Brake Manufacturers Council 2010 Annual Meeting June 04, 2010 Longboat Key, FL Steve Handschuh Automotive Aftermarket Suppliers Association
Topics to be Addressed AASA/MEMA Overview Key Issues for the 2010 U.S. Automotive Aftermarket Vehicle Safety Initiatives Know Your Parts
What is MEMA? Founded d in 1904 Motor and Equipment Manufacturers Association 700+ members (over 4,000 individuals) id Three Market Segment Associations MEMA exclusively represents North American manufacturers of: motor vehicle components tools and equipment automotive chemicals and related products 4
Representing Manufacturers MEMA members Supply about 90% of the total U.S. market for automotive and heavy duty yproducts Have nearly 12,000 U.S. plant locations Employ approximately 1.3 million workers 80% based in Detroit, Cleveland, Chicago triangle 5
Councils & Committees 6 AASA AAPEX Show Committee Brake Manufacturers Council Brand Protection Council China Aftermarket Forum Filter Manufacturers Council Fuel Pump Manufacturers Council Government Affairs Committee* Marketing Executives Council MEMA Information Services Council Overseas Automotive Council Regulatory Affairs Committee* Coming: Motor & Equipment Remanufacturers Association* * MEMA
Key Factors Driving the 2010 US Automotive Aftermarket Industry Rate of Growth Dealership Closings Vehicle Age Miles Driven Unemployment Lack of Credit Recession - Economic Outlook
U.S. Aftermarket Growth 2008-2.0% 2009F +1.8% 2010F +3.1% 2011F +3.3% 2012F +4.0% 2013F +5.0% 8
Size of the U.S. Automotive Aftermarket $250,000 $200,000 Millions $150,000 $100,000000 $50,000 $0 *= AASA Forecast Source: AASA Automotive Aftermarket Status Report
Primary Components of the U.S. Automotive Aftermarket Tires 12% Purchased Labor 25% Aftermarket Parts 54% Specialty Equipment 9% 2007 2008 Source: AASA Automotive Aftermarket Status Report
Primary Channels of the U.S. Automotive Aftermarket OE Service 30% 2007 Independent Aftermarket 70% 2008 Source: AASA Automotive Aftermarket Status Report and NADA Data
Dealer Closings As many as 3,000 by end of 2010 Independent Aftermarket (IAM) Impact: Roughly $23 billion of wholesale l parts into IAM through OE dealers; $2-2.5 billion available due to closings As much as $5 billion in service work available to the IAM 12
U.S. Light Vehicles in Use Millio ons 245 240 235 230 225 220 215 210 205 200 Light Vehicles in Use in the US U.S. 195 2001 2002 2003 2004 2005 2006 2007 2008 Source: R.L. Polk & Co. 242,081,704 light vehicles in use in 2008
Average Age of Light Vehicles in Use (Years) 9.6 9.4 9.2 9.0 8.8 8.6 8.4 8.2 80 8.0 2002 2003 2004 2005 2006 2007 2008 Source: Registration Data R.L. Polk & Company
U.S. Automotive Aftermarket Five Year Outlook $250,000 000 By Vehicle Age $200,000 Millions $150,000 $100,000 000 $50,000 $0 New to 5 Year 6 to 10 Year Over 10 Year Source: AASA Automotive Aftermarket Status Report
U.S. Light Vehicle Population Growth 20,000,000 18,000,000 16,000,000 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 0 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 Total Lt. Veh. Sales Scrappage Source: Ward s Automotive Reports and R.L. Polk
$18,000,000,000 $6 $16,000,000,000 $14,000,000,000 $12,000,000,000,, $10,000,000,000 $8,000,000,000 $6,000,000,000 $4,000,000,000 $2,000,000,000 U.S. Automotive Aftermarket by Vehicle Age $0 Source: Maintenance Data - IMR Inc. and Registration Data - R.L. Polk
DIFM Repair/Maintenance Cost by Vehicle Age 1050 950 850 750 650 550 450 350 Source: IMR Inc. Continuing Consumer Auto Maintenance Tracking Study
Vehicle Miles of Travel illions of Miles) (Bi 3,100 3,050 3,000 2,950 2,900 2,850 2,800 2,750 2,700 2,650 2,600 2,550 2,500 Every 1% decline in miles driven reduces aftermarket volume by approximately $500 million 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: US DOT
Economic Outlook New Privately-Owned Housing Units Started 2,000 1,800 adjusted annual ra ate. Thousands of units, seasonally 1,600 1,400 1,200 1,000 800 600 400 200 0 Source: U.S. Census Bureau
U.S. Unemployment Rate 12 10 8 6 4 2 0 Source: Bureau of Labor Statistics, US Department of Labor
National Average Retail Price - One Gallon of Regular Gasoline $4.25 All Formulations $4.00 Every one penny change in prices at the pump moves $1 Billion into or out of $3.75 $3.50 vehicle owners pockets. $3.25 $3.00 $2.75 $2.50 $2.25 $2.00 $1.75 $1.50 Jan-05 Mar-05 May-05 Jul-05 Sep-05 Nov-05 Jan-06 Mar-06 May-06 Jul-06 Sep-06 Nov-06 Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Source: Energy Information Administration
