The Future of Automotive Parts Retailingin North America

Are You Prepared for Digitalization?

Kumar Saha, Senior Industry AnalystAutomotive & Transportation

September 19, 2013

© 2012 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproduced without the written approval of Frost & Sullivan.

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Today’s Presenter

• Automotive analyst with key focus on both passenger and commercial vehicle aftermarket, emerging digital and channel strategies in the automotive industry

• Strong experience working closely with OEMs, Tier-1 suppliers and aftermarket distributors on strategic consulting projects

• Often cited by and published in key trade journals and mainstream media, such as Toronto Star, Aftermarket Business World, and Truck Parts Service

Kumar Saha, Senior Industry AnalystAutomotive & Transportation, Frost & Sullivan

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Focus Points

Key Trends in eRetailing for Automotive Parts Overview of the Automotive Digital Ecosystem Market Size and Key Category Analysis for Online Parts Sales Competitive Analysis Business Model Analysis Future of Digitalization in Automotive Aftermarket and Overall

Impact on Parts eRetailing

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Five Key Trends in Automotive Parts eRetailing

Online parts sales represent 9-10%

of total DIY parts revenue,

compared to just 4% for total aftermarket

revenue

Amazon, eBay drive nearly 80 percent of total automotive parts and accessories

merchandize value

Traditional parts retailers creating

aggressive strategies, acquiring

eRetailers to increase share

Online parts pricing (20%-40%

cheaper) key success driver;

shipping times, cost will

determine next wave of

competition

What does this mean for industry participants?

Diversification of digital channels (apps,

dedicated portals, product videos) for DIY customers

Partnerships with current aggregators / eRetailers and

emerging ones such as Google, Wal-Mart

‘Bricks and clicks’ strategy with emphasis on fulfilment (delivery times, options)

Increasing focus on selling to

smaller, regional installers through online channels

The DIY Choice

MarketplaceWinning

Parts RetailersRamping Up B2C to B2B All About

Pricing1 2 3 4 5

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Digitization Expansion in Auto Parts and ServiceGrowth in personal, in-vehicle and service shop connectivity is creating new customer touch points

Automotive Parts e-Retailing Market: Digitization Opportunities in Automotive Aftermarket, North America, 2012-2020

Pre-2009

2009-2012

2013-2016

2016-2020

• Virtual service monitoring (e.g. AudiCam)

• Mobile parts shopping

• Online service pre-sale with parts purchase• Rich media service advice and tutorials • Service and maintenance apps• Web and app-enabled service scheduling• Electronic parts and service promotions

• Web-based parts and accessories sales• Online dealer and service shop locator• Online parts catalogs; comparison tools

• Remote repair, assisted repair

• Remote diagnostics, predictive analytics

• In-vehicle parts purchases • Location-based parts and

service purchase

Source: Frost & Sullivan analysis.

Full digital integration of the automotive service and parts

value chain maximizes revenue generation

opportunities by increasing touch points for

parts e-sales as well as other related products

Indicates direct revenue generation opportunities

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The Parts eRetailing Strategic EcosystemCustomized fulfillment, big data gaining importance for success in eRetailing

Parts eRetailing Strategic

Ecosystem

Platforms Channels

Customer Competitive

Current• Websites• Apps• Mobile• Social

Media

Current • Customized fulfillment• Multimedia DIY content

Future• In-vehicle• Pop-up

stores• Express

stores

Future• Location-based services• Augmented Reality• Remote services

Current• Marketplace

(Amazon, eBay)

• Direct

Future• Service

aggregators (AutoMD)

Current• SEO• Web

Analytics• Big data

Future• Telematics

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Automotive E-Retailing Value ChainThe automotive e-retailing value chain is rapidly expanding, providing emerging opportunities for auxillary participants such logistics providers, service aggregators and IT solution providers

Source: Frost & Sullivan analysis.

Automotive Parts e-Retailing Market: Automotive E-Retailing Value Chain, North America, 2012

Auto Parts Suppliers

Delphi, Federal Mogul, Affinia,

TRW

Traditional Retailers/

DistributorsNAPA,

AutoZone

Mass MerchantWal-Mart,

Sears, Costco

Internet Mass Merchant/

AggregatorAmazon, eBay,

Ahwooga

OESFord, GM,

Honda, Nissan, other OEMs

DealersAutoNation,

Penske

Automotive E-tailer

US Auto Parts Network,

Summit Racing

Diagnostic Data

ProvidersAllData,

Mitchell1, MotoLogic

Logistics Providers

FedEx, UPS, Bufferbox,

Amazon Locker

PaymentProviders

PayPal, Credit Cards, Bill Me Later, Google

Checkout

IT Solution ProvidersSAP, IBM, Channel

Advisor, WHI

Service Aggregators

AutoMD, RepairPal

App Developers

Frooition, Tweddle Group

Telematics Providers

OEMs, Delphi, Verizon

CORE PARTICIPANTS AUXILLARY PARTICIPANTS

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Online Parts vs. Total Aftermarket Parts Revenue – North AmericaOnline parts sales is estimated tol account for about 10% of aftermarket revenue by 2020

