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MEMA Information Services Council

October 15, 2007Naples, FL

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Discussion Outline

1. Brief Overview of AASA2.Defining the aftermarket3.State of the industry4.Health of the supplier base5.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

1. Government Affairs

2. Image of AASA Member Manufacturers in the Automotive Aftermarket Industry

3. Market Research, Industry Analysis, Benchmarking & Best Practices

4. Manufacturing Standards

5. Industry Collaboration on Issues Important to AASA members

6. Brand Protection and Intellectual Property Rights

7. Global Opportunities and Challenges for AASA Members

8. Education & Training

9. 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

8

0

50,000

100,000

150,000

200,000

250,000

1980 1985 1990 1995 2000 2005 2006

Total Vehicles in Service (000)

Source: R.L. Polk

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Vehicle Miles of Travel in the U.S.

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

Mill

ion

s

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Total Light Vehicles in Use by Age

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

18,000,000

Automotive Aftermarket Sweet Spot

Source: R.L. Polk

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0.00

2.00

4.00

6.00

8.00

10.00

12.00

2005 10.82 9.12 9.14 7.01

2006 11.10 9.35 9.29 7.04

DOMESTIC CAR

DOMESTIC LIGHT TRUCK

IMPORT CAR IMPORT LIGHT

TRUCK

Average age of light vehicles in use in the U.S.

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Shares of Vehicles in Service

33%

7%

25%

36%

0%

5%

10%

15%

20%

25%

30%

35%

40%

DOMESTICCAR

DOMESTICLIGHT TRUCK

IMPORT CAR IMPORTLIGHT TRUCK

Source: R.L. Polk

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U.S. Retail Sales of New Light Vehicles

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

18,000,000

20,000,000

Cars Trucks Total

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Shares of New Vehicle Sales

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

DOMESTICCAR

DOMESTICLIGHT TRUCK

IMPORT CAR IMPORT LIGHTTRUCK

2002 2003 2004 2005 2006

Source: Ward’s Automotive

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U.S. Market Outlook: Light Vehicle Aftermarket Dollar Volume ($Millions)

$0

$50,000

$100,000

$150,000

$200,000

$250,000

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Aftermarket Distributor Sales

Source: MFSG* MEMA Est.

$0

$1

$2

$3

$4

$5

$6

$7

$8

2003Q2

2003Q3

2003Q4

2004Q1

2004Q2

2004Q3

2004Q4

2005Q1

2005Q2

2005Q3

2005Q4

2006Q1

2006Q2

2006Q3

2006Q4

2007Q1

2007Q2*

GENUINE P ARTS / NAP A ADVANCE AUTO P ARTS P EP BOYS O'REILLY AUTOMOTIVE AUTOZONE, INC.

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Unperformed Maintenance (Billions)

$0

$10

$20

$30

$40

$50

$60

$70

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Producer Price IndexMotor Vehicle Parts and Accessories

97

98

99

100

101

102

103

104

105

106

107

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Base = 12/1/2003

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U.S.-World Parts Trade 1998-2006

46,80749,901

53,72049,794 50,087 48,501

52,62855,054

58,86454,365

61,619

66,95962,726

69,089

74,469

83,444

92,154

95,179

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

$100,000

1998 1999 2000 2001 2002 2003 2004 2005 2006

Millions

Parts deficit Parts exports Parts imports

Source: U.S. Bureau of the Census

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U.S.-EU Parts Trade1998-2006

Source: U.S. Bureau of the Census

4,434 4,6094,848 5,048

4,492 4,3454,615

5,0715,501

6,737

7,4517,716

7,375

8,425

9,858

11,009

12,09912,339

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

1998 1999 2000 2001 2002 2003 2004 2005 2006

Year

$million

Parts deficit Parts exports Parts imports

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U.S. - China Auto Parts Trade, 1995-2006Since 2000, the auto parts trade deficit with China

increased 333%

510636

1,0371,284

2,242

2,788

3,884

6,928

815

623344258225251

132

5,408

1,635 1,758

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

1998 1999 2000 2001 2002 2003 2004 2005 2006

Year

Mill

ions

Parts Trade Deficit: U.S. Exports of Auto Parts to China U.S.Imports of Auto Parts from China

Source: U.S. Bureau of the Census

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AASA Automotive Aftermarket Index

104

106

108

110

112

114

116

118

120

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State of the Industry

•Aftermarket large and growing modestly•Primary aftermarket drivers—vehicles in use; miles driven—continue 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” WD’s and retailers in the driver’s 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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Industry PPI/CPI/ECI 1998-2007 YTD % Change

New Vehicle CPI(through the dealer – includes

incentives)- 5.0%

Light Duty Vehicle Manufacturer PPI(dealer to the manufacturer)

- 7.18%

Motor Vehicle Parts PPI-Commodities(OEM to the supplier)

2.85%

Primary Metal PPI + 58.23%

Plastic Materials & Resins PPI + 51.46%

Petroleum Refineries PPI + 219.54%

Employer Cost Index for Benefits - Manufacturing

+119.00%

The NA Table of PainBusiness models must survive through . . .

Source: CAR and OESA at the 2005 Management Briefing Seminar; Updated by OESA through February 2007Note: Auto accounts for 41% of US steel consumption, 31% of US iron consumption, 32% of US aluminum

consumption and 4% of US plastic consumption (CAR – Fall 2003 economic significance report)

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AASA Supplier BarometerQ3 2007

Question 8: How significant are these issues facing your company?

1

2

3

4

5

Healthcare costs Availability and costof raw materials

Lack of pricing

power

Weak sales Globalization Labor cost &

availability

Excess inventoryRegulatory &

legal issues

Product returns Counterfeit

products

Q-1 Q-2 Q31= Not important 5 = Very important

Wild Cards

• Impact of rising gas prices• Collapse of subprime mortgages and

tightening of credit markets

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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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Association/Industry Information Technology Leadership

•MIS Council: 35 years of leadership•Growth and success of the Aftermarket eForum•Association push for data standards adoption•Growing number of 3rd party providers•Expanding technology capabilities of repair professionals•Increasing prominence of IT managers at the manufacturer level

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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!