Your browser is out-of-date!

Update your browser to view this website correctly. Update my browser now


Industry Debates GM Chapter 11 Impact

New York — Car stereo suppliers said the impact on retail sales of General Motors’ bankruptcy — made official this morning — will range from slight to significant, but auto sound sales are more dependent on car sales overall than the fate of any single company — even GM.

Some called the expected bankruptcy a short-term disrupter. Some said it will have a far-reaching impact, causing failures of parts and raw goods suppliers who might also serve car stereo manufacturers, leading to product shortages. Some said it will cause economic contractions in regional consumer markets such as Michigan and Illinois, which will, in turn, impact car stereo sales.

And then there is the fact that many car stereo retail suppliers also sell OEM car radios to GM and other car makers. Pioneer Electronics’ parent reported recently that OEM sales represented 41 percent of its total car stereo sales.

Leading OEM suppliers to GM include Delphi, Panasonic and Fujitsu Ten, by industry accounts. Several other aftermarket companies supply GM on a lesser scale including Audiovox and Clarion.

Audiovox said a GM bankruptcy would not have a significant impact on its business as did Eclipse Car Audio, the aftermarket branch of Fujitsu Ten.

“We’re watching the [overall] production rates more than anything,” said Audiovox Electronics president Tom Malone. The number of dealerships closing, the car brands sold off is not as critical. “Cars sold are really the key.”

Eclipse VP sales Mike Odle claimed, “I don’t expect it to impact our aftermarket business at all even through our expediter channels.” 

Fujitsu Ten’s VP Sales Chet Korzeniewski stated, “There’s absolutely no tie in between the OEM side and Eclipse.” Of the GM impact to Fujitsu Ten he said, “It’s not really a problem of bankruptcy. It’s the problem of volume. The bankruptcy itself won’t have any effect, it’s just the marketplace and the volumes.”

U.S. cars are now selling at an annualized rate of 9-10 million, down from more than 15 million in previous years, or a decline of 40 percent, which is expected, in turn, to cut OEM radio sales by a third, according to iSuppli. But iSuppli analyst Egil Juliussen believes car sales may have hit bottom for the year. “I’m saying I’m a little optimistic. I’m saying the second half [rate] will be 10 to 11 million or even 11 to 12 million, so you’ll come out with 11 million in car sales for the whole year.”

Juliussen adds, “I think the economy will be improving in the third and fourth quarters. We’re pretty sure. The consumer confidence rates are starting to go up. It’s almost the No. 1 item indicating where auto sales are going, or at least it has been in the past.”

He also noted that Chrysler’s bankruptcy appears to be short-lived and during its month-long reorganization sales fell, but not drastically.

“So I don’t think the Chapter 11 is going to hurt that much. By now most people have gotten used to GM going into Chapter 11.”

The Consumer Electronics Association noted that sales tend to fall immediately following a typical bankruptcy. “This is the greatest risk to any upstream supplier. However, the biggest blow to the auto industry has been the recessionary pressure on sales generally. We believe we’re reaching the trough for auto sales which means suppliers across the board should see things begin to improve as we move toward the back half of the year,” said a spokeswoman.

OEM radio sales this year could fall to 10.4 million units this year, down from 15.2 million in 2007, said iSuppli, noting some of these radios also include navigation.

A certain percentage of retail car stereo sales are aimed at new car buyers who want to add aftermarket products like an iPod adapter, navigation system or remote starter at a lower price than the factory option, and so these sales may be impacted in the short term.

Some say the car stereo market will continue to undergo a shakeout in suppliers as a result.

Malone admits “Are there too many brands? Yup, probably for the market as it is today.” He added that retailers are supporting fewer brands and narrowing their selections.

A GM bankruptcy might also disrupt the supply of raw materials used in car stereo products such as plastic and metal. “It’s like seven degrees of separation. Your supplier’s supplier may have a problem. It’s not good for anybody,” said one industry member.

Always the optimist, Mitek chairman and CEO Lloyd Ivey observed that a bankruptcy may improve GM’s health. “It’s the best thing that could happen to GM. It unshackles GM from … labor practices that have taken it out of competition on the world market. Everybody knows it and everybody’s afraid to say it. For GM it has to happen.”

As for other car stereo suppliers, Clarion concurred that its future relies on the general count in new cars sales, not on GM. Panasonic declined to comment.

Visteon, an OEM car stereo and auto parts supplier filed Chapter 11 bankruptcy protection last week.