Michigan Automotive Industry UpdateKristin Dziczek – Vice PresidentJoint Revenue Estimating Conference
15 May 2020
2CENTER FOR AUTOMOTIVE RESEARCH
THE CENTER FOR AUTOMOTIVE RESEARCH (CAR)Automotive industry contract research and service organization (non‐profit ) with more than 30 years experience forecasting industry trends, advising on public
policy, and sponsoring multi‐stakeholder communication forums.
Consortia that bring together industry stakeholders to participate in working groups, networking opportunities, and access to CAR staff.
RESEARCH EVENTS CONNECTIndustry‐driven events and conferences that deliver content, context, and connections.
Independent research and analysis on critical issues facing the industry.
3
Coronavirus (COVID‐19) Impact on U.S. Production
Health Crisis
Consumer Demand Drop
Financial Impacts
Supply Chain
Disruptions
Simultaneous
CENTER FOR AUTOMOTIVE RESEARCH
5
Nearly All Automakers & Suppliers Have Detailed “Restart Playbooks”• Redesigning worker flow &
jobs for social distancing• Implementing health checks• Use of PPE• Increased cleaning• Plans for how to handle illness• Planning for higher levels of
absenteeism
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7
U.S. Light Vehicle Monthly Sales (SAAR)1976 – April 2020
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9.2 8.6
0
5
10
15
20
25
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Mon
thly Sales at a
Sea
sona
lly Adjusted An
nual Rate
Monthly Sales 12 per. Mov. Avg. (Monthly Sales)
Source: Wards Auto; CAR Research
8
U.S. Light Vehicle Monthly SalesJanuary 2017 – April 2020
CENTER FOR AUTOMOTIVE RESEARCH
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Ligh
t Veh
icle Sales
2017 2018 2019 2020
Source: Wards Auto; CAR Research
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U.S. Light Vehicle SalesPercent Change (YTD) Through April: 2020 vs. 2019
CENTER FOR AUTOMOTIVE RESEARCH
‐33.3%
‐16.0%
‐21.2%
‐40% ‐35% ‐30% ‐25% ‐20% ‐15% ‐10% ‐5% 0%
Passenger Cars
Light Trucks
Total
Source: Wards Auto; CAR Research
‐1,124,599
+ ‐593,294
‐531,305
Total
Truck
Cars
3,119,546
74.5%
1,064,977
25.5%
4,184,523
100%
10
Percent Change in Sales of Light Vehicles Per OEM:YTD Through April: 2020 vs. 2019
CENTER FOR AUTOMOTIVE RESEARCH
‐32.7%
‐28.1%
‐19.1%
‐19.9%
‐20.2%
‐15.9%
‐14.5%
‐21.2%
‐40% ‐35% ‐30% ‐25% ‐20% ‐15% ‐10% ‐5% 0%
Nissan/Mitsubishi
Honda
Ford
FCA
Toyota
GM
Hyundai‐ Kia
TOTAL LV Sales
Source: Wards Auto; CAR Research
‐1,124,599
‐57,539
‐142,861
‐147,139
‐132,515
‐145,628
‐139,026
‐167,023
Honda
Nissan/Mitsubishi
GM
TOTAL LV Sales
Toyota
Hyundai‐ Kia
Ford
FCA
343,556
8.2%
18.0%
14.7%
753,152
356,536
8.5%
4,184,523
580,441
339,254
534,683
615,50612.8%
8.1%
13.9%
100%
11
Detroit 3 Monthly U.S. Market Share Rose to48.6% in AprilJanuary 2014 – April 2020
CENTER FOR AUTOMOTIVE RESEARCH
48.6
40
41
42
43
44
45
46
47
48
49
50
Detroit 3
Market S
hare (%
)
Source: Automotive News; Wards Auto (January 2018 and on); CAR Research
12
Segment Breakdown: U.S. Light Vehicles Sales Percent Change2020 YTD vs. 2019 YTD Through March
CENTER FOR AUTOMOTIVE RESEARCHNote: Electrified Segment consists of BEVs, HEVs and PHEVs; all other segments are sales exclusive of Hybrid models
Source: Ward’s Automotive Reports and CAR Research
‐41.4%
‐32.7%
‐30.2%
‐13.9%
‐12.6%
‐11.6%
‐9.5%
2.0%
2.3%
‐12.7%
‐45% ‐40% ‐35% ‐30% ‐25% ‐20% ‐15% ‐10% ‐5% 0% 5%
Large Car
Small Car
Luxury Car
Van
SUV
CUV
Middle Car
Pickup
Electrified
Total
13
MI Motor Vehicle & Parts Manufacturing Employment, 2009 – Q1 2020
20.5%
15%
16%
17%
18%
19%
20%
21%
22%
23%
‐
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
200,000
Jan‐09
May‐09
Sep‐09
Jan‐10
May‐10
Sep‐10
Jan‐11
May‐11
Sep‐11
Jan‐12
May‐12
Sep‐12
Jan‐13
May‐13
Sep‐13
Jan‐14
May‐14
Sep‐14
Jan‐15
May‐15
Sep‐15
Jan‐16
May‐16
