1 1 11 1 China Aftermarket E-commerce Trends & Challenges 2016 IPSOS [email protected] SHANGHAI, CHINA

2 2 Contents 03 08 17 20Quick Market Changes E-commerce age? Competitions intense Car makers fight back 27Implications to VGC

3 3 33 3 QUICK MARKET CHANGES © 2015 Ipsos.

4 4 China aftermarket: substantial growing but unconventional Anti-monopoly regulations Insurance reform E-commerce mania creates B2C, B2B, O2O Traditional Competitors grow Smart phone society Aggressive insurance companies

5 5 Anti-monopoly Regulation is close at hand 1234512345 Reform & Innovation Ensuring Fair Market Serious Supervise Transparent Channel Open & Inclusive Break the channel monopoly for the repair spare parts and encourage OES parts circulation Allow authorized dealerships resale OES parts to unauthorized channel (IAM) Protect the rights of customers from all aftersales channels enjoy the same quality spare parts Promote pilot of spare parts tracing system construction Encourage the cooperation between traditional & E-commerce in the aftersales service

6 6 Continuous reduction of annual average driving mileage affect spendings More than last yearLess than last yearAlmost the same Don’t know 15% 61% 55% 61% 62% 21% 27% 22% 20% 15% 2% 4% 2% TOTAL N=15019 Luxury Car N=1841 Middle Class 15% N=16070 Lower-end N=32930 Data Source: Ipsos Database

7 7 T1T2 Long repair time Long waiting time Long repair (painting) time Long maintenance time T1T2 Weak core spare parts diagnosis ability Lack of repair experiences High rework rate T1T2 SA bad service attitude Elaborate complaints treatment Over-sales from SA Dishonest marketing T1T2 Low transparency Less communication with customers Complex process Lack of weekend service Stubborn warranty policy Unprofessional Service Process Unpleasant Experience Low Service Efficiency Insufficient Service Quality A stark contrast between high customers expectation and dealer performance Data Source: Ipsos independent survey, covering 6 main T1&T2 cities over 3000 car owners

8 8 88 8 EMERGING E- COMMERCE BUSINESS © 2015 Ipsos.

9 9 China aftermarket E-commerce Map B2C+O2O platform Parts logistic Parts procurement/warehouse B2B platform Parts inquiries and order Spare parts & service purchase Maintenance service purchase O2O Door to door service Auto accessories purchase E-commerce Platforms Repair shop Parts procurement Consumer Maintenance service purchase Service network development & parts logistic O2O platform Parts procurement/warehouse Spare parts suppliers/distributors Offline outlet development & logistic

10 4SShop  Largeworkshop  Fastfits  Roadsidegarage  O2ODoortodoor  O2Oplatform  B2C+O2Oplatform  10 Main business of various models Maintenance Medium Wash & Beauty High Low Tire Low High B&P Low High Repair Low High Business Frequency Price Traditional E-commerce

11 Since 2014, massive venture capital has flown into the aftermarket E-commerce industry E- commerce Company Platform launch time Remarks A Financing Round B C Jun. 2015 Oct. 2015 (C+) Jul.2015 Tuhu Yangche51 Carzone Autozi Diandian Chemayi E car wash Bopai 2011 2012 2014 2013 2014 2013 2014 Jan. 2013 2014 Jun.2014 (A) Jun. 2015(A+) Mar. 2015 Sept.2014 Apr. 2015 Sept. 2014 Prospective Follower of Tuhu Facing great challenges Business transforming Closed Jul. 2014 Jan. 2016 Dec. 2014 Mar. 2015 May, B2C+O2O B2B O2O platform O2O Door to door 11 service Data Source: Desk research

12 Est.19952010 Platform launch 20142013 SKU50,000+- Warehouse network 10regionwarehouses+ 150retailnetwork 20regionwarehouses Mainproducts Mainlymaintenance parts Partsenquiryandsale SKUChallenge WALMAR T 100+ NAPA400+ Totalparts inChina 10,000+ 12 B2B model: intending to copy NAPA in China? Build efficient parts supply chain to solve the pain point of repair shop Income: by trading commission, 1-3% Pain point of repair shop on parts For reference: Fill rate Quality In time Price Unit: 1,000 Data Source: Desk research

13 Establish 2011 Model B2C+O2O Registercustomers6million Offlinenetwork10,000 Citycoverage330+ ServiceandproductTire,maintenance,accessories 13 Unit: Million RMB *Tire: 80% of revenue in 2015 1,000 12 2012 2015 B2C platform: Most prospective E-commerce model? Incomes: product margin Tuhu : 2.5% of China tire replacement market in 2015 Sales revenue of Tuhu

