SEP-22-03 14•38 PROM•CB/SC ON-REC-ON TORONTO THE COMPETITION TRIBUNAL IN THE MATIER OF the Competition Act, R.S.C., 1985, c.C-34, as amended; AND IN THE MkITER OF an inquiry pursuant to subparagraph l 0(1 )(b) (Ii) · of the Competition Act into certain marketing practices of Sears Canada Inc.;
AND IN THE MAITER OF an Application byh Commissioner of Competition for ao order pursuant to section 74.l of the Competition.Act.
BETWEEN: ·-. ___ .111E COMMISSIONER OF COMPETITION Applicant
-and-SEARS CANADA INC Respondent 0 AFF'IDAV lT OF DENNIS DESROSIERS ~Dennis DesR.osiers, oft he City of'R ichmond Hill~ in the Province ofO ntario, MAKE OATII AND SAY:
I. I am the President of DesRosiers Automotive Consultants Inc., an automotive market research and consulting group.
2. Attached hereto and marked as Exhibit "A., is a true copy of my evidence. The contents of /
Exhibit "A" and the opinions expressed therein are to the best of my knowled,,,.oe, infonnation and belief. File No. CT-2002-004
Exhibit No.:_~f?--+/_L/.+---<2:..-------:~:~s~:r_J_a~~-A~q- -A~f~rZ~~~~="~~D-D_Y_
10•4169541470 PACE 2/9 Tribunal File No. CT-2002-004
COMPETITION TRIBUNAL TRIBUNAL DE LA CONCURRENCE Commissioner of Competition vs Sears Canada Inc.
SEP-22-03 14138 FROM:CB/BC ON-REG-ON TORONTO 10:4169541470 PACE 3/9 3. Attached hereto and marked as Exhibit "B" is a true copy of my Curriculum Vitae. 4. I make this affidavit pursuant to Rule 4 7(1) of the Competition Tribunal Ru/es_ SWORN BEFORE ME, at the City of fl"'t..-.< /f.JfI . • in the Province of Ontario, ) this "22.day of September 2003. ) )
COMMISSIONER OF OATHS Dean Salvatore cassar, a Commissioner, etc., Province of Ontario, for the Government of Ganada, lndustJy Canada. Expires September 6, 2005
SEP-22-03 14138 PROH1CB/BC ON-REC-ON TORONTO 1014168541470 Dean SalvatorB cassar, a pommissioner, etc., Provino& of OntariO, for~e Government of Canada. Industry Canada. Expire$ September 6, 2005
., ,
Commissioner of Competition v. Sears Canada Inc.
Expert Witness Report Septernber22,2003 Dennis De.sRosiers
/
SEP-22-03 14139 FROM1CB/BC ON-REG-ON TORONTO OPINION Background
1. I was tet.ained by the Commisfiloner of Competition to provide an opinion regarding certain aspects of the aftermarket for tires in Canada.
Onalifications 2. I have been an automotive sector analyst since 1973 and President of DesRosicrs Automotive Consultants Inc (DAC) since I98S. /Sec Appendix "A".
3. My company has conducted over 3,000 studies on the automotive sector including numerous studies related to the aftcrmarket for vehicles in Canada. Among the studies conducted by DAC is an annual survey of 2.SOO consumers - the Light Vehicle Study - which is purchased by leading aftermarket companies such as Canadian Tll'C, Speedy, Midas, UAP, Uni-Select and others. I have testified as an expert witness in approximately a half-dozen court cases and submitted expert witness reports in approximately a dozen additional court cases. I have published ;well over 100 articles on the aftennarkct in publications like Jobber News and Aftennarket Canada
Structure of the Automotive Mtermarket in Canada 4. The automotive aftermarl<et is that part of the automotive industiy concezned with the manufacturing, re-manufitcturing, ~oution and retailing of all vehicle partS, tools, equipment, accessories, chemicals and services, except those products that are used as original equipment to m.anu:fitcture new vehicles.
5. There are three channels of dfllril>ution in the aftermarlret. The original equipment service (OES) channel .in which co~ers have their vehicle repaired at their vehicle dealer, the tradi1ional aftermarket channel in which consumers have their vehicles repaired at outlets like their independent garage or a specialty shop and the do-it.yourself (DIY) channel in which the consumer simply purchases the required aftennarket parts and do the work themselves.
