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North american auto aftermarket frost 0211
1. 360 Degree Perspective of the North American
Automotive Aftermarket
Capitalizing on Anticipated Growth in Vehicle
Maintenance and Repairs
N90F-18
February 2011
3. Certification
• We hereby certify that the views expressed in this research service accurately reflect our views based on primary
and secondary research with industry participants, industry experts, end users, regulatory organizations, financial
and investment community, and other related sources.
• In addition to the above, our robust in-house forecast & benchmarking models along with the Frost & Sullivan
Decision Support Databases have been instrumental in the completion and publishing of this study.
• We also certify that no part of our analyst compensation was, is or will be, directly or indirectly, related to the
specific recommendations or views expressed in this service.
N90F-18 3
4. 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
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5. 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
N90F-18 5
6. 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
(North America), 2010
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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7. 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
8. 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
(North America), 2010
N90F-18 8
9. 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
(North America), 2010
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
(United States), 2010
Automotive Aftermarket: Other Types of Maintenance Performed Within the Past 12 Months (United States),
64
2010
N90F-18 9
10. List of Charts (Contd…)
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
(United States), 2010
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
(North America), 2008
Automotive Aftermarket: Distributor-level Revenues by Type (North America), 2010 82
N90F-18 10
11. List of Charts (Contd…)
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
(North America), 2008
Automotive Aftermarket: Revenue Distribution by Product Category (North America), 2017 97
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12. 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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13. The CEO’s Perspective of the Complex Business Universe
Source: Frost & Sullivan
N90F-18 13
14. 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.
Source: Frost & Sullivan
N90F-18 14
16. 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.
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18. 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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19. 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
20. 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)
Vehicles 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
21. 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
22. 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
24. 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.
Source: Frost & Sullivan
N90F-18 24
25. 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
26. 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.
Source: Frost & Sullivan
N90F-18 26
27. 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
28. 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.
Source: Frost & Sullivan
N90F-18 28
29. 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%
Source: Frost & Sullivan
N90F-18 29
31. 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
Source: Frost & Sullivan
N90F-18 31
32. 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.
Source: Frost & Sullivan
N90F-18 32
33. 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.
Source: Frost & Sullivan
N90F-18 33
35. Industries of Close Relation
Tools & Equipment
Diagnostic Equipment
Automotive
Paint, Body & Equipment
Aftermarket
Logistics
HD Aftermarket
Source: Frost & Sullivan
N90F-18 35
36. 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
Revenues ($ Billion)
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
37. 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%
Source: Frost & Sullivan
• 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.
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38. 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
Revenues ($ Billion)
Source: Frost & Sullivan
• 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.
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39. 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.
Source: Frost & Sullivan
N90F-18 39
40. 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
Source: Frost & Sullivan
N90F-18 40
41. 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.
Source: Frost & Sullivan
N90F-18 41
42. 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.
Source: Frost & Sullivan
N90F-18 42
43. 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
44. 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
Source: Frost & Sullivan
N90F-18 44
45. 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
47. 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
48. Hybrid and Electric Vehicles in Operation
Hybrid and Electric Vehicles in Operation (North America), 2006-2016
1000.0
Vehicles Operation (Million)
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
Source: Frost & Sullivan
• 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
49. 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
Source: Frost & Sullivan
• 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
50. 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
51. Future Hybrid Offerings by Vehicle Manufacturer (Contd…)
Automotive Aftermarket: Future Hybrid Offerings by Vehicle Manufacturer (North America), 2009-2015
Vehicle
Hybrid Vehicle Model Type of Hybrid Expected Year
Manufacturer
Yaris Mild 2011
Hybrid Vehicle Systems – Findings
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)
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52. Future Hybrid Offerings by Vehicle Manufacturer (Contd…)
Automotive Aftermarket: Future Hybrid Offerings by Vehicle Manufacturer (North America), 2009-2015
Vehicle
Hybrid Vehicle Model Type of Hybrid Expected Year
Manufacturer
Jetta Mild 2010
Hybrid Vehicle Systems – Findings
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
Source: Frost & Sullivan
N90F-18 52
53. 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
54. 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
