– November 4, 2014 AASA MEDIA BRIEFING

AASA MEDIA BRIEFING – November 4, 2014
Good morning and welcome to the 2014 AASA Media & Member Briefing at AAPEX.
As is our tradition, I will address the some of the key influences impacting the
automotive aftermarket today and discuss AASA’s initiatives to help suppliers address
these trends and fulfill AASA’s mission to advance the business interests of automotive
aftermarket suppliers.
As a reminder, the automotive aftermarket suppliers association is the light vehicle
aftermarket division of MEMA, the motor and equipment manufacturers association,
who is celebrating its 110th anniversary in serving the needs of its members. AASA is
one of four divisions within MEMA, the others include MERA, the motor and equipment
remanufacturers association, HDMA, the heavy duty manufacturers association and
OESA, the original equipment suppliers association. I’d like to recognize, Steve
Handschuh, President and CEO of MEMA, John Chalifoux, President and coo of MERA,
Tim Kraus, president and coo of HDMA and also Tim Corcoran, managing director ZF
services, North America and chairman of AASA.
---------------------------------------------------------------------------------------------------Let me begin with a brief overview of AAPEX.
At the close of last year’s show there seemed to be a heightened energy level and a
very positive feeling about the quality of educational and business meetings, the
number of genuine new-business leads, and that AAPEX was a valuable if not vital
catalyst to help attendees and exhibitors alike in growing their business.
Again this year, AAPEX is a sell-out, with 2,338 exhibitors and an increase in total
buyers: 63,845, up 1,640 from last year. Both domestic and international buyer
registration is up.
As the industry evolves, the AAPEX co-owners – MEMA and the Auto Care Association
– have added several new features and enhancements designed to truly make AAPEX
the place to grow your business.
Recognizing the increasing need (and benefit) of education and technical training within
our industry, AAPEX has expended the number of educational seminars to over 50 with
a wide array of topics available to industry participants. In addition, several suppliers will
offer service professionals “in-booth” demonstrations on the latest product, services and
repair techniques. The result is more than 5,100 service professionals are registered for
the 2014 Automotive Aftermarket Industry Week 2014 (AAPEX and SEMA combined),
an increase of nearly 12.37% over 2013.
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You have already heard about the AAPEX’s first General Session featuring Steve
Forbes. The new General Session allows all AAPEX attendees to come together and
participate in the dialogue…and a portion of the proceeds will go to the University of the
Aftermarket Foundation and its Scholarship program. We look forward to Mr. Forbes’
remarks about the Global economy which are timely as the aftermarket continues to
grow around the world.
When talking about our industry, the term automotive renaissance comes to
mind. The word Renaissance is defined as a renewal of vigor and life. It’s also defined
as the time marking the transition from the medieval to the modern world. It could be
said that the automotive industry in also experiencing an automotive renaissance, with
renewed life and vigor. Signs of this can be seen in a number of areas. In AASA’s
quarterly Supplier Barometer, suppliers have reported strong sales performance in
2014, although the last quarters has not been as robust of the first two. Supplier
confidence about sales in the coming quarter has also been high when compared to
prior years…with over 85% anticipating medium to strong sales growth. Underlying
aftermarket business drivers are also showing positive signs:
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Our industry is growing again,
miles-driven has increased, and gas prices are at a four year low
as well as average vehicle age.
We may someday look back on this time as marking the transition from the medieval
automotive world to the modern world. New technologies are rapidly transforming the
industry, making it clearly apparent that the industry we live in IS a high-tech, not lowtech industry. It is also true that vehicle suppliers have been the driving force behind
the leaps in innovations and safety, many of whom are the same full-service companies
providing quality products and solutions to the aftermarket.
With transformation and change come both opportunity and uncertainty.
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Some of the uncertainty exists in the dynamics impacting the DIFM market...a
market where a large percentage of aftermarket parts are consumed. Higher
quality, longer-lasting parts are creating longer intervals between maintenance
and repairs, impacting service provider margins. Also impacting service provider
margins is the pricing transparency on parts created by e-tailing. Millenials, too,
are showing buying behaviors that are different than those of baby-boomers.
AASA has commissioned Strategy&, a division of PwC, formerly known as Booz
& Co, to initiate a new landmark study that will look at the long-term outlook of
the independent service provider and OE Service sector. This new study will help
provide valuable insights and assist suppliers and the industry in charting the
proper strategic course for their business.
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There also continues to be uncertainty and risk to our industry regarding
the practice of extended terms, the level of which is unique to our industry…as
reported in the study prepared for AASA by the accounting firm KPMG. The
report notes, no other industry can be found that uses extended terms as long as
the automotive aftermarket. The uncertainty and risk come, not only in the form
of future increasing interest rates, but also in the amount of excess inventory that
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now exists in the system…created in-part, through extended terms and reverse
factoring which, in some cases, covers more than 100% of the ratio of inventory
to payables. It is estimated that there is some $16 billion in “excess inventory”
that could impact suppliers and channel partners in the future. AASA is updating
the KPMG study of 2012 and benchmarking the timeline forecasts, assumptions
and predictions to what we know today. This updated report will be available in
the first quarter of 2015.
