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360 Degree Perspective of the North American Automotive Aftermarket
N90F-18 February 2011
Capitalizing on Anticipated Growth in Vehicle Maintenance and Repairs
2N90F-18
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Disclaimer
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Certification
• We hereby certify that the views expressed in this research service accurately reflect our views based on primaryand secondary research with industry participants, industry experts, end users, regulatory organizations, financialand investment community, and other related sources.
• In addition to the above, our robust in-house forecast & benchmarking models along with the Frost & SullivanDecision 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 thespecific recommendations or views expressed in this service.
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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 99
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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), 2008-2017
28
Automotive Aftermarket: Manufacturer-level Replacement Parts Revenues by Category (North America), 2007-2017
29
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 (North America), 2010
49
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 57
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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), 2010
75
Automotive Aftermarket: SWOT Assessment of the Warehouse Distribution and Jobber Channel (North America), 2010
77
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), 2010
80
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 93
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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 98
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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 (North America), 2010
36
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List of Charts (Contd…)
Automotive Aftermarket: Manufacturer-level Tools & Equipment Revenues by Product Type (North America), 2008 and 2015
37
Automotive Aftermarket: Manufacturer-level Selected Diagnostic Equipment Revenues by Product Type (North America), 2005-2015
38
Class 4-8 Truck Aftermarket: Total Manufacturer-level Replacement Parts Revenues (North America), 2004-2014
43
Class 4-8 Truck Aftermarket: Manufacturer-level Replacement Parts Revenues by Distribution Channel (North America), 2010
43
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), (2010)
61
Automotive Aftermarket: Percentage of Owners Who Have Scheduled Maintenance at A Vehicle Dealership (United States), 2010
62
Automotive Aftermarket: Percentage of Vehicle Owners Choosing Dealership Service by Reason (United States), 2010
63
Automotive Aftermarket: Other Types of Maintenance Performed Within the Past 12 Months (United States), 2010
64
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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(United States), 2010
67
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 (North America), 2008
81
Automotive Aftermarket: Distributor-level Revenues by Type (North America), 2010 82
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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 (North America), 2008
92
Automotive Aftermarket: Revenue Distribution by Product Category (North America), 2017 97
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Introduction to the 360º View of the North American Aftermarket
• This strategic overview of North American automotive aftermarket industry is targeted atCEO and director-level executives in the industry.
• It outlines emerging trends, industry metrics, and transitional events that impact theaftermarket today and into the future. It highlights areas where growth opportunities existin this ever-evolving market.
• The 360 Degree perspective provides insight into a variety of topics beyond just parts andservice potential; it investigates the impact of social, regulatory, legislative, political, andtechnology changes that influence the vehicle mix, product mix, product and servicepricing, promotion, technician skill and training, repair information, service locations anddistribution 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 tobest capitalize on the opportunities most relevant to that organization.
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The CEO’s Perspective of the Complex Business Universe
Source: Frost & Sullivan
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What is a 360º Analysis?
• Global – You must be able to identify geographic expansion opportunities, monitor the political andregulatory effects of doing business in another country; understand cultural implications andrequirements.
• Industry – You must maintain a solid grasp of your key industries and the industries that could have animpact 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 andopportunities; plan for potentially disruptive technologies; leverage new products and/or applicationsfor growth.
• Economic – You must be able to identify current and future economic trends; identify growingcustomer 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 marketperceptions, 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 anddevelop the Growth Team; ensure Growth Team members understand their functions and contributionsto growth; leverage industry Growth Thought Leaders and best practices.
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:
Source: Frost & Sullivan
15
Methodology
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Research Methodology
• The information provided by market participants is qualifiedthrough: 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 withanalysis of the market to provide basis for the unit, revenueand pricing forecasts for each product category.
• Market valuation data are then compared to knownindustry information as a means of verifying and validatingmarket size. Known data include: Vehicles in Operation (VIO)
Replacement rates of products with similar exposure, life expectancies, and warranties
Growth trends, product and technology trends, pricing, application coverage
• Because the metrics analyzed in this research areredacted from multiple research studies, the base years,historical periods and forecast periods are not the same forall measurements.
• This research is a compilation of findings published byFrost & Sullivan’s automotive aftermarket team over the pastthree years.
• It includes primary research based on Frost & Sullivan’sbottom-up methodology as well as secondary data sources.
• Primary research requires analysts to conduct interviews withall major market participants (manufacturers and distributors)to capture each participant’s unit shipments and revenuemarket size at the component level. The analyst builds a baseyear market valuation for each component by summing theinputs of all participants.
• Analysts also garner information related to the impacts oflegislative changes, technological development, competitivesituations and distribution developments.
17
Introduction to the North American Aftermarket
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Major Aftermarket Trends
1. The closure of more than 3,000 auto dealerships since 2008 has created new parts and serviceopportunities for the independent aftermarket, while forcing automakers to re-evaluate their approach tovehicle maintenance and repairs.
2. The sharp decline of new car and light truck sales over the past two years has resulted in a higheraverage 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 routineservices 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 andservice providers to adjust to marketplace demands for products that make vehicles lighter, more fuelefficient, safer, and compliant with all applicable regulations.
5. This includes the projected growth of hybrid and electric vehicles, which have some unique maintenancecharacteristics that service providers should understand.
6. Continuous market pressure to supply products and services at the lowest possible cost threatens theindustry’s ability to react to change and develop profitable solutions over the medium to long term.
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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
Automotive Aftermarket: Vehicles in Operation by Model Year (North America), 2010
By looking at component life expectancy andconsumer replacement behaviors, analyzing thevehicle population by age provides insight intoaftermarket size and growth potential.
Vehicle age is a strong indicator of warrantystatus and a key indicator of repair opportunity.
Note: All figures are rounded; the base year is 2009. Source: Frost & Sullivan
0
50
100
150
200
250
300
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Vehi
cles
in O
pera
tion
(Mill
ion)
MY 2017MY 2016MY 2015MY 2014MY 2013MY 2012MY 2011MY 2010MY 2009MY 2008MY 2007MY 2006MY 2005Pre MY 2005
Vehi
cles
in O
pera
tion
(Milli
on)
MY 2006-200713%
MY 2008-20119%
Older4% MY 1986-1991
9%
MY 1992-199720%
MY 1998-200121%
MY 2002-200524%
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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
Automotive Aftermarket: Vehicles in Operation by Brand (North America), 2010
Chrysler-Dodge-Jeep
13%
Ford-Lincoln-Mercury
21%
General Motors29%
Honda-Acu ra7% Nissan-
Infiniti5%Toyota-
Lexus-Scion11%
Hyundai-Kia3%
BMW1% Daimler
1%Audi-VW
2%
Other7%
Automotive Aftermarket: Vehicles in Operation by Type (North America), 2006-2016
• The North American vehicle population is expected toshift toward foreign brands by up to 13% between 2009and 2016.
• Currently imports represent 35% and are forecast togrow at CAGR of 4.1%.
• The shift re-defines the “all makes/all models” definitionand directly impacts component sales based uponmanufacturers associations with vehicle manufacturers.
Source: Frost & Sullivan, Wards Automotive, Automotive News
0
50
100
150
200
250
300
Vehi
cles i
n Op
erat
ion (
Milli
on)
FSvan
Pickup
Minivan
SUVlux
SUVstd
SUVcomp
CarLux
Family
Specialty
Compact
VIO Out of Warranty
86% VIO in Warranty
14%
Veh
icle
s in
Ope
ratio
n (M
illio
n)
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• Long gone are the days of fixing a vehicle where it stands. The evolution of a number of factors created the need for a sophisticated delivery of repair delivery services. Factors include such elements as: A large vehicle populationRising vehicle complexityNeed for sophisticated
diagnostic equipment and specialized tools
Workplace safety legislation Labor laws Productivity demandsWorkmanship commitments
Shop Counts, Technician Counts, and Bays are the Key Metrics that Support the Repair Industry
• The three key elements that indicate the health and direction of the repair industry are:Number and type of repair
locationsNumber of available baysNumber and qualification
level/ skill level of repair technicians
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Service Centers by Type
Repair Location 2010
Locations2010
Avg. Bays2010
Technicians2010
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 PerformingService 3,978 8.3 10,342 2.6
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 Websites
Automotive Aftermarket: Service Centers by Type (United States), 2010
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Location 2005 2006 2007 2008 2009 2010 2011 2012 2013
Dealer 21,495 21,200 21,139 21,022 17,130 16,800 16,716 16,718 16,719
IRF 76,614 77,228 77,364 77,442 77,519 77,674 77,597 77,364 77,364
Specialty Repair 32,087 30,835 29,850 29,889 30,221 30,372 30,463 30,494 30,494
Gas w/service 32,604 32,689 32,761 32,870 32,979 32,979 32,946 32,913 32,880
LOF 7,735 7,761 7,978 8,201 8,322 8,330 8,338 8,338 8,338
Collision 36,818 36,713 36,560 36,524 36,372 36,008 35,828 35,828 35,828
Auto Parts w/Service 5,175 5,180 5,194 5,191 5,185 5,190 5,195 5,201 5,206
Tire Dealer 18,188 18,188 18,250 18,286 18,348 18,440 18,532 18,624 18,718
Retailers 3,977 3,983 3,974 3,988 3,978 3,978 3,982 3,986 3,986
Towing 4,629 4,622 4,633 4,640 4,647 4,647 4,647 4,647 4,647
Truck Repair 23,316 23,316 23,286 23,251 23,274 23,158 23,111 23,111 23,157
Light Vehicle Repair Locations 262,637 261,715 260,989 261,302 257,975 257,576 257,355 257,224 257,337
Source: Frost & Sullivan
Automotive Aftermarket: Service Centers by Type (United States), 2005-2013
Service Centers by Type (Contd…)
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LOF2.8%
Collision13.3%
Specialty Repair 7.0%
Tire Dealer12.1%
Retailers1.2%
Auto Parts w/Service
1.9%
Towing0.6% Truck Repair
7.5%
Gas w/service2.7%
IRF27.8%
Dealer23.1%
Mix of Locations Not Expected to Change Much Across the Forecast Period
0%10%20%30%40%50%60%70%80%90%
100%
2005 2006 2007 2008 2009 2010 2011 2012 2013
Perc
ent o
f Tot
al L
ocat
ions
Dealer IRF Specialty Repair Gas w/service LOF CollisionAuto Parts w/Service Tire Dealer RetailersTowing Truck Repair
Automotive Aftermarket: Service Centers by Type (United States), 2005-2013
Percent representation in the population changes little. Evenwith a CAGR of -5.5%, the decline in dealership numbersrepresented a loss of 0.1% share to the channel.
