AASA key takeaway: Respondents indicated the most important initiatives to reduce unperformed maintenance were awareness campaigns and increasing vehicle inspections Most important initiative to reduce unperformed maintenance In 2012 it was reported there was $66 billion dollars in unperformed maintenance. Note: All responses shown, see page 23 for full results.

Special Question:Rising Interest Rates and Their Effect on the Aftermarket

Interest rate increase will negatively impact the aftermarket The question asked: There has been a lot of talk lately in the financial press about increasing long-term interest rates and how the next Fed chairman will eventually have to move the U.S. to a normalized interest rate environment. If Fed fund rates returned to a long-term normal range of 5-6%, what do you think would be the impact on aftermarket suppliers, channel partners, inventory in the aftermarket, payment terms and the aftermarket business model? “Consolidation at all levels of the industry will accelerated as weaker players struggle with bank financing.” “Prices throughout the channel will rise” Increase in Prices Increased Pressure on Smaller Suppliers “Will require changes with their customer programs to reduced terms or higher prices.” “Decreased cash flow at all levels with most profound impact on small suppliers in vendor factoring programs” “5 - 6% is manageable but it will impact financially weak suppliers, WD's and service providers. A lot depends on how quickly the rates go up.” Impact on Cash Flow “Cash is king, without it the kingdom suffers! All businesses (Small, Medium and Large) are watching their cash flow reserves evaporate. Increasing interest rates anytime in the near future will further impact these reserves and thus limit growth.”

As the threat of rising future interest rates looms, most agree the outcome will not be positive for suppliers“Strategies hooked to cheap money” will no longer be applicable One supplier respondent summarized the consensus view point well: “I believe there will be financial challenges to businesses in the aftermarket with a rising long-term interest rate environment. Too many companies have created strategies hooked to cheap money, and that will radically change the cost position in a normalized interest rate environment. The days of free money will eventually go away and businesses will have to support the real cost of funds in their business models. Many companies are going to shocked by that cost.” AASA encourages you to read through the full range of responses found on the next slides.

Rising interest rates could challenge the current supplier - channel partner business model “Distributors will push harder on manufacturers to "carry their inventory" either through extended payment terms, consigned inventory and/or shorter replenishment cycles” “Most companies have already reduced inventory and operating expense and there would be no way to absorb the additional cost. It would create a war between the suppliers and the customers.” “Decreased cash flow at all levels with most profound impact on small suppliers in vendor factoring programs.” “Increased friction between customers and suppliers as negotiations begin with regards to sharing these costs.” “Negative, especially payment terms. Customer channel will need to negotiate reduction in terms or share cost of factoring.” “Payment terms are unlikely to change as customers view what they have achieved as ‘captured ground.’ The increase in interest rates will have to be negotiated just like raw material increases or other increased costs of doing business.”

However, a minority of supplier respondents voiced a more positive view “This won't happen until 2015 at the EARLIEST. Suppliers need to negotiate interest rate clauses in their contracts to handle. Any supplier who is damaged by interest rate increases has only themselves to blame, given the amount of time available to correct the situation.” “If loan costs increase, new car sales will be negatively impacted, short term gains for auto-aftermarket.” “I believe the market would stabilize allowing customers, suppliers, channel partners to continue to invest and profitably grow.” “NO Impact - we still have to run the business and maintain production and inventory levels.” “A gradual increase will not have a drastic impact. A sudden return to the old normal would be devastating but is highly unlikely.” “Moderate impact.” AASA encourages you to read through the full range of responses found on the next slides.

If Fed fund rates returned to a long-term normal range of 5-6%, what do you think would be the impact on aftermarket suppliers, channel partners, inventory in the aftermarket, payment terms and the aftermarket business model? (1/4)

Special Questions:Un-tapping Unperformed Maintenance

In 2012, unperformed maintenance in the automotive aftermarket totaled $66 billion dollarsAlthough a slight decline from 2011, unperformed maintenance has totaled over $60 billion for the third year in a row

For 66% of supplier respondents the opportunity of reducing unperformed maintenance is an important issue 66%

Respondents believe the best way to reduce unperformed maintenance is to create end consumer awareness of the dangers of not performing regular maintenance What should the aftermarket as a whole, individual companies, and aftermarket associations, be doing to reduce unperformed maintenance? “Continue educating end consumers about the importance of maintenance…” “Create a communications plan "We've got your back", where the repair garage is an extension of the security that a family feels instead of an adversary.” “Educate, educate, educate: regular maintenance = longer car life (i.e.. best consumer value) - the more "outlets" banging the drum is good for all.” “Help push the message down to the consumer via informative platforms within mainstream media outlets.” “Communicate the negative impacts (safety, costs concerns) of unperformed maintenance.” “Education of consumers.” For full results, see Appendix Note: All answers reflected this sentiment, but the majority did

However, 40% of supplier respondents indicated that “None” of their marketing budget was dedicated to reducing unperformed maintenance For 21% of respondents, 10% or more of their marketing budget is dedicated to reducing unperformed maintenance.

Respondents indicated that the most important initiatives to reduce unperformed maintenance were awareness campaigns and increasing vehicle inspections AASA supports addressing the issue of unperformed / underperformed maintenance through continued consumer education and through reasonable, safety-friendly and cost-effective vehicle inspection programs throughout the country.