$131.5 B

$4.6 B

$167.3 B

$16.6 B

Automotive Parts and Service eRetailing Market: Online Parts vs. Total Aftermarket, North America, 2012, 2016 and 2020

2012 2020

Note: All figures are rounded. The base year is 2012. Source: Frost & Sullivan

Note: Total aftermarket sales figures are measured at retail level and does not include revenue generated from service labour. Only retail revenue measured to avoid double counting revenue for auctions and B2B

2016

$8.2 B

$149.6 B

~4 % of total aftermarket

~6 % of total aftermarket

~10 % of total

aftermarket

2X

4X

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Percent Revenue Forecast by Competitor TypeIndependent automotive eRetailers likely to lose market share as other participants ramp up their eRetailing efforts

Automotive Parts and Service eRetailing Market: Revenue Forecast by Business Type, North America, 2009–2020

Note: All figures are rounded. The base year is 2012. Source: Frost & Sullivan

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Automotive E-Retailing by Product Category

Source: Frost & Sullivan analysis.

Automotive Parts e-Retailing Market: Product Category Revenue Analysis, North America, 2012 and 2020

Categories

Revenue (2012; Approx; Billions)

Revenue (2020;

Approx; Billions)

% Share (2012)

% Share (2020)

CAGROnline

Value Position

Exterior $0.8 $3.1 17% 19% 19.0%Prices lower by 25-30%; appeals to DIY segment,

small installers; body parts, lighting key parts

Brakes $0.6 $2.2 13% 13% 17.4%Prices lower by 10-20%; appeals to DIY segment,

small installers; friction materials key parts

Performance $0.5 $2.2 11% 13% 19.8% Primary appeal to enthusiasts on eBay

Powertrain $0.4 $1.3 10% 8% 14.1% Low volume; higher cost drives revenue

Filtration $0.4 $1.2 9% 7% 13.7%High volume; lower average price drives down

revenue

Interior $0.4 $1.5 8% 9% 19.1%Strong growth segment as lower cost and ease of

installation will appeal to both DIYand DIFM customers

Electrical $0.3 $0.7 6% 4% 11.6% DIFM product will see limited growth

Tires $0.2 $1.5 4% 9% 29.9% Strongest growth expected

Others $1.0 $3.0 22% 18% 14.5% Tools, wipers will drive growth

NOTE: Exterior parts include lights, fenders, bumpers, grilles, side mirrors, hoods, door handles and other accessoriesPowertrain parts include engines, transmissions and other related partsFiltration includes oil, air, fuel and cabin air filtersInterior parts include mirrors, floor mats, seat covers, interior door handles and other accessoriesElectricals include starters, alternators, spark plugs and wire setsOthers include chassis parts, exhaust, HVAC, infotainment, tools and wipers

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Automotive Parts GMV by Business Model TypeParticipants with high brand equity (AutoZone, automakers, Wal-Mart) will drive higher growth for the direct channel, while smaller automotive eTailers will increasingly favor the marketplace model

Automotive Parts and Service eRetailing Market: Automotive GMV by Business Model Type, North America, 2012 and 2020

Direct

Marketplace

Direct

Marketplace

Marketplace Direct

2012 2020

$4.6 B

$16.7 B

Source: Annual reports; Frost & Sullivan NOTE: GMV figures for eBay and Amazon are estimates only.

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Business Model Analysis by Participant TypeM

ark

etp

lac

e

Direct0%

100%

100%

2012: Participants with low brand equity prefer marketplace

2020: Auto eRetailers and parts suppliers will move towards more direct, dealers will expand marketplace presence

2012: Established participants predominantly sell directly

2020: OEMs will have increased preference for marketplace; other traditional “bricks” competitors will likely become 100% direct

Indicates future business model preferenceNOTE: Bubble size represents 2012 estimated revenue share

Highly polarized market in business model

preference

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Why the Marketplace Model Dominates Parts eRetailing

Sells automotive parts and accessoriesMarketplace does not sell automotive

parts and accessories currently; likely to extend into category in the near term

Benefits to Aggregator

Benefits to Seller

Benefits to Buyer

• Greater selection increases Web traffic

• Revenue through partners with core expertise in categories

• Drop-shipping options put less pressure on warehouses

• Scalability allows provider to add more services and create new revenue streams

• Exposure to wider customer base

• Increase brand equity through association with established aggregator

• Access marketplace aggregators’ advanced digital platforms and fulfillment options

• One-stop shopping for a variety of products

• Access to different sellers, wider selection and pricing

• Greater trust in unknown vendors because of continuous peer –driven vetting of products and services

Key Marketplace Aggregators

Logos for representation only. Source: Frost & Sullivan

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eBay More Attractive than Amazon for Third-Party Sellers (OEMs, Suppliers)

Automotive % of Total GMV 1-2% approx 8% approx. (includes vehicle and parts sales)

Shipping/Fulfillment

• Sellers primarily use Amazon fulfillment options

• Free shipping available• Piloting same-day delivery, locker boxes

•Sellers primarily do their own fulfillment•Currently, piloting same-day delivery for sellers

