O THER C ONSULTANTS S AY EV R EVENUES M AY B E 60% L OWER T HAN ICE R - - PowerPoint PPT Presentation

THE IMPACT OF ALTERNATIVE FUEL VEHICLES ON FIXED OPERATIONS

NATE CHENENKO

13 NOVEMBER 2019

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Carlisle & Company is a highly specialized strategy and implementation firm

WHO IS CARLISLE? CARLISLE & COMPANY IS A STRATEGY CONSULTING FIRM FOCUSED ON HELPING OEM CLIENTS IN THE MOTOR VEHICLE SPACE

Key markets Project Activities

COMP MPANY NY OVERVI VIEW

Uniquely situated in the motor vehicle industry; syndicating benchmarks and surveys across the industry globally

➢ Founded in 1993 by David Carlisle ➢ Syndicated benchmarking and surveys

across the industry globally Exclusively focused on original equipment motor vehicle parts and service

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Automobiles

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Powersports

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Buses / Trucks / Commercial Vehicles

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Construction Equipment

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Agricultural Equipment

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Industrial & Medical Equipment

BUSINE NESS SS SEGMENTS NTS

Strategic Consulting: Strategy consulting projects for all aspects of service parts businesses including: channel management, sales and marketing, revenue management, supply chain, and

• perational excellence

Insights: Annually benchmark OEMs across all aspects of the service parts business around the world and conduct regular syndicated surveys Strategic Solutions: Redesign processes supported by software for Pricing, Retail Inventory Management and Inventory Management Operations Excellence: Warehouse and distribution network focused, improving efficiency and quality of supply chain networks while reducing costs ▪ OEM M Focu cus: Our work is primarily with OEMs ▪ Industry try Experts: perts: Our employees work on projects throughout the industry providing analytical and strategic insight on many issues ▪ Ease e of Doing ng Busines ess: We are accessible, respond quickly, and adapt solutions to unique client situations and needs

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The e Questi estion

• n:

: How much are alternative fuel vehicles going to affect service & parts revenues? Sub-Ques Questions tions To Help p Us Re Reach ch An Answer: er: I. How much service do alternative fuel vehicles need, and how much does it cost? II. Where do customers service their alternative fuel vehicles?

• III. How satisfied are the alternative fuel customers with their service options?

AGENDA

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M 5M 10M 15M 20M 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 Units In Operation Vehicle Model Year ICE Hybrid Electric

ALL THE FORECASTS SAY ALTERNATIVE FUEL VEHICLES WILL BE POPULAR

Units In Operation By Vehicle Type, All Makes, USA

2025 Forecast as of 2019

Source: 2018 Q3 Experian UIO Data Source: https://www.jpmorgan.com/global/research/electric-vehicles

Bloomber erg Forecast casts s That by 2040, Globall lly, , EVs Alone Will Represent t 35% of All Car r Sales

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ELECTRIC VEHICLES HAVE VERY FEW PARTS – THIS MAY HURT SALES

Electric vs. ICE Number of Moving and Wearing Parts 113 3 27 12 24 11 VW Golf Chevrolet Bolt Number of Parts Engine Moving Parts Gearbox Moving Parts Wearing Parts Fewer Failure Points

And Less Regular Required Maintenance And Longer Maintenance Intervals

Less Service Opportunity

Source: UBS

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OTHER CONSULTANTS SAY EV REVENUES MAY BE 60% LOWER THAN ICE REVENUES!

This information is protected by the Global Benchmarking & Research Non-Disclosure Agreement. No one except an employee of a participating company may be provided with this data, and only after s/he has acknowledged and accepted the terms of that agreement.