Sep‐16
Jan‐17
May‐17
Sep‐17
Jan‐18
May‐18
Sep‐18
Jan‐19
May‐19
Sep‐19
Jan‐20
MI’s Sha
re of U
.S. A
uto Em
ploymen
t
Employmen
t
Employment MI Share of U.S. Mar. 2020 170,900
*U.S. data is one month behind state data
Source: Current Employment Statistics, Bureau of Labor Statistics; NAICS 3361 & 3363 Return to OverviewCENTER FOR AUTOMOTIVE RESEARCH
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Michigan is the top state for U.S. light vehicle production (18.5%), but share has been trending downward since 2012
CENTER FOR AUTOMOTIVE RESEARCH
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
0
100
200
300
400
500
600
700
800
900
1,000
J A J O J A J O J A J O J A J O J A J O J A J O J A J O J A J O J A J O J A J O J A J O J A J O J A J O J A J O J A J O J A J O J A J O J A J O J A J O J A J O J A
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Michigan Sh
are of U.S. Light Veh
icle Produ
ction
Ligh
t Veh
icle Produ
ction (Tho
usan
ds of U
nits)
Rest of U.S. Michigan Michigan Share of U.S. 12 per. Mov. Avg. (Michigan Share of U.S.)
Source: Ward’s Auto Intelligence
15CENTER FOR AUTOMOTIVE RESEARCH
U.S. Automotive & Parts Capacity Utilization Fell SharplyAssembly & Parts Capacity Utilization, 2010‐March 2020
0%
20%
40%
60%
80%
100%
120%
J M M J S N J M M J S N J M M J S N J M M J S N J M M J S N J M M J S N J M M J S N J M M J S N J M M J S N J M M J S N J M
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Capa
city Utilization
Capacity Utilization Assembly Capacity Utilization Motor Vehicles & Parts
Source: Federal Reserve Bank of St. Louis Economic Data (FRED)
Profita
ble Ra
nge >8
0%
16CENTER FOR AUTOMOTIVE RESEARCH
Production Ramp‐Up Summary
2020 Projected / 2018‐2019 Average Production
2020 Units Lost Production vis‐à‐vis 2018‐2019 Average Production
North America—All Automakers 75% ‐4.1M
North America—D3 Automakers 73% ‐2.3M
U.S.—All Automakers 77% ‐2.5M
U.S.—D3 Automakers 76% ‐1.3M
Michigan—D3 Automakers 76% ‐485K
Source: CAR analysis of IHS|Markit & LMC Automotive forecastsCENTER FOR AUTOMOTIVE RESEARCH
17CENTER FOR AUTOMOTIVE RESEARCH
North American Production Ramp‐Up2020 Forecast as a Share of 2018‐2019 Actual
0%
20%
40%
60%
80%
100%
120%
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
2020
SHA
RE OF 20
18‐201
9 AC
TUAL
PRO
DUCT
ION
Canada Mexico United States
Source: CAR analysis of IHS|Markit & LMC Automotive forecasts
2019 U.S. production impacted by GM strike 15 September‐25 October
18CENTER FOR AUTOMOTIVE RESEARCH
North American Detroit 3 Production Ramp‐Up2020 Forecast as a Share of 2018‐2019 Actual
0%
20%
40%
60%
80%
100%
120%
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
2020
SHA
RE OF 20
18‐201
9 AC
TUAL
PRO
DUCT
ION
Canada Mexico United States
Source: CAR analysis of IHS|Markit & LMC Automotive forecasts
2019 U.S. production impacted by GM strike 15 September‐25 October
19CENTER FOR AUTOMOTIVE RESEARCH
Michigan Production Ramp‐Up: Statewide2020 Forecast as a Share of 2018‐2019 Actual
Source: CAR analysis of IHS|Markit & LMC Automotive forecasts
‐
50,000
100,000
150,000
200,000
250,000
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
UNITS OF LIGHT
VEH
ICLE PRO
DUCT
ION
Michigan Statewide 2018 Michigan Statewide 2019 Michigan Statewide 2020
76% of 2018‐19 Production‐485K units
CENTER FOR AUTOMOTIVE RESEARCH
2019 U.S. production impacted by GM strike 15 September‐25 October
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Auto Industry Current Financial Situation
• Limited sales and earnings visibility, when ”stay‐at‐home” and “essential business” government mandates enacted on state‐by‐state basis
• Earnings guidance withdrawn by nearly all publicly traded auto companies• Companies rushed to boost liquidity, i.e., cash on hand
