Post on 31-Dec-2015
description
transcript
Industry Updatefor
Larry H. Miller Automotive
1/19/11
2
Daily interaction with all the players
– Manufacturers, captive finance companies, banks, credit unions, sub-
prime lenders, rental companies, and commercial fleets
– Dealers: franchised, independent, and wholesalers
Used vehicle market is:
– Large: $370 billion annually at retail in the U.S.
– Inextricably entwined with new vehicle market
– More representative of the national population than the new vehicle market
Real-time pricing information
– Derived in a competitive-bid process with knowledgeable parties on both
sides of the transaction
A view of future supply trends into the used vehicle market
Generally speaking, markets know more
than the people who write about them”
Jim Grant
Auction Industry Offers Unique Vantage Point From Which to Assess Industry Trends
3
Topic outline
Economic environment
New and used vehicle retail markets
Wholesale used vehicle pricing and supply
4
The recovery: an upward slanted “W”
Financial crisis leaves lasting scars
De-leveraging is slow and painful process
Policymakers add obstacles and uncertainty
Second dip in housing is likely
Quantitative easing part deux
Lasting weakness in the labor market
The reasons why
5
Nonfarm Payrolls Increase by
1.1 Million in 2010
-800
-600
-400
-200
0
200
400
600
Dec-92 Dec-94 Dec-96 Dec-98 Dec-00 Dec-02 Dec-04 Dec-06 Dec-08 Dec-10
Source: Bureau of Labor Statistics
Monthly Change in Nonfarm Payrolls (in thousands)
6
-800
-600
-400
-200
0
200
400
Jan-08
May-08Sep-08
Jan-09
May-09Sep-09
Jan-10
May-10Sep-10
Jan-11
Total Private Sector
Monthly Change In Nonfarm Payrolls3-month moving average – in thousands
Source: Bureau of Labor Statistics
7
8
9
200,000
300,000
400,000
500,000
600,000
700,000
Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10
Source: Bureau of Labor Statistics
Initial Jobless Claims Show Signs of Improvement
Initial Jobless Claims - Four-Week Moving Average
10
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Personal income Wages & salaries
Source: Bureau of Economic Analysis
Personal Income & Wages and Salaries
Year-over-year percent change based on 3-month moving average
11
Retail Sales Recover from Summer Slowdown
-2%
-1%
-1%
0%
1%
1%
2%
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Retail Sales, excluding motor vehicles - Monthly Percent Change - Seasonally Adjusted
Source: U.S. Department of Commerce
12
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
Jan-95Jan-97
Jan-99Jan-01
Jan-03Jan-05
Jan-07Jan-09
Jan-11
Source: Bureau of Economic Analysis
Personal Savings as % of Disposable Personal Income
Savings Rate Rises
13
Household net worth dips againin second quarter of 2010
0%
0%
0%
0%
0%
0%
1998
Q1
2000
Q1
2002
Q1
2004
Q1
2006
Q1
2008
Q1
2010
Q1
Source: Federal Reserve Board
Percent Change from Previous Quarter
14
Household net worth recovers, but remains $11 trillion below its peak.
$0
$10
$20
$30
$40
$50
$60
$70Household Net Worth – In Trillions
15
New and Used Vehicle Retail Markets
16
4
6
8
10
12
14
16
18
20
1960 1970 1980 1990 2000 2010
New Vehicle Sales
millions of units
Source: Automotive News
Peak-to-troughs:
1973 to 1975 -24%1978 to 1982 -33%1986 to 1991 -23%2000 to 2009 -41%
New Car & Light-Duty Truck Sales
17
Annual % Change in New Vehicle Sales versus % Change in Real GDP
Source: Automotive News & Bureau of Economic Analysis
1960 to 2009
19661982
2009
y = 0.0414x - 0.1153
R2 = 0.6607
-30%
-20%
-10%
0%
10%
20%
30%
40%
-4% -2% 0% 2% 4% 6% 8%
Real GDP
New
Veh
icle
Sal
es
18
9
10
11
12
13
14
15
16
17
18
19Ja
n-8
6
Jan
-88
Jan
-90
Jan
-92
Jan
-94
Jan
-96
Jan
-98
Jan
-00
Jan
-02
Jan
-04
Jan
-06
Jan
-08
Jan
-10
millio
ns o
f u
nit
s
Source: Automotive News
Seasonally Adjusted Annual Rate - 3-Month Moving Average
New Car & Light-Duty Truck Sales
19
Scrappage as % ofVehicles in Operation
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Source: R.L. Polk
20
Ratio of New Vehicle Sales to Number of Households
7%
9%
11%
13%
15%
17%
19%
21%
23%
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Source: Automotive News & U.S. Dept. of Commerce
21
Annual Growth of Vehicles in Operation
0.0
1.0
2.0
3.0
4.0
5.0
6.0
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Source: R.L. Polk
Five-year Moving Average - In Millions
22
4
6
8
10
12
14
16
18
20
1960 1970 1980 1990 2000 2010
New Vehicle Sales:A long-term perspective
millions of units
Source: Automotive News
New Car & Light-Duty Truck Sales
Used Vehicle Production
23
Vehicles in Operation from 2 & 3 Model Years Past (in millions of units)
0
5
10
15
20
25
30
35
40
24
Vehicles in Operation from 6, 7, & 8 Model Years Past (in millions of units)
0
5
10
15
20
25
30
35
40
45
50
1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016
25
Used Vehicle Retail Sales
10
15
20
25
30
35
40
45
50
1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Mil
lio
ns
Total Dealers
Source: CNW Marketing Research
26
Used Vehicle Sales Inherently More Stable then New Vehicle Sales
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
1978 1982 1986 1990 1994 1998 2002 2006 2010
New Vehicle Sales Used Vehicle Sales
Source: Automotive News & CNW Marketing Research
• In 25 of the last 33 years, the absolute % change in new vehicle sales was greater than for used vehicles.
