Industry Paper - THE MIDDLE EAST AFTERSALES INDUSTRY

THE MIDDLE EAST AFTERSALES INDUSTRY
TRENDS & OPPORTUNITIES
Frost & Sullivan–Exclusive White Paper
Prepared forTraditional Process
Challenged – Driving
Profitability through Global
Best Practices is The Key

2
Table of Content
VEHICLE SALES REVIEW
VEHICLE IN OPERATION (VIO) REVIEW
SPARE PARTS REVIEW
AREAS OF OPPORTUNITY
ABOUT FROST & SULLIVAN
06
08
11
15
23
CRUDE OIL SCENARIO AND IMPLICATIONS 03

3
What do lower oil prices mean for GCC Economies?
• Real growth would be affected by changes in oil production (oil sector) and government spending (non-oil sector)
• All regional budgets are still heavily reliant on oil. Increased expenditure in recent years has pushed up the ‘break-even’ oil price
• Fiscal policy stance in the region is becoming more prudent as oil prices remain lower for longer
• Interbank rates rose sharply in 2015 on tight liquidity. We expect conditions to remain challenging in 2016
3.2
3.4 3.4
2.6
3.2
-
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2013 2014 2015e 2016f 2917f
%y/y
GCC Real GDP Growth• Already measures announced to mitigate loss of oil
revenues:
• Cuts to fuel subsidies
• VAT to be introduced at 5% in 2018
• Airport, housing taxes
• Corporate taxes proposed in several GCC countries
• Raising government bond issuance, syndicated loans
• Capex remains protected for now, key projects in the UAE
and Qatar related to Expo 2020 and FIFA 2022 moving
ahead.
Source: Bloomberg, Markit, Emirates NBD Research
Click for TOC

4
What do lower oil prices mean for GCC Economies?
Contd…
• Growth estimated at 3.4% in 2015, forecast 1.9% in 2016
• Budget deficit to narrow to -13.9% of GDP this year from -15% in 2015
- Energy subsidies cut in 2016, further cuts likely before 2020.
- Increased focused on raising non-oil revenues through taxes/ fees.
• Financing the deficit is not problematic in the short term
• Privatization proceeds expected to help plug deficit gap.
Saudi Arabia: Under
scrutiny
• Capital spending likely to be maintained for now
- Expo 2020: Infrastructure spend of at least AED 22bn (official est.)
- Tourism/ hospitality strategy: target 20mn tourists p.a. by 2020. The supply of hotel rooms in Dubai
increased by 6.7% y/y in 2015 to 79,002 rooms (target: 140,000 to 160,000 hotel rooms by the end of the
decade).
- Dubai Economic Tracker showed business activity in March move back into positive territory after
slipping in February.
• Cuts in subsidies and government transfers on the cards
- Cuts to foreign grants
- Increased fees and indirect taxes – housing taxes, airport taxes
- Reduced subsidies on fuel and utilities by 6% in 2015
UAE: Diversification is
paying off
Source: IMF, Haver Analytics, Markit, Emirates NBD Research
Click for TOC

5
The global crude-oil market is moving toward balance. Crude oil prices
will gradually recover
• Oil prices will remain under considerable pressure in 2016 but ultimately a
rebalancing in fundamentals will exert limited upward pressure
• A repeat of 2015's strong demand gains are unlikely but we are confident that
consumers won't think twice about filling their tanks
• Failure among producer nations to reach a production freeze agreement reopens
market share battle within OPEC with anticipation that Iran will add new volumes
• In the longer run the global crude-oil market is moving toward balance. Crude oil
prices will gradually recover
Click for TOC
Source: IMF, Haver Analytics, Markit, Emirates NBD Research

7
Vehicle Sales—Review
…oil prices and limited government investment negatively impacting vehicle sales in 2016 in the GCC countries; in Yemen, Syria and Iraq
market potential already reduced to half, however, in most of the ME countries we expect nearly double digit growth from 2017
1.8
2.2
1.2
1.90.2
0.3
3.2
4.4
-
1.0
2.0
3.0
4.0
5.0
2015 2020f*
SalesinMillionUnits
Light Vehicle Sales, Middle East, 2015-
2020f
GCC Iran RoME Total
• We are expecting overall CAGR of 9.1%
• The GCC countries likely to grow at 8.5% CAGR,
however 2016 would see decline in vehicle sales, a
recovery is expected 2017 onwards
• Iran is ready to lead the region with near double digit
growth expected in next 5 years
• RoME is mainly driven by market recovery in Jordan
and Lebanon. We also expect Yemen to get back to
business as usual by 2018 (pertinent to note that
Yemen sold 22,355 vehicles in 2014 which has come
down to 7,760 in 2015, similar was the case with Iraq
with 44% drop in overall sales [year on year])
• At overall level RoME likely to post +14% CAGR by 2020
Source: Frost & Sullivan Analysis
(*) f=forecast; GCC = Gulf Cooperation Council
CAGR = Compound Annual Growth Rate
Click for TOC

