BBE FIGIEFA Automotive Conference 2015

Trends in the IAM Truck Business 2nd Independent Aftermarket Conference for SEE BBE Automotive

Belgrade, March 26, 2015

Agenda

2

The Balkans – A Rug Carpet

On Different Development Paths in South East Europe A Aftermarket Development

Growing Parts Volumes, Increasing OE-Pressure B Future Challenges

Important Factors to be Considered C Key Takeaways

What are key challenges for SEE? D

3

The Balkans – A Rug Carpet A

White Spots in the Market Landscape

4

“Our knowledge of the Balkan markets is

generally too low”

“At the headquarter, there is little knowledge.

Market know-how is concentrated at the

respective subsidiaries.”

“Our market know-how is only

moderate”

Basis: BBE Expert Talks with Manufacturers and Parts Wholesalers with South-East European Truck Business

“Partly knowledge is unsatisfying, information can only be obtained by

direct activities in the market”

5

Turkey

20,0

11,1 9,9 8,5 7,3 7,2

Romania Greece Hungary Austria Bulgaria Serbia

Middle Range

4,3 3,8 3,2 2,8 2,1 2,1 1,8 0,6

Croatia Bosnia and Herzegovina Moldova Albania Macedonia Slovenia Kosovo Montenegro

Bottom Range

Top Range

75,6

Large Variation in Size of Country Number Of Inhabitants in Million

Basis: European Commission – EU transport in figures 2014; BBE Desk Research

9.501 – 11.500$

Different Development Paths

6

Albania

Bosnia & Herzegovina

Kosovo

Moldova

Austria

Greece

Hungary

Slovenia

Bulgaria

Montenegro

Romania

Macedonia

Serbia

Croatia

Turkey

Less than 9.500$ 11.501 – 14.500$

14.501 – 18.500$

More than 18.500$

Bottom Range Middle Range Top Range

GDP Per Person in USD (Adjusted to Purchasing Power Parity)

Greece – Between Anger and Gloom

7

„Each scenario is possible“

Parts Manufacturer

„We look with skepticism on Greece“

„Currently, the payment behavior is still good “

Hopes and Fears

8

"In the long term, we will include the Balkan countries into the EU“

"The EU accession gives them a perspective and is an important lever to peace in the region“

Jose Manuel Barroso President of the European Commission

"Putin's target is to be able to put Balkans under so much pressure that they distance themselves from the EU membership“

"This is part of a strategic comprehensive approach of Russia to infiltrate the countries economically and politically."

Elmar Brok German Politician

Commercial Vehicle Parc – From Relevant to Nearly Nonexistent

9

3.546,3

Turkey

1.318,9

719,9 451,6 416,5 367,0

Greece Romania Hungary Austria Bulgaria

Goods Vehicles*

144,1 141,6 84,4 16,5 0,3

Serbia Croatia Slovenia Macedonia Montenegro

Registered Vehicles in 1.000 (2012)

* Heavy and light goods vehicles, lorries and road tractors Basis: European Commission – EU transport in figures 2014

Commercial Vehicle Parc – From Relevant to Nearly Nonexistent

10

632,1

Registered Vehicles in 1.000 (2012)

Turkey

42,0 27,0 23,3 17,2 9,5

Romania Greece Bulgaria Hungary Austria

8,8 4,7 2,7 2,4 0,4

Serbia Croatia Macedonia Slovenia Montenegro

Buses and Coaches

Basis: European Commission – EU transport in figures 2014

11

New Registrations – From Relevant to Nearly Nonexistent Newly Registered Vehicles in 1.000 (2012)

7,8 4,0 3,1

Slovenia Greece Bulgaria

43,9

18,8 16,8

Austria Hungary RomaniaTurkey**

255,8

Goods Vehicles*

* Heavy and light goods vehicles, lorries and road tractors ** Heavy and light goods vehicles and pick ups

Basis: ACEA and Otomotiv Sanayi Dernegi (Turkey)

12

New Registrations – From Relevant to Nearly Nonexistent Newly Registered Vehicles in 1.000 (2012)

0,1 0,1 0,1

Greece Slovenia Hungary

5,5

1,3 0,5

Turkey Austria Romania

Buses and Coaches

Basis: ACEA and Otomotiv Sanayi Dernegi (Turkey)

Who are the Balkan Stars?

