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MEMA Information Services Council
October 15, 2007Naples, FL
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Discussion Outline
1. Brief Overview of AASA2.Defining the aftermarket3.State of the industry4.Health of the supplier base5.Open discussion &
Questions
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AASALeadership in the Global Automotive
Aftermarket
•Automotive Aftermarket Suppliers Association•Aftermarket Market Segment Association (MSA) of MEMA
– HDMA, OESA•Nearly 300 Member Manufacturers•Represent 80% of North American Aftermarket Volume•Approximately $154 Billion in Sales
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Automotive Aftermarket Suppliers Association
•AASA serves as the voice of the automotive aftermarket suppliers and:
– is a recognized industry change agent
– promotes a collaborative industry environment
– provides a forum to address issues– serves as a valued resource for
members
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AASA Value Proposition
1. Government Affairs
2. Image of AASA Member Manufacturers in the Automotive Aftermarket Industry
3. Market Research, Industry Analysis, Benchmarking & Best Practices
4. Manufacturing Standards
5. Industry Collaboration on Issues Important to AASA members
6. Brand Protection and Intellectual Property Rights
7. Global Opportunities and Challenges for AASA Members
8. Education & Training
9. Member recruitment, retention & satisfaction
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Defining the U.S. Aftermarket2006
•New vehicle parts market = $193 billion
• Light vehicle aftermarket sales of products and service $209 billion
•Sales of Heavy Duty aftermarket products and services $59 billion
•Combined light/heavy duty aftermarket products and services $268 billion
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Primary Drivers of Aftermarket Sales Volume
•Vehicles in Service•Miles Driven
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0
50,000
100,000
150,000
200,000
250,000
1980 1985 1990 1995 2000 2005 2006
Total Vehicles in Service (000)
Source: R.L. Polk
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Vehicle Miles of Travel in the U.S.
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
Mill
ion
s
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Total Light Vehicles in Use by Age
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
16,000,000
18,000,000
Automotive Aftermarket Sweet Spot
Source: R.L. Polk
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0.00
2.00
4.00
6.00
8.00
10.00
12.00
2005 10.82 9.12 9.14 7.01
2006 11.10 9.35 9.29 7.04
DOMESTIC CAR
DOMESTIC LIGHT TRUCK
IMPORT CAR IMPORT LIGHT
TRUCK
Average age of light vehicles in use in the U.S.
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Shares of Vehicles in Service
33%
7%
25%
36%
0%
5%
10%
15%
20%
25%
30%
35%
40%
DOMESTICCAR
DOMESTICLIGHT TRUCK
IMPORT CAR IMPORTLIGHT TRUCK
Source: R.L. Polk
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U.S. Retail Sales of New Light Vehicles
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
16,000,000
18,000,000
20,000,000
Cars Trucks Total
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Shares of New Vehicle Sales
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
DOMESTICCAR
DOMESTICLIGHT TRUCK
IMPORT CAR IMPORT LIGHTTRUCK
2002 2003 2004 2005 2006
Source: Ward’s Automotive
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U.S. Market Outlook: Light Vehicle Aftermarket Dollar Volume ($Millions)
$0
$50,000
$100,000
$150,000
$200,000
$250,000
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Aftermarket Distributor Sales
Source: MFSG* MEMA Est.
$0
$1
$2
$3
$4
$5
$6
$7
$8
2003Q2
2003Q3
2003Q4
2004Q1
2004Q2
2004Q3
2004Q4
2005Q1
2005Q2
2005Q3
2005Q4
2006Q1
2006Q2
2006Q3
2006Q4
2007Q1
2007Q2*
GENUINE P ARTS / NAP A ADVANCE AUTO P ARTS P EP BOYS O'REILLY AUTOMOTIVE AUTOZONE, INC.