8
Vehicle In Operations—Review
…growing VIO with movement towards higher warranties offered by OEM to retain customers for longer period at authorized dealerships –
this is already been challenged by regulators (changing market dynamics)
14.6
19.4
16.9
20.9
3.3
4.2
34.8
44.5
-
10.0
20.0
30.0
40.0
50.0
2015 2020f*
VIOinMillionUnits
Light Vehicles in Operation, Middle East,
2015-2020f
GCC Iran RoME Total
(*) Limitation: VIO details for Iran also includes commercial vehicles, which is estimated to
be around 8-9% of total vehicle parc; f=forecast
CAFÉ = Corporate Average Fuel Economy
• Most of the GCC countries does not allow imports of
more than 5 year old vehicles, hence overall share of
used vehicle imports is negligible in the VIO, however
RoME has large share of used vehicle imports (specially
in countries like Iraq, Yemen, Syria)
• In terms of overall growth in VIO, the GCC likely to
witness CAGR of 5.8% (2015-20) where as Iran likely to
grow at CAGR 4.3%. Iran expecting to scrap 3-4 million
vehicles by 2020
• In terms of segments >50% GCC VIO is dominated by
SUVs and Pickups whereas the share of SUVs and
Pickups in Iran is less than 8%.
• The recent CAFÉ implementation in KSA likely to have
major impact on VIO by year 2020, we are expecting
SUV/Pickups to drop by 10-12% due to CAFÉ regulation
Click for TOC

9
Vehicle In Operations Review—Age Breakup
…average vehicles age in Middle East is around 7.8 years, lowest being in Qatar (at 6.9 years) and highest in Yemen (10+ years). Most
of the middles eastern countries still operate >15 year old vehicles which has 10.8% share in VIO (highest in Yemen, Syria)
37.7% 41.6% 36.5%
26.9%
30.7% 25.7% 35.5%
28.7%
20.8% 25.0% 16.5%
23.6%
10.8% 7.7% 11.5%
20.8%
Total ME GCC Iran RoME
VIOShareinpercentage
Age of Light Vehicles in Operation,
Middle East, 2015
Less Than 5 years 6-10 Yrs 11-15 Yrs More than 15 yrs
34.8M 14.6M 16.9M 3.3M
40.4% 41.8% 39.6% 38.5%
28.1% 31.3%
26.5%
20.9%
22.7% 19.4% 25.8%
22.3%
8.8% 7.5% 8.1%
18.3%
Total ME GCC Iran RoME
VIOShareinpercentage
Age of Light Vehicles in Operation,
Middle East, 2020f
Less Than 5 years 6-10 Yrs 11-15 Yrs More than 15 yrs
44.6M 19.9M 20.9M 4.3M
(*) Limitation: VIO details for Iran also includes commercial vehicles, which is estimated to
be around 8-9% of total vehicle parc; f=forecast; M=Million
Click for TOC

10
Vehicle In Operations Review—Application Dominance (Iran excluded)
…in terms of dominance, the GCC and RoME market is largely dominated by Japanese applications, however Korean applications are very
fast picking up
(*) Limitation: VIO details for Iran also includes commercial vehicles, which is estimated to be around 8-9%
of total vehicle parc; f=forecast
52.2% 48.0%
25.7% 30.0%
14.9% 11.0%
3.2% 5.0%
4.0% 6.0%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2014 2020f
VIOSharebycountryoforigin
Market Share Analysis, the GCC & RoME,
2015-2020f
Other brands*
European brands
US brands
Korean brands
Japenese brands
European OEMs are set to increase market share in luxury
segment due to strong brand image and increasing focus
on fuel-efficient technologies in the region. However, high
maintenance cost is expected to hinder sales.
Other brands, such as Geely, Great Wall etc., are expected
to gradually gain market share due to price
competitiveness and improving brand image.
US brands are expected to face challenges in terms of
portfolio adjustment as a result of growing focus on
smaller and fuel-efficient vehicles.
Korean brands are expected to gain market share until
2020 thanks to improving brand image and low parts
pricing.
Japanese OEMs likely to drop market share as a result of
drastically growing competition from Korean brands. Parts
pricing and maintenance costs are expected to have a
negative impact on overall performance.
Source: Frost & Sullivan Analysis*Other brands include Geely, Great Wall etc.
**Does not include Iran
Click for TOC

