MEMA Financial Services Group

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• MEMA Financial Services Group
• September 20, 2007
• St. Louis, MO

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Discussion Outline

• 1. Brief Overview of AASA
• 2. Defining the aftermarket
• 3. State of the industry
• 4. Health of the supplier base
• 5. Open discussion Questions

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AASALeadership in the Global Automotive
Aftermarket

• Automotive Aftermarket Suppliers Association
• Aftermarket Market Segment Association (MSA) of
  MEMA
• HDMA, OESA
• Nearly 300 Member Manufacturers
• Represent 80 of North American Aftermarket
  Volume
• Approximately 154 Billion in Sales

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Automotive Aftermarket Suppliers Association

• AASA serves as the voice of the automotive
  aftermarket suppliers and
• is a recognized industry change agent
• promotes a collaborative industry environment
• provides a forum to address issues
• serves as a valued resource for members

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AASA Value Proposition

• Government Affairs
• Image of AASA Member Manufacturers in the
  Automotive Aftermarket Industry
• Market Research, Industry Analysis, Benchmarking
  Best Practices
• Manufacturing Standards
• Industry Collaboration on Issues Important to
  AASA members
• Brand Protection and Intellectual Property Rights
• Global Opportunities and Challenges for AASA
  Members
• Education Training
• Member recruitment, retention satisfaction

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Defining the U.S. Aftermarket2006

• New vehicle parts market 193 billion
• Light vehicle aftermarket sales of products and
  service 209 billion
• Sales of Heavy Duty aftermarket products and
  services 59 billion
• Combined light/heavy duty aftermarket products
  and services 268 billion

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Primary Drivers of Aftermarket Sales Volume

• Vehicles in Service
• Miles Driven

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Source R.L. Polk
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Vehicle Miles of Travel in the U.S.
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Total Light Vehicles in Use by Age
Automotive Aftermarket Sweet Spot
Source R.L. Polk
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Average age of light vehicles in use in the U.S.
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Shares of Vehicles in Service
Source R.L. Polk
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(No Transcript)
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Shares of New Vehicle Sales
Source Wards Automotive
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(No Transcript)
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Growth in the U.S. Automotive Aftermarket
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Aftermarket Distributor Sales
Source MFSG MEMA Est.
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Unperformed Maintenance (Billions)
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Producer Price IndexMotor Vehicle Parts and
Accessories
Base 12/1/2003
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U.S.-World Parts Trade 1998-2006
Source U.S. Bureau of the Census
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U.S.-EU Parts Trade1998-2006
Source U.S. Bureau of the Census
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U.S. - China Auto Parts Trade, 1995-2006Since
2000, the auto parts trade deficit with China
increased 333
Source U.S. Bureau of the Census
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AASA Automotive Aftermarket Index
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State of the Industry

• Aftermarket large and growing modestly
• Primary aftermarket driversvehicles in use
  miles drivencontinue positive
• Significant period of transition and challenge
• Still a relationship business at the store to
  buyer level
• Fundamentals of quality, availability and service
  still mean something
• Balance of power has shifted power buyers WDs
  and retailers in the drivers seat
• Aftermarket mergers and acquisitions continuing
  at a record pace transactions first 6 months of
  2007 55 up 28 over 2006
• Private equity creating churn in the aftermarket
  21 of 55 transactions
• Service Dealer demand for form, fit and function
  driving increased SKU count and inventory
  investment
• Insistence on lowest invoice price accelerating
  low cost country sourcing
• Value-adds being stripped from prices at all
  levels

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Parts Suppliers The Largest Manufacturing
Sector in the USA
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Supplier Jobs Midwest Focused, but Moving
Southeast
Source MEMA, Motor Vehicle Suppliers The
Foundation of U.S. Manufacturing, January 2007
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Health of the Supplier Base

• Manufacturers are struggling to maintain
  profitability
• Margin erosion at all levels
• Globalization impacting acquisition and sourcing
• Raw material costs rising
• Value added suppliers are competing for lowest
  price business
• NA manufacturing shifting focus to emerging
  international markets
• Little collaboration to address industry issues
• Many are well under way in transforming
  themselves into global manufacturers/provisioners
  

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The NA Table of Pain Business models must survive
through . . .
Source CAR and OESA at the 2005 Management
Briefing Seminar Updated by OESA through
February 2007 Note Auto accounts for 41 of US
steel consumption, 31 of US iron consumption,
32 of US aluminumconsumption and 4 of US
plastic consumption (CAR Fall 2003 economic
significance report)
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AASA Supplier BarometerQ3 2007
Question 4. Accounts receivable activity has
been
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AASA Supplier BarometerQ3 2007
Question 8 How significant are these issues
facing your company?
1 Not important 5 Very important
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Risks and Critical Issues

• Rising gasoline prices
• Counterfeit Automotive Aftermarket Parts
• Rising Imports

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Rising Gasoline Prices
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Rising Gasoline Prices
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ConclusionGas Prices the Aftermarket

• Generally speaking, gas prices and aftermarket
  growth tend to trend positively over time
• There is a point at which gas prices negatively
  impact the aftermarket and it appears that the
  threshold is 2.60 per gallon
• Over 2.60 per gallon, discretionary spending is
  curtailed and optional repairs are deferred

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Counterfeiting Industry Infringement Facts

• The automotive industry loses an estimated 12
  Billion in revenue annually (75 from Asia) to
  service parts counterfeiters, 3 Billion in the
  U.S. alone.
• Projected to grow to 45 Billion by 2011.
• Massive increase in global counterfeit activity
  in last five years.
• It is estimated that over 250,000 NAFTA
  automotive manufacturing jobs are lost to
  counterfeiters diluting the market with
  counterfeit parts which drives demand down for
  genuine parts.
• Counterfeit parts are sold at 50-85 of Genuine
  pricing and are estimated to deliver at only
  20-30 of their value (performance, wear, system
  integration).

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Counterfeiting Industry Infringement Facts

• Maintenance high volume items most often faked
• Oil filters, air filters, fuel filters
• Disc brake pads
• Wheels and tires
• Spark plugs
• Shock absorbers
• Belts and hoses
• Automotive fluids (motor oil, brake fluid,
  steering fluid, windshield wiper fluid)
• Windshields
• Bearings
• Gaskets

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Counterfeiting Danger of Counterfeit Parts

• Counterfeit brake pads, made of grass clippings
  and saw dust, have caused fatal accidents.
• Counterfeit suspension parts and wheels break
  when made with substandard materials.
• Counterfeit vehicle hoods without crumple zones
  penetrate the passenger compartment.
• Counterfeit windshields without safety
  shatterproof glass cause injury or death.
• Counterfeit oil filters lead to premature engine
  wear and failure.
• Federal agents in Queens and Manhattan (New York
  City) seized unsafe counterfeit brake parts, tail
  lights and other parts being installed by dealers
  on taxi cabs.

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Counterfeit Autoparts
2006 was a record year for the number of IPR
seizures and domestic value of goods seized. The
domestic value of products seized for IPR
violations increased by 67 compared to FY 2005.
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Rising Imports
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Opportunities for Suppliers

• Collaboration with channel partners
• Use technology to reduce cost and for competitive
  edge
• Low-cost manufacturing strategy
• Strategic alliances/partnerships
• Revenue diversification
• Leading market position (product, technology and
  process)

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• The best way to predict the future is to create
  it.

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• Questions?

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Thank You!