industry overview - aftermarket suppliers · 2019-12-21 · industry overview—2017 gabelli...

Industry Overview—2017 Gabelli Conference

INDUSTRY OVERVIEW

GABELLI & COMPANYAUTOMOTIVE AFTERMARKET SYMPOSIUMOCTOBER 2017


PRESENTATION AGENDA

1. What is MEMA & Why Suppliers Matter

Steve HandschuhPresident and CEO, MEMA

2. Mega-Trends: Opportunities from New Technologies

Paul McCarthySenior Vice President, Strategy, MEMAExecutive Vice President, AASA

3. New Aftermarket Realities—Where Do We Go From Here?

Bill LongPresident and COO, AASA

4. Q&A All


PRESENTATION AGENDA

Market—AASA Point of View

New Aftermarket Realities

Where Do We Go From Here


PRESENTATION AGENDA


Strong Market Fundamentals ● Decelerating Growth? ● Future Bright?


VERY STRONG MARKET FUNDAMENTALS

5

1 2017 light vehicles, source: IHS Markit; 2 2017 light vehicles, source: IHS Markit; 3 2016, source: Federal Highway Administration; 4 regular gasoline, 8/07/17, U.S. Energy Information Agency; 5 2017 Real GDP growth forecast, U.S. Federal Reserve, June 14 FOMC release; 6 8/17, source: U.S Bureau of Labor Statistics

© AASA, the Automotive Aftermarket Suppliers Association, 2017

Fundamentals Status U.S. Statistic

VIO Big and Growing 279 million1

Avg. Vehicle Age High; Increasing 11.7 years2

Miles Driven Record Levels 3.22 Trillion3

Fuel Prices Low $2.38/gallon4

Economy Growing 2.2%5

Unemployment 16-year Low 4.3%6


WHICH HAS LED TO A STRONG, STABLE, AND ATTRACTIVE $277 BILLION AFTERMARKET

© AASA, the Automotive Aftermarket Suppliers Association, 2017

6

$139

$277

-

50

100

150

200

250

300

Aftermarket Size in Billions of Dollars

Source: AASA / ACA Joint Channel Forecast by IHS Markit; 1997 – 2012 are historical actuals; 2013 – 2016 are IHS modeling based on economic actuals; 2017 – 2020 are forecasts.

U.S. aftermarket hasdoubled in size in the last 20 years


PRESENTATION AGENDA




RECENT CONCERNS / HEADLINES ABOUT SLOWING GROWTH

8

Source: Jeffries, and company quarterly reports;SSS = same store sales

-4%

-2%

0%

2%

4%

6%

8%

10%

5-Yr Sales 1-Yr Sales Latest QuarterSSS

Big 4 Sales Trend

Advance AutoZone GPC O'Reilly


WE HAVE RECENTLY ENJOYED ABOVE TREND GROWTH

© Automotive Aftermarket Suppliers Association 2017 Source: IHS Markit; - AASA/ACA Joint Channel Forecast; AASA Analysis; Trendline based on 2003-2016

9

2008-9: Great

Recession

2010-12:Recovery

2014-16:Gas prices ↓,

miles driven ↑, employment ↑


MARKET SUMMARY: GROWTH RETURNING TO TREND?

Market outperforming trend in recent years, as we enjoyed large, unusually positive ‘deltas’ in key market drivers like VIO, vehicle age, miles driven, employment and fuel pricesThis may have led to ‘unrealistic expectations’Recent market numbers likely suppressed by unusually mild weather, higher gas prices, weak miles driven growth, etc.Many struggling to see the growth to meet plan or expectationsWe are still a large, stable, attractive market

10

Market Fundamentals at a high, strong level – but may not be accelerating in the same way that drove above-trend growth in recent years. Sales aren’t

declining so much as growth is


VIO GROWING, BUT GROWTH RATE DECELERATING

11

1.9%2.1%

2.3%2.0%

1.8%1.6%

1.5%1.3%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

2013 2014 2015 2016 F2017 F2018 F2019 F2020

Motor Vehicle Stock, % Change YOYThe increase in VIO that

drove high market growth in recent years…

…will continue but slow, which might dampen the

growth rate in aftermarket parts volume

© Automotive Aftermarket Suppliers Association 2017 Source: IHS Markit; AASA Analysis


CARS AT RECORD AGE, BUT SLOWING RATE OF INCREASE

12

9.8 9.8 9.9 10.010.3

10.610.9

11.111.3 11.4 11.5 11.6 11.7 11.7 11.8

0

0.1

0.2

0.3

9

10

11

12

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 F2017 F2018 F2019

Age of Vehicles In UseAverage Age • Change in Age YOY

Change in Age YOY Average Age of Vehicles

Average Age in Years

Change in Age YOY (Years)

