Automotive Aftermarket on the Other Side of...2020_June-16_Roland Berger_Automotive Aftermarket on the Other Side of COVID-19.pptx 4 Industry analysts continue to update their US auto

Roland Berger

June, 2020

Automotive Aftermarket on the Other Side of COVID-19

Photo by Getty Images

JUNE UPDATE

22020_June-16_Roland Berger_Automotive Aftermarket on the Other Side of COVID-19.pptx

This document shall be treated as confidential. It has been compiled for the exclusive, internal use by our client and is not complete without the underlying detail analyses and the oral presentation.

It may not be passed on and/or may not be made available to third parties without prior written consent from .

© Roland Berger

Contents Page

A. Updated view on the COVID impact in the automotive aftermarket 3

B. Real sales data: Overview by month, week, and product category 12

C. Deep dive and forecast on miles driven – "new normal" 17

A. Updated view on the COVID impact in the automotive aftermarket


Industry analysts continue to update their US auto market forecasts – Cumulative sales for the year-to-date are down 23%

17.1 16.8 16.7

2020e1)2019Actual

2020eIHS

(03/16/20)(03/15/20) (05/06/20)(03/15/20)(03/15/20)(03/15/20)(01/06/20) (01/08/20) (03/15/20)

14.5

13.5

Cox Automotive

LMC Automotive (revised)

15.5

ALG (severe

slowdown)

12.5

ALG(rapid

recovery)

Morgan Stanley

IHS

16.0

RBC Capital Markets

14.3

IHS

16.5 16.4

-24%

Widening spread of estimates

Prior to any confirmed cases in the US

With 16,000 confirmed cases in the US on 03/20, and over 600,000 confirmed cases on 04/15

(04/02/20)

2.1

4.8

Jan-May 2020Jan-May 2019

4.0

1.4

6.9

5.3

-23%

Passenger cars Light trucks

Comparison of Jan-May US auto sales2) [2019 vs. 2020]

Source: Roland Berger

1) LMC and J.D. Power estimate 2) Reported by Marklines

Analyst forecasts for 2020 US auto sales


Fast recovery

Containment

High impact

Modest impact

Short duration Long duration

Given the uncertainty in the industry, we suggest planning around two plausible scenarios – Delayed cure & Profound recession

Scenario comparison


Profound recession ('2nd wave")

> After entering phase 3 in 2020, the US would incur a second wave of COVID-19 in October and thus go through another phase of partial shutdown until stabilizing in April 2021

> After 6 weeks of shutdown, 4 weeks of phase 1 reopening, 4 weeks of phase 2, and 3 months of phase 3, the US would enter the stage of new normal for the rest of 2020 and 2021

Delayed cure

Updated scenarios1)

1) In both scenarios, miles driven are expected to grow at 1.4% long-term growth rate starting in January 2022


Shortduration

Longduration

High impact

Modest impact

(35-40%)

2020 vs. 2019

(25-28%)

2020 vs. 2019

15-20%

2021 vs. 2020

15-20%

2021 vs. 2020

V-Shape: Fast recovery

"Flat" Shape: Containment U-Shape: Delayed cure

L-Shape: Profound recessionFor modeling purposes, we used the middle of the range in each scenario

Under our scenarios, we expect the US auto new vehicle sales market to contract between 25% and 40% this year

Expected YoY change in US auto sales by scenario

Note: The aftermarket forecasts consider the middle of the ranges


Forecast as of May 26th


COVID-19 infection growth[Jan 22 to June 10, million active cases] Exposure to supply effects Exposure to demand effects

