AftermarketPerspectives

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Greetings from David Portalatin

The big question in 2011 has been, “What’s going on with the economy, and what does it

mean for the aftermarket?” Throughout the year we looked at how factors like high gas

prices and miles driven affected aftermarket sales. While many economic conditions have

started to mirror the events of 2008, we have noticed some key differences in consumer

behavior. For instance, more consumers have turned to DIFM this year than in the past few

years as DIFM has become more of a “must.”

You can learn more in this booklet about the trends that shaped the aftermarket this year

and those that will infl uence next year’s sales. It is compiled from of past issues of After-

market Perspectives, a monthly communication from The NPD Group. Each edition focuses

on our data and my perspectives on the industry issues that matter to your business right

now. Aftermarket Perspectives is designed to help you better understand your consumers and

their needs and uncover opportunities — especially in these economically volatile times.

As always, we’re pleased to bring you the information you need to succeed in today’s

environment. I hope you fi nd these articles helpful. Please contact me if you’d like to learn

more, or visit npd.com/lps/Auto_Brief. The site is updated each month with a new article.

David Portalatin

Director of Industry Analysis

The NPD Group

713-576-5126

david.portalatin@npd.com

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Table of Contents

Are Things Sounding Familiar? ........................................Page 5

Aftermarket-Friendly Vehicles ..........................................Page 7

DIFM Picks Up .................................................................Page 9

Industry Expertise/About NPD ..........................................Page 11

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Are Thing Sounding Familiar?

As talk in economic circles heats up concerning the prospects of a double-dip recession,

questions arise about how such a scenario could affect the aftermarket. Fortunately, we know

how consumers responded to the economic downturn in 2008, and we can look at current

trends for any similarities. The overriding change in consumer behavior when the recession hit was

a notable deferral of all spending. In 2008, consumers reported they postponed approximately

one-third of all needed vehicle maintenance and repair. As a result, unit sales volumes in

the auto parts channel declined nearly 8 percent. By mid-2009, in a more stable economy,

consumers embraced the reality that spending to keep their old cars running smoothly was

the most economically responsible alternative, ushering in the robust aftermarket sales of the

past 24 months. But now, are high gas prices and persistent economic challenges pushing

consumers back into deferral mode?

Updating key market drivers

To begin to evaluate the prospects of an aftermarket double-dip, let’s take a look at the macroeco-

nomic factors most relevant to the aftermarket, as determined by our 2011 forecast model:

■ GDP — Real GDP in the second quarter rose 1 percent (this is the revised second estimate).

While this number signals some economic growth, it is fairly weak. An economy with a

more robust growth rate would provide a better environment for stronger after market

sales.

■ Miles Driven — Gasoline prices remain well above the critical $3.00 per gallon mark,

and in response, consumers are cutting back on driving. Through June, total miles driven

were down 15.5 billion miles on the year, or 1.1 percent. Based on gasoline sales indicators,

we don’t expect July or August results to show improvement. Fewer miles translates into

less wear-and-tear and longer maintenance intervals, and therefore has a negative effect

on the aftermarket.

■ Unemployment — Unemployment is a double-edged sword for the aftermarket. First,

rising unemployment constrains consumers’ ability to spend. Second, it takes people out of

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the daily commute, reducing miles driven. The unemployment rate in July was 9.1 percent,

showing no lasting improvement in 2011. There are still 6 million fewer employed persons

in the U.S. than there were in July 2008. Furthermore, the average number of weeks un-

employed rose to 40 – the highest in modern history.

■ Revolving Credit — After paying down $200 billion in debt following the recession,

a new frugality emerged where consumers were motivated to take care of their cars to

avoid incurring more debt for new vehicles. However, recent economic conditions have

consumers once again relying on credit cards. Revolving credit debt in June is up 10 bil-

lion dollars (1.3 percent) since April. If the monthly household budget gets “maxed out,”

consumers may be pushed back into deferral mode.

■ CPI Used Cars — Consumer attitudes have changed about how to defi ne an “old”

car. This means more and more consumers are content to drive older vehicles and are

revaluing used cars. The CPI for used vehicles refl ects this attitude, which is favorable to

the aftermarket and continued to rise with an index value of 152 in July, up from 144 in

January.

What does in all mean?

