Over The Counter: September 2003

Dealer Share Drops, 50% of Vehicles Prime for Aftermarket

The latest report from the Automotive Industries Association of Canada (AIA) says that new car dealer share of the mechanic-installed aftermarket has dropped, and that more promise is on the horizon, with some 50% of vehicles on the road entering their prime aftermarket years.

The research, contained in the 2003 Car Maintenance in Canada Report, reveals that, while new car dealers continued to be the dominant player in the mechanic-installed (MI) market, that segment’s market share declined from 37.2% in 2001 to 34.0% in 2002. In addition, says the report, the aftermarket is forecast to grow in dollars by about 1.6% in 2003 and 1.4% in 2004. By 2006, the rate of growth is seen as increasing to 3.3% a year.

Vehicles aged eight to 12 years had a 32.1% share of the market, representing the largest category in this segment. Vehicles four to five years old represented 15.4% of the market, while those vehicles over 12 years represented 23.0%. New to three-year-old vehicles accounted for 16.8% of all respondents’ vehicles, while vehicles aged six to seven years accounted for 12.6%.

“The traditional mechanic-installed aftermarket typically sees vehicles in the five to 12 year old category,” says AIA president Ray Datt. “This report confirms that almost 50% of vehicles on the road will now be in that category, which is great news for the future success of the aftermarket.”

Independent repair shops (27.9%) and specialty repair shops (16.2%) remain strong players in the mechanic-installed market in Canada. All other channels recorded market share of less than 10.0%. Looking at the various regions, new car dealers were weaker in the Western provinces. Independent repair shops were more popular in Quebec, as were service stations. Specialty shops were noticeably weak in the Atlantic region and Quebec, while Canadian Tire was most popular in Ontario.

DesRosiers Automotive Consultants Inc. prepared the report for the AIA, based on 2,500 telephone interviews completed across Canada and covers maintenance and purchasing patterns during the full calendar year of 2002.

These figures are borne out somewhat by those proffered by J.D. Power and Associates and reported in the Jobber News 2003 Annual Marketing Guide. In that organization’s Canadian Customer Commitment Study, dealer share was pegged at 40%, but heavily skewed to the newer vehicle population. This creates a dichotomy within the market, where car dealers enjoy a market share of some 73% in cars two to three years old, 46% for vehicles four to seven years old, but only 21% for vehicles eight to 12 years old.

The Car Maintenance in Canada Report also offered other interesting facts. It reveals that men are the principal car maintainers in 66.0% of households, a figure that remains constant from statistics in 2000. The primary vehicle in 62.6% of households was a passenger car, while in 37.4% of the cases it was a light truck. Domestic nameplates accounted for 71.4% of primary vehicles, while imports made up 28.6%.

A full breakdown of 30 product categories is available in the complete report, which can be obtained from the AIA at www.aiacanada.com or (613) 728-5821.

ArvinMeritor-Dana Battle Continues Unabated

The battle between ArvinMeritor and Dana Corporation for control of Dana continues to take surprising turns.

In the latest, ArvinMeritor, Inc. issued a statement regarding the answer filed by Dana Corporation and its board of directors in response to ArvinMeritor’s lawsuit that was filed on July 8, 2003 in the Circuit Court for the City of Buena Vista, Va., and the answer and counterclaims filed by Dana in response to ArvinMeritor’s lawsuit that was filed on July 9, 2003 in the United States Federal District Court for the Western District of Virginia.

“We believe Dana’s counterclaims are without merit and we will contest them vigorously. Dana’s Board of Directors and management continue to manufacture roadblocks to a combination of Dana and ArvinMeritor in an effort to further entrench themselves at Dana’s shareowners’ expense and to prevent shareowners from receiving substantial value for their investment in Dana.”

The two companies have been sparring for the better part of the summer. In early June, ArvinMeritor offered Dana shareholders $15.00 a share, a premium of 56% over the trading price of Dana stock at the time, 39% over the average trading price, and a premium of 25% over the trading price July 7. The offer, for cash, was rejected by the Dana board of directors “after a thorough review and consultation with its legal and financial advisors.” All figures in U.S. dollars.

The proposed transaction has a total equity value of approximately $2.2 billion assuming 148.6 million shares of Dana outstanding.

While categorized as a hostile takeover, things turned particularly nasty almost immediately, when ArvinMeritor filed a lawsuit against Dana and its board of directors, asserting, among other things, that Dana’s board breached its fiduciary duties to Dana’s shareowners when it rejected ArvinMeritor’s initial proposals without meeting with them. Several other charges have followed, including one that alleges a former investment advisor to Dana provided ArvinMeritor with confidential information which came into play while that same advisor helped put together the bid. That charge was flatly denied.

Dick Hunt Tourney Raises $15,000

The Dick Hunt Memorial Golf Tournament raised some $15,000 for leukemia research this year.

The tournament, which has become a fixture in the Ontario automotive aftermarket, has gained renewed life through the active participation of many in the aftermarket.

“I want to thank everyone who has contributed,” says cause chairman Jerry Stevens. “As you know, every penny we raise goes to the Leukemia Research Foundation. I especially want to thank Fenwick Automotive for their sponsorship.”

Dick Hunt’s son, Ken Hunt, said that the tournament, held at Hidden Lake Golf Club in Burlington, Ont., was a fitting tribute to his father. “I think this is just great. And the weather was fine. Dad sent us some sunshine.”

Federal-Mogul Attracts $350 Million U.S. Investor

Federal-Mogul Corporation has been approached by Citigroup Venture Capital Equity Partners, L.P. (CVC), with an offer to invest $350 million U.S. in exchange for an equity position.

Federal-Mogul advised the U.S. Bankruptcy Court for the District of Delaware of the offer in late August.

As a condition to proceeding with such an investment, CVC has requested that Federal-Mogul agree to an exclusive 90-day negotiating period with CVC and to reimburse CVC for necessary fees and expenses incurred by it in connection with the due diligence review of the company’s business and negotiation of the possible investment.

In a motion filed with the court, Federal-Mogul asked the court to approve such exclusive 90-day negotiating period with CVC, and to authorize Federal-Mogul to reimburse CVC for such necessary fees and expenses.

“The board approved the motion because it believes that an equity investment in the company has potential to maximize the long-term value of the company. This action best serves the interests of the company’s stakeholders, including asbestos claimants,” said Chip McClure, Federal-Mogul chief executive officer and president. “An investment of the type CVC is proposing, if consummated, would create value for the long term by strengthening the balance sheet and enhancing liquidity, while helping ensure that we will continue to deliver innovative products and services to our customers.”

Canadian Brake Manufacturer Forms Motorsport Division

Satisfied Brake Products, Cornwall, Ont., has announced the formation of the Satisfied Motorsport Division.

Stewart Kahan, president of Satisfied Brake Products Inc., says, “This new division allows us to position our resources and technology to serve our ultimate objective of providing the most responsible friction materials, coupled with leading technology, to all segments of our industry.”

The new division will be active in all aspects of racing and performance braking, from street performance to CASCAR-type vehicles. This new division will also manufacture products for motorcycle and ATV enthusiasts.

The division will be managed by Steve Clare. An established member of the Satisfied Team, Clare will continue to work closely with the professional racing industry to gain further endorsement and acceptance of Satisfied Motorsport products. Pre-release product testing has already made significant inroads in this influential segment, according to the company.

In addition, the company has announced the imminent launch of its “Gransport” Aftermarket Performance program. Products will include ceramic formulations for street performance and carbon kevlar products for the track.