Today in our AMN Executive Interview series, we feature a discussion with Bill Long, president and COO of the Automotive Aftermarket Suppliers Association (AASA). In the interview, Long shares with AMN readers his thoughts on the globalization of the supplier industry, the evolution of AASA and where both the association and the industry as a whole are headed.
Many of our readers are active members of AASA or are familiar with the association. However, the story of the evolution of the association is an interesting one. Give us a brief history of AASA, how it has transformed over the years and what you see to be as the association’s primary areas of focus for the future.
AASA, The Automotive Aftermarket Suppliers Association, is the light vehicle aftermarket division of the Motor & Equipment Manufacturers Association (MEMA), which is celebrating its 110th anniversary this year as the voice of the automotive supplier community.
The Automotive Aftermarket Suppliers Association (AASA) was founded in
2002 to provide focus in serving the specific and changing needs of light vehicle aftermarket suppliers. Since its inception, AASA’s mission has been to advance the unique business interests of our members and to promote a cooperative industry environment for growth. We are now firmly established as a recognized industry change agent, creating platforms for industry dialogue, thought leadership and legislative advocacy relevant to the automotive aftermarket.
AASA and the other MEMA divisions represent more than 1,000 companies that manufacture components and systems for use in motor vehicles and equipment in the light vehicle and heavy-duty, on- and off-highway commercial vehicle markets for the original equipment and aftermarket industries. As with AASA, MEMA’s three other divisions – Heavy Duty Manufacturers Association (HDMA), Motor & Equipment Remanufacturers Association (MERA) and Original Equipment Suppliers Association (OESA) – each focused on meeting the unique business needs of suppliers serving these market segments. It’s interesting to note that MEMA and its divisions represent the nation’s largest manufacturing sector with a total employment impact of 3.62 million employees – and for every direct job in the motor vehicle supplier industry, another five jobs are created.
What are some of the top challenges and opportunities you see and hear about from members in today’s marketplace, and what is AASA doing to help members address these shifts?
Suppliers and the aftermarket are facing a time of change driven in part by a number of strategic shifts in our industry. Emerging and disruptive technologies, shifts in an aging motoring public and consumer behaviors, evolving business models, and a truly global market place pose significant opportunities and challenges to the aftermarket.
In response to these and other market dynamics, AASA is assisting members in several forms, including the creation of landmark research that offers insights and thought-leadership on the impact of these shifts and actions to capitalize on change. Specifically, AASA is nearing completion of an analysis of how the generational shift is changing motorist driving habits.
Baby Boomers, a key automotive customer group, are aging, retiring and beginning to drive less. The Millennials, impacted by high unemployment and heavy student debt, are not as “car-centric” as Boomers and may not adopt the older generation’s driving habits.
Transformative, or disruptive, technology has the potential to change the face of the automotive aftermarket. Complex technology and telematics may shift maintenance and repairs to dealerships. New players from the technology field are entering the automotive sector as consumers expect the same connectivity from their personal vehicles as from their mobile devices. In response, AASA has formed an active telematics working group consisting of diagnostic test equipment and technology-related suppliers to understand and address the range of possibilities and actions that will allow and promote industry growth. Similarly, AASA and MEMA, in conjunction with the Auto Care Association and other stakeholders have formed the Automotive Aftermarket Telematics Task Force, working together with a common voice.
As noted in AASA’s landmark study in 2012 conducted by KPMG, the terms of doing business in the aftermarket are unusual. The practice of extended terms brings cost and risk to the entire industry. This is an area of increasing risk for our industry that cannot be overstated. We, along with KPMG, will release an updated study this fall reflecting the escalating risk to suppliers and channel partners of this industry unique practice.
Meeting these challenges will require new thinking and innovation in areas such as business models, services, technology, products and new ways of serving customers and global markets. Suppliers and their valued channel partners must find creative ways to innovate, in all areas, to win in today’s aftermarket.
