North american auto aftermarket frost 0211

360 Degree Perspective of the North American
Automotive Aftermarket

Capitalizing on Anticipated Growth in Vehicle
Maintenance and Repairs

N90F-18
February 2011

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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

N90F-18 4

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),
28
2008-2017

Automotive Aftermarket: Manufacturer-level Replacement Parts Revenues by Category (North America),
29
2007-2017

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
49
(North America), 2010

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),
75
2010

Automotive Aftermarket: SWOT Assessment of the Warehouse Distribution and Jobber Channel
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),
80
2010

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

N90F-18 7

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
36

N90F-18 8

List of Charts (Contd…)

Automotive Aftermarket: Manufacturer-level Tools & Equipment Revenues by Product Type (North America),
37
2008 and 2015
Automotive Aftermarket: Manufacturer-level Selected Diagnostic Equipment Revenues by Product Type
38
(North America), 2005-2015
Class 4-8 Truck Aftermarket: Total Manufacturer-level Replacement Parts Revenues (North America),
43
2004-2014
Class 4-8 Truck Aftermarket: Manufacturer-level Replacement Parts Revenues by Distribution Channel
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),
61
(2010)
Automotive Aftermarket: Percentage of Owners Who Have Scheduled Maintenance at A Vehicle Dealership
62
(United States), 2010
Automotive Aftermarket: Percentage of Vehicle Owners Choosing Dealership Service by Reason
63
Automotive Aftermarket: Other Types of Maintenance Performed Within the Past 12 Months (United States),
64
2010

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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
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
81

Automotive Aftermarket: Distributor-level Revenues by Type (North America), 2010 82

N90F-18 10


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
92

Automotive Aftermarket: Revenue Distribution by Product Category (North America), 2017 97

N90F-18 11

Introduction to the 360º View of the North American Aftermarket

• This strategic overview of North American automotive aftermarket industry is targeted at
CEO and director-level executives in the industry.
• It outlines emerging trends, industry metrics, and transitional events that impact the
aftermarket today and into the future. It highlights areas where growth opportunities exist
in this ever-evolving market.
• The 360 Degree perspective provides insight into a variety of topics beyond just parts and
service potential; it investigates the impact of social, regulatory, legislative, political, and
technology changes that influence the vehicle mix, product mix, product and service
pricing, promotion, technician skill and training, repair information, service locations and
distribution 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 to
best 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

N90F-18 13

What is a 360º Analysis?

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:
• Global – You must be able to identify geographic expansion opportunities, monitor the political and
regulatory effects of doing business in another country; understand cultural implications and
requirements.
• Industry – You must maintain a solid grasp of your key industries and the industries that could have an
impact 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 and
opportunities; plan for potentially disruptive technologies; leverage new products and/or applications
for growth.
• Economic – You must be able to identify current and future economic trends; identify growing
customer 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 market
perceptions, 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 and
develop the Growth Team; ensure Growth Team members understand their functions and contributions
to growth; leverage industry Growth Thought Leaders and best practices.


N90F-18 14

Research Methodology

• The information provided by market participants is qualified
through:
 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 with
analysis of the market to provide basis for the unit, revenue
and pricing forecasts for each product category.
• This research is a compilation of findings published by • Market valuation data are then compared to known
Frost & Sullivan’s automotive aftermarket team over the past industry information as a means of verifying and validating
three years. market size. Known data include:
• It includes primary research based on Frost & Sullivan’s
 Vehicles in Operation (VIO)
bottom-up methodology as well as secondary data sources.
 Replacement rates of products with similar exposure, life
• Primary research requires analysts to conduct interviews with
expectancies, and warranties
all major market participants (manufacturers and distributors)
to capture each participant’s unit shipments and revenue  Growth trends, product and technology trends, pricing,
market size at the component level. The analyst builds a base application coverage
year market valuation for each component by summing the • Because the metrics analyzed in this research are
inputs of all participants. redacted from multiple research studies, the base years,
• Analysts also garner information related to the impacts of historical periods and forecast periods are not the same for
legislative changes, technological development, competitive all measurements.
situations and distribution developments.

N90F-18 16

Introduction to the North American Aftermarket

17

Major Aftermarket Trends

1. The closure of more than 3,000 auto dealerships since 2008 has created new parts and service
opportunities for the independent aftermarket, while forcing automakers to re-evaluate their approach to
vehicle maintenance and repairs.

2. The sharp decline of new car and light truck sales over the past two years has resulted in a higher
average 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 routine
services 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 and
service providers to adjust to marketplace demands for products that make vehicles lighter, more fuel
efficient, safer, and compliant with all applicable regulations.

5. This includes the projected growth of hybrid and electric vehicles, which have some unique maintenance
characteristics that service providers should understand.
6. Continuous market pressure to supply products and services at the lowest possible cost threatens the
industry’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
300 MY 2017
Vehicles in in Operation(Million)
Vehicles Operation (Million)

MY 2016
250 MY 2015
MY 2014
200 MY 2013
MY 2012
150 MY 2011
MY 2010
100 MY 2009
MY 2008
50 MY 2007
MY 2006
MY 2005
0
Pre MY 2005
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Automotive Aftermarket: Vehicles in Operation by Model Year (North America), 2010
MY 2008-2011 Older
4% MY 1986-1991
9%
MY 2006-2007 9%
By looking at component life expectancy and 13%
consumer replacement behaviors, analyzing the MY 1992-1997
vehicle population by age provides insight into 20%
MY 2002-2005
aftermarket size and growth potential. 24% MY 1998-2001
21%
Vehicle age is a strong indicator of warranty
status and a key indicator of repair opportunity.

Note: All figures are rounded; the base year is 2009. Source: Frost & Sullivan

N90F-18 19

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
• The North American vehicle population is expected to
shift toward foreign brands by up to 13% between 2009
and 2016. VIO Out of
• Currently imports represent 35% and are forecast to Warranty
grow at CAGR of 4.1%. 86% VIO in
Warranty
• The shift re-defines the “all makes/all models” definition 14%
and directly impacts component sales based upon
manufacturers associations with vehicle manufacturers.

Automotive Aftermarket: Vehicles in Operation by Brand Automotive Aftermarket: Vehicles in Operation by Type
(North America), 2010 (North America), 2006-2016
300

Vehicles inin Operation (Million)
General FSvan
Motors Honda-Acu ra 250
7% Nissan- Pickup
29% Infiniti 200 Minivan
Toyota-
Ford-Lincoln- 5% SUVlux
Lexus-Scion
Mercury 150
11% SUVstd
21% Hyundai-Kia
100 SUVcomp
Chrysler- Other 3%
CarLux
Dodge-Jeep 7% BMW
50
1% Daimler Family
13%
1% 0 Specialty
Audi-VW Compact
2%

Source: Frost & Sullivan, Wards Automotive, Automotive News

N90F-18 20

Shop Counts, Technician Counts, and Bays are the Key Metrics that
Support the Repair Industry

• Long gone are the days of fixing a • The three key elements that
vehicle where it stands. The indicate the health and direction
evolution of a number of factors of the repair industry are:
created the need for a
 Number and type of repair
sophisticated delivery of repair
locations
delivery services. Factors include
 Number of available bays
such elements as:
 Number and qualification
 A large vehicle population
level/ skill level of repair
 Rising vehicle complexity
technicians
 Need for sophisticated
diagnostic equipment and
specialized tools
 Workplace safety legislation
 Labor laws
 Productivity demands
 Workmanship commitments

N90F-18 21

Service Centers by Type

Automotive Aftermarket: Service Centers by Type (United States), 2010

2010 2010 2010 2010
Repair Location Locations Avg. B ays Technicians 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 Performing
3,978 8.3 10,342 2.6
Service

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

N90F-18 22

Service Centers by Type (Contd…)

Automotive Aftermarket: Service Centers by Type (United States), 2005-2013

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
5,175 5,180 5,194 5,191 5,185 5,190 5,195 5,201 5,206
w/Service

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
262,637 261,715 260,989 261,302 257,975 257,576 257,355 257,224 257,337
Repair Locations

N90F-18 23

Mix of Locations Not Expected to Change Much Across the Forecast
Period

Automotive Aftermarket: Service Centers by Type (United States), 2005-2013

100%
Percent of Total Locations

90%
Percent of Total Locations

80%
70%
60%
50%
40%
30%
20%
10%
Automotive Aftermarket: Service Centers by
0%
2005 2006 2007 2008 2009 2010 2011 2012 2013
Type (United States), 2010
Dealer IRF Specialty Repair
Towing
Tire Dealer Retailers 0.6%
Gas w/service LOF Collision 12.1% Truck Repair
1.2%
Auto Parts w/Service Tire Dealer Retailers 7.5% Dealer
Auto Parts
Towing Truck Repair 23.1%
w/Service
1.9%
Percent representation in the population changes little. Even Collision
with a CAGR of -5.5%, the decline in dealership numbers 13.3%

represented a loss of 0.1% share to the channel.
LOF
Location is only one measurement. As visible by the tech 2.8%
employment and bay numbers, closure of a dealership Gas w/service Specialty Repair IRF
2.7% 7.0% 27.8%
significantly impacts industry and channel service capacity.

