MEMA Financial Services Group • September 20, 2007 • St. Louis, MO
Discussion Outline • 1. Brief Overview of AASA • 2. Defining the aftermarket • 3. State of the industry • 4. Health of the supplier base • 5. Open discussion & Questions
AASALeadership in the Global Automotive Aftermarket • Automotive Aftermarket Suppliers Association • Aftermarket Market Segment Association (MSA) of MEMA • HDMA, OESA • Nearly 300 Member Manufacturers • Represent 80% of North American Aftermarket Volume • Approximately $154 Billion in Sales
Automotive Aftermarket Suppliers Association • AASA serves as the voice of the automotive aftermarket suppliers and: • is a recognized industry change agent • promotes a collaborative industry environment • provides a forum to address issues • serves as a valued resource for members
AASA Value Proposition • Government Affairs • Image of AASA Member Manufacturers in the Automotive Aftermarket Industry • Market Research, Industry Analysis, Benchmarking & Best Practices • Manufacturing Standards • Industry Collaboration on Issues Important to AASA members • Brand Protection and Intellectual Property Rights • Global Opportunities and Challenges for AASA Members • Education & Training • Member recruitment, retention & satisfaction
Defining the U.S. Aftermarket2006 • New vehicle parts market = $193 billion • Light vehicle aftermarket sales of products and service $209 billion • Sales of Heavy Duty aftermarket products and services $59 billion • Combined light/heavy duty aftermarket products and services $268 billion
Primary Drivers of Aftermarket Sales Volume • Vehicles in Service • Miles Driven
Total Light Vehicles in Use by Age Automotive Aftermarket Sweet Spot Source: R.L. Polk
Shares of Vehicles in Service Source: R.L. Polk
Shares of New Vehicle Sales Source: Ward’s Automotive
Aftermarket Distributor Sales Source: MFSG * MEMA Est.
Producer Price IndexMotor Vehicle Parts and Accessories Base = 12/1/2003
U.S.-World Parts Trade 1998-2006 Source: U.S. Bureau of the Census
U.S.-EU Parts Trade1998-2006 Source: U.S. Bureau of the Census
U.S. - China Auto Parts Trade, 1995-2006Since 2000, the auto parts trade deficit with China increased 333% Source: U.S. Bureau of the Census
State of the Industry • Aftermarket large and growing modestly • Primary aftermarket drivers—vehicles in use; miles driven—continue positive • Significant period of transition and challenge • Still a relationship business at the store to buyer level • Fundamentals of quality, availability and service still mean something • Balance of power has shifted; “power buyers” WD’s and retailers in the driver’s seat • Aftermarket mergers and acquisitions continuing at a record pace; transactions first 6 months of 2007: 55; up 28% over 2006 • Private equity creating churn in the aftermarket; 21 of 55 transactions • Service Dealer demand for form, fit and function driving increased SKU count and inventory investment • Insistence on lowest invoice price accelerating low cost country sourcing • Value-adds being stripped from prices at all levels
Supplier Jobs: Midwest Focused, but Moving Southeast Source: MEMA, “Motor Vehicle Suppliers: The Foundation of U.S. Manufacturing,” January 2007
Health of the Supplier Base • Manufacturers are struggling to maintain profitability • Margin erosion at all levels • Globalization impacting acquisition and sourcing • Raw material costs rising • Value added suppliers are competing for lowest price business • NA manufacturing shifting focus to emerging international markets • Little collaboration to address industry issues • Many are well under way in transforming themselves into global manufacturers/”provisioners”
The NA Table of Pain Business models must survive through . . . Source: CAR and OESA at the 2005 Management Briefing Seminar; Updated by OESA through February 2007 Note: Auto accounts for 41% of US steel consumption, 31% of US iron consumption, 32% of US aluminumconsumption and 4% of US plastic consumption (CAR – Fall 2003 economic significance report)
AASA Supplier BarometerQ3 2007 • Question 4. Accounts receivable activity has been:
5 Q-1 Q-2 Q3 4 3 2 1 Healthcare costs Availability and cost Lack of pricing Weak sales Globalization Labor cost & Excess inventory Regulatory & Product returns Counterfeit of raw materials power availability legal issues products AASA Supplier BarometerQ3 2007 • Question 8: How significant are these issues facing your company? 1= Not important 5 = Very important
Risks and Critical Issues • Rising gasoline prices • Counterfeit Automotive Aftermarket Parts • Rising Imports
Conclusion:Gas Prices & the Aftermarket • Generally speaking, gas prices and aftermarket growth tend to trend positively over time • There is a point at which gas prices negatively impact the aftermarket and it appears that the threshold is $2.60 per gallon • Over $2.60 per gallon, discretionary spending is curtailed and optional repairs are deferred
Counterfeiting: Industry Infringement Facts • The automotive industry loses an estimated $12 Billion in revenue annually (75% from Asia) to service parts counterfeiters, $3 Billion in the U.S. alone. • Projected to grow to $45 Billion by 2011. • Massive increase in global counterfeit activity in last five years. • It is estimated that over 250,000 NAFTA automotive manufacturing jobs are lost to counterfeiters diluting the market with counterfeit parts which drives demand down for genuine parts. • Counterfeit parts are sold at 50-85% of Genuine pricing and are estimated to deliver at only 20-30% of their value (performance, wear, system integration).
Counterfeiting: Industry Infringement Facts • Maintenance & high volume items most often faked • Oil filters, air filters, fuel filters • Disc brake pads • Wheels and tires • Spark plugs • Shock absorbers • Belts and hoses • Automotive fluids (motor oil, brake fluid, steering fluid, windshield wiper fluid) • Windshields • Bearings • Gaskets
Counterfeiting: Danger of Counterfeit Parts • Counterfeit brake pads, made of grass clippings and saw dust, have caused fatal accidents. • Counterfeit suspension parts and wheels break when made with substandard materials. • Counterfeit vehicle hoods without crumple zones penetrate the passenger compartment. • Counterfeit windshields without safety shatterproof glass cause injury or death. • Counterfeit oil filters lead to premature engine wear and failure. • Federal agents in Queens and Manhattan (New York City) seized unsafe counterfeit brake parts, tail lights and other parts being installed by dealers on taxi cabs.
Counterfeit Autoparts 2006 was a record year for the number of IPR seizures and domestic value of goods seized. The domestic value of products seized for IPR violations increased by 67% compared to FY 2005.
Opportunities for Suppliers • Collaboration with channel partners • Use technology to reduce cost and for competitive edge • Low-cost manufacturing strategy • Strategic alliances/partnerships • Revenue diversification • Leading market position (product, technology and process)