6. TYPical players within each channel include: Original Equipment Service (usually include$ parts & installation) • Vehicle Company Warehouses • New/Used Car and Light Truck Dealers I Retail I DIY (usually does not include installation) • Mass Merchandisers • Warehouse Clubs 1
10•4169541470 PACE S/9
J SEP-22-03 14•39 PROM•CB/BC ON-REC-ON TORONTO I0•4169S41470 PAGE 6/9 -I • Drug Stores _J • Wholesalers • New Car Dealers J Traditional Aftennarket (usually includes parts & installation) • Traditional Warehouse Distn'butors • Specialty Warehouse Distnl>utors l • · · Buying Groups • 'Wholesalers • Sexvice Stations / / l • Independent Repair Shops • Specialty Repair Shops l 7. Divisions between the channels are not entirely clear-cut. Market competition has led to considerable· overlap - some players compete within two or all three channels. Car dealers, for example, retail over-the-counter parts, repair vehicles ] and wholesale parts to in.dependent garages. Many aftennarket outlets also serve non-automotive markets: heavy-<luty trucks and 1railers, off-highway vehicles, industrial equipment. fann equipment. motorcycles, snowmobiles, and other recreatiooal vehicles. l Size of the Aftermarket for Tires l 8. There are two primacy ways to calculate the size of the aftermarket for tires in Canada. The first is to survey consumers who own passenger cars and light • ] trucks as to.w hether they purchased tires during the ~ 12 months, and, if yes, how many were purcbaSNl This infomiation is then multiplied by the number of light vehicles on the road in C.anada to atlCulate the number !?f tires purchased. ] Light vehicles include passenger~ small to full size pick-up ttUCks,. small to full size sport utility vehicles (SUVs) and SUl8ll to foll size vans. DAC annually eoaducts the SUl'Veys required to do this and has done so as far back as 1990. The ] second is to survey su:ppliCIS as to how many tires they shipped to Canadian retailers. The Rubber Association of Canada (RAC) publishes this information on their website. .l 9. Neither methodology gives 100 percent accurate results. For instance, survey data used by DAC for this report slightly over...stimates the market since some ] coosumers list their tire repaiis as tire replBcements and SOIIle consumers purchase used tires. In addition, survey data. contain errors of estimates due to sampling and consumer IeCall issues. l I 1 ] 2 J
SEP-22-03 14•3S FROMrCS/BC ON-REC-ON TORONTO 1O . The RAC supplier survey slightly underestimates the size of 1he market because not all suppliers participate, it includes ouly domestically shipped tires, it does not ,
include retread tires and there may be other channels where consumeis purchase tires that me not included in the survey.
Table 1: Size of the Tn Market in Canada Total Ught Vehicle rue ,Sl)ipments 1994 1995 1996 1997 1998 1999 2000 2001 Sotlee: RUbber ~of Canada Weosite DesE«>siels Light V-ehicle.studies 191* ID 2001
11 _ In my opinio~ based on these two methodologies the tire market in 1999 was approximately 17-21 million units.
Purchase Incidence 12.. Jn my opbllo~ generally a little ~ a 1bird of consumers m:· Omada purchase tires each year for their light vehicles and this was consistent for 1999. It can be infeIICd from this that ~ shop for tires every two to three years. These
views are consistent with data c.ollected by DAC.