Location is only one measurement. As visible by the techemployment and bay numbers, closure of a dealershipsignificantly impacts industry and channel service capacity.
Automotive Aftermarket: Service Centers by Type (United States), 2010
Perc
ent o
f Tot
al L
ocat
ions
Source: Frost & Sullivan
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Technicians are Concentrated in Auto Dealerships (Dealer), General Repair Facilities and Tire Stores (Tire Dealer)
Source: Frost & Sullivan, ASE, Bureau of Labor Statistics
Automotive Aftermarket: Service Technician Employment by Type (United States), 2010
• Recent shop closures have not impacted the number of technicians as yet because accreditation is not tied toemployment.
• Closures have impacted employment by channel. Numbers are expected to decrease further in 2011 as dealersadjust to lower volume. Because of the high ratio of employment to location in the dealer channel, a singleclosure has major impact on industry employment.
LOF2.8%
Collision13.3%
Specialty Repair 7.0%
Tire Dealer12.1%
Retailers1.2%
Auto Parts w/Service
1.9%
Towing0.6% Truck Repair
7.5%
Gas w/service2.7%
IRF27.8%
Dealer23.1%
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The OES channel, comprised of franchised auto dealerships, captures approximate 30% share of all aftermarket parts and service revenues.
The downfall of the economy has caused lower disposable incomes for consumers, and reduced new car sales.
Local brands have been losing market share to foreign brands of Asian and European origin.
GM & Chrysler shuts down dealerships.
(cost cutting efforts)
• The average U.S. auto dealership employs 12 service technicians and contains 18 service bays. If each terminateddealership closes, it would eliminate as many as 50,000 dealer service bays and displace more than 35,000 trainedservice technicians.
• It would also force many people who currently take their vehicles to dealerships for service to purchase parts andservices through the independent aftermarket.
• In addition to new vehicle maintenance, auto dealerships also derive significant revenues from collision repairservices.
• However, it tends to lose easy, profitable jobs such as brakes, oil/filter and tire replacement to lower-pricedindependent repair facilities.
The Original Equipment Service (OES) Channel is Used Mainly by Owners of Vehicles Less than 5 Years of Age
Source: Frost & Sullivan
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Competitive Evaluation of the Service Industry
• The number of total service locations has remained stable over the past decade, although the mix andtype of outlets is changing.
• The closure of dealerships is significant not only because they have more technicians and service baysthan 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 ratherthan a specialized focus on brakes, tires, air-conditioning or oil changes, etc. – make up the largestprovider category.
• Mass merchants such as Walmart and Costco represent a relatively new type of service provider with thepower 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 promotionalefforts.
• A key success factor for the service industry is ensuring the vehicle is repaired properly the first time sothat 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 transmissionwork, are typically more profitable than those offering a broader range of services.
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Shift from Original Equipment to Aftermarket Manufacturers
WhyThe North American automotive aftermarket is mature and will experience low growth over the 2011-2017 period. Total manufacturer-level revenues in the 2010 base year were approximately $83 billion and are forecasted to reach $98 billion by 2017.
WhoThe North American aftermarket draws competition from across the world. The main stakeholders are parts manufacturers, vehicle manufacturers, retail and 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.
IssuesThe aftermarket has rigid business requirements for production runs, inventories, parts coverage, pricing, logistics, sales, marketing, distribution and 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.
So what?The independent aftermarket is in direct competition with the OES channel, which sells original parts through auto dealer networks and employs highly 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.
And?Vehicle manufacturers and their dealers have lost market share over the historical period to independent aftermarket parts and service providers. 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 & Sullivan
Automotive Aftermarket: Shift from Original Equipment to Aftermarket Manufacturers (North America), 2008-2017
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Despite Challenges Aftermarket Parts Expected to Grow at CAGR of 2.1%, Driving Revenues to US$91.0B by 2015
Revenues (2007)
Revenues (2010)
Historical Growth
Revenues (2017)
CAGR (2010-2017)
Tires $16,300 M $17,400 M 2.2% $22,300 M 5.1%
Batteries $2,834 M $3,198 M 4.1% $3,339 M 0.6%
Brake Parts $2,686 M $2,938 M 3.0% $4,016 M 4.6%
Filters $1,228 M $1,282 M 1.4% $1,512 M 2.7%
Collision Body $3,430 M $3,854 M 4.0% $4,100 M 0.9%
Starters & Alternators $1,326 M $1,346 M 0.5% $1,268 M -0.8%
Lighting $1,104 M $1,047 M -1.8% $1,076 M 0.4%
Wheels $837 M $862 M 1.0% $908 M 0.7%
Exhaust Components $783 M $784 M 0.0% $1,086 M 4.8%
Spark Plugs $673 M $588 M -4.4% $664 M 1.7%
Others $47.5 Billion $49.7 Billion -0.5% $55.0 Billion 1.5%
Total $78.7 Billion $83.0 Billion 1.8% $97.6 Billion 2.3%
•The aftermarket continued togrow over the 2007-2010 periodin spite of the economicrecession.
•Growth rates will increase overthe forecast period as peoplekeep their vehicles longer,resulting in higher maintenance,repair and modification activity.
•Products in the maintenancecategories are expected to growat strong rates, including brakeparts, tires and filters.
• Increases in material andtransportation costs are expectedto drive component prices anddecrease margins for suppliers.
•New OEM technologies willreduce demand for someimportant replacement parts inthe starters/alternators andlighting categories.
Automotive Aftermarket: Manufacturer-level Replacement Parts Revenues by Category (North America), 2007-2017
Source: Frost & Sullivan
30
Political and Regulatory Influences
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Top Trends
Impact
High
High
Low
Low Certainty
Social Trend of Going ‘Green’
Emission Legislations
Right to Repair Act
Economic Rebound
Slow Increase of VIO
Lower Cost Imports
Rising Fuel Prices
Introduction of EVs and HEVs
Shift in Vehicle Segment
Safety Legislation
MaterialCosts
Overall maintenance and repair activity will increase over the short to medium term as the economy recovers from recession. Over the medium to long term, participants must prepare for smaller vehicles, a more diversified population, new technologies and price competition.
Automotive Aftermarket: Top Trends (North America), 2010
Source: Frost & Sullivan
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Key Legislative and Regulatory Areas
• Possible free trade agreements (South Korea, Columbia, Panama).
• Import duties.
• Impact of “Buy American” Legislation.
• Proposed Motor Vehicle Safety Act of 2010.
• New opportunities for replacement and aftermarket alternatives.
• Use of materials for manufacturing, etc.
• Use and handing of toxic materials.
• Waste management.
• Potential passage of Employee Free Choice Act.
• Lingering unfunded pension obligations.
• Quality control and testing.
• NHTSA oversight.
• CAFÉ.
• EPA exhaust regulations.
Source: Frost & Sullivan
Automotive Aftermarket: Key Legislative and Regulatory Areas (North America), 2010
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Major Legislative Topics
TextingAuthorities across North America are passing laws banning the use of text messaging while operating a motor vehicle. The federal government has passed similar legislation covering drivers of all large commercial trucks and buses. The problems of distracted driving will likely drive additional legislation.
CAFECorporate 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 mpg for light trucks by 2016. Automakers will use different materials, technologies and part designs to comply with the federal mandate.
Disabled Drivers &
Passengers
The need to accommodate the mobility needs of disabled drivers and passengers creates ongoing opportunities for up-fitters and coachbuilders for vehicle modification and product installation.
SafetyMotor Vehicle Safety Act of 2010 proposes increased standards for vehicle safety, including greater regulatory influence on vehicle part design and recall procedures, and fees for automakers. Most prominent are brake override controls and event data recorders installed on all new vehicles.
EmissionsEPA exhaust emissions regulations target NOx and particulate matter from large diesel trucks, but may have future implications for light cars and trucks. It also drives the use of new low-sulfur fuels, biofuels and advances in turbochargers, catalytic converters and other system components.
Right to Repair Act
Adoption would require automakers to share needed data with the aftermarket to repair and maintain their vehicles, giving consumers a choice of where to take them for service. The independent aftermarket fears being rendered unable to compete with the OES channel if vehicle repair information is made proprietary.
Automotive Aftermarket: Major Legislative Topics (North America), 2010
Source: Frost & Sullivan
34
Integrated Industries
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Industries of Close Relation
Automotive Aftermarket
Tools & Equipment
Diagnostic Equipment
Paint, Body & Equipment
Logistics
HD AftermarketSource: Frost & Sullivan
36N90F-18
Tools & Equipment
• Mechanic hand tools include: Socket wrenches, cutters/pliers, flat wrenches, screw drivers, adjustable/pipe wrenches, torque wrenches, ballpeen 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, trade's tool sets, drain snakes, closet augers), hand operatedsaws, 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 paintbooths and shop equipment "consumables").
22.1 24.1 25.8 27.1 28.4
0 5
10 15 20 25 30
2004 2007 2010 2012 2014
Reve
nues
($ B
illion
)
•It is important to note that most products in the tools category are sold through home centers, and a large shareof product applications are in the professional services, DIY, and home development – with automotive servicesholding a smaller share.
