It’s All About The Accessories

Whenever you start to focus on the more specialized niches of the automotive market, very often the numbers reveal surprises that cause us to reassess our assumptions. The light truck accessories market is no different. It is by definition, a niche market under the light truck umbrella, which is itself a market niche. But the numbers reveal what could ultimately amount to a massive retail opportunity.

The Numbers

The Specialty Equipment Market Association (SEMA) tracks sales within the light truck market niche very closely. According to SEMA’s numbers, light trucks represent more than half of all vehicles sold in the United States today. Of the 16,515,878 new vehicles that were sold in 2006, 51.2%– or 8,453,811–were light trucks. (Makes you question whether it is the light truck or the standard passenger car that ought to be called the niche.)

What’s more, sales of these trucks represent not only huge dollars for car dealers and manufacturers (sales of light-truck products were estimated at US$12.46 billion at the retail level in 2006), but they are also prime candidates for accessorizing and customizing. It’s unclear whether the customization trend is due to some design advantage, or some kind of predisposition on the part of the demographic that purchases these vehicles, but the numbers are impressive. According to SEMA, 73% of full-size pickup owners and 62% of mid-size pickup owners plan to spend at least US$250 on accessories for their trucks. And that’s just for the guys who keep their rides on the roads.

The report goes on to note that the off-road segment of the market is also booming. As SEMA notes, performance parts and accessories sold in the United States for the off-road market have seen a healthy increase over the past 11 years.

In 2006, retail sales were estimated at $1.37 billion; moreover, any attendee of the SEMA show in Las Vegas would certainly note that the Trucks, SUVs & Off-Road section of the show is consistently one of its largest. In 2007, 347 companies exhibited in that section of the show.

Of these companies, 48 were first-time exhibitors, and 38 represented international exhibitors. With 48 brand-new exhibitors entering an already packed arena, to suggest that there is growth potential would be an understatement.

Two product examples

The enormous scope of the market is unquestioned, but where is it headed? If we take a more detailed look at two of the market’s most popular accessories, tonneau covers and running boards, we can arrive at some fairly reliable assumptions.

According to research specialist Frost & Sullivan, increasing competition in the tonneau cover aftermarket is encouraging manufacturers to focus on brand development to set themselves apart. Currently, manufacturers are showing greater interest in the hard tonneau segment, as it is likely to generate more revenue than the soft tonneau segment. In the next few years, major participants in the aftermarket are likely to expand their base and improve market share by releasing new products in acrylonitrile butadiene styrene (ABS) plastic, as well as retractable hard tonneau products.

New analysis from the firm finds that the North American light truck tonneau cover aftermarket earned revenues of approximately US$254.7 million in 2005, and is expected to grow to about US$300.1 million in 2012.

“In order to market effectively, manufacturers are trying to figure out the kind of styling, packaging, and promotion that will encourage pickup truck owners to invest in tonneau covers,” says research analyst Rahul Ganju. “Manufacturers are also expected to develop awareness of their brand name…through cooperative advertising and sales promotion with distributors and truck accessory store owners.”

Also, in recent months a steadily increasing number of new pickup truck models have been introduced to the market, which could lead to a corresponding growth in demand for new tonneau covers. “However, growing competition, coupled with changing market demographics, is likely to restrain market growth,” notes Ganju. “The possibility of losing end users to competitors forces manufacturers to constantly strive to improve their products.”

To achieve this, market participants are expected to focus on developing innovative, high-end, cost-efficient products with unique features, as purchase decisions by end users are mainly based on the aesthetic appeal of the product, functionality, and price.

Manufacturers’ ability to educate truck accessory store owners, retailers, and distributors about the better quality of their products is also likely to improve profit margins, and will help to create greater product awareness and increase overall sales. Aggressive advertising campaigns, attractive warranty packages, efficient customer service, high quality products, and effective brand positioning strategies will be vital in increasing revenues.

Even so, despite the anticipated upswing in many areas of the light truck accessories market, it is predicted that not all product categories can expect the same rosy results.

While owners of light trucks primarily purchase running boards and steps for their aesthetic appeal, the functionality of these products is an equally important factor. Up to now, the combination of these two elements has been instrumental in sustaining end-user interest in these accessories. However, unit shipments are likely to decline over the next five to seven years, as truck owners’ preferences shift from large, heavy accessories to smaller, lighter ones.

Analysis from Frost & Sullivan reveals that this product segment earned revenues of US$149.2 million in 2005, and is estimated to decline to US$144.2 million in 2012.

“The overall light truck running board and step aftermarket expects to experience a marginal decline between the years 2006 and 2012,” notes Ganju. “Factors expected to contribute to this decline include reduced sales of light trucks, high original equipment manufacturer (OEM) penetration, and low brand awareness.”

Competition in the aftermarket has intensified following the entry of OEMs, while the growing participation of low-cost offshore manufacturers in countries such as China is leading to severe price pressures within the aftermarket.

Limited entry barriers have enabled these manufacturers to sell directly to warehouse distributors (WDs), retailers, and end users in the United States and Canada. This has resulted in diminished profit margins and aftermarket brand value for North American manufacturers.

The challenge for aftermarket manufacturers lies in sustaining their growth, despite the projected decline in the market. This might require them to constantly innovate and develop new styles of running boards and steps, while keeping track of the current trends in OEM styling and accessorizing.

The absence of patent protection for running boards and steps designed and produced in North America is another significant challenge, as it leaves them vulnerable to knock-offs, especially by companies in developing countries. Seeking patents for product designs, features, and processes could help manufacturers face this challenge and differentiate their products from those of competitors. However, this may not be a feasible option for the smaller aftermarket manufacturers due to the high costs involved. With the constant threat of duplicate products, strong brand positioning and brand differentiating strategies are becoming increasingly important for aftermarket manufacturers.

“Creating differentiating features, building brand awareness, and educating installers, retailers, and WDs about the quality of their products compared to competing ones are some of the ways they can achieve better brand positioning,” says Ganju. “The focus of all these strategies needs to be on ensuring that end users are well informed and aware of products’ distinctive features when making critical purchasing decisions.”