© Automotive Aftermarket Suppliers Association 2017 Source: IHS Markit; AASA Analysis


MILES DRIVEN POSITIVE, BUT SLOWING RATE OF INCREASE

13

Forecast2017-

2020 IHS

Forecast 2017-

2020 EIA

~+2.0%

~+0.95%

Source: IHS Markit

2017 - 2020-2%

-1%

0%

1%

2%

3%

4%

Miles Driven

*

*Annualized YTD as of July 2017

% Change in Miles Driven YOY

© Automotive Aftermarket Suppliers Association 2017 Source: Department of Transportation; IHS Markit; Energy Information Agency, AASA Analysis


GAS PRICES LOW – BUT UNLIKELY TO SUPERCHARGE GROWTH

14

3.523.62

3.51

3.3

2.43

2.15

2.33 2.33

$2.00

$2.20

$2.40

$2.60

$2.80

$3.00

$3.20

$3.40

$3.60

$3.80

2011 2012 2013 2014 2015 2016 2017F 2018F

$/Gallon Regular

© Automotive Aftermarket Suppliers Association 2017 Source: Energy Information Agency: Short-Term Energy Outlook, 8 8 2017


9.3%8.9%

8.1%

7.4%

6.2% 6.3%

4.9%

4.2% 3.9% 4.0%

2.3%

3.3%

4.3%

5.3%

6.3%

7.3%

8.3%

9.3%

10.3%

2010 2011 2012 2013 2014 2015 2016 2017F 2018F 2019F

U.S. Unemployment Rate

LOW UNEMPLOYMENT, BUT NO BIG ‘DELTA’ LIKE 2010-16 TO DRIVE DEMAND

15

© Automotive Aftermarket Suppliers Association 2017 Source: IHS Markit


HEADWIND: REPLACEMENT RATES FOR MANY PARTS HAVE DECLINED, 2006 - 2016

Negative Change

Source: IMR / AASA replacement rate reports

Positive Change

Chart TitleParts’ Replacement Rates


WHAT IMPACT FROM HURRICANES HARVEY AND IRMA?

Sources: IHS Markit; Jefferies; Seeking Alpha

“…definitely half a point on the sales [lost in Q3].” Carol Yancey, CFO Genuine Parts Co“Sales boost 60-90 days after the storm… potential to level out the losses.”

HOUSTON

VIO ~9.8 million

REPLACEMENT ~400k to 500k

ORLY has most stores

Hurricane Harvey Hurricane

Irma

VIO ~14.4 million

REPLACEMENT ~550k-700k

AAP has most stores

FLORIDA

IHS Markit September 2017 Report


PRESENTATION AGENDA





NEW AFTERMARKET REALITIES: DISRUPTORS

19

Anything but business as usual as we look to the future of the aftermarket

Need for Access to Data

Telematics & Prognostics

Driver Assist /Automation

E-tailing & Amazon

Shops able to repair new technologies?

Trade & Tax policy

Consolidation

Shop of the future?

Generation Shift

Connected Car / OTA

Software, DMCA

Electrificatoin


MOBILITY TREND MAY LEAD, OVER TIME, TO ‘GOLDEN AGE’ FOR AFTERMARKET

… and with it the size of the aftermarket:

20

Source: McKinsey, 1/16; note that AAPEX analysis indicates the global aftermarket was $740 billion in 2016

$30

$1,500 $720

$1,200

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

2015 2030

McKinsey size of global aftermarket, high-disruption scenario, $ billion

Traditional Aftermarket

New Services (sharedmobility, data connectivity,apps, remote service andupgrades, etc.)

• Significant growth

• Increasing opportunities –new “aftermarket” services


E-TAILING —SMALL PART OF MARKET; LARGER SHARE OF GROWTH

21

2012 2013 2014 2015 2016 2017 2018 2019 2020

Pure Play E-tail Contribution to Total Aftermarket Sales

E-tailing Sales

$7.1B

E-tailing Sales

$14.9B

Sales do not include etailing sales of traditional brick and mortar retailers such as Walmart or AutoZone.