N90F-18 24

Technicians are Concentrated in Auto Dealerships (Dealer), General
Repair Facilities and Tire Stores (Tire Dealer)

Automotive Aftermarket: Service Technician Employment by Type (United States), 2010

Towing
Tire Dealer Retailers 0.6%
12.1% Truck Repair
1.2%
7.5% Dealer
Auto Parts
23.1%
w/Service
1.9%
Collision
13.3%

LOF
2.8%
Gas w/service Specialty Repair IRF
2.7% 7.0% 27.8%

Source: Frost & Sullivan, ASE, Bureau of Labor Statistics

• Recent shop closures have not impacted the number of technicians as yet because accreditation is not tied to
employment.
• Closures have impacted employment by channel. Numbers are expected to decrease further in 2011 as dealers
adjust to lower volume. Because of the high ratio of employment to location in the dealer channel, a single
closure has major impact on industry employment.

N90F-18 25

The Original Equipment Service (OES) Channel is Used Mainly by
Owners of Vehicles Less than 5 Years of Age

The OES channel, comprised of franchised auto dealerships, captures approximate 30%
share of all aftermarket parts and service revenues.

The downfall of the
Local brands have
economy has caused
been losing market
lower disposable GM & Chrysler shuts share to foreign brands
incomes for consumers, down dealerships. of Asian and European
and reduced new car (cost cutting efforts) origin.
sales.

• The average U.S. auto dealership employs 12 service technicians and contains 18 service bays. If each terminated
dealership closes, it would eliminate as many as 50,000 dealer service bays and displace more than 35,000 trained
service technicians.
• It would also force many people who currently take their vehicles to dealerships for service to purchase parts and
services through the independent aftermarket.
• In addition to new vehicle maintenance, auto dealerships also derive significant revenues from collision repair
services.
• However, it tends to lose easy, profitable jobs such as brakes, oil/filter and tire replacement to lower-priced
independent repair facilities.

N90F-18 26

Competitive Evaluation of the Service Industry

• The number of total service locations has remained stable over the past decade, although the mix and
type of outlets is changing.

• The closure of dealerships is significant not only because they have more technicians and service bays
than 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 rather
than a specialized focus on brakes, tires, air-conditioning or oil changes, etc. – make up the largest
provider category.

• Mass merchants such as Walmart and Costco represent a relatively new type of service provider with the
power 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 promotional
efforts.
• A key success factor for the service industry is ensuring the vehicle is repaired properly the first time so
that 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 transmission
work, are typically more profitable than those offering a broader range of services.

N90F-18 27

Shift from Original Equipment to Aftermarket Manufacturers

Automotive Aftermarket: Shift from Original Equipment to Aftermarket Manufacturers (North America), 2008-2017

The North American automotive aftermarket is mature and will experience low
growth over the 2011-2017 period. Total manufacturer-level revenues in the 2010
Why base year were approximately $83 billion and are forecasted to reach $98 billion
by 2017.

The North American aftermarket draws competition from across the world. The
main stakeholders are parts manufacturers, vehicle manufacturers, retail and
Who 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.

The aftermarket has rigid business requirements for production runs,
inventories, parts coverage, pricing, logistics, sales, marketing, distribution and
Issues 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.

The independent aftermarket is in direct competition with the OES channel,
which sells original parts through auto dealer networks and employs highly
So what? 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.

Vehicle manufacturers and their dealers have lost market share over the
historical period to independent aftermarket parts and service providers.
And? 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.


N90F-18 28

Despite Challenges Aftermarket Parts Expected to Grow at CAGR of
2.1%, Driving Revenues to US$91.0B by 2015

Automotive Aftermarket: Manufacturer-level Replacement Parts Revenues by Category (North America), 2007-2017

Revenues Revenues Historical Revenues CAGR
(2007) (2010) Growth (2017) (2010-2017) • The aftermarket continued to
grow over the 2007-2010 period
Tires $16,300 M $17,400 M 2.2% $22,300 M 5.1% in spite of the economic
recession.
Batteries $2,834 M $3,198 M 4.1% $3,339 M 0.6%
• Growth rates will increase over
Brake Parts $2,686 M $2,938 M 3.0% $4,016 M 4.6% the forecast period as people
keep their vehicles longer,
Filters $1,228 M $1,282 M 1.4% $1,512 M 2.7% resulting in higher maintenance,
repair and modification activity.
Collision
$3,430 M $3,854 M 4.0% $4,100 M 0.9% • Products in the maintenance
Body
Starters & categories are expected to grow
$1,326 M $1,346 M 0.5% $1,268 M -0.8% at strong rates, including brake
Alternators
parts, tires and filters.
Lighting $1,104 M $1,047 M -1.8% $1,076 M 0.4%
• Increases in material and
Wheels $837 M $862 M 1.0% $908 M 0.7% transportation costs are expected
to drive component prices and
Exhaust decrease margins for suppliers.
$783 M $784 M 0.0% $1,086 M 4.8%
Components
• New OEM technologies will
Spark Plugs $673 M $588 M -4.4% $664 M 1.7% reduce demand for some
important replacement parts in
Others $47.5 Billion $49.7 Billion -0.5% $55.0 Billion 1.5% the starters/alternators and
lighting categories.
Total $78.7 Billion $83.0 Billion 1.8% $97.6 Billion 2.3%

N90F-18 29

Political and Regulatory Influences

30

Top Trends

Automotive Aftermarket: Top Trends (North America), 2010

Rising Economic
Fuel Prices Rebound
High Material
Costs Slow Increase
of VIO
Right to Repair Act Shift in Vehicle Segment

Lower Cost
Overall maintenance and Emission Imports
repair activity will increase Legislations
Impact
over the short to medium
term as the economy Safety
recovers from recession. Legislation
Over the medium to long Social Trend of
term, participants must Going ‘Green’ Introduction of
prepare for smaller vehicles, EVs and HEVs
Low a more diversified
population, new
technologies and price
competition.

Low Certainty High

N90F-18 31

Key Legislative and Regulatory Areas

Automotive Aftermarket: Key Legislative and Regulatory Areas (North America), 2010
• Use of materials for
manufacturing, etc.
• CAFÉ.
• Use and handing of toxic
• EPA exhaust regulations.
materials.
• Waste management.

• Potential
• Possible free passage of
trade agreements Employee Free
(South Korea, Choice Act.
Columbia,
• Lingering
Panama).
unfunded
• Import duties. pension
• Impact of “Buy obligations.
American”
Legislation.

• Proposed Motor Vehicle Safety • Quality control and
Act of 2010. testing.
• New opportunities for • NHTSA oversight.
replacement and aftermarket
alternatives.

N90F-18 32

Major Legislative Topics

Automotive Aftermarket: Major Legislative Topics (North America), 2010
Authorities across North America are passing laws banning the use of text
messaging while operating a motor vehicle. The federal government has passed
Texting similar legislation covering drivers of all large commercial trucks and buses. The
problems of distracted driving will likely drive additional legislation.

Corporate 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
CAFE mpg for light trucks by 2016. Automakers will use different materials,
technologies and part designs to comply with the federal mandate.

Disabled The need to accommodate the mobility needs of disabled drivers and
Drivers & passengers creates ongoing opportunities for up-fitters and coachbuilders for
vehicle modification and product installation.
Passengers

Motor Vehicle Safety Act of 2010 proposes increased standards for vehicle
safety, including greater regulatory influence on vehicle part design and recall
Safety procedures, and fees for automakers. Most prominent are brake override
controls and event data recorders installed on all new vehicles.

EPA exhaust emissions regulations target NOx and particulate matter from large
diesel trucks, but may have future implications for light cars and trucks. It also
Emissions drives the use of new low-sulfur fuels, biofuels and advances in turbochargers,
catalytic converters and other system components.

Adoption would require automakers to share needed data with the aftermarket to
Right to repair and maintain their vehicles, giving consumers a choice of where to take
Repair Act them for service. The independent aftermarket fears being rendered unable to
compete with the OES channel if vehicle repair information is made proprietary.


