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The Future Of The Parts & Service Business In The Age Of Mobility:

Presentation To The Automotive News Fixed Operations Summit.

Frank FerraraPrincipal, Traction Labs LLC

August 9, 2018

Parts & Service In the Age of Mobility

➢ The Big Choice

➢ The Age Of Change

➢ The Drivers Of Change: Mobility

➢Our Big Idea: Neighborhood Mobility Centers

➢Opportunities For Transformation

➢Next Steps

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Parts & Service In the Age of Mobility

➢ The Big Choice

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Used-vehicle department gross as %

of total gross

Other

New-vehicle department gross as %

of total gross

Service, parts and body shop gross as % of

total gross

Source: NADA 2017

26%

24%

49%

Traction Labs’ analysis indicates that Dealer Gross Profit from

Service & Parts

NADA GP

Analysis

Balance Sheet Of A Typical Dealer in 2017

5

will drop by 50% over the next 5-years.

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➢Quality Improvements• Fewer recalls / Over-the-Air Updates

• Improved overall quality

• Electronic Components replacing mechanical components

➢Amazon continues to make inroads in the parts business

➢Increased Safety Equipment / Reduced Collisions

➢Electrification

➢Autonomous Vehicles

➢Mobility

Key Developments Impacting Parts & Service

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The BIG Question: Who Are You ?

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Dealerships Lost 10% of their Gross in the transition to Hybrids.

Hybrids Was Last-decade’s Technology!

What happens when all systems are Electrified?Computerized?Autonomous?

Dealers Are In The Midst Of A Shifting Business Landscape

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Parts & Service In the Age of Mobility

➢ The Big Choice

➢ The Age Of Change

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Cost Of Maintenance over 5 years

$2075

Mass-Market Plug-in HybridMass-Market Sedan

Cost Of Maintenance Over 5 years

$2500

Pipeline Changing:Hybrids costs 20% less in dealer maintenance.

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Mechanical 50%

Powertrain 5%

Electrical/Electronic 20%

Safety & Other 20%

A Rapidly Changing PipelinePipeline Changing:

Mass-Market EV Sedan BOM At A Glance

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-20% -52%

Mass-Market Sedan

Cost of maintenance over 5 years

$2,500

Cost of maintenance over

5 years

Mass-Market EV

$1,000

Cost of maintenance over

5 years

Mass-Market Plug-In Hybrid

$2,075

Pipeline Changing:

Dealership Maintenance Costs Compared

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Parts & Service In the Age of Mobility

➢ The Big Choice

➢ The Age Of Change

➢ The Drivers Of Change: Mobility

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Owning A Car

Part Of A Journey

“Mobility” Is A New Relationship Being Sought By Riders.

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➢ 100x faster; 10x capacity

➢Designed to bridge cyber to physical

➢ Rollout starts June ‘18; full coverage by Q1 2020

Source: TechCrunch

➢Builds on e-commerce platform with powerful VR and AI engines

➢Designed for home and work

➢Gen 3 rollout planned for mid-2018

➢3D recognition is among the fastest growing technologies

➢Enables for security, research and more

➢Replacing cell phone cameras by 2020

Mobility: Powers Driving The Transformation

Significantly Improved Technologies Are Coming.

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➢50mm (2x) subscription rate by 2020;

➢$7Tn economy; $250bn contribution YOY

➢Fastest growing sector of the economy - worldwide

Source: TechCrunch

Mobility: Powers Driving The Transformation

Significantly Improved Technologies Are Coming.

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“Experience” not “Ownership”

➢Hyper-customized

➢Available on-demand

➢Available everywhere

➢ Seamless experience

➢ “Enable Me”

Source: TechCrunch

Mobility: Powers Driving The TransformationTogether, They Will Further Transform The Retail Landscape.

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“Mobility” is Being Powered By The Convergence of These Technologies and A Rapidly Changing Customer.

Mobility• Hyper-customized

• Available on-demand

• Available everywhere

• Seamless experience

• “Enable Me”

“Uber”Services

5GSmart

Connectivity

3D Imaging

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Parts & Service In the Age of Mobility

➢ The Big Choice

➢ The Age Of Change

➢ The Drivers Of Change: Mobility

➢Our Big Idea: Neighborhood Mobility Centers

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Transitioned from Own To Experience

Owning An Experience

Customers Are Transitioning To “Mobility”

Owning A Car

Part Of A Journey

Leverage The Opportunity: Action Plan

Our “Kodak” Moment

Storing A Memory

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The Vision:

Local Dealership As “The Neighborhood Mobility Center”

NOW Neighborhood Mobility Center

Focus: Sales & Service For New & Used Cars

Focus: Be the Multi-brand, Multi-modal transportation center offering customer choices :

