Across Europe, car audio systems are close to becoming a standard, saturated product offering. As a result, vehicle manufacturers and suppliers are now looking at promising alternatives such as nomadic devices, Bluetooth, DAB, satellite radio, HDD and other important digital media playback as key revenue sectors, new research suggested.

To leverage emerging growth opportunities, original equipment manufacturers (OEMs) need to strike the right balance between offering sophisticated features while ensuring cost-effectiveness. They must also ensure that the systems match the needs of various vehicle segments, Frost & Sullivan said.

It said the car audio systems market in Europe earned revenues of EUR1.49bn in 2005 and estimates this to reach EUR2.37 bn in 2014. The key reasons for such strong expansion will be the explosive growth of MP3 head units.

"Consumers increasingly want to use the MP3s they burn at home inside their cars," said Frost & Sullivan telematics and infotainment team leader, Praveen Chandrasekhar. "MP3s are also available, physically separate from the CD, from many other sources. These factors are driving the demand for OE audio systems to offer MP3 playback capabilities - a trend that is promoting future market growth."

Currently, different compressed digital media such as MP3 and WMA are widely available. When consumers burn an original music CD at home, it gets ripped onto their home PC in WMA [or MP3] format, and they want to use this in their cars as well. This is pushing the need for vehicle manufacturers and suppliers to offer digital compressed media playback.

"This means that OEMs can make revenues out of a new product," added Chandrasekhar. "In addition, the cost of implementing MP3 across different vehicle platforms is also declining, a sign that clearly proves rising interest levels in MP3."

However, the lifecycle mismatch is a highly relevant issue in the audio systems market due to rapid technological developments such as, for instance, the launch of Bluetooth A2DP (audio distribution profile) for audio streaming from personal devices into the vehicle. Being in sync with fast-evolving technologies presents a clear challenge to automakers and is becoming increasingly important because of competition from low-cost aftermarket systems.

"The typical time taken for the construction of a vehicle is three to five years, whereas the typical lifetime for any consumer electronics standard is around a year and a half only," said Chandrasekhar. "This makes it difficult for vehicle manufacturers and their associated Tier 1 suppliers to keep track of these rapid changes, and upgrade their vehicles to incorporate the latest audio technologies."

Vehicle manufacturers and their associated Tier 1 suppliers need to increase their product portfolio for audio systems. This means they not only have to offer different solutions such as the single CD, MP3 and even high-end DVD players, but must also ensure a wide variety of each of these.

"They must strive to strike the right balance between cost and features suited to a particular vehicle segment," Chandrasekhar added. "This strategy will help counteract competition from low-cost aftermarket systems."