North american auto aftermarket frost 0211

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North american auto aftermarket frost 0211

  1. 1. 360 Degree Perspective of the North American Automotive Aftermarket Capitalizing on Anticipated Growth in Vehicle Maintenance and Repairs N90F-18 February 2011
  2. 2. Disclaimer • Frost & Sullivan takes no responsibility for any incorrect information supplied to us by manufacturers or users. • Quantitative market information is based primarily on interviews and therefore, is subject to fluctuation. • Frost & Sullivan Research Services are limited publications containing valuable market information provided to a select group of customers in response to orders. Our customers acknowledge, when ordering, that Frost & Sullivan Research Services are for customers’ internal use and not for general publication or disclosure to third parties. • No part of this Research Service may be given, lent, resold or disclosed to non-customers without written permission. • Furthermore, no part may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the permission of the publisher. • For information regarding permission, write to: Frost & Sullivan 331 E. Evelyn Ave. Suite 100 Mountain View, CA 94041 United States © 2011 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproduced without the written approval of Frost & Sullivan.N90F-18 2
  3. 3. Certification • We hereby certify that the views expressed in this research service accurately reflect our views based on primary and secondary research with industry participants, industry experts, end users, regulatory organizations, financial and investment community, and other related sources. • In addition to the above, our robust in-house forecast & benchmarking models along with the Frost & Sullivan Decision Support Databases have been instrumental in the completion and publishing of this study. • We also certify that no part of our analyst compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this service.N90F-18 3
  4. 4. Table of Contents Methodology 15 Introduction to the North American Automotive Aftermarket 17 Political & Regulatory Influences 30 Integrated Industries 34 Technology Trends 46 Consumer Trends 55 Competitive Analysis 72 Best Practices 84 Key Takeaways 96 About Frost & Sullivan 99N90F-18 4
  5. 5. List of Figures Automotive Aftermarket: Service Centers by Type (United States), 2010 22 Automotive Aftermarket: Service Centers by Type (United States), 2005-2013 23 Automotive Aftermarket: Shift from Original Equipment to Aftermarket Manufacturers (North America), 28 2008-2017 Automotive Aftermarket: Manufacturer-level Replacement Parts Revenues by Category (North America), 29 2007-2017 Automotive Aftermarket: Key Legislative and Regulatory Areas (North America), 2010 32 Automotive Aftermarket: Major Legislative Topics (North America), 2010 33 Automotive Aftermarket: Technology Applications (North America), 2010 47 Automotive Aftermarket: Maintenance and Repair Opportunities in Hybrids and Electric Vehicles 49 (North America), 2010 Automotive Aftermarket: Future Hybrid Offerings by Vehicle Manufacturer (North America), 2009-2015 50-52 Automotive Aftermarket: Forecast of Electric Vehicles by Manufacturer (North America), 2008-2015 53-54 Bike Sharing Market: Programs in Operation (North America), 2010 57N90F-18 5
  6. 6. List of Figures (Contd…) Automotive Aftermarket: Top 10 Remanufactured Products (North America), 2010 74 Automotive Aftermarket: Unit Shipment and Revenues of Top Remanufactured Products (North America), 75 2010 Automotive Aftermarket: SWOT Assessment of the Warehouse Distribution and Jobber Channel 77 (North America), 2010 Automotive Aftermarket: SWOT Assessment of Programmed Distribution Groups (North America), 2010 78 Automotive Aftermarket: SWOT Assessment of the Auto Retail Channel (North America), 2010 79 Automotive Aftermarket: SWOT Assessment of the Original Equipment Service Channel (North America), 80 2010 Automotive Aftermarket: Revenue Breakdown of Aftermarket Distribution Channels (North America), 2009 83 Automotive Aftermarket: Private Labeling and Profitability Case Study (North America), 2010 88 Automotive Aftermarket: Private-label Sales of Major Distributors (North America), 2010 89 Automotive Aftermarket: Private Label Strategies of Major Retailer Distributors (North America), 2009 90 Automotive Aftermarket: Comparison of OEM and Aftermarket Distribution Structures (North America), 2010 93N90F-18 6
  7. 7. List of Figures (Contd…) Automotive Aftermarket: Analysis of OEM Profit Margins (North America), 2008 94 Automotive Aftermarket: Comparison of OEM and Aftermarket Profit Margins (North America), 2008 95 Automotive Aftermarket: SWOT Assessment (North America), 2010 98N90F-18 7
  8. 8. List of Charts Automotive Aftermarket: Vehicles in Operation by Model Year (North America), 2006-2016 19 Automotive Aftermarket: Vehicles in Operation by Model Year (North America), 2010 19 Automotive Aftermarket: Percentage of Vehicles in Operation Under Warranty (North America), 2010 20 Automotive Aftermarket: Vehicles in Operation by Brand (North America), 2010 20 Automotive Aftermarket: Vehicles in Operation by Type (North America), 2006-2016 20 Automotive Aftermarket: Service Centers by Type (United States), 2005-2013 24 Automotive Aftermarket: Service Centers by Type (United States), 2010 24 Automotive Aftermarket: Service Technician Employment by Type (United States), 2010 25 Automotive Aftermarket: Top Trends (North America), 2010 31 Automotive Aftermarket: Manufacturer-level Tools & Equipment Revenues (North America), 2004-2014 36 Automotive Aftermarket: Manufacturer-level Tools & Equipment Revenues by Distribution Channel 36 (North America), 2010N90F-18 8