With that said, 2014 is shaping up to be a good year for the automotive aftermarket. AASA’s Q2 2014 Barometer shows a strong second quarter and a strong first half of 2014 for aftermarket suppliers – both sales and supplier optimism were up year-over-year.
You mentioned extended terms. AASA first identified the risks to the industry regarding the practice of extended terms in 2012. What is the status of extended terms now and are the risks the same?
It may not be common knowledge, but the terms of doing business in the aftermarket are unusual. In fact, our landmark report released in 2012, published in conjunction with KPMG, noted that no other industry uses extended terms as the aftermarket does.
The conventional wisdom in our industry that extended terms are ‘win-win-win’ ignores substantive costs and potential future risks. These risks threaten the entire aftermarket value chain and include:
· Potential of increased interest rates
· Exposure to the credit cycle
· Constraints to suppliers and distributors on strategic options
· Rising level of inventory in the system
· Potential SEC reclassification of payables on buyers’ balances
AASA is partnering again with KPMG to determine the current use of extended terms and take a new look at the risks. At first blush, the risks have increased.
AASA has launched an initiative to address preventable warranty returns to increase profits throughout the supply chain. How is that initiative progressing and what are the latest actions?
AASA’s efforts to address preventable warranty returns in the aftermarket began at the AASA Supplier Summit in August 2013. We released key results of our Pulse report showing that warranty rates for suppliers industry-wide equated to $3.5 billion at retail. The AASA Pulse further showed that 97.5 percent of the product returns were in fact not related to a manufacturing defect or due to product quality, creating opportunity for suppliers to take the lead in driving solutions and channel-partner collaboration.
At AAPEX 2013, we opened a dialogue on warranty in our Learning Forum session featuring representatives from across the aftermarket channel. These panelists spoke candidly about alleged warranty returns and acknowledged that they are a “pain point,” especially for “hard-part” aftermarket suppliers, channel partners and service providers alike.
At our Vision Conference on March 26, AASA released the results of its joint survey with the Automotive Service Association (ASA) on parts warranty and labor claims, which reveals the needs and preferences of repair shops in terms of parts warranty and labor claims. Some of the “AASA/ASA Parts Warranty and Labor Claims” report’s key findings include:
· Technicians and manufacturers share common ground on needs and concerns regarding returns and labor claims.
· For aftermarket service technicians, parts returns and labor claims are a source of dissatisfaction, robbing time and profit, creating opportunity for technicians, distributors and suppliers to work together.
· Labor claims are a hot button for service technicians, with the overwhelming majority of service technicians viewing the present labor claim process as defective.
· In their individual comments, service technicians indicated that the perceived quality of parts plays a large role in their likelihood of being returned. As one said, “Quality companies building quality parts are less likely to have problems with fit, premature failure due to material defects etc.”
The AASA Warranty Prevention Task Force met on Wednesday, July 30, in conjunction with NACE/CARS in Detroit, Mich. Task force members planned to meet with service professionals to identify actionable steps and processes to reduce warranty. Participating supplier companies representing suppliers on the warranty task force include CARDONE Industries, Gates, Federal-Mogul, BBB, Continental, MAT Holdings and Motorcar Parts of America.
Globalization also is changing the face of the automotive industry, with an estimated 1.5 billion motor vehicles worldwide by 2020. How will this impact the aftermarket and the supplier community, and how can a supplier differentiate itself and its brands?
We are in the midst of the largest global vehicle growth in our history. It took the industry more than 110 years to reach automotive production of 50 million units per year, but it will take only about another 20 years to add the next 50 million.
OEMs are moving to global platforms, reducing the number of platforms overall by 30 percent, increasing the use of common components and reducing parts proliferation.
