A sonic boom

If an atomic bomb went off in your backyard, would you even notice? As absurd as this question seems, the mobile electronics explosion is taking on similar proportions in the traditional aftermarket's own "backyard." And from the sound of it, this market should no longer be ignored.

Those with knowledge of the segment say mobile electronics is a huge opportunity that traditional distribution is, for the most part, missing out on.

In fact, mobile electronics is growing so fast that the OEMs, who can't keep up, are expected to make it easier for vehicles to accommodate aftermarket mobile entertainment systems in subsequent years.

"I certainly think it's the type of industry that's becoming a little more of a commodity within certain categories," says Todd Hays, owner of Columbus Car Audio & Accessories, an Ohio-based mobile electronics retailer and installer. "The key is to be able to find what niches or products are hot right now."

The aftermarket for automotive entertainment systems and components in North America, a category that includes mobile electronics, is expected to grow 6 percent per year to $3.7 billion in 2010, according to Cleveland-based research firm The Freedonia Group, which adds that in 2005 that figure was $2.7 billion.

The aftermarket for total electronics products by 2010 will be $9.9 billion, the research group says.

Current popular items in this category include portable navigation devices (GPS), hands-free Bluetooth communication, remote starters (especially in the Midwest during the frigid winter months), satellite radio and HD radio — which converts a radio's signals to digital channels, offering AM and FM in CD-quality sound.

Perhaps the most prevalent of today's mobile entertainment options is iPod compatibility. Hays says not a day goes by that his shop isn't converting vehicles for iPod use. A number of OEMs are even taking note and are expected to roll out vehicles in upcoming years that include auxiliary ports into which an iPod can be directly plugged.

"In the next product cycle (four years) by 2010, every vehicle will offer either a jack or an iPod controller. It will be a standard radio feature," says Veerender Kaul, research manager for advanced automotive technologies for research firm Frost & Sullivan.

And mobility is what's driving today's motorists to install more mobile electronics. "People want to be connected every time, all the time," Kaul adds.

Real-time traffic information and lower price points have made portable navigation more popular than ever, with 2 million units expected to be ordered by the end of 2006 in the United States alone, according to Kaul.

Those we spoke with say portable navigation systems have long been popular throughout Europe and Asia, where city driving can be a tortuous experience.

In-vehicle mobile video continues to be a strong category, says Hays from Columbus Car Audio & Accessories, but "it probably peaked a few years back." However, "we still do quite a bit of mobile videos in our business."

Make noise for your customers

Popular items aside, the opportunities for mobile electronics are plentiful in the aftermarket, whether it's integrating mobile electronics into a retail storefront or selling these products to existing electronics installers and 12-volt shops.

"I think there's a great opportunity if that's how you want to change your business model," says Mark Boyle, aftermarket marketing manager for Visteon, which offers an array of mobile electronics products throughout the aftermarket and OEM channels.

There's even the possibility of convincing your repair shop base to consider installing mobile electronics.

Boyle points to a Detroit-based distributor that sells to about 15,000 smaller tuner shops across the country. This two-stepper decided to expand its offering from a hard parts inventory into a full line of electronics for the company's installer customers.

A clean showroom can provide prime space to showcase an interactive video game display for a driver's children to discover while a customer is waiting on a brake job or test driving a car at a dealership.

Boyle says Visteon has such a display available.

Aftermarket retailers also are encouraged to integrate this hands-on merchandising into their own operations.

Jim Spoonhower, vice president of market research for the Specialty Equipment Market Association (SEMA), says OEMs could even serve as channel partners in this segment, breaking down previous barriers and opening doors into unforeseen opportunities.

Unlike the U.S. distribution network, a high percentage of mobile electronics products go through the traditional channels in other areas of the world, like South America, says Frank Ordoñez president of Delphi Product & Service Solutions and vice president of Delphi Corporation. Why isn't that the case here?

"In this country, we have allowed the 12-volt installer to grow," he surmises. When appearing at speaking engagements throughout the United States, Ordoñez usually implores his audience with this question: "Why are you allowing this?"

Whatever route the traditional distributor or retailer takes, one important piece of advice is shared: do your homework and your research so you know what's popular and what you're selling.

The mobile electronics industry is certainly doing its homework. A number of these retailers and installers are taking cues from the traditional aftermarket as they widen their horizons to sell more non-electronics accessories.

For example, Hays says his business sells truck accessories and has sold spray-on bedliners in the past. Two growth areas of late have been moon roofs and leather interiors, he adds.

"We've literally tried to get in wherever we can get in," says Hays.

This leaves the traditional aftermarket wondering, "If the 12-volt guy can expand into shift knobs and things other than electronics, why can't the reverse be true as well?" asks Spoonhower from SEMA.

Many we spoke with say if the aftermarket does decide to get involved, now's the time. "In the next two to three years, if the aftermarket doesn't get going, they're going to give this away for good," posits Ordoñez

Electronics: The bigger explosion

To understand the importance of mobile electronics, it helps to look at the larger world of vehicle electronics. Today's vehicle has transformed from a mostly mechanical system to one where both entertainment and vital functions are at the mercy of electronic controls.

Electronic content as a percentage of total cost in automobiles has risen from 10 percent in the early 1990s to more than 30 percent in some vehicles, according to The Freedonia Group in a report published last November. This number is projected to be 45 percent of total vehicle cost in North American new light vehicles by 2015, the report adds.

