Continued Growth In Vehicle Modification Analyst Briefing

Unique & Sleek: Continued Growth in Vehicle

Modification

Mary-Beth Kellenberger, Senior ConsultantTonya Fowler, Director of Competitive Benchmarking Services

Automotive & TransportationJuly 22, 2008

2

Focus Points

• Uniqueness: The Driving Factor Behind Modification

• Background and Research Objectives

• General Population Study

• Modification Enthusiast Study

• Conclusions

3

Uniqueness: The Driving Factor Behind Modification

• Most enthusiasts, and as Frost & Sullivan’s research indicates, many general vehicle owners, see modern vehicles as a tabula rasa, a blank canvas that needs their added touch to make it complete.

• Modification is made easier by modern society’s access to:

• Design software

• Customized manufacturing

• Social structure that supports individuality

• The aftermarket modification industry produces retail revenues of more than $37 billion a year.

• Aftermarket modification is a growing industry as U.S. vehicle owners continue to expand the use of their vehicles or further deepen their appeal.

4

Background and Research Objectives

5

Background and Research Objectives

Frost & Sullivan conducted a similar investigation into vehicle owner modification

behaviours in 2006. The current study is an update to the 2006 study and

provides insight into behavioural changes between 2006 and 2008.

The primary objective was to measure the behaviour of U.S. vehicle owners who have

performed at least three aftermarket vehicle modifications within the past year.

Supporting this primary objective, this research:

• Measured the types of vehicle modifications typically performed

• Identified the level of experience among modification enthusiasts

• Delineated the modification process

• Captured modification spend and spending trends

• Determined who modification enthusiasts are – based on owner demographics and

vehicles brands demographics

General Population Survey• Web-based survey where respondents

were invited to participate• 1,000 U.S. vehicle owners• Data collected January to March 2008

Modification Enthusiast Survey• Web-based survey where respondents

were invited to participate• 505 modification enthusiasts, vehicle owners

who have performed at least three vehicle modifications within the past 12 months.

• Data collected January to March 2008

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General Population Study

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High Interest in Modification Amongst the General Population Survey

• Approximately 57% of the general U.S. population completed a vehicle modification in the past year.

• Tire modifications continue to be the most popular.

• The largest proportion own medium/large vehicles

• Vehicle owners across every segment (luxury, SUV, Medium etc.) perform vehicle modifications consistently.

• Those with higher incomes perform significantly more vehicle modifications

8

Vehicle Modification Process…Comparative Analysis

42%

14%

14%

12%

11%

10%

8%

8%

8%

7%

7%

6%

6%

6%

6%

4%

44%

38%

17%

16%

16%

13%

9%

7%

6%

9%

7%

8%

8%

7%

4%

43%

0% 10% 20% 30% 40% 50%

Tires

Electronics

Performance Brakes

Ignition System

Lighting

Accessories

Wheels

Exterior

Alarm System

Suspension

Fuel System

Air Intake

Performance Exhaust

Interior

Mounted accessories and truck accessories

Engine Modifications

None

2008 2006

No data available

No data available

Vehicle Modifications Among U.S. General Population

Source: Frost & Sullivan

With the exception of tires, alarms, and exterior, U.S. vehicle owners reported completing fewer modifications within each of the categories in 2008 versus 2006.

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2008 U.S. General Consumers: Vehicle Modifications by Vehicle Segments

1%18%4%12%4%6%Mounted Accessories and Truck Accessories

10%17%4%10%10%11%10%Accessories

SmallPickup Truck Minivan

Medium/ LargeSUV/ CUV

Luxury/ Specialty

Types of Vehicle Modifications

49%33%51%47%41%43%44%None

4%4%1%6%2%6%4%Engine Modifications

4%8%4%6%6%12%6%Interior

6%9%4%6%7%6%Performance Exhaust

5%11%6%6%9%6%Air Intake

6%8%4%8%4%9%7%Fuel System

5%7%4%9%7%9%7%Suspension

5%9%1%8%8%13%8%Alarm System

6%10%4%8%8%10%8%Exterior

7%7%2%10%8%12%8%Wheels

13%14%8%12%7%14%11%Lighting

8%18%7%13%11%12%12%Ignition System

13%13%12%14%11%17%14%Performance Brakes

11%16%7%15%16%15%14%Electronics

36%42%39%40%47%46%42%Tires

136 212 278 83 123

Vehicle Segment

Total Sample

Sample Sizes: 1661000


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Modification Enthusiast Study

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Uniqueness: The Driving Factor Behind Modification

Research indicates:

• The modification industry remains strong at this time despite concerns toward discretionary spending in light of the U.S. mortgage crisis and rising fuel prices.

