EVOLVING CONSUMER PREFERENCES – Challenging Opportunities
Key Issues Affecting the U.S. Light Vehicle Market
George M. MaglianoDirector of Automotive Industry Research, Americas
Detroit, 6 October 2005
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Despite Katrina, economy remains robustThe job market has turned aroundOil prices remain major risk in the environmentWhile FED raises interest rates aggressively, overall increase is modestDemographic underpinning to market is solidGeneration mix provides opportunities and threatsPayback for July and ending of employee deals already factored into last month’s forecastImpact of Katrina and higher oil and gasoline prices costs market @ 100,000 to 200,000 units moreInventory rose modestly in August, but is still in line
Economic and Market Overview
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Key Issues Affecting the U.S. Light Vehicle Market
High crude oil prices lower discretionary incomeGasoline prices are high enough to impact vehicle mixCapturing Generation X & Y demands different strategy and productsEnd of mass market / growth of micro segmentation makes creating the right product criticalFight for market share—GM and Ford fight a losing battleShare battle creates intense pricing pressure Over capacity—expected plant closures not enough to relieve pricing pressure Inventory management—inventory swings aggravate pricingPlatform utilization key to managing costs while developing unique products
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Crude Oil Prices—WTI $ Per Barrel
0
10
20
30
40
50
60
1998 2000 2002 2004 2006 2008 20100
10
20
30
40
50
60
Current Base March
High oil prices sap already strapped consumer resources
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U.S. Light Vehicle Sales
15.0
16.0
17.0
18.0
1998 2000 2002 2004 2006 2008 201015.0
16.0
17.0
18.0
Current Base March
Units/MM$10 above base for 12 months lowers sales base by 300k
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U.S. Light Vehicle Sales—Under Different Oil Price Trajectory Scenarios
15.0
15.5
16.0
16.5
17.0
17.5
18.0
2002 2003 2004 2005 2006 2007 2008 2009 2010
``
Hard 80
Thirsty 30
Solid 60
Base
Units/MM
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Assuming people enter the market at age 16 and leave by age 80:
Depression Generation: 1915–1934: 55 million peopleFirst ones enter the driving population in 1931, last ones exit in 2014
Quiet Generation: 1935–1945: 30 million peopleFirst ones enter the driving population in 1951, last ones exit in 2025
Baby Boomers: 1946–1964: 76 million peopleFirst ones enter the driving population in 1962, last ones exit in 2044
Generation X: 1965–1977: 45 million peopleFirst ones enter the driving population in 1981, last ones exit in 2057
Generation Y: 1978–1994: 75 million peopleFirst ones enter the driving population in 1994, last ones exit in 2074
Demographic Shifts—Baby Boomers Drive Current Market, Gen. X & Y Key to the Future
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37
39
41
43
45
47
49
1989 1991 1993 1995 1997 1999 2001 2003 2005
CNW Marketing - Months
(Years)
Median Age—New Vehicle Buyer
Deals and jobs bringing younger buyer back to showrooms
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NUMBER OF MICRO-SEGMENTS PER YEAR
147
208
226232 234
182
50
70
90
110
130
150
170
190
210
230
250
2000 2002 2004 2006 2008 2010
Evolution of U.S. Micro-segmentation
Between 2000 and 2010, the number of micro-segments increases from 147 to 234, an increase of 59%. The bulk of this increase occurs in 2000–2005, as the number of crossover vehicles explodesGM occupies 80 micro-segments, Toyota 40Asians are more efficient at occupying micro-segmentsToyota, Nissan, and Chrysler have the best representation in the fastest growing volume, micro-segments
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2.0
3.0
4.0
5.0
6.0
7.0
2000 2002 2004 2006 2008 201010%
15%
20%
25%
30%
35%
40%
Volume - L Market Share - R
(Units/MM) (Percent)
U.S. Car Sales: Contemporary/Mainstream Cars—The Bastion of Big 3, Toyota, Honda
Toyota moves to Expressive, Honda remains Mainstream
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0.000
0.050
0.100
0.150
0.200
0.250
0.300
0.350
0.400
2003 2005 2007 20090.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
Volume - L Market Share - R
(Units/MM) (Percent)
U.S. Car and Light Truck Sales—Youth Image/Targeted to Younger Buyers
So far models targeted at youth (Scion, Element) are not achieving goals
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0.0
1.0
2.0
3.0
4.0
5.0
2000 2002 2004 2006 2008 20100%
5%
10%
15%
20%
25%
30%
Volume - L Market Share - R
(Units/MM) (Percent)
U.S. Car and Light Truck Sales—Expressive Image/Look at me Design
Expressive design is very risky, Nissan Altima best example
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8.5
9.5
10.5
11.5
12.5
13.5
14.5
Jan-01 Jan-02 Jan-03 Jan-04 Jan-05
Months
(Units in millions)
Big Three Domestic—Car and Truck Sales, SAAR
Annual trend
Loss of share hasn’t occurred overnight
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6.0
6.5
7.0
7.5
8.0
Dec-00 Dec-01 Dec-02 Dec-03 Dec-04
Months
(Units in millions)
Import Brands—Captive and TransplantsCar and Truck Sales, SAAR
Annual trend
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55
60
65
70
75
80
2001 2002 2003 2004 2005
(Percent Responding Favorably)
Univ. of Michigan Survey Months
Buying Conditions: “Do you Think the Next 12 Months Will Be a Good Time to Buy a Car?”
