12-Volt Firms React To Woes Of Automakers

By Amy Gilroy -- TWICE, 12/1/2008

NEW YORK — Given the economy and the potential bankruptcy by one or more of the Big Three auto makers, TWICE asked members of the car stereo and navigation industry to assess how such a blow would affect their business.

The immediate impact would be devastating, said industry members, but almost to a man, each claimed that of bigger import are the overall sales in new cars this year.

Sirius XM operations and sales president Jim Meyer, said, "Sure, there's an impact in the short term. In the midterm, we have relationships with every single car company in the U.S. So while we would be very disappointed to see any of the car companies go bankrupt, we're well positioned in terms of our business with the new car makers period."

Even without a bankruptcy, iSuppli estimates OEM car entertainment and navigation will drop by a sharp $3.37 billion over the next two years due to slower car sales. This figure includes "lost revenue to the OEMs and their suppliers in entertainment, navigation and telematics," said Phil Magney, automotive research VP of iSuppli.

This is a significant blow to an industry whose OEM shipments were $5.3 billion in 2007, combined with aftermarket shipments of about $6.75 billion.

The issue of bankruptcy took center stage when CEOs from Ford, GM and Chrysler testified on Capitol Hill on Nov. 18 and asked Congress for a bridge loan of $25 billion. Congress has not yet approved the loan.

Privately, several 12-volt suppliers said a bankruptcy on the part of any of the Big Three automakers would be "devastating" to the car stereo industry in the near term.

Consumers would start to wonder which car maker might be next and would hold off on purchasing, fearing the warranty on a new car would not be honored. This could cause an even greater dip in sales, said one supplier.

Tom Murray, marketing VP for TomTom, said he believes personal navigation devices (PNDs) would not be directly impacted, as PNDs are add-on products that have reached only a 13 percent penetration of the 240 million U.S. cars on the road.

Audiovox Electronics president Tom Malone likened a Detroit bankruptcy to that of a Circuit City. "For those companies that do service the [auto] customers it would be similar to any large retailer that we service declaring Chapter 11. There's going to be an impact. If they are a large part of your business, it will have a large impact on sales. We are all watching Circuit City very closely for their developments, and we're watching the car companies just as closely."

Many 12-volt companies not only sell car radios to retailers but they also act as OEM suppliers to the car makers, providing radios in new cars.

The car stereo aftermarket has already been rocked by slower auto sales, a tough economy and competition from improved radios in cars.

It is not surprising then that Directed Electronics exited the mobile video, satellite radio (see TWICE, Nov. 17, p. 4) and car locator markets this year and Audiobahn closed its doors.

Following several years of decline in traditional car stereo sales, JVC merged this year with Kenwood, which sells mainly 12-volt products (see TWICE, Oct. 13, p. 6). Clarion became a subsidiary of Hitachi in 2006 and Delphi also recently exited mobile video.

In the 1990s, the autosound market weathered economic problems more easily because in uncertain times people held onto their cars longer and upgraded to a new CD player. But today, consumer awareness of aftermarket car stereo is off by a third from a decade ago, a fact that prompted car stereo companies to band together this year in a 12 Volt Initiative to raise awareness of car stereo products. The Initiative hopes to launch a campaign in the second quarter next year.

Smaller 12-volt suppliers are also reacting. Concept, a $12 million mobile video company, said it may add solar-powered home lighting to its product mix to help hedge its bets "if the bottom does starts to drop out," said sales and marketing VP Al Miller. He added, "This is a tough industry. Everybody in 12-volt is struggling whether you are supplying one of the car manufacturers or not. [A bankruptcy] would send a ripple because more people would be tightening their belts and hundreds of thousands would be out of work. It would be a tremendous blow."

iSuppli estimates the automakers will see U.S. sales of 13.3 million this year, down from 16.2 million in 2007 and a further drop in sales in 2009 to 12.7 million.