  9. 9. List of Charts (Contd…) Automotive Aftermarket: Manufacturer-level Tools & Equipment Revenues by Product Type (North America), 37 2008 and 2015 Automotive Aftermarket: Manufacturer-level Selected Diagnostic Equipment Revenues by Product Type 38 (North America), 2005-2015 Class 4-8 Truck Aftermarket: Total Manufacturer-level Replacement Parts Revenues (North America), 43 2004-2014 Class 4-8 Truck Aftermarket: Manufacturer-level Replacement Parts Revenues by Distribution Channel 43 (North America), 2010 Class 4-8 Truck Aftermarket: Distribution Structure (North America), 2009 44 Automotive Aftermarket: Hybrid and Electric Vehicles in Operation (North America), 2006-2016 48 Carsharing Market: Membership and Vehicle Forecasts (North America), 2009-2016 56 Automotive Aftermarket: Percentage of Engine Oil Changes Performed by Location Type (United States), 61 (2010) Automotive Aftermarket: Percentage of Owners Who Have Scheduled Maintenance at A Vehicle Dealership 62 (United States), 2010 Automotive Aftermarket: Percentage of Vehicle Owners Choosing Dealership Service by Reason 63 (United States), 2010 Automotive Aftermarket: Other Types of Maintenance Performed Within the Past 12 Months (United States), 64 2010N90F-18 9
  10. 10. List of Charts (Contd…) Automotive Aftermarket: Reasons for Switching from Dealership for Minor Maintenance (United States), 2010 65 Automotive Aftermarket: Attitudes Towards Vehicle Maintenance (United States), 2010 66 Automotive Aftermarket: Changes of Vehicle Maintenance in Light of the Economic Recession 67 (United States), 2010 Automotive Aftermarket: Frequency of Oil Change (United States), 2010 68 Automotive Aftermarket: Other Automotive Products Purchased During Last Oil Change (United States), 2010 69 Automotive Aftermarket: Likely Use of Public Transportation Structures (United States), 2010 70 Automotive Aftermarket: Aftermarket Roadmap (North America), 2005-2020 71 Automotive Aftermarket: Distribution Structure (North America), 2010 73 Automotive Aftermarket: Competitive Analysis of Remanufacturing Segment (North America), 2010 76 Automotive Aftermarket: Unit Shipments and Revenues for National Brand Parts by Distributor Type 81 (North America), 2008 Automotive Aftermarket: Distributor-level Revenues by Type (North America), 2010 82N90F-18 10
  11. 11. List of Charts (Contd…) Automotive Aftermarket: Private Labeling and Expansion (North America), 2008 86 Automotive Aftermarket: Private Labeling and Profitability (North America), 2009 87 Automotive Aftermarket: Private Label Product Global Sourcing Trends (North America), 2008 91 Automotive Aftermarket: Unit Shipments and Revenues for Private-label Brand Parts by Distributor Type 92 (North America), 2008 Automotive Aftermarket: Revenue Distribution by Product Category (North America), 2017 97N90F-18 11
  12. 12. Introduction to the 360º View of the North American Aftermarket • This strategic overview of North American automotive aftermarket industry is targeted at CEO and director-level executives in the industry. • It outlines emerging trends, industry metrics, and transitional events that impact the aftermarket today and into the future. It highlights areas where growth opportunities exist in this ever-evolving market. • The 360 Degree perspective provides insight into a variety of topics beyond just parts and service potential; it investigates the impact of social, regulatory, legislative, political, and technology changes that influence the vehicle mix, product mix, product and service pricing, promotion, technician skill and training, repair information, service locations and distribution and logistics. • The intent is that each reader understands the direction of the industry on key issues, identifies his/her current company position and where that company should be moving to best capitalize on the opportunities most relevant to that organization.N90F-18 12
  13. 13. The CEO’s Perspective of the Complex Business Universe Source: Frost & SullivanN90F-18 13
  14. 14. What is a 360º Analysis? A 360 Degree Perspective is an essential view of your decision-making universe and the basis from which Frost & Sullivan’s industry perspectives are based: • Global – You must be able to identify geographic expansion opportunities, monitor the political and regulatory effects of doing business in another country; understand cultural implications and requirements. • Industry – You must maintain a solid grasp of your key industries and the industries that could have an impact on your business; identify factors that are causing new trends and changing buying behaviors; address industry convergence and integration; identify opportunities to expand within the market. • Technology – You need to ensure a solid understanding of emerging technologies; affects and opportunities; plan for potentially disruptive technologies; leverage new products and/or applications for growth. • Economic – You must be able to identify current and future economic trends; identify growing customer segments; take advantage of emerging opportunities; adjust for currency changes. • Competitive – You must know of any and all emerging competition; identifying alliance partners; benchmarking your growth against the industry; refining competitive strategy; monitoring market perceptions, identifying changing processes, technologies, culture, etc. • Customer – Do you know how to identify unmet needs; tailor products and services to market needs; manage brand equity; identify emerging customer segments; keep track of changing cultural trends. • Best Practices – Can you maintain an effective Growth Plan for 3 - 5 years in the future; create and develop the Growth Team; ensure Growth Team members understand their functions and contributions to growth; leverage industry Growth Thought Leaders and best practices. Source: Frost & SullivanN90F-18 14
  15. 15. Methodology 15