• 1Q: 20 earnings results• Focus by investors on liquidity and cash burn• ‘Earnings’ largely not as bad as initially feared
• Some ‘bright spots’ for automakers and suppliers• Light vehicle sales held up better, pre‐”stay‐at‐home” mandates• Product mix, i.e., light trucks• Restructuring and cost‐containment efforts
CENTER FOR AUTOMOTIVE RESEARCH
22
Liquidity Situation – Automakers & Auto Suppliers
CENTER FOR AUTOMOTIVE RESEARCH
• Automakers: • Detroit 3 – drastic measures to boost liquidity, e.g., drawing down credit lines
and issuing debt• Japanese Automakers – unprecedented actions for cash preservation, e.g.,
salaried employee furloughs• Detroit 3 @ ~ 12 months liquidity buffer*; < 6 months for Japanese (except
Subaru @ 10 months)
• Auto Suppliers:• Financially better‐positioned by and large coming into COVID‐19 pandemic vis‐à‐
vis automakers• Most publicly traded suppliers @ > 6 months liquidity buffer*• The full impact of idled production not experienced in 1Q due to 40‐60 day’
payment terms
Source: Bank of America Securities estimates and CAR analysis. Liquidity buffer = theoretical liquidity (months) in ’Zero Revenue’ environment, i.e. total liquidity divided by monthly cash burn, before cost mitigation or cash preservation measures taken by companies, i.e. CAPEX reduction.
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What’s Next?
• 2Q: 20 Outlook• A moving target• Much worse impact to be felt by auto suppliers
• Restart outlook (so far)• Japanese automakers – this week• Detroit 3 – next week
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Outlook: Auto Suppliers Cash Flow Issues
‐12.30%
‐61.40%
‐16.80%
‐80% ‐70% ‐60% ‐50% ‐40% ‐30% ‐20% ‐10% 0%
July vs. June
June vs. May
May vs. April
Payments from Automakers % Change (Assuming May 18 Restart)
CENTER FOR AUTOMOTIVE RESEARCH
• Payments from Automakers at 45‐day Payment Terms, FY2020
• Full impact of ‘Zero Revenue’ not yet experienced for supply base• Cash flow squeeze expected
during June‐July• Implications for suppliers not
yet fully understood, but include financial distress, insolvency, & consolidation
Source: CAR estimates
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Liquidity crisis could turn into an insolvency crisis…
CENTER FOR AUTOMOTIVE RESEARCH
“The passage of time can turn liquidity problems into solvency problems... additional fiscal support could be costly, but worth it if it helps avoid long-term economic damage.“—Fed Chair Jerome H. Powell13 May 2020
https://www.nytimes.com/2020/05/13/business/economy/fed‐chair‐powell‐economy‐virus‐support.html
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Financial Summary / Outlook
• Focus shifting from liquidity / cash burn (1Q) to production restart and supply‐chain risk (2Q)
• Financial distress likely during 2Q; Tier 2‐ and 3 particularly at risk• ‘W‐shaped’ recovery a major concern…• Restructuring & consolidation to return
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Michigan is the Top State for Automotive TradeTop 10 Automotive Exporting States: 2015 to 2019
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0
5
10
15
20
25
30
MICHIGAN TEXAS CALIFORNIA SOUTH CAROLINA
INDIANA OHIO ALABAMA TENNESSEE ILLINOIS KENTUCKY
Billion
s of D
ollars
2015 2016 2017 2018 2019
*NAICS 3361‐3
Source: International Trade Administration TradeStat Express
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Top Ten Destinations of MI Vehicle Exports (3361) In Dollar Terms (USD), 2019
199
212
287
318
348
392
508
553
0 500 1,000
Chile
Kuwait
Australia
Mexico
United Arab Emirates
Saudi Arabia
South Korea
Germany
China
Canada
Millions
Canada56%
China10%
Germany4%
South Korea4%
Saudi Arabia3%
United Arab Emirates
3%
Mexico3%
Australia2%
Kuwait2% All others
13%
CENTER FOR AUTOMOTIVE RESEARCHSource: International Trade Administration TradeStat Express.