• Enthusiasts in 2008 reported increased participation in vehicle modification through a rise in:

• Dollars spent

• Time allotted

• Skills

• The profile of enthusiasts has also changed. This year’s study revealed an enthusiast population more attuned to newer vehicles, luxury vehicles, and OEM parts.

12

More U.S. Modification Enthusiasts Report Modifying Domestic Make Vehicles Compared to Imports.

Import

42%Domestic

58%

Nearly six out of ten U.S. modification enthusiasts modified a domestic vehicle in 2008

13

Brand Representation in the Modified Vehicle Population

Note: General Motors and Ford Motor Company proportions

include all makes/brands - domestic or import.

1.6%

6.9%

11.0%

13.0%

23.5%

1.7%

5.3%

11.1%

24.3%25.0%

23.0%

19.5%

34.1%

0% 5% 10% 15% 20% 25% 30% 35% 40%

Others

Hyundai

Honda

Toyota/Lexus

Chrysler

Ford Motor Company

General Motors

% of Modified Vehicles % of VIO

• Domestic brands: GM, Ford, and Chrysler are the most popular amongst modification enthusiasts.

• Ford, Toyota and Hyundai brands have the same representation in modified vehicle population as they do in the VIO population.

• Honda’s presence in the modified population is higher than it VIO presence. This is likely driven by the high number of civics, accords, being modified.

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Vehicle Type and Enthusiast Classification

Vehicle Segment Distribution Among

Enthusiasts…Comparative Analysis

23%

22%

20%

17%

13%

3%

21%

20%

23%

17%

19%

0% 20% 40%

Luxury

SUV/CUV

Medium/Large

Pickup Truck

Small

Minivan/Van

2008 2006

Data not available


• In 2008, the percentage of respondents modifying luxury, and SUV/CUV vehicles increased.

• Respondents reporting modifying small vehicles dropped by approximately 6%.

• Enthusiasts used multiple categories to describe their enthusiasm, the following ranking represents enthusiasts classifications:

1. Light Truck

2. Classic Car

3. Hot Rod

4. Modern Vehicle

5. Tuner

6. Other

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Vehicle Modifications Completed in Past 12 Months…Comparative Analysis

83%

65%

56%

55%

53%

50%

49%

48%

48%

45%

45%

40%

37%

35%

33%

32%

78%

67%

54%

54%

52%

37%

39%

32%

51%

39%

36%

38%

32%

27%

0% 20% 40% 60% 80% 100%

Tires

Electronics

Accessories

Lighting

Wheels

Exterior

Performance Brakes

Ignition System

Suspension

Interior

Performance Exhaust

Air Intake

Alarm System

Engine Modifications

Mounted Accessories and Truck Accessories

Fuel system

2008 2006

Data not available.

Data not available.

Vehicle Modifications Among Modification Enthusiasts

Increase from 2006


In general, modification enthusiasts increased their participation across most of the product categories.

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Years Modifying Vehicles…Comparative

Analysis

8%

18%

31%

16%

29%

11%

17%

29%

18%

25%

0% 10% 20% 30% 40% 50%

Less Than 1

Year

1-2 Years

3-5 Years

6-10 Years

More Than 10

Years

2008 2006

Number of Vehicles Modified…Comparative

Analysis

15%

25%

21%

9%

30%

19%

20%

21%

10%

30%

0% 10% 20% 30% 40% 50%

1

2

3

4

5 or More

2008 2006

Experience of Modification Enthusiasts

Experienced Modification Enthusiasts

Experienced Modification Enthusiasts

76% of enthusiasts fall into the experienced enthusiast category.