Au

tom

oti

veA

fter

mar

ket

> Highly integrated global supply chains

make the automotive industry vulnerable to

supply shock

> Huge exposure to consumer demand, as

car purchases tend to be postponed in

times of economic downturn

> Industry growth strongly depends on

Chinese demand

> Supplier structure is exposed to risk of

collapse in economic downturn due to

breakdowns in tier-2 & 3 supplier structures

> Access to key parts required to maintain

product range can become increasingly

difficult if supply chains have not been

highly integrated or have been arranged

globally, the latter resulting in difficulties to

obtain parts in case of transport restrictions

> Ability to source internally will be a key

advantage for Aftermarket players, given

the likely chance that plant capacities will

be free for Aftermarket parts production

> Near-term reduction in miles driven during

social distancing and shut-down. Extended

re-build in the case of prolonged recession

reduce service needs

> Car purchase postponement during

downturn drives older vehicle parc,

balancing repair volume post-shut-down in

the IAM

> Increased preference for own vehicle over

public transit for fear of viral infection may

drive demand increase of aftermarket

service

> Parts suppliers with critical repair parts

(e.g., transmission, engine) are expected to

face lower impact than accessories parts

suppliers

Very high exposure Very low exposure

Ove

rall

risk

03/01

0.0

0.1

01/22 05/01

0.2

0.3

0.4

0.5

0.6

0.8

0.7

0.9

1.0

1.1

1.2

1.3

1.4US

Europe

China

Mexico

The Automotive Aftermarket will face a significant impact, albeit lower risk as compared to the overall automotive industry

Source: John Hopkins CSSEGIS, IHS, Roland Berger

06/10


2.4%

-37.5%

US Base Case [%]1)

(Pre COVID-19 Forecast)

Aftermarket as compared to the overall automotive industry

More favorable In line Less favorableGrowth of gross value added (GVA) 2020 [%, Indexed to 2019]

Growth of gross value added (GVA) 2021 [%, Indexed to 2019]

2020

2021

2020

2021

Delayed cure Profound recession

3.5%

7.0%

-2.3%

-3.2%

-11.5%

-5.8%

-26.5%

-13.6%

-14.5%

-6.6%

-26.6%

IAM

OEM

2020

2021

1.8%

2.9%Deeper and longer impact due to lower new vehicle car parc and some channel share loss

-16.9%

-10.0%

-21.0%

-14.3%

IAM channels are expected to be less impacted by the crisis – AFM suppliers were hit hard as retailers decided to reduce inventories

SE

RV

ICE

SA

LE

SA

FM

. S

UP

PL

IER

2)

-25.4%2020

5.1%

-21.0%

-4.0%2021

RE

TAIL

ER

S

& W

Ds3) 4.2%

8.3%

-12.7%

-6.4% -7.4%

2020

2021Assumes 1 month reduced IAM sales in 2020 due to retailers reducing inventory

Considers 29% share of DIY sales, which has a higher impact during the crisis

80% IAM20% OE

Assumes service retention drops 5% in 2020 and 2% in 2021 and recovers in 2022

1) Both 2020 and 2021 compared to 2019 2) Assumes 20 OEM / 80 IAM part sales split 3) Assumes 3 OEM/97 IAM part sales split

Source: IHS, Roland Berger

Within service, dealers are

impacted by both, reduction in overall miles driven and a smaller 0-5 year-

old car parc

Retailers are seeing a higher

impact in the DIY segment – DIFM

follows IAM trends

Suppliers are impacted by a reduction in

vehicle sales, lower demand for

service, and retailers reducing

inventory-7.0%

-15.9%



IAM players will have limited downturn due to aging vehicle parc –Dealers to face impact on vehicle sales & reduced new vehicle parc

Vehiclesales[m units]

Delayed cure Profound recession

12.6

2020 2023

14.8 16.0

2021 2022

15.2 16.6

2024

16.7

2025

COVID-19 Impact Annual sales

15.014.2

2023

10.7

2020 2021

12.6

2022

13.2

2024

15.9

2025

43.9

46.9

281.3

51.0

133.2

44.4

50.9

2020

46.7

275.7

2023

133.3

47.7

136.3

2021

42.5

50.5 41.6

2025

134.2

2022

45.8

45.9

49.2

43.4

49.0

139.1

275.3

2024

49.2

48.6

141.9

275.0 277.2 279.3

48.5

Total car parc[m units]

