The curious case of tire pressure monitoring systems

When the TREAD Act was passed in the United States Congress in 2000, there was much excitement in the automotive industry about the future of tire pressure monitoring systems (TPMS). The nascent technology was already gaining traction in luxury cars and the new legislation aimed at bringing all light passenger vehicles and trucks sold in the U.S. on board by 2007. TPMS suppliers and other value chain participants expected the new revenue stream opened in OE installations to translate into aftermarket replacements as well.

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The growth in direct TPMS replacement sensors has been strong. A new Frost & Sullivan report estimates that there were 4.5 million direct sensors shipped in the United States and Canada in 2011, compared to about 1.8 million units in 2008. This has taken the industry from about $20 million in revenues (measured at the manufacturer level) to $60 million.

That’s a massive 35 percent compounded annual growth rate in units but, surprisingly, expectations and projections were much higher at the end of the last decade. Actually, as impressive as the aftermarket development sounds, the replacement rate for direct sensors stood at a low two percent in 2011 for an installed base of 70 million vehicles in North America. 

So why is the market not seeing higher replacements? There are some obvious factors behind this trend. First, the main surge in the number of TPMS OE installations began in earnest from 2007. Given the fact that sensor batteries are expected to last between six to 10 years, a large percentage of the vehicle population still have functioning TPMS that do not require replacement.

Secondly, TPMS legislation in the U.S., unlike in European Union nations, is fairly vague about changing sensors, should they become non-functional. Essentially, the law largely absolves consumers of the burden of replacing sensors.

Furthermore, given the relatively high prices of sensors (they can retail anywhere from $100 to $600 for a set of four), the discretionary nature of replacements and the recent economic recession, it’s no surprise that consumers haven’t been more receptive. Often, vehicle owners in winter-prone regions forgo the purchase of new sensors for their winter tires, opting to swap them from their regular tires.

However, a major factor that is often ignored is the low participation and interest level from the independent aftermarket. To a large extent, past sensor technology has held back independent parts/tire distributors and retailers, and to certain extent, has restrained the overall market as well. A direct TPMS sensor for every vehicle model is unique — which means that to attract a wide customer base, independent installers and retailers would have to stock up on the huge breadth of sensor SKUs, creating inventory management headaches. As a result, brand-specific dealerships have had the lion’s share of the market in sensor sales so far.

Frost & Sullivan’s new report on the TPMS aftermarket shows that, going forward, the independent installers will be buoyed by the introduction of universal or multi-functional sensors, as well as higher levels of TPMS knowledge among retailers and installers. Universal sensors can be programmed to fit into most vehicle models, thus reducing the number of SKUs and allowing those independent installers to service any car that comes through their bay. Also, greater awareness among installers implies that these technicians will recommend sensor replacements to consumers. In combination with targeted marketing and sales strategies increasingly adopted by these independents, these trends will be able to get the market ready for the projected spike in demand between 2014 and 2016.