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Raw Material Costs, Margin Compression Top Supplier Concerns, According to ‘AASA Q2 Aftermarket Supplier Barometer’

The “AASA Aftermarket Supplier Barometer” is a quarterly survey of AASA full-service supplier members on key indicators and market trends.

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RESEARCH TRIANGLE PARK, N.C. – Raw material costs and margin compression are the top concerns of automotive aftermarket suppliers now, according to the second quarter 2011 “Aftermarket Supplier Barometer” from the Automotive Aftermarket Suppliers Association (AASA).

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“Suppliers’ biggest change agents in the second quarter were slowing demand and margin compression from high raw material prices. All of our Q2 2011 survey respondents reported they experienced raw material price increases over the past 12 months,” said Steve Handschuh, president and COO of AASA.

“Although the good news is that most suppliers expect raw material price increases to moderate over the next 12 months, the vast majority of our members report they still expect further increases in the cost of raw materials,” he added.

“While most survey participants experienced price increases of 5 percent to 29 percent for raw materials over last year, a significant subset reported massive price increases of more than 150 percent,” explained Paul McCarthy, AASA vice president of industry analysis, planning and member services.

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“If raw material recovery is not achieved, a significant amount of margin is at risk, since most suppliers report they are struggling to pass on raw material price increases to customers,” McCarthy continued. “Without this relief, supplier margins will continue to be impacted. This makes it difficult for suppliers to invest in their business and in meeting their customers’ increasing service requirements.”

The second quarter 2011 AASA Aftermarket Supplier Barometer showed supplier sentiment worsening considerably in the second quarter. “This quarter’s Barometer sentiment index gave its lowest reading since Q1 2009,” McCarthy noted.

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Although suppliers’ views on the future outlook are decidedly mixed, indicators hint that performance may improve a little in future quarters, according to McCarthy. “Supplier outlook became more negative as the impact of higher fuel and raw material prices took hold in the second quarter, and fuel prices have since moderated slightly,” he said. “Sales stayed relatively strong.”

Aftermarket suppliers’ performance was highly divergent in the second quarter. “While most aftermarket suppliers had been rising with the market over the last 18 months, a challenging second quarter led to distinct winners and losers,” McCarthy said.

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Emerging issues identified in the quarterly survey include product returns and healthcare costs. “The increasing concern about product returns matches signs of a weakening market,” McCarthy noted. Strategic challenges include customer shifts and increasing competitive intensity.

The “AASA Aftermarket Supplier Barometer” is a quarterly survey of AASA full-service supplier members on key indicators and market trends. The full survey report is an exclusive AASA member benefit and is available only to member companies which participate in the survey.

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