-25% -10% -7% -3% - - -36% -24% -19% -14% -10% -5%

-1% -2% -3% -3% -3% -3% -2% -4% -5% -5% -6% -6%

X% Impact vs January 2020 forecast

Sales recovery

4 years 6 years

Car parc recovery

n/a as car parc continues to increase 6+ years

> This scenario will resemble the 1980 recession that took 47+ months to recover to regular sales levels

> Full recovery sales to occur in 2024

> This scenario will resemble the 2008 financial crisis that took 76 months to recover to regular sales levels

> Full recovery sales to occur in 2026

> Reduction in vehicle sales will impact 0-2 year car parc in the earlier years and +3 year car parc later

> Overall vehicle parc expected to continue to grow, but at a lower pace

> Relatively longer term of COVID-19 impact will cause the peak of car parc reduction to occur in 2022-23

> Parc will take 6+years to recover


9+ 0-26-8 3-5

269.4

2024

50.5

133.3

45.0

50.9

20212020

43.9

51.0 39.4

133.2

40.3

46.7

269.7

36.4

49.248.5

134.2

2022

39.9

44.0

136.3

2023

42.3

49.0

141.9139.1

269.9

45.0

35.7

48.6

2025

273.2 271.2 271.2

Vehicle sales: Total car parc (years):

Source: IHS, Roland Berger


The total vehicle car parc is relatively insulated during financial downturns – COVID expected to reduce car parc by up to 2.6%

2008/09 financial crisis

90

100

110

120

130

140

150

20001994 1996 1998 20082002 2006 20142004 2010 2012 2016 2018 2020 2022 2024

Profound recession

Original forecast

Delayed cure

-2.3%

-2.6%

2000 dot-com bubble

Global pandemic

2025

9.1

9.6

10.010.6

11.8

12.0

12.5

12.2

2000

2002

200820101)

2018

20222)

x.x Average vehicle age [years]

Source: IHS, USDT, Roland Berger

1) 2009 Cash for Clunkers program reduced 2010 average vehicle age by 0.1 years2) If a similar program to the 2009 Cash for Clunkers initiative was implemented, would reduce 2022 average vehicle age by 0.1 years

Total US light vehicle car parc [1994-2025, 1994 = 100]Forecast as of

May 26th


1,750

1994 2004 200820021996 2000 2006 2010 2012 2014 2016 2018 2020 2022 20241998

2,000

2,250

3,250

2,500

2,750

3,000

3,500

3,750

Original forecast

Profound recession

Delayed cure

+3%

Global pandemic


2000 dot-com bubble

Total miles driven will be reduced by up to 15% in 2020 –Cumulative annual impact through June is expected to be 8.3%

Total miles driven in US [1994-2025, vehicle miles bn]

1) Forecast

Source: USDT, IHS, US Congressional Budget Office, MS2 – Traffic Dashboard; Roland Berger

Additional decrease in miles driven in the Profound Recession is due to risk of second wave, which prolongs time spent with reduced consumer driving behavior

2025

Mar

23%

84%100%

Jan

100%

16%

June1)Feb

40%

60%

Apr

77%

May

18%

82%Impact

Actual

Cumulative impact [% of annual miles]

0.0% 0.0% -1.4% -4.8%

Miles driven vs original forecast [2020 Jan-May, %]

-6.8% -8.3%

B. Real sales data: Overview by month, week, and product category


May showed a strong recovery with total volume closing only ~5% below Jan 2020 level – June volume started better than May's

DIFM Sales evolution by month and week

Source: John Hopkins CSSEGIS, Roland Berger

100%95%

0%

25%

50%

75%

100%

125%

75%

April

100%

Jan JuneFeb Mar May

90%tbd

0

25

50

75

100

125 1,250

0

750

250

500

1,000

9-Mar 18-May

23-Mar

70%

2-Mar 16-Mar

80%

30-Mar

70%

6-Apr 13-Apr

20-Apr

27-Apr

4-May

11-May

100%

60%

95%

70%

50% 50%

85% 85% 90%

Weekly salesActive COVID-19 cases

Active cases = Confirmed – Deaths – Recovered cases

2020 monthly sales [Jan 2020 = 100%]Change in weekly sales versus COVID active cases [2-Mar = 100%]1)