Consumer realizes deals on new models aren’t as sweet
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10
12
14
16
18
20
1999 2000 2001 2002 2003 2004 2005
(Percent)
CNW Marketing Months
Incentives to MSRP
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-2.5%-2.0%-1.5%-1.0%-0.5%0.0%0.5%1.0%1.5%2.0%
1997 1998 1999 2000 2001 2002 2003 2004 2005
(Percent change, year over year)
Source: BLS Months
CPI—New Cars and Trucks
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2.0
3.0
4.0
5.0
6.0
7.0
8.0
1998 1999 2000 2001 2002 2003 2004 2005
(Percent)
MonthsFederal Reserve Board
New Loan Rates—Captive Finance Companies
FED moves already factored into auto loan rates
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50005500
600065007000
75008000
850090009500
1000010500
'97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '1015000
15500
16000
16500
17000
17500
18000
CAR - L LCV - L Total LV Sales - R
(Units in Thousands)
U.S. Sales by Type: 1997–2010
2005 Forecast 16.9 2006 Forecast 16.5
Light truck sales reduced 200,000 per year
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Big Three Market Share—U.S. Sales
10%
15%
20%
25%
30%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010GM FORD CHRYSLER
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U.S. Light Vehicle Sales—SAAR
15.8
16.3
16.8
17.3
17.8
18.3
2001 2002 2003 2004 2005 2006 2007
(Millions of units)
Quarters
Act.. SAAR – Aug 16.7; Est. Sept. 16.1
Annual trend
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U.S. Light Vehicle Inventory
2,600
3,000
3,400
3,800
4,200
1990 1992 1994 1996 1998 2000 2002 2004
Months—Seasonally Adjusted
(Units in thousands)
Sales trend since 1998 has been relatively stable
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U.S. Light Vehicle Inventory—Days Supply
404550556065707580
1992 1994 1996 1998 2000 2002 2004
(Days)
Months – Seasonally Adjusted
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15.0
15.5
16.0
16.5
17.0
17.5
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
North American Light Vehicle Production
(Units in Millions) 2006 Forecast - 15.560 mm or -0.9%
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Assembly Plant Closures
GM Baltimore: Assembly of the Chevrolet Astro and GMC Safari (M-Vans) compact vans ended in May 2005. 200,000 units of capacityGM Doraville: Assembly of the Buick Terraza, Chevrolet Uplander, Pontiac Montana, and Saturn Relay (U2 platform) minivans ends in July 2008. 264,000 units of capacityGM Lansing M: Assembly of the Chevrolet Classic (P90) and Pontiac Grand Am (GMX130) ended in May 2005. 232,000 units of capacityGM Linden Truck: Assembly of the Chevrolet Blazer (GMT330) and GMC Jimmy (GMT330) ended in April 2005. 216,000 units of capacityGM Oklahoma City: Assembly of the Chevrolet Trailblazer EXT, GMC Envoy XL and, Isuzu Ascender EXT will end in August 2007 (GMC Envoy XUV ends in June 2005). 248,000 units of capacityIn 2010, GM's capacity is expected to fall to 4,829,000 units, a reduction of 960,500 units (includes Lansing Delta) from 2005. Capacity utilization would approach 90% based on the current forecast of 4,245,500 units in 2010.Ford should close Wixom (195,000) and St. Louis (204,000) plants
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Big Three Capacity Utilization
75%
80%
85%
90%
95%
100%
1996 1998 2000 2002 2004 2006 2008 2010
Based on 2 Shifts
Plant closures don’t improve utilization much
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Employee price deals will make shift to value pricing difficultPricing on new models not aggressive enoughKatrina has made the environment that much tougher and the risk factor has risen as wellSpike in gasoline prices causes short-term disruptionsLonger term demographics and consumer tastes support and shape the marketProduct, capacity, and inventory have to be aligned to market share in order to relieve pricing pressure
Conclusion
George M. MaglianoDirector of Automotive Industry Research, Americas
E-mail: [email protected]
Tel: +1 212 884 9509