AAAA Dashboard - Q1 2020 by aaaa710

DASHBOARD Q1 2020

The voice of the independent aftermarket in Australia Welcome to the Q1 2020 Edition of the Aftermarket Dashboard, a quarterly information service for members of the AAAA. This industry publication captures useful statistical and related data, as indicators of the unfolding trends and health of the automotive aftermarket industry, and has been designed to provide regular insight on our industry. We value your suggestions for improvement or feedback regarding content. Data sourced from VFACTS New Car Sales Data, ACA Research COVID-19 SME Impact Survey

1. Current State of the Market

Covid-19; the impact

Australian Automotive Aftermarket Association Dashboard. Presented by ACA Research. Copyright ÂŠ 2020.

3. Industry Headlines

1. Current State of the Market

Australian Automotive Aftermarket Association Dashboard. Presented by ACA Research. Copyright ÂŠ 2020.

Australian Economic Indicators Consumer Confidence

93.6

(3.4)

Westpac Melbourne Institute (Q1’20, vs. Q4 ‘19) Consumer confidence for March has hit a 5 year low, off the back of increasingly concerns around the worsening COVID-19 situation, and its impact on financial markets. It is the second lowest level recorded since the Global Financial Crisis, when the Index bottomed out at 79. While consumers are clearly concerned, it is evident that they believe that “Virus related disruptions will be large but temporary”, with components of the index such as ‘family finances’ and ‘time to buy a major household item’ registering 20-30 points higher than during the GFC respectfully.

Fuel Prices

Business Confidence

100.4

(8.0)

Roy Morgan (Q1 ‘20, vs. Q4 ‘19) Similarly, while business confidence has dropped significantly from last quarter, pessimism stems from a poor outlook in the short term. When looking at the economic climate for next 12 months, most businesses (58%)are expecting financially challenges, but when the scope is expanded to 5 years, that percentage decreases to 46% of businesses. We are however seeing a concerning trend for businesses themselves, with 17% in January expecting to be financially worse off, increasing to 21% for February, and 29% in March.

$1.41

( 7.6c)

AiP - Ave weekly price (Q1 ‘20, vs. Q4 ‘19) Retail fuel prices have decreased this quarter, down 7.6c to an average of $1.41. As we enter Q2 2020, Sydney fuel prices are expected to decline further, and hit an 18 year low, dropping below $1/ Litre for regular unleaded. In response to the change in demand brought on by the COVID-19 changes, from May 1st, OPEC+ will cut oil production down by 9.7 Million barrels a day, and this cut will continue through June. While this cut only accounts for around 10% of world oil production, it is estimated the change in demand is much higher.

New Car Sales By Quarter In the wake of the COVID-19 pandemic, Q1 2020 car sales volumes are at an all time low. As production facilities close across Europe, social distancing reduces dealership visits and test drives, and both business and consumer confidence drops, we can expect to see this decline to persist through Q2 and further into 2020.

233,361

320,000

2020 sales volume in Q1

300,000

Year-on-Year change

280,000

-13.1%

260,000 240,000 220,000 Q1

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Q3 2019

Q1 2020 5

New Car Sales By State While new car sales dropped significantly across the country, the ACT managed to stay afloat, with an influx of new vehicle purchases replacing hail-damaged vehicles from the storms in late January. However, with the majority of written off vehicles replaced, and the devastating impact from the coronavirus pandemic, we expect to see Q2 sales struggle across the country. Q1 Volume

% Chng (YoY)

Q1 Share

New South Wales

74,663

-13%

32%

Victoria

65,027

-15%

28%

Queensland

46,275

-14%

20%

Western Australia

20,901

-9%

South Australia

14,607

-16%

Australian Capital Territory

6,331

42%

Tasmania

3,843

-13%

Northern Territory

1,714

-30%

233,361

-13%

State

TOTAL

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New Car Sales By Marque Q1 Rank