Social Media Integration

• Close integration with Facebook, Twitter • Exploring own social media channel

• Integration with Facebook, Twitter • Introduced own social media concepts, such as

Group Gifts and eBay Go Together

Mobile Integration • Limited for automotive parts• Leader in mobile commerce• eBay Motors app has integrated advanced features,

such as augmented reality, ability to shop for parts

DIY Support • No video tutorials for DIY repair • Video-sharing driven by users

Enthusiast Appeal• No dedicated community, blogs or social

media avenue for automotive enthusiasts

• eBay Garage features more than 100,000 automotive enthusiast profiles

• Allows image sharing, profile following

Seller Perception• Fee structure considered prohibitive• Competes with own sellers

• Fee structure perceived as prohibitive • Regarded as collaborative as eBay does not sell own

products

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Customized Fulfillment Will Emerge as Key DifferentiatorMarketplace providers will dominate in delivery times and cost; traditional participants must develop capabilities to compete

Sh

ipp

ing

Str

ateg

ies

Same-Day Delivery

Source: Frost & Sullivan analysis.

LockerBoxes

FreeShipping

CrowdsourcedDelivery

Cu

sto

mer

Op

tio

ns

Click ‘n’ Post Click ‘n’ Collect Click ‘n’ Fit

Str

ateg

ic

Val

ue

Opportunity to reach global customers and out-of-reach installers without

expanding physical presence

Convenience value for DIY customers,

local installers; opportunity to draw

customer into service shop and store

Convenience value for DIFM customers, opportunity to draw

customer into service shop and store

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Current Value Proposition

• Navigation (directions, POI, traffic alerts)• Safety and security• Roadside assistance• Vehicle diagnostics

Current Value Chain

• Telematics providers• OEMs• Insurance providers• Roadside assistance providers

Telematics: Future Wave of Repair DigitizationTelematics and accompanying HMI could potentially transform the vehicle into a dynamic mobile store and a platform for advanced customer management

Expansion in value proposition to include new features• Vehicle prognostics, remote repair• Location-based parts shopping, promotions• In-vehicle maintenance package and parts

purchases

Future Value Chain

Expansion in value chain to include new participants• Parts suppliers• Independent service shops • Parts distributors and retailers

Future Value Proposition

Current Revenue Models

• Consumers—Subscription fees• Business—Usage fees

Future Revenue Models

• Consumers—Subscription fees, parts and service revenue, remote repair revenue

• Business—Usage fees, revenue sharing, advertising revenue

Preventive maintenance through diagnostics reports value proposition for aftermarket

Vehicle HMI becomes a new touch point for parts and service sales

Source: Frost & Sullivan

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Aftermarket DIY Telematics SolutionsAftermarket vendors are responding with expensive DIY options to combat threat from OEMs; possible deployment in partnership with parts distributors, retailers and service shops

Delphi OBDII Audivox Car Connection Automatic Link

Device Cost $250 $170 $70 (not yet in the market)

Installation Fee

$35 $19.95 None

Free Trial 2 Years None None

Connectivity Embedded- Verizon Tethered- User Data Plan Tethered- User Data Plan

Subscription $5/Month $9.99/Month or $89.95/Year No Subscription Fee

Apps Android/Apple App Apple/Android App Apple Only

Driving Behavior Analysis

Eco-driving Scores

Automatic Crash Assistance

Remote Vehicle Access, e.g. Lock/

Unlock

Teen Tracking Features, e.g. Geo-fencing

Vehicle Health Reports,

periodically

Auto Diagnostics Fault Detection

and Actions

Distracted Driving Minimization

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Five Big Predictions for Automotive Parts eRetailing

2Direct eRetailing (sales through own Website) will grow from the current 20% to 25% of all automotive eSales by 2020. Marketplace merchandise volume (sales through aggregator websites such as Amazon and eBay) will drop from 75% in 2012 to about 70% in 2020.

3 Independent automotive eRetailers will lose their dominance because of weak brand equity. Biggest gainers will be traditional automotive parts retailers and OES participants.

1 Automotive parts eRetailing will cross the $16 billion mark by 2018 and will account for nearly 10% of total aftermarket sales by 2020.

Source: Frost & Sullivan

4 The largely untapped DIFM segment will be targeted through digital sales of minor maintenance packages in the medium and long terms.

5Growing penetration of connectivity and telematics in vehicles will necessitate multi-channel digital strategies and will facilitate the emergence of new revenue streams such as location-based parts sales and remote repair, which will ultimately boost parts eRetailing.

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For Additional Information

Jeannette GarciaCorporate CommunicationsAutomotive & Transportation(210) 477-8427jeannette.garcia@frost.com

Kumar SahaSenior Industry AnalystAutomotive & Transportation(416) 495-2688kumar.saha@frost.com

Stephen SpiveyProgram LeaderAutomotive & Transportation(210) 247-3845stephen.spivey@frost.com

Brian DrakeVice President, SalesAutomotive & Transportation(248) 836-8260brian.drake@frost.com