+$0.7B+$0.8B

+$0.9B+$1.0B

+$1.0B+$1.1B

+$1.1B

It is estimated that e-tailing will double in size 2012-20

Source: AASA / ACA Joint Channel Forecast by IHS Markit; AASA Analysis

E-tail growing faster than the overall market. By taking a disproportionate share of growth in a slower growth market, it is likely to reduce the growth metrics of established players

Industry Overview—2017 Gabelli Conference 22

Drivers of Online Penetration

Easily digitized

Highly standardizedLow weight/volume

Low touch

Discretionary purchase

Physical productsRelatively standardized

Physical productsIndividualized, not standardized

Perishable/short shelf lifeComplex product/ installationHigh weight/volume relative to price

Physical handling and saleDiscretionary purchase

Assisted sale

Same-day delivery

Assisted sale

Immediate fulfillmentRelationship-based sale

PRODUCT CHARACTERISTICS

MARKET CHARACTERISTICS

Easier to Sell Online Harder to Sell Online

Source: AASA e-tailing report,Booz & Co.

“MOAT” AGAINST E-TAILING VARIES WIDELY BY PRODUCT AND MARKET SEGMENT


PRESENTATION AGENDA





REPLACEMENT ‘SWEET SPOT’ BOTTOMING OUT; POISED TO RESUME GROWTH

25

Source: IHS Markit, AASA Analysis

Post-recession new vehicle sales increases will move into the aftermarket sweet spot in 2019, joining the increasing number of cars older than 12 years

At the same time, cars 12+ years in age will grow by 10% 2016-21

81

7673

71 71 73

80

86

2015 2016 2017 2018 2019 2020 2021 2022

Number of Vehicles in 'Sweet Spot'6 - 11 Years Old (Millions)


GROWTH COMING FROM PRICE OF HIGHER TECHNOLOGY PARTS

26

Source: AASA / ACA Joint Channel Forecast by IHS Markit; AASA Analysis

1.8% 1.6% 1.7% 1.8% 1.7% 2.2%2.9% 3.2% 3.1%

4.9%

1.6% 2.0%2.5% 2.6% 1.3% 0.4% 0.2% 0.2%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

2012 2013 2014 2015 2016 2017F 2018F 2019F 2020F

Growth Rate ContributionsPrice versus Volume

Price Volume

Increasing technology –complexity, lightweighting, friction reduction, ADAS, electrification, sensorization, etc. – will increase parts value


MOBILITY TREND MAY LEAD, OVER TIME, TO ‘GOLDEN AGE’ FOR AFTERMARKET (1/2)

27

U.S. forecast to grow from 3 to 5 trillion miles driven

Source: Morgan Stanley, 6/16

• Basic economic equation: good becomes more appealing (automation frees up time for work, entertainment, consumption) + cheaper per unit of use (increased safety, shared mobility models) = increased demand

• May happen a bit later than forecasts, which are over-optimistic on automated vehicle timing. But this is our future

Mobility & automation will ultimately lead to significant increase in miles-driven …


AFTERMARKET FUTURE BRIGHT?

Market large, stable, attractive – a market that the rest of the auto or retail industries would love to have

• U.S. OE volume softening, increasing incentives• Consumer price inelasticity – …when needs repaired, it needs repaired

Turned corner on “sweet spot”Parts complexity increasing cost per part; mega-trends of fuel economy regulations and sensorization accelerating opportunityMobility trends likely to dramatically increase miles driven and size of the aftermarketGlobal growth for aftermarket sector

• A generation of OE global unit growth coming into the aftermarket28


WHAT TO LOOK FOR: POTENTIAL NEW POSITIVE “DELTAS” FOR U.S. AFTERMARKET

Potential new drivers of positive “deltas” to further stimulate near-/mid-term U.S. aftermarket growth rates:

• Inflation• General economy• Industry-specific

• Increased economic growth rate• Increased consumer spending power• Increased failure rate of new technology

• Large technology deltas have historically led to temporary increased • More fuel-efficient, lightweighted, lower-friction technologies• Infotainment and electronics / software / sensor content

Longer-term drivers of growth (automation, global) are positive

29

Industry Overview—2017 Gabelli Conference 30

To grow, the aftermarket needs to:• Take advantage of the opportunities that increasing

vehicle technology and parts complexity bring

• Ensure aftermarket remains the provider of choice

• Now, more than ever, suppliers and channel-partners must collaborate for mutual growth and long-term success

WHERE DO WE GO FROM HERE?


PRESENTATION AGENDA

1. What is MEMA & Why Suppliers Matter

Steve HandschuhPresident and CEO, MEMA

2. Cross-Industry Mega-Trends Paul McCarthySenior Vice President, MEMAStrategy, Planning & Information Services

3. New Aftermarket Realities—Where Do We Go From Here?

Bill LongPresident and COO, AASA

4. Q&A ALL


THANK YOU

industry overview - aftermarket suppliers · 2019-12-21 · industry overview—2017 gabelli...

Documents