TOYOTA 0.9%

Make 2020

Q1 Volume

% Chng YoY

Q1 Share

Toyota

51,251

0.9%

21%

22

Mazda

19,615

-26.8%

31

Hyundai

18,744

-18.0%

41

Mitsubishi

18,562

-34.3%

Kia

15,143

4.5%

Ford

14,699

-14.6%

Nissan

12,232

-16.3%

81

Honda

12,219

-17.5%

91

Volkswagen

9,658

0.9%

101

Holden

9,306

-26.8%

TOTAL

233,361

-13%

Increase in vehicles sales year on year

Toyota not only has twice the market share of the second most popular marque for Q1 2020, but they are also one of the only brands to increase their new vehicle sales against Q1 2019. Toyota is seeing their success in the quarter attributed to the RAV4 (↑78.3%), which has overtaken the Hilux 4X4 as their best selling vehicle. While the Hilux 4X4 remains their second best seller this quarter, it has seen a 20.5% drop, with Toyota instead seeing increases in the smaller passenger vehicles like the Corolla (↑10.2%) and the Yaris (↑26.1%). As the demand for the RAV4 and it’s Hybrid model has skyrocketed, many customers are experiencing waits of over 6 months for their vehicle to be delivered, due to a “lottery system” used to allocate and fulfil orders. With the Hybrid option of the 2020 Yaris to be released later this year, it begs the question as to what impact the COVID-19 pandemic will have not only on demand, but also Toyota’s ability to produce and distribute these vehicles. 7

2. Covid-19 Impact

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Covid-19 Impact

(Insights from ACA Researchâ&#x20AC;&#x2122;s SMB Covid-19 Tracker)

74% Of SMBâ&#x20AC;&#x2122;s are concerned about businesses survival

65%

of businesses surveyed

47%

of these revenue declines have been

For workshops in particular, revenue has significantly been impacted due to the general public travelling much less and only for essential trips. With the restrictions in place, vehicle usage has been decreased to such an extent that 5,500+ motorists are even petitioning for a partial refund of their rego and CTP insurance costs.

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Have experienced a decline in revenue due to the COVID-19 pandemic

more than 30%

As income sources are becoming less secure for many Australians, delaying scheduled servicing for a vehicle that is being used less frequently has become an appealing option to cut costs. As most consumers are in the mindset that this situation is only temporary, decisions to delay servicing by a month or so will have a detrimental impact for our workshops.

Covid-19 Actions (Insights from ACA Research’s SMB Covid-19 Tracker) To manage drops in revenue, SMB’s have adopted a variety of strategies to survive:

36%

31%

41%

Reduced working hours

Reduced operating costs

Negotiated rent with landlord

In the automotive sector, we are seeing many dealerships taking actions to be in a better position to kick-start again once this ‘hibernation’ is over. Hyundai Australia has very recently announced they will be offering half price servicing to healthcare workers during May, to “offer something back to the many workers across the country that are at the

front line of the battle against coronavirus”. This announcement followed not long after Mazda in the US announced they would offer free oil changes – Mazda customer or not (although this is not available in Australia). Whilst fortunately, the outbreak in Australia is less severe than in other parts of the world, social distancing measures have driven change in the way vehicles can be

purchased and serviced, with many dealerships and independent workshops moving to offer contactless pick up and drop off for servicing. The businesses that will come out strong at the end of this period are the ones willing to adapt, innovate, and keep their connections with not only customers but also employees.

Future Outlook 0% -2% -4% -6%

-8% -10% -12% H2 2019

H1 2020

H2 2020

H1 2021

H2 2021 Scenario 1

H1 2022

H2 2022 Scenario 2

H1 2023

H2 2023

H1 2024

H2 2024

H1 2025

Scenario 3

Building on our insights into the current state of the sector, we can also make some assumptions about the future. While there are still a number of unknowns (e.g. changes to consumer behaviour, the impact of workshop’s response), we consider three potential scenarios: ▪ Scenario 1: The most optimistic (but not necessarily unlikely) option sees the ongoing need for vehicle servicing limiting the impact of COVID-19, with a swift recovery as restrictions are relaxed. Under this scenario, we would see a return to parity by late 2021. ▪ Scenario 2: Our middle option assumes that workshops face a larger impact through the first half of 2020, with the recovery process extended off the back of this. We would see marked improvement through 2021, with a return to 2019 levels in early 2023. ▪ Scenario 3: Our final scenario sees a more notable impact on the sector. This currently appears unlikely, and would most likely be driven by further restrictions off the back of a significant second wave of infection. Under this option, sector revenue would reduce over an extended period of time. 11

