Rodrigo Olmedo's Pontiac Grand Prix is an entertainment center on wheels. When the 25-year-old General Motors employee bought his $24,600 car in 1999, the best audio system the dealer could offer was a $600 Bose unit with 11 speakers. Olmedo was not impressed.
Instead he went to an aftermarket retailer near his home in Waterford Township, Mich. He spent $13,000 to install a television, a DVD audio and video player, a compact disk changer, a Sony PlayStation, subwoofers and a karaoke machine. His car has 17 speakers, and he is saving for a $2,000 Alpine voice-controlled navigation system.
Thanks to such customers as Olmedo, the consumer electronics aftermarket is a tempting target for automotive suppliers.
According to one estimate, global automotive entertainment aftermarket sales are expected to total $8.5 billion by 2003. Suppliers such as Visteon Corp., Delphi Automotive Systems Corp. and Siemens Automotive are trying to enter this market segment.
But they face tough competition from such consumer electronics giants as Sony, Panasonic and Clarion, who already are maneuvering to exploit this market.
In fact, these companies hope to exploit their established brand names to sell original equipment to automakers.
'More companies are adding mobile multimedia audio and video technology to their product lines,' said Matthew Swanston, spokesman for the Consumer Electronics Association. 'We're seeing 10 to 30 percent annual sales growth in mobile video growth alone. Very few companies are showcasing traditional audio by itself.'
Plug and play
The U.S. multimedia aftermarket could grow even more tempting if a consortium of 12 automakers adopts common standards this year for in-car electronics hardware. A plug-and-play standard would allow consumers to install a variety of electronics equipment. That would speed up acceptance of new audio, video and telematics services such as cell phones with digital output.
Visteon, the $19 billion automotive giant in Dearborn, Mich., is trying to expand its multimedia sales. Visteon generates about $250 million in aftermarket sales of navigation, audio and video equipment in North America.
That is about one-fourth of the company's total aftermarket sales.
This year, Visteon hopes to boost multimedia sales dramatically with a burst of new products.
In January, Visteon introduced an MP3 music player that allows motorists to play back 10 hours of digital music. Visteon also hopes to establish a niche in the onboard computer market with ICES. That is an onboard computer that will allow drivers to access the Internet, e-mail, news, weather reports and stock quotes. It also will provide turn-by-turn navigation information.
And in the next three months, Visteon also will introduce a portable version of its NavMate navigation system, which will be sold primarily in auto dealerships.
Today, Ford dealerships generate most of Visteon's multimedia sales, although the supplier hopes to line up non-Ford dealerships, too. The company is not trying to market its products through consumer electronics stores, although it will not rule out such a move, said Bruce Weintraub, marketing manager for Visteon's aftermarket operations in Livonia, Mich.
Visteon has a different marketing strategy for its MP3 player, which will be advertised directly to consumers on Web sites that attract 18- to 34-year-olds. Outside North America, Visteon is beginning to enter the multimedia aftermarket. In November, Visteon displayed its rear-seat entertainment system at a Philippines trade show. Visteon sells rear-seat entertainment systems in Europe, and will market its MP3 players there, too. The supplier wants to expand its partnership with Kenwood in South America - where it makes radios for Kenwood - to Europe and elsewhere.
Weintraub says Visteon wants to introduce multimedia products to the aftermarket first to understand customers' preferences, then introduce the product to automakers. Establishing an exclusive partnership with Nintendo, he said, was a direct response to customer wants. Visteon's rear-seat entertainment system is the only mobile entertainment system that comes with a Nintendo 64 game unit.
The mobile video market will generate sales of nearly $2 billion in North America by 2003, Weintraub predicts. The aftermarket will account for more than $400 million of that. 'There's an immediacy' to the aftermarket, Weintraub said. 'There are programs that you start immediately and there are immediate revenue opportunities.'
Visteon hopes that its original equipment and aftermarket operations can complement each other. The company will not have to make a hefty investment in product development for the aftermarket because it already has designed these products for automakers. The company can test those products quickly in the aftermarket, then use those lessons to improve the product for automakers. That is what Visteon did with its voice recognition technology.
Delphi also wants to expand into the aftermarket. At an aftermarket convention in Las Vegas in November, Delphi announced plans to enter the U.S. aftermarket this year. The products will carry the Delphi aftermarket brand's new red oval logo.
'This is going to be a major challenge,' said Frank Ordonez, general manager for aftermarket operations at Delphi in Troy, Mich. 'Essentially, you're entering a brand-new market in which Delphi has traditionally not participated.'
Delphi's aftermarket products are available in Europe, South America, Asia, Canada and Mexico. Delphi's aftermarket sales - which includes batteries, brake components and electronics - totaled $2.5 billion, less than 10 percent of Delphi's total sales last year.
In North America, Delphi will focus primarily on electronics. New products will include an MP3 music playback unit plus a rear-seat entertainment system. This month, Delphi will market its mobile productivity center, which links Palm VII personal digital assistants to a cellular telephone. The hookup provides navigation and entertainment information. Delphi will sell these units through consumer electronics stores.