11
Spare Parts Demand
…total spare part demand in Middle East estimated at US$ 12.98 billion (2015), expected to reach US$ 17.27 billion by 2020
…part per vehicles are highest in UAE (US$ 512) with an overall average of US$ 373
7.19
9.84
4.67
5.951.11
1.48
12.98
17.27
0.00
5.00
10.00
15.00
20.00
2015 2020f*
SparePartValueinUS$
Spare Parts Market, Middle East, 2015-
2020f
GCC Iran RoME Total
• The overall Middle East spare part industry expected to
grow at CAGR 5.9% (15-20)
- The GCC = 6.5% CAGR
- Iran = 4.9% CAGR
- RoME = 6.0% CAGR
• Parts Per Vehicles (PPV) estimated at $493 for the GCC,
$277 for Iran and $333 for RoME, overall we are
expecting 4-5% increase in PPV by 2020.
• In the GCC, Saudi Arabia and UAE together dominate
72.5% market share where as RoME led by Jordan and
Lebanon with +70% market share
Note: For Iran it includes part fitted with locally assembled
vehicles whereas for all other countries it is replacement
demand
The market revenue does not include labor and accessories
f=forecast
Click for TOC

12
Spare Parts Demand (Continued)
…Increasing VIO directly impacting the spare parts demand
…Total spare parts market in the region estimated at $12.98 billion in 2015, likely to reach at $17.27 billion by 2020 (CAGR 5.9%)
Revenue (2015) Revenue (2020)
CAGR
(2013 – 2020)
Tires $2,672 $4,278 9.9%
Batteries $1,090 $1,393 5.0%
Brake Parts $977 $1,567 9.9%
Filters $448 $789 12.0%
Starters & Alternators $406 $419 0.7%
Lighting $214 $252 3.3%
Wheels $256 $378 8.2%
Exhaust Components $142 $311 16.9%
Spark Plugs $189 $306 10.1%
Others $6,583 $7,573 2.8%
Total $12,977 $17,265 5.9%
Spare Parts Revenue by Category, Middle East, 2015–2020f
Note: Others include Steering System Hard Parts, Reman'd Engine & Transmission, CV Driveaxle & Boot Kit, Reman'd Rack & Pinion Steering Gear, HVAC & Engine Cooling Components of Commercial Vehicles, Class 6-8 Truck Powertrain
Systems & Components, Class 6-8 Truck Chassis Systems & Components, Tire Pressure Monitoring Systems, Light Vehicle Exhaust Emission Control Systems, Fuel Delivery Systems, Engine Control Units, Ignition Parts, Automotive Sensors,
Ignition Wire Sets, Class 6-8 Engine Components, Reman. Engines and transmissions, Selected Fractional Horsepower Motors, Fuel Injectors, Fuel Pumps, Selected Automotive Reman'd Pumps, Sports Compact Underhood components, Belt,
Hoses, Gaskets and Seals, Battery, Carburetor, Gauge, Internal Engine Hard Parts.
Note: For Iran it includes part fitted with locally assembled vehicles whereas for all other countries it is replacement demand
Note: All figures are rounded. The base year is 2015. Source: Frost & Sullivan Analysis
• Tires & Batteries has high demand in
GCC countries due to adverse climate
conditions
• If we exclude Iran then most the parts
(excluding Batteries) are imported in the
GCC and RoME
• The import duty varies from 5% to 12%
depending on part categories
• Limited restrictions for importing parts in
Middle East (except Iran)
• Large share of the market controlled by
few business families
The market revenue does not include labor and accessories
f=forecast
Click for TOC

13
Spare Parts Demand—Channel Analysis (excluding Iran)
…6 routes exist for supply of parts in the Middle Eastern Aftermarket with increasing competition from Branded and
Other After Market Parts
Parts Supply
Genuine Parts
Branded Aftermarket
Parts
Other After Market
Parts
Imports
Counterfeit
System Suppliers
Note : OES – Original Equipment Spares
OE Parts – OE fitted brands supplied in independent after market
Alternate parts – Brand other than OE brand supplied in the independent after market
Spurious – Products which are not original and branded as original popular brands in the market
Imports – It includes domestic imports, which means a part is directly getting imported from the country of origin without involving local operation other supplier
System suppliers – They supply the brand under their name eg. Bosch braking products – Example : Bosch Chassis Systems supplying brake components
Domestic Imports
34.5%
23.4%
13.1%
12.8%
14.1%
2.1%
Total Value: $8.30 billion
(excluding Iran)
Iran details not known, almost 60% of parts are imported
from China and most of those are low quality parts
Note: All figures are rounded. The base year is 2015. Source: Frost & Sullivan Analysis
The Genuine Parts, Branded Aftermarket Parts are the categories accounts for nearly 58% in total part sales
Click for TOC

