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Tuesday, January 30, 2007

Top Ten Industry Trends for 2007


Top Ten Industry Trends for 2007

- by Mario Recchia

We have compiled what we think are the top ten trends for 2007, which in our opinion will have an impact on our industry over the next year and beyond.

Trend # 1 – China & India
China and India continue to grow at record pace in their own countries but clearly have set their sites on the U.S. market, as evidenced by the shear numbers of manufacturers that were exhibiting at the 2006 AAPEX/SEMA show. Years ago, GM was one of the first companies to begin sourcing and setting up manufacturing operations in these countries, which should help them in being more competitive as they try to maintain their #1 position. Recently, Chrysler announced that it would import a compact car from China (Chery) in 2008. Changfeng Motor, Chamco Auto and Geely are other companies that have exhibited at the Detroit Motor Show. Chery is a leading car manufacturer in China and already exports to countries in Asia, Middle East and Africa. It should be noted that most of China’s cars are a result of JV (joint ventures) with other non-Chinese companies. The automotive association, MEMA (Motor and Equipment Manufacturers Association) has forecasted that China’s aftermarket will triple by 2015.


India is not too far behind China and the government is supporting a long term plan to substantially grow its automotive industry over the next decade. The combination of intellectual resources and low cost manufacturing will make India a formidable competitor in the world market.

WORLDPAC VIEW: Two years ago, we recognized that the automotive vendor community was making some strategic shifts to other parts of the world. Subsequently, we created a Global Sourcing Team (GST) in order to set up stringent processes in supplier approval, quality assurance testing and final product selection. This process will continue in the coming year, so that we can have the very best products at the right time in this changing world economy. First and foremost, we will always look for the highest quality suppliers that have OE or OEM affiliations; so that we are assured the products are superior in fit and function.

Trend # 2 - Domestic 3 (D3)
The declining market share by the D3 is widely publicized and now only hold 55% of the vehicle market (Import market share increased 2% to 45% in 2006). Recent statistics show GM down almost -9%, Ford -8% and Chrysler -7% from the prior year. Conversely, Toyota is up almost +13% in the same time period and passed Ford as #2 in December, 2006. New vehicle sales were slowed by increased fuel prices but still ranked amongst the top ten in sales during 2006. Sales market share totals were as follows: GM- 24.6%, Ford- 17.5%, Toyota- 15.4% and Daimler/Chrysler- 14.4%. Toyota will unseat Ford as the #2 automaker sometime this year.

A J.D. Power survey listed reliability as a top reason for consumers moving away from domestic vehicles followed by higher resale value and fuel economy (no surprise to see the declining sales in Ford F-series and Explorer SUV’s). Ford is also considering divesting themselves from Jaguar in order to be more competitive with their long standing Ford brand.

The downsizing of the D3 will continue but in the end it will be their vehicle designs which will help them win back consumers. Don’t rule the domestics out as it is clear that the playing field has shifted and the current state of the D3 will continue to change in years to come. Hopefully, for the better….

WORLDPAC VIEW: The D3 will rebound after 2007 and will begin to change their image by making vehicles that finally meet customer’s expectations. Our domestic offering will continue to grow as we add new product categories supplied by the vendors that customers know and trust.

Trend # 3- Fuel
The global fuel and oil market played a major role in the automotive industry for most of 2006 with its historic high prices (high mark was over $3.00 in July and an average of $2.61 for the year). Here are some facts that are affecting fuel prices globally:

Gasoline demand is rising drastically in China, India and Brazil
Gasoline prices have risen in the U.S. for $1.59 in 2003 to an average of $2.61 in 2006

Demographics continue to change and licensed drivers total almost 90% of the U.S. driving age population. The average age is about 40 years old and a growing number of licensed drivers are now over 65 (almost double the level from 25 years ago). This will result in fewer miles driven as the population ages.

In 1975 (year of corporate fuel efficiency standards were initiated), just 16% of vehicles were SUV’s (includes minivans/light trucks). Today, that share is over 40% with a high mark of 56% in 2004. In 2006, that number has slipped to 53%.

Fuel is made in refineries and there have been no new refineries built in the U.S. since the 1970’s even though we have increased the production in the last years by over 2 million barrels per day (growth was due to adding capacity and modernization of existing facilities).
Ethanol now accounts for 4% of total gas consumption and could grow to 10% (this is suggested as a maximum level because of the food/fuel tradeoffs and ethanol’s logistical challenges.