  16. 16. Research Methodology • The information provided by market participants is qualified through:  Verification interviews with up/downstream market participants  Secondary research  Existing vehicle owner survey research on repair attitudes and behaviors • Primary and secondary research data are combined with analysis of the market to provide basis for the unit, revenue and pricing forecasts for each product category. • This research is a compilation of findings published by • Market valuation data are then compared to known Frost & Sullivan’s automotive aftermarket team over the past industry information as a means of verifying and validating three years. market size. Known data include: • It includes primary research based on Frost & Sullivan’s  Vehicles in Operation (VIO) bottom-up methodology as well as secondary data sources.  Replacement rates of products with similar exposure, life • Primary research requires analysts to conduct interviews with expectancies, and warranties all major market participants (manufacturers and distributors) to capture each participant’s unit shipments and revenue  Growth trends, product and technology trends, pricing, market size at the component level. The analyst builds a base application coverage year market valuation for each component by summing the • Because the metrics analyzed in this research are inputs of all participants. redacted from multiple research studies, the base years, • Analysts also garner information related to the impacts of historical periods and forecast periods are not the same for legislative changes, technological development, competitive all measurements. situations and distribution developments.N90F-18 16
  17. 17. Introduction to the North American Aftermarket 17
  18. 18. Major Aftermarket Trends 1. The closure of more than 3,000 auto dealerships since 2008 has created new parts and service opportunities for the independent aftermarket, while forcing automakers to re-evaluate their approach to vehicle maintenance and repairs. 2. The sharp decline of new car and light truck sales over the past two years has resulted in a higher average vehicle age, pushing more of them into the prime replacement period for expensive repairs. 3. Meanwhile, the sluggish economy has caused many motorists to postpone the purchase of routine services such as oil and tire changes, creating pent-up demand over the short term. 4. The industry’s near-term focus on meeting strict fuel economy standards will force aftermarket parts and service providers to adjust to marketplace demands for products that make vehicles lighter, more fuel efficient, safer, and compliant with all applicable regulations. 5. This includes the projected growth of hybrid and electric vehicles, which have some unique maintenance characteristics that service providers should understand. 6. Continuous market pressure to supply products and services at the lowest possible cost threatens the industry’s ability to react to change and develop profitable solutions over the medium to long term.N90F-18 18
  19. 19. There are about 250 Million Light Vehicles Across the United States and Canada that Make Up the Aftermarket Demand for Automotive Parts and Service Automotive Aftermarket: Vehicles in Operation by Model Year (North America), 2006-2016 300 MY 2017 Vehicles in in Operation(Million) Vehicles Operation (Million) MY 2016 250 MY 2015 MY 2014 200 MY 2013 MY 2012 150 MY 2011 MY 2010 100 MY 2009 MY 2008 50 MY 2007 MY 2006 MY 2005 0 Pre MY 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Automotive Aftermarket: Vehicles in Operation by Model Year (North America), 2010 MY 2008-2011 Older 4% MY 1986-1991 9% MY 2006-2007 9% By looking at component life expectancy and 13% consumer replacement behaviors, analyzing the MY 1992-1997 vehicle population by age provides insight into 20% MY 2002-2005 aftermarket size and growth potential. 24% MY 1998-2001 21% Vehicle age is a strong indicator of warranty status and a key indicator of repair opportunity. Note: All figures are rounded; the base year is 2009. Source: Frost & SullivanN90F-18 19
  20. 20. Vehicle Brand and Mix Becoming an Increasingly Important Element in Servicing the Repair Industry Automotive Aftermarket: Percentage of Vehicles in Operation Under Warranty (North America), 2010• The North American vehicle population is expected to shift toward foreign brands by up to 13% between 2009 and 2016. VIO Out of• Currently imports represent 35% and are forecast to Warranty grow at CAGR of 4.1%. 86% VIO in Warranty• The shift re-defines the “all makes/all models” definition 14% and directly impacts component sales based upon manufacturers associations with vehicle manufacturers.Automotive Aftermarket: Vehicles in Operation by Brand Automotive Aftermarket: Vehicles in Operation by Type (North America), 2010 (North America), 2006-2016 300 Vehicles inin Operation (Million) Vehicles Operation (Million) General FSvan Motors Honda-Acu ra 250 7% Nissan- Pickup 29% Infiniti 200 Minivan Toyota- Ford-Lincoln- 5% SUVlux Lexus-Scion Mercury 150 11% SUVstd 21% Hyundai-Kia 100 SUVcomp Chrysler- Other 3% CarLux Dodge-Jeep 7% BMW 50 1% Daimler Family 13% 1% 0 Specialty Audi-VW Compact 2% Source: Frost & Sullivan, Wards Automotive, Automotive NewsN90F-18 20
  21. 21. Shop Counts, Technician Counts, and Bays are the Key Metrics that Support the Repair Industry • Long gone are the days of fixing a • The three key elements that vehicle where it stands. The indicate the health and direction evolution of a number of factors of the repair industry are: created the need for a  Number and type of repair sophisticated delivery of repair locations delivery services. Factors include  Number of available bays such elements as:  Number and qualification  A large vehicle population level/ skill level of repair  Rising vehicle complexity technicians  Need for sophisticated diagnostic equipment and specialized tools  Workplace safety legislation  Labor laws  Productivity demands  Workmanship commitmentsN90F-18 21