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Unperformed Maintenance (Billions)
$0
$10
$20
$30
$40
$50
$60
$70
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Producer Price IndexMotor Vehicle Parts and Accessories
97
98
99
100
101
102
103
104
105
106
107
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Base = 12/1/2003
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U.S.-World Parts Trade 1998-2006
46,80749,901
53,72049,794 50,087 48,501
52,62855,054
58,86454,365
61,619
66,95962,726
69,089
74,469
83,444
92,154
95,179
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
$90,000
$100,000
1998 1999 2000 2001 2002 2003 2004 2005 2006
Millions
Parts deficit Parts exports Parts imports
Source: U.S. Bureau of the Census
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U.S.-EU Parts Trade1998-2006
Source: U.S. Bureau of the Census
4,434 4,6094,848 5,048
4,492 4,3454,615
5,0715,501
6,737
7,4517,716
7,375
8,425
9,858
11,009
12,09912,339
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
1998 1999 2000 2001 2002 2003 2004 2005 2006
Year
$million
Parts deficit Parts exports Parts imports
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U.S. - China Auto Parts Trade, 1995-2006Since 2000, the auto parts trade deficit with China
increased 333%
510636
1,0371,284
2,242
2,788
3,884
6,928
815
623344258225251
132
5,408
1,635 1,758
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
1998 1999 2000 2001 2002 2003 2004 2005 2006
Year
Mill
ions
Parts Trade Deficit: U.S. Exports of Auto Parts to China U.S.Imports of Auto Parts from China
Source: U.S. Bureau of the Census
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AASA Automotive Aftermarket Index
104
106
108
110
112
114
116
118
120
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State of the Industry
•Aftermarket large and growing modestly•Primary aftermarket drivers—vehicles in use; miles driven—continue positive•Significant period of transition and challenge•Still a relationship business at the store to buyer level•Fundamentals of quality, availability and service still mean something•Balance of power has shifted; “power buyers” WD’s and retailers in the driver’s seat•Aftermarket mergers and acquisitions continuing at a record pace; transactions first 6 months of 2007: 55; up 28% over 2006•Private equity creating churn in the aftermarket; 21 of 55 transactions•Service Dealer demand for form, fit and function driving increased SKU count and inventory investment•Insistence on lowest invoice price accelerating low cost country sourcing•Value-adds being stripped from prices at all levels
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Parts Suppliers: The Largest Manufacturing Sector in the
USA
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Supplier Jobs: Midwest Focused, but Moving Southeast
Source: MEMA, “Motor Vehicle Suppliers: The Foundation of U.S. Manufacturing,” January 2007
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Health of the Supplier Base
•Manufacturers are struggling to maintain profitability•Margin erosion at all levels•Globalization impacting acquisition and sourcing• Raw material costs rising•Value added suppliers are competing for lowest price business•NA manufacturing shifting focus to emerging international markets•Little collaboration to address industry issues•Many are well under way in transforming themselves into global manufacturers/”provisioners”
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Industry PPI/CPI/ECI 1998-2007 YTD % Change
New Vehicle CPI(through the dealer – includes
incentives)- 5.0%
Light Duty Vehicle Manufacturer PPI(dealer to the manufacturer)
- 7.18%
Motor Vehicle Parts PPI-Commodities(OEM to the supplier)
2.85%
Primary Metal PPI + 58.23%
Plastic Materials & Resins PPI + 51.46%
Petroleum Refineries PPI + 219.54%
Employer Cost Index for Benefits - Manufacturing
+119.00%
The NA Table of PainBusiness models must survive through . . .
Source: CAR and OESA at the 2005 Management Briefing Seminar; Updated by OESA through February 2007Note: Auto accounts for 41% of US steel consumption, 31% of US iron consumption, 32% of US aluminum
consumption and 4% of US plastic consumption (CAR – Fall 2003 economic significance report)
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AASA Supplier BarometerQ3 2007
Question 8: How significant are these issues facing your company?
1
2
3
4
5
Healthcare costs Availability and costof raw materials
Lack of pricing
power
Weak sales Globalization Labor cost &
availability
Excess inventoryRegulatory &
legal issues
Product returns Counterfeit
products
Q-1 Q-2 Q31= Not important 5 = Very important
Wild Cards
• Impact of rising gas prices• Collapse of subprime mortgages and
tightening of credit markets
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Opportunities for Suppliers
•Collaboration with channel partners•Use technology to reduce cost and for competitive edge•Low-cost manufacturing strategy•Strategic alliances/partnerships•Revenue diversification•Leading market position (product, technology and process)
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Association/Industry Information Technology Leadership
•MIS Council: 35 years of leadership•Growth and success of the Aftermarket eForum•Association push for data standards adoption•Growing number of 3rd party providers•Expanding technology capabilities of repair professionals•Increasing prominence of IT managers at the manufacturer level
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“The best way to predict the future is to create it”.
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Questions?
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Thank You!