Outlook for the Auto Industry University of Michigan * Auto Lunch Series September 11, 2006.

Outlook for the Auto Industry

University of Michigan * Auto Lunch SeriesSeptember 11, 2006

DC Strategy, Alliances & Business DevelopmentEconomic & Market Intelligence (S/E)

Ability To Buy

August ’05 August

‘06

Disposable Income Green Yellow

Household Debt Green Yellow

Yield Curve Green Red

Inflation Green Red

Composite Green Red

Auto Industry Leading Indicators


-8

-6

-4

-2

0

2

4

6

8

'82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06

% ChangeYear Over Year

6.6%

- 4.2%

1.1% July

Real Disposable Income

Per Household


10.5%

11.0%

11.5%

12.0%

12.5%

13.0%

13.5%

14.0%

14.5%

15.0%

15.5%

'83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07

Installment, Mortgage & Auto Leases

% of DisposablePersonal Income

15.4%

Consumer Debt Payments

14.7%June


-4

-2

0

2

4

6

'57 '61 '65 '69 '73 '77 '81 '85 '89 '93 '97 '01 '05

10 Yr Minus 1 Yr Treasuries

PercentagePoints

-15 -11

OilShock

OilShock

- 0.21%Aug

-12 -19 -13 -14 -12

The Yield Curve


0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

'00 '01 '02 '03 '04 '05 '06 '07

Percent

5.25

6.50

1.00

U.S. Federal Funds Target


-4

-2

0

2

4

6

8

10

12

14

16

18

'78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06

All Items, Not Seasonally Adjusted

% Change Yr/Yr

6.3% 4.1% July

14.8%

Consumer Prices


0

2

4

6

8

10

12

14

16

18

'78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06

5.6%

All Items Less Food & Energy, NSA

% Change Yr/Yr

2.7% July

13.6%

Consumer Prices: Core Inflation


-2.5%

-1.5%

-0.5%

0.5%

1.5%

2.5%

3.5%

4.5%

'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07

% Change Year/Year

+ 0.4%July

Monthly Data

New Vehicle Consumer Prices


Willingness to Buy

'91 '92 '93 '94 '95 '96 '97 '98 '99 '00-10

-5

0

5

10

15

20

August ’05 August

‘06

Consumer Attitudes Green Yellow

Unemployment Claims Green Green

Workweek Yellow Green

Stock Market Green Green

Composite Green Green

Auto Industry Leading Indicators


40

60

80

100

120

140

'82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06

Index

58.1

90.8 Aug

Consumer Attitudes

128.4

Average of U of M & Conference Board

Source: University of Michigan & The Conference Board


70

80

90

100

110

120

130

140

150

160

170

'82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06

Index

165

119

124August

Buying Conditions for Vehicles

104

Bad

Good

164

Source: University of Michigan

During Next 12 Months


20

40

60

80

100

120

140

160

180

200

'82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06

During Next 12 Months

Index

175

102

117 August

Buying Conditions for Houses

106Bad

Good 175

Source: University of Michigan


200

300

400

500

600

700

'82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06

Thousands

Initial Unemployment Claims

501

674

268287

315

497

4 Week Moving Average


37

38

39

40

41

42

43

'82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06

Includes Part-time & Overtime

Hours

41.3 August

Manufacturing Workweek

40.039.7


4.4 4.3

-0.1

2.3

3.6

0.40.2

5.1

1.9

-0.6

6.37.0

1.1

4.1

0.0

3.0

6.0

1.8

5.6

-0.5

1.6

-2

0

2

4

6

8

10

Q1 '01 Q1 '02 Q1 '03 Q1 '04 Q1 '05 Q1 '06

% ChangePrevious Quarter

SAAR

U. S. Productivity

9.6


0

2,000

4,000

6,000

8,000

10,000

12,000

'82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06

11,257Aug

Index

Stock Market

Dow Jones Industrial Average


-2

-1

0

1

2

3

4

5

6

7

8

'00 '01 '02 '03 '04 '05 '06

U. S. Economic Growth

% change

7.5%

6.4%

5.6%

Quarterly SAAR Data

2.9%

The Effect of Gas Prices on Auto Sales


