Are Manufacturers and Dealers Sleepwalking over the Edge?

1. Are Manufacturers and Dealers Sleepwalking over the Edge? Presented by Trevor Jones FCA FIMI ASE Plc

2. Agenda Dealer profitability summary Are Manufacturers and Dealers Sleepwalking over the Edge?

3. Dealer Performance 2012 2010 2011 2012 Net Profit as a % of Turnover 1.2% 0.8% 1.2% Overhead Absorption 63% 58% 57% Used Vehicle Return on Investment 74% 74% 81% Vehicle Expenses as a % of Gross 67% 69% 65% Overall Labour Efficiency 79% 81% 81% Hours Per Repair Order 1.7% 1.7% 1.7% New Vehicle Registrations 2,030,846 1,941,253 2,044,609

4. Industry Profitability Statistics Headline summary • 2012 – the most profitable year in UK motor trade history • 2013 – has started strongly • Both completely reliant on new vehicle sales performance • 3 key dealership drivers

5. Average Dealer Profitability

6. Overhead Absorption

7. Vehicle Sales Expenses as a % Gross

8. Used Vehicle Return on Investment

9. Prospects for 2013/2014 New Vehicle Volumes? Used Vehicle Volumes? Vehicle Margins? Overhead Absorption? Costs and Expenses? Part Sales?

10. Parts Sales in the United Kingdom • Are Manufacturers and Dealers Sleepwalking over the Edge?

11. The Threat to Parts Sales in the United Kingdom “ I would like to thank all the vehicle manufacturers and their franchise dealers – we don't sell your cars but we’ve got all your customers” Sir Tom Farmer Chairman Kwikfit “Our aim is to repair cars without ever having the need to use OEM parts”. RBS Keynote Speaker International Bodyshop Symposium (2011) “LKQ is the worlds largest distributor of alternative aftermarket collision and in the US, it has transformed the market from 80% vehicle manufacturer parts to 80% alternative. S SAhluwalia Chairman Eurocar Parts

12. Parts Market Summary • C60% of all OEM’s parts sales are accident related • Minimal signs of recovery in the economy • Registrations sticking below 2 million despite optimistic predictions by the SMMT • The accident market is controlled by the insurance companies • A need to protect the after market business particularly accident repairs • The manufacturers view of bodyshops: “Its too dirty, too specialised and there's not enough profit” “We don't really care about body and paint, because we sell the parts anyway”

13. The LCV Market – Key Drivers

14. The Car Market – Key Drivers

15. The University of Buckinghamshire, Report on Parts Profitability – Author Professor Peter Cooke Conclusions • NSC’s and franchised dealers profitability is under attack in terms of new vehicle sales through oversupply and aggressive pricing • The historically highly and profitable parts aftermarket is also under threat from low cost substitutes and aggressive tactics used by insurance companies tight controls of routes to accident repair and profitability • NSC’s franchised dealers have the opportunity to protect their parts sales and profitability, build customer loyalty and retention though the use of franchise insurance programmes.

16. The University of Buckinghamshire, The Broad View Report – Author Professor Peter Cooke Average age of vehicles in the parc is now 7.44 years

17. The University of Buckinghamshire, The Broad View Report – Author Professor Peter Cooke Fewer younger cars in the vehicle parc poses a serious threat to service and bodyshop sales

18. Overhead Absorption Falling overhead absorption is having a significant effect on dealer profitability

19. The University of Buckinghamshire, Report on Parts Profitability – Author Professor Peter Cooke

20. SWOT Analysis Strengths Weakness

21. SWOT Analysis Opportunities Threats

22. The Pressure exerted by Insurers at an Accident • Incident takes place and driver informs insurance company • Insurer will arrange for the vehicle to be moved to an “appropriate” bodyshop after viewing it on Google earth • Components will be chosen by the bodyshop, usually a “cheaper” version, to bring down the cost of the repair • Courtesy car will / may be provided by the insurer • Vehicle returned to the user

23. The Pressure exerted by Insurers at an Accident Effects on NSC’s and Dealers • Loss of component sales • Loss of courtesy car and no possibility of comparison cars • Car write off – no possibility of a replacement sale • Loss of contact – effect on retention

24. The Pressure exerted by Insurers at an Accident Clauses inserted by Insurance Companies Penalties on choice of repair facilities

25. With c 60% of NSC / Dealer Parts Sales at Risk there is a Desperate Need for an Accident Management Programme

26. Benefits to NSC’s and Dealers of a Strong and Supported Accident Management Programme • Repairs undertaken by dealer improving sales of labour • Repair carried out using genuine parts • Provision of a courtesy car • Chance to sell a replacement car after major accident • Helps retention • Protects brand reputation • More emphasis required on the 7 day cover note

27. Motor Insurers are Committed to cut the cost of repair The trend to independents must be reversed