US - Light Vehicle Outlook
George Magliano
Senior Principal Auto Economist – Americas, HIS
January 2012
Copyright © 2012 IHS Inc. All Rights Reserved.
• Of the 27 European Union nations, 26 nations agree to the principles of the new
treaty – coordinated fiscal policy with oversight. The United Kingdom won’t agree.
• The European Central Bank cut its interest rates and buying bonds to supply
liquidity, but major problems remain – ECB won’t commit to buying ―troubled‖
government bonds.
• Euro Zone is in a recession and the UK is not far behind.
• Greece continues to miss its fiscal targets and will soon run out of room to maneuver
– borrowing at 32% interest rates. Baseline forecast incorporates a Greek sovereign
debt default in February 2012 or sooner (60% probability).
• Italy is better situated to withstand its crisis but yields are now 6% to 7%. Probability
of Italian default is 15% to 20%. Spain yields are also at unsustainable levels.
• Doomsday scenario – Euro Zone melt down, financial crisis, euro falls to parity with
dollar, US recession (25%-30% probability).
• Impact on global economy unknown. Asia is impacted by lower trade and less credit.
US could see only limited impact – US banks are flush with cash.
Bottom Line – Europe is in a recession, but Doomsday is avoided
Euro Zone Crisis Governments Scrambling to Solve Crisis – No Success Yet
Copyright © 2012 IHS Inc. All Rights Reserved. 3
US Economy – Remains on a Slow Recovery Path
• Amid global storm clouds, the US economy will grow at a modest pace.
• Business equipment investment and consumer durables, supported by
replacement demand, are driving near-term growth.
• Strained household finances will limit real consumption gains to about
2%.
• Confidence in U.S. policy-making has hit new lows, after the debt-ceiling
debacle
• There is no meaningful fiscal resolve until after the election, but there is
a QE3 in early 2012
• Fiscal policies will tighten, although the timing and scope is uncertain.
• A recovery in housing markets is key to more robust economic growth in
2013-15.
• The Eurozone sovereign-debt crisis is the biggest threat to growth; we
see a 25% - 30% risk of another US recession in 2012.
Copyright © 2012 IHS Inc. All Rights Reserved. 4
(Percent unless otherwise noted / January 2012)
U.S. Economy
-Probability of a Recession is now 30%
2009 2010 2011 2012
Real GDP Growth -3.5 3.0 1.8 2.0
Employment Growth -4.3 -0.7 1.0 1.2
CPI Inflation -0.3 1.6 3.1 1.5
Oil Prices (WTI, US$/bbl) 61.8 79.4 95.0 91.0
Housing Starts - mm 0.55 0.59 0.61 0.73
Federal Funds Rate 0.2 0.2 0.1 0.1
Dollar (Major Trading 2005=1) 0.93 0.90 0.85 0.88
Copyright © 2012 IHS Inc. All Rights Reserved. 5
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
1990 1995 2000 2005 2010 2015 2020Current Old History & Forecast Pessimistic - 30% Optimisitc - 15%
(Percent Change)
Real Gross Domestic Product (GDP) Growth
Copyright © 2012 IHS Inc. All Rights Reserved. 6
$10
$30
$50
$70
$90
$110
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
201
6
201
7
201
8
201
9
202
0
202
1
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
Oil- WTI - ($-per barrel) - L Brent - L Retail Gasoline Price - R
Crude Oil Price vs. Gasoline Price
Copyright © 2012 IHS Inc. All Rights Reserved. 7
(Year-over-year percent change)
-20
-15
-10
-5
0
5
10
15
20
1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
FHFA Index Median Existing Home Price, NAR
`
A Double Dip for Home Prices
Copyright © 2012 IHS Inc. All Rights Reserved. 8
(Millions of units)
0.0
0.4
0.8
1.2
1.6
2.0
2.4
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
Single-Family Multi-Family
Housing Starts Will Not Rebound Until 2013
Copyright © 2012 IHS Inc. All Rights Reserved. 9
Payroll Employment
100
110
120
130
140
150
1990 1995 2000 2005 2010 2015 2020
-5
-4
-3
-2
-1
0
1
2
3
4
Total Emloyment - L Percent Change - R
`
(Millions) (Percent Change)
Copyright © 2012 IHS Inc. All Rights Reserved. 10
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
1980 1985 1990 1995 2000 2005 2010 2015 2020
3
4
5
6
7
8
9
10
11
Bank Card Delinquency Rate (Left) Unemployment Rate (Right)
(Percent) (Percent)
Rising Unemployment Puts Pressure on
Consumers’ Balance Sheet
Copyright © 2012 IHS Inc. All Rights Reserved. 11
0
2
4
6
8
10
12
1980 1985 1990 1995 2000 2005 2010 2015 2020
4.0
4.5
5.0
5.5
6.0
6.5
Saving Rate Household Net Worth/Disposable Income
(Percent of disposable income)
Households will Save More in the Future
Copyright © 2012 IHS Inc. All Rights Reserved. 12
-3
-2
-1
0
1
2
3
4
5
6
1990 1995 2000 2005 2010 2015 2020
Real Consumer Spending Real Disposable Income
(Percent change)
Real Consumer Spending and Income Growth New long–term trend for consumption is 2% not 3%
Copyright © 2012 IHS Inc. All Rights Reserved. 13
• Pent – Up demand is driving the auto recovery
• Consumer confidence has plunged, but it appears as if the consumer attitude to new vehicle purchases remains favorable
• The recent sales numbers have exceeded expectations
• Retail, rather than fleet, remains the main driver
• Sales have improved, as Japanese cars return to the showrooms, but there are still some issues of availability
• Incentive spending has risen modestly, as inventories rebuild
• There has been an increase in lease activity
• Auto credit availability is improving
• The used car and truck market remains very strong
• Cost pressures will return but industry profits are good
Bottom Line – A weak economy will hurt the release of pent up demand, slowing not derailing, the auto market recovery
US - Auