Car Audio Prospects Look Upbeat In First Half

By Amy Gilroy -- TWICE, 3/7/2005

Sidebars:
XM Raises Service Fee

After two years of declines in core autosound products, some industry members say there is cause for optimism for a strong first half this year.

January sales were up by many accounts, with some industry members seeing a “renewed interest” in autosound. Demand for the Apple iPod is also translating into improved CD receiver sales, by some accounts.

John Durbin, car audio product manager for Directed, said, “It’s a little early to tell, but we’ve gotten off to a pretty strong start.”

Alpine reported a record January and is already in back-order on many receivers. “It’s just flooring us because we thought we were really ready,” said marketing VP Stephen Witt. Step-up CD receivers over $250 are moving exceptionally well because of the iPod-ready feature, he said, noting that Alpine hopes to be out of back-order by the time this issue goes to press.

At Kenwood, “We’re definitely seeing a resurgence in audio sales, in in-dash CD, amplifiers, speakers and woofers,” said car electronics VP Keith Lehmann.

He noted that Kenwood’s dealers are seeing a car audio resurgence. “They are extremely bullish on the first six months of the year. Our first quarter is looking extremely promising versus last year, which was better than the year before. A lot of the growth is in audio, not to say that video is bad, but its hit a plateau in some ways as price erosion continues to take its toll. Navigation has continued to be a shining star — and this is step-up navigation — as awareness increases and as dealers learn how to sell a more expensive product.”

A TWICE poll of retailers found that the majority are expecting gains this half either in core car audio, in new categories, or both.

“We feel it is going to be a very strong year because of some key products [such as] real-time traffic navigation through Pioneer, and some vehicle integration products from some vendors that allow us to work more with head units,” said John Haynes, product manager for Al & Ed’s Autosound, based in Van Nuys, Calif. “There will probably be a decline in head unit sales but we believe we are going to be successful in increasing amplifiers and subwoofers as we move further and further into vehicle integration,” he added.

Bucking the industry trend, Omaha, Neb.-based Stereo West said it is seeing double-digit increases in its head unit sales. Owner Joe Cavanaugh, said, “A lot of customers are coming in with the idea of wanting to integrate their iPods with CD players. So we’re selling them units with auxiliary inputs or the specific interfaces such as those offered by Alpine.” He added that “satellite radio continues to be a very positive force on head units now that we’re getting units with tuners built in.”

At least one retailer claims that “tuners” are now returning to car audio. Mark Miller, owner of Westminster Speed & Sound in Westminster, Md., claimed, “A lot of the kids are tired of getting hassled [by police] about their tail light and loud exhaust, so they are going back to stereo equipment.” Miller said he was able to significantly boost core car audio sales last year by rearranging his demo boards to A-B an aftermarket CD player against stock vs. upgrade speakers. Most customers will add upgrade speakers after hearing the difference, he said, “even if they just listen to AM.”

“We screwed ourselves. I built a mobile video display and put a whole bunch of focus on it and remote start. But it derailed my focus on my core business which is the most profitable side of the store,” Miller said, noting, “2004 was the biggest year we’ve had, because I put the focus back on it.” Miller will lead a seminar on this topic at the MERA Knowledgefest in Louisville, Kent. month.

Traffic Jam, Campbellsville, Kent., said January was strong, but due only to heavy promoting, according to president David Hall.

Aftermarket Audio Summary
(In Thousands of Units)

Product	2004	2003	Chg.	2004	2003	Chg.
	Units			Dollars
Total Autosound	22,913,728	23,241,168	-1.4%	$2,010,754,251	$2,042,832,609	-1.6%
Total Speakers	9,183,619	9,598,844	-4.3%	$402,803,943	$434,755,709	-7.3%
Total Vid-Navi	982,954	952,740	3.2%	$448,084,017	$411,378,118	8.9%
Total Satellite Radio	5,953,229	2,237,949	166.0%	$414,881,591	$140,158,594	196.0%
Total Aftermarket Car Audio	39,033,530	36,030,701	8.3%	$3,276,523,803	$3,029,125,030	8.2%
Source: CEA ©TWICE 2005

Mobile Audio 12-Month Total Retail
(Percent Change, 2003 vs. 2004)

	Dollar Volume	Unit Volume	Average price
Total car a/v	-5.2%	-4.7%	-0.5%
In-Dash CD Players	-11.3	-4.4	-7.2
Car Stereo Cassette Players	-50.7	-47.1	-6.7
Car CD Changers	-39.6	-35	-7
Car Stereo Speakers	-5.7	-11.8	6.9
Amplifiers and Equalizers	-10.9	-9.4	-1.7
Mobile Multimedia	-19.3	-21.1	2.4
Mobile Navigation	144.3	129.6	6.4
CD Controllers	10.8	10.4	0.4
Car Package Systems	-36.2	-42.5	10.8
Satellite Radio Boxes	90.2	88.9	0.7
Source: The NPD Group ©TWICE 2005

XM Raises Service Fee

WASHINGTON — XM Satellite Radio announced it will raise its monthly service fee to $12.95 (up from $9.99) effective April 2.

The new service fee would match Sirius’ current fee.

XM will offer existing customers the opportunity to lock in the current $9.99 monthly rate with a two-, three-, four- or five-year prepaid plan, until April 2.

As part of the pricing shift, XM will now offer two premium services for free, or as part of the basic service plan. These include XM Radio Online (previously at $3,99 a month) and the High Voltage channel featuring the Opie & Anthony talk show (previously at a $1.99 per month).

XM also noted that since its launch it has added 51 channels and converted its music stations to commercial-free status.

Two key retailers polled by TWICE said the move would not hurt XM’s sales. Paul Gosswiller, purchasing manager for 120-store, Scottsdale, Ariz.-based Audio Express, said XM’s lower monthly fee “was always a minor point between XM and Sirius. Quite frankly, the $12.95 Sirius fee never slowed anybody down. I think XM tried to use [the lower price] as a big issue, but it isn’t that big of an issue for most people.”

Jim Warren, senior VP merchandising for 110-store, Seattle-based Car Toys, said he applauded the move. “Our stores haven’t seen price to be a major deterrent to satellite radio purchases, and we look forward to the yet stronger financial picture this move will bring to the satellite radio industry. Customers are really enjoying the service, churn is low, and we believe the market will easily bear this increase.”

Hugh Panero, XM’s President/CEO, said, “This new pricing approach will help fund future technology development, enable us to offer more attractively-priced radios, and maintain our programming excellence.”

XM also recently launched a third satellite which successfully sent its first signal an hour after liftoff, said the company.

The satellite, XM-3, will work in conjunction with XM’s two current operating satellites (XM-1 and XM-2) for several years, and eventually a fourth satellite will be launched and the first two satellites will be replaced, said a spokesman.