PALO ALTO, Calif. (June 7, 2004) — The market for custom wheels in North America should grow about 4.5 percent a year over the next several years, but intense competition by dozens of competitors is keeping a lid on pricing, according to a new study.
The market should reach $1 billion wholesale by 2009, up from $793.2 million in 2003, according to “North American Wheels Aftermarket,” a new analysis from Frost & Sullivan Inc. Wheels represent one of the largest and most expensive modifications made to a vehicle, costing an average of $1,500 per set at retail, the firm said.
“Vehicle customization is becoming increasingly popular among end users, and the proliferation of wheel style options supports this trend,” said Mary-Beth Kellenberger, Frost & Sullivan senior industry analyst. “The Internet has largely been instrumental in driving end-user interest in various wheel styles. In addition to prices and product comparisons, new software enables consumers to visually compare wheels on a computer image vehicle before they leave the house.”
Dealers selling custom wheels can choose from among approximately 145 suppliers, many offering the same styles and brands, according to the study. Of these, there are about five national and regional participants that enjoy strong brand recognition, leaving the others with the “daunting task” of establishing good brand recall, the authors said.
“Unless companies build significant brand equity among end users, price growth, and consequently, total potential revenue are likely to be restrained,” Ms. Kellenberger said.
Brand image and awareness of most of these companies have fallen to an all-time low, she said, making price the major competitive factor.
Also fueling the change has been the growth in the number of wheel makers in South Asia and Southeast Asia, she said, which coupled with low-cost labor and instantaneous communication via the Internet, provided alternative lower cost product.
At the same time, though, a growing number of private label products is coming from the same factories, making differentiation almost totally design-dependent.
With new wheel styles being released annually—or even faster, inventory management in the distribution channel becomes critical, she said, especially for those companies that depend on offshore manufacturers with long lead times.
“Continuous product development and changing preferences challenge an organization's ability to manage inventories effectively,” Ms. Kellenberger said. “(Distribution) companies need to increase inventory turnover in order to be profitable.”
Adding to the complication of differentiation, she said, no defined standards exist for North American aftermarket wheels, and aftermarket-only participants have gleaned costly standard-related steps from the manufacturing process.
“Visually, wheel quality is difficult for the average consumer to evaluate,” she said. “Manufacturers tied to OE standards are attempting to build recognition of the standards as a means of quality differentiation.
“Until such standards are widely recognized and valued, the North American wheel aftermarket is likely to continue its struggle against the increasing flood of poor-quality, low-priced products,” Ms. Kellenberger said.
The study is available from Frost & Sullivan (www.frost.com) for $3,000.