Market Trends and Megatrends in the Aftermarket Trends and Megatrends by...Market Trends and...

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Aftermarket Megatrends & Realities Market Trends and Megatrends in the Aftermarket September 2017 Philip Atkins Director, Strategic Research & Planning [email protected] 919 - 406 - 8856

Transcript of Market Trends and Megatrends in the Aftermarket Trends and Megatrends by...Market Trends and...

Aftermarket Megatrends & Realities

Market Trends and Megatrends in the Aftermarket

September 2017

Philip Atkins Director, Strategic Research & [email protected]

Aftermarket Megatrends & Realities 2

Automotive Aftermarket Suppliers Association

Heavy Duty Manufacturers Association

Original EquipmentSuppliers Association

Motor & Equipment Manufacturers Association

Motor & EquipmentRemanufacturers

Association

ADVANCING THE INDUSTRY’S INTERESTSSINCE 1904

Aftermarket Megatrends & Realities

MOTOR VEHICLE PARTS SUPPLIERS MATTER

The largest sector of manufacturing jobs in the U.S.

871,000 direct jobs

Total employment impact of 4.26 million jobs

Contributes 2.4% on U.S.GDP

And…

77%

Aftermarket Megatrends & Realities

AASA ANALYSIS: TIMELY

4

Aftermarket Megatrends & Realities

Strong Market Fundamentals

AGENDA—LIGHT VEHICLES

1

Decelerating Growth?

2

Future Looks Bright (Very)

3

E-tailing4

Changing ValuesConnected, Automated, Shared, Electrified

5

Telematics & Freedom of Choice

6

Market Trends Mega Trends

Aftermarket Megatrends & Realities

E-tailingStrong Market Fundamentals

AGENDA—LIGHT VEHICLES

1

Decelerating Growth?

2

Future Looks Bright (Very)

3

4

Changing ValuesConnected, Automated, Shared, Electrified

5

Telematics & Freedom of Choice

6

Market Trends Mega Trends

Aftermarket Megatrends & Realities

© AASA, the Automotive Aftermarket Suppliers Association, 2017

VERY STRONG MARKET FUNDAMENTALS

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

Unemployment 16-year Low 4.3%6

Economy Growing 2.2%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

Aftermarket Megatrends & Realities

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

© AASA, the Automotive Aftermarket Suppliers Association, 2017

8

$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

Aftermarket Megatrends & Realities

Strong Market Fundamentals

AGENDA

1

Decelerating Growth?

2

Future Looks Bright (Very)

3

E-tailing4

Changing ValuesConnected, Automated, Shared, Electrified

5

Telematics & Freedom of Choice

6

Market Trends Mega Trends

Aftermarket Megatrends & Realities

AASA MEMBERS REPORT SALES ARE STILL STRONG, ALTHOUGH SLOWING

-12% -11%

-3%

54% 58%

15% 5%

-40%

-20%

0%

20%

40%

60%

80%

2015 Q1 2015 Q2 2015 Q3 2015 Q4 2016 Q1 2016 Q2 2016 Q3 2016 Q4 2017 Q1 2017 Q2

How strong are your company's aftermarket sales?

Small declines Large declines Moderate growth Substantial growth

Source: 2Q 2017 AASA Barometer Report

Aftermarket Megatrends & Realities

RECENT CONCERNS / HEADLINES …ABOUT SLOWING GROWTH

-4%

-2%

0%

2%

4%

6%

8%

10%

5-Yr Sales 1-Yr Sales Latest SSS

Big 4 Sales Trend

Advance AutoZone GPC O'Reilly

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

Aftermarket Megatrends & Realities

PICTURE MORE POSITIVE, THOUGH GROWTH MIGHT BE RETURNING TO TREND

• Market has been outperforming trend in recent years, as we have enjoyed large, unusually positive ‘deltas’ in key market drivers

• This may have led to ‘unrealistic expectations’• Recent market numbers likely depressed by unusually mild weather, delayed tax

refunds• Big 4 numbers may exaggerate recent market trend?