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WE SURVEYED 1,987 OWNERS TO SEE WHAT’S GOING ON – 50% ICE, 50% ALT FUEL

Respondents Plotted By Location The larger the circles, the greater the population is in

• ur survey

Internal al Combustion ion Engine Alternat nativ ive Fuel

▪ Battery Electric ▪ Fuel Cell ▪ Gasoline Hybrid ▪ Plug In Hybrid

Legend

*Participants acquired via paid consumer panel - Sourced Sept 2019 All respondents live in the United States

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2.42 2.21 1.8 1.975 2.15 2.325 2.5 Fuel Type

• Avg. Number of Services Per Year

ALTERNATIVE FUEL VEHICLES REQUIRE SLIGHTLY LESS MAINTENANCE PER YEAR

Average Number Of Times Serviced Per Year

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THE PATTERN HOLDS UP WHEN WE LOOK BY VEHICLE AGE

Average Number Of Times Serviced Per Year By Vehicle Age 2.10 2.02 2.53 2.28 2.66 2.54 0. 0.675 1.35 2.025 2.7 3.375 0-3 Years 4 - 7 Years 8-10 Years Avg Number of Services Per Year

• Avg. (Q20) Number Of Times Serviced

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2.10 1.47 2.53 1.80 0. 0.65 1.3 1.95 2.6 0-3 Years 4 - 7 Years Avg Number of Services Per Year

30% 29%

ELECTRIC VEHICLES SHARPLY EXAGGERATE THE MAINTENANCE DIVIDE

Average Number Of Times Serviced Per Year By Vehicle Age

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OUR ALTERNATIVE FUEL FLEET SERVICE COST IS SIMILAR TO THE ICE COSTS

THINGS WE THINK WE KNOW

Alternative fuel vehicles cost roughly 7% more to repair over the first ten years of their life

WHY WE CAN’T SHOW YOU A CHART

There are too many uncertainties: Service provider (dealer v. independent v. chain) Vehicle age Specific fuel type (hybrid v. battery) Geographic location

WHAT WE’RE COMFORTABLE SAYING

Service cost for alternative fuel vehicles is similar to ICE vehicles

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IT SEEMS LIKE WE’VE GOT A PROBLEM!

More Alternative Fuel Vehicles… …Each of which requires less service at similar prices…

$

…Results in a smaller revenue potential

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BEFORE YOU QUIT YOUR JOB, LISTEN TO THE SECOND HALF OF THE STORY

$ %

REVENUE POTENTIAL MARKET SHARE

How much does each customer spend? What percentage of the population can you retain as a customer? We think: Smaller We think: ???

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TO ESTIMATE SHARE, WE HAVE TO KNOW OUR CUSTOMER – THEY’RE DIFFERENT

Purchasing Decision Drivers

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0% 25% 50% 75% 100% Alt Fuel ICE

Environmental

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ALTERNATIVE FUEL DRIVERS, ON AVERAGE, EARN MORE THAN ICE DRIVERS

Income by Vehicle Type $79,694.60 $69,399.10 $K $20K $40K $60K $80K $100K Alt Fuel ICE

• Avg. Household Income

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AND THIS IS GOOD NEWS: DEALER ALT FUEL CUSTOMERS HAVE THE HIGHEST INCOMES

Income By Service Provider $83,195.83 $77,118.54 $82,397.30 $66,782.83 $65,834.34 $64,667.70 $65,605.98 $56,156.67 $K $23K $45K $68K $90K A Dealership Chain Stores IRF… Do it Yourself

• Avg. Household Income

This information is protected by the Global Benchmarking & Research Non-Disclosure Agreement. No one except an employee of a participating company may be provided with this data, and only after s/he has acknowledged and accepted the terms of that agreement.

