Car Navigation System Sales Stalled By Price

Car navigation sales will remain flat this year and are not expected to gain significantly in the near future because of the high price of the systems, suppliers said.

Often at $1,700 or better, in-car navigation systems are too pricey for the average consumer, even though awareness of the product has gained over the years, and many consumers would enjoy the convenience of owning one, suppliers admitted.

Suppliers estimate aftermarket navigation sales at anywhere from 25,000 to 40,000 units this year (for in-vehicle systems excluding handhelds). On the OEM side, sales are far greater, reaching 175,000 units in 2001, according to a report by J.D. Power.

In the aftermarket, however, the segment is not expected to grow beyond niche status in the short term because of high prices.

"Aftermarket navigation is basically not showing any significant signs of new growth, even with the new products being introduced," said Alpine marketing VP Stephen Witt. "The price-value relationship is still difficult for most consumers. Our sales are consistent with last year, and we see more early adopters coming into the market, but we are not expanding the reach beyond that type of customer."

Audiovox mobile electronics group senior VP Tom Malone agrees. "It's definitely a niche and what keeps it a niche is price," Malone said. "The bottom line is the customer has an interest in it and understands that it's available. It's just the pricing. Now $999 would be a really exciting price point for a full-featured unit, with POI [points of interest], color map, and nice sized screen for a CD- or DVD-based unit. Then you would double your business. Also at $999, you could compete with mobile video."

Alpine, Audiovox and Blaupunkt said that prices are not expected to reach that level, however.

Even the OEM market faces some of the same hurdles. Blaupunkt, a key OEM supplier, said factory sales could increase to 200,000 to 225,000 units, but the growth is mainly in luxury cars where navigation is standard equipment. In mid-priced cars, or other cars where navigation is an option (at $2,500 to $4,000), it's only in 2 percent to 10 percent, said Blaupunkt director of engineering Jim Frazier. "The question in consumers' minds is 'Can I justify the cost?' "

A spokesman for General Motors confirmed that the fitment, or take rate, on navigation in the Cadillac DeVille and Seville is only about 2 percent in the United States. But when combined with European sales, where the take rate is 40 percent to 75 percent, the worldwide average is 10 percent. Cadillac's new CTS model, offered only in the United States, is enjoying a 15 percent take rate, a spokesman said. In addition, Cadillac will expand navigation into its SUVs and trucks in the 2003 model year, he said.

Bob Law, Kenwood sales and marketing VP, said price relief may come to the aftermarket through economies of scale gained in the Japanese market. Law estimates domestic Japanese sales at 400,000 to 500,000 units.

"In Japan the pricing has dropped significantly and my expectation, based on that, is we'll see some movement in pricing here in the next 12 to 24 months," Law said. "There are new things that will allow for more functionality, that will make it more of an information device rather than just an electronic map. With the rollout of iBiquity next year, that system will be able to deliver data, such as traffic information, to the car, and that type of functionality will start to be more easily added."

Several suppliers said that navigation has also been forced to compete with mobile video, which has clearly won in popularity and has achieved price reductions based on volume. Some suppliers say that navigation will eventually become an add-on feature to a video system. But even in this format, price is a hindrance, said Blaupunkt product group manager Oliver Steinig, claiming an add-on navigation black box would cost $800 to $1,000, while consumers are only willing to spend $200 to $300. "The hope is to get the price down," he said.

Audiovox is already experimenting with price cuts that it claims are being met with positive results. "We just introduced a unit with a 5-inch screen at $1,499 retail, and we've seen a little jump in business," Malone said. "We're going to look to drive that down further, working on smaller margins, just to keep testing the water as to what price will start stimulating sales. We'll see if we can get some movement going in the category."

At least one retailer, Al & Ed's of Monterey Park, Calif., said that sales in the category have picked up dramatically since the chain made a commitment to the segment.

"Navigation is exploding," buyer John Haynes said. "We've made a full commitment to the category, including in-store displays and demo cars, and we've seen an incredible rise in business. We sell 30 to 50 units a month."

He said the increases are largely due to training salespeople to present the product better and providing incentives so that employees can purchase systems for their own cars.