Detailed Results: Market Conditions

Sales performance experienced an incline with 62% of supplier respondents enjoying growth Only a fifth of respondents reported declines, lowest in five quarters Growth Decline Base: n = 92 Note: “No change” is shown as neutral (as a zero value) on the chart to allow a visual depiction of trends

Majority of respondents (58%) expect growth in sales in the fourth quarter of 2013Only 9% expect declines Expect increases: 58% Expect declines: 9% Base: n = 90

Respondents’ independent aftermarket sales grew on average by 2.8%, an increase from Q2Although majority, 65%, reported an increase from 2012, nearly a quarter of respondents reported declines Average: +2.8% Base: n = 88

OES average growth rate increased to +0.9%41% indicated increases from 2012, but still not at levels seen in Q4 of 2012 Average: +0.9% Base: n=82

Q2 pricing environment improved as 27% increased prices and 8% decreasedAlthough the pricing environment is still increasing, it did slow from Q1 with those reporting an increase dropping 10 percentage points Please note that survey responses regarding price and GM are delayed by one quarter in order to comply with antitrust ‘safe harbor’ guidelines Price Increases Price Cuts Base: n= 87 Note: “No change” is shown as neutral (as a zero value) on the chart to allow a visual depiction of trends. Price is delayed a quarter due to privacy laws.

Gross margin performance decreased slightly in Q2Those indicating gross margin growth decreased from 29% to 24%; while those indicating declines remained steady at 22% Increase Please note that survey responses regarding price and GM are delayed by one quarter in order to comply with antitrust ‘safe harbor’ guidelines Decline Base: n=87 Note: “No change” is shown as neutral (as a zero value) on the chart to allow an effective visual depiction of conditions. Gross Margin was a new question in 2011 Q2, therefore only limited historical data is available

Detailed Results:Outlook

Respondent’s outlook steadied with most (47%) indicating “No change” Respondents who indicated optimism in Q3 decreased 10 percentage points Positive Negative Note: “No change” is shown as neutral (as a zero value) on the chart to allow a visual depiction of trends Base: n = 88

Respondents indicated a slight increase in inventory additions in Q3 versus Q239% added to inventories while 22% cut Additions Cuts Note: “No change” is shown as neutral (as a zero value) on the chart to allow a visual depiction of trends Base: n = 92

Capacity trends have remained steady over the past six quartersMore (38%) added to production capacity in Q3 Increase Cuts Note: “No change” is shown as neutral (as a zero value) on the chart to allow a visual depiction of trends Base: n = 92

Hiring was steady with 47% indicating growth from Q2Only 5% of respondents indicated “Job Cuts” Hiring Job Cuts Base: n=92

New orders average growth decreased year-over-year, dropping from +2.5% in 2012 Q3 to +2.2% in 2013 Q3New orders are still relatively lowwith a decline of 0.6 percentage points from 2013 Q2 Note: “No change” is shown as neutral (as a zero value) on the chart to allow a visual depiction of trends Base: n=86

Detailed Results:Issues

“Extended payment / terms of sale” moves to top issue for 2013 Q3“Economic conditions” and “Aftermarket Demand Drivers” emerge as other top issues for the quarter More Important Less Important

Increased competition from low cost suppliers, economic uncertainty and rise in gas/oil prices impacted suppliers business in the past quarter What events or changes have impacted your business in the past three months? (Open-ended) Issues with Customers Economic Uncertainty & Weak Sales Weather • “Consolidation of some customers…” • “Customers changing their procurement process and subjecting the suppliers to annual auctions.” • “Customers managing their inventory more tightly.” • “Retailers cutting back on purchases versus prior.” • “Economic Conditions.” • “Economic conditions remain soft. Fuel prices rising.” • “Weaker Sales resulting in overall weaker demand for Performance Chemicals in the aftermarket…” • “Weaker retail sales.” • “The Retail segment being down or flat. Growth was projected. Having to make up for it elsewhere.” • “The economy is still weak.” • “Weaker sales resulting in overall weaker demand for Performance Chemicals in the aftermarket.” • “WEATHER- Lack of heat!” • “Climate!! A cooler than normal Summer killed our A/C service business...” For full results, see Appendix

IMR Repair ShopSurvey

Shop sales increased quarter-over-quarter

Channels purchased from in past 12 months Note: Respondents could pick multiple categories; therefore, total will add up to more than 100% Retail WDs Dealers/OES Note: The information in this section comes from IMR’s monthly Repair Shop survey research. IMR’s data includes significantly more on shop insights, category insights and shop demographics. IMR offers a 10% discount on their services to AASA members. See www.automotiveresearch.com for more information.

Appendix Respondent’s Product Categories Full Answers to Selected Questions Barometer Methodology

Respondents’ product categories Base: n = 86 Note: Respondents could pick multiple categories; therefore, total will add up to more than 100%

What should the aftermarket as a whole, individual companies, and aftermarket associations, be doing to reduce unperformed maintenance? (1/3)

What events or changes have most impacted your business or business conditions in the past three months? (1/2)

What events or changes have most impacted your business or business conditions in the past three months? (2/2)

AASA Supplier Barometer methodology notes • Comments are edited only for spelling and diction and may contain grammatical errors due to their verbatim nature. • Note that responses to questions related to price and gross margin trends are delayed by one quarter to comply with anti-trust safe harbor guidelines. • Responses to this survey are confidential. Therefore, only aggregated results will be reported. Individual responses will not be released and will be destroyed after results are compiled. • The AASA Supplier Barometer survey presents the latest information on aftermarket supplier sentiments and market trends. • The purpose of the survey is to provide members with general information on business conditions and market trends and to allow high-level benchmarking of sector performance. The information and opinions contained in this report are for general information purposes only. • Participation is only available to AASA supplier members. There were 94 survey responses in this quarter’s report.

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