It’s early September as we write this, but we wanted to take an opportunity to summarize our expectations ahead of AAPEX, NACE and SEMA. November will quickly approach, and it is our thought that this year’s shows will be memorable. Looking back to last year, we thought the overall attendance was much better than we had anticipated, particularly as our economy was in the midst of an economic crisis. To our surprise, most left the show with an upbeat feeling in spite of the macro turmoil. Even the lower level at AAPEX last year was somewhat robust as foreign entrants continue to compete aggressively, namely on price.

Unfortunately, we think that this year will not be a repeat performance. We think the competitive landscape is beginning to change and that needs for 2010 may begin to look much different than just a few years ago. It would not surprise us to see attendance decline by 5 to 10 percent, not necessarily from lack of interest, however.

We think travel budgets industrywide have been slashed, and while the show allows for a concentrated audience and the ability to leverage travel expenses, business operators are simply more cautious with how dollars are being allocated.

So what does this mean for show participants? Well, we think there will be good representation from most major vendors and suppliers and many notable distributors will be present. In fact, we think there will be a common theme for all participants: save money and improve efficiency.

For the manufacturers, we think this show presents a very big opportunity, in that we mean a way to prove that price is not the only thing that matters. Aside from the opportunity that will be presented in 2010 as dealerships close and more business finds its way into the independent aftermarket, one of the trends we see evolving in the industry with respect to distributors (WDs, traditional retailers and jobbers) centers around a more efficient supply chain. Whether a focus on hub and spoke, more store level drop-ship or improved systems, it appears that the increased parts proliferation is beginning to have a dramatic impact on how distributors view supply chain solutions. Under that caveat, we think this actually presents an opportunity for manufacturers, vendors and suppliers to move away from a price-centric conversation with customers to one more focused on total solutions.

Remember that for a distributor, there are multiple components that drive gross profit. Of course price is the easiest to adjust, and that is why most negotiations start with that lever. However, as the supply chain becomes more complicated because of an overwhelming number of SKUs and locations, we think there is opportunity to create value beyond the price/terms discussion. Initiatives such as category management, private label mix, custom mix and simply turning inventory faster could be conversation starters or for some, a way to change the topic.

In our opinion, we think the only way parts distributors will be able to provide 80 percent of the fastest turning SKUs to customers without bringing the supply chain to a halt or without creating the need to spend too much capital on infrastructure such as DCs or fleets will be through collaboration with suppliers and manufacturers. By providing value across all aspects of the supply chain, we think gross margins can continue to improve without further price degradation to the supplier. We do think those suppliers willing to provide more of a partnership ultimately should be successful while those still using price as the only tool of negotiation may find themselves at a competitive disadvantage.

For NACE, we think there are some interesting themes developing as well. Most notably is the growing concern by major insurers that the turmoil within the auto industry may create supply disruption for collision repair parts. Recall that nearly 70 percent of all collision repair work involves some type of OE part so any bankruptcy or reduced production with OE suppliers could pressure the availability to procure parts.

With fewer parts, longer cycle times and more customer complaints could occur, something the major insurers are certainly trying to avoid. We could also see 2010 emerge as a year for increased alternative parts utilization, and we guess that those attendees or participants at NACE will be adequately prepared.

Last, although SEMA is always a draw, we think the tuner and specialty equipment market has been one of the hardest hit due to the recession. Until consumers begin to regain confidence (which likely comes with job growth and lower unemployment), we believe this segment is likely to remain under pressure.

So far, 2009 has been a relatively good year for the aftermarket, and while some companies and segments have performed better than others, it remains our belief that 2010 will be an equally good (if not better) year. The trends are in place for continued consumer demand, and as long as the parts needed are available and customer service levels high, business levels should remain strong for the foreseeable future.