Initial sharp drop to 50% followed by a quick recovery

1) Weekly data only available until the end of week of May 18th

June volume started better than May's at nearly 95%


After a slight pre-shutdown bump, segments have dropped between 5% and 50% in the shutdown period

DIFM Sales evolution by product category [Week of March 2 is the baseline]

Comments


Shutdownperiod

> Heat/AC is quickly trending upwards as more people were preparing for warmer weather

> Most sales categories were down more than 30% during shutdown

> Given the immediate need, and positive influence of irregular driving, batteries is the only category that has maintained its level

> Expensive repairs such as suspension/steering, engine, shocks & struts, transmission, and exhaust were some of the hardest-hit

Jan Feb 2-Mar 9-Mar 16-Mar to 20-Apr May

Batteries 0% -5% 0% 5% 5% 30%

Heat/AC -45% -30% 0% 25% 5% 100%

Tires -15% -5% 0% 5% -30% -15%

Electrical -10% -10% 0% -15% -30% -20%

Oil -15% -15% 0% -5% -40% -25%

Drivetrain -10% -15% 0% -5% -40% -25%

Engine -15% -10% 0% 10% -15% -15%

Brake -20% -10% 0% -15% -50% -30%

Baseline


Oil and tires were the most popular lead-in services for concierge and helped pull add-on business

Concierge services overview

Share of concierge services performed by service category [%]

Penetration of other services on invoices with concierge and oil change [%]

Others 10%

Oil

Engine

Tires &alignment

20%Electrical

35%

30%

Brakes 20%

10%

65%

60%

40%

35%Others

Electrical

Tires & alignment

Engine



Aftermarket players are optimistic – Sales are currently much higher than during the peak of the crisis and continue to improve

Mar

ket f

eedb

ack

The situation is not as bad as

we initially thought. It is getting

better week by week.

Auto parts are profitable

businesses and I haven't seen

many go out of business.

Recovery has come so fast that

I don't see it likely that many

people will be forced out of

business.

Online reservations have more

than doubled in the last 4-8

weeks after a long period

without a significant increase.

This includes products that let

customers "do the talk online"

and simply drop off the car.

Our financial position is

stronger than expected. We're

returning to the office next week

(Phase II of reopening plan).

There was a big increase in

eCommerce demand (service)

after relief checks arrived

We moved very quickly with the

decisions to preserve cash and

keep the business position. The

first week of April was the

worst, but we're recovering

weekly since then.

I was surprised that a lot of

people spent stimulus money

on trucks parts

Market feedback quotes

Source: Jeffries - The Road Ahead, Roland Berger

May 28, 2020

C. Deep dive and forecast on miles driven – "new normal"


1,750

1994 2004 200820021996 2000 2006 2010 2012 2014 2016 2018 2020 2022 20241998

2,000

2,250

3,250

2,500

2,750

3,000

3,500

3,750

Original forecast

Profound recession

Delayed cure

+3%

Global pandemic


2000 dot-com bubble

Total miles driven will be reduced by up to 15% in 2020 –Cumulative annual impact through June expected to be 8.3%

Total miles driven in US [1994-2025, vehicle miles bn]

1) Forecast

Source: USDT, IHS, US Congressional Budget Office, MS2 – Traffic Dashboard; Roland Berger

2025

Mar

23%

84%100%

Jan

100%

16%

June1)Feb

40%

60%

Apr

77%

May

18%

82%Impact

Actual

Cumulative impact [% of annual miles]

0.0% 0.0% -1.4% -4.8%

Miles driven vs original forecast [2020 Jan-May, %]

-6.8% -8.3%

Additional decrease in miles driven in the Profound Recession is due to risk of second wave, which prolongs time spent with reduced consumer driving behavior