  22. 22. Service Centers by Type Automotive Aftermarket: Service Centers by Type (United States), 2010 2010 2010 2010 2010 Repair Location Locations Avg. B ays Technicians Avg. Tech Vehicle Dealers 16,800 9.4 199,920 11.9 General Repair 77,674 2.4 240,790 3.1 Specialty Repair 30,372 2.3 60,744 2.0 Gas Stations with Service 32,979 2.5 23,085 0.7 Oil Change/Lube Shops 8,330 2.3 24,157 2.9 Collision Repair 36,008 8.0 115,227 3.2 Auto Parts Stores Performing Service 5,190 8.3 16,090 3.1 Tire Shops/Dealers 18,440 5.9 105,106 5.7 Department Stores/Mass Merchandisers Performing 3,978 8.3 10,342 2.6 Service Towing & Vehicle Inspection Service 4,647 1.2 5,577 1.2 Truck Repair 23,158 2.7 64,841 2.8 Total Light Vehicle Repair Locations 257,576 4.1 867,888 3.4 Source: Frost & Sullivan, NAICS, Bureau of Labor Statistics, Company WebsitesN90F-18 22
  23. 23. Service Centers by Type (Contd…) Automotive Aftermarket: Service Centers by Type (United States), 2005-2013Location 2005 2006 2007 2008 2009 2010 2011 2012 2013Dealer 21,495 21,200 21,139 21,022 17,130 16,800 16,716 16,718 16,719IRF 76,614 77,228 77,364 77,442 77,519 77,674 77,597 77,364 77,364Specialty Repair 32,087 30,835 29,850 29,889 30,221 30,372 30,463 30,494 30,494Gas w/service 32,604 32,689 32,761 32,870 32,979 32,979 32,946 32,913 32,880LOF 7,735 7,761 7,978 8,201 8,322 8,330 8,338 8,338 8,338Collision 36,818 36,713 36,560 36,524 36,372 36,008 35,828 35,828 35,828Auto Parts 5,175 5,180 5,194 5,191 5,185 5,190 5,195 5,201 5,206w/ServiceTire Dealer 18,188 18,188 18,250 18,286 18,348 18,440 18,532 18,624 18,718Retailers 3,977 3,983 3,974 3,988 3,978 3,978 3,982 3,986 3,986Towing 4,629 4,622 4,633 4,640 4,647 4,647 4,647 4,647 4,647Truck Repair 23,316 23,316 23,286 23,251 23,274 23,158 23,111 23,111 23,157Light Vehicle 262,637 261,715 260,989 261,302 257,975 257,576 257,355 257,224 257,337Repair Locations Source: Frost & SullivanN90F-18 23
  24. 24. Mix of Locations Not Expected to Change Much Across the Forecast Period Automotive Aftermarket: Service Centers by Type (United States), 2005-2013 100% Percent of Total Locations 90% Percent of Total Locations 80% 70% 60% 50% 40% 30% 20% 10% Automotive Aftermarket: Service Centers by 0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 Type (United States), 2010 Dealer IRF Specialty Repair Towing Tire Dealer Retailers 0.6% Gas w/service LOF Collision 12.1% Truck Repair 1.2% Auto Parts w/Service Tire Dealer Retailers 7.5% Dealer Auto Parts Towing Truck Repair 23.1% w/Service 1.9%Percent representation in the population changes little. Even Collisionwith a CAGR of -5.5%, the decline in dealership numbers 13.3%represented a loss of 0.1% share to the channel. LOFLocation is only one measurement. As visible by the tech 2.8%employment and bay numbers, closure of a dealership Gas w/service Specialty Repair IRF 2.7% 7.0% 27.8%significantly impacts industry and channel service capacity. Source: Frost & SullivanN90F-18 24
  25. 25. Technicians are Concentrated in Auto Dealerships (Dealer), General Repair Facilities and Tire Stores (Tire Dealer) Automotive Aftermarket: Service Technician Employment by Type (United States), 2010 Towing Tire Dealer Retailers 0.6% 12.1% Truck Repair 1.2% 7.5% Dealer Auto Parts 23.1% w/Service 1.9% Collision 13.3% LOF 2.8% Gas w/service Specialty Repair IRF 2.7% 7.0% 27.8% Source: Frost & Sullivan, ASE, Bureau of Labor Statistics • Recent shop closures have not impacted the number of technicians as yet because accreditation is not tied to employment. • Closures have impacted employment by channel. Numbers are expected to decrease further in 2011 as dealers adjust to lower volume. Because of the high ratio of employment to location in the dealer channel, a single closure has major impact on industry employment.N90F-18 25
  26. 26. The Original Equipment Service (OES) Channel is Used Mainly by Owners of Vehicles Less than 5 Years of Age The OES channel, comprised of franchised auto dealerships, captures approximate 30% share of all aftermarket parts and service revenues. The downfall of the Local brands have economy has caused been losing market lower disposable GM & Chrysler shuts share to foreign brands incomes for consumers, down dealerships. of Asian and European and reduced new car (cost cutting efforts) origin. sales. • The average U.S. auto dealership employs 12 service technicians and contains 18 service bays. If each terminated dealership closes, it would eliminate as many as 50,000 dealer service bays and displace more than 35,000 trained service technicians. • It would also force many people who currently take their vehicles to dealerships for service to purchase parts and services through the independent aftermarket. • In addition to new vehicle maintenance, auto dealerships also derive significant revenues from collision repair services. • However, it tends to lose easy, profitable jobs such as brakes, oil/filter and tire replacement to lower-priced independent repair facilities. Source: Frost & SullivanN90F-18 26
  27. 27. Competitive Evaluation of the Service Industry • The number of total service locations has remained stable over the past decade, although the mix and type of outlets is changing. • The closure of dealerships is significant not only because they have more technicians and service bays than the average independent repair facility, but also because the skill level of its workforce is higher. • Service outlets characterized as general repair facilities – and that offer a wide range of services rather than a specialized focus on brakes, tires, air-conditioning or oil changes, etc. – make up the largest provider category. • Mass merchants such as Walmart and Costco represent a relatively new type of service provider with the power to alter the competitive landscape for minor maintenance and repairs. • Service providers are the key influencers in the aftermarket for the brand choices made by vehicle owners, making them the main target of many parts manufacturers’ and distributors’ marketing and promotional efforts. • A key success factor for the service industry is ensuring the vehicle is repaired properly the first time so that the owner does not return to the shop for additional work that reduces the profitability of the job. • Shops that specialize in certain vehicle nameplates, or expensive repairs such as engine and transmission work, are typically more profitable than those offering a broader range of services.N90F-18 27