There will be a state of flux as the American public decides what they want to drive and the fuel that will be used in vehicles. Forces such as global oil markets, unrest in the Mid East and Africa, interest in fuel efficiency, changing demographics and the growing demands of emerging global countries will most likely result in some fuel increases by Spring, 2007.

WORLDPAC VIEW: Fuel prices will increase sometime in the Spring and may stabilize depending upon world conditions. Alternative fuels will be tested and introduced on a small scale and only gain acceptance if gas remains at the high levels. This year, using our local delivery vehicles, we will enable our Digital Driver delivery devices with GPS, which maps turn by turn directions that will save fuel and speed up local deliveries.

Trend # 4- New technologies
America’s never ending interest in new vehicle technology will continue this year. We not only want our vehicles to be faster, safer and economical, we also want all the ‘cool’ things that go along with driving. New technologies include such improvements as adaptive headlights, remote starters, VSC- Vehicle Stability Control, Level heating, Heads-up Display, Traction Systems, Voice Recognition, Active Cruise Control, Smart Navigation Systems and Displacement on Demand. Analysts predict that electronic components of vehicles could account for 35 percent of the cost of making a car by 2010, up from 22 percent in 2005, and that the amount of software in cars would double every three years. But these electronics add to the vehicles’ complexities and accounted for about 70 percent of breakdowns in 2005.
Telematics, communication, navigation, and entertainment systems in vehicles are complex computerized electronic equipment that is becoming more prevalent. Analysts predict that telematics will be a $6 billion a year industry by 2010.

As technologies increase, the need to be able to repair them will become increasingly more critical for the aftermarket. The new Congress will again have an opportunity to address the Right to Repair (R2R) which could have a profound affect on who and how we repair the ‘new’ vehicles of the future.

WORLDPAC VIEW: Who would ever think that a simple ‘cup holder’ would influence the consumers so dramatically in their decision process during the 1990’s? New technologies will continue to be widely accepted by consumers and will differentiate the true innovators from all the rest. The NextGener’s are so much more technology advanced and can influence the decision makers when purchasing a new vehicle. In 2007, we will introduce some new exciting enhancements within speedDIAL that will make the end user more productive by saving precious time and increasing car counts.

Trend # 5- CRM & Customer Segmentation
Customer Relationship Management (CRM) and Customer Segmentation (who we service) will become more and more important in 2007. The shifting demographics along with the emerging NextGen population and the increasing influences of woman will make it essential that we become familiar and more involved with our customers. Personal attention and awareness of any customer shifts will need to be managed on a timely basis in order to retain customers (example: 18% of our population is Hispanic, which is an opportunity). The vehicle manufacturers have done a masterful job in providing these types of tools to enhance the customer relationship starting with the purchase through the servicing of that vehicle. Programs are needed to manage the entire customer relationship throughout the life cycle of a vehicle for new and existing customers. Businesses that embrace this will ensure their future for years to come.

WORLDPAC VIEW: Dealers will use CRM to keep customers in their product cycle. We will continue to develop new Customer Marketing Services that will challenge the independent professional to keep pace with their competition. Customer retention, loyalty and new customers will be extremely important in running a successful business during 2007.

Trend # 6- Hybrids/Diesels
Hybrids and AFV’s (alternative fuel vehicles) will continue to grow in 2007 even though they currently represent only over 1.5% of the market. The new models such as Nissan Altima, GMC Yukon, Chevy Tahoe and Saturn Aura will keep consumers interested in hybrids. As more models become available, sticker prices should be coming down making them more affordable and comparable to gas vehicles. The U.S. acceptance of diesels will also get resurgence as evidenced with the new Mercedes E320 CDI. The new Blutec power train meets tougher standards for diesel emission without sacrificing performance and mileage. This will be the beginning of more diesels transplants (Jeep Grand Cherokee, etc.) and force consumers to really evaluate the actual benefits/savings between diesels and hybrids. The decision is overwhelmingly in favor of diesel in Europe and throughout much of the world. Time will be the judge here and we will see if history repeats itself as in the 1980’s, when more than 50% of Mercedes Benz sales were diesels in the U.S.

WORLDPAC VIEW: These new generation diesels will be introduced and begin to gain acceptance in 2007. The hybrids will continue to increase in sales as prices begin to stabilize. We will source the latest products for these new vehicles, while offering up to date technical training for repairing these vehicles.