3. Industry Headlines

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Industry Headlines Automotive retailer Bapcor raises $210 million as revenue plunges Car parts retailer Bapcor will raise $210 million in fresh capital from investors to help slash its debt and prepare for a quick "bounce back" to normality when millions of Australians rush to tune their undriven cars once coronavirus restrictions are lifted. The ASX-listed retailer placed its shares in a trading halt on Thursday morning to announce the raise, which will consist of a fully underwritten $180 million pro-rata institutional placement and a $30 million nonunderwritten share purchase plan.

Thales chooses Adelaide electronics firm REDARC for Hawkei Protected Vehicle Global defence contractor Thales has chosen Adelaide electronics firm REDARC to supply a dual power system for its Australian developed and made Hawkei protected vehicle. REDARC will provide a dual power solution based on their off the shelf technology which had its origins in equipping recreational vehicles and caravans. The system provides constant, regulated power for critical components such as radios, communications and computers.

US car service chain Quick Lane opens in Australia Global CEO, John Hanighen, says the Hoppers Crossing store is just the first of many outlets planned for Australia. He expects a national presence for this brand within five years. “It may be sooner but we’re not looking to do it in one year. We’ll expand from here and go where the best results will be according to site modelling. We’re looking to do individual franchises across different states, we want to do a more individual approach as we’ve done in other markets.”

Continental's profit almost halves as lockdowns hit car production Auto parts supplier Continental (CONG.DE) will deepen cost cuts after its operating profit almost halved in the first quarter as coronavirus lockdowns caused global car production to fall 25%.

AIC offers advanced additive manufacturing to automotive aftermarket Additive manufacturing is an exciting and important feature of Australia’s newly opened Auto Innovation Centre (AIC). It enable designers to test product fitment, identify issues or potential design problems and to study, improve and optimise. 3D printers can produce incredibly intricate and difficult designs that are not simply or cheaply replicated with traditional tooling and production techniques. The AIC’s new Additive Manufacturing Centre houses three different printers. These provide a variety of options for automotive product developers to suit their particular requirements.

Nulon Manufacturing will shift to upgraded Fuchs sites in Victoria and NSW Fuchs has announced that it will move production of Nulon automotive fluids to recently-upgraded sites at Beresfield, NSW and Sunshine, Victoria. According to a statement from Fuchs Australasia, it had invested $4 million in automation and $1 million in IT at the two sites. “The move means that we will have greater capacity to increase production volume and allows Nulon improved scope to deliver innovative new products to the market,” said managing director Wayne Hoiles of moving production to Fuchs Australasia’s sites

Continental warned its second-quarter results would be worse as lockdown measures hit large markets including the United States. As a result, it will aim to cut investment by 20%, following a 26% fall in the first quarter.

About AAAA

About ACA Research

The Australian Automotive Aftermarket Association, is the national industry association representing manufacturers, distributors, wholesalers, importers and retailers of automotive parts and accessories, tools and equipment, as well as providers of vehicle service, repair and modification services in Australia.

With over 20 years of automotive experience, ACA Research has developed a detailed understanding of the automotive sector, Using this market knowledge, we design and deliver research that helps our clients understand and overcome their business issues, empowering them to move forward with confidence.

For more information, please contact:

Lesley Yates

Ben Selwyn

Lizzie Dawson

Director of Government Relations and Advocacy Australian Automotive Aftermarket Association (AAAA) Convenor: Automotive Products Manufacturers & Exporters Council (APMEC)

Director ACA Research 0411 132 166 bselwyn@acaresearch.com.au

Senior Account Manager ACA Research 0433 708 375 ldawson@acaresearch.com.au

7-8 Bastow Place Mulgrave VIC 3170 Australia +61 (3) 9545 3333 | 0402 005 476 lyates@aaaa.com.au

Level 6, 107 Mount St North Sydney NSW 2060 Australia +61 (2) 9927 3333

Australian Automotive Aftermarket Association Dashboard. Presented by ACA Research. Copyright ÂŠ 2020.