Brake Manufacturers Council

2010 Annual MeetingJune 04, 20104,

Longboat Key, FL

Steve HandschuhAutomotive Aftermarket Suppliers Association

Topics to be Addressed

• AASA/MEMA Overview

• Key Issues for the 2010 U S • Key Issues for the 2010 U.S. Automotive Aftermarket

h l f• Vehicle Safety Initiatives

• “Know Your Parts”Know Your Parts

What is MEMA?

F d d i M t d E i t • Founded in 1904 – Motor and Equipment Manufacturers Association

b ( i di id l )• 700+ members (over 4,000 individuals)

• Three Market Segment Associations

• MEMA exclusively represents North American manufacturers of:• motor vehicle components

• tools and equipment

• automotive chemicals and related products

4

Representing ManufacturersRepresenting Manufacturers

MEMA members…MEMA members…• Supply about 90% of the total U.S. market for

automotive and heavy duty productsy y p

• Have nearly 12,000 U.S. plant locations

• Employ approximately 1.3 million workers

• 80% based in Detroit, Cleveland, Chicago triangle

5

Councils & CommitteesCouncils & Committees

• AASA AAPEX Show Committee

• Brake Manufacturers Council• Brake Manufacturers Council

• Brand Protection Council

• China Aftermarket Forum

• Filter Manufacturers Council

• Fuel Pump Manufacturers Council

• Government Affairs Committee*Government Affairs Committee

• Marketing Executives Council

• MEMA Information Services Council

• Overseas Automotive Council

• Regulatory Affairs Committee*

• Coming: Motor & Equipment Remanufacturers

6

g q pAssociation*

* MEMA

Key Factors Driving the 2010US Automotive AftermarketUS Automotive Aftermarket

• Industry Rate of Growth

• Dealership Closingsp g

• Vehicle Age

Miles Driven • Miles Driven

• Unemployment

• Lack of Credit

• Recession - Economic Outlook

U.S. Aftermarket Growth

• 2008 -2.0%

• 2009F +1.8%

F %• 2010F +3.1%

• 2011F +3.3%

F %• 2012F +4.0%

• 2013F +5.0%

8

Size of the U S Automotive AftermarketU.S. Automotive Aftermarket

$250,000

$200,000

$100 000

$150,000

Mill

ion

s

$50,000

$100,000

$0

Source: AASA Automotive Aftermarket Status Report

*= AASA Forecast

Primary Components of the U.S. Automotive AftermarketAutomotive Aftermarket

Purchased Labor25%

Aftermarket Parts54%Tires

12%

Specialty Equipment

9%

20072008

Source: AASA Automotive Aftermarket Status Report

Primary Channels of the U.S. Automotive AftermarketAutomotive Aftermarket

OE Service

Independent Aftermarket

O Se ce30%

200770%

2008

Source: AASA Automotive Aftermarket Status Report and NADA Data

Dealer Closings

• As many as 3 000 by end of 2010• As many as 3,000 by end of 2010

• Independent Aftermarket (IAM) Impact:

R hl $ billi f h l l • Roughly $23 billion of wholesale parts into IAM through OE dealers; $2-2.5 billi il bl d l ibillion available due to closings

• As much as $5 billion in service work available to the IAM

12

U.S. Light Vehicles in Use

245

235

240

i h220

225

230

ons

Light Vehicles in Use in the

U S210

215Mill

io

U.S.

195

200

205

Source: R.L. Polk & Co. 242,081,704 light vehicles in use in 2008

20082007200620052004200320022001

Average Age of Light Vehicles in Use (Years)Use (Years)

9.6

9.2

9.4

8.8

9.0

8.4

8.6

8 0

8.2

Source: Registration Data © R.L. Polk & Company

8.0

2002 2003 2004 2005 2006 2007 2008

U.S. Automotive Aftermarket Five Year OutlookFive Year Outlook

$250 000

By Vehicle Age

$200,000

$250,000

$100 000

$150,000

Mil

lio

ns

$50,000

$100,000 M

$0

New to 5 Year 6 to 10 Year Over 10 Year

Source: AASA Automotive Aftermarket Status Report

U.S. Light Vehicle Population Growth

18 000 000

20,000,000

14,000,000

16,000,000

18,000,000

8 000 000

10,000,000

12,000,000

4,000,000

6,000,000

8,000,000

0

2,000,000

80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

Source: Ward’s Automotive Reports and R.L. Polk

19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20

Total Lt. Veh. Sales Scrappage

U.S. Automotive Aftermarket by Vehicle AgeVehicle Age

$ 6

$18,000,000,000

$12,000,000,000

$14,000,000,000

$16,000,000,000

$8,000,000,000

$10,000,000,000

$ , , ,

$4,000,000,000

$6,000,000,000

$0

$2,000,000,000

Source: Maintenance Data - IMR Inc. and Registration Data - R.L. Polk

DIFM Repair/Maintenance Costby Vehicle Ageby Vehicle Age

1050

850

950

650

750

550

350

450

Source: IMR Inc. Continuing Consumer Auto Maintenance Tracking Study

Vehicle Miles of Travel

3,100

2,950

3,000

3,050

2,800

2,850

2,900

illi

ons

of M

iles

)

6

2,700

2,750

,

(Bi

Every 1% decline in miles driven reduces aftermarket volume by approximately

$500 million

2,550

2,600

2,650

2,500

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

2010

Source: US DOT

Economic Outlook

New Privately-Owned Housing Units Started

1,600

1,800

2,000

ate.

1,200

1,400

adjusted

 ann

ual ra

600

800

1,000

f units, seasonally 

200

400

Thou

sand

s of

Source: U.S. Census Bureau

0

U.S. Unemployment Rate

12

10

6

8

4

0

2

Source: Bureau of Labor Statistics, US Department of Labor

0

National Average Retail Price -One Gallon of Regular GasolineOne Gallon of Regular Gasoline

$4.25All Formulations

$3 50

$3.75

$4.00 Every one penny change in prices at the pump moves $1 Billion into or out of

vehicle owners’ pockets.

$3.00

$3.25

$3.50

$2.25

$2.50

$2.75

$1.50

$1.75

$2.00

Source: Energy Information Administration

Jan-

05

Mar

-05

May

-05

Jul-0

5

Sep

-05

Nov

-05

Jan-

06

Mar

-06

May

-06

Jul-0

6

Sep

-06

Nov

-06

Jan-

07

Mar

-07

May

-07

Jul-0

7

Sep

-07

Nov

-07

Jan-

08

Mar

-08

May

-08

Jul-0

8

Sep

-08

Nov

-08

Jan-

09

Mar

-09

May

-09

Jul-0

9

Sep

-09

Nov

-09

Jan-

10

Average Gasoline Expenditures Percent of Median Household IncomePercent of Median Household Income

8 5%

6.71%

7.65%

7.0%

7.5%

8.0%

8.5%

5.07% 4.98% 5.27%6.42%

6.91%

5.5%

6.0%

6.5%

4.93%4.32%

4.33%4.77%

4.44%

4.63%

3 5%

4.0%

4.5%

5.0%

2.5%

3.0%

3.5%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Source: US Department of Labor, Bureau of Labor Statistics

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Indexed Aftermarket Comparable SSS vs Gas Prices

7.5%

$3.80

$4.00

SSS vs. Gas Prices

4.5%

6.0%

$3.20

$3.40

$3.60

1.5%

3.0%

r Ch

ange ‐ SSS

$2.60

$2.80

$3.00

gasoline price

‐1.5%

0.0%Yr/Yr

$2.00

$2.20

$2.40

$

Avg. g

4 5%

‐3.0%

$1 40

$1.60

$1.80

$2.00

‐4.5%

Q1'03

Q2'03

Q3'03

Q4'03

Q1'04

Q2'04

Q3'04

Q4'04

Q1'05

Q2'05

Q3'05

Q4'05

Q1'06

Q2'06

Q3'06

Q4'06

Q1'07

Q2'07

Q3'07

Q4'07

Q1'08

Q2'08

Q3'08

Q4'08

Q1'09

Q2'09

$1.40

SSS ‐ Parts Retailers SSS ‐ Professional Installers Avg. gasoline price

Source: BLS, Company filings, BB&T Capital Markets

Average Number of Repair Orders Each MonthOrders Each Month

80

70

75

60

65

50

55

40

45

Source: IMR Inc.