  28. 28. Shift from Original Equipment to Aftermarket Manufacturers Automotive Aftermarket: Shift from Original Equipment to Aftermarket Manufacturers (North America), 2008-2017 The North American automotive aftermarket is mature and will experience low growth over the 2011-2017 period. Total manufacturer-level revenues in the 2010 Why base year were approximately $83 billion and are forecasted to reach $98 billion by 2017. The North American aftermarket draws competition from across the world. The main stakeholders are parts manufacturers, vehicle manufacturers, retail and Who wholesale distributors, and installers and other service providers. The steep downturn in auto sales in 2008-2009 also has many OE suppliers and private- equity firms looking at parts and maintenance as a potential growth opportunity. The aftermarket has rigid business requirements for production runs, inventories, parts coverage, pricing, logistics, sales, marketing, distribution and Issues customer service. To succeed, market participants must excel in all of these areas, or create differentiation on one or more parameters, to set their company apart. The independent aftermarket is in direct competition with the OES channel, which sells original parts through auto dealer networks and employs highly So what? trained service professionals as installers. Vehicle owners are searching for the proper balance of price, quality and convenience when choosing between the OES and IAM channels. Vehicle manufacturers and their dealers have lost market share over the historical period to independent aftermarket parts and service providers. And? However, OEMs and their suppliers are demonstrating a renewed commitment to the maintenance and repair business, and they will have a measurable impact on the strategic direction of the aftermarket in the coming years. Source: Frost & SullivanN90F-18 28
  29. 29. Despite Challenges Aftermarket Parts Expected to Grow at CAGR of 2.1%, Driving Revenues to US$91.0B by 2015 Automotive Aftermarket: Manufacturer-level Replacement Parts Revenues by Category (North America), 2007-2017 Revenues Revenues Historical Revenues CAGR (2007) (2010) Growth (2017) (2010-2017) • The aftermarket continued to grow over the 2007-2010 periodTires $16,300 M $17,400 M 2.2% $22,300 M 5.1% in spite of the economic recession.Batteries $2,834 M $3,198 M 4.1% $3,339 M 0.6% • Growth rates will increase overBrake Parts $2,686 M $2,938 M 3.0% $4,016 M 4.6% the forecast period as people keep their vehicles longer,Filters $1,228 M $1,282 M 1.4% $1,512 M 2.7% resulting in higher maintenance, repair and modification activity.Collision $3,430 M $3,854 M 4.0% $4,100 M 0.9% • Products in the maintenanceBodyStarters & categories are expected to grow $1,326 M $1,346 M 0.5% $1,268 M -0.8% at strong rates, including brakeAlternators parts, tires and filters.Lighting $1,104 M $1,047 M -1.8% $1,076 M 0.4% • Increases in material andWheels $837 M $862 M 1.0% $908 M 0.7% transportation costs are expected to drive component prices andExhaust decrease margins for suppliers. $783 M $784 M 0.0% $1,086 M 4.8%Components • New OEM technologies willSpark Plugs $673 M $588 M -4.4% $664 M 1.7% reduce demand for some important replacement parts inOthers $47.5 Billion $49.7 Billion -0.5% $55.0 Billion 1.5% the starters/alternators and lighting categories.Total $78.7 Billion $83.0 Billion 1.8% $97.6 Billion 2.3% Source: Frost & SullivanN90F-18 29
  30. 30. Political and Regulatory Influences 30
  31. 31. Top Trends Automotive Aftermarket: Top Trends (North America), 2010 Rising Economic Fuel Prices ReboundHigh Material Costs Slow Increase of VIO Right to Repair Act Shift in Vehicle Segment Lower Cost Overall maintenance and Emission Imports repair activity will increase Legislations Impact over the short to medium term as the economy Safety recovers from recession. Legislation Over the medium to long Social Trend of term, participants must Going ‘Green’ Introduction of prepare for smaller vehicles, EVs and HEVsLow a more diversified population, new technologies and price competition. Low Certainty High Source: Frost & SullivanN90F-18 31
  32. 32. Key Legislative and Regulatory Areas Automotive Aftermarket: Key Legislative and Regulatory Areas (North America), 2010 • Use of materials for manufacturing, etc. • CAFÉ. • Use and handing of toxic • EPA exhaust regulations. materials. • Waste management. • Potential • Possible free passage of trade agreements Employee Free (South Korea, Choice Act. Columbia, • Lingering Panama). unfunded • Import duties. pension • Impact of “Buy obligations. American” Legislation. • Proposed Motor Vehicle Safety • Quality control and Act of 2010. testing. • New opportunities for • NHTSA oversight. replacement and aftermarket alternatives. Source: Frost & SullivanN90F-18 32
  33. 33. Major Legislative Topics Automotive Aftermarket: Major Legislative Topics (North America), 2010 Authorities across North America are passing laws banning the use of text messaging while operating a motor vehicle. The federal government has passed Texting similar legislation covering drivers of all large commercial trucks and buses. The problems of distracted driving will likely drive additional legislation. Corporate Average Fuel Economy standards will increase incrementally from the current 27.5 mpg for cars and 23.1 mpg for light trucks to 39 mpg for cars and 30 CAFE mpg for light trucks by 2016. Automakers will use different materials, technologies and part designs to comply with the federal mandate. Disabled The need to accommodate the mobility needs of disabled drivers and Drivers & passengers creates ongoing opportunities for up-fitters and coachbuilders for vehicle modification and product installation. Passengers Motor