Trend # 7- Information/education/training
Information will continue to be one of the most important issues again in 2007. The Right to Repair (R2R), which was again held up in ‘governmental limbo’ was however passed on a state level in New Jersey by the Consumers Affair Committee under the Motor Vehicle Owners – Right to Repair Act (first step before going to the State Assembly). The National Automotive Service Task Force- NASTF is now managed by ASE and is being run as a non-profit organization. They will continue to work with the OE car manufacturers in providing auto service information in 2007. Today, training on all levels is much more widely available and will be essential in 2007 in order to keep up with the latest technology, as well as business/marketing trends. Those who keep pace will continue to service their customers to the highest of standards and will benefit in years to come.

WORLDPAC VIEW: This year will be a pivotal year in education and training. The newer vehicles are now out of warranty and need to be repaired. We will offer updated training in WTI (WORLDPAC Training Institute) in both technical and business management to meet market and customer needs. The R2R will gain some more support but will not pass the legislation this year. A proposal could be introduced to get the NASTF to work with the R2R supporters, led by the OE’s.

Trend # 8- Brand selection
Brands will be even more important in 2007 than ever before. The OE dealers are aggressively seeking new service business and use the OE brand as a marketing ‘statement’ to capture more business. This, along with the OE marquee name, inventory breadth and same day service has created a real opportunity for dealers. Brands promoted by manufacturers and distributors will have to reinforce that their OEM brands are in many cases the same, except for the graphics on the box. The perception in many cases is not reality as consumers who are lured into the dealership that often have ‘castle’ like structures, posh waiting areas and may offer extended or free service agreements.
In some cases, the OEM design may be an improvement over the original OE, especially if the design has been in the market place for some time. In the end, promoting a brand that you know and trust can often be transcended to the consumer, if communicated properly.

WORLDPAC VIEW: We will offer the brands that are familiar with customers.
New brands will be introduced as the Global Sourcing Team (GST) finds top notch suppliers throughout the world, such as WORLD SOURCE ONE, FEQ, NPN, etc. Car manufacturers will continue to move manufacturing to more efficient, low cost, countries and we will strive to always buy from the actual source.

Trend # 9- Vehicle population - used vehicles
The vehicle population will decline in 2007 under the 15.9 million in 2006. The slower growing economy, historically high fuel prices along with the troubled D3 will slow the demand and inventory for new vehicles. Industry experts expect sales to be flat or a decline of over 1% in 2007. Used vehicle sales will continue to be a strong area in 2007 with fierce competition amongst the independent dealers, private franchise groups, super stores and company owned mega-dealer groups. Historically, when new vehicle sales decline, used car sales increase along with the service business. This year is lining up to be a very strong year for the used car segment (over 240 million light vehicles in circulation within the U.S).

WORLDPAC VIEW: More and more used vehicles will create a boon for the repair business in 2007. We will offer more new products to meet the demands of the used car market and keep our speedDIAL catalog updated, so that products can be viewed and ultimately available for purchase.

Trend # 10- Automotive Technicians
The ongoing need for qualified technicians will continue to be challenging in 2007. The shortage of technicians is reported to be approximately 60,000 and will most likely increase through technician attrition and as the youth of today opt for other careers. Some of the trends that support the need for new technicians are: average age of vehicles is rising to 9.5 years, more miles driven, consumer negative image of the repair industry, more technological skills are needed today to repair vehicles and older technicians (the first baby boomers turn 61 this year) are beginning to retire. The lack of vocational schools and our social pressure for everyone to go to college has also contributed to the current shortages. Business owners will have to work closely with their local communities for potential recruitment, seek out ex-military personnel, work with training schools like Universal Technical Institute (UTI) which has locations around the country and contact organizations like the National Automotive Technicians Educational Foundation (NATEF) who certify training programs for technicians. Like any other business, planning for the future begins with hiring the right people, offering fair wages and benefits. Other areas to look at include finding ways to keep older employee’s who if they leave will take their experience and knowledge with them, continuing career improvement through education and showing potential employee’s that they have a lucrative future in our industry.

WORLDPAC VIEW: The technician ‘crisis’ will continue in 2007 and it will be the responsibility of each shop owner to keep on top of this potential troubling trend. We will offer the very best training available through WTI, but it will be the shop owners who will have to get their technicians properly trained to service today’s vehicles. Our new FOCUSED business development program will introduce new and innovative practical business solutions on sales, marketing, hiring procedures, profitability and much more.