In the long run, the industry will need new enthusiasts to sustain it. On both

measurements of interest, years modifying and number of vehicles, first time participants were down from 2006.


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2008 U.S. Modification Enthusiasts: Vehicle Modifications by Vehicle Segments

30%47%-27%41%28%33%Mounted Accessories and Truck Accessories

41%22%8%32%31%42%32%Fuel System


62%38%38%46%60%61%53%Wheels

SmallPickup Truck

Mini-van

Medium/ Large

SUV/ CUV

Luxury/ Special

-ty

Types of Vehicle Modifications

41%27%38%34%41%45%37%Alarm System

45%41%8%31%43%48%40%Air Intake

44%51%-31%54%50%45%Performance Exhaust

52%33%46%31%49%57%45%Interior

45%47%38%43%51%52%48%Suspension

58%43%31%44%50%52%48%Ignition System


59%43%46%45%52%54%50%Exterior

58%45%38%61%59%54%55%Lighting

58%45%54%59%58%59%56%Accessories

65%61%69%66%67%63%65%Electronics

82%78%77%84%91%80%83%Tires

115 111 101 13 88

Vehicle Segment

Total Sample

Sample Sizes: 66505Vehicle Segment Distribution Among

Enthusiasts…Comparative Analysis

23%

22%

20%

17%

13%

3%

21%

20%

23%

17%

19%

0% 20% 40%

Luxury

SUV/CUV

Medium/Large

Pickup Truck

Small

Minivan/Van

2008 2006

Data not available


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Vehicle

No

37%

Yes

63%

Nearly Two-Thirds of U.S. Modification Enthusiasts Considered The Availability of Modification Components When They Purchased Their Current Vehicle

Considered Modification Components When Purchased Current Vehicle


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Nearly Two-Thirds of U.S. Modification Enthusiasts Report Having Modifications Installed at Dealerships at the Time of Purchase

Modification Installed at

Dealership

(N=307)

Yes

64%

No

36%


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Type of Parts Purchased...Comparitive Analysis

37%

11%

6%

36%

43%

12%

9%

45%

0% 10% 20% 30% 40% 50%

Original equipment products

(OEM)

Aftermarket products

Japanese domestic products

(JDM)

Don’t know/can’t say

2008 2006

OEM Products Appear to Have Gained More Popularity Over Aftermarket Products Since 2006


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Amount Spent on Current Vehicle Modifications

11%

18%

24%

20%

20%

2%

4%

0% 10% 20% 30%

Less than $500

$501 to $1,000

$1001 to $2,000

$2,001 to $3,000

$3,001 to $5,000

More than $5,000

Don’t know/can’t recall

High Income Enthusiasts Spend Big Bucks for Modifications

Four Out of Ten Report Spending More Than $3,000

42% are “Moderate”Spenders

40% are “Big”Spenders


Annual Income…Comparative Analysis

12%

22%

23%

18%

18%

7%

12%

27%

29%

13%

12%

7%

0% 10% 20% 30% 40%

Less than $15,000

$15,001 to $30,000

$30,001 to $50,000

$50,001 to $80,000

$80,001 to $100,000

More than $100,000

2008 2006

36% of enthusiasts report incomes in excess of $80,000

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20%29%20%32%31%43%32%Fuel System

32%32%60%54%50%43%44%Electronics

SmallPickup Truck

Minivan Medium/

LargeSUV/ CUV

Luxury/ Specialty

Types of Vehicle Modifications installed by Dealer

16%25%-22%21%20%20%Lighting

24%21%40%32%29%43%32%Performance Exhaust

24%29%40%41%35%33%33%Ignition System


48%32%40%38%33%35%36%Interior

36%36%40%38%38%35%36%Suspension

24%25%20%27%48%50%38%Air Intake


44%57%40%51%38%41%44%Exterior

52%39%60%38%40%59%47%Alarm System

36%54%20%49%58%61%53%Tires

48%64%40%65%60%56%59%Wheels

54 48 37 5 28

Vehicle SegmentTotal Sample

Sample Sizes: 25198

Wheels and Tires are the Two Most Common Modifications Installed by the Dealers


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As Might be Expected, Air Intake and Tire/Wheel Modifications are Generally Completed First Due to Their Simplicity (Compared to Others)