Of the fi ve factors driving aftermarket sales, three are trending negative. We’ll call GDP

neutral and the used car value positive, as it refl ects a continued desire to assign higher

value to aging vehicles. As a result, it is not surprising that auto parts channel unit volumes

are trending below the level we projected nearly one year ago. At last year’s AAPEX show,

we announced a 2011 forecast of -0.9 percent in unit volume versus year-ago. Year-to-date

through July, unit volume was down 1.7 percent versus the same period in 2010. In part, the

strong performance in 2010 creates a diffi cult hurdle for positive growth in 2011. But thanks

to the forecast modeling done last year, we have a rational basis for better understanding

why the market is trending lower. We will revise and update the forecast model based on all

of this new information. You’ll see the results, along with our 2012 forecast, here at AAPEX.

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Aftermarket-Friendly Vehicles

Most in the automotive aftermarket have long understood that there is a typical vehicle

profi le that is friendly to the aftermarket. Such vehicles are likely no longer under the original

manufacturer’s warranty and are beginning to show some normal wear-and-tear with age

and usage. How to precisely defi ne this vehicle profi le is the subject of some discussion, but

generally the conversation centers around a vehicle age range that begins at about four years

after purchase (when most warranties begin to run out) and ends at around 10 years.

In the past, conventional wisdom held that spending on vehicles more than 10 years old will

wane as these cars lose value and consumers begin to look toward replacement. The vehicle

population that fi ts into this range has often been referred to as “the sweet spot.” Borrowed

from the sports world, this term refers to that place right in the center of the barrel of a base-

ball bat or the face of a golf club. When you hit the sweet spot, the contact feels pure, and

the ball seems to effortlessly spring to life and take fl ight. For aftermarket manufacturers and

retailers, hitting the vehicle sweet spot is the key to a home run of revenue.

A growing “sweet spot”

For some time now, we have monitored the lingering effects of the recession on consumer

attitudes and behaviors. A new frugality among many consumers has them holding on to cars

longer than before and seeing value in the necessary expenditures on repair and maintenance

required to keep older cars going. This new vehicle mindset calls for some closer examination

and re-evaluation of how we defi ne the sweet spot. Our Car Care Track® captures automotive

purchase information from a nationally representative sample of approximately 72,000 vehicle

owners annually. Comparing pre- and post-recession behavior allows us to gain insight into

emerging new behaviors and opportunities.

37%43%

2005 2010

Automotive Purchasers With Vehicles More Than 10 Years Old

Source: The NPD Group/Car Care Track®/December 2010

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While it is true that average annual expenditures on a vehicle tend to peak at around 10 years

of age, Car Care Track provides evidence that there may be a growing opportunity among

owners of cars over 10 years old. Of those surveyed for Car Care Track, 43 percent of consumer

panelists said they had a vehicle more than 10 years old in 2010. In 2005, before the recession

and the decline in new car sales, only 37 percent of respondents had cars over 10 years old. The

spending curve in 2010 peaked at $633 in annual expenditures for 2001 model year vehicles. But

although the curve declines gradually at this point, spending on older cars remains relatively

high. In fact, spending on vehicles 10 years and older is an average of 10 percent higher than

spending on newer vehicles. So the vehicle population is aging, and consumers are demon-

strating a willingness to continue to spend on these vehicles.

Responding to Change

While these new trends in consumer behavior are clearly positive for the aftermarket, retailers

and manufacturers will need to stay focused on the trend to maximize the opportunity. Here

are some questions to ask in considering how best to benefi t from older vehicles:

■ Does my assortment refl ect these new vehicle realities?

■ Does my value proposition appeal to the consumer trying to extend the life of an aging vehicle?

■ What needs can we anticipate owners of older vehicles will have?

The surge in aftermarket-friendly vehicles represents a great opportunity for growth, and a clear

understanding of the consumers who own them will help marketers benefi t from this trend.

Annual Expenditures by Vehicle Age

2005 2010

20$0

$100

$200

$300

$400

$500

$600

$700

19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1

Vehicle Age in Years

Annu

al E

xpen

ditu

re

Source: The NPD Group/Car Care Track®/December 2010

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Do-It-For-Me Automotive Service Picks Up Steam

New car sales in the U.S. are on the rise. Through the fi rst six months of 2011, light vehicle

unit sales were up nearly 13 percent over last year. Even though this increase is signifi cant, it

only translates into about 6.3 million new cars, trucks, and SUVs sold. That puts us at a rate

still well below pre-recession levels, meaning most Americans remain focused on repairing

and maintaining the nation’s aging vehicle fl eet.