N90F-18 33

Integrated Industries

34

Industries of Close Relation

Tools & Equipment

Diagnostic Equipment

Automotive
Paint, Body & Equipment
Aftermarket

Logistics

HD Aftermarket

N90F-18 35

Tools & Equipment
Automotive Aftermarket: Manufacturer-level Tools & Automotive Aftermarket: Manufacturer-level Tools & Equipment
Equipment Revenues (North America), 2004-2014 Revenues by Distribution Channel (North America), 2010
e-Commerce
30 27.1 28.4 Hardware & Other / Internet Direct Sales
25.8 Retail 2% 17%
Revenues ($ Billion)

24.1

25 22.1 16%

20 Wagon Jobbers
8%
15 Home Centers
20% General & Specialty
10 Distributors
25%
5
0 Mass Merchandisers
12% Source: Frost & Sullivan
2004 2007 2010 2012 2014
• Mechanic hand tools include: Socket wrenches, cutters/pliers, flat wrenches, screw drivers, adjustable/pipe wrenches, torque wrenches, ball
peen 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 operated
saws, 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 paint
booths and shop equipment "consumables").

•It is important to note that most products in the tools category are sold through home centers, and a large share
Key of product applications are in the professional services, DIY, and home development – with automotive services
Takeaway holding a smaller share.
•Opportunities are present for automotive retail participants to target consumers outside automotive services.

N90F-18 36

Manufacturer-level Tools & Equipment Revenues by Product Type

Automotive Aftermarket: Manufacturer-level Tools & Equipment Revenues by Product Type (North America), 2008 and 2015

2015

Scan Tools
22.6%
S/W
22.4% 37.9% Exh. Gas Analyzers
37.0%
6.3% 5.2% 2008 Engine Analyzers
3.2%
2.4% 13.3% System Testers
18.9%
11.1% Integrated Diagnostic Systems
19.7%


• Participants in the service channel are equipped with scanners, system and multifunction testers, engine analyzers, and
exhaust gas analyzers.
• This trend is not expected to change over the 2008-2015 period because scanners, system and multifunction testers are
crucial to vehicle maintenance and provide the best return on investment.

N90F-18 37

Automotive Aftermarket: Manufacturer-level Selected Diagnostic
Equipment Revenues by Product Type (North America), 2005-2015

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 contributed
to a general decline in service demand, which restrains the ability of many shops to update their equipment over the forecast
period.

N90F-18 38

Paint, Body, and Equipment

Market includes automotive paints, braces,
• Paint accounts for approximately $1.8 billion, or 85.7 percent of
masking paper, masking tape, body fillers, total revenues, while shop equipment and accessories make up
sanding/grinder discs, and glues and adhesives. the remaining $0.3 billion, or 14.3 percent of revenues.
• Walk-in, or DIY, business represents approximately 7 percent of
Paint Manufacturers sales, while professional painters and body shops account for 93
percent of distributor sales.
(e.g. DuPont, PPG, BASF)
• Increasing vehicle salvage values causes more vehicles to be
$2.1 billion written off as total losses by insurers. This increases the
(manufacturer level)
availability of high quality OE replacement parts and challenges
overall part revenue generation for the industry.
Distributor/Jobber • Rising repair costs, the improved safety features of modern
(e.g. Finishmaster, Sherwin Williams, Akzo Nobel) vehicles, and aggressive pricing for new cars have also
contributed to reduced accident rates and more total losses, which
$2.8 billion keeps vehicles out of the body shops.
• Body shop overcapacity squeezes margins for distributors.
Industry estimates that there are 36,451 body shops in the United
Independent Body Shops States alone, although industry demand can profitably sustain
20,000 to 25,000 shops.
(local businesses)
• There is a significant amount of consolidation taking place on the
$3.5 billion distribution side of this industry. Large distributors such as
Finishmaster, Sherwin Williams, and CARQUEST have been
Paint and body shop equipment is sold through a two-step
distribution process. acquiring smaller competitors to drive their growth.


N90F-18 39

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.

Objectives of • Increase delivery efficiency
Logistics • Decrease overall logistics costs

N90F-18 40

Logistics and Regional Distributors

Pull Order System

Regional Local
Supplier Installer
Distributor Distributor

Usage of Land, Air, and Sea Freight

The fundamental function of the regional distribution center is to replenish
inventory of local distribution centers.

Are Regional Distributors Really Needed?

• 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.

N90F-18 41

3PL.. The Solution?

Supplier 3PL Installer
Why use 3PL?

• 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.

• It is important to carefully evaluate current overall costs in owning a regional distribution center, frequency
Key of delivery, and the cost of freight logistics.
Takeaway • 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.


N90F-18 42

The Heavy Duty (HD) Aftermarket

Class 4-8 Truck Aftermarket: Total Manufacturer-level Class 4-8 Truck Aftermarket: Manufacturer-level Replacement Parts
Replacement Parts Revenues (North America), 2004-2014 Revenues by Distribution Channel (North America), 2010
25
20.1 HD Truck
Revenues ($($ Billion)
Revenues Billion)

20 18.4 Specialist Dealers
17.2
15.3 26% 43%
15 13.4

10 Others
5% ISPs
13%
5 Automotive Engine
Aftermarket Distributors
0 6% 7%
2004 2007 2010 2012 2014 Source: Frost & Sullivan

• 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.

N90F-18 43

Distribution Structure

Class 4-8 Truck Aftermarket: Distribution Structure (North America), 2009

Off-Shore
Manufacturer

U.S. Parts
Exporter OEM Remanufacturer Salvage Yard
Manufacturer

Fleet Repair
OES HD WDs
Truck Stops Shops

Engine/
New Truck Dealer Internet / Mail WDs Program
Transmission Re-Distribution
Parts Depts. Order Rebuilders
Groups
Jobber
Collision Parts
New Truck Dealer Distributors
Service Depts. Jobbers/ Wagon
Jobbers
DIYers Body Shops

Truck Stop Independent
Service Bays HD Installers

Fleet & Owner
Operators


N90F-18 44

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 distribution
costs and improve value benefits of distributors. Distributors changing focus from products to services, mimicking
the 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 experiencing
continuous 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 exchange
services and part.
• Research indicates that dealers and independent distributors sometimes purchase from each other when
needed, but prefer to keep this fact unknown.

N90F-18 45

Technology Trends

46

Technology Applications

Automotive Aftermarket: Technology Applications (North America), 2010

• New inventory management processes • Lean manufacturing process.
maximize efficiency and reduce
inventory costs. • New manufacturing
processes to maximize
• Use of RFID tags and quality and
Bluetooth technology for minimize costs.
inventory management
and upkeep. • Use of more
efficient machinery.

• Development of new • Aftermarket products in the
offerings to match new performance category require
OE parts and products. heavy R&D processes for
• Increased adoption of companies to develop better
electronics in vehicles supports product offering portfolios.
demand for more high-tech products,
maintenance, and repair solutions. Source: Frost & Sullivan

N90F-18 47

Hybrid and Electric Vehicles in Operation

Hybrid and Electric Vehicles in Operation (North America), 2006-2016

1000.0

100.0
By 2016, approximately 2.8% of all U.S. and Canadian
Vehicles in in Operation (Million)

passenger vehicles will be hybrids or EVs.
10.0

CAGR 23.5%
1.0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
0.1 CAGR 103.3%

There will be an estimated 600,000 EVs
0.0 on North American roads by 2016.

0.0
Hybrids EV Total Hybrid/EV Total VIO

• The percentage of vehicles that are hybrids or EVs will continue to increase over the long
term 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 from
2.4% in 2008-09.

N90F-18 48

Maintenance and Repair Opportunities in Hybrids and Electric
Vehicles

Automotive Aftermarket: Maintenance and Repair Opportunities in Hybrids and Electric Vehicles (North America), 2010

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 and
brake pads.
• However, hybrids and EVs contain certain components parts not found on most gas-powered
automobiles, including electrical A/C compressors, transmission coolant, and heater pumps, that will
offer new market opportunities to parts and service providers.

