New analysis from Frost & Sullivan, North American Wheels Aftermarket, shows this industry’s revenues totalled $US793.2 million in 2003 and are projected to reach $1 billion by 2009.
Historically, wheels were manufactured and distributed by a handful of North American-based companies which controlled the product, the brands and the distribution channels. Radical changes in the business practices of South and Southeast Asian countries, coupled with low-cost labour and instantaneous communication via the internet, provided alternative lower cost product. With the importance of the major barrier to entry reduced significantly, the number of market participants and brands has grown 10-fold.
Brand image and awareness of most of these companies have fallen to an all-time low, making price the major competitive factor. A few tumultuous years and intense competition for market share has gleaned many insufficiently funded companies from the ranks. With so much of the product coming from the same factories, differentiation must be at the design and brand level. Beyond the top-five market participants, brand equity has diminished severely.
“Unless companies build significant brand equity among end users, price growth, and consequently, total potential revenue are likely to be restrained,” says Frost & Sullivan senior industry analyst, Mary-Beth Kellenberger.
Distributors and suppliers will also have to focus on skilful management of inventory to keep pace with constantly changing wheel styles, as vehicle owners now view wheels as style accessories that can be frequently changed.
Given that new wheel styles are released almost annually, inventory management in the distribution channel becomes critical, especially for those that depend on offshore manufacturers with long lead times.
“Continuous product development and changing preferences challenge an organisation’s ability to manage inventories effectively,” said Kellenberger. “Companies need to increase inventory turnover in order to be profitable.”
The large market participants face intense price competition. Many aftermarket wheel manufacturers are also original equipment manufacturers and economies of scale dictate that aftermarket wheels hold to the same standards, which have cost implications.
No defined standards actually exist for North American aftermarket wheels, and aftermarket-only participants have gleaned costly standard-related steps from the manufacturing process. Visually, wheel quality is extremely difficult for the average consumer to evaluate.
Manufacturers tied to OE standards are attempting to build recognition of the standards as a means of quality differentiation.
“Until such standards are widely recognised and valued, the North American wheel aftermarket is likely to continue its struggle against the increasing flood of poor-quality, low-priced products,” said Kellenberger.
“If SEMA is successful in getting companies to adopt its standards, then this challenge will become less intense by the end of the forecast period,” she added.