While our loony politicians are hell-bent on bailing-out Detroit’s automotive dinosaurs, entrepreneurship is alive and kicking in the specialized automotive aftermarket. The industry for customized automotive accessories notched sales of $38 billion in 2007. The revenue earned from accessories has grown at an average rate of 7.4% over the last decade compared to an anemic 1.07% for new car sales. While the sales of accessories have slowed down to 4% in 2008, they are still out-performing many other industries.
Consumers are bored with the drab cars churned out by large automotive companies. The recession was really the last nail on their coffin. Cheap credit had for years propped up the Big 3 and the house of cards crumbled as the credit crisis hit.
Younger customers crave for fun vehicles personalized for them. They like cars like Scion, Cooper and Mustang. Market research by Deloitte indicates that two-thirds of Gen Y customers see vehicles as a reflection of their tastes and status and they consider these factors in their purchase decision. As many as 67% of them consider how well a vehicle reflects their personality.
Dealers, with a focus on customization, are reporting strong performance despite the recession. Galpin Auto Sports, with seven dealerships in Los Angeles area, earns $500,000 a month in revenue from innovative customization. Half of Ciener-Woods Ford in Kernersville, N.C customers are loading up their Mustangs, Fusions and F-150 pickups with as much as $20,000 worth of accessories. MWW Automotive, a global automotive design company, which supplies customized accessories to the Big 3, reported 11.4% rise in sales and 7.4% rise in gross profits at the end of the third quarter of 2008. The company attributed improved profitability to higher sales of spoilers--customized and popular accessories which provide a sporty look.
Skilled mechanics in the automotive after-market have been driving the growth of the accessories markets while the Original Equipment manufacturers have been much slower in adapting to this trend. While vendors in the after-market are responsive to consumer need for personalization, factory made accessories tend to be more reliable and OEM warranties trustworthy. An expanded market for personalized vehicles will develop with the growth of the role of OEMs in this segment of the industry.
Large automotive companies are hobbled by state franchise laws which protect their dealers. Manufacturing companies incur enormous costs when they want to change their products and brands. General Motors was mired in 19 lawsuits in 17 states when it decided to discontinue its Oldsmobile car in the early 2000s. For this reason, OEMS prefer to payoff dealers when they want to end their relationship. Customization can hardly be successful if OEMs cannot change their products without losing money on the way out.
State franchise laws vary between states and provide different levels of protection. The most problematic aspect of it is the inability of manufacturers to communicate directly with consumers which is critical for product differentiation and direct marketing to the most desired consumer segment. They prohibit internet sales which have been instrumental in personalization in other industries. When consumers search web sites for car information, the manufacturers are not allowed to direct the leads to dealers best able to fulfill the demand. Digital signage increasingly provides opportunities for engaging customers with motion video. Automotive manufacturers are unable to take advantage of this medium.
In addition, state franchise laws inflict costs that would be saved in a more competitive environment. Inventory and distribution costs, financing and insurance costs and excess margins add about $1,500 dollars to the cost of a vehicle according to studies conducted by the Consumer Federation of America.
The American genius for innovation and customer service is the best bet to save the domestic automobile industry. No other country has a comparable vibrant class of entrepreneurs reinventing the automotive industry focused on providing personalized vehicles. By abandoning the archaic franchise laws, the American government will pave the way for a new phase of growth in the industry.