Vehicle Safety Act of 2010 proposes increased standards for vehicle safety, including greater regulatory influence on vehicle part design and recall Safety procedures, and fees for automakers. Most prominent are brake override controls and event data recorders installed on all new vehicles. EPA exhaust emissions regulations target NOx and particulate matter from large diesel trucks, but may have future implications for light cars and trucks. It also Emissions drives the use of new low-sulfur fuels, biofuels and advances in turbochargers, catalytic converters and other system components. Adoption would require automakers to share needed data with the aftermarket to Right to repair and maintain their vehicles, giving consumers a choice of where to take Repair Act them for service. The independent aftermarket fears being rendered unable to compete with the OES channel if vehicle repair information is made proprietary. Source: Frost & SullivanN90F-18 33
  34. 34. Integrated Industries 34
  35. 35. Industries of Close Relation Tools & Equipment Diagnostic Equipment Automotive Paint, Body & Equipment Aftermarket Logistics HD Aftermarket Source: Frost & SullivanN90F-18 35
  36. 36. Tools & Equipment Automotive Aftermarket: Manufacturer-level Tools & Automotive Aftermarket: Manufacturer-level Tools & Equipment Equipment Revenues (North America), 2004-2014 Revenues by Distribution Channel (North America), 2010 e-Commerce 30 27.1 28.4 Hardware & Other / Internet Direct Sales 25.8 Retail 2% 17% Revenues ($ Billion) 24.1 Revenues ($ Billion) 25 22.1 16% 20 Wagon Jobbers 8% 15 Home Centers 20% General & Specialty 10 Distributors 25% 5 0 Mass Merchandisers 12% Source: Frost & Sullivan 2004 2007 2010 2012 2014 • Mechanic hand tools include: Socket wrenches, cutters/pliers, flat wrenches, screw drivers, adjustable/pipe wrenches, torque wrenches, ball peen hammers, pullers, hex wrenches and hand seamers. • Non- mechanic hand tools include: Hand operated edge tools (such as chisels, axes, adzes, hatchets, planes and punches), dies and inter- changeable cutting tools, other hand and edge tools (such as levels, benders, trades tool sets, drain snakes, closet augers), hand operated saws, saws, hacksaw blades, claw hammers, etc. (Excludes landscaping/lawn and garden tools). • Accessories include: Drill bits, saw blades, abrasives, and miscellaneous accessories. • "Other" includes: Benchtop, powder actuated and engine power tools. • Tool storage total includes: Roll cabs/top chests, stationary cabinets, job-site boxes, stationary shelving & work benches, and truck boxes. • Equipment includes: Wheel balancers, mid-rise/scissors lifts, general purpose equipment, two-post and four-post lifts, alignment machines, alignment lifts, tire changers, two-post lifts, brake lathes, air conditioning, collision repair, and fluid management equipment. (Excludes paint booths and shop equipment "consumables"). •It is important to note that most products in the tools category are sold through home centers, and a large share Key of product applications are in the professional services, DIY, and home development – with automotive services Takeaway holding a smaller share. •Opportunities are present for automotive retail participants to target consumers outside automotive services.N90F-18 36
  37. 37. Manufacturer-level Tools & Equipment Revenues by Product Type Automotive Aftermarket: Manufacturer-level Tools & Equipment Revenues by Product Type (North America), 2008 and 2015 2015 Scan Tools 22.6% S/W 22.4% 37.9% Exh. Gas Analyzers 37.0% 6.3% 5.2% 2008 Engine Analyzers 3.2% 2.4% 13.3% System Testers 18.9% 11.1% Integrated Diagnostic Systems 19.7% Source: Frost & Sullivan • Participants in the service channel are equipped with scanners, system and multifunction testers, engine analyzers, and exhaust gas analyzers. • This trend is not expected to change over the 2008-2015 period because scanners, system and multifunction testers are crucial to vehicle maintenance and provide the best return on investment.N90F-18 37
  38. 38. Automotive Aftermarket: Manufacturer-level Selected Diagnostic Equipment Revenues by Product Type (North America), 2005-2015Automotive Aftermarket: Manufacturer-level Selected Diagnostic Equipment Revenues by Product Type (North America), 2005-2015 Revenues ($ Billion) Source: Frost & Sullivan • All independent and franchise repair shops own a diagnostic scan tool. The poor economic environment of 2010 contributed to a general decline in service demand, which restrains the ability of many shops to update their equipment over the forecast period.N90F-18 38
  39. 39. Paint, Body, and Equipment Market includes automotive paints, braces, • Paint accounts for approximately $1.8 billion, or 85.7 percent of masking paper, masking tape, body fillers, total revenues, while shop equipment and accessories make up sanding/grinder discs, and glues and adhesives. the remaining $0.3 billion, or 14.3 percent of revenues. • Walk-in, or DIY, business represents approximately 7 percent of Paint Manufacturers sales, while professional painters and body shops account for 93 percent of distributor sales. (e.g. DuPont, PPG, BASF) • Increasing vehicle salvage values causes more vehicles to be $2.1 billion written off as total losses by insurers. This increases the (manufacturer level) availability of high quality OE replacement parts and challenges overall part revenue generation for the industry. Distributor/Jobber • Rising repair costs, the improved safety features of modern (e.g. Finishmaster, Sherwin Williams, Akzo Nobel) vehicles, and aggressive pricing for new cars have also contributed to reduced accident rates and more total losses, which $2.8 billion keeps vehicles out of the body shops. • Body shop overcapacity squeezes margins for distributors. Industry estimates that there are 36,451 body shops in the United Independent Body Shops States alone, although industry demand can profitably sustain 20,000 to 25,000 shops. (local businesses) • There is a significant amount of consolidation taking place on the $3.5 billion distribution side of this industry. Large distributors such as Finishmaster, Sherwin Williams, and CARQUEST have been Paint and body shop equipment is sold through a two-step distribution process. acquiring smaller competitors to drive their growth. Source: Frost & SullivanN90F-18 39
