Stratospheric fuel costs. Steep living costs. Erratic job market. Add that all up, and you’ve got one strapped consumer.
The average, middle-class buyer these days is spending every last dime on necessities. John Q. Public is foregoing the fun stuff in favor of the staples. Just getting there in one piece has become more important than enjoying the ride.
On the automotive front, sales of giant SUVs have been steadily declining because of painful fuel costs. Taking their place in new-car showrooms are smaller cars, hybrids and other alternatively fueled vehicles. But, gas and diesel prices aren’t just affecting vehicle sales; every product in the global supply chain costs more to ship. And, it’s end consumers, the last link of the chain, who ultimately bear the burden.
According to a recent survey conducted by the International Council of Shopping Centers, more than half of U.S. households say that gas prices have caused them to cut back on discretionary spending.
In other words, the bling is starting to sting.
Tire dealers that also sell custom wheels know that those bright, shiny objects are emotional purchases, based on desire rather than need. So, should dealers brace themselves for a drop in custom wheel sales? Or at least a move toward smaller, more fuel-efficient tire and wheel packages? Will big still be better, or will customers start to care more about the size of their wallets?
Despite the slings and arrows of consumer misfortune, the custom wheel market – and its profit potential – is spinning right along, according to some of the largest wheel companies in North America.
Full Speed Ahead
“Fuel economy is horrible right now, but nobody cares,” says Gary Zsaludko, assistant manager of the Wheel Pros wholesale distribution center in Cleveland. He believes the custom wheel market is more mainstream now than it has been in previous years. “It’s still 20 inches and bigger – all day, every day,” he adds. Wheel Pros is a national custom wheel distributor with 23 warehouses throughout the country and a corporate office in Denver.
“If we could squeeze a set of 20s on a Prius, it would sell,” concurs Frank Hodges, president of Lexani Wheel Corp. “People want style. The plus-size tire and wheel fitment delivers style and performance.”
Diko Sulahian, president of WTW Inc., the manufacturer of Giovanna wheels, compares the custom wheel market to the fashion industry, saying, “people always have the money to buy cool new toys.”
Custom wheels are “impulse buys,” he says, and adds that he has seen a 20% increase in sales this year for the wheel brands Giovanna, Gianelle, GFG and DBLG.
What about the weight – and therefore fuel – savings that smaller-diameter wheels can offer? Hodges says: “For many of the SUV applications, the larger diameter tire and wheel fitment is just as efficient as the factory fitment. If there is any slight increase in weight, the reduced rolling resistance of the lower profile tire will make up for the difference.”
Sulahian dismisses any suggestion that consumers will start to demand smaller, more fuel-efficient tire and wheel packages. “As the OEMs now design and engineer vehicles with plus sizing in mind to appeal to the enthusiast public, I think we’ll just continue seeing larger wheels on cars and trucks,” he says. In fact, WTW recently introduced a 30-inch wheel and is launching an even bigger size at the SEMA Show this year. “I think sizes will never get smaller,” says Sulahian.
He does, however, believe there will be a push toward wheels that weigh less – not due to size but construction – and says that three-piece wheels have recently become more popular. “I have always kept the wheels as light as possible without compromising load-capacity requirements,” he says. “I usually don’t exceed the factory/tire weight combinations by more than 10% in difference.”
Mike Stallings, owner and president of Wheel Vintiques Inc., tempers some of that optimism. Though he has seen a 15% boost in his business this year, he credits most of that growth to the specialized niche in which his company operates.
“We reproduce the 1960s and 1970s wheels for the muscle-car nuts, and it makes a difference for us in sales,” says Stallings. “Our customers in the last 18 years since I started this company do not seem to be affected much by what goes on in the economy.”
For less specialized wheel makers, it’s a different story, according to Stallings. “Detroit is determined to have all of the market in the way of wheels and is well on its way to getting it,” he says.
“The hardcore guy knows the difference between our stuff and Detroit’s stuff,” Stallings says. “I’m sure the poor guy in the aftermarket chasing the late-model market has been almost destroyed in the last three years.”
OE Impact
So, what about Detroit? Has the “poor guy in the aftermarket” suffered, as Stallings believes? Indeed, as automakers began offering sportier wheels as original equipment, industry observers predicted that the aftermarket custom wheel segment would be seriously dented.
Interestingly, the wheel manufacturers we interviewed for this story don’t see carmakers – or car dealers – stripping away major custom wheel profits from tire dealers – yet. Some think OE involvement in the custom wheel market actually benefits independent tire dealers.
Sulahian claims that only 10% of new cars purchased at dealerships are sold with aftermarket wheels and tires. “Additionally,” he says, “the car dealer markup is usually so high that the purchasers of the new vehicles will shop and end up buying the wheels and tires from an independent tire dealer.”
Lexani’s Hodges goes so far as to say that “OE high-performance applications are a great thing for the independent tire dealer. This actually creates a profit potential.”
OE strongly influences replacement in almost every segment, and Hodges believes custom wheels are no exception. “Selling a replacement 235/45ZR17 is much more profitable than a 195/65HR15,” he says. “The same is true for wheels. Moving from a 16- or 17-inch to a 20- or 22-inch is going to improve the dealer’s margin.”