With consumers still largely focused on spending only on those things they absolutely need,

many are fi nding professional automotive service among the “must” expenditures in the

family budget. To help you get a better handle on where America is going for do-it-for-me

(DIFM) automotive services, we’ve just released a special report: Consumers Shifting Gears to

DIFM Outlets. It drills into Car Care Track® (our monthly consumer tracker of automotive purchase

behavior) data, complemented by insight from a customized consumer survey on the topic.

This timely study, fi elded in mid-June, found 68 percent of today’s drivers said they will have

all automotive service and repair performed by a professional. For you, that means it is critically

important to understand the changing behaviors and motivations of DIFM consumers to

make the most of this opportunity.

Consumers shifting gears on service outlets

The comprehensive report contains more than 100 pages of charts and expert analysis covering

every aspect of the DIFM marketplace. Among the fi ndings is that many consumers’ outlet

behavior is shifting. Reliable personal transportation is a must-have, yet consumers are still being

squeezed by rising unemployment, high gas prices, and price infl ation in many automotive

categories. In the tension between the need for transportation and the economic pain consumers

are feeling, the value equation is being closely scrutinized. For some consumers, this means

making new choices about where to have their vehicles serviced and why.

In this environment, tire stores and car dealers are two segments that have gained momentum.

Dealerships have likely benefi ted from the uptick in new unit sales, as some new car owners are

returning to the dealer for initial services. But a closer look reveals these two distinct outlets

may have something in common contributing to their success. Both appear to be perceived

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by consumers as bringing more coupons and promotional offers to the table, compared to

other outlets. When looking at what attributes of the service/repair occasion consumers were

most satisfi ed with, those at dealerships and tire stores were much more likely to say they

were extremely satisfi ed with a coupon or special offer. While it is important to acknowledge

that overall value can be derived from delivering on a variety of attributes including, trust,

convenience, knowledge, price and others, it appears these outlets might be leveraging cou-

pons and specials to appeal to a price-conscious and value-driven consumer.

Positioning for success in the DIFM market

Understanding where consumers perceive value in the marketplace and uncovering what relevant

attributes play to your strengths is critical to creating a position that will be attractive in

today’s environment. Knowing who is winning in the market and how they are doing it will

allow both suppliers and installers to collaborate to craft winning strategies. Key questions for

a winning DIFM strategy include:

■ How is the consumer defi ning value, and is that changing?

■ What outlets offer the best opportunities for growth?

■ What attributes of my brand, product, or service model are most relevant to consumers in

the current economic environment?

Among the many truths reinforced in these turbulent times is that change is inevitable. Taking the

consumer’s pulse will help you stay abreast of changes in attitudes and behaviors and keep

your offer and message relevant.

Independent Repair Shops

CarDealership

Discount/Mass Merchant

Quick Lube Tire Store

Customer Satisfaction Index

Coupons or special offers

56

117

64 98

127140

120

100

80

60

Source: The NPD Group/Consumers Shifting Gears to DIFM Outlets/June 2011

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Industry Expertise

The NPD Group is the premium provider of consumer and retail information for the North

American automotive aftermarket, petroleum marketing, and convenience retailing industries.

NPD expertise and data provide industry leaders with essential market information to assist in

making more effective business decisions. NPD is uniquely qualifi ed to help marketers apply

information to address key marketplace issues from multiple perspectives, based on more

than 20 years of experience in these industries.

NPD’s diverse portfolio of services includes consumer panel tracking and national and Store

Level retail point-of-sale (POS) tracking. Specifi cally, NPD information supports benchmarking,

competitive analysis, assortment and product planning, and identifi cation of new channel

opportunities.

About The NPD Group

The NPD Group is the leading provider of reliable and comprehensive consumer and retail

information for a wide range of industries. Today, more than 1,800 manufacturers, retailers,

and service companies rely on NPD to help them drive critical business decisions at the global,

national, and local market levels. NPD helps our clients to identify new business opportunities

and guide product development, marketing, sales, merchandising, and other functions. Infor-

mation is available for the following industry sectors: automotive, beauty, commercial technol-

ogy, consumer technology, entertainment, fashion, food and beverage, foodservice, home,

offi ce supplies, software, sports, toys, and wireless. For more information, visit npd.com

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Learn More

For more information, contact The NPD Group at 866-444-1411 or email contactnpd@npd.com.