Slide 1

Automotive Aftermarket TrendsAn update from Greg Snyder, Cardone Industries

April 5, 2010

Two recent aftermarket studies show some very interesting news in the repair channel.

The first study (from IMR) shows that the repair “sweet spot” is growing. This study also shows that the average repair cost is increasing as this “sweet spot” grows.

The other study (from Lang and AAIA) shows some startling news. As domestic cars shrink in new vehicle sales, their average age will continue to climb. This makes domestic cars the only major vehicle group increasing in age and shrinking in overall size.

Both of these studies have big consequences for many players in the automotive aftermarket. The following pages show more detail on these trends.

Slide 2

In the automotive aftermarket, much is said about the service “sweet spot” being vehicles in the 6- to 10-year old range. According to Polk, 29% of vehicles on the road, or 71 million cars, are 6 to 10 years old. The average annual repair cost for these vehicles is $889. About the same number of vehicles fall in the 1-5 year range, where they are still typically covered under warranty. A growing sector is vehicles in the 11 and up range, where the average annual repair cost is $914. This segment represents 101 million vehicles on the road today, and that number is increasing.

This is encouraging news for the aftermarket, but it also points to the challenge we face with SKU proliferation. At CARDONE, we see REMAN as our secret weapon to capture these sales. The older a vehicle gets, the harder it is to find brand new parts, as existing OE supply runs dry and new manufacturers struggle with the high cost of low-volume production. Reman is the most flexible, economic choice for these older vehicles, so we are confident that CARDONE can support your needs as you maximize the 6 and up sweet spot.

Slide 3

The average age of domestic cars on U.S. roads plateaued at 10.1 years during 1999 and 2000, increasing slowly to 10.2 years in 2001 and 10.3 years by 2002. After stalling at 10.4 years in 2003 and 2004, domestic car average age began to skyrocket, reaching 11.0 years in 2006 and approaching 12.0 years at the beginning of 2010.

Lang Marketing expects domestic car average age to continue upward, reaching 12.7 years by 2012. This will represent a 26% average-age increase among domestic cars in 12 years.

Slide 4

Domestic cars are substantially higher in average age than any of the other three major vehicle groups.

Domestic cars are over one-third older than foreign cars, one-fifth higher in average age than domestic light trucks, and over 50% greater in average age than foreign light trucks.

Overall, domestic cars in the U.S. are nearly three years older than all other light vehicles combined.

Implications Of Domestic Car Age Growth

The soaring average age of domestic cars has four major aftermarket implications. Lower Maintenance Level

As domestic cars increase in age, the level at which they are maintained generally declines, particularly in terms of preventative maintenance. Consumers generally perform only necessary repairs on older domestic cars, especially in the current, hard-pressed economic climate. Value Parts

Value-priced parts and used (salvage) parts are increasingly selected by owners of older domestic cars. Overall, owners of older domestic cars are very price-sensitive to repair costs, irrespective of whether they personally perform the work (DIY) or use a mechanic (DIFM). Older Domestic Vehicles

A disproportionate amount of repair on the aging domestic car fleet in America is conducted by Do-It-Yourselfers. Domestic cars comprise the largest vehicle segment of the Do-It-Yourself replacement parts market. Domestic Aftermarket Growth Increasingly Depends On Domestic Light Trucks

Domestic vehicle aftermarket growth increasingly depends on light trucks, as aging domestic cars shrink in number.

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Diminishing Aftermarket Stature

The diminishing repair significance of domestic cars is putting the domestic vehicle aftermarket at risk of losing more ground to foreign cars and light trucks.

This has big consequences for manufacturers, distributors, and installers which depend on domestic vehicles for the bulk of their aftermarket business.

Cardone is a supplier you can count on to have the parts you need as the aftermarket shifts.