High-End OE Integration Sales Slow

NEW YORK — It's a topic suppliers and retailers love to hate: original equipment (OE) integration. While it is hailed as the technology to bring autosound into the next decades, it is not selling as well as expected.

Retailers don't like OE integration because it requires time and money to become an expert at installing it. Suppliers complain that as many as 80 percent of the leading car stereo retailers do not actively push OE integration beyond simple iPod adapters. And many suppliers are frustrated with sales.

"We thought it would be bigger than it is. I think everyone's feeling the exact same thing," said Rob Wempe, Rockford Fosgate national sales manager.

"Every supplier of OE integration has experienced less-than-forecast sales," agreed Kenwood consumer electronics senior VP Keith Lehmann.

JL Audio CleanSweep and Alpine V-Hub sales are also selling below expectations, said their suppliers, and Harman Kardon has not yet released its MS-8 integration device after two years of market previews.

The problem is specifically with high-end complex OE integration devices that are designed to "replace" the CD player of today in dashboards that are increasingly unfriendly to radio upgrades.

Low-cost "specific use" OE integration accessories like iPod FM modulator kits at $29 are selling well, but estimated sales of high-end models are only in the 12,000 to 20,000 unit range for 2007. These include multi-connector devices from leading brands such as JL Audio, Alpine, Rockford, AudioSource, Kenwood and Mitek.

On the upside, some expect the devices will double in sales this year.

JL Audio is seeing a small upswing in sales in recent months and Alpine said demand for its newer, less expensive PXE-H650 ($399), introduced in August, is higher than expected and the product is on back order. Alpine also noted that many of the new OE integration devices did not begin shipping until after the first quarter.

Harman Kardon still plans to introduce the MS-8, but has been upgrading the product based on feedback from retailers. Chris Dragon¸ brand marketing director, would give no timeframe for the release but said the MS-8 will carry a retail of $799, including full sound processing.

Wempe said Rockford's 3Sixty "keeps getting more momentum every month."

High-end OE integration devices come in two basic flavors: "front end" models that allow the connection of many devices such as iPods, Bluetooth cellular phones, HD and satellite radio tuners into the car sound system; and "back end" devices that allow the addition of amplifiers and speakers to the car radio. But some "back end" devices also add "front end" integration and some iPod connectors allow limited connection to other devices.

Confused? That's the problem.

Manville Smith , JL Audio's marketing VP, said the term "OE integration" has "almost become a bad word," and the industry needs to take a simpler approach.

"A consumer might ask a simple question like "how can I get my iPod hooked up?" And dealers need to recognize that this is an opportunity to sell an entire system around that request instead of just a $29 FM modulator. It's no different than a customer 10 years ago who came in 'just for a tape deck' and ended up with a head unit, amp and speakers, too."

But OE integration is more complex than a tape deck. Retailers say they aren't getting enough information to pair the right OE integration device to thousands of products and hundreds of cars.

Rob Elliott, executive director of the ICE 12-volt buying group, said his members are concerned about suppliers staying "ahead of the OE integration curve to provide sufficient technical data in an understandable and easy to implement fashion. Many members are frustrated with the time and expense associated with this learning curve relative to the amount of profit and demand available from this category," Elliott said. About a half dozen retailers polled by TWICE voiced the same complaints.

Suppliers are complaining too. Many dealers believe they can get away with focusing on "fast-turning cash product" today, and they'll worry about OE integration in the future, according to Kenwood's Lehmann.

But the market shift is happening this year. CD players are declining more rapidly than expected, at a rate of 17.4 percent in year-to-date retail sales through September, according to The NPD Group.

This will be the first year that OE integration in the broad definition, including iPod and Bluetooth adapters, will hit shipment sales of almost $1 billion, surpassing single CD player sales to dealers of $750 million, according to the Consumer Electronics Association. It defines OE integration products as MP3/iPod integration units, aux-in adapters, universal controllers, FM modulators, cassette adapters and Bluetooth integration devices.

Put bluntly, the business of selling "great big boom systems has shrunk to the point where it is no longer a sustainable business," said Alpine marketing VP Steve Witt. "So retailers are faced with making choices. They need to be in the OE integration category, which means invest in … trial installations with customers to learn just as they did 20 years ago how to be a specialist in this new market."

In the future there may be one or two "go to" specialists in each market that have gained the ability to work on any car, said suppliers. To become that retailer requires an investment.

"You're going to run into cars that present problems and it will cost you some time and money, but the more of those you get under your belt, the more you learn, which is something your competition probably is not doing," added JL's Smith

Kenwood admitted that suppliers could do more to publicize OE integration and said it will begin advertising the products next year.