2004 2005YTD2006

Total Industry 17.3 17.4 17.2

Light Vehicles, Million Units

U. S. Auto Industry Sales


2005 Dollars Per Barrel

Oil Prices

OilShock

OilShock

0

10

20

30

40

50

60

70

80

90

100

'70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06

$ 73 August

Real

Nominal

$94


OPEC Spare Capacity

0

1

2

3

4

5

'99 '00 '01 '02 '03 '04 '05 '06

MMB/D

PIRA Forecast


Major Output Risks

Iraq: 1.9 MMB/DPipeline SabotagePolitical Instability

Saudi Arabia: 9.3 MMB/DInfrastructure Sabotage

Venezuela: 2.6 MMB/DPost-Referendum

Lack of InvestmentLingering Strike Effects

Russia: 9.3 MMB/DYukos Affair

Pipeline SabotageChechnya

Nigeria: 2.3 MMB/DLabor TensionsEthnic Tensions

WeatherAccidents

Loading Delays

NotionalSpare Capacity

0.84 MMB/D

Iran: 3.9 MMB/DConfrontation OverNuclear Weapons

Possible UN Sanctions

2006 Q2


Oil Inventories

250

300

350

400

'88 '90 '92 '94 '96 '98 '00 '02 '04 '06

Millions ofBarrels

U.S. Excluding Strategic Reserve Units


Crude Oil, Light Sweet

Non-CommercialLong Positions# of Contracts

Oil Futures Speculation

0

50,000

100,000

150,000

200,000

250,000

Jan'02

May'02

Sep'02

Jan'03

May'03

Sep'03

Jan'04

May'04

Sep'04

Jan'05

May'05

Sep'05

Jan'06

May'06

Sep'06


Current Oil Price Forecasts

West Texas Intermediate, $/bbl

* July ’06

PIRA

Global Insight

Macro Advisors

Energy Information Agency

Average

2004 2005 2006 2007

Actual Forecast *

$ 41 $ 56

$ 70

72

71

69

$ 71

$ 67

76

74

69

$ 72


Cents Per Gallon(2005 $)

0

50

100

150

200

250

300

350

'78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06

Real

Nominal

$3.06

$1.13

$3.00 August

Gasoline Prices

Average All Types


3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

'59 '62 '65 '68 '71 '74 '77 '80 '83 '86 '89 '92 '95 '98 '01 '04 '07

6.3% July

% of Disposable Income

Consumer Spending

Energy Goods & Services


Cost Per Mile Driven

0

2

4

6

8

10

12

14

16

18

20

'7519

7719

79 '8119

8319

85 '8719

8919

91 '9319

9519

97 '9920

0120

03 '05

Cents

Trucks

Cars


2001

2002

2003

2004

2005*

2006

22nd

19th

13th

11th

9th

4th

* Pre-Katrina/Rita

Ranking

Importance of Fuel Economy inVehicle Buying Decisions


20%

30%

40%

50%

60%

70%

80%

'86 '88 '90 '92 '94 '96 '98 '00 '02 '04

Cars

Trucks

% Share of LightVehicle Industry

U. S. Auto Industry

Car/Truck Mix


35

40

45

50

55

60

65

Jan'04

Apr'04

Jul'04

Oct'04

Jan'05

Apr'05

Jul'05

Oct'05

Jan'06

Apr'06

Jul'06

Oct'06

% Share of LightVehicle Industry

Trucks

Cars

U. S. Auto Industry

Car/Truck Mix


0

5

10

15

20

25

Jan'04

Apr Jul Oct Jan'05

Apr Jul Oct Jan'06

Apr July Oct

Share of Total Light Vehicle Industry

Full & Large SUVs

Pickups

Sports Tourers

Mid Size SUVsMinivans

Small & Compact SUVs

U.S. Auto Industry

Market Share: Light Trucks


Used Vehicle Prices & Gasoline

Compact Cars & Full Size SUVs

-0.15

-0.10

-0.05

0.00

0.05

0.10

0.15

0.20

0.25

0.30

Jan '02 Jan '03 Jan '04 Jan '05 Jan '06

100

150

200

250

300

350Compact Car

(left scale)

Gas Prices(right scale)

Full Size SUVS(left scale)

% ChangeYr/Yr

Cents per Gallon


20

30

40

50

60

70

80

Jan'04

Apr'04

Jul'04

Oct'04

Jan'05

Apr'05

Jul'05

Oct'05

Jan'06

Apr'06

Jul'06

Oct'06

% Share of SUV

Off-Road

On-Road

U. S. Auto Industry

SUV On-Road / Off-Road Mix


Light Vehicle Production

Industry, NAFTA

200520062007

(in 000)

’06/’05’07/’06

% Change Yr/Yr

3,9654,1303,990

4,1384,1023,983

3,7313,4733,701

3,9193,4683,826

15,75315,17315,500

Q1 Q2 Q3 Q4 Total

+4.2%- 3.4%

- 0.9%- 2.9%

- 6.9%+6.6%

- 11.5%10.3%

- 3.7%+2.2%


Stock Days Supply

Chrysler Group

General Motors

Ford Motor Co.