N90F-18 49

Future Hybrid Offerings by Vehicle Manufacturer

Automotive Aftermarket: Future Hybrid Offerings by Vehicle Manufacturer (North America), 2009-2015
Vehicle
Hybrid Vehicle Model Type of Hybrid Expected Year
Manufacturer

X6 Active Hybrid Two-Mode 2009 (MY 2010)
Hybrid Vehicle Systems – Findings

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)

E Class Mild 2010

C Class Mild 2011

Fit Mild 2010

CR-Z ( now a concept) Mild 2010

Insight Mild 2009 (MY 2010)

Camry 3rd Gen Full 2012

N90F-18 50

Future Hybrid Offerings by Vehicle Manufacturer (Contd…)

Vehicle
Manufacturer

Yaris Mild 2011

3rd-generation Prius Full 2009 (MY 2010)

Lexus HS 250h Full 2009 (MY 2010)

Lexus F-A (now a concept) Full 2010+

Lexus HS 250h Full 2009 (MY 2010)

Ram 15 Hybrid Pickup Two-Mode 2010 (MY 2011)

Mercury Milan Full 2009 (MY 2010)

Ford Fusion Full 2009 (MY 2010)

Focus Micro 2011

Fiesta Micro 2011

Infiniti M Full 2009 (MY 2010)

N90F-18 51

Future Hybrid Offerings by Vehicle Manufacturer (Contd…)


Vehicle
Manufacturer

Jetta Mild 2010

Passat Mild 2011

Touareg Full 2010

Sonata Full 2010

C30 Micro 2010

S40 Micro 2011

V50 Micro 2011

Cayenne S Full 2010

Panamera Micro 2010

N90F-18 52

Forecast of Electric Vehicles by Manufacturer

Automotive Aftermarket: Forecast of Electric Vehicles by Manufacturer (North America), 2008-2015

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
Market Outlook and Forecasts

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
Note: All figures are rounded; the base year is 2008; Source: Frost & Sullivan

N90F-18 53

Forecast of Electric Vehicles by Manufacturer (Contd…)

Automotive Aftermarket: Forecast of Electric Vehicles by Manufacturer (North America), 2008-2015

Small OEM's Year 2008 2009 2010 2011 2012 2013 2014 2015
Market Outlook and Forecasts

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

Note: All figures are rounded; the base year is 2008; Source: Frost & Sullivan

N90F-18 54

Membership and Vehicle Forecasts

United States
• Started in 2001, much later than Canada
Canada; fast growth. • Started in Quebec in 1994.
• Current average member-vehicle ratio is • Current average member-vehicle ratio is
estimated at 49:1. estimated at 27:1.
• 2001-2009 compound annual growth • 2001-2009 CAGR were 39.4% for
rates (CAGR) were 71.3% for members members and 31.9% for vehicles.
and 52.4% for vehicles. • High growth markets are residential
• High growth markets are residential neighborhoods and business users.
neighborhoods and business users.

Carsharing Market: Membership and Vehicles Forecasts (North America), 2009-2016

Vehicles Members
U.S. Canada 72.5 4,413.1
Vehicles Members
5,000 80 thousand thousand
10.2 453.7 Members Vehicles
thousand thousand 291.5
70 7.8
Members (Thousand)

4,000

Vehicles (Thousand)
2.0 55.1 60

3,000 50

40
2,000 30 64.7 4,121.6
8.2 398.5
20
1,000
10
0 0
2009 2010 2011 2012 2013 2014 2015 2016
2009 Note: All figures are rounded; the base year is 2009. Source: Frost & Sullivan 2016

N90F-18 56

Programs in Operation

Bike Sharing Market: Programs in Operation (North America), 2010

BIXI

MONTREAL

BIXI

OTTAWA

Nice
Ride Name
NA*
MINNESOTA
BOSTON

Bright
Angel BIXI
Bicycles
GRAND CANYON
TORONTO
Large
Scale and
Popular B-Cycle
Name Smart
DENVER DecoBike
NA* Bike
Small Scale
FLORIDA WASHINGTON DC/ VIRGINIA WASHINGTON DC
* Name of the program is not available.
Programs launched at university campuses such as ZotWheels, California (25 bikes and 4 stations) not shown.

N90F-18 57

What are Consumers Doing in 2010?

Minor Maintenance

Of the minor maintenance behaviors surveyed, engine oil changes continue to be most
popularly performed. Yet, all minor maintenance behaviors surveyed – except oil changes
– are down significantly compared to previous years. Interestingly, while the performance
of minor maintenance is down, attitudes toward maintaining vehicles have remained fairly
consistent with past results – in that most rely on their vehicle owner’s manual for
scheduled maintenance. Thus, since attitudes have not changed but behaviors have, it
appears that the economic recession within the past few years is likely the largest
contributor to the behavior changes. Specifically, U.S. Vehicle Owners are making small
changes to save money and that seems to translate into longer periods of time or more
miles between minor maintenance performances.

“Other” Maintenance
Similar to minor maintenance, performance of “other” maintenance behavior
is down significantly from previous years. Yet, brake service/inspection
remains the most popularly performed “other” maintenance of those
surveyed. Like minor maintenance attitudes, most U.S. Vehicles Owners
have positive attitudes toward “other” maintenance and believe it is
important to be proactive. Thus, it seems likely that the economy is
negatively impacting “other” maintenance behavior despite positive attitudes
toward vehicle maintenance.


N90F-18 58

Consumer Behavior Trends by Category

Locations of Maintenance Performance
Overall, 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 Behaviors
The 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 Behaviors
The 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 Chemicals
Most do not purchase performance chemicals for their vehicles. Yet, among those who do,
there is a good mix of vehicle owners purchasing performance chemicals.


N90F-18 59

Consumer Behavior Trends by Category (Contd…)

Purchase Behaviors of Replacement Parts
While 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 Assistance
Nearly 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 Maintenance
Only 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.


N90F-18 60

Percentage of Engine Oil Changes Performed by Location Type

Automotive Aftermarket: Percentage of Engine Oil Changes Performed by Location Type (United States), 2010

Key Take Away: Overall, the Largest Proportion of Owners Depend On Dealerships to Perform Minor
Maintenance, but Specialty Shops Also Receive Their Fair Share
Percent of Frequencies


Q2: Where did you have your most recent engine oil change performed?

N90F-18 61

Percentage of Owners Who Have Scheduled Maintenance at A Vehicle
Dealership
Automotive Aftermarket: Percentage of Owners Who Have Scheduled Maintenance at A 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

Minor Maintenance Performed at Vehicle Dealer Since Purchase of Vehicle


Q3: From the time you acquired your vehicle, did you ever have minor scheduled maintenance performed at your vehicle dealership?

N90F-18 62

Percentage of Vehicle Owners Choosing Dealership Service by
Reason
Automotive Aftermarket: Percentage of Vehicle Owners Choosing Dealership Service by Reason (United States), 2010

Among Those Having Oil Changes Performed at Dealership

Note: Only top five displayed. Source: Frost & Sullivan

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?

N90F-18 63

Other Types of Maintenance Performed Within the Past 12 Months

Automotive Aftermarket: Other Types of Maintenance Performed Within the Past 12 Months (United States), 2010

Key Take Away: Overall, “Other” maintenance is up significantly compared to recent results

Other Types of Maintenance Performed Within Past 12 Months
2010 (N=688) 2009 (N=1085) 2006 (N=526)
Consumers
Brake Service or 82% show strong
49% return to brake
Inspection 57%
category repairs
48%
Transmission Maintenance 29%
45%

Engine Cooling System 42%
23%
Maintenance 36%

Air Conditioning System 34%
20%
Maintenance 36%
31%
Fuel Injection Service 17%
34%

Suspension System 35%
17%
Maintenance
No Data in 2006 25%
Muffler and Exhaust
15%
Service 29%

0% 20% 40% 60% 80% 100%

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?

N90F-18 64

Reasons for Switching from Dealership for Minor Maintenance

Automotive Aftermarket: Reasons for Switching from Dealership for Minor Maintenance (United States), 2010
Key Take Away: Among the Various Reasons for Switching From Dealerships,
Cost is the Primary Factor followed by dealer’s location.

Note: Multiple mention question. Source: Frost & Sullivan

Q3B: Thinking about why you no longer take your vehicle to your vehicle dealership for minor scheduled maintenance, please state
your level of agreement with each of the following statements.

N90F-18 65

Attitudes Towards Vehicle Maintenance

Automotive Aftermarket: Attitudes Towards Vehicle Maintenance (United States), 2010

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.

Attitude Towards Vehicle Maintenance
2010 ( N= 1220) 2009 ( N= 1085) 2006 ( N= 526)

I always get my vehicle serviced according to the 27%
manufacturer's r ecommended maintenance schedule 29%
as provided i n the o wner's m anual 38%
I mostly get my vehicle serviced according to the 36%
manufacturer's r ecommended maintenance schedule 41%
as provided i n the o wner's m anual 42%
Aside from periodic oil changes, I usually don’t take 27%
my vehicle to be serviced unless there's something 27%
wrong 19%
Since 2006, Frost &
I don’t take m y vehicle t o be ser viced u nless t here's 1%
2% Sullivan’s research has
something wrong
1% tracked a decline in the
I very sel dom even t hink ab out t he maintenance of my 1% percentage of owner’s
1%
vehicle who adhered to the
No Data in 2006
8%
vehicle manufacturer's
I follow a sch edule that is laid out by my service recommended
provider No Data in 2009
maintenance schedule.
No Data in 2006
0% 20% 40% 60%

Q7: Which of the following statements best describes your attitude towards the maintenance of your vehicle.