• Some struggling to see the growth to meet plan or expectations

12

Market Fundamentals at a high, strong level – but may not be accelerating at the same pace that drove above-trend growth in

recent years. Sales aren’t declining; growth may be

Aftermarket Megatrends & Realities

WE HAVE RECENTLY ENJOYED ABOVE TREND GROWTH

© Automotive Aftermarket Suppliers Association 2017 Source: IHS Markit; AASA Analysis; Trendline based on 2003-2016

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2008-9: Great

Recession

2010-12:Recovery

2014-16:Gas prices ↓,

miles driven ↑, employment ↑

IHS MarkitForecast

Aftermarket Megatrends & Realities

VIO WILL CONTINUE TO GROW, BUT GROWTH RATE DECELERATING FROM HIGH LEVEL

14

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 YOY

The 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

Aftermarket Megatrends & Realities

CARS AT RECORD AGE, BUT SLOWING RATE OF INCREASE

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

Aftermarket Megatrends & Realities

9.3%8.9%

8.1%

7.4%

6.2% 6.3%

4.9%4.4% 4.5%

4.8% 5.0%

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 2020F

U.S. Unemployment Rate

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

16

© Automotive Aftermarket Suppliers Association 2017 Source: IHS Markit

Aftermarket Megatrends & Realities

GAS PRICES LOW. BUT UNLIKELY TO SEE ANOTHER BIG DIP THAT WOULD SUPERCHARGE GROWTH

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

Aftermarket Megatrends & Realities

MILES DRIVEN WILL BE POSITIVE, BUT NOT AS STRONG A CONTRIBUTOR TO VOLUME INCREASE

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 May 2017

% Change in Miles Driven YOY

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

Aftermarket Megatrends & Realities

Strong Market Fundamentals

AGENDA

1

Decelerating Growth?

2

Future Looks Bright (Very)

3

E-tailing4

Changing ValuesConnected, Automated, Shared, Electrified

5

Telematics & Freedom of Choice

6

Market Trends Mega Trends

Aftermarket Megatrends & Realities

FUTURE LOOKS BRIGHT

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

• Despite return to trend, this is one of most attractive auto or retail sectors• U.S. OE volume softening, increasing incentives; aftermarket still growing• 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 opportunityGlobal trends are positive, as OE unit sales increase dramatically

20

Aftermarket Megatrends & Realities

REPLACEMENT ‘SWEET SPOT’ IS GROWING AGAIN

21

Source: IHS Markit, AASA Analysis

Post-recession new vehicle sales increases are starting to move into the aftermarket sweet spot, joining the increasing number of cars older than 12 years

66

68

70

72

74

76

78

80

2015 2016 2017 2018 2019 2020

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

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

Aftermarket Megatrends & Realities

PARTS ARE GETTING MORE COMPLEX – AND COSTLY

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Wiper Blade$5 $19

Fuel Pump$45 $225

Wheel End$15 $185

Source: AASA Analysis

Examples

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

Aftermarket Megatrends & Realities

AFTERMARKET FORECASTED TO GROW TO A HEALTHY $316 BILLION BY 2020

Recessions

© AASA, the Automotive Aftermarket Suppliers Association, 2017

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139 157

223

277

316

-

50

100

150

200

250

300

350Aftermarket Size in Billions of Dollars

The market in 2020 will be more than twice the size it was in 2000.

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.

Part of growth is shift from

DIY to DIFM, including

growing labor component and pricing

Aftermarket Megatrends & Realities

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

ALBEIT GROWTH INCREASINGLY DRIVEN BY PRICE

Aftermarket Megatrends & Realities

WHAT COULD BE NEW DRIVERS OF POSITIVE “DELTAS” FOR U.S. AFTERMARKET?

Inflation• General economy• Industry-specific

Increased consumer spending powerIncreased economic growth rateIncreased failure rate of new technology—large technology deltas historically lead to temporary increases—among, for example:

• More fuel-efficient, light-weighted, lower-friction technologies• Infotainment and electronics / software / sensor content

25

Aftermarket Megatrends & Realities

MEGA TRENDS

26

Aftermarket Megatrends & Realities

Strong Market Fundamentals

AGENDA

1

Decelerating Growth?