14
Spare Part Demand—Channel Analysis (Continued)
Aftermarket Structure for Parts Supply (Can be represented differently for different countries in the GCC)
Service
Channel
Dealer / Distributor
Counter Sales Wholesale
Customer
OES / OEM’s Partner
Sub WS Retailer
Fleet /
Garage
Export
OES Second Brand OE Parts Non-genuine (China)
Domestic
Imports
Distributor/Importer
Sub WS Retailer Export
Retailer
Fleet /
Garage
Customer
Parts Suppliers
Tier-2 Tier-4Tier-1 Tier-3 CustomersTier-5 Exports
Retailer
Fleet /
Garage
Fleet /
Garage
Click for TOC

16
Areas of Opportunities – We are taking one area for the discussion today
• Accessories
• Car Rental & Leasing
• Mobile Quick Wash and Door to Door Services
• Car Spa
• Quick Service Centres and Body Shops (multibrand)
• Mobility Solution
• Online Retail
• Organized Waste Management – Petrochemical

17
Typical Profitability for 3S Operations—Comparative Analysis
US/EU APAC/India Middle East (GCC)
Vehicle Sales <4% <5% 10-20%
Parts and Services 20-30% 20-40% No Limit (Avg is ~40%)
Accessories >30% >30% Not a key focus area
Others
• Financing
• Insurance
• Registration, etc…
<5% 4-8% Not a key focus area
Mark-up analysis comparison
Profitability in accessories is much more than part sales – Offer similar opportunity for a dealer and
for an OEM (Genuine and Non Genuine Accessories)
Click for TOC

18
Accessories—Large Dependency on Dealers/Distributors to drive
Sales with Limited KPIs and Training
$140
$240
$40
$-
$50
$100
$150
$200
$250
$300
KSA UAE Rest of GCC
Sales,millionUSD
OES Accessories Market, the GCC, 2015
2015
• High difference is average accessories purchased per
new vehicle among GCC countries
- KSA = $100-170
- UAE = $300-500
- Kuwait = $300-400
- Qatar = $400-440
- Oman = $100-150
- Bahrain = $100-150
Average purchase of accessories per vehicle in the KSA (largest market is in Middle East) is twice as low as
in other countries due to lower demand and lower accessory availability
Note: installation not included.
Click for TOC

19
Who is Doing What?
Toyota combines strong focus on accessories with high sales volumes
KSA UAE Kuwait Qatar Oman Bahrain
Toyota
Dodge
Chevrolet/GMC
Nissan
Ford
Mitsubishi
Honda
Mazda
Hyundai
• Toyota in KSA has strong focus on electronic accessories (navigation, rear parking systems etc.) and wheels, similarly across other
countries in focus except for Qatar
• Dodge has a very consistent offer of accessories across four key countries in GCC
• Utilization of new sales channel to promote accessories is limited to few dealership
Strong Moderate Low
Click for TOC

20
Key Areas of Concern and Way Forward
• In 75% cases no one knowns who is selling accessories and where it is sold
• Availability is a concern –
- Accessories supplied after 6 months of vehicle launch
- Not displayed properly or displayed at a wrong place with limited knowledge
• Practical Advertising/Promotions always ignored – Accessories are not parts, purchase
decisions are often triggered by emotions
- Limited use of social media – best practices available with in region
- Vehicle not displayed with accessories
• Dealers interest not kept in consideration while developing/ introducing the accessories –
Sales of accessories helps Improve profitability
- OEMs pushing global part numbers in 100% cases (and that too through global websites)
- Limited accessories designed to compete with aftermarket products
Click for TOC

21
Key Areas of Concern and Way Forward (Continued)
• Effort to sale accessories with new vehicle is limited
- Sales location and timing for sales/promoting accessories makes real difference
- Showrooms are not equipped to sales accessories along with new vehicles
- No or limited efforts made to sale accessories during the first service of the vehicle
• No or Limited Training Program and Clear incentivization Plan
- First person to promote accessory is vehicle sale person – not motivated to sale accessories or directing
customer to accessory sales person
- Process of selling accessories is not integrated with vehicle sales process
Click for TOC

22
Last Three Words….
Tough time ahead – traditional methods will not allow to keep
high profitability
Standardizing operations/process across the GCC is key
challenge – but allows long terms sustainability
Challenges from non-genuine aftermarket increasing every day –
Strategies designed to challenge independent aftermarket will
increase sustainability and profitability
Click for TOC

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