N90F-18 66

Changes of Vehicle Maintenance in Light of the Economic Recession

Automotive Aftermarket: Changes of Vehicle Maintenance in Light of the Economic Recession (United States), 2010
Key Take Away: Compared to Last Years Results, Attitudes Appear to have Changed from not Spending to
Investing More in Vehicle Maintenance and Repairs.
Changes of Vehicle Maintenance Behaviors in Light of the Economic Recession
Strongly Agree = 7 6 5 4 3 2 Strongly Disagree = 1
I am investing more in vehicle maintenance and repair
22% 19% 17% 20% 8% 6% 8%
because I intend to keep my vehicle for a longer period of
Fluctuating gas prices and tight economy have made me
17% 16% 14% 15% 8% 12% 18%
look for ways to cut down on other types of vehicle related
I have reduced other activities, i.e. eating out, going to the
15% 14% 14% 16% 10% 11% 20%
movies, concerts, e tc.
I increased the amount of attention I pay to my tire
15% 18% 18% 21% 9% 8% 11%
pressure to improve fuel efficiency
Fluctuating gas prices and tight economy have made me
11% 11% 15% 16% 12% 14% 21%
look for ways to cut down on maintenance costs
I conscientiously have reduced my speed when driving to
11% 14% 14% 20% 11% 11% 19%
reduce fuel consumption
I have changed my work location or activities so I drive
10% 9% 9% 11% 5% 11% 45%
less
As a means of saving, I am more likely to buy maintenance
5%5% 7% 10% 8% 17% 48%
consumables like engine oil, filters, etc. in bulk
I have used chemicals/additives to enhance engine
6% 8% 7% 9% 5% 13% 52%
performance
As a means of saving, I have increased the length of time
8% 11% 15% 10% 19% 33%
between maintenance intervals

0% 20% 40% 60% 80% 100%
Note: Proportions less than five not shown in chart. Note: See Appendix C for expanded list of maintenance behaviors. Source: Frost & Sullivan

Q9: Please indicate your level of agreement about your vehicle maintenance behaviors during the Frost 2-3 years.
Source:
past & Sullivan

N90F-18 67

Frequency of Oil Change

Automotive Aftermarket: Frequency of Oil Change (United States), 2010
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
Frequency of Oil Change
2010 (N=1316) 2009 (N=1085) 2006 (N=526)
1%
Every 2,000 Miles 3%
3%
36%
56%
19%
20% Oil change intervals of
greater than 3,000 miles
25%
continue to gain
15% prominence rising from
40% in 2006 to 51% in
5%
2009, to 54%, in 2010
3%
5%
More than e very 6,000 Miles 5%
2%

0% 20% 40% 60%

Q11: Typically, how frequently (in miles) do you change the engine oil in your vehicle?

N90F-18 68

Other Automotive Products Purchased During Last Oil Change

Automotive Aftermarket: Other Automotive Products Purchased During Last Oil Change (United States), 2010
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.

Other Automotive Products Purchased During Last Oil Change
2010 (N=1316) 2009 (N=1085) 2006 (N=526)
25%
Air Filters 25%
No 2006 dat
a
17%
Wipers 14%
40%
6%
Flush Products 4% • Most products showed modest increases in
No 2006 dat
a
Tires
5%
4%
“take rates” over 2010 but none matched the
20% rates shown in 2006.
4%
Cabin Air Filters 3% • The growth in 2010 was likely the result of two
No 2006 data
1% factors:
Performance Chemicals 3% 1. somewhat stabilization of the US
No 2006 dat
a
Automotive Batteries
2% economy gave consumers enough
2%
10% confidence to start buying once again.
1%
Fuses 1% 2. product deferment of 2009 left products
8%
1% in such poor state that owners could no
Nitrogen Tire Filling 1% longer defer replacement prompting
No 2006 dat
a
2% resurgence in “add-on” part sales.
Other 3%
No 2006 dat
a
57%
None 59%
46%

0% 20% 40% 60%
Note: Multiple response question. Source: Frost & Sullivan

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.

N90F-18 69

Likely Use of Public Transportation Structures

Automotive Aftermarket: Likely Use of Public Transportation Structures (United States), 2010

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.

Likely Use of Public Transportation Structures
(N=1316)

Car Pooling or Car Sharing 24%

City Subway or Light Rail 20%

City Bus 20%

Intercity Subway or Light
13%
Rail
Although Carsharing and carpooling are not
Bicycle Paths/lanes 11% widespread across the US, considering North
American’s love of the personal vehicle and
Intercity Bus and Links to
other Transportation
7% private space, it is not surprising that
respondents chose these as next-best
Free Parking for "Green alternatives to the personal vehicle.
6%
Vehicles"

Bike Share Programs 1%

0% 10% 20% 30%

Q40: If public transportation structures were expanded in your area, which of the following would you be most likely to use for daily commuting?

N90F-18 70

Aftermarket Roadmap

Automotive Aftermarket: Aftermarket Roadmap (North America), 2005-2020
Sudden crash - high levels of
Stable
Economy

unemployment, reduced disposable income Threat of weakened dollar and inflation could
The

drive prices higher and lead to prolonged
Sub-Prime Road to recession.
Mortgage Crisis Recovery

Stable increase High Peak
Prices

Stable increase, with potentially dramatic
Fuel

fluctuations.
Dropped to
Stable Levels

Sales have been steady Sales drop - 16.5% in 2008 Sales expected to pick-up and grow at a CAGR of 2.6%.
Vehicle

yet decreasing and 21.1% in 2009 2016 represents recover to 2007 levels.
Sales

Heavy share to domestic Increasing share of import brand vehicles.
brand vehicles. Asian brands increasing popularity. Domestic brand vehicles to face even greater competition.

VIO increase with a VIO expected to
VIO increasing at CAGR of 0.8%
Vehicle

CAGR of 1.4% increase slowly.
Use

Increasing Fuel prices and slowing economy begin to drive vehicle Hybrids to be an approximate 2.2% of VIO by
miles travelled usage downward. 2015, driven mainly by fleet/government sales.

Revenues in minor maintenance , New opportunities in HEV and EV
Aftermarket

accessories restored to 2007 levels. maintenance.
The

Revenue rate Revenues grow by 1.8% Accelerating growth pace of 2.3% Enhanced vehicle modification
increase slowing through recession. annually in economic recovery. opportunities to drive future growth.

2005 2009 2015 2020

N90F-18 71

Competitive Analysis

72

The On-Demand Nature of Repair Services Spawned a Complex
Structure with a Variety of Service Outlet Opportunities
Automotive Aftermarket: Distribution Structure (North America), 2010
• 3 step structure continues to evolve toward 2 step as
Offshore jobbers consolidate and grow into distributors
Manufacturer • 3 step exists when installers buy through jobbers, or OE
Parts from Dealers
Parallel U.S. Parts
Exporter OEM Remanufacturer Salvage Yard
Importer Manufacturer
Step 1

Service Chain
OES Auto Mass Warehouse
WD’s & PGs Dist. Centers
Retailers Merchandisers Clubs

New Car Dealer Internet / Mail Production Engine Collision Parts Re-Distribution

Step 2
Parts Depts Order Rebuilders Distributors Jobber

New Car Dealer Body Shops Jobbers/
Service Depts
Wagon Jobbers

Service Chain
Retailer Service Independent
Outlets
Bays Installers

Vehicle
Step 3 when Owners
Jobber & Dealer
involved Source: Frost & Sullivan

N90F-18 73

Top 10 Remanufactured Products

Automotive Aftermarket: Top 10 Remanufactured Products (North America), 2010
Gasoline engine segment is declining at a faster rate (6.2%) than diesel (1.1%). Diesel is forecast to gain market
Engine
share from gasoline in future because of an increase in diesel VIO and higher replacement rate.

Transmission 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.

Starters and Remanufactured units will continue to dominate the total North American starters and alternators aftermarket for
Alternators the next 5 to 7 years. REMAN: NEW (2010) = 90 :10 and REMAN: NEW (2016) = 87:13.

CV Drive Axles 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.

Rack and Pinion Basic hydraulic power system (HPS) will continue to dominate but will lose share gradually to the sophisticated
Steering Gears electronically powered hydraulic (EPHS) and electric power steering (EPS) systems.

High labor intensiveness reduces price difference between new and remanufactured injectors, making new injectors
Fuel 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
ECUs
OES channel to remain competitive in the aftermarket.