10%

Jan2020

60%

Jul2021

70%

Jul2020

Jan2021

Jan2022

80%

90%

0%

50%

100%

Jan2021

Jan2020

Jul2021

Jul2020

Jan2022

Both COVID scenarios were mapped week-by-week utilizing the median CDC and state ramp-up phases (timing will vary by state)

Week by week miles driven assumptions [100% as baseline mileage]

Delayed cure Second wave


Phase 1

Phase 2

New normal

Baseline

Phase 3

Phase 1

Phase 2

Baseline

Phase 1

Phase 2

Phase 3Phase 3

New normal

Shutdown Shutdown


Miles driven will be lower than pre-COVID due to shifts in behavior – not overcome by public transit and air substitution

Source: Desk research, Roland Berger

Driving behavior forecast for "new normal" in comparison to pre-COVID

Increase No change DecreaseImpact on new normal miles driven:1) Includes purchase of services such as haircuts, picking up/droppingoff someone else, or other family/personal errands and obligations

Total 94%100%

Rationale

Surveys indicate consumers are less likely to attend large events post-COVID

Social / Recreational

Less social activities/ public events (e.g., cinema, sports)

30%32%

New normal recoveryNew Normal

Other 6%6%

Mile split

Other Family / Personal Business1)

Limited virtual alternatives to errands (e.g. haircut) so miles driven likely to return to pre-COVID levels

Return to normal as people go back to their normal routines (e.g. haircut, personal errands)

13%13%

Shopping Shift in consumers shopping behavior to online and decrease in overall personal consumption expenditure forecast for 2021

Limiting unnecessary activities to continue social distancing and substitution of traditional retail with e-commerce

15%16%

School / Church Many public schools (K-12 and universities) have announced remote learning for the fall 2020 semester

Schools move to online learning platforms5%5%

Medical / Dental 50% surge in telemedicine visits in March 2020 due to COVID and overall increase in telemedicine trend within healthcare

Drop in number of people going in for physical doctor appointments

4%4%

To/From Work Increase in share of remote work with an estimated 48% of employees working remotely at least part of the time post-COVID

High unemployment and rise in employee's working from home

17%21%

Impact

Work-Related Business

Airline executive predicts travel industry will see permanent 5-10% decrease in business travel

Decrease in total business travel3%3%

Substitute Public Transit 0.02-0.03%0% Shift in consumer preference towards driving

Substitute Tourist Vehicle 0.3-0.6%0% Shift in consumer preference towards driving

Substitute Air Travel 0.95-1.9%0% Shift in consumer preference towards driving


We considered both driving behavior changes and potential substitution from other forms of transportation

Total US passenger miles [2018, bn miles]

Non-air large vehicle1)

394

AirLV Public transit2)

73035 305

Truck

23

Motorcycle Total passenger miles

4,849

6,336

1) Includes coach bus, sightseeing bus, trolley bus and inter-city rail; unlikely to switch to driving due to the cost difference 2) Includes light rail (e.g. streetcars), heavy rail (e.g. subways/elevated), commuter rail, commuter bus, taxis…

Source: USDT, Roland Berger

Decrease due to business consumer shift to driving (short flights) and some recreation travel shift to driving

No impact given lack of viable alternatives to truck travel

Increase due to substitution from other forms of transportation

Reduction in recreational travel in lieu of close to home driving destinations or staying at home

Overall, passenger miles will decrease due to reduction in consumer travel

Slight increaseIncrease No change DecreaseSlight decrease

Decrease due to reduction in consumer travel (e.g. WFH); partially offset by substitution from other forms of transportation

Share of total passenger miles

11.5% 4.8% 0.4%6.2% 100%76.5% 0.5%

Minor shift in towards driving when economically feasible

COVID impact on passenger miles


Substituting driving for air travel to will have lower than 1% impact on total miles driven