Within the mobile electronics segment, installers encounter challenges similar to those faced by traditional repair shops that confront repair and diagnostic information. The Mobile Enhancement Retailers Association's (MERA) Your Ride Your Way campaign strives to educate the industry on how factory-installed systems often make upgrades and repairs complicated, an effort that mirrors the push for Right to Repair legislation within the traditional aftermarket.

A joint task force comprising MERA and the Consumer Electronics Association (CEA) has been collecting and sharing OEM information with its constituents.

Between some of this shared information along with special software, Hays says he has to rely on these resources on a daily basis just to crack open the dash.

A previous CEA report compiled complaints from mobile electronics installers, some of whom stated that integration devices sometimes cost more than the electronics being installed.

Lack of proper electronics integration can lead to higher failure rates in vehicles, asserts The Freedonia Group's report. "Whenever a new electronics subsystem is added to a vehicle platform, a separate control unit with its own sensors, software and microprocessors is installed," the report states. "Because of this approach, the amount of embedded software used in vehicles continues to grow at geometrical rates, which increases the chance of subsystem failures and the need for subsequent repairs."

The industry is working on a solution that relies on centralized computing power, much like the aerospace industry, The Freedonia Group adds, but "movement in this direction remains extremely slow."

In the face of these OEM compatibility concerns, Ordoñezsays we eventually should see vehicles that are more amenable for aftermarket electronics upgrades.

"That space in the vehicle is up for grabs between the aftermarket and the OEMs," says Ordoñez.

Boyle from Visteon says OEM/aftermarket compatibility of its products is one of the company's core competencies. Being on both sides of the industry, he says it's a lot easier to adapt the company's products accordingly.

Spoonhower from SEMA points out that within the development timeframe for a vehicle (two to four years), the mobile electronics for the same vehicle likely will have changed four to five times, which should have a hand in influencing OEMs to make their vehicles more compatible with electronics upgrades.

No volume knob is left unturned

As much as there's a compatibility issue with the vehicles themselves, electronics retailers and installers also have a working relationship with OEM dealerships.

The process is called "expediting," where the electronics installer works with dealerships to install infotainment products on their vehicles. This allows the dealerships to sell these items as upgrades while being freed from the inventory responsibilities.

Boyle says the majority of Visteon's mobile electronics business goes through expeditors.

Survival is key in the mobile electronics marketplace, because the mom and pop 12-volt shops — which comprise about 50 percent of the market, Spoonhower estimates — face fierce competition from all directions, whether it's big box retailers like Best Buy and Circuit City or the Internet.

The distribution channels in this marketplace aren't exactly cut and dry, as some retailers and installers buy directly from suppliers. Hays says his company buys at least 95 percent of its products directly from electronics manufacturers.

There are also a number of WDs throughout the country that specialize in electronics.

Ordoñez says a high percentage of Delphi's plug-and-play products go to the big box retailers; the installable items, like rear-seat entertainment, go through the 12-volt channel. Efforts to sell devices such as portable navigation systems through aftermarket retailers have been less than successful, says Ordoñez who adds the discount pricing structure sought in the aftermarket does not successfully transfer to mobile electronics.

Bluetooth takes a bite of the market

Wires are one of the motorist's worst enemies when it comes to mobile electronics. Entertainment and navigation are centered around a number of wireless protocols, but the most discussed these days appears to be Bluetooth, which is a standardized language for communication among portable devices.

With Bluetooth, a phone, an iPod and a car's stereo all can "converse" and interact, creating a smooth performance for the driver.

"It is only a matter of time before virtually all (portable) devices are Bluetooth enabled," MERA states in its July 2006 Industry Forecast.

The association also poses Bluetooth as a significant opportunity, as there will be a large quantity of used vehicles in the marketplace in three to five years without Bluetooth, along with a higher consumer awareness of the technology.

Bluetooth, says Ordoñez "is much more effective than other communication protocols."

Eventually, he adds, "the vehicle is going to talk to you, and you're going to talk to the vehicle," thanks to Bluetooth.

Bluetooth's popularity could also be spiked by state regulations restricting handheld phones in the vehicle. In 2008, the entire state of California will be hands-free, says Boyle.

A Visteon Bluetooth-compatible phone system addresses this problem. Integrated with the vehicle, when the phone rings, the radio is muted and the driver can have a hands-free conversation by way of a mounted microphone and the stereo speakers.

An industry of atomic proportions

To get a taste of just how big the mobile electronics industry is, one need only walk the floor of the annual SEMA Show, where this year 186 companies exhibited in the Mobile Electronics section. Almost 60 of these companies were first-time exhibitors, according to Spoonhower.

Going beyond vehicle electronic infotainment, the larger consumer electronics industry is absolutely massive. Ask any cab driver in Las Vegas, the trade show hotbed of the United States, which trade show is the biggest and most lucrative from their standpoint, and they'll tell you without question it's the Consumer Electronics Show (CES), held this month.

The electronics industry is one that simply can't be ignored.

Competitive standpoints aside, to successfully compete in this arena, as in others, you must ultimately look to the consumer. Because one thing resonates loudest with those we interviewed: The future of mobile electronics is in the consumers' hands, and the end user is firmly secured in the driver's seat.