Increasing penetration of low-priced compressors from offshore is the biggest challenge for remanufacturers in

Compressors
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
Clutches
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
Water Pumps
remachine. Therefore, new units have some performance and quality improvements over reman’ed units.

N90F-18 74

Unit Shipment and Revenues of Top Remanufactured Products

Automotive Aftermarket: Unit Shipment and Revenues of Top Remanufactured Products (North America), 2010

Trends by Product Category
Average Price
Units (2010) Revenues (2010) 2017 (Forecast) CAGR
(2010)

Engine (gasoline +
1.14 Million USD 1.90 Billion USD 1,435.89 USD 1.70 Billion (5.1)%
diesel)
Transmission(auto
2.10 Million USD 2.14 Billion USD 1,015.05 USD 2.16 Billion (2.1)%
matic + manual)
Starter &
24.2 Million USD 1.37 Billion USD 56.58 USD 1.22 Billion (0.9)%
Alternator
Racks & Pinion USD 150.9 USD 191.0
1.30 Million USD 115.68 3.5%
Steering Gears Million Million

Fuel Injectors 0.42 Million USD 16.1 Million USD 35.8 USD 17.1 Million 0.6%

USD 110.94
ECUs 1.96 Million
Million
USD 56.6 USD 179 Million 7.2%

USD 136.4
Compressors 1.15 Million
Million
USD 118.6 USD 120 Million -2.5%


N90F-18 75

Competitive Analysis of Remanufacturing Segment

Automotive Aftermarket: Competitive Analysis of Remanufacturing Segment (North America), 2010

The 'national remanufacturers' The regional remanufacturers supply to only
designate the largest and most selected regions within their geographical
prominent remanufacturing companies scope. Remanufactured segments such as
in the North American automotive engine, transmission, starter and alternator,
aftermarket. Cardone Industries, Inc. and steering gear and steering pumps have
and Fenwick Automotive Products many regional and local remanufacturers.
(Fenco) are the only two national
remanufacturers in North America
currently.

The OES-focused
remanufacturers include
The mid-level remanufacturers cater to a companies like Delphi Corporation,
few market segments in which they Visteon Corporation, Robert
specialize but supply across North Bosch Corporation, and ZF
America. Examples of these include Industries. These Tier 1 suppliers
Standard Motor Products, DENSO, compete with national
Motorcar Parts of America (MPA), Remy remanufacturers in the OES
International, Inc. and others. channel.

76
76
N90F-18

SWOT Assessment of the Warehouse Distribution and Jobber
Channel
Automotive Aftermarket: SWOT Assessment of the Warehouse Distribution and Jobber Channel (North America), 2010
Highly Unstable
CAPITALIZE RESPOND
STRENGTHS WEAKNESSES
(CHALLENGES)
• Aftermarket Experience
• Product Coverage • Large Inventories and
Mature,
• Product Delivery unstable Inefficiencies
with high • Lack of Resources
competition
and new • Decreasing Margins due to
variables. tight Competition

OPPORTUNITIES Red Stable Blue THREATS
Ocean Ocean
• Joining Program Groups • Program Distributors
• Improved Inventory • Auto Parts Retailers
Management Systems • Two-Step Distribution
• Parts Proliferation
• Increased Inventory Costs

SEIZE PREPARE
Saturated

N90F-18 77

SWOT Assessment of Programmed Distribution Groups

Automotive Aftermarket: SWOT Assessment of Programmed Distribution Groups (North America), 2010

CAPITALIZE Highly Unstable RESPOND
• Superior Delivery
(CHALLENGES)
• Broadest and Deepest Wide • Large Inventories and
Product Coverage Inefficiencies
• Improving Margin Management • Lack of Unity
• Increasing Use of Technology
• Private Label Brands
Relatively
• High Bargaining Power stable, with
new growth
OPPORTUNITIES opportunities
THREATS
Stable
Red Blue
• Private Labeling Ocean Ocean • Auto Parts Retailers
• Improved Inventory Management • Original Equipment Service (OES)
Systems • Parts Proliferation
• New Marketing and Merchandising
Programs to Attract DIY Business
• Retail Franchise Stores

SEIZE PREPARE
Saturated Source: Frost & Sullivan

N90F-18 78

SWOT Assessment of the Auto Retail Channel

Automotive Aftermarket: SWOT Assessment of the Auto Retail Channel (North America), 2010
Highly Unstable
CAPITALIZE RESPOND
(CHALLENGES)
• Lower Purchasing Costs
• Lower Inventory Costs • Employee Experience
• Lower Price Perception • Low SKU Count Limits
Business
• Oversaturation

OPPORTUNITIES Red Stable Blue THREATS
Ocean Ocean
• Wholesale Business • Decreased DIY
• Increased Buying Power Saturated, • Parts Proliferation
• Expansion into New Product Mature, and • Stronger Competition
High
Categories
Competition. • Wholesalers with New Retail
Business

SEIZE Saturated
PREPARE

N90F-18 79

SWOT Assessment of the Original Equipment Service Channel

Automotive Aftermarket: SWOT Assessment of the Original Equipment Service Channel (North America), 2010
Highly Unstable
CAPITALIZE RESPOND
• Broadest Coverage for a Particular
(CHALLENGES)
Make
• Inferior Delivery Schedules
• Highest Product Quality
Perception • Highest Product Prices Perception
• Tools and Training • Decreased Locations
• Guarantee Service Mature,
• Decaying OES Loyalty with
Stable, with
• High Profit Margins Increasing Vehicle Age
high
Competition
and new
Stable
OPPORTUNITIES Red variables. Blue THREATS
Ocean Ocean
• Secondary Lines • Growing Aftermarket Participation
of OEMs
• More Aggressive Pricing
• Growing Competition for Service
• Further Development of Wholesale
and Parts in the Aftermarket
Programs
• Dealership Closures
• Stand-Alone Repair Facilities

SEIZE Saturated PREPARE

N90F-18 80

Unit Shipments and Revenues for National Brand Parts by Distributor
Type
Automotive Aftermarket: Unit Shipments and Revenues for National Brand Parts by
National Distributor Type (North America), 2008
PRONTO Revenues
Association, (Retail) • O’Reilly/CSK has a higher percentage of national
8.0%
Canadian Tire, brand to private-label sales than AutoZone, making it
6.5% the market share leader in national brands last year.
AutoZone,
Federated 13.6% • NAPA and CARQUEST do not sell national brands.
Auto Parts, Advance Auto
13.6% Parts, 15.7% • Distributors heavily oriented to national brands will
perform well among professional installers in the
DIFM segment.
Pep Boys,
The 8.2% O'Reilly/CSK ,
Alliance, 16.8%
7.5%
Automotive
Distribution
Network, 8.7% 100%
CARQUEST,
0.0% NAPA, 1.4% 34.4%
80%
Units 73.9%
60%
Programmed
Distribution, 40% 65.6%
39.2%

Retail, 20% 26.1%
60.8%
0%
Retail Programmed Distribution

National Brand Other
Retail Distributors captured 60.8% of total national brand unit sales, National brand sales represented 65.6% of retail unit sales,
compared to 39.2% for programmed distribution groups. but just 26.1% of programmed distribution sales.

N90F-18 81

Distributor-level Revenues by Type

Automotive Aftermarket: Distributor-level Revenues by Type (North America), 2010

Mfg. Level Total Aftermarket Revenues
Sales $64.7 Billion

OES Retail & Others Program Group WD & Jobbers
$16.2 Billion $11.0 Billion $20.1 Billion $17.5 Billion

Dealer Net Retail Sales Program Group WD & Jobbers
$18.1 Billion $20.4 Billion $27.4 Billion $24.6 Billion

Dealer List Installers Installers
$26.5 Billion $38.3 Billion $34.5 Billion

Consumer Aftermarket Value
$119.6 Billion

NOTE: The above revenues are excluding tires, wheels and chemical products to follow common aftermarket
practice.


N90F-18 82

Revenue Breakdown of Aftermarket Distribution Channels

Automotive Aftermarket: Revenue Breakdown of Aftermarket Distribution Channels (North America), 2009
With the average age of vehicles increasing, more consumers are expected to turn to the aftermarket Key
for maintenance and repair.
With dealerships closing down, more demand rises for the independent aftermarket. Expected Decrease
Due to cost issues and profit margins, more WDs are expected to join program groups and turn to 2- Expected Increase
step distribution.
Revenue share of retailers are expected to increase on account of their increased wholesale activities.