•Opportunities are present for automotive retail participants to target consumers outside automotive services.
Key Takeaway
Automotive Aftermarket: Manufacturer-level Tools & Equipment Revenues (North America), 2004-2014
Automotive Aftermarket: Manufacturer-level Tools & Equipment Revenues by Distribution Channel (North America), 2010
Rev
enue
s ($
Billi
on)
Hardware & Other Retail16%
e-Commerce / Internet
2% Direct Sales
17%
Wagon Jobbers8%
General & Specialty Distributors
25%
Mass Merchandisers12%
Home Centers 20%
Source: Frost & Sullivan
37N90F-18
37.0%
18.9%13.3%
3.2%5.2%
22.4% 37.9%
19.7%
11.1%
2.4%
6.3%
22.6%Scan Tools
S/W
Exh. Gas Analyzers
Engine Analyzers
System Testers
Integrated Diagnostic Systems
Manufacturer-level Tools & Equipment Revenues by Product Type
• Participants in the service channel are equipped with scanners, system and multifunction testers, engine analyzers, andexhaust gas analyzers.
• This trend is not expected to change over the 2008-2015 period because scanners, system and multifunction testers arecrucial to vehicle maintenance and provide the best return on investment.
2008
2015
Automotive Aftermarket: Manufacturer-level Tools & Equipment Revenues by Product Type (North America), 2008 and 2015
Source: Frost & Sullivan
38N90F-18
Automotive Aftermarket: Manufacturer-level Selected Diagnostic Equipment Revenues by Product Type (North America), 2005-2015
• All independent and franchise repair shops own a diagnostic scan tool. The poor economic environment of 2010 contributedto a general decline in service demand, which restrains the ability of many shops to update their equipment over the forecastperiod.
Automotive Aftermarket: Manufacturer-level Selected Diagnostic Equipment Revenues by Product Type (North America), 2005-2015
Source: Frost & Sullivan
Rev
enue
s ($
Billi
on)
39N90F-18
Paint, Body, and Equipment
• Paint accounts for approximately $1.8 billion, or 85.7 percent oftotal revenues, while shop equipment and accessories make upthe remaining $0.3 billion, or 14.3 percent of revenues.
• Walk-in, or DIY, business represents approximately 7 percent ofsales, while professional painters and body shops account for 93percent of distributor sales.
• Increasing vehicle salvage values causes more vehicles to bewritten off as total losses by insurers. This increases theavailability of high quality OE replacement parts and challengesoverall part revenue generation for the industry.
• Rising repair costs, the improved safety features of modernvehicles, and aggressive pricing for new cars have alsocontributed to reduced accident rates and more total losses, whichkeeps vehicles out of the body shops.
• Body shop overcapacity squeezes margins for distributors.Industry estimates that there are 36,451 body shops in the UnitedStates alone, although industry demand can profitably sustain20,000 to 25,000 shops.
• There is a significant amount of consolidation taking place on thedistribution side of this industry. Large distributors such asFinishmaster, Sherwin Williams, and CARQUEST have beenacquiring smaller competitors to drive their growth.
Paint Manufacturers(e.g. DuPont, PPG, BASF)
Distributor/Jobber(e.g. Finishmaster, Sherwin Williams, Akzo Nobel)
Independent Body Shops(local businesses)
$2.1 billion(manufacturer level)
$2.8 billion
$3.5 billion
Paint and body shop equipment is sold through a two-step distribution process.
Market includes automotive paints, braces, masking paper, masking tape, body fillers,
sanding/grinder discs, and glues and adhesives.
Source: Frost & Sullivan
40N90F-18
Logistics
• Increase delivery efficiency• Decrease overall logistics costs
Objectives of 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.
Source: Frost & Sullivan
41N90F-18
Supplier Regional Distributor
Local Distributor Installer
Logistics and Regional Distributors
The fundamental function of the regional distribution center is to replenish inventory of local distribution centers.
Usage of Land, Air, and Sea Freight
Pull Order System
• 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.
Are Regional Distributors Really Needed?
Source: Frost & Sullivan
42N90F-18
3PL.. The Solution?
• 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.
Why use 3PL?
Supplier 3PL Installer
• It is important to carefully evaluate current overall costs in owning a regional distribution center, frequency of delivery, and the cost of freight logistics.
• 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.
Key Takeaway
Source: Frost & Sullivan
43N90F-18
The Heavy Duty (HD) Aftermarket
• 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.
13.4 15.3
17.2 18.4
20.1
0
5
10
15
20
25
2004 2007 2010 2012 2014
Rev
enue
s ($
Bill
ion)
HD
Specialist26%
Truck Dealers
43%
Engine Distributors
7%
ISPs13%
Automotive Aftermarket
6%
Others5%
Class 4-8 Truck Aftermarket: Total Manufacturer-level Replacement Parts Revenues (North America), 2004-2014
Class 4-8 Truck Aftermarket: Manufacturer-level Replacement Parts Revenues by Distribution Channel (North America), 2010
Rev
enue
s ($
Billi
on)
Source: Frost & Sullivan
44N90F-18
Distribution Structure
OESTruck Stops
Internet / Mail Order
OEMExporter
New Truck Dealer Parts Depts.
New Truck Dealer Service Depts.
Truck Stop Service Bays
Fleet & Owner Operators
Off-Shore Manufacturer
Engine/ Transmission Rebuilders
U.S. Parts Manufacturer Remanufacturer Salvage Yard
Body Shops
Collision Parts Distributors
Independent HD Installers
Jobbers/ Wagon Jobbers
Re-Distribution Jobber
HD WDs Fleet Repair Shops
Program Groups
WDs
DIYers
Source: Frost & Sullivan
Class 4-8 Truck Aftermarket: Distribution Structure (North America), 2009
45N90F-18
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 distributioncosts and improve value benefits of distributors. Distributors changing focus from products to services, mimickingthe 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 experiencingcontinuous 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 exchangeservices and part.
• Research indicates that dealers and independent distributors sometimes purchase from each other whenneeded, but prefer to keep this fact unknown.
46
Technology Trends
47N90F-18
Technology Applications
• New inventory management processes maximize efficiency and reduce inventory costs.
• Use of RFID tags and Bluetooth technology for inventory management and upkeep.
• Lean manufacturing process.• New manufacturing
processes to maximize quality and
minimize costs.• Use of more
efficient machinery.
• Development of new offerings to match new OE parts and products.
• Increased adoption of electronics in vehicles supports demand for more high-tech products, maintenance, and repair solutions.
• Aftermarket products in the performance category require
heavy R&D processes for companies to develop better
product offering portfolios.
Automotive Aftermarket: Technology Applications (North America), 2010
Source: Frost & Sullivan
48N90F-18
Hybrid and Electric Vehicles in Operation
0.0
0.0
0.1
1.0
10.0
100.0
1000.0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Vehi
cles
in O
pera
tion
(Mill
ion)
Hybrids EV Total Hybrid/EV Total VIO
There will be an estimated 600,000 EVs on North American roads by 2016.
By 2016, approximately 2.8% of all U.S. and Canadian passenger vehicles will be hybrids or EVs.
CAGR 103.3%
CAGR 23.5%
• The percentage of vehicles that are hybrids or EVs will continue to increase over the longterm 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 from2.4% in 2008-09.
Vehi
cles
in O
pera
tion
(Milli
on)
Hybrid and Electric Vehicles in Operation (North America), 2006-2016
Source: Frost & Sullivan
49N90F-18
Maintenance and Repair Opportunities in Hybrids and Electric Vehicles
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
• Replacement rates are in decline for many high-volume components, including engine oil, air filters andbrake pads.
• However, hybrids and EVs contain certain components parts not found on most gas-poweredautomobiles, including electrical A/C compressors, transmission coolant, and heater pumps, that willoffer new market opportunities to parts and service providers.
Source: Frost & Sullivan
Automotive Aftermarket: Maintenance and Repair Opportunities in Hybrids and Electric Vehicles (North America), 2010
50N90F-18
Future Hybrid Offerings by Vehicle Manufacturer
Vehicle Manufacturer Type of HybridHybrid Vehicle Model Expected Year
X6 Active Hybrid Two-Mode 2009 (MY 2010)
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)
Fit Mild 2010
CR-Z ( now a concept) Mild 2010
Camry 3rd Gen Full 2012
Insight Mild 2009 (MY 2010)
E Class Mild 2010
C Class Mild 2011
Hyb
rid V
ehic
le S
yste
ms
–Fi
ndin
gs
Automotive Aftermarket: Future Hybrid Offerings by Vehicle Manufacturer (North America), 2009-2015
51N90F-18
Vehicle Manufacturer Type of HybridHybrid Vehicle Model Expected Year
Ram 15 Hybrid Pickup Two-Mode 2010 (MY 2011)
FullFord Fusion 2009 (MY 2010)
MicroFocus
MicroFiesta
2011
2011
Lexus F-A (now a concept) Full 2010+
FullMercury Milan 2009 (MY 2010)
Lexus HS 250h Full 2009 (MY 2010)
Full Infiniti M 2009 (MY 2010)
Lexus HS 250h Full 2009 (MY 2010)
3rd-generation Prius Full 2009 (MY 2010)
Yaris Mild 2011
Automotive Aftermarket: Future Hybrid Offerings by Vehicle Manufacturer (North America), 2009-2015
Future Hybrid Offerings by Vehicle Manufacturer (Contd…)H
ybrid
Veh
icle
Sys
tem
s –
Find
ings
52N90F-18
Vehicle Manufacturer Type of HybridHybrid Vehicle Model Expected Year
Jetta Mild 2010
Passat Mild 2011
Touareg Full 2010
Full Sonata 2010
C30 Micro 2010
S40 Micro 2011
Cayenne S Full 2010
Panamera Micro 2010
V50 Micro 2011
Future Hybrid Offerings by Vehicle Manufacturer (Contd…)H
ybrid
Veh
icle
Sys
tem
s –
Find
ings
Source: Frost & Sullivan
Automotive Aftermarket: Future Hybrid Offerings by Vehicle Manufacturer (North America), 2009-2015
53N90F-18
Forecast of Electric Vehicles by Manufacturer
Note: All figures are rounded; the base year is 2008; Source: Frost & Sullivan
Mar
ket O
utlo
ok a
nd F
orec
asts
Tier 1 OEM's \Year 2008 2009 2010 2011 2012 2013 2014 2015
BMW 0 0 0 1,000 5,000 10,000 25,000 40,000
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
Automotive Aftermarket: Forecast of Electric Vehicles by Manufacturer (North America), 2008-2015
54N90F-18
Small OEM's \ Year 2008 2009 2010 2011 2012 2013 2014 2015
Zenn 250 300 300 200 - - - -
ZAP 400 300 400 300 - - - -
Tesla 100 500 1,000 1,500 2,500 4,000 5,000 5,000
Fisker Automotive 0 100 500 1000 2,500 5,000 5,000 5,000
Miles 350 300 500 1000 1,000 500 - -
Other Tier-2 112.5 180 330 450 750 1,350 1,500 1,500
Total 1,213 1,680 3,030 4,450 6,750 10,850 11,500 11,500
Mar
ket O
utlo
ok a
nd F
orec
asts
Note: All figures are rounded; the base year is 2008; Source: Frost & Sullivan
Automotive Aftermarket: Forecast of Electric Vehicles by Manufacturer (North America), 2008-2015
Forecast of Electric Vehicles by Manufacturer (Contd…)
55
Consumer Trends
56N90F-18
United States• Started in 2001, much later than
Canada; fast growth. • Current average member-vehicle ratio is
estimated at 49:1.• 2001-2009 compound annual growth
rates (CAGR) were 71.3% for members and 52.4% for vehicles.