Air travel – Impact of substitution

Air travel

Personal travel

620 bn miles

Post covidpersonal air

travel

470 bn miles

-24%

<= 500 miles flights

> 500 miles flights

47bn miles

425 bn miles

% decrease

85%

15%Business

travel

110 bn miles

Post covidbusiness air

travel

100 bn miles

-10% <=300 miles flights

3 bn miles

3%

% decrease % addressable

Passenger miles

converted to driving

9-18 bn miles

Passenger miles


25-50 bn miles

20-40%

20-40% * 30%

Substitution rate

Substitution rate *

trip length reduction

20-40%

Passenger miles


0.6-1.2 bn miles

Substitution rate

Source: USDT, Bureau of Transportation Statistics, Longwood Int'l & Miles Partnership, Forbes, Roland Berger

Impact on total miles driven [%

change]

0.25-0.5%

0.02-0.03%

0.68-1.37%

0.95-1.9%Total


Substitution of public transit travel to driving is likely to havelower than 0.1% impact on total miles driven

Public transit travel – Impact of substitution

Impact of public transit conversion to driving on total miles driven

Source: US Department of Transportation (USDT), IBM, Roland Berger

Public transit overview

COVID-19 change in passenger miles [%]

-20%

-25%

-25%

-20%

Mode of transportation

Light rail

Heavy rail

Commuter rail

Demand response

COVID-19 passenger miles that

switch to LV (%)

0%

17%

20% - 50%2)

0%

Impact on LV passenger

miles

0%

0.01%

0.01% - 0.02%

0%

Pre-COVIDShare of

passenger miles [%]

0.0%

0.3%

0.2%

0.0%

Public transit miles includes all passenger miles traveled on:> Light rail (e.g. street cars), Heavy rail

(e.g. subways/elevated trains), Commuter rail, Demand response buses, commuter buses, and taxis

17% of people surveyed intend to use their personal vehicle more

IBM consumer study shows that 20% of respondents said they would no longer use public transit and another 28% said they would use public transit less often

Public transit miles account for ~0.7% of all passenger miles driven and ~0.5% of all passenger miles total

-20%Other1) 0% 0%0.0%

1) Includes bus rapid transit, commuter bus, taxis; 2) Influenced by work-from home and switch to driving for work commute


Substitution of tourist vehicle travel will increase the total miles driven by 0.3% - 0.6%

Tourist vehicle travel – Impact of substitution

Impact of tourist vehicle conversion to driving on total miles driven

Source: US Department of Transportation (USDT), IBM, Roland Berger

Tourist vehicle overview

Tourist vehicle travel miles includes all passenger miles traveled on:

> Coach buses, Intercity trains, Sightseeing buses, Trolley buses

Estimates range between 20% - 40% of these trips will be driven in personal vehicles to closer destinations – LV miles will increase by 0.3% - 0.6%

Using the same methodology as air travel, 24% of passenger miles will not be traveling on these modes of transportation

Tourist vehicle travel accounts for ~8% of all passenger miles driven and ~6% of all passenger miles

COVID-19 change in passenger miles [%]

-24%

-15%

-15%

-24%

Mode of transportation

Coach bus

Sightseeing bus

Trolley bus

Intercity rail

COVID-19 passenger miles that

switch to LV (%)

20% - 40%

0%

0%

20% - 40%

Impact on LV passenger

miles

0.3% - 0.6%

0%

0%

~0%

Pre-COVIDShare of

passenger miles [%]

5.8%

0.3%

0.0%

0.1%


Our automotive team are at your disposal for an exchange

BarryNeal

Detroit

[email protected]

Partner

NeuryFreitas

Chicago

[email protected]

Principal

Brandon Boyle

Detroit

[email protected]

Senior Partner

StephanKeese

Chicago

[email protected]

Senior Partner

Your contacts at Roland Berger


Documents

Automotive Aftermarket on the Other Side of...2020_June-16_Roland Berger_Automotive Aftermarket on the Other Side of COVID-19.pptx 4 Industry analysts continue to update their US auto