  40. 40. Logistics The aftermarket is a competitive marketplace without patience. With a surplus of products and suppliers, customers have a multitude of options available to them. A unique characteristic of the aftermarket auto industry is their 24 hour standard delivery guarantee. If it cannot be delivered in this time they risk lose the customer to a competitor as their reliability is called into question. Consequently a supplier must deliver the part (even at a loss) or face bankruptcy. In a highly competitive market aftermarket suppliers have taken every precaution to ensure that they are able to make the delivery time. While the logistics of the aftermarket industry has been well established there are opportunities to improve the existing system and continue maintain the ability to make delivery deadlines while simultaneously reducing costs. Objectives of • Increase delivery efficiency Logistics • Decrease overall logistics costs Source: Frost & SullivanN90F-18 40
  41. 41. Logistics and Regional Distributors Pull Order System Regional Local Supplier Installer Distributor Distributor Usage of Land, Air, and Sea Freight The fundamental function of the regional distribution center is to replenish inventory of local distribution centers. Are Regional Distributors Really Needed? • Warehouse operations do not generate any revenue or profit. • Redistribution could be done in alternative methods so that the supplier does not have to assume the exorbitant expense associated with operating a warehouse. Source: Frost & SullivanN90F-18 41
  42. 42. 3PL.. The Solution? Supplier 3PL Installer Why use 3PL? • A 3PL company has the existing infrastructure and is able to coordinate shipments from point of origin to final destination. Most importantly they are able to provide warehousing services at a much cheaper rate. Multiple clients and multiple sources of revenue under one warehouse gives this facility several sources of revenues. The objective of 3PL is to attract clients by presenting the infrastructure available to them. While a warehouse cannot inherently generate revenue, it can attract sources of revenue, such as ocean freight, air freight, trucking and sorting/ inspection. For this reason, 3PLs are able to provide very competitive warehousing costs. • It is important to carefully evaluate current overall costs in owning a regional distribution center, frequency Key of delivery, and the cost of freight logistics. Takeaway • To be able to perform a direct comparison with 3PL partners to determine which best meets needs. • The usage of 3PL may allow a more frequent delivery timeline at smaller amounts, at a lower overall cost. Source: Frost & SullivanN90F-18 42
  43. 43. The Heavy Duty (HD) Aftermarket Class 4-8 Truck Aftermarket: Total Manufacturer-level Class 4-8 Truck Aftermarket: Manufacturer-level Replacement Parts Replacement Parts Revenues (North America), 2004-2014 Revenues by Distribution Channel (North America), 2010 25 20.1 HD TruckRevenues ($($ Billion) Revenues Billion) 20 18.4 Specialist Dealers 17.2 15.3 26% 43% 15 13.4 10 Others 5% ISPs 13% 5 Automotive Engine Aftermarket Distributors 0 6% 7% 2004 2007 2010 2012 2014 Source: Frost & Sullivan • HD or Commercial Vehicle (CV) market includes on-road class 4-8 vehicles. • HD Market is lucrative for aftermarket participants because HD systems and components are heavy and voluminous, so sourcing them from China or offshore locations is not an attractive proposition. Gross margins average 25-30%. • Dealerships gaining market share: This trend will continue with increasing vertical integration in the OE market and with truck makers increasing proprietary technology integration. • Increasing electronic content in heavy-trucks requires development of aftermarket parts and services that rely on electronic technologies. There is a need for reinventing the HD aftermarket. • Engine related service and parts demand will increase with EPA regulation compliant engines gaining greater penetration among VIO. • There is a need for parts and distribution structure that is similar to the light vehicle aftermarket. • Considerable consolidations happening across the HD aftermarket . • Continental infrastructure of retail and service facilities is a key demand in the HD market. • HD market is mature and stable, offers growth opportunities to suppliers of key engine parts, filters, tires, and also new technologies such as APUs.N90F-18 43
  44. 44. Distribution Structure Class 4-8 Truck Aftermarket: Distribution Structure (North America), 2009 Off-Shore Manufacturer U.S. Parts Exporter OEM Remanufacturer Salvage Yard Manufacturer Fleet Repair OES HD WDs Truck Stops Shops Engine/ New Truck Dealer Internet / Mail WDs Program Transmission Re-Distribution Parts Depts. Order Rebuilders Groups Jobber Collision Parts New Truck Dealer Distributors Service Depts. Jobbers/ Wagon Jobbers DIYers Body Shops Truck Stop Independent Service Bays HD Installers Fleet & Owner Operators Source: Frost & SullivanN90F-18 44