• High growth markets are residential neighborhoods and business users.
Canada• Started in Quebec in 1994.• Current average member-vehicle ratio is
estimated at 27:1.• 2001-2009 CAGR were 39.4% for
members and 31.9% for vehicles. • High growth markets are residential
neighborhoods and business users.
Carsharing Market: Membership and Vehicles Forecasts (North America), 2009-2016
Members453.7
thousand
Vehicles10.2
thousand
2009 Note: All figures are rounded; the base year is 2009. Source: Frost & Sullivan
Members4,413.1
thousand
Vehicles72.5
thousand
Membership and Vehicle Forecasts
U.S. Canada
2.0
8.2
55.1
398.5
7.8
64.7
291.5
4,121.6
2016
Members Vehicles
0
1,000
2,000
3,000
4,000
5,000
0
10
20
30
40
50
60
70
80
2009 2010 2011 2012 2013 2014 2015 2016
Mem
bers
(Tho
usan
d)
Vehi
cles
(Tho
usan
d)
57N90F-18
Programs in Operation
MONTREAL
BIXI
OTTAWA
BIXI
TORONTO
BIXI
Large Scale and Popular
Small ScaleWASHINGTON DC
SmartBike
MINNESOTA
NiceRide
DENVER
B-Cycle
BOSTON
Name NA*
* Name of the program is not available.
Programs launched at university campuses such as ZotWheels, California (25 bikes and 4 stations) not shown.
WASHINGTON DC/ VIRGINIA
Name NA*
GRAND CANYON
Bright Angel
Bicycles
FLORIDA
DecoBike
Source: Frost & Sullivan
Bike Sharing Market: Programs in Operation (North America), 2010
58N90F-18
What are Consumers Doing in 2010?
Minor Maintenance
Of the minor maintenance behaviors surveyed, engine oil changes continue to be mostpopularly performed. Yet, all minor maintenance behaviors surveyed – except oil changes– are down significantly compared to previous years. Interestingly, while the performanceof minor maintenance is down, attitudes toward maintaining vehicles have remained fairlyconsistent with past results – in that most rely on their vehicle owner’s manual forscheduled maintenance. Thus, since attitudes have not changed but behaviors have, itappears that the economic recession within the past few years is likely the largestcontributor to the behavior changes. Specifically, U.S. Vehicle Owners are making smallchanges to save money and that seems to translate into longer periods of time or moremiles between minor maintenance performances.
“Other” MaintenanceSimilar to minor maintenance, performance of “other” maintenance behavioris down significantly from previous years. Yet, brake service/inspectionremains the most popularly performed “other” maintenance of thosesurveyed. Like minor maintenance attitudes, most U.S. Vehicles Ownershave positive attitudes toward “other” maintenance and believe it isimportant to be proactive. Thus, it seems likely that the economy isnegatively impacting “other” maintenance behavior despite positive attitudestoward vehicle maintenance.
Source: Frost & Sullivan
59N90F-18
Consumer Behavior Trends by Category
Locations of Maintenance PerformanceOverall, the largest proportion of U.S. Vehicle Owners rely on their vehicle dealership to perform their maintenance – both minor and “other.” Yet, for oil changes and tire maintenance, specialty repair shops are competitive with dealers. Additionally, for “other”maintenance, independent or franchise repair shops also draw a fair share of customers and appear to be highly competitive with dealers.
Oil Change BehaviorsThe largest proportion of U.S. Vehicle Owners have their oil changed every 3,000 miles. Yet, compared to past results, more are extending the miles between oil changes. While some of this is explained by vehicle manufacturers’ recommendations and the use of premium or synthetic grades oils, a significant proportion report that the economy is the reason they have oil changes performed less often.
Fuel Purchase BehaviorsThe majority of U.S. Vehicle Owners use regular 87 octane fuel, as specified by their vehicle manufacturer. Few use alternative fuels and despite the “greener” attitudes that most Americans seem to be adopting, these attitudes do not seem to translate into potentially greener fuel purchase choices.
Purchase Behaviors of Performance ChemicalsMost do not purchase performance chemicals for their vehicles. Yet, among those who do, there is a good mix of vehicle owners purchasing performance chemicals.
Source: Frost & Sullivan
60N90F-18
Consumer Behavior Trends by Category (Contd…)
Purchase Behaviors of Replacement PartsWhile the largest proportion of U.S. vehicle owners states that they select OE replacement parts for their vehicles, this appears to contradict the actual purchases made within the replacement parts market. Thus, it seems that U.S. vehicle owners like to think they are purchasing OE replacement parts, when it is more likely they are not.
Roadside AssistanceNearly seven out of ten U.S. vehicle owners have roadside assistance, with the majority of these using an aftermarket provider. The potential is likely to grow for aftermarket roadside assistance providers as roughly half of those using a vehicle manufacturer provider are likely to switch to an aftermarket provider once their contract expires.
Onboard Computer Scheduled MaintenanceOnly four out of ten report having an onboard computer for scheduled maintenance. However, of those few that have it, it does appear to do a good job at getting vehicle owners to perform their recommended maintenance as 48% perform the appropriate maintenance on time.
Source: Frost & Sullivan
61N90F-18
Percentage of Engine Oil Changes Performed by Location Type
Source: Frost & Sullivan
Q2: Where did you have your most recent engine oil change performed?
Perc
ent o
f Fre
quen
cies
Key Take Away: Overall, the Largest Proportion of Owners Depend On Dealerships to Perform Minor Maintenance, but Specialty Shops Also Receive Their Fair Share
Automotive Aftermarket: Percentage of Engine Oil Changes Performed by Location Type (United States), 2010
62N90F-18
Percentage of Owners Who Have Scheduled Maintenance at A Vehicle Dealership
Q3: From the time you acquired your vehicle, did you ever have minor scheduled maintenance performed at your vehicle dealership?
Key Take Away: Over Eight out of Ten New Vehicle Owners have had Minor Maintenance Performed at Dealerships, which is much lower for Used Vehicle Owners
Source: Frost & Sullivan
Automotive Aftermarket: Percentage of Owners Who Have Scheduled Maintenance at A Vehicle Dealership (United States), 2010
Minor Maintenance Performed at Vehicle Dealer Since Purchase of Vehicle
63N90F-18
Percentage of Vehicle Owners Choosing Dealership Service by Reason
Q2A: Please indicate how influential each of the following is as to why you choose to have your vehicle serviced at your dealership.
Q2A1: How did you choose the dealership for your most recent minor scheduled maintenance?
Among Those Having Oil Changes Performed at Dealership
Note: Only top five displayed.
Automotive Aftermarket: Percentage of Vehicle Owners Choosing Dealership Service by Reason (United States), 2010
Source: Frost & Sullivan
64N90F-18
Other Types of Maintenance Performed Within the Past 12 Months
Other Types of Maintenance Performed Within Past 12 Months
82%
48%
42%
34%
31%
35%
25%
49%
29%
23%
20%
17%
17%
15%
57%
45%
36%
36%
34%
29%
0% 20% 40% 60% 80% 100%
Brake Service orInspection
Transmission Maintenance
Engine Cooling SystemMaintenance
Air Conditioning SystemMaintenance
Fuel Injection Service
Suspension SystemMaintenance
Muffler and ExhaustService
2010 (N=688) 2009 (N=1085) 2006 (N=526)
No Data in 2006
Key Take Away: Overall, “Other” maintenance is up significantly compared to recent results
Q4: Thinking about other scheduled maintenance or mechanical repairs you have had performed on your vehicle, which of the following types of other scheduled maintenance or repairs were performed within the past 12 months?
Consumers show strong return to brake category repairs
Source: Frost & Sullivan
Automotive Aftermarket: Other Types of Maintenance Performed Within the Past 12 Months (United States), 2010
65N90F-18
Reasons for Switching from Dealership for Minor Maintenance
Q3B: Thinking about why you no longer take your vehicle to your vehicle dealership for minor scheduled maintenance, please stateyour level of agreement with each of the following statements.
