Pioneer: Decline in New Sales May Help Demand for Aftermarket Car Upgrades

In response to the company's recent decision to exit the flat screen TV business Pioneer's (PNCOF.PK) shares shed 20% of their value on the Tokyo Stock Exchange this Past Friday. The analyst consensus behind the drop is a lack of faith in Pioneer's long-term restructuring plan, coupled with weakness in the auto industry impeding the company's plans to remake itself as a "car entertainment company".

I have to say that I don't fully agree with the latter reason because Pioneer's current car electronics business is heavily focused towards the "aftermarket", meaning that they're not so much dependent on people's ability to buy new cars as they are dependent on people's ability to finance upgrades to their existing cars. This is not to say that Pioneer wouldn't try to strike some OEM deals with car manufacturers, but to point out that there is already a huge market of customers who might look to Pioneer to upgrade their existing cars. Especially in situations where a consumer might not be able to afford (or justify) a new car, but could afford to purchase some aftermarket upgrades instead.

Anecdotally I know several people (myself included) who elected to just upgrade their existing cars instead of buying new ones, since the cost to do the former was a fraction of the latter.

Better yet the popularity of aftermarket upgrades and accessories is often driven by the consumer's desire to remake their existing car into something better than they could initially afford, and/or consumers wanting something better than what was originally offered in the car, as far as performance, audio, appearance, etc. As consumers turn to the used car market and/or keep their existing cars longer, the demand for aftermarket upgrade is likely to increase.

I.e. the decline in new car sales could actually benefit the market for aftermarket upgrades.

Either way it's a shame that the company that was manufacturing arguably the HDTVs out there was unable to turn a profit, primarily due to consumers being just as happy with lower priced yet inferior models. It's almost like Porsche being forced to make German Civics because they weren't able to sell enough Porsches to turn a profit.

Disclosure: at the time of publishing the author didn't own a position in any of the companies mentioned in this article; the ideas expressed are solely the opinions of the author and shouldn't be viewed as financial or investment advice.