2%1%17%It is an exterior modification that immediately impacts the vehicle’s look

15%11%12%It is a modification that I really like/value

235220390Sample Sizes:

1%-1%Don’t Know

--1%Other

18%17%11%It is a performance modification that immediately impacts the vehicle’s drivability

3%1%2%It is a modification that immediately impacts the vehicle’s resale value

20%8%11%It is a relatively expensive modification

8%10%8%It is a relatively inexpensive modification

21%8%6%It is a relatively complex modification

12%44%32%It is a relatively simple modification

EngineAir IntakeTires & WheelsReason for Completion


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Percentage Spend on "Show" vs. "Go" Features

9%

18%

46%

20%

5%

1%

1%

9%

42%

26%

12%

9%

0% 10% 20% 30% 40% 50%

0%

1-25%

26-50%

51-75%

76-99%

100%

Show Features Go Features

47% of Modification Enthusiasts report spending more than 51% of modification spending on “Go” Features.

Only 26% of the Modification Enthusiasts spend more than 51% of the modification expenses on “Show”Features.

Modification Enthusiasts Tend to Spend More on “Go”Features Compared to “Show” Features


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Theme is Important and Paint is the Most Commonly Used Component to Determine a Theme

Componenets That Help Determine Theme

73%

67%

60%

60%

56%

56%

56%

55%

49%

42%

38%

0% 20% 40% 60% 80% 100%

Paints

Interior accessories

Wheels

Exterior accessories

Seats

Engine

Body kits, spoilers, grill

Electronics

Suspension

Brakes

Neon and LED lighting

Choice of Theme for Vehicle Modification

(N=505)

45%

38%

17%

0% 20% 40% 60%

Yes

No, but I

develop a

general theme

or concept as I

go.

No, I do not

follow a

general theme

or concept.


26

Always/Almost Always Preferred Purchase Locations...Comparitive Analysis

46%

45%

39%

36%

34%

33%

32%

32%

31%

30%

30%

27%

43%

31%

37%

25%

21%

18%

19%

19%

17%

16%

19%

13%

16%

51%

0% 10% 20% 30% 40% 50% 60%

Automotive Retailer

Speed or Custom Shop

Internet Retailer

Independent Vehicle Service Shop

Body Shop

Car Shows

Mass Merchant

Salvage Yard

Swap Meets

Vehicle Dealership

Franchised Service Shop

Race Events

Warehouse Club

2008 2006

While Automotive Retailers Continue to be the Most Preferred Purchase Locations, U.S. Modification Enthusiasts Frequent a Variety of Purchasing Locales


In 2008, the internet retail channel was the third most popular purchase location.

27

Accessory Purchase Locations


Most Likely Source for Accessories

Product Modification (N=94)

29%

14%

11%

9%

9%

0% 10% 20% 30% 40%

Automotive Retailer

E-Bay or Other On-lineBidding Company

Speed or Custom Shop

Independent vehicleservice shop

Mass Merchant

On-line bidding services gain prominence as purchase location for certain types of accessories.

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Conclusions

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Conclusion

• Frost & Sullivan’s 2008 investigation into vehicle modification revealed that this hobby has strong appeal across a wide spectrum of vehicles and enthusiast types. This contributes to the sustainability of the industry.

• Enthusiasts in 2008 reported: • higher incomes

• higher spend levels

• higher skill levels

• and increased participation

• In 2008, cost appears to be less of a limiting factor than in 2006.

• The dealer channel has increased in importance since 2006. Much of that shift is being driven by many of the respondents recent new vehicle purchases.

• SUV/CUV and Pickup owners are strong participants. As the population of the these vehicles declines, it will be interesting to see if consumer’s interest in modification translates over to other vehicle types.

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For Additional Information

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Continued Growth In Vehicle Modification Analyst Briefing