Note: Multiple mention question.
Key Take Away: Among the Various Reasons for Switching From Dealerships, Cost is the Primary Factor followed by dealer’s location.
Automotive Aftermarket: Reasons for Switching from Dealership for Minor Maintenance (United States), 2010
Source: Frost & Sullivan
66N90F-18
Attitudes Towards Vehicle Maintenance
27%
36%
27%
1%
1%
8%
29%
41%
27%
2%
1%
38%
42%
19%
1%
0% 20% 40% 60%
I always get my vehicle serviced according to the manufacturer's r ecommended maintenance schedule
as provided in the owner's manualI mostly get my vehicle serviced according to the
manufacturer's r ecommended maintenance schedule as provided in the owner's manual
Aside from periodic oil changes, I usually don’t take my vehicle to be serviced unless there's something
wrong
I don’t take m y vehicle to be serviced unless there's something wrong
I very sel dom even think about the maintenance of my vehicle
I follow a schedule that is laid out by my service provider
Attitude Towards Vehicle Maintenance2010 (N=1220) 2009 (N=1085) 2006 (N=526)
No Data in 2009
No Data in 2006
No Data in 2006
Key Take Away: Even though the majority rely on their vehicle owner’s manual for scheduled maintenance, it has been on a decline compared to previous years.
Q7: Which of the following statements best describes your attitude towards the maintenance of your vehicle.
Since 2006, Frost & Sullivan’s research has tracked a decline in the percentage of owner’s who adhered to the vehicle manufacturer's recommended maintenance schedule.
Source: Frost & Sullivan
Automotive Aftermarket: Attitudes Towards Vehicle Maintenance (United States), 2010
67N90F-18
Changes of Vehicle Maintenance in Light of the Economic Recession
Source: Frost & SullivanQ9: Please indicate your level of agreement about your vehicle maintenance behaviors during the past 2-3 years.
Changes of Vehicle Maintenance Behaviors in Light of the Economic Recession
22%
17%
15%
15%
11%
11%
10%
5%
6%
19%
16%
14%
18%
11%
14%
9%
5%
8%
8%
17%
14%
14%
18%
15%
14%
9%
7%
7%
11%
8%
8%
10%
9%
12%
11%
5%
8%
5%
10%
6%
12%
11%
8%
14%
11%
11%
17%
13%
19%
8%
18%
20%
11%
21%
19%
45%
48%
52%
33%
20%
15%
16%
21%
16%
20%
11%
10%
9%
15%
0% 20% 40% 60% 80% 100%
I am investing more in vehicle maintenance and repairbecause I intend to keep my vehicle for a longer period ofFluctuating gas prices and tight economy have made me
look for ways to cut down on other types of vehicle relatedI have reduced other activities, i.e. eating out, going to the
movies, concerts, etc.I increased the amount of attention I pay to my tire
pressure to improve fuel efficiencyFluctuating gas prices and tight economy have made me
look for ways to cut down on maintenance costsI conscientiously have reduced my speed when driving to
reduce fuel consumptionI have changed my work location or activities so I drive
lessAs a means of saving, I am more likely to buy maintenance
consumables like engine oil, filters, etc. in bulkI have used chemicals/additives to enhance engine
performanceAs a means of saving, I have increased the length of time
between maintenance intervals
Strongly Agree = 7 6 5 4 3 2 Strongly Disagree = 1
Note: Proportions less than five not shown in chart. Note: See Appendix C for expanded list of maintenance behaviors.
Key Take Away: Compared to Last Years Results, Attitudes Appear to have Changed from not Spending to Investing More in Vehicle Maintenance and Repairs.
Automotive Aftermarket: Changes of Vehicle Maintenance in Light of the Economic Recession (United States), 2010
Source: Frost & Sullivan
68N90F-18
Frequency of Oil Change
Frequency of Oil Change
1%
36%
19%
25%
5%
5%
3%
45%
23%
19%
4%
5%
3%
56%
20%
15%
3%
2%
0% 20% 40% 60%
Every 2,000 Miles
Every 3,000 Miles
Every 4,000 Miles
Every 5,000 Miles
Every 6,000 Miles
More than every 6,000 Miles
2010 (N=1316) 2009 (N=1085) 2006 (N=526)
Key Take Away: Since 2006, it appears that vehicle owners are extending the miles between oil changes, although the largest proportion still get their oil changed every 3,000 miles
Q11: Typically, how frequently (in miles) do you change the engine oil in your vehicle?
Oil change intervals of greater than 3,000 miles continue to gain prominence rising from 40% in 2006 to 51% in 2009, to 54%, in 2010
Source: Frost & Sullivan
Automotive Aftermarket: Frequency of Oil Change (United States), 2010
69N90F-18
Other Automotive Products Purchased During Last Oil Change
25%
17%
6%
5%
4%
1%
2%
1%
1%
2%
57%
25%
14%
4%
4%
3%
3%
2%
1%
1%
3%
59%
40%
20%
10%
8%
46%
0% 20% 40% 60%
Air Filters
Wipers
Flush Products
Tires
Cabin Air Filters
Performance Chemicals
Automotive Batteries
Fuses
Nitrogen Tire Filling
Other
None
Other Automotive Products Purchased During Last Oil Change2010 (N=1316) 2009 (N=1085) 2006 (N=526)
No 2006 data
No 2006 data
No 2006 data
No 2006 data
Note: Multiple response question.
No 2006 data
No 2006 data
Key Take Away: Compared to previous years’ results, more vehicle owners purchased other products during their last oil change – This may be due to the stabilizing economy.
Q14B: When you last had the oil changed in your vehicle, which of the following did you also purchase at the same service center/outlet? Select all that apply.
• Most products showed modest increases in “take rates” over 2010 but none matched the rates shown in 2006.
• The growth in 2010 was likely the result of two factors:
1. somewhat stabilization of the US economy gave consumers enough confidence to start buying once again.
2. product deferment of 2009 left products in such poor state that owners could no longer defer replacement prompting resurgence in “add-on” part sales.
Automotive Aftermarket: Other Automotive Products Purchased During Last Oil Change (United States), 2010
Source: Frost & Sullivan
70N90F-18
Likely Use of Public Transportation Structures
Likely Use of Public Transportation Structures(N=1316)
24%
20%
20%
13%
11%
7%
6%
1%
0% 10% 20% 30%
Car Pooling or Car Sharing
City Subway or Light Rail
City Bus
Intercity Subway or LightRail
Bicycle Paths/lanes
Intercity Bus and Links toother Transportation
Free Parking for "GreenVehicles"
Bike Share Programs
Q40: If public transportation structures were expanded in your area, which of the following would you be most likely to use for daily commuting?
Key Take Away: If public transportation structures were expanded, car pooling or car sharing are the most likely methods respondents would choose. Following closely are City Subway or Light Rail and City Bus.
Although Carsharing and carpooling are not widespread across the US, considering North American’s love of the personal vehicle and private space, it is not surprising that respondents chose these as next-best alternatives to the personal vehicle.
Source: Frost & Sullivan
Automotive Aftermarket: Likely Use of Public Transportation Structures (United States), 2010
71N90F-18
Aftermarket Roadmap
2005 2009 2015 2020
Stable
Revenue rate increase slowing
Revenues grow by 1.8% through recession.
Sub-Prime Mortgage Crisis
The
Afte
rmar
ket
Fuel
Pr
ices
The
Econ
omy
Vehi
cle
Sale
sVe
hicl
e U
se
Accelerating growth pace of 2.3% annually in economic recovery.
Revenues in minor maintenance , accessories restored to 2007 levels.
New opportunities in HEV and EV maintenance.
Increasing miles travelled
Fuel prices and slowing economy begin to drive vehicle usage downward.
Enhanced vehicle modification opportunities to drive future growth.
VIO increase with a CAGR of 1.4% VIO increasing at CAGR of 0.8% VIO expected to
increase slowly.
Hybrids to be an approximate 2.2% of VIO by 2015, driven mainly by fleet/government sales.
Heavy share to domestic brand vehicles.
Increasing share of import brand vehicles. Asian brands increasing popularity.
Sales have been steady yet decreasing
Sales drop - 16.5% in 2008 and 21.1% in 2009
Sales expected to pick-up and grow at a CAGR of 2.6%. 2016 represents recover to 2007 levels.
Domestic brand vehicles to face even greater competition.
Sudden crash - high levels of unemployment, reduced disposable income
Road to Recovery
Stable increase High Peak
Dropped to Stable Levels
Stable increase, with potentially dramatic fluctuations.
Threat of weakened dollar and inflation could drive prices higher and lead to prolonged
recession.
Source: Frost & Sullivan
Automotive Aftermarket: Aftermarket Roadmap (North America), 2005-2020
72
Competitive Analysis
73N90F-18
OES Auto Retailers
Internet / Mail Order
OEMExporter
New Car Dealer Parts Depts
Parallel Importer
New Car Dealer Service Depts
Retailer Service Bays
Vehicle Owners
Offshore Manufacturer
Mass Merchandisers
Production Engine Rebuilders
U.S. Parts Manufacturer Remanufacturer Salvage Yard
Warehouse Clubs
Body Shops
Collision Parts Distributors
Independent Installers
Jobbers/ Wagon Jobbers
Re-Distribution Jobber
Service Chain Outlets
WD’s & PGsService Chain Dist. Centers
The On-Demand Nature of Repair Services Spawned a Complex Structure with a Variety of Service Outlet Opportunities
• 3 step structure continues to evolve toward 2 step as jobbers consolidate and grow into distributors
• 3 step exists when installers buy through jobbers, or OE Parts from Dealers
Step 1
Step
2
Step 3 when Jobber & Dealer
involved
Automotive Aftermarket: Distribution Structure (North America), 2010
Source: Frost & Sullivan
74N90F-18
Engine Gasoline engine segment is declining at a faster rate (6.2%) than diesel (1.1%). Diesel is forecast to gain market share from gasoline in future because of an increase in diesel VIO and higher replacement rate.