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I have ve neve ver needed servic ice e on this ve vehicle le I do not have ve a regular ar servic ice e provider der Other Do it Yourse self lf Chain Independ nden ent t Shop (non- chain) n) A Dealersh ship ip

IT’S A BIG PERCENTAGE: 42% OF OUR DRIVERS USE THE DEALER AS PRIMARY SERVICER

All Vehicle Types – Service Preference

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IF WE ACCOUNT FOR THE PROPORTION OF ICE VEHICLES, OUR SURVEY DATA CLOSELY MATCHES THE DATA FROM OUR OEM SERVICE BENCHMARK

Service Retention 45.1% 41.9% 0.0% 15.0% 30.0% 45.0% 60.0% Benchmark Data Survey Service Retention

This information is protected by the Global Benchmarking & Research Non-Disclosure Agreement. No one except an employee of a participating company may be provided with this data, and only after s/he has acknowledged and accepted the terms of that agreement.

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FOR ACCURACY, WE LOOK BY MODEL YEAR – AND OUR SURVEY STILL MATCHES

0% 20% 40% 60% 80% 1 year 2 year 3 year 4 year 5 year 6 year 7 year 8 year 9 year 10 year 11-19 year Service Retention Non-Premium Average CSS Traditional Benchmark Data Survey: ICE Customers

Benchmark Data v. Survey Data (ICE Customers)

(Smoothed Line)

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ALTERNATIVE FUEL CUSTOMERS ARE FAR MORE LIKELY TO GO TO THE DEALER TODAY

Survey Data (ICE Customers) v. Survey Data (Alt Fuel Customers)

(Smoothed Line)

Note: The mix of vehicles changes from model year to model year – i.e. there are battery electric vehicles in year 1, whereas year 10 is predominantly gas hybrids

This information is protected by the Global Benchmarking & Research Non-Disclosure Agreement. No one except an employee of a participating company may be provided with this data, and only after s/he has acknowledged and accepted the terms of that agreement.

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NOW OUR PROBLEM DOESN’T SEEM SO BAD

More Alternative Fuel Vehicles… …Most of whom we retain…

%

…Results in a larger market share

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NOW WE’VE GOT ALL THE NUMBERS WE NEED…WE JUST HAVE TO DO THE MATH

$ %

REVENUE POTENTIAL MARKET SHARE

How much does each customer spend? What percentage of the population can you convert as a customer? We think: Smaller We think: Larger

X

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IF A DEALER SELLS 100 ALT FUEL VEHICLES, THEIR TOTAL PARTS & SERVICE REVENUE IS 50% HIGHER THAN 100 COMPARABLE ICE VEHICLES

Expected Value of a UIO By Vehicle Type Expected Value from 100 UIOs

Outputs

ICE Alt Fuel Expec pected ted Revenue from 100 0 Vehicles cles $231,000 $346,000

1 2 3 4 5 6 7 8 9 10

UIO Age (Years Old)

ICE Alt Fuel

ICE Revenue Alt Fuel Additional Revenue

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WE FEEL GOOD ABOUT THE DOLLARS, BUT DEALERS HAVE A SATISFACTION PROBLEM

NPS Using Weighted Scores 14.9 11.4 36.1 34.8 50.4 46.1 0. 15. 30. 45. 60. Chain Dealer IRF NPS Measure Values

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ALTERNATIVE FUEL CUSTOMERS JUST WANT THEIR VEHICLES FIXED RIGHT THE FIRST TIME

Reasons For Provider Selection 0% 5% 10% 15% 20% 25% Vehicle Fixed Correctly Reasonable Cost Treated Fairly Convenient Location Fast As Possible Easy To Get Appointment Percent of Response Alt Fuel ICE

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The e Quest estion: ion: How much are alternative fuel vehicles going to affect service & parts revenues? Quite te a bi bit – in a po posit itiv ive e direc ecti tion And Our Final nal Answers wers: I. How much service do alternative fuel vehicles need, and how much does it cost?

Between 10 and 20% less service…for roughly the same cost as ICE vehicles

II. Where do customers service their alternative fuel vehicles?

Overwhelmingly, the dealer…with roughly 20 percentage points higher dealer service retention than ICE

• III. How satisfied are the alternative fuel customers with their service options?

Not terribly satisfied…alternative fuel customers who use IRFs prefer them to dealers

RECAP