Dealer
General Service
OES
Repair Bays
25%
Program 46% 23%
Reman
20% Groups
31%

Body
Shops
Others 15%
5% Specialty Lube
Manufacturers & WD & Jobbers Retailers Repair Shops
Importers 80% 27% 12% 6% 10%

1st Level 2nd Level Installer Channels
of Distribution of Distribution


N90F-18 83

Aftermarket Participant Expansion and Growing Private
Label Practices are Closely Linked (North America), 2010

• Amongst the aftermarket retail and program
group participants today, the practice of private
labeling has become popular to improve profit
margins.
Private
• The practice of private labeling has become Profit
Labeling
increasingly important amongst participants to
maximize profits and accelerate growth.
• Expansion and mergers leads to an increased
customer base, which in turn allows
opportunities for greater private label
penetration.
Expansion
• Private label product sales generate a better and M&A
profit margin percentage than commercial Opportunities.
brand product sales. Larger
• Private label products generate profitability Customer
that drives expansion. Base


N90F-18 85

Private Labeling and Expansion

Automotive Aftermarket: Private Labeling and Expansion (North America), 2008

Private Label Product Sales % vs. Number of Stores.

120%
100% Program Groups Retail Participants
Sales Share of PLP

80%
60%
40%
20%
0%
0 500 1000 1500 2000 2500 3000 3500 4000 4500 5000
Number of Stores
CARQUEST Advance Auto Canadian Tire NAPA AutoZone Pep Boys O'Reilly Automotive

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 their
operations with higher revenues (size of bubble).

N90F-18 86

Private Labeling and Profitability

Automotive Aftermarket: Private Labeling and Profitability (North America), 2009

Average Margins for Manufacturer Brands Average Margins for Private Label Products

End-customer (DIY and Installer) price index = 100%

2% Bulk 3%
100 100 Bulk
Discount to Discount to
90 Installer 90
Installer
80 Distributor/ 80
34% Commercial
Retailer Commercial
Margin 48% Distributor/
70 70 margin
Retailer

Price (%)
Price (%)

60 60

50 23% Operating Costs 50
8% Operating Costs
40 4% 40 4% Profit Margins
Profit Margins
30 30
Manufacturer Manufacturer
37% Other Costs 37%
20 20 Other Costs
10 10

0 0

- End-customer price index split in % - - End-customer price index split in % -

N90F-18 87

Private Labeling and Profitability Case Study

Automotive Aftermarket: Private Labeling and Profitability Case Study (North America), 2010
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 company
with a heavy private label sales percentage allows the company to collect more than 3 times the profit than a company with a light private
label 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.

N90F-18 88

Private-label Sales of Major Distributors

Automotive Aftermarket: Private-label Sales of Major Distributors (North America), 2010

Program Program
Identity Retailer Retailer Retailer Retailer Retailer
Group Group

Retail Sales 20% 20% 85% 50% 95% 70% 60%

Wholesale 80% 80% 15% 50% 5% 30% 40%

Private 25%
90% 90% 50% 27% 25% 25%
Label Sales (Estimated)

Advance
Private Duralast, O’Reilly, Prostart, Auto,
Label NAPA CARQUEST Valucraft & Brake Best & Futura & Wearever Motomaster
Brands Others Others Others Gold/Silver &
Others

Geographical North North
U.S. U.S. U.S. U.S. Canada
Coverage America America


N90F-18 89

Private Label Strategies of Major Retailer Distributors

Automotive Aftermarket: Private Label Strategies of Major Retailer Distributors (North America), 2009
AutoZone Canadian Tire
Advance Auto Parts
PL Sales
50% PL Sales
Private
AutoZone Canadian 25%
Label Sales
20%
Tire
Advance Valucraft Duralast
Auto Parts Brand Brand
Motomaster Brand No-Name,
for Automotive Brown-Box
Tier 1 Sub- Automotive Products
Label
Products
(Duralast Gold)
Brand Brand Brand Brand
‘A’ for ‘B’ for ‘C’ for ‘D’ for Pep Boys O’Reilly Auto Parts
product product product product PL Sales
A B C D 27%
PL Sales
25%
O’Reilly
Pep Boys
(Estimated)

Auto Parts
Advance Auto Parts currently has
over 30 private label brands covering Brand A
‘Pro-’ Brand Tier 2 Brand
Line ‘Valuegrade’
their private label product Brand ‘A’ Brand ‘B’ Brand ‘C’ Brand ‘D’
categories. Most product categories for
product A
for
product B
for
product C
for
product D
have their own brand. Sub-Brands

• Retail participants in the aftermarket generally follow the multi-brand strategy, with the exception of AutoZone, which follows the Multi-Tier private
labeling brand strategy, and Canadian Tire, which follows the single-brand strategy under the private label Motomaster. AutoZone has the most

efficient 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.

N90F-18 90

Private Label Product Global Sourcing Trends

Automotive Aftermarket: Private Label Product Global Sourcing Trends (North America), 2008

• Global sourcing from low-cost labor countries
(RED) continues to increase.

• By 2015, parts sourcing from (RED) countries will
increase to an approximate 70 percent of overall
private label brand products.

• Many participants have set-up purchasing offices
in low-cost countries to facilitate transactions.

• Quality checks are done rigorously by the buyer
Countries with to ensure the supply of worthy products.
Countries with
Medium to High Cost
Low-Cost Product
Premium or OE
Exports • Research indicates that the quality level of low-
Quality Product Exports
cost country sourced parts and products has
3% risen exponentially during the past 5 years. This
28%
23%9% 28%
is mostly because of the increased OE
experience among parts manufacturers in source
36% countries.
32%
• Logistics costs are rising due to the global
increase of oil prices.
41%

N90F-18 91

Automotive Aftermarket: Unit Shipments and Revenues for Private-
label Brand Parts by Distributor Type (North America), 2008
Automotive Aftermarket: Unit Shipments and Revenues for Private-label Brand Parts by Distributor Type (North America), 2008
Revenues
National Automotive
PRONTO Distribution
• NAPA and CARQUEST sell almost all of their
Advance Auto
Association Network Parts O'Reilly/CSK products under a private label, but the other
2.2% 5.5% 2.7%
1.9% programmed distribution groups resemble their
Canadian retail competitors with a more balanced brand mix.
AutoZone
Federated Tire 11.5%
Auto Parts 1.0% • This dramatically reduces the market share for
1.1% The
Alliance national brands and weakens the bargaining
3.3% NAPA power of the manufacturers that produce them.
CARQUEST 48.6%
22.1%

100%
30.4%
80%
Units 70.2%
60%
Retail
40% 69.6%
21.0%

20% 29.8%

Programmed
Distribution 0%
79.0% Retail Programmed Distribution

Private-label Brand Other

Programmed distribution groups captured 79.0% of total private-label Do-it-yourself sales represented 73.5% of retail unit sales, but
brand unit sales, compared to 21.0% for retail distributors. just 29.7% of programmed distribution sales.

N90F-18 92

Automotive Aftermarket: Comparison of OEM and Aftermarket
Distribution Structures (North America), 2010

Pure OEM Only OEM and Aftermarket Aftermarket Only
Typically a
20~40 percent
Parts Manufacturer profit margin Parts Manufacturer Parts Manufacturer
with annual
discounts
pending on
duration of the WDs and WDs and
Vehicle
Vehicle Manufacturers production line.
Manufacturer
Program Retail Program Retail
Groups
Groups
Profit margins range from 30 to 35%,
Retailer depending on the brand, purchasing
Dealer
Dealer Channel Channel
Installers Bay/ volume and bargaining power of the
Installer customer group.

Profit margins range from Retail Bay/
Vehicle 50 to 70 percent, pending Installer
Vehicle Dealer Service Bays Dealer on the purchasing volume Installer
Service Bays and bargaining power of
the customer group.

Parts and component manufacturers that cater OEM products are usually sold at a ‘premium’. There are 3 general types of aftermarket
to vehicle manufacturers are limited to vehicle The margins range from 30 to 40 percent companies.
design and strict terms. depending on the purchasing volume and the Premium aftermarket brands, and low-cost
Profit margins range from 20 to 40 percent bargaining power of the customer. aftermarket brands, or ones that offer both.
and are further limited by annual discounts Overall volumes may be lower than catering to Low-cost brands are supplied with a profit
pending on the duration of the production line vehicle manufacturers, but new development margin of an approximate 35 to 40 percent.
and supply terms. costs are non-existent, and returns are Premium brands have a profit margin of
An increasing number of vehicle considerably faster in the aftermarket. ~30%, but have a higher product cost and the
manufacturers are adopting the practice of overall profit dollars are considerably higher.
global sourcing which drives down prices.