➢ Sales, Service

➢ Mobility

➢ Ride sharing

➢ Fleet management

➢ EV/AV infrastructure

➢ Training/Education

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NOW Neighborhood Mobility Center

Goal: Make money by pushing metal

Goal: Make money by meeting all life-cycle & life-time transportation needs

The Vision:

Local Dealership As “The Neighborhood Mobility Center”

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NOW Neighborhood Mobility Center

ROI: Single transaction based process; Extremely competitive, incentive driven businesses with low margins, high inventory --- under threat of OEM

ROI: Plus Revenue at each “transportation service node”; Service centric, offering a local bridge between OEM’s and local community; low inventory; high-service model

The Vision:

Local Dealership As “The Neighborhood Mobility Center”

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NOW Neighborhood Mobility Center

RESULT: Low income sales and service jobs

RESULT: High income, technology and service focused jobs

The Vision:

Local Dealership As “The Neighborhood Mobility Center”

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The Vision:

Local Dealership As “The Neighborhood Mobility Center”

That was where we bought Coffee This is YOUR Coffee now …..

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Parts & Service In the Age of Mobility

➢ The Big Choice

➢ The Age Of Change

➢ The Drivers Of Change: Mobility

➢Our Big Idea: Neighborhood Mobility Centers

➢Opportunities For Transformation

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Keys to a Parts & Service Action Plan

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➢Don’t add any more overhead costs! Move service offsite if you need more capacity!

➢Grow Service Retention from the current 35% at year 3 to 75%

➢Get in the Rental business – it’s the first step to subscriptions

➢Focus on Used Vehicle Sales & Service

• Customer Service Retention

• Maintenance Contracts

• Extended Service Contracts

➢Expand operations to 24x7 7 days a week

➢Sell additional services• Detailing

• Software updates

➢Figure out how to get fleet service business

Embrace Opportunities For Growth:

Neighborhood Support Center For On-Demand Services

Embrace local ride-hailing companies with special services that enable them to maintain their cars in peak form – maximizing their performance ranking.

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Encourage local automotive entrepreneurs with specialized automotive innovation spaces, training and services that helps build local relationships.

Embrace Opportunities For Growth:

Neighborhood Center For Automotive Entrepreneurs

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Demand for BEV’s, FCEV and alternate fuels charging stations is very high - there is a need for local charging stations and related services.

Tesla Charging Station at Harris RanchLocal Businesses are up 20% since installation

Embrace Opportunities For Growth:

Neighborhood Alternate Fuel Support Center

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Create & support a custom fleet of vehicles that help local businesses with their delivery, service needs.

Embrace Opportunities For Growth:

Neighborhood Transportation Center

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Embrace Opportunities For Growth:

Autonomous Vehicle Support Center

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Embrace Opportunities For Growth:

Autonomous Vehicle Support Center

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Embrace Opportunities For Growth:

Autonomous Vehicle Support Center

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Large opportunity for growth in these services.

Neighborhood Mobility Center can transform the way you do business – changing the way you look at cars!

Each of These Are Opportunities For Increasing Foot-traffic …. Embracing change, ensuring long-term growth.

Used-vehicle department gross as %

of total gross

Other

New-vehicle department gross as %

of total gross

Service, parts and body shop gross as % of

total gross

26%

24%

49%

NADA GP Analysis

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Neighborhood Mobility Services

Center

Opportunity 2023

75%

Traditional Sales & Services

25%

Each of These Are Opportunities For Increasing Foot-traffic …. Embracing change, ensuring long-term growth.

Used-vehicle department gross as %

of total gross

Other

New-vehicle department gross as %

of total gross

Service, parts and body shop gross as % of

total gross

26%

24%

49%

NADA GP Analysis

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Parts & Service In the Age of Mobility

➢ The Big Choice

➢ The Age Of Change

➢ The Drivers Of Change: Mobility

➢Our Big Idea: Neighborhood Mobility Centers

➢Opportunities For Transformation

➢Next Steps

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Traction Labs Steps To Business Transformation & Growth

Think

Assess current business mix

Translate

Develop a vision for what your Mobility business can be

Test

Commit to a long-term plan

Transform

Take the leap!

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Traction Labs Steps To Business Transformation & Growth

Balance sheet analysis: Sales mix and footprint

Local neighborhood analysis

Model and lineup

Staff capabilities

OEM support preparedness

Fleet support service capabilities

Transformation readiness

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2

3

4

5

6

7

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Thank You For Your Attention

Frank FerraraPrincipal, Traction Labsemail: frank.ferrara@outlook.comPhone: 714-743-2352

Ravindra KondaguntaFounder,Traction Labs LLCemail: ravi@traction-labs.comPhone: 949-540-5508