  45. 45. HD Distribution Structure (Contd…) • Major consolidations shaping the distribution landscape. • HD distribution channels are stretched beyond their capacity. • There is a need to accelerate the distribution flow to improve efficiency. • Product costs are a tiny fraction (around 15%) of the total transaction cost; there is a need to reduce distribution costs and improve value benefits of distributors. Distributors changing focus from products to services, mimicking the light vehicle aftermarket distribution model. • Skilled technician shortage aggravating service center operating woes. • Low volumes, high part costs and high order cycle time are a constant challenge for HD aftermarket distributor. • Forecast accuracy needs to be improved to reduce cycle time; this can be attained through utilization of point-of- sale data. • Independent distributor shares are falling steadily, while dealerships and OES channels are experiencing continuous growth in revenue and market shares. • Buying groups are becoming more prominent. • Gross margins have remained fairly steady at around 25% to 30% in the distribution chain. • Dealerships and independent distributors, in some cases, have been found to collaborate and exchange services and part. • Research indicates that dealers and independent distributors sometimes purchase from each other when needed, but prefer to keep this fact unknown.N90F-18 45
  46. 46. Technology Trends 46
  47. 47. Technology Applications Automotive Aftermarket: Technology Applications (North America), 2010 • New inventory management processes • Lean manufacturing process. maximize efficiency and reduce inventory costs. • New manufacturing processes to maximize • Use of RFID tags and quality and Bluetooth technology for minimize costs. inventory management and upkeep. • Use of more efficient machinery. • Development of new • Aftermarket products in the offerings to match new performance category require OE parts and products. heavy R&D processes for • Increased adoption of companies to develop better electronics in vehicles supports product offering portfolios. demand for more high-tech products, maintenance, and repair solutions. Source: Frost & SullivanN90F-18 47
  48. 48. Hybrid and Electric Vehicles in Operation Hybrid and Electric Vehicles in Operation (North America), 2006-2016 1000.0 Vehicles Operation (Million) 100.0 By 2016, approximately 2.8% of all U.S. and Canadian Vehicles in in Operation (Million) passenger vehicles will be hybrids or EVs. 10.0 CAGR 23.5% 1.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 0.1 CAGR 103.3% There will be an estimated 600,000 EVs 0.0 on North American roads by 2016. 0.0 Hybrids EV Total Hybrid/EV Total VIO Source: Frost & Sullivan • The percentage of vehicles that are hybrids or EVs will continue to increase over the long term as gas-powered cars and trucks age and are replaced with modern automobiles. • By 2016, hybrids and EVs will represent approximately 8-10% of new auto sales, up from 2.4% in 2008-09.N90F-18 48
  49. 49. Maintenance and Repair Opportunities in Hybrids and Electric Vehicles Automotive Aftermarket: Maintenance and Repair Opportunities in Hybrids and Electric Vehicles (North America), 2010 Replacement Rates Conventional Auto Hybrid Electric Vehicle Engine Systems Decreasing Decreasing Decreasing Transmission Systems Decreasing Increasing Increasing Brakes Systems Decreasing Decreasing Decreasing Steering and Safety Systems Decreasing Decreasing Decreasing HVAC Systems Decreasing Increasing Increasing Source: Frost & Sullivan • Replacement rates are in decline for many high-volume components, including engine oil, air filters and brake pads. • However, hybrids and EVs contain certain components parts not found on most gas-powered automobiles, including electrical A/C compressors, transmission coolant, and heater pumps, that will offer new market opportunities to parts and service providers.N90F-18 49
  50. 50. Future Hybrid Offerings by Vehicle Manufacturer Automotive Aftermarket: Future Hybrid Offerings by Vehicle Manufacturer (North America), 2009-2015 Vehicle Hybrid Vehicle Model Type of Hybrid Expected Year Manufacturer X6 Active Hybrid Two-Mode 2009 (MY 2010)Hybrid Vehicle Systems – Findings 7 Series Two-Mode 2009 (MY 2010) Q7 Full after 2011 Q5 Full 2011 S400 Mild 2009 (MY 2010) ML450 Two-Mode 2009 (MY 2010) E Class Mild 2010 C Class Mild 2011 Fit Mild 2010 CR-Z ( now a concept) Mild 2010 Insight Mild 2009 (MY 2010) Camry 3rd Gen Full 2012 N90F-18 50
  51. 51. Future Hybrid Offerings by Vehicle Manufacturer (Contd…) Automotive Aftermarket: Future Hybrid Offerings by Vehicle Manufacturer (North America), 2009-2015 Vehicle Hybrid Vehicle Model Type of Hybrid Expected Year Manufacturer Yaris Mild 2011Hybrid Vehicle Systems – Findings 3rd-generation Prius Full 2009 (MY 2010) Lexus HS 250h Full 2009 (MY 2010) Lexus F-A (now a concept) Full 2010+ Lexus HS 250h Full 2009 (MY 2010) Ram 15 Hybrid Pickup Two-Mode 2010 (MY 2011) Mercury Milan Full 2009 (MY 2010) Ford Fusion Full 2009 (MY 2010) Focus Micro 2011 Fiesta Micro 2011 Infiniti M Full 2009 (MY 2010) N90F-18 51
  52. 52. Future Hybrid Offerings by Vehicle Manufacturer (Contd…) Automotive Aftermarket: Future Hybrid Offerings by Vehicle Manufacturer (North America), 2009-2015 Vehicle Hybrid Vehicle Model Type of Hybrid Expected Year Manufacturer Jetta Mild 2010Hybrid Vehicle Systems – Findings Passat Mild 2011 Touareg Full 2010 Sonata Full 2010 C30 Micro 2010 S40 Micro 2011 V50 Micro 2011 Cayenne S Full 2010 Panamera Micro 2010 Source: Frost & Sullivan N90F-18 52
  53. 53. Forecast of Electric Vehicles by Manufacturer Automotive Aftermarket: Forecast of Electric Vehicles by Manufacturer (North America), 2008-2015 Tier 1 OEMs Year 2008 2009 2010 2011 2012 2013 2014 2015 BMW 0 0 0 1,000 5,000 10,000 25,000 40,000Market Outlook and Forecasts Chrysler 2000 2000 3500 4,500 11,500 25,000 40,000 60,000 Daimler 0 0 500 1,500 6,000 15,000 30,000 45,000 Ford 0 0 1,000 2,000 7,000 16,000 30,000 50,000 Fuji Heavy 0 0 0 500 500 2,000 5,000 10,000 GM 0 0 1,000 5,000 11,000 25,000 40,000 70,000 Hyundai 0 0 0 0 0 1,000 5,000 10,000 Mazda 0 0 0 0 1,000 1,000 5,000 10,000 Mitsubishi 0 0 1,000 1,000 5,000 10,000 20,000 30,000 Nissan 0 0 1,000 1,000 6,000 12,000 31,000 65,000 BYD 0 0 0 0 1,000 1,000 10,000 20,000 Toyota 0 500 500 5,000 10,500 21,000 40,000 60,000 Total 2,000 2,500 8,500 21,500 64,500 139,000 281,000 470,000 Note: All figures are rounded; the base year is 2008; Source: Frost & Sullivan N90F-18 53

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