503

969

662

76

72

75

Stock and Days Supply



2006 2007

Outsiders

Blue Chip

DaimlerChrysler

17.1

17.1

17.3

17.0

16.8

17.0

Forecast Consensus


Outsides include Global Insight, J.D. Power, CSM & Mike Lucky


0

2

4

6

8

10

12

14

16

18

20

'60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10

U.S. Auto Industry

Million Units

17.8

Number of Vehicles per Year

4%/Yr

OilShock

OilShock

2%/Yr 0.8%/Yr

1.0%/Yr16.3

12.5

10.5

15.4


2006Total Worldwide Sales

57 M

NAFTA33.7%

W. Europe26.2%

Japan8.4%

China6.8%

NAFTA30.8%

W. Europe21.6%

Japan7.1%

China9.8%

Worldwide Vehicle Sales

India2.1%

ROW22.8%

2017Total Worldwide Sales

71 M

India4.6%

ROW26.1%

Passenger Vehicles


4,400

2,449

378

570

436

1,425

1,004

2,057

953

1,140

14,812

Segment Growth – 2006 - 2017

Small Car

Compact Car

Standard Car

Luxury Car

Specialty Car

MPV

Sports Tourer

SUV (On)

SUV (Off)

Pick-up

TOTAL PV

302

91

-193

58

306

116

514

964

377

371

2,906

-126

74

-30

26

59

153

172

265

-9

1

585

216

43

17

22

1

-167

27

87

53

4

303

671

933

358

278

22

400

64

254

110

114

3,151

1,240

102

33

11

1

322

114

45

158

99

2,124

2,150

1,207

192

176

47

602

114

442

264

551

5,744

World NAFTA W. Europe Japan China India ROW

Volume, Thousands of Units


Segment Growth – 2006 - 2017

Small Car

Compact Car

Standard Car

Luxury Car

Specialty Car

MPV

Sports Tourer

SUV (On)

SUV (Off)

Pick-up

TOTAL PV

6.9

3.7

-51.1

10.1

70.2

8.1

51.1

46.9

39.5

32.6

19.6

-2.9

3.0

-7.9

4.5

13.6

10.7

17.1

12.9

-0.9

0.1

4.0

4.9

1.8

4.5

3.8

0.2

-11.7

2.7

4.2

5.5

0.3

2.0

14.0

38.1

94.9

48.7

5.0

28.1

6.3

12.3

11.6

10.0

21.3

28.2

4.2

8.7

1.9

0.2

22.6

11.3

2.2

16.5

8.7

14.3

48.9

49.3

50.8

31.0

10.7

42.2

11.4

21.5

27.7

48.3

38.8

NAFTA W. Europe Japan China India ROW

Percent of Total World PV Growth


Economic growth expectations for the second half of 2006 are for below trend at 2.5% due to a combination of the downturn in the housing market, the volatility in the oil markets and high commodity prices.

The Federal Reserve held the Fed Funds rate at 5.25% at its August meeting ending its tightening bias. The meeting minutes from the FOMC indicate that more hikes might be needed due to continuing concerns over consumer prices. The consensus remains for a hike to 5.5% by the end of the year.

Consumer confidence lost ground overall in August, but showed some improvement toward the end of the month as gas prices and inflation expectations fell. Home and vehicle buying attitudes were at their lowest levels since 1990.

The end of the peak driving season and the lack of hurricane activity in the Gulf of Mexico have brought gasoline prices down by over 30 cents per gallon. Most analysts expect the drop to be limited; the hurricane season is only half over, strong world demand is still evident, and geopolitical risks still remain.

Auto industry sales will likely continue to move towards more fuel efficient vehicles. The shifts between segments will not be great, but consumers will shift within segments to more efficient entries. Overall industry sales are likely to be flat to down this year (with risks on the down side) and down modestly in 2007 as the economy slows and consumers feel the pinch of higher debt service costs and falling housing prices, as well as continued expensive energy.

Conclusions

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Outlook for the Auto Industry University of Michigan * Auto Lunch Series September 11, 2006.

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