• Used vehicle retail sales perform considerably better than new vehicles during an economic recession.
• The simple correlation between changes in new vehicles sales and real GDP is .79; for used vehicles it is only .54
• Used vehicle sales are more of a “need” rather than discretionary purchase. There is also substitution from new purchases to used purchases during times of economic weakness.
27
Ratio of Used Vehicles Retailedto New Vehicles Retailed
1.0
1.5
2.0
2.5
3.0
3.5
4.0
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
Source: Automotive News & CNW Marketing Research
28
% Change Used Units Retailed – Same Store Basis (Publicly-traded Dealership Groups)
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
2004 2005 2006 2007 2008 2009 2010
Source: Company filings
Weighted average for KMX *, AN, PAG, SAH, GPI, ABG, and LAD
*KMX shifted forward one month to correspond with calendar quarter
29
Wholesale Supplies
30
New Vehicle Sales Into Rental &Rental Fleet Size
0.8
1.0
1.2
1.4
1.6
1.8
2.0
2.2
1998 2000 2002 2004 2006 2008 2010
Mil
lio
ns
New Purchases Average Fleet Size
Source: Bobit Business Media
31
New Vehicle Sales into Rental
50,000
150,000
250,000
350,000
450,000
550,000
650,000
750,000
850,000
2002 2003 2004 2005 2006 2007 2008 2009 2010
GM Ford Chrysler
Source: Bobit Business Media
32
Distribution of New Vehicle Sales into Rental - Program versus Risk
0%10%20%30%40%50%60%70%80%90%
100%
Program Risk
Source: Bobit Business Media & Manheim Consulting
33
Average Auction Price – Rental Risk Units
$8,500
$9,000
$9,500
$10,000
$10,500
$11,000
$11,500
$12,000
$12,500
$13,000
$13,500
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2007 2008 2009 2010
Source: Manheim Consulting
34
Average Mileage – Rental Risk Units
20,000
25,000
30,000
35,000
40,000
45,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2007 2008 2009 2010
Source: Manheim Consulting
35
New Lease Originations
3.43.7
3.5
2.72.5
2.1 2.12.5
2.7 2.7
2.0
1.1
1.7
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
1998 2000 2002 2004 2006 2008 2010
Source: Manheim Consulting
Millions of Units
36
Lease Penetration Ratesby Manufacturer
2008 2009Nov YTD
2010
Chrysler 17.0% 2.9% 8.8%
Ford 15.1% 5.5% 9.7%
GM 11.1% 2.1% 8.2%
Honda 19.4% 18.6% 28.2%
Toyota 15.8% 15.7% 24.7%
Hyundai 2.4% 2.2% 12.0%
BMW 51.0% 51.3% 48.4%
Mercedes-Benz 49.2% 46.6% 51.3%
Total Industry 17.9% 13.1% 18.9%
Source: J.D. Power and Associates
37
Ford Credit Auction Values at Constant Third Quarter 2010 Mix
$16,540
$14,675
$16,670
$17,820
$19,385
$18,010 $18,235$18,860 $19,030
$13,675
$11,900
$13,375
$14,775
$15,615$15,080
$15,545$16,165 $16,235
$11,000
$13,000
$15,000
$17,000
$19,000
$21,000
2008
Q3
2008
Q4
2009
Q1
2009
Q2
2009
Q3
2009
Q4
2010
Q1
2010
Q2
2010
Q3
24-month leases 36-month leases
Source: Ford Credit
38
60%
70%
80%
90%
100%
110%
120%
130%
2007Q3 2008Q3 2009Q3 2010Q3
Source: Ally
GMAC Sales Proceeds as % of ALG – U.S. Lease Terminations
39
Off-Lease Volumes – Another Down Cycle Ahead
1.0
1.5
2.0
2.5
3.0
3.5
4.0
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
E
2011
E
2012
E
2013
E
2014
E
2015
E
mill
ion
s o
f u
nit
s
Source: Manheim Consulting
41
Repossession Volumes Decline in 2010
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
2.2
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: Manheim Consulting
Millions of Units
42
Repossession Frequency & Severity –Ford Credit
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
Severity (dollars per vehicle)
Frequency (as % of contracts outstanding)
Source: Ford Motor Credit
2007 201020092008
43
Source: GM Financial
44
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
Oct-05 Apr-06 Oct-06 Apr-07 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10
Auto Index Bank Card Index First Mortgage Index