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The third area of uncertainty is the impact and speed of new and disruptive
technologies will have on the aftermarket. These include everything from
telematics to autonomous vehicles to 3D printing to e-Tailing and more. This
disruption or transformation is also creating new opportunities, not only in
products but also opportunities to use technology to drive differentiation and real
value through services and increased collaboration throughout the supply chain.
AASA’s Technology Council and Marketing Executive Council exist just for that
purpose, to help identify opportunities and to serve as a platform for industry
dialogue and change. We invite and encourage AASA members to join the
conversation through their participation on these important councils.
Although there are uncertainties in our industry there too are clear signs of
opportunity.
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Global production is expected to increase by 21 million vehicles by 2021 and by the
same year, China is expected to account for 30% of all light vehicle sales.
AASA’s Overseas Automotive Council has been helping aftermarket suppliers
expand their international reach since 1923. This year, the Council hosted a trade
visit to Dubai, coordinated a reception at the U.S. Consulate General during
Automechanika Frankfurt, and will host the international networking event at its
annual Global Reception tonight at Dal Toro. OAC has exciting plans for 2015 –
more trade missions and more business-
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In 2005 AASA created the China Aftermarket Forum, a council for North American
suppliers with operations in China serving the local aftermarket, as well as,
companies interested in doing so. The council too, serves as a vital platform for
networking and dialogue, and meets quarterly in Shanghai. Our upcoming meeting
in December will feature an open discussion with members of China’s
Transportation Ministry on policies (and benefits) that promote an open aftermarket
structure.
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And AASA is helping suppliers and the industry in finding opportunities to address
preventable warranty…calculated to be $3.9 billion in 2014. AASA started its
examination of the preventable warranty issue at its “Supplier Summit” in 2013,
culminating in the establishment of the AASA Warranty Task Force at AAPEX last
year. As the result of our meeting with service professionals during the CARS/NACE
show, Task Force participation has been expanded to include service professionals.
In addition to the work we are doing to help suppliers address preventable
warranty, AASA continues to stress the value of quality parts backed by full
service suppliers through its Know Your Parts campaign. The KYP website
receives over 40,000 hits per month by repair professionals, making it one of the most
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frequently visited websites in the aftermarket. The KYP committee of the MEC has
created its latest micro-campaign which is on display at the KYP booth # 34001 here at
AAPEX, promoting the importance of rotating electrical diagnostics to service
professionals – which prevent “comebacks.”
Of all that we have talked about today, some of the most important work we do on
behalf of suppliers is in Washington DC. I’d like to recognize Ann Wilson, Sr. Vice
President, Government Affairs, who is also with us today.
This year, representatives of AASA and MEMA have influenced changes in imported
brake friction products containing asbestos, attacked counterfeiting, helped educate
China’s government officials promoting policies to foster an open automotive
aftermarket, have driven industry collaboration with the EPA to develop an MOU for
consistent copper abatement in brake pads and much more.
The 2015 MEMA Legislative Summit is slated for April 15th and 16th in Washington –
check with AASA and MEMA staff for more details.
In closing, and to recap, automotive aftermarket suppliers are being impacted by
market shifts, rapid and accelerating technological developments, demographic
changes, globalization and more. A “10,000 foot view” is no longer sufficient. In order to
develop the near- and long-term strategies to innovate and differentiate in this
environment, suppliers need the perspective of a 360° view of what's going on around
them. AASA is dedicating its 2015 Vision Conference to a 360° view for suppliers. Key
areas addressed will include:
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A 360° view of technology including, demonstrations of new technology for the
aftermarket
360° view of the North American market, featuring a comprehensive review of
AASA’s newest groundbreaking study of the industry shift in DIY to DIFM,
released first to Vision attendees
360° view of global markets: first-hand accounts of international opportunities,
including the growth in China as well as closer to home, in Mexico
The 2015 Vision Conference will be held at the NASCAR Hall of Fame in Charlotte,
N.C.
Before I open it up for questions, I'd like to invite Carol Perrotta, Chairperson of AASA
OAC Council, to the podium to make a special announcement….
I’ve covered many topics this morning, so I’ll take any questions now about of the areas
we’ve covered …
RESPONSE(S) TO QUESTIONS ABOUT RECALLS ESPECIALLY THE CURRENT
AIRBAG RECALLS:
Thanks for bringing up that issue. All of the motor vehicle component supplier
companies that are members of the Motor & Equipment Manufacturers Association
MEMA and its divisions, including AASA’s light vehicle aftermarket suppliers, are
devoted to the proper maintenance and safety of all vehicles traveling our nation’s roads
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and highways. In instances regarding specific incidents or components, MEMA and its
divisions defer to the identified manufacturers.
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