2

Future Looks Bright (Very)

3

E-tailing4

Changing ValuesConnected, Automated, Shared, Electrified

5

Telematics & Freedom of Choice

6

Market Trends Mega Trends

Aftermarket Megatrends & Realities

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

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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

Pure-play e-tailers are adding ~$1B a

year in sales

© Automotive Aftermarket Suppliers Association 2017 Source: AASA / ACA Joint Channel Forecast by IHS Markit; AASA Analysis

Aftermarket Megatrends & Realities

12%23% 29%

13% 22%

25%26% 19%

13%17%

50% 29%

1%

16%4%

Price Ease of Purchase/Convenience

Home Delivery Unavailability inLocal Store

Other

Reasons for Buying Online - Consumers Who Have Bought Online

Reason 1 Reason 2 Reason 3

WHY U.S. CONSUMERS CHOOSE THE E-TAILING CHANNEL

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SOURCE: AASA and Booz & Company; E-tailing Success Strategies for the Fastest Growing Segment of the Aftermarket. March 2013

87%77%

49%42% 43%

Aftermarket Megatrends & Realities

$213

$249

E-TAILERS HAVE TAKEN ADVANTAGE OF THIS DISRUPTION

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FAST DELIVERYSame-day delivery of parts

in 40 U.S. cities

AMAZON WORLDWIDE$4 Billion aftermarket sales

EXPANDING SERVICESOffering cars online in

Italy

ESTIMATE“They’ll grow 50% this year”

EASY SHOPPINGCustomized, individual shopping

LOWER PRICES

Aftermarket Megatrends & Realities

COST SAVINGS COULD HELP E-TAILING EXPAND INTO DIFM

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SOURCE: Directional findings from AASA proprietary study; 2017

Shops are interested in cost saving, if significant….

DIFM consumers are interested in cost savings, even with delayed delivery.

SOURCE: AASA/Strategy& DIFM Outlook 2025

Price savings required to convince shops to relax delivery expectation

(% Acceptors)

Aftermarket Megatrends & Realities

TO DATE, ROADBLOCKS HAVE OFFERED PROTECTION FROM E-TAILING

“Relationships …have also been a sticking point for B2B distribution moving online. Industrial buyers

often value reliability, quality guarantees and immediate availability of products highly relative

to costs…”

32

Goldman Sachs, Fortnightly Thoughts

Issue 119 April 12, 2017

Aftermarket Megatrends & Realities

SOME AFTERMARKET PRODUCTS WILL LOSE THAT PROTECTION SOONER THAN OTHERS

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Drivers of Online Penetration

Easily digitizedHighly standardizedLow weight/volume

Low touchDiscretionary 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 saleSame-day delivery

Assisted saleImmediate fulfillmentRelationship-based sale

PRODUCT CHARACTERISTICS

MARKET CHARACTERISTICS

Easier to Sell Online Harder to Sell Online

Source: Booz & Company e-tailing report for AASA, 2013

Aftermarket Megatrends & Realities

E-TAILING WILL IMPACT ALL PARTS OF THE VALUE CHAIN

34

Service Professionals

Channel Partners

Suppliers/Manufacturers

• More educated consumers• Impact of price transparency—need to make

profit on labor since parts moving to market prices

• Learn customers’ “path to purchase” on and off-line

• Competitive threat: possible market share shifts• Potential threat: too much brick and mortar

• Understand consumers, build brands, grow with e-tailing

• Suppliers behind the curve in creating value for channel partners through insight

Source: Booz & Co.: “E-tailing: Supplier Success Strategies” 2013

Aftermarket Megatrends & Realities

Strong Market Fundamentals

AGENDA

1

Decelerating Growth?

2

Future Looks Bright (Very)

3

E-tailing4

Changing ValuesConnected, Automated, Shared, Electrified

5

Telematics & Freedom of Choice

6

Market Trends Mega Trends

Aftermarket Megatrends & Realities

CHANGES IN WHAT IS VALUED IN A VEHICLE

36

Past

Mechanical device

Current

Mechanical device with electronic enablers

Future

Software device with electronic & mechanical enablers

What a vehicle is has changed over time

Aftermarket Megatrends & Realities

VALUE PROPOSITION MIGHT FUNDAMENTALLY CHANGE

37

Changing Product AttributesWhat consumers want / pay forWhat is ‘performance’ / appealWho are the buyers / owners

