Auto Service World
Feature   May 1, 2006   by J.D. Ney

Life After the Movies

Today's Post-Hollywood Sport Compact Market

When it comes to the automotive industry the younger generation would most certainly credit the perceived boom in the specialty automotive equipment sector of the aftermarket to one poorly-acted 2001 film, “The Fast and the Furious.” Of course, as with most 16-year-olds, they would be wrong.

Drivers have been altering the appearance and performance of small imported and domestic sports cars for decades. In fact, the modification and subsequent racing of small imports has been taking place in Southern California ever since mechanically-inclined surfers started drag-racing their Volkswagen Beetles in the mid-sixties.

Subsequently, Palmdale, California became something of a subculture race Mecca in the early ’90s, as some 10,000 spectators would show up to see local racing celebs pilot small Japanese imports. All of this happened, of course, long before anyone had even heard of Vin Diesel.

Clearly, the modification for either aesthetic or performance purposes of popular imports is not a new trend, but what is important to understand is that it is clearly a young trend. A 2003 market trends report issued by the Specialty Equipment Market Association (SEMA) concluded that over the next three years, 51% of the market will be driven by individuals from 16-25 years old, and a further 45% will come from customers who fall between the ages of 26-35. So, with some 96 cents on every dollar being spent by car enthusiasts under 35 years old, it’s certainly a young business, which makes it a complicated business.

According to SEMA, the total market can be broken down into three major segments: performance, appearance, and wheels and tires. As such, it is important to gain a perspective from these three key component areas, in order for jobbers to better determine their inventory plan.

Kevin Dundas of Karbelt Speed and Custom Inc., a company that specializes exclusively in this “performance” segment, has seen several shifts in the sport compact market over the years.

“The guys in that market are definitely getting more hardcore,” says Dundas. “It used to be that most of them were looking for cheaper parts like cold air intake tubes. Now, the sport compact guys are leaning more towards high-end suspension gear and top quality engine components from the big name manufacturers.”

While Dundas is confident in terms of the quality of products being purchased, he does note that growth in the overall sport compact market has slowed. “The Canadian sport compact market has remained pretty constant over the past five years or so,” says Dundas. And while some suggest that the industry is slipping, Dundas disagrees. “I wouldn’t say it’s in any real, actual decline or anything. It has just sort of levelled off after a few years of constant growth.”

Appearance or Performance?

Many jobbers and general automotive enthusiasts have a fairly romantic idea of what makes a great machine. Sure, the fine folks at Pinifarina have given the Ferrari 430 its sexy curves, but the heart of the beast, the real reason it’s so revered, is what’s on the inside. Isn’t it?

John Modica of Modicar Auto Accessories notes some of the newer trends.

“On the appearance side, body kits and sound systems with big ‘bling bling’ wheels appear to be the trend lately.”

Kevin Kraack of American Products Inc. says that there is a definite visual trend afoot. “Everyone is going towards a clean, monochromatic, almost stealth look. Basically, the cleaner the lines, the cleaner the parts, the better.”

In the end, some suppliers like Modica shy away from the purely visual side of the business, and he explains that his company provides only functional performance parts, even when it comes to appearance packages. “We do not sell parts that will not provide a customer with real performance gains. There are manufacturers out there still producing appearance products that do not actually perform; like any business they are there to make a buck,” he says.

However, if one looks at the numbers, those simply selling the look seem to be making more than just a buck.

According to numbers released by SEMA, while internal components are what drive the business, both literally and figuratively, the bottom line seems more reliant on that outer appearance than many purists may wish to acknowledge.

According to the study, while total sales in the U.S. specialty market soared to U.S. $10.02 billion in 2003, only $1.76 billion or 17.6% of that number related to the sale of racing- and performance-focused products. Granted, 24.2% of total sales went to wheels, tires and suspension, which one could argue are involved in increasing the performance of the vehicle, but there is still a significant percentage missing from the overall pie. As the report points out, that gigantic missing slice–worth $5.84 billion, or 58.2% of the entire industry–is tied to products that fall exclusively in the accessory and appearance segment. In fact, that one segment hasn’t dipped below 51% of the total market in the last decade.

Illegal Racing on the Wane

Unfortunately, the sport compact market has also been saddled with an albatross, in the form of illegal street racing.

Peter MacGillivray, vice-president of communications for SEMA, oversees an interesting and innovative program called Racers Against Street Racing (RASR). “Illegal street racing is an issue,” he says. “It’s been an issue since the second car rolled off the line.”

Fortunately, this blight on the sport compact industry, which of course usually dominates media coverage, seems to be waning. Dundas said he usually hears about the street racing subculture from many of his clients, who are either involved or on the sidelines. However, he also said that this past year, there hasn’t really been much talk about it.

“We obviously hear a lot of stories here,” he says. “But in general, this year we really haven’t been hearing much about it at all. Now, that could be because kids are saying less about it, but I think it’s more likely that the illegal street stuff just isn’t happening as much.” As the maturing of the participants has seen some movement towards performance components, it is possible that those who would formerly have been inclined to tear down suburban streets late at night now prefer to treat their machines like professionals. As John Modica notes, “The street racing trend appears to be way down and dropping. We see more people moving towards track days and legal drag racing.”

For MacGillivray, the focus for him and his organization is an awareness program, which is prominently involved with media outlets like MTV and other “authentic, grassroots and targeted places.” It may be those kinds of events and programs, more than anything else, that have helped pull the racers from the street and put them on the track. Kevin Kraack corroborates what others have been saying in terms of the illegal stuff.

“I think it’s totally died off,” he says. “People are way more into things like time attacks, and even auto-crossing is picking up, not to mention the rally scene, which is going to be huge for the industry after it gets featured at the next X-games.”

Even still, both Modica and Kraack feel as though the market, and by proxy its consumers, are a maturing breed. As a SEMA Industry Report suggested concerning appearance products, “These products are the non-enthusiasts’ initial contact with the specialty automotive industry. Some consumers keep coming back and in the process escalate their involvement with other industry products.”

Perhaps we’re seeing some of that escalation now, as kids inspired to get into the industry within the last five years begin to look past non-functional parts and their penchant for stickers, towards more complex performance-based components. As Modica says in terms of the pure appearance purchase: “I see this trend slowing way down, and the consumer ultimately decides how popular any product line becomes.”

It will certainly be interesting, not to mention important, for jobbers to continue monitoring the financial trends of this segment over the next few years. If the past decade or so is any indication, don’t expect automotive cosmetic surgery to relinquish its healthy lead in the dollar count anytime soon.

And there are those, like Kraack, who feel as though the specialty aftermarket is not the zero-sum game that some may think; a boom in one segment does not mean a loss in sales for another. “We’re seeing a trend in sport compacts going heavily to the high-end performance side of things,” he says. “But the appearance stuff like lighting is a total mainstay, and you’ll never see it go away from the sport compact scene.”

Kraack even cites his own humble beginnings in the business. “There was a time when you’d walk into a shop and the guy would ask you what colour of stickers you wanted, and you’d just say ‘yes.’ But it’s where everyone starts, and so the numbers will always be there. What we’re really seeing now is a totally separate segment, growing on its own and not taking anything away from anything else.”

From the jobber’s standpoint, a 16-year-old kid who is happy with the experience you provided when he bought his first body kit or screaming set of accessory lights will likely be the same kid that returns a few years later asking for your top-of-the-line supercharger.

So it makes sense to treat him accordingly.

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