Average Gasoline Expenditures Percent of Median Household Income 85% 8.5% 8.0% 7.5% 7.0% 6.5% 6.0% 5.5% 5.0% 4.5% 4.0% 35% 3.5% 3.0% 2.5% 7.65% 6.71% 6.91% 5.07% 5.27% 6.42% 4.98% 4.32% 4.44% 4.93% 4.33% 4.77% 4.63% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Source: US Department of Labor, Bureau of Labor Statistics
Indexed Aftermarket Comparable SSS vs. Gas Prices 7.5% $4.00 6.0% $3.80 $3.60 4.5% $3.40 $3.20 3.0% 1.5% 0.0% $3.00 $2.80 $2.60 $2.40 Yr/Yrr Change SSS Avg. gasoline price $2.20 1.5% $2.00 3.0% $1.80 $1.60 4.5% 45% $1.40 Q1'03 Q2'03 Q3'03 Q4'03 Q1'04 Q2'04 Q3'04 Q4'04 Q1'05 Q2'05 Q3'05 Q4'05 Q1'06 Q2'06 Q3'06 Q4'06 Q1'07 Q2'07 Q3'07 Q4'07 Q1'08 Q2'08 Q3'08 Q4'08 Q1'09 Q2'09 SSS Parts Retailers SSS Professional Installers Avg. gasoline price Source: BLS, Company filings, BB&T Capital Markets
Average Number of Repair Orders Each Month 80 75 70 65 60 55 50 45 40 Source: IMR Inc.
Issues Impacting Vehicle Repair Economy, unemployment=decrease in spending Improved vehicle reliability and longer service intervals Owners relying on vehicle service reminders rather than scheduled maintenance Service model: break-down repairs vs. preventive maintenance Increasing vehicle complexity requiring i increased investments in tools, information and training Competent and qualified technicians Access to diagnostic and repair information Remote vehicle diagnostics Regulatory (environment, business) compliance Increased focus on ROI
Vehicle Safety Initiatives In view of Toyota safety issues and criticism of NHTSA, vehicle safety is going to be a hot topic for some time to come Only 17 states still require mandatory safety inspections Grassroots campaign to lobby US Congress on the need for nationwide id mandatory safety inspections
The Situation Low-cost, low-quality lit auto parts are finding their way into all aftermarket channels Outsourcing methods are replacing popular premium, branded parts Essential services offered by Full Service y Suppliers are being diminished
ASA Member Surveys The study examined the use of OEpurchased parts vs. aftermarket- purchased parts as well as country of origin preferences This study revealed that service providers want more information about what s in the box (i.e., country of origin, specifications, certifications, labeling, etc.)
Babcox Tech Group Surveys Importance of Factors in Deciding Brand of Part (a higher value = more important) Quality/fit/function 4.8 Available @ primary parts source 4.3 Strong brand name Lifetime w arranty Full line coverage 4 3.9 3.8 Informative catalog Low price 3.2 3.4 Tech Hot Line/training 3 Promotion/contest 1.9 0 1 2 3 4 5 6 Average Rating Given
Focus Group Study Three geographic regions Raleigh, NC; Chicago, IL; and Los Angeles, CA More than 60 participants, including: Shop owners Technicians Service advisors
Focus Group Study Top considerations on choosing a particular brand Same Brand I'm Taking Off Availability at Primary Source Rebates/Marketing Programs 0 0 32.6% Speed of Delivery Lifetime Warranty 0 17.3% Previous Experience with Brand 39.1% Strong Brand Name Price Form/Fit/Function 6.5% 4.3% 100% 0 10 20 30 40 50 60 70 80 90 100
The Campaign A public awareness campaign to educate and inform everyone throughout the supply chain, especially the repair professional, of the importance of using quality parts from trusted t full-service suppliers.
The Risks Safety threat consumer and technician Product liability Loss of essential services Consumers driven to dealers Irreparable damage to the Independent Aftermarket
Know Your Parts! Full Service Suppliers to design, engineer and produce quality parts and to promote brand and essential services; Channel Partners to promote brand name products from trusted Full Service Suppliers and support suppliers programs; Repair Professionals to diagnose, repair and replace broken or worn-out components with only premium quality yparts; Vehicle Owners to ask about the parts being installed and research the brand before authorizing repairs.
Motorists Care About Brands Source: IndustrialMR, Inc. from Aftermarket News
Know Your Parts! AASA Special Report: Independent Repair Industry: Focus Group Findings on Buying Influences of Repair Professionals AASA Special Report: Independent Aftermarket Image: Quality Does Matter PSA video produced by NASCAR Performance AASA Know Your Parts materials FAQs, Full-service Suppliers, pocket card, etc. Web site kyp.aftermarketsuppliers.org
Know Your Parts!
Thank You!