Table 2: The Tue Marlcet it Canada- Incidence of Purchase 1995 1996 1997 Incidence of Purclaase 39% 38% .353, 3
PACE 7/9 IDr41695414?0
DesRosiers' Estimates Millions Millions 15.7 15.8 15.3 18.9 15.5 18.9 15.7 18.2 162 20.8 17.1 21.1 17.2 20.1 18.1 20.5
1998 1999 2000 2001 39% 36% 37% I
SEP-22-03 14•39 PROMsCB/BC ON-REC-ON TORONTO l Number of Tires Purchased per Incidence r 13. In my opinion, consumers in Canada typically pmchase tires in~ either one pair or two pairs at a time. This view is supported by our data. which indicates about 90 percent of consumers purchased tires in this mamier. Our data shows r that in 1999, 89 percent of consumers purchased either two or four tires at the same time. : l 14. In my opinion, a smaller percentage of consumers purchase tires one at a time. Our data for 1999 indicated 8 percent ofc onsumers purchased only one tire. I 15. Consumers would purchase only one tire for a number of reasons including: • Tue failure \ • Defective tire • Road ha2'.ard • Replace the spare tire t Table 3: The ri.re Market in Canada. Number of nres Purchased 1995 1996 1997 Four rues 52% 51% 53% Two1ires 34% 36% 35% One Tire 10% 9% 8% ThreeTires 2% 1% 1% Not Specified 2% 2% 2% Total • 100% 100% 100% Sot.Ira!: OesRosieis Light Vehicle Sludies 1995 to 2001
' Were the Tires Purchased on Sale 16. In my Qpinion, about half of consumers -pay the "regular" price for their tires. This view is supported by the data collected as part of DAC 's light vehicle study in which we began asking this question in 1997. In 1999, SO percent of consumers surveyed indicated they paid the ''tegulaf' price for their tires.
17. A little ovc:r 40 percent of consumers purchase their tires "on sale" and between 2 peroent and 5 percent indicate the cost of their tire is covered by their warranty.
This data is also consistent year to year. / 18. In my opillion, Sears has a high incidence of tires purchased "on sale" at about 85 percent (83 pi;rccnt in: 1999).
4
10•4169541470 PACE 9/9 / 1998 1999 2000 2001 57% 61% 56% 59% 32% 28% 31% 31% 7% 8% 7% 8% 1% 1% 2% 1% 3% 2% 4% 2% 100% 100% 100% 100%
I SEP-22-03 14140 FROM•CB/BC ON-REC-ON TORONTO I Table 4: The Tire Market in Canada· Were the Tires Purchased on SaJe I 1991 I Total Sample Regular Price . 51% OnSale 41% I Wairanty 4% Combination 1% SearsOnly I Regular Price 7% On Sare 91% W8lr8tfy 2% \ Combination 0% I I I I l ' l I I ( l 5 l
10·4169541470 PACE S/S 1998 1999 2000 2001 48% 50% 51% 49% 44% 45% 43% 42°/0 4% 2% 4% 5% 1% 1% 1% 1% ' I 11% 15% 10% 18o/o 84% 83% 84% 82% 5% 0% 6% 0% 0% 2% 0% 0%
PACE 2/4 11 SEP-22-03 14141 FROM•CB/BC ON-REC-ON ~~ - n ",2.o~/.,c..l APPENDIX "A,, n Mr. Dennis DesRosiers Dean Salvatore Cassar, a Cemmis:sioner, etc., President I Province of Ontar.o, for the Government of Canada. .• lndus1ry Canada. Expires Septembers. 2005 I ACADEMIC BACKGROUND: :"I :> Graduate of The Japanese Business Study Program, Oct. 1984. l :> Certified Association Executive, Institute of Association Executives, 1983. I :> Four Years Honours BA in Economics, University of Windsor, Presidenrs Roll of Scholars, 1969-1973. I CAREER BACKGROUND: > President, DesRosiers Automotive Consultants Inc. - on automotive market I reseorch and consulting group founded in 1985. > Taught the ,..Automotive Aftermarket" course ot the Canadian Automotive Institute, I Georgian College, 1990. ). Director of Research, Automotive Parts Manufacturers' Association of Canedo, -I August 1979 t<; 1986. > Senior Auto Industry Analyst, Economic Policy Branch, Ministry of Treasury and I Economics, Government of Ontarlo~ovember 1976 to August 1979. > Economist, Policy Plannidlg Branch, Ministty of Tr eosury and Economics, I Government of Ontario, July 1974 to November 1976 . :> Eleded to 'the Board of Governors at The University of Windsor, September 2000. I. > Chairman, Automotive Advisory Committee, ·Humber College, July 2003. I PERSONAL BACKGROUND: > Som in Windsor, Ontario on September 12, 1950 I I > Married with one child, a daughter. I 6 I I