But Delphi and other automotive suppliers will have trouble grabbing shelf space from such well-established competitors as Sony and Panasonic. Candace Corlett, partner in WSL Strategic Retail, a New York retail consulting firm, says auto suppliers should develop unique product features that consumers want. Otherwise, she said, they will have to launch costly marketing campaigns to establish their consumer brands.
'The cost of launching a new retail brand name is so intimidating that people like Procter & Gamble have bought new brand names, rather than launching them,' Corlett said. 'You're talking about $75 million of advertising a year. That's the kind of money Sony and Panasonic are spending, and if you're breaking into the market, you have to have very compelling advertising.'
Retail analyst Walter Loeb, president of Loeb Associates in New York, said automotive suppliers would be wise to link up with an established retailer or retail brand. 'I would probably ally myself with a major retailer - a Wal-Mart, a Kmart, a Target - and try to produce a private label for them,' Loeb said.
That, in fact, is the new strategy of a leading aftermarket retailer of navigation systems, Mannesman VDO AG. The German electronics manufacturer - which is about to be acquired by Siemens - is expanding into the retail sector. The company was expected to announce a retailing partnership with sound equipment maker Audiovox during the Consumer Electronics Show in January.
Mannesman already has an aftermarket division, VDO Dayton, which makes navigation systems. But Sean Stanic, division manager for VDO Dayton Navigation Systems, says the company negotiated the Audiovox deal after concluding that building a retail brand name was a poor strategy. 'When you're pioneering, you spend a lot of money on advertising and marketing,' Stanic said. 'What we figured is that our money can best be spent on the design and engineering of products.'
Siemens Automotive, which traditionally has limited itself to the market for original equipment, will introduce its Palm-based navigation system through North American dealerships in 2001. Siemens is expected to complete its acquisition of VDO Dayton in March.
VDO Dayton offers a multimedia box that allows consumers to hook up in-vehicle televisions and videocassette recorders. This allows passengers to watch movies on a rear-seat screen. The in-vehicle systems all are controlled with one remote control. In the first quarter of this year, VDO Dayton will introduce a system that will allow consumers to hook up multiple rear-seat screens.
The company also is developing an Internet browser, an audio and video DVD player, and a voice-recognition navigation system. VDO Dayton will introduce its voice recognition system later this year. The electronics maker hopes to gain a competitive edge with a navigation system that delivers real-time traffic advisories to motorists. The company probably will introduce it this summer, said Sean Lanoo, VDO Dayton's North American product manager.
Although Siemens, Visteon and Delphi all are developing new products, it remains to be seen whether they are nimble enough to compete with consumer electronics giants such as Sony, Kenwood, Alpine and Clarion. The U.S. market's wary attitude to new technology is a significant barrier, says VDO Dayton's Stanic. 'Typically for a high-tech product, the U.S. is three years behind Europe and more like five years behind Japan,' Stanic said.
North America is proving an especially hard place to sell navigation systems. High prices and a lack of familiarity with the product are barriers. 'Right now, the American consumer doesn't want to pay $3,000 to $5,000 for a driver navigation and information system,' said Siemens spokesman Brad Warner. 'The perception of need just isn't there.'
Short shelf life
Another challenge: Products introduced into the consumer electronics market have a notoriously short shelf life. This will be painfully clear at the Consumer Electronics Show, the industry showcase in Las Vegas, Nevada. As always, the spotlight will be on multimedia products introduced by Japanese manufacturers.
Clarion Corp. of America in Gardena, Calif., is preparing to launch an improved in-vehicle computer this spring. It replaces the current voice-activated AutoPC, which provides information and entertainment in one unit. Because of its high price and limited utility, only a few thousand units found buyers.
'We found that we really had a more limited market for the first-generation product,' said Jack DeBiasio, director of engineering and technology for Clarion. 'People really wanted more entertainment out of the product. It seems like checking e-mail is one thing they don't want to do in the car.'
The Consumer Electronics Show's Swanston says lines between traditional auto suppliers and consumer electronics companies will blur as each invades the other's markets. Auto suppliers have one advantage, he said. 'The strength that they have over the traditional consumer electronics suppliers is that they're really good at integrating things into the car.'
But Clarion may yet determine how to penetrate this market. The consumer electronics makers have one major advantage over such newcomers as Visteon: an established brand. Consumers such as Rodrigo Olmedo look for these brands when they purchase aftermarket mobile electronics. To lure customers away from Alpine, Kenwood or Panasonic, automotive suppliers will have to engage in some costly marketing campaigns. And if they want to exploit the growth of multimedia, they will have to do it quickly.
After all, consumers like Olmedo have money to burn. Now that he has spent $13,000 on his car, Olmedo says he will probably spend another $1,500 'to finish it up.' At a time when suppliers are fighting for every dollar of revenue, that is a powerful lure.