Source: S&P / Experian
Credit Default Rates
45
Auto ABS Issuance (in billions)
$0
$5
$10
$15
$20
$25
$30
1Q 07 1Q 08 1Q 09 1Q 10
Source: Securities Industry and Financial Markets Association
46
New Vehicle Sales into Commercial and Government Fleets
0
200
400
600
800
1,000
1,200
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 e
Th
ou
sa
nd
s
Commercial Government
Source: Bobit Business Media
47
New Vehicle Sales to Commercial Fleets
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
2002 2003 2004 2005 2006 2007 2008 2009 2010
GM Ford Chrysler
Source: Bobit Business Media
48
Level of new vehicle sales
Level of retail used vehicle sales
Gross margin and inventory turn for retail used vehicles
Dealership wholesaling percentages
Share of wholesale volume captured by NAAA member auctions
What Drives Dealer Consignment Volumes
49
1
2
3
4
5
6
Mil
lio
ns
The Forecast:
Source: 1999-2009 NAAA Surveys, 20010-2015 Manheim Consulting estimate
Dealer Consigned Vehicles Sold at NAAA Member Auctions
50
Auction Volumes
0
2
4
6
8
10
2004 2005 2006 2007 2008 2009 2010 2011e
2012e
2013e
Mil
lio
ns
Dealer Rental-program Rental-risk Repos Off-lease All other
Source: Manheim Consulting
51
Manheim Used Vehicle Value Index
All Manheim U.S. sales (5+ million annually)
Classify by market segment
Account for shifts in mileage
Weight to provide unchanging mix
Seasonally adjust
Steps:
A single measure of used vehicle price change that is independent of underlying shifts in the characteristics of vehicles being sold
Concept:
52
95
100
105
110
115
120
125
Jan-95
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Source: Manheim Consulting
January 1995 = 100
Manheim Used Vehicle Value Index
53
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Manheim Used Vehicle Value Index –Annual Average Percent Change
Source: Manheim Consulting
54
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
1Q96
1Q97
1Q98
1Q99
1Q00
1Q01
1Q02
1Q03
1Q04
1Q05
1Q06
1Q07
1Q08
1Q09
1Q10
Manheim Used Vehicle Value Index –Quarterly Percent Changes
Source: Manheim Consulting
55
50
60
70
80
90
100
110
120
130
140
150
Jan-70 Jan-80 Jan-90 Jan-00 Jan-10
Source: Bureau of Labor Statistics
New Vehicle CPI1982-1984 = 100
56
Manheim Index versus Mix & Quality AdjustedNew Vehicle Price 3 ½ Years Prior
30%
35%
40%
45%
50%
55%
Jan-9
5
Jan-9
6
Jan-9
7
Jan-9
8
Jan-9
9
Jan-0
0
Jan-0
1
Jan-0
2
Jan-0
3
Jan-0
4
Jan-0
5
Jan-0
6
Jan-0
7
Jan-0
8
Jan-0
9
Jan-1
0
Jan-1
1
Source: Bureau of Labor Statistics & Manheim Consulting
57
New Vehicle Inventory Count
1.5
2.0
2.5
3.0
3.5
4.0
4.5
J an-86 J an-91 J an-96 J an-01 J an-06 J an-11
Millio
ns
Source: Automotive News & Manheim Consulting
12-month moving average
58
The Restructured Automotive Industry
-$10.6 B @ 17.0 M in ’05
+$4.8 B @ 11.6 M in ‘10
59
Outlook and Implications
New vehicle sales– A lower underlying trend
– Movements around that trend driven by labor market and credit conditions
– Manufacturers maintain inventory and pricing discipline
Retail sales and profits continue to shift in favor of used vehicles
Less supply and stable demand means strong used vehicle pricing
Economic recovery may surprise to the upside in the near-term,
but we will fail to achieve previous peaks in employment, household
net worth, and new vehicle sales prior to the next recession.
60
Price Changes for Selective Market Classes
7.4% 7.4%6.3%
5.2%
9.5%8.8%
12.5%
0%
2%
4%
6%
8%
10%
12%
14%
Total Compactcars
Midsizecars
Luxurycars
Pickups SUV / CUV Vans
Source: Manheim Consulting
Annual Average % Change, 2009 - 2010
61
$9,000
$10,000
$11,000
$12,000
$13,000
$14,000
$15,000
$16,000
$17,000
$18,000
$19,000
Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11
Unadjusted Mileage & Seasonally Adjusted
Source: Manheim Consulting
Average Auction Price –Fullsize SUVs