7, 244
Return to Overview
30
Top Ten Destinations of MI Vehicle Parts Exports (3363) In Dollar Terms (USD), 2019
145
174
193
217
251
365
514
565
3,106
0 1,000 2,000 3,000
Germany
Turkey
India
Thailand
Brazil
Spain
Italy
China
Mexico
Canada
Millions
4, 727
CENTER FOR AUTOMOTIVE RESEARCHSource: International Trade Administration TradeStat Express.
Canada43%
Mexico29%
China5%
Italy5%
Spain3%
Brazil2%
Thailand2%
India2%
Turkey2%
Germany1%
All Others6%
31CENTER FOR AUTOMOTIVE RESEARCH
Many Michigan‐built vehicles rely heavily on Mexican parts & components content
Automaker Assembly Plant Model2020 AALA Parts Content Share
US/CAN MEX OtherGeneral Motors Flint Truck Sierra HD 41% 46% 13%General Motors Flint Truck Silverado HD 41% 46% 13%Ford Michigan Assembly Ranger 50% 31% 19%FCA Sterling Heights 1500 57% 28% 15%FCA Warren Truck 1500 59% 27% 14%FCA Jefferson North Grand Cherokee 61% 27% 12%FCA Jefferson North Durango 60% 26% 14%Ford Flat Rock Continental 60% 24% 16%General Motors Lansing Delta Township Enclave 54% 22% 24%General Motors Lansing Delta Township Traverse 54% 22% 24%General Motors Orion Sonic 49% 21% 30%Ford Flat Rock Mustang 51% 20% 29%General Motors Lansing Grand River Camaro 59% 19% 22%General Motors Lansing Grand River CT4 59% 19% 22%General Motors Lansing Grand River CT5 59% 19% 22%Ford Dearborn Truck F‐150 56% 16% 28%Ford Dearborn Truck F‐150 SuperCrew 56% 16% 28%General Motors Orion Bolt EV 18% 0% 82%
Source: NHTSA Part 583 Reports, American Automobile Labeling Act data
2020 American Automobile Labeling Act (AALA) Report Content
CENTER FOR AUTOMOTIVE RESEARCH 3232
USMCA Enters Into Force 1 July 2020NAFTA has a single threshold: 62.5 percent originating content
NAFTA was explicitly designed to prevent roll‐ups
NAFTA incorporates a tracing list as one of the measures against roll‐up
NAFTA has no requirements for steel and aluminum sourcing
USMCA has five thresholds, each applying to a different setof parts or finished vehicles, ranging from 65 to 75 percentoriginating content
USMCA rules explicitly allow, even encourage roll‐ups
USMCA abolishes the tracing list but requires more items to be originating
USMCA introduces a requirement for North American steel and aluminum purchases
NAFTA does not have any labor value requirements
USMCA requires a minimum of 40 (45) percent of the value of manufacturing labor incorporated in a car (truck) to have been paid a wage rate above $16 per hour. Up to 10 points of the requirement can be earned via R&D or IT salaries.
NAFTA does not address trade measures other than conditions for tariff‐free access to each country’s market
Provisions within the USMCA and its side letters provide limited protection for Canada and Mexico from a potential §232 tariff placed on imported vehicles and vehicle parts
The USMCA provides limited protection for Mexico in the event that the U.S. raises its MFN tariff rates applied to vehicles and vehicle parts
33
Core Parts Rule + Labor Value Content Rule Combineto Incentivize U.S. & Canadian Production
(engine, transmission, body, chassis, axle, suspension, steering, advanced batteries)
Vehicle Rule of Origin
Core Parts Rule of Origin
Labor Value Content
@$16/hour
More U.S. & Canadian Content
75% 75% 40% C45% T
Cars=25% from materials & manufacturingTrucks=30% from materials & manufacturing
+ + =