Who and how vehicles are maintained

Changes for SuppliersSources of competitive advantage

Investment needsPace of change / level of certainty

People and culture needs

Aftermarket Megatrends & Realities

INDUSTRY TRANSFORMATION—A CASE IN POINT

38

• Becoming a technology industry: mechanical → software/ electronics• Internet of Things (IoT), cybersecurity, V2X, infotainment, big

data/data analytics

• Driving automation / ADAS / increased safety• Cybersecurity / V2X

• “Car-as-a-Product” “Car-as-a-Service”

• Changing business models and value propositions• Changing customers, competitors, partners

• Fuel economy, CO2, emissions reduction / harmonization• Electrification / decarbonization• Sustainability

Connected

Electrified

Shared

Automated

Aftermarket Megatrends & Realities

CONNECTED & AUTONOMOUS

39

“November or December of this year, we should be able to go from a parking lot in California to a parking lot in New York, no controls touched at any point during the entire journey.” Elon Musk

CEO Tesla, Inc.4/29/2017

Aftermarket Megatrends & Realities

CONNECTED & AUTONOMOUS…WILL INCREASE MILES DRIVEN

40

KPMG:“Miles driven will soar by one trillion more miles per year by 2050 …”

- Older can still be driven- Freedom of mobility for youth

- Fewer occupants per vehicle

- The top of their 3 scenarios has miles driven increasing 3-4 trillion miles/yr!

Aftermarket Megatrends & Realities

MOBILITY AND AUTOMATED MEAN VEHICLE USE MIGHT EXPLODE

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

41

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

Aftermarket Megatrends & Realities

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

… and with it the size of the aftermarket:

42

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 & CompanySize of global aftermarket, high-disruption scenario,

$ billion

Traditional Aftermarket

New Services (shared mobility,data connectivity, apps,remote service and upgrades,etc.)

Aftermarket Megatrends & Realities

Strong Market Fundamentals

AGENDA

1

Decelerating Growth?

2

Future Looks Bright (Very)

3

E-tailing4

Changing ValuesConnected, Automated, Shared, Electrified

5

Telematics & Freedom of Choice

6

Market Trends Mega Trends

Aftermarket Megatrends & Realities

TELEMATICS COULD LEAD TO AN INCREASE IN KEY BUSINESS DRIVERS FOR THE AFTERMARKET

28

Increased awareness of: - failure, replacement rates, & location information for better demand forecasting

- prognostics that alert motorists, service providers, distributors, & suppliers of pending failure.

- more end-consumer awareness benefits suppliers from increased maintenance

Products or services used to a) collect and communicate data from vehicles in operation, and/or b) the process of communicating that data.

Aftermarket Megatrends & Realities

“We need to get the laws to be pro-choice and pro-consumer. We could all be denied this and the aftermarket goes away..”“Like Tesla, they could have a chip that says the part has to be OE”“We’re playing high-stakes poker with this topic…”

We consumers want freedom of

choice!

WHO HAS ACCESS TO THE DATA?CRITICAL ISSUE FOR THE AFTERMARKET

Senior executives in the aftermarket, 2016

Aftermarket Megatrends & Realities

4 STEPS TO ACHIEVE DESIRED OUTCOME (1/2)

1. Be clear about what we want –

• Access to the vehicle that offers motorists freedom-of-choice for vehicle repair and service parts

• Access and use of parts and equipment-enabling software necessary to allow motorists freedom-of-choice

AASA initiatives

Aftermarket Megatrends & Realities

2. Advance aftermarket industry’s technical solution:• Secure Vehicle Interface

o Required for v2V, V2I, V2X as well as aftermarket• Software-enabled copyrights• Aftermarket data privacy principles

3. Training & Certification• Telematics/Connected-vehicle Certification

• Consumer trust that aftermarket can repair• Protect data privacy

4. Awareness of Solutions

AASA initiatives

4 STEPS TO ACHIEVE DESIRED OUTCOME (1/2)

Aftermarket Megatrends & Realities 48

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

vehicle technology and parts complexity bring• Ensure aftermarket can repair automated, connected,

software-intense vehicles / remain 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?

Aftermarket Megatrends & Realities

Thank you