As a result, there is tremendous opportunity for aftermarket suppliers in global markets. AASA has a longstanding tradition of outreach in global markets on behalf of its members. Our Overseas Automotive Council (OAC), established in 1923, recently completed a trade initiative to Dubai and will soon announce details of a Latin America trade mission for early 2015. Almost 10 years ago, AASA created the China Aftermarket Forum (CAF) in Shanghai for North American suppliers with operations in China, focused on business growth. In conjunction with MEMA’s D.C. legislative staff, we were instrumental in arranging meetings with a delegation of China’s Ministry of Transportation promoting the value and benefits of an open-aftermarket structure on behalf of our members.
Closer to home, Mexico has become an important and growing area of opportunity for AASA members, both in terms of manufacturing presence and in its growth in vehicle production. In Mexico, and in other global markets, suppliers are finding a strong affinity for suppliers’ brand name products, making these markets particularly attractive.
AASA plays a very active role in providing the industry with thought leadership and analysis on a number of important topics through publications such as the “Aftermarket Outlook 2020” and “Digital Disruption: e-Tailing in the Automotive Aftermarket.” What are you working on next?
Our members have responded that this is an area of high value. Our approach is to provide members not only with industry analysis, but more importantly, industry insights and thought leadership as a catalyst in developing their individual business strategies. Reports such as Aftermarket Outlook 2020; e-Tailing in the aftermarket; The Changing Role of the Supplier; IT Spend & Trends and The Practice of Extended Terms are just a few of the examples AASA has tackled over the past two years. Recently, we released a joint report with the Automotive Service Association (ASA) on warranty returns and will soon release the results of a second survey regarding service professionals’ views on periodic vehicle maintenance inspections. We also are conducting three technology surveys in 2014, with the results being shared at the upcoming 2014 AASA Technology Conference.
As previously mentioned, we will release our analysis of the impact of Millenials on the aftermarket soon. We also have updated our annual “Replacement Rates of U.S. Automotive Parts,” the percentage of all privately owned light vehicles on the road that received a specific repair or service job. The annual “AASA Automotive Aftermarket Status Report,” our in-depth market analysis of the automotive aftermarket sector, which includes latest figures on unperformed maintenance, aftermarket size and growth, vehicle population and usage, outlet channel market share and DIY market share trends, will be released at AAPEX.
At AAPEX this year, we will announce the details of a new forward-looking report slated for release in early 2015. The new study will examine the strategic shifts impacting the DIFM market and their effects on independent service providers, a market channel vitally important to a vast majority of our members.
It was recently announced that both AASA and the Auto Care Association would merge their annual breakfast events at AAPEX in favor of one combined event open to all. How else will this year’s AAPEX General Session differ from the popular former AASA Executive Breakfast events?
I think it’s safe to say that AASA’s Executive Breakfast and the Auto Care Association’s Town Hall each provided a high level of relevant industry information, insight and valued networking for our members. Our collective agreement and announcement of a new General Session was motivated by a common desire to add greater value and relevance to AAPEX and to unite our collective celebration of our industry among all show attendees. Additionally, the general session recognizes the feedback from our members regarding “meeting fatigue.”
With possibly 3,000 attendees in the room for the general session, a greater number of AAPEX attendees will hear our special guest speaker Steve Forbes, renowned publisher, former U.S. presidential candidate and author of the upcoming book, “Money: How the Destruction of the Dollar Threatens the Global Economy and What We Can Do About it.” Forbes’ expertise on the global economy is particularly timely, and this move to bring all industry participants together will add greater value for exhibitors and attendees.
I’d be remiss if I didn’t note that, since its inaugural event in 2006, the AASA Executive Breakfast at AAPEX had grown every year in attendance and importance, serving as a valuable platform for suppliers in gaining channel-partner insights, trends and strategic shifts. Our 2013 event, with guest speaker Bob Cushing of WORLDPAC, broke all previous attendance records and was particularly timely due to the purchase of WORLDPAC and CARQUEST by Advance Auto Parts just two months before the event.
But even as successful as the Executive Breakfast was, this change is an important step in further advancing the business interests of our valued members and allowing more time to connect with new and existing customers and network with other industry leaders and peers.