Stable, Slow DEARBORN, MI - Stable and reliable, yet slow. This is the cautious but optimistic view of the aftermarket from Wall Street. "It's still rough out there," warned Jonathan Steinmetz, lead auto analyst at Morgan Stanley, who once again shared a Wall Street perspective at this year's Global Automotive Aftermarket Symposium. OE woes will continue to affect the aftermarket, as units sold hover below projected trends. While the Big Three has encountered problems, the "J Three," or Honda, Nissan and Toyota, continue to gain market share, though the group only holds about 30 percent of the market, according to Steinmetz. "J Three share gains over the last five years matter and will matter for the aftermarket," he said. OE companies also are facing a cost disadvantage with warranties and health care. "It's critical to understand where [the OEs] are fighting their own battle," remarked Steinmetz. Despite concerns, Steinmetz told attendees that private investors are still looking to aftermarket suppliers as a stable investment source. For the aftermarket, SKUs and model counts will continue to rise, driving home the need for sophisticated inventory management, especially within smaller companies. Model proliferation is going to mean more parts, more inventory to manage and the need, more than ever, for robust inventory management systems, he said. SKU count can be as much as 400,000, depending on how you quantify it, a stat that weighs on distributors large and small, alluded Steinmetz. Vehicle complexity continues, and the more electronics involved in repairs is an occurrence that favors the do-it-for-me market over the do-it-yourself market, he said, adding that the retail side of the industry is in a better position than the supplier side. Trucks and SUVs will continue to represent a significant portion of the aftermarket, said Steinmetz. "All those SUVs and all those pickups that we sold in the industry between 1998 and 2004 are starting to roll into the aftermarket, and that's a good thing." However, rising fuel prices may affect the truck- and SUV-buying trends, as government data is skewed to reflect higher income consumers, shared Steinmetz. Government data show that the disposable income spent on gas is 3 or 4 percent. However, if you look at a two-vehicle family that makes about $40,000 a year and whose vehicles get about 20 miles per gallon and 13,000 miles per gallon a year respectively, the amount of disposable income spent on fuel then rises to about 8 percent and essentially amounts to a tax on lower income families. In line with fuel prices, the consumer who purchases a Detroit car is at the most distinct disadvantage, according to Steinmetz. The average annual income of a domestic car buyer is $64,000, while the average yearly income for a European car buyer is $128,000. The average income for the buyer of Asian makes is $73,000. Another wild card for the aftermarket is raw material prices. "This is a challenge that will affect aftermarket manufacturers [and] retailers. I'm betting the consumer will bear some of it and the manufacturer will bear some of it, but the retailer and wholesaler will bear somewhat less." Steinmetz also shared a labor index with attendees. Where Sweden ranks highest at 100, the United States is at 63, which means that paying an employee in the United States would cost 63 cents to the dollar when compared to Sweden. Mexico ranks at 10 and the Philippines' index is 5. Any company with a labor-intensive product cannot overlook the labor index numbers when thinking of outsourcing. "If you're not going to a low-cost country, somebody else will," said Steinmetz. "If you bury your head in the sand, it's probably not going to work out well."
Stable, Slow DEARBORN, MI - Stable and reliable, yet slow. This is the cautious but optimistic view of the aftermarket from Wall Street. "It's still rough out there," warned Jonathan Steinmetz, lead auto analyst at Morgan Stanley, who once again shared a Wall Street perspective at this year's Global Automotive Aftermarket Symposium. OE woes will continue to affect the aftermarket, as units sold hover below projected trends. While the Big Three has encountered problems, the "J Three," or Honda, Nissan and Toyota, continue to gain market share, though the group only holds about 30 percent of the market, according to Steinmetz. "J Three share gains over the last five years matter and will matter for the aftermarket," he said. OE companies also are facing a cost disadvantage with warranties and health care. "It's critical to understand where [the OEs] are fighting their own battle," remarked Steinmetz. Despite concerns, Steinmetz told attendees that private investors are still looking to aftermarket suppliers as a stable investment source. For the aftermarket, SKUs and model counts will continue to rise, driving home the need for sophisticated inventory management, especially within smaller companies. Model proliferation is going to mean more parts, more inventory to manage and the need, more than ever, for robust inventory management systems, he said. SKU count can be as much as 400,000, depending on how you quantify it, a stat that weighs on distributors large and small, alluded Steinmetz. Vehicle complexity continues, and the more electronics involved in repairs is an occurrence that favors the do-it-for-me market over the do-it-yourself market, he said, adding that the retail side of the industry is in a better position than the supplier side. Trucks and SUVs will continue to represent a significant portion of the aftermarket, said Steinmetz. "All those SUVs and all those pickups that we sold in the industry between 1998 and 2004 are starting to roll into the aftermarket, and that's a good thing." However, rising fuel prices may affect the truck- and SUV-buying trends, as government data is skewed to reflect higher income consumers, shared Steinmetz. Government data show that the disposable income spent on gas is 3 or 4 percent. However, if you look at a two-vehicle family that makes about $40,000 a year and whose vehicles get about 20 miles per gallon and 13,000 miles per gallon a year respectively, the amount of disposable income spent on fuel then rises to about 8 percent and essentially amounts to a tax on lower income families. In line with fuel prices, the consumer who purchases a Detroit car is at the most distinct disadvantage, according to Steinmetz. The average annual income of a domestic car buyer is $64,000, while the average yearly income for a European car buyer is $128,000. The average income for the buyer of Asian makes is $73,000. Another wild card for the aftermarket is raw material prices. "This is a challenge that will affect aftermarket manufacturers [and] retailers. I'm betting the consumer will bear some of it and the manufacturer will bear some of it, but the retailer and wholesaler will bear somewhat less." Steinmetz also shared a labor index with attendees. Where Sweden ranks highest at 100, the United States is at 63, which means that paying an employee in the United States would cost 63 cents to the dollar when compared to Sweden. Mexico ranks at 10 and the Philippines' index is 5. Any company with a labor-intensive product cannot overlook the labor index numbers when thinking of outsourcing. "If you're not going to a low-cost country, somebody else will," said Steinmetz. "If you bury your head in the sand, it's probably not going to work out well."
