.

North American Shocks & Struts Aftermarket

Unit Average Unit Price Revenue
Units Growth Rate Price Growth Rate Revenues Growth Rate
Year (Million) (%) (US$) (%) (US$ Million) (%)
1996 43.2 13.08 565.5
1997 43.7 1.1 13.45 2.8 587.9 4.0
1998 43.2 (1.2) 13.87 3.1 598.7 1.8
1999 42.9 (0.6) 14.23 2.6 610.6 2.0
2000 42.4 (1.2) 14.45 1.5 612.5 0.3
2001 42.3 (0.2) 14.57 0.8 616.2 0.6
2002 42.5 0.5 14.68 0.8 624.0 1.3
2003 43.1 1.5 14.79 0.8 638.2 2.3
2004 43.8 1.6 14.91 0.8 653.4 2.4
2005 44.8 2.3 15.03 0.8 673.7 3.1
2006 45.9 2.4 15.15 0.8 695.5 3.2

Compound Annual Growth Rates:

1999-2006: 1.0 % 0.9 % 1.9 %

Source: Frost & Sullivan