13

Vehicle Parc

GDP per Head (percentage change to previous year)

Macedonia

Montenegro

Serbia

Croatia

Slovenia

Bulgaria

Romania

Turkey

Hungary

Austria

Greece

Aftermarket Development B

Growing Parc in the Goods Vehicle Markets

15

Goods Vehicles*

Stock of Registered Vehicles - Change ‘11/’12

Basis: European Commission – EU transport in figures 2014

-9,6% -8,6%

-0,3%

-7,3%

10,7%

Serbia Croatia Slovenia Montenegro Macedonia

6,2%

-0,2%

3,4% 0,3%

2,2% 5,6%

Turkey Greece Romania Bulgaria Hungary Austria

Strong truck markets show an ongoing growth …

… whereas smaller truck markets tends to develop negatively!

* Heavy and light goods vehicles, lorries and road tractors

Old Vehicle Parc = High Demand of Replacement Parts

16

The Balkans is Europe’s used car heap

Old vehicle parc

„Used car sector grows stronger. There is a lot to see: old German trailers which are older than 15 years”.

„Significant need of replacement“ of old cars

“Hesitant replacement by new vehicles”



17

2,3% 0,8% 0,3%

Romania Bulgaria Greece

10,5% 9,2% 7,2% 4,2%

Austria Slovenia Turkey** Hungary

Goods Vehicles*

Basis: ACEA, Otomotiv Sanayi Dernegi (Turkey), European Commission – EU transport in figures 2014; own calculation

* Heavy and light goods vehicles, lorries and road tractors ** Heavy and light goods vehicles and pick ups

Share of Newly Registered Vehicles of Vehicle Parc (2012)


18

0,9% 0,6% 0,4%

Turkey** Hungary Greece

Buses and Coaches

Basis: ACEA, Otomotiv Sanayi Dernegi (Turkey), European Commission – EU transport in figures 2014; own calculation

13,7%

4,2% 1,2%

Austria Slovenia Romania

Share of Newly Registered Vehicles of Vehicle Parc

Balkan = Forwarder of Europe

19 *The Balkans = Bulgaria, Romania, Croatia, Greece, Hungary, Slovenia Basis: Toll statistics - Federal Office for Goods Transport Germany

Mileage Performance of Toll Vehicles in Germany

17% 18% 19%

Share The Balkans*

Total

26,6 27,2

28,0

Thereof

37% 38% 39%

Share Foreign

Thereof

2012 2013 2014

(in billion km)

+25%

+11%

Growth Rate (km) 2012/2014

+5%

The Positive Message: The Aftermarket is Growing

20

Growing vehicle parc Old vehicles with repair requirement Increase of wear due to rising mileage performance

Slightly growing aftermarket

+ +

=

OE is Catching Up

21

“20 years ago, everything was IAM”

“The OE influence is increasing”


“But it differs depending on

market”

Bosnia and H., Croatia, Kosovo, Serbia

70%

80%

65% ?

79% ?

2010 2020

Bulgaria, Hungary, Romania

Share IAM

Future Challenges C

The Customer Structure is Dominated by Small and Micro Customers

23

1

vehicle

2-10

vehicles

11-20

vehicles

21-50

vehicles

51-100

vehicles

>100

vehicles

Total 13.000 15.000 1.000 600 150 70

in % 44% 50% 3% 2% 1% <1%

Customer structure of Romania

60%

25% 15%

… Ownership … Leasing … Rental

40%

Share of…

50% Share of imported used cars:

Basis: BBE Desk Research; BBE Expert Talks with Manufacturers and Parts Wholesalers with South-East European Truck Business; BBE Study “Commercial Vehicles Aftermarket” (2014)

“In Hungary, by tendency

= larger fleets”

“In Bulgaria, the average fleet size is

about three vehicles”

High Price Sensitivity in Vehicle Purchase

24 Basis: Oliver Wyman

Reliability

Quality of service

Consumption efficiency

Availability of spare parts

Production quality

Safety

Costs per KM

Purchasing costs

Total cost of Ownership

Downtimes

Western Europe

Reliability

Consumption efficiency

Purchasing costs

Quality of service

Production quality

Guarantee

Availability of spare parts

Costs per KM

Total cost of Ownership

Downtimes

Eastern Europe

Importance

price & costs vehicle Service

Top-10 Criteria For Purchase Decision

25

High Price Sensitivity Also in Repair And Service


“There is a high price sensitivity about parts

prices. The attention lies on price aspects.”