40

Issues Impacting Vehicle Repair

• Economy, unemployment=decrease in spendingI d hi l li bilit d l i • Improved vehicle reliability and longer service intervals

• Owners relying on vehicle service reminders rather than scheduled maintenancethan scheduled maintenance

• Service model: break-down repairs vs. preventive maintenance

i hi l l i i i i d • Increasing vehicle complexity requiring increased investments in tools, information and training

• Competent and qualified technicians• Access to diagnostic and repair information• Remote vehicle diagnostics• Regulatory (environment, business) complianceRegulatory (environment, business) compliance• Increased focus on ROI

Vehicle Safety InitiativesVehicle Safety Initiatives

I i f T t f t i d • In view of Toyota safety issues and criticism of NHTSA, vehicle safety is going to be a hot topic for some time to cometo be a hot topic for some time to come

• Only 17 states still require mandatory safety inspectionssafety inspections

• Grassroots campaign to lobby US Congress th d f ti id d t on the need for nationwide mandatory

safety inspections

The SituationThe Situation

L t l lit t t • Low-cost, low-quality auto parts are finding their way into all aftermarket h l channels

• Outsourcing methods are replacing popular premium, branded parts

• Essential services offered by Full Service ySuppliers are being diminished

ASA Member SurveysASA Member Surveys

Th t d i d th f OE• The study examined the use of OE-purchased parts vs. aftermarket-

h d t ll t f purchased parts as well as country of origin preferences

• This study revealed that service providers want more information about “what’s in the box” (i.e., country of origin, specifications, certifications, labeling, etc.)

Babcox Tech Group SurveysBabcox Tech Group Surveys

Importance of Factors in Deciding Brand of Part(a higher value = more important)

4.8Quality/f it/function

3.9

4

4.3

Lifetime w arranty

Strong brand name

Available @ primary parts source

3.4

3.8

3.2Low price

Informative catalog

Full line coverage

1.9

3

Promotion/contest

Tech Hot Line/training

p

0 1 2 3 4 5 6

Average Rating Given

Focus Group StudyFocus Group Study

Th hi i R l i h NC • Three geographic regions – Raleigh, NC; Chicago, IL; and Los Angeles, CA

• More than 60 participants, including:

• Shop ownersp

• Technicians

• Service advisors• Service advisors

Focus Group StudyFocus Group Study

Top considerations on choosing a particular brand0

32.6%Availability at Primary Source

Same Brand I'm Taking Off

0

0

17.3%

Lif ti W t

Speed of Delivery

Rebates/Marketing Programs

0

39.1%

6.5%Strong Brand Name

Previous Experience with Brand

Lifetime Warranty

100%4.3%

Form/Fit/Function

Price

g

0 10 20 30 40 50 60 70 80 90 100

The CampaignThe Campaign

A bli i t d t A public awareness campaign to educate and inform everyone throughout the

l h i i ll th i supply chain, especially the repair professional, of the importance of using

lit t f t t d f ll i quality parts from trusted full-service suppliers.

The RisksThe Risks

Safety threat consumer and technician• Safety threat – consumer and technician• Product liability

L f i l i • Loss of essential services • Consumers driven to dealers• Irreparable damage to the Independent

Aftermarket

Know Your Parts!Know Your Parts!

• Full Service Suppliers to design engineer and • Full Service Suppliers to design, engineer and produce quality parts and to promote brand and essential services;Ch l P t t t b d d t • Channel Partners to promote brand name products from trusted Full Service Suppliers and support suppliers’ programs;

• Repair Professionals to diagnose, repair and replace broken or worn-out components with only premium quality parts;p q y p

• Vehicle Owners to ask about the parts being installed and research the brand before authorizing repairs.repairs.

Motorists Care About Brands

Source: IndustrialMR, Inc. from Aftermarket News

Know Your Parts!Know Your Parts!

• AASA Special Report: Independent Repair AASA Special Report: Independent Repair Industry: Focus Group Findings on Buying Influences of Repair Professionals

• AASA Special Report: Independent Aftermarket Image: Quality Does Matter

• PSA video produced by NASCAR Performance

• AASA “Know Your Parts” materials

• FAQs, Full-service Suppliers, pocket card, etc.

• Web site kyp.aftermarketsuppliers.org

Know Your Parts!Know Your Parts!

Thank You!