N90F-18 93

Analysis of OEM Profit Margins

Automotive Aftermarket: Analysis of OEM Profit Margins (North America), 2008

Pure OEM Only 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/Unit
Parts Manufacturer Cost 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
Vehicle Manufacturers
Year 1 Year 2 Year 3 Year 4 Year 5 Total

Sales Price
A 0.95*A 0.903A 0.857A 0.815A
Dealer Channel OEM

Revenues from
Vehicle AB 0.95AB 0.903AB 0.857AB 0.815AB 4.525AB
Production Line
Vehicle Dealer Service Bays
Vehicle# * Sales Price * Replacement Rate * OES Revenue Share
Revenues from
OES (Typically
25% Rev. Share) 0 0.0356AB 0.0677AB 0.0964AB 0.1222AB 0.322AB
Parts and component manufacturers that cater
to vehicle manufacturers are only limited to
Total Revenues
vehicle design and strict terms. AB 0.9856AB 0.9707AB 0.9534AB 0.9372AB 4.8469AB
OEM
Profit margins vary from 20 to 40 percent and
are further limited to annual discounts pending Cost * (Vehicle Production+(15% of VIO*OES Revenue Share))
on the duration of the production line and Cost OEM
0.75AB 0.778AB 0.806AB 0.834AB 0.863AB 4.031AB
supply terms.
An increasing number of vehicle Profit 0.25AB 0.2076AB 0.1647AB 0.1194AB 0.0742AB 0.8159AB
manufacturers are in the process of reducing
costs through global sourcing. Profit % 25.0% 21.1% 17.0% 12.5% 7.9% 16.8%


N90F-18 94

Comparison of OEM and Aftermarket Profit Margins

Automotive Aftermarket: Comparison of OEM and Aftermarket Profit Margins (North America), 2008
Assumption (OEM): Same as Previous Slide
Assumption (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 0.815A
Rev from Vehicle Production Line AB 0.95AB 0.903AB 0.857AB 0.815AB 4.525AB
Vehicle# * Sales Price * Replacement Rate * OES Revenue Share
Rev from OES (Typically 25% Market Share)
0.0356AB 0.0677AB 0.0964AB 0.1222AB 0.322AB
Total Rev. OEM AB 0.9856AB 0.9707AB 0.9534AB 0.9372AB 4.8469AB
Cost * (Vehicle Production+(15% of VIO*OES Rev. Share))
Cost OEM
0.75AB 0.778AB 0.806AB 0.834AB 0.863AB 4.031AB
Profit OE 0.25AB 0.2076AB 0.1647AB 0.1194AB 0.0742AB 0.8159AB
Profit % 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 1.5A
Rev from WD & Program Groups (Typically Price * (15% of VIO*WD/Program Group Rev. Share*Company Market Share))
58% Rev. Share. Assume 30% Market Share
0 0.03915AB 0.0783AB 0.11745AB 0.1566AB 0.3915AB
for Company)
Sales Price Retail 1.65A 1.65A 1.65A 1.65A 1.65A
Rev from Retail (Typically 12% Rev. Share. Price * (15% of VIO*Retail Rev. Share*Company Market Share))
Assume 30% Market Share for Company) 0 0.00891AB 0.01782AB 0.02673AB 0.03564AB 0.0891AB
Cost * (15% of VIO*(Retail Rev Share+WD/PG Rev. Share)*Company Market Share)
Total Cost IAM
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 5.3275AB
Total Cost 0.75AB 0.7969AB 0.8438AB 0.8907AB 0.9386AB 4.22AB
Total Profit $ 0.25AB 0.23676AB 0.22302AB 0.20688AB 0.19084AB 1.1075AB
Total Profit % 25.0% 22.9% 20.9% 18.8% 16.9% 20.8%

N90F-18 95

Revenue Distribution by Product Category

Automotive Aftermarket: Revenue Distribution by Product Category (North America), 2017
What is expected in 2017?
Tires and Wheels
Tires will outpace
100 26% aftermarket growth, in part
Revenues ($ Million)

because of increased
80
demand for TPMS sensors.
60 97.6
78.7 83.0
40
Collision and
20 Enhanced vehicle safety
Glass
reduces collisions, but
0 4% technology increases cost
2007 2010 2017 of OEM crash parts.
Batteries
Others 3%
58%
Filters
2% Brakes offer strong growth
Revenues increased by 1.4% in 2010 despite the and make up as much as
economic recession. Some large retail chains Brake Parts 25% of revenues for some
reported double-digit same-store sales growth as 4% distributors.
vehicle owners increased purchases of basic
Starters and
care care products such as floor mats and air
fresherners, because they are keeping their Alternators
Lighting 1% Lighting components will be
vehicles longer. Over the next few years, these Exhaust
1% impacted by the increased
consumers will purchase more expensive parts 1%
adoption of LEDs.
and service.

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.

N90F-18 97

Automotive Aftermarket: SWOT Assessment (North America), 2010

KEY TAKEAWAY: Market should outperform historical growth rates as economy rebounds.
CAPITALIZE Highly Unstable RESPOND
STRENGTHS Current WEAKNESSES (CHALLENGES)
• Most developed in the world. State • Heavy fragmentation.
• Coverage of all makes, all models. • Highly competitive.
• Stable distribution structure. • Risk of commoditization.
• Constant demand for maintenance products. • Overseas, low-cost suppliers.
• North American automotive culture demands for • Constant introduction of new vehicle technologies.
aftermarket products (e.g. vehicle modification). • Difficulties in repairing new vehicle electronics and
• Large VIO. applications.
• Platform for growth into overseas markets. Mature, • Not enough skilled service technicians.
• Large and diverse supplier base. Stable, but • Increasing logistics costs.
• Efficient reverse-engineering. with • Parts proliferation.
• R&D capabilities. constant
new
Stable variables.
OPPORTUNITIES THREATS
• Economic rebound expected to boost sales for • Constant new entrants.
accessories and minor maintenance products. • Lower cost imports.
• Increased replacement of high-cost electronic • Declining quality-control standards.
integrated products will drive revenues. • Declining average annual vehicle use.
• Steady, consistent growth of maintenance products. • Increased adoption of electronics in vehicle
• Growth of vehicle modification activity. manufacturing.
• Increased average vehicle age demands ‘major’ • Increased popularity of vehicle leasing.
maintenance products and services. • Keeping up with changes in vehicle technology.
• Increased profits with Private Labeling and Wholesale. • Attracting and retaining high-quality service and
Market counter personnel.
• Required investments in training, equipment.
Forces
Saturated
SEIZE Source: Frost & Sullivan
PREPARE

N90F-18 98

About Frost & Sullivan

99

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 corporate
executives

• Developers of T.E.A.M. Methodology, proprietary process to ensure that clients receive a 360o
perspective of technology, markets and growth opportunities

• Three core services: Growth Partnership Services, Growth Consulting and Career Best Practices

N90F-18 100

What Makes Us Unique

o
Exclusively Focused on Growth 360 Perspective
TM
Global thought leader exclusively focused on Proprietary T.E.A.M. Methodology integrates all
addressing client growth strategies and plans – 6 critical research methodologies to significantly
Team actively engaged in researching and enhance the accuracy of decision making and
developing of growth models that enable clients lower the risk of implementing growth strategies.
to achieve aggressive growth objectives.
Growth Monitoring
Industry Breadth
Continuously monitor changing technology,
Cover the broad spectrum of industries and markets and economics and proactively address
technologies to provide clients with the ability to clients growth initiatives and position.
look outside the box and discover new and
innovative ideas. Trusted Partner

Global Perspective Working closely with client Growth Teams –
helping them generate new growth initiatives and
32 global offices ensure that clients receive a leverage all of Frost & Sullivan assets to
global coverage/perspective based on regional accelerate their growth.
expertise.

N90F-18 101

T.E.A.M. Methodology

Frost & Sullivan’s proprietary T.E.A.M. methodology, ensures that clients have complete “360 Degree
Perspective” from which to drive decision-making. Technical, Econometric, Application, and Market information
ensures that clients have a comprehensive view of industries, markets and technology.

Real-time intelligence on technology, including emerging technologies, new R&D
Technical breakthroughs, technology forecasting, impact analysis, groundbreaking research,
and licensing opportunities.
In-depth qualitative and quantitative research focused on timely and critical global,
Econometric regional, and country specific trends, including the political, demographic, and
socioeconomic landscapes.

Insightful strategies, networking opportunities, and best practices that can be
Application applied for enhanced market growth; interactions between the client, peers, and
Frost & Sullivan representatives that result in added value and effectiveness.

Global and regional market analysis, including drivers and restraints, market trends,
Market regulatory changes, competitive insights, growth forecasts, industry challenges,
strategic recommendations, and end-user perspectives.

N90F-18 102

Global Perspective

1,700 staff across every major market worldwide
Over 10,000 clients worldwide from emerging to global 1000 companies

N90F-18 103

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