Transmission
Top 10 Remanufactured Products
Starters andAlternators
CV Drive Axles
Rack and PinionSteering Gears
Fuel Injectors
ECUs
Compressors
Clutches
Water Pumps
The decline rate for transmissions aftermarket is lower than that of engines because of lower lifespan for transmissions and cost of transmission repair does not exceed the vehicle value but it does for engines.
Remanufactured units will continue to dominate the total North American starters and alternators aftermarket for the next 5 to 7 years. REMAN: NEW (2010) = 90 :10 and REMAN: NEW (2016) = 87:13.
Remanufactured CV drive axles are dramatically declining; demand for new CV drive axles is growing at an explosive rate and will take away revenue share of remanufactured CV drive axles.
Basic hydraulic power system (HPS) will continue to dominate but will lose share gradually to the sophisticated electronically powered hydraulic (EPHS) and electric power steering (EPS) systems.
High labor intensiveness reduces price difference between new and remanufactured injectors, making new injectors more attractive proposition. NEW: REMAN (2010) = 94 :6 and NEW: REMAN (2017) = 96:4.
Remanufactured ECUs are priced 60-70% lower than new. OEMs prefer remanufactured ECUs and sell into the OES channel to remain competitive in the aftermarket.
Increasing penetration of low-priced compressors from offshore is the biggest challenge for remanufacturers in North America. Because of this reason, New is taking over Reman steadily.
New segment is gradually gaining from reman because the price gap between new and reman is declining and does have the core liability associated with it as reman does.
The newer style water pumps are of aluminum instead of cast iron which is difficult to remanufacture and remachine. Therefore, new units have some performance and quality improvements over reman’ed units.
Automotive Aftermarket: Top 10 Remanufactured Products (North America), 2010
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Unit Shipment and Revenues of Top Remanufactured Products
Trends by Product Category
ECUs
Fuel Injectors
Racks & Pinion Steering Gears
Starter & Alternator
Transmission(automatic + manual)
Engine (gasoline + diesel)
Compressors
Units (2010)
1.14 Million
2.10 Million
24.2 Million
0.42 Million
1.30 Million
1.96 Million
Revenues (2010)
USD 1.90 Billion
USD 2.14 Billion
USD 1.37 Billion
USD 16.1 Million
USD 150.9 Million
USD 110.94 Million
2017 (Forecast)
USD 1.70 Billion
USD 2.16 Billion
USD 1.22 Billion
USD 17.1 Million
USD 191.0 Million
USD 179 Million
(5.1)%
(2.1)%
(0.9)%
3.5%
0.6%
7.2%
Average Price (2010) CAGR
1.15 Million USD 136.4 Million USD 120 Million -2.5%USD 118.6
USD 1,435.89
USD 115.68
USD 35.8
USD 56.6
USD 1,015.05
USD 56.58
Automotive Aftermarket: Unit Shipment and Revenues of Top Remanufactured Products (North America), 2010
Source: Frost & Sullivan
76N90F-18
Competitive Analysis of Remanufacturing Segment
The 'national remanufacturers' designate the largest and most prominent remanufacturing companies in the North American automotive aftermarket. Cardone Industries, Inc. and Fenwick Automotive Products (Fenco) are the only two national remanufacturers in North America currently.
The mid-level remanufacturers cater to a few market segments in which they specialize but supply across North America. Examples of these include Standard Motor Products, DENSO, Motorcar Parts of America (MPA), Remy International, Inc. and others.
The OES-focused remanufacturers include companies like Delphi Corporation, Visteon Corporation, Robert Bosch Corporation, and ZF Industries. These Tier 1 suppliers compete with national remanufacturers in the OES channel.
The regional remanufacturers supply to only selected regions within their geographical scope. Remanufactured segments such as engine, transmission, starter and alternator, and steering gear and steering pumps have many regional and local remanufacturers.
76
Automotive Aftermarket: Competitive Analysis of Remanufacturing Segment (North America), 2010
Source: Frost & Sullivan
77N90F-18
RedOcean
BlueOcean
SWOT Assessment of the Warehouse Distribution and Jobber Channel
STRENGTHS
• Aftermarket Experience• Product Coverage• Product Delivery
THREATS
• Program Distributors• Auto Parts Retailers• Two-Step Distribution• Parts Proliferation• Increased Inventory Costs
OPPORTUNITIES
• Joining Program Groups• Improved Inventory Management Systems
WEAKNESSES (CHALLENGES)
• Large Inventories and Inefficiencies
• Lack of Resources• Decreasing Margins due to tight Competition
Mature, unstable with high
competition and new variables.
RESPONDCAPITALIZE
SEIZE PREPARE
Stable
Saturated
Highly UnstableAutomotive Aftermarket: SWOT Assessment of the Warehouse Distribution and Jobber Channel (North America), 2010
Source: Frost & Sullivan
78N90F-18
SWOT Assessment of Programmed Distribution Groups
STRENGTHS• Superior Delivery• Broadest and Deepest Wide
Product Coverage• Improving Margin Management• Increasing Use of Technology• Private Label Brands• High Bargaining Power
THREATS• Auto Parts Retailers• Original Equipment Service (OES)• Parts Proliferation
OPPORTUNITIES• Private Labeling• Improved Inventory Management
Systems• New Marketing and Merchandising
Programs to Attract DIY Business• Retail Franchise Stores
WEAKNESSES (CHALLENGES)• Large Inventories and
Inefficiencies• Lack of Unity
RESPONDCAPITALIZE
SEIZE PREPARE
RedOcean
BlueOcean
Relatively stable, with new growth
opportunities Stable
Saturated
Highly Unstable
Automotive Aftermarket: SWOT Assessment of Programmed Distribution Groups (North America), 2010
Source: Frost & Sullivan
79N90F-18
SWOT Assessment of the Auto Retail Channel
STRENGTHS
• Lower Purchasing Costs
• Lower Inventory Costs
• Lower Price Perception
THREATS
• Decreased DIY
• Parts Proliferation
• Stronger Competition
• Wholesalers with New Retail Business
OPPORTUNITIES
• Wholesale Business
• Increased Buying Power
• Expansion into New Product Categories
WEAKNESSES (CHALLENGES)
• Employee Experience
• Low SKU Count Limits Business
• Oversaturation
RESPONDCAPITALIZE
SEIZE PREPARE
RedOcean
BlueOcean
Saturated, Mature, and
High Competition.
Stable
Saturated
Highly UnstableAutomotive Aftermarket: SWOT Assessment of the Auto Retail Channel (North America), 2010
Source: Frost & Sullivan
80N90F-18
SWOT Assessment of the Original Equipment Service Channel
STRENGTHS• Broadest Coverage for a Particular
Make• Highest Product Quality
Perception• Tools and Training• Guarantee Service• High Profit Margins
THREATS• Growing Aftermarket Participation
of OEMs
• Growing Competition for Service and Parts in the Aftermarket
• Dealership Closures
OPPORTUNITIES• Secondary Lines
• More Aggressive Pricing
• Further Development of Wholesale Programs
• Stand-Alone Repair Facilities
WEAKNESSES (CHALLENGES)• Inferior Delivery Schedules
• Highest Product Prices Perception
• Decreased Locations
• Decaying OES Loyalty with Increasing Vehicle Age
RESPONDCAPITALIZE
SEIZE PREPARE
RedOcean
BlueOcean
Stable
Saturated
Highly Unstable
Mature, Stable, with
high Competition
and new variables.
Automotive Aftermarket: SWOT Assessment of the Original Equipment Service Channel (North America), 2010
Source: Frost & Sullivan
81N90F-18
Unit Shipments and Revenues for National Brand Parts by Distributor Type
• O’Reilly/CSK has a higher percentage of nationalbrand to private-label sales than AutoZone, making itthe market share leader in national brands last year.
• NAPA and CARQUEST do not sell national brands.
• Distributors heavily oriented to national brands willperform well among professional installers in theDIFM segment.
Retail Distributors captured 60.8% of total national brand unit sales, compared to 39.2% for programmed distribution groups.
National brand sales represented 65.6% of retail unit sales, but just 26.1% of programmed distribution sales.
AutoZone, 13.6%
Advance Auto Parts, 15.7%
Automotive Distribution
Network, 8.7%
O'Reilly/CSK , 16.8%
NAPA, 1.4%CARQUEST,
0.0%
Pep Boys, 8.2%The
Alliance, 7.5%
Federated Auto Parts,
13.6%
Canadian Tire, 6.5%
National PRONTO
Association, 8.0%
Revenues
Programmed Distribution,
39.2%Retail, 60.8%
Units
0%
20%
40%
60%
80%
100%
Retail Programmed Distribution
65.6%
26.1%
34.4%
73.9%
National Brand Other
(Retail)
Automotive Aftermarket: Unit Shipments and Revenues for National Brand Parts by Distributor Type (North America), 2008
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82N90F-18
Distributor-level Revenues by Type
Total Aftermarket Revenues$64.7 Billion
Mfg. LevelSales
OES$16.2 Billion
WD & Jobbers$17.5 Billion
Program Group$20.1 Billion
Retail & Others$11.0 Billion
Installers$34.5 Billion
Installers$38.3 Billion
Dealer List$26.5 Billion
Dealer Net$18.1 Billion
Retail Sales$20.4 Billion
Program Group$27.4 Billion
WD & Jobbers$24.6 Billion
Consumer Aftermarket Value$119.6 Billion
NOTE: The above revenues are excluding tires, wheels and chemical products to follow common aftermarket practice.