Hodges also says that tire dealers should consider new-car dealerships customers, not competitors. “Many of their vehicles are fitted with aftermarket, plus-size wheels and tires,” he says. “These are usually sold to them by a local, independent dealer.”
Ronald Escue, vice president of sales and marketing at Enkei International Inc., agrees. “The ongoing OE presence, coupled with new-car dealership changeovers at the time of sale, have added fuel to the fire and legitimized the custom wheel aftermarket,” he says.
Zsaludko is confident that “there will always be a replacement market. Nobody wants to look like anyone else. That’s what customizing cars is all about.”
Then, there’s the service factor, which works in favor of up-to-date independent dealers. “Most car dealerships are afraid to demount and remount a 22,” says Zsaludko, “and many don’t have the equipment to service 22s and 26s.”
Crowded Market
Still, even the best servicing dealers can’t afford to be smug in such a crowded marketplace; there are hundreds of wheel manufacturers in North America and countless wheel sellers.
“The trick is for the independent tire and wheel dealer not to carry the cheap, low-end, imitation wheels,” says Sulahian. “If independents carry the desired quality products that are offered by car dealers, they can take those sales from the car dealerships.”
Stallings, too, says that dealers need to carry a wide variety of high-quality custom wheels to succeed in the aftermarket biz. “Tire dealers nowadays have to be more diversified if they are to continue in business,” he says.
Easier said than done. Custom wheel sellers today must deal with at least five specifications: wheel diameter, bolt pattern, rim width, backspacing and offset. Because of the numerous variations in these specifications, each new custom wheel can add as many as 50 stock numbers to inventory, according to SEMA.
On top of that, retailers have to contend with hundreds of styles, colors and constructions. The once-simple steel wheel has proliferated into thousands of types of high-tech molded, forged, billeted aluminum and alloy constructions that are polished, chromed or powdercoated.
Where to begin? Sulahian suggests that dealers “concentrate on a few well known wheel brands as eye candy to customers walking in and offer other affordable options. When an independent tire dealer has a catalog rack full of 200 to 300 different wheel manufacturers, all that does is confuse the customer, and he leaves confused.”
A smart stocking strategy is based largely on past sales histories and some trial and error, according to Zsaludko. “Dealers should stock what’s hot,” he says. “But, it’s always good to have a few supply chains on hand because everyone has different tastes.” Zsaludko says his warehouse offers same-day or next-day delivery to dealers in Michigan, Pennsylvania, Ohio and New York, as long as the requested wheel is in stock. “If I have to build it, I can deliver in four to six weeks. If I have to custom drill it for a different bolt pattern, I can get it there in 48 hours.”
Zsaludko recommends that retail dealers stay in close contact with their wheel suppliers, calling them often to find out what’s hot and what’s not. No matter how high tech and complicated the custom wheel industry becomes, success for aftermarket dealers will always come down to maintaining good old-fashioned supplier relationships.
And, since many custom wheel purchases are impulse buys, not having a wheel in stock and telling customers it will be weeks before delivery will likely mean lost sales. So, paying attention to sales trends is critical.
Supplier Outlook
What can tire dealers expect to see from wheel suppliers in the coming months? For starters, just like tire manufacturers, wheel companies, too, have had to hike prices to keep up with escalating raw material costs.
“Aluminum has risen more than 50% in the past year, copper has tripled and nickel has, as well, seen three-digit increases in the past 12 months,” says Enkei’s Escue. “At some point, the increases are passed to the consumer.”
Stallings says that steel prices have risen 300% within the last 24 months. “We have had no other choice but to pass it along to the consumer,” he says.
“As the cost of materials seems to increase daily, it is increasingly difficult for custom wheel manufacturers to remain competitively priced and simultaneously profitable,” says Sulahian. “So, most manufacturers offer a commodity brand to supplement their luxury brand offerings with volume sales.”
One market research firm predicts that wheel manufacturers will produce more styled custom steel wheels in the near future. “Aluminum wheels will continue to remain the most prominent market segment, dominating the light vehicle market, but are likely to lose a portion of marketshare to styled steel wheels from 2006 to 2012,” said a Frost & Sullivan research analyst in a June 2006 release.
Because of recent advancements in manufacturing technologies, wheel companies are able to manufacture steel wheels that resemble aluminum ones in looks and weight, all at a reduced manufacturing cost, the report concludes.
Counter Culture?
So, the future of the custom wheel market, according to several large wheel companies, remains bright, despite the pain of living costs and a struggling middle class.
It’s an anomaly that begs for explanations. Maybe it’s the low-end consumer – exclusively – that is being pinched by economic forces, while the affluent still has plenty of money to spend on objects of desire. Perhaps there will always be a market for some luxury purchases. Maybe consumers are in a temporary state of denial, still clinging to the old days of unbridled spending.
But none of that really matters to the independent tire dealer who just wants to know if he should continue to invest in stocking and promoting those pricey, delicate custom wheels that are so difficult – and expensive – to service.
For now, the answer from wheel companies is “absolutely.”
Whatever the future holds, it’s always important for managers and owners to approach every business decision with astute, cautious optimism. The custom wheel market is no exception.