14 CompanyPreviousbusinessNewbusiness Diandian Onlineorderandofflineservice Carwash&beauty Maintenance Carinsurance Setupdirectcontrolofflinefastrepairoutlets Carwashpackageyearlycard Maintenanceservicepackageyearlycard chemayi Onlineorderandofflineservice Maintenance Carinsurancesubstitutepackageyearlycard Maintenanceservicepackageyearlycard Pickupservice(maintenance) 14 Data Source: Desk research O2O platform: Transforming their business Incomes: unclear

15 CompanyBusiness City coverage Peakdaily order Current dailyorder CurrentStatus Doortodoor carwash NA30,000- Closed Doortodoor maintenance 225,000- Closed Doortodoor maintenance 72,000500 Suspendexpansion Setup2directcontrolofflinerepairshop inBeijing 15 O2O door to door service: Close or suspension Inefficient and low value added Low conversion rate to high customer spendings Data Source: Desk research

16 Carparc.172million Ave.Maintenance frequency 1.5times/year Totalmaintenancedaily orderofwholemarket 700,000 *O2Odoortodoor maintenancedaily order(Present,2016) 2,500 16 O2O door to door: Not a threat but disturb with the price 4S, 72% O2O door to door, less than 0.5% Market structure of maintenance service Large workshop, 8% Fast fits, 14% Roadside garage, 5% Data Source: Ipsos analysis system Basis of estimation:

17 17 Exploratory Integrated Growth Stage Customer volume? Geo- coverage/Manage ment quality? Online offline integration? Cooperative Basic Revenue model? Add value or diversify? M&A?IPO? EV cars repair? DURABLE SUCCESS Interdependent Problems of O2O: Continuous high spendings on traffic; Unclear value creation path; Lack economy of scales, and high complexity of car repair business environment (genuine spare parts/loose coalitions with offline shops); O2O is still on its initial stage Various problems impede channels development

18 18 TRADITIONAL COMPETITIONS INTENSE © 2015 Ipsos.

19 19 Repair Chains started to expand Yr of Est. Number of Chains 2015 2019 Planned Main business Threat Tyre Plus 2003 1300 2500 Maintenance, general repair, B&P  BCS 2001 259+2 1550+2 Maintenance, fast repair, B&P  Harson & Care 2004 130 300 Luxury car repair (MB, BMW, Audi)  Suremoov 2004 700 1500 B&P, Then Maintenance 

20 20 To break away from the bundling relationship with authorized dealers To gradually complete the integration of independent sales/renewal and car service Bargaining power -Overtaking influence on dealer accident business Business concept - Repair not replacement to reduce costs Controllable channel for accident repair - Build own channels with appointed independent workshops Sales/marketing - High spending on advertising and telephone sales BYPASSING dealers; mandatory rule to notify insurer of an accident bring enormous customer traffic Extend to car maintenances -F ree 1-2 maintenances voucher when purchasing car insurance Insurance companies play an increasingly important role

21 22 OEM SOLUTIONS CAR MAKERS FIGHT BACK © 2015 Ipsos.

22 23 OEM Retentions Strategy Mercedes Benz Classified Extended Warranty Package BMW Build up Fast- lane City Shop Jaguar Land Rover Service Package SAIC-GM Caremore: An Independent Fast Fit to Serve All Types of Cars

23 24 MB: Classified Extended Warranty Package PACKAGE 1: Silver Card PACKAGE 2: Blue Card Extended warranty provided for the new cars or cars within warranty Provide different ‘mileage + car age’ combination Target customers are whose cars out of warranty Provide different “mileage + car age” combination

24 25 Engine OilOil FilterAir FilterFuel Filter Pollen Filter Windscreen Wash Brake Fluid JLR: Launched Service Packages to increase Transparency Basic Basic Package (as mentioned) Front Brake Pads (up to 4 sets) Front Brake Discs (up to 2 sets) Back Brake Pads (up to 2 sets) Front Wiper Blades (up to 4 sets) General Spare Parts and Labor costs are both included

25 26 BMW: Fast Lane City Layout Location Staff 4 bays-12 staff;10 bays-22 staff Display Functions Maintenances/Wear & Tear Small repair/ Mechanics Accessory Sales Spare Parts stock

26 28 SAIC-GM : Caremore, an Independent fast fit to serve all types of cars Marketing Alliance E-commerce Extended Warranty Car Tuning On-star Service Current Major business Maintenance Insurance Minor Repair Tyre Authorized by SGM and invested by 4S shop Core business based on simple quick services with high quality Extended Service Projected Used Car Insurance Value-Added Spare Parts Sales Auto Beauty

27 29 IMPLICATIONS TO VGC © 2015 Ipsos.

28 30 Ipsos Auto To-do?

29 31© 2015 Ipsos. Q&A IPSOS SHANGHAI, CHINA [email protected] www.ipsos.com