“It exists a strong “market of cheap articles“ in the

Balkans“

“Noticeable tendency to use

spare parts of vehicles which are no longer in use”

“Sales difficulties of “nice-to-have-products” - Focus

lies on wear parts”

“Many customers prefer

to repair their trucks do it yourself”

At the wholesale level: “Aggressive pricing”,

“permanent price wars”

26

The Spectrum of Customer Expectations


Companies with larger fleets (haulage) and with extensive, lengthy transports

“Purchasing at fleet customers is becoming

more professional. Pitches are more frequent.”

“Are driving a huge price pressure and at the same

time have high expectations”

Smaller fleets (among others transport for 'own account')

“Offer higher margin opportunities”

“Have lower expectations and prefer self-repairing”

27

Zones of Quality-Orientation


“Second Quality is Enough”

• "Potential only for second quality parts"

• No further development towards higher quality parts

• Orientation towards the Russian market

“Top Quality as Option”

• Strong tendency to Do-It-Yourself

• If not possible / successful: then purchase of top quality

• Orientation towards Western brands

Bulgaria, Hungary, Romania Bosnia and Herzegovina,

Croatia, Kosovo and Serbia

Workshops are Lagging Behind

28

Many small and micro workshops with poor facilities

Small number of truck specialists

No sustainable workshop system

In Turkey, Hungary: "good level", "almost Western European standard"

In Romania, Bulgaria: in part good workshops

In the rest of the Balkans: too small number of well-qualified workshops

Workshops are “lagging 10-15 years behind“, “Workshops are still on the same level as 30 years ago”


Selection of Trading Partners and Locations

29

Strategy Options of Parts Manufacturers

Partly restraint of direct engagement: “Trading partners instead of own outlets or stocks.”

“Trading partners have the required proximity to the market”

„Selective approach to marketing and sales“

Stepwise expansion of existing production and trading structures with growing “market security”

Market Consequences

Own sales companies are an exception

“Partly no dealer structure (smaller margins)“

Logistic function of a market for the surrounding smaller markets (e.g.: Croatia for Bosnia - Herzegovina)



30

ATRAD

InternationalGroupauto Temot

Austria Austria AustriaBosnia and

Herzegovina

Bosnia and

HerzegovinaBulgaria Croatia* Bulgaria

Bulgaria GreeceBosnia and

Herzegovina*Croatia

Croatia Hungary Bulgaria Greece

Greece Moldova Greece Hungary

Hungary Romania Hungary Montenegro

Romania Turkey Macedonia* Romania

Slovenia Moldova Serbia

Turkey Romania Slovenia

Slovenia* Turkey

Serbia*

Turkey

* Groupauto Adria Basis: BBE Desk Research

Main bases, barely cultivated markets and white spots

Parts Wholesaler Outlets

Rapidex 8

Simplex 7

MetalRad 4

Total 19


Autonet 47

ATP Exodus 32

EVW Holding 12

Cefin Trucks 7

SKUBA 1

Total 99

ø number of vehicles per outlet

abt. 7.600


abt. 7.300


Balkan Star 9

Cefin Parts 9

AUTO 1 Ltd. 7

Auto Profi-N Ltd. 1

V&D Auto 1

Total 27

Romania

Serbia

Bulgaria


31

The Trade Density Differs from Country to Country


abt. 13.600

32

Key Takeaways D

Key Takeaways

33

Balkan truck markets with potential

The truck aftermarket in South East Europe is partly unknown and confusing terrain.

However, there are interesting truck markets with increasing aftermarket potential. These mainly include Hungary, Romania and Turkey.

The aftermarket in these countries is characterized by a strong position of the IAM. This position comes under increasing pressure however.

Professionalization as a main task

For IAM, the main future challenge is to increase workshop quality. Equipment and expertise need to be improved.

For this, they need support: Starting with the implementation of standards through to technical trainings to be able to repair more complex parts.

Furthermore, the awareness and the relevance of the quality of parts on the side of workshops and truck fleets must be strengthened.

This can only be achieved in a concerted action and with persistent educational work in the target groups.

34

Markus Frömgen Director Strategic Consulting BBE Automotive

[email protected]

Date post:	16-Jan-2017
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