Automotive Aftermarket: Distributor-level Revenues by Type (North America), 2010
Source: Frost & Sullivan
83N90F-18
Revenue Breakdown of Aftermarket Distribution Channels
1st Level of Distribution
Reman20%
Manufacturers & Importers 80%
Others5%
Retailers12%
OES25%
Program Groups
31%
WD & Jobbers27%
General Repair
46%
Specialty Repair
6%
Lube Shops 10%
Dealer Service
Bays23%
Body Shops 15%
2nd Level of Distribution
Installer Channels
KeyExpected Decrease
Expected Increase
With the average age of vehicles increasing, more consumers are expected to turn to the aftermarket for maintenance and repair.With dealerships closing down, more demand rises for the independent aftermarket.Due to cost issues and profit margins, more WDs are expected to join program groups and turn to 2-step distribution.Revenue share of retailers are expected to increase on account of their increased wholesale activities.
Source: Frost & Sullivan
Automotive Aftermarket: Revenue Breakdown of Aftermarket Distribution Channels (North America), 2009
84
Best Practices
85N90F-18
Aftermarket Participant Expansion and Growing Private Label Practices are Closely Linked (North America), 2010
Profit
Expansion and M&A
Opportunities.Larger
Customer Base
Private Labeling
• Amongst the aftermarket retail and programgroup participants today, the practice of privatelabeling has become popular to improve profitmargins.
• The practice of private labeling has becomeincreasingly important amongst participants tomaximize profits and accelerate growth.
• Expansion and mergers leads to an increasedcustomer base, which in turn allowsopportunities for greater private labelpenetration.
• Private label product sales generate a betterprofit margin percentage than commercialbrand product sales.
• Private label products generate profitabilitythat drives expansion.
Source: Frost & Sullivan
86N90F-18
0%
20%
40%
60%
80%
100%
120%
0 500 1000 1500 2000 2500 3000 3500 4000 4500 5000
Sale
s Sh
are
of P
LP
Number of StoresCARQUEST Advance Auto Canadian Tire NAPA AutoZone Pep Boys O'Reilly Automotive
Private Labeling and Expansion
Private Label Product Sales % vs. Number of Stores.
A clear relation is visible between the number of stores and the sales share of private label product brands.Analysis shows that participants with higher private label sales shares are capable of expanding theiroperations with higher revenues (size of bubble).
Program Groups Retail Participants
Automotive Aftermarket: Private Labeling and Expansion (North America), 2008
Source: Frost & Sullivan
87N90F-18
Private Labeling and Profitability
Average Margins for Manufacturer Brands
End-customer (DIY and Installer) price index = 100%
Average Margins for Private Label Products
3%
0
10
20
30
40
50
60
70
80
90
100
- End-customer price index split in % -
Other Costs
Operating Costs
Commercial margin
BulkDiscount to Installer
Manufacturer
48% Distributor/ Retailer
0
10
20
30
40
50
60
70
80
90
100
- End-customer price index split in % -
37%
4%
Other Costs
Operating Costs
Commercial Margin
BulkDiscount to Installer
Manufacturer
23%
34%
2%
Distributor/ Retailer
Profit Margins Profit Margins
37%
4%8%
Price (
%)
Price (
%)
Source: Frost & Sullivan
Automotive Aftermarket: Private Labeling and Profitability (North America), 2009
88N90F-18
Private Labeling and Profitability Case Study
Assumption: 3 hypothetical companies, A, B, and C each generate $1 Billion in annual revenues. Company A has a private label program which consists of 5% of its annual sales shares, while Company B and C have 25% and 90% respectively. All companies have identical operating expenses of $0.3 Billion.IMPORTANT NOTE: The below companies do not represent any specific company in the North American Aftermarket and are examples for the purpose of comparison hypothetical private label profitability only.
Company A (5% PvL) Company B (25% PvL) Company C (90% PvL)Percent (%) $ (Billion) Percent (%) $ (Billion) Percent (%) $ (Billion)
Sales 100 $1.0 100 $1.0 100 $1.0
% of Sales
Private Label 5 0.05 25 0.25 90 0.9
Manufacturers Brand 95 0.95 75 0.75 10 0.1
Gross Margins Total 0.368 Total 0.398 Total 0.495
GM- Private Label 51 0.026 51 0.128 51 0.459
GM- Manufacturers Brand 36 0.342 36 0.27 36 0.036
Operating Expenses 30 (0.3) 30 (0.3) 30 (0.3)
Operating Profit 6.8 $0.068B 9.8 $0.098B 19.5 $0.195B
Analysis shows that the profitability of a company is directly related to the annual private label sales share of the company. A companywith a heavy private label sales percentage allows the company to collect more than 3 times the profit than a company with a light privatelabel sales share. This trend can be seen in today’s automotive aftermarket when benchmarking different companies in the Retail,Wholesale, Program Group, and Quick Lube industry segments.
Source: Frost & Sullivan
Automotive Aftermarket: Private Labeling and Profitability Case Study (North America), 2010
89N90F-18
Private-label Sales of Major Distributors
Identity Program Group
Program Group Retailer Retailer Retailer Retailer Retailer
Retail Sales 20% 20% 85% 50% 95% 70% 60%
Wholesale 80% 80% 15% 50% 5% 30% 40%
Private Label Sales 90% 90% 50% 25%
(Estimated) 27% 25% 25%
Private Label Brands
NAPA CARQUESTDuralast,
Valucraft & Others
O’Reilly, Brake Best &
Others
Prostart, Futura & Others
Advance Auto,
Wearever Gold/Silver &
Others
Motomaster
Geographical Coverage
North America
North America U.S. U.S. U.S. U.S. Canada
Automotive Aftermarket: Private-label Sales of Major Distributors (North America), 2010
Source: Frost & Sullivan
90N90F-18
Private Label Strategies of Major Retailer Distributors
Advance Auto Parts currently has over 30 private label brands covering their private label product categories. Most product categories have their own brand.
Advance Auto Parts AutoZone
• Retail participants in the aftermarket generally follow the multi-brand strategy, with the exception of AutoZone, which follows the Multi-Tier privatelabeling brand strategy, and Canadian Tire, which follows the single-brand strategy under the private label Motomaster. AutoZone has the mostefficient private label branding strategy among aftermarket retailers.
• The multi-brand strategy has been proven to be ideal for retailers for offering low-cost goods to the consumer with a wide product selection.• As private label products have become more sophisticated, with the introduction of premium private label, the multi-brand strategy was incapable of
creating a relation between the retailer and the product, thus raising marketing costs and jeopardizing customer loyalty.• Many retailers have experienced disadvantages due to their wide variety of private label brands. Many are now in the process of consolidating various
related private labeled products under one private label brand.
Advance Auto Parts
Brand ‘A’ for
product A
Brand ‘B’ for
product B
Brand ‘C’ for
product C
Brand ‘D’ for
product D
Canadian Tire
Pep Boys O’Reilly Auto Parts
AutoZone
Valucraft Brand
Duralast Brand
Tier 1 Sub-Label
(Duralast Gold)
Canadian Tire
Motomaster Brand for Automotive
Products
No-Name, Brown-Box
Automotive Products
Private Label Sales
20%
PL Sales50% PL Sales
25%
PL Sales25%
(Estimated)
PL Sales27%
Pep Boys
Brand A
Sub-Brands
‘Pro-’ Brand Line
Tier 2 Brand‘Valuegrade’
O’Reilly Auto Parts
Brand ‘A’ for
product A
Brand ‘B’ for
product B
Brand ‘C’ for
product C
Brand ‘D’ for
product D
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Automotive Aftermarket: Private Label Strategies of Major Retailer Distributors (North America), 2009
91N90F-18
Private Label Product Global Sourcing Trends
Countries with Low-Cost Product Exports
Countries with Medium to High Cost Premium or OE Quality Product Exports
• Global sourcing from low-cost labor countries(RED) continues to increase.
• By 2015, parts sourcing from (RED) countries willincrease to an approximate 70 percent of overallprivate label brand products.
• Many participants have set-up purchasing officesin low-cost countries to facilitate transactions.
• Quality checks are done rigorously by the buyerto ensure the supply of worthy products.
• Research indicates that the quality level of low-cost country sourced parts and products hasrisen exponentially during the past 5 years. Thisis mostly because of the increased OEexperience among parts manufacturers in sourcecountries.
• Logistics costs are rising due to the globalincrease of oil prices.
9%36%
32%
23%
3%28%
41%
28%
Automotive Aftermarket: Private Label Product Global Sourcing Trends (North America), 2008
Source: Frost & Sullivan
92N90F-18
Advance Auto Parts1.9%
O'Reilly/CSK 2.7%
NAPA48.6%CARQUEST
22.1%
The Alliance
3.3%
Federated Auto Parts
1.1%
Canadian Tire1.0%
National PRONTO
Association2.2%
Automotive Distribution Network
5.5%
AutoZone11.5%
Automotive Aftermarket: Unit Shipments and Revenues for Private-label Brand Parts by Distributor Type (North America), 2008
• NAPA and CARQUEST sell almost all of theirproducts under a private label, but the otherprogrammed distribution groups resemble theirretail competitors with a more balanced brand mix.
• This dramatically reduces the market share fornational brands and weakens the bargainingpower of the manufacturers that produce them.
Programmed distribution groups captured 79.0% of total private-label brand unit sales, compared to 21.0% for retail distributors.
Do-it-yourself sales represented 73.5% of retail unit sales, but just 29.7% of programmed distribution sales.
Revenues
Programmed Distribution
79.0%
Retail21.0%
Units
0%
20%
40%
60%
80%
100%
Retail Programmed Distribution
29.8%
69.6%
70.2%
30.4%
Private-label Brand Other
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93N90F-18
Pure OEM Only OEM and Aftermarket Aftermarket Only
Automotive Aftermarket: Comparison of OEM and Aftermarket Distribution Structures (North America), 2010
Parts and component manufacturers that cater to vehicle manufacturers are limited to vehicle design and strict terms.Profit margins range from 20 to 40 percent and are further limited by annual discounts pending on the duration of the production line and supply terms.An increasing number of vehicle manufacturers are adopting the practice of global sourcing which drives down prices.
OEM products are usually sold at a ‘premium’. The margins range from 30 to 40 percent depending on the purchasing volume and the bargaining power of the customer.Overall volumes may be lower than catering to vehicle manufacturers, but new development costs are non-existent, and returns are considerably faster in the aftermarket.
There are 3 general types of aftermarket companies. Premium aftermarket brands, and low-cost aftermarket brands, or ones that offer both.Low-cost brands are supplied with a profit margin of an approximate 35 to 40 percent.Premium brands have a profit margin of ~30%, but have a higher product cost and the overall profit dollars are considerably higher.
Parts Manufacturer
Vehicle Manufacturers
Dealer Channel
Vehicle Dealer Service Bays
Typically a 20~40 percent profit margin with annual discounts pending on duration of the production line.
Parts Manufacturer
Vehicle Manufacturer
Dealer Channel
Vehicle Dealer
Service Bays
WDs and Program Groups
InstallersRetailer
Bay/ Installer
Retail
Profit margins range from 50 to 70 percent, pending on the purchasing volume and bargaining power of the customer group.
Parts Manufacturer
WDs and Program Groups
Retail
Installer Retail Bay/ Installer
Profit margins range from 30 to 35%, depending on the brand, purchasing volume and bargaining power of the customer group.
Source: Frost & Sullivan
94N90F-18
Year 1 Year 2 Year 3 Year 4 Year 5 Total
Sales Price OEM A 0.95*A 0.903A 0.857A 0.815A
Revenues from Vehicle Production Line
AB 0.95AB 0.903AB 0.857AB 0.815AB 4.525AB
Revenues from OES (Typically 25% Rev. Share)
Vehicle# * Sales Price * Replacement Rate * OES Revenue Share
0 0.0356AB 0.0677AB 0.0964AB 0.1222AB 0.322AB
Total Revenues OEM AB 0.9856AB 0.9707AB 0.9534AB 0.9372AB 4.8469AB
Cost OEMCost * (Vehicle Production+(15% of VIO*OES Revenue Share))
0.75AB 0.778AB 0.806AB 0.834AB 0.863AB 4.031AB
Profit 0.25AB 0.2076AB 0.1647AB 0.1194AB 0.0742AB 0.8159AB
Profit % 25.0% 21.1% 17.0% 12.5% 7.9% 16.8%
Analysis of OEM Profit Margins
Pure OEM Only
Parts and component manufacturers that cater to vehicle manufacturers are only limited to vehicle design and strict terms.Profit margins vary from 20 to 40 percent and are further limited to annual discounts pending on the duration of the production line and supply terms.An increasing number of vehicle manufacturers are in the process of reducing costs through global sourcing.
Parts Manufacturer
Vehicle Manufacturers
Dealer Channel
Vehicle Dealer Service Bays
Assumption: Company A supplies Part A to a vehicle manufacturer. The production line is expected to last 5 years with B vehicles produced annually.Sales Price is $A/Unit with a 5% annual discount.Avg. Production Cost over the 5 year period is $0.75A/UnitCost includes R&D, Sales & Marketing, Manufacturing, Fault & Defects, Raw Materials, & Others.Annual replacement rate of Part A is 15%.There are no replacements in the 1st year.All vehicles produced are sold and the survival rate is 100% during the 5 years.OES has 25% Revenue `Market Share
Source: Frost & Sullivan
Automotive Aftermarket: Analysis of OEM Profit Margins (North America), 2008
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Comparison of OEM and Aftermarket Profit Margins
Assumption (OEM): Same as Previous SlideAssumption (IAM):Cost: $0.6A – Excludes R&D (R&D cost already in the OEM cost), Sales Price remains constant. $1.65A for Retailers, and $1.5A for WDs and Jobbers. Replacement Rate and Sales rate to OES stays constant during the sales period.
Year 1 Year 2 Year 3 Year 4 Year 5 Total Sales Price OEM A 0.95*A 0.903A 0.857A 0.815ARev from Vehicle Production Line AB 0.95AB 0.903AB 0.857AB 0.815AB 4.525AB
Rev from OES (Typically 25% Market Share) Vehicle# * Sales Price * Replacement Rate * OES Revenue Share0.0356AB 0.0677AB 0.0964AB 0.1222AB 0.322AB
Total Rev. OEM AB 0.9856AB 0.9707AB 0.9534AB 0.9372AB 4.8469AB
Cost OEM Cost * (Vehicle Production+(15% of VIO*OES Rev. Share))0.75AB 0.778AB 0.806AB 0.834AB 0.863AB 4.031AB
Profit OE 0.25AB 0.2076AB 0.1647AB 0.1194AB 0.0742AB 0.8159ABProfit % OE 25.0% 21.1% 17.0% 12.5% 7.9% 16.8%Sales Price to WD & Jobbers 1.5A 1.5A 1.5A 1.5A 1.5ARev from WD & Program Groups (Typically 58% Rev. Share. Assume 30% Market Share for Company)
Price * (15% of VIO*WD/Program Group Rev. Share*Company Market Share))
0 0.03915AB 0.0783AB 0.11745AB 0.1566AB 0.3915AB
Sales Price Retail 1.65A 1.65A 1.65A 1.65A 1.65ARev from Retail (Typically 12% Rev. Share. Assume 30% Market Share for Company)
Price * (15% of VIO*Retail Rev. Share*Company Market Share))0 0.00891AB 0.01782AB 0.02673AB 0.03564AB 0.0891AB
Total Cost IAM Cost * (15% of VIO*(Retail Rev Share+WD/PG Rev. Share)*Company Market Share)0 0.0189AB 0.0378AB 0.0567AB 0.0756AB 0.189AB
Total Rev. IAM 0 0.04806AB 0.09612AB 0.14418AB 0.19224AB 0.4806AB
Profit IAM - 0.02916AB 0.05832AB 0.08748AB 0.11664AB 0.2916AB
Profit % IAM 0 60.7% 60.7% 60.7% 60.7% 60.7%Total Rev AB 1.03366AB 1.06682AB 1.09758AB 1.12944AB 5.3275ABTotal Cost 0.75AB 0.7969AB 0.8438AB 0.8907AB 0.9386AB 4.22ABTotal Profit $ 0.25AB 0.23676AB 0.22302AB 0.20688AB 0.19084AB 1.1075ABTotal Profit % 25.0% 22.9% 20.9% 18.8% 16.9% 20.8%
Automotive Aftermarket: Comparison of OEM and Aftermarket Profit Margins (North America), 2008
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Key Takeaways
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Revenue Distribution by Product Category
What is expected in 2017?Tires and Wheels
26%
Others58%
Lighting1%
Exhaust1%
Starters and Alternators
1%
Brake Parts4%
Filters2%
Batteries3%
Collision and Glass
4%
Tires will outpace aftermarket growth, in part because of increased demand for TPMS sensors.
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.
Revenues increased by 1.4% in 2010 despite the economic recession. Some large retail chains reported double-digit same-store sales growth as vehicle owners increased purchases of basic care care products such as floor mats and air fresherners, because they are keeping their vehicles longer. Over the next few years, these consumers will purchase more expensive parts and service.
Enhanced vehicle safety reduces collisions, but technology increases cost of OEM crash parts.
Brakes offer strong growth and make up as much as 25% of revenues for some distributors.
Lighting components will be impacted by the increased adoption of LEDs.
78.7 83.0 97.6
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2007 2010 2017
Automotive Aftermarket: Revenue Distribution by Product Category (North America), 2017
Source: Frost & Sullivan
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Automotive Aftermarket: SWOT Assessment (North America), 2010
STRENGTHS• Most developed in the world.• Coverage of all makes, all models.• Stable distribution structure.• Constant demand for maintenance products.• North American automotive culture demands for
aftermarket products (e.g. vehicle modification).• Large VIO.• Platform for growth into overseas markets.• Large and diverse supplier base.• Efficient reverse-engineering.• R&D capabilities.
THREATS• Constant new entrants.• Lower cost imports.• Declining quality-control standards.• Declining average annual vehicle use.• Increased adoption of electronics in vehicle
manufacturing.• Increased popularity of vehicle leasing.• Keeping up with changes in vehicle technology.• Attracting and retaining high-quality service and
counter personnel.• Required investments in training, equipment.
OPPORTUNITIES• Economic rebound expected to boost sales for
accessories and minor maintenance products.• Increased replacement of high-cost electronic
integrated products will drive revenues.• Steady, consistent growth of maintenance products.• Growth of vehicle modification activity.• Increased average vehicle age demands ‘major’
maintenance products and services.• Increased profits with Private Labeling and Wholesale.
WEAKNESSES (CHALLENGES)• Heavy fragmentation.• Highly competitive.• Risk of commoditization.• Overseas, low-cost suppliers.• Constant introduction of new vehicle technologies.• Difficulties in repairing new vehicle electronics and
applications.• Not enough skilled service technicians.• Increasing logistics costs.• Parts proliferation.
Mature, Stable, but
with constant
new variables.
RESPONDCAPITALIZE
SEIZE PREPARE
Current State
Market Forces
Stable
Saturated
Highly Unstable
KEY TAKEAWAY: Market should outperform historical growth rates as economy rebounds.
Source: Frost & Sullivan
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About Frost & Sullivan
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Who is Frost & Sullivan
The Growth Consulting Company • Founded in 1961, Frost & Sullivan has over 45 years of assisting clients with their decision-making
and growth issues
• Over 1,700 Growth Consultants and Industry Analysts across 32 global locations
• Over 10,000 clients worldwide - emerging companies, the global 1000 and the investment community
• Developers of the Growth Excellence Matrix – industry leading growth positioning tool for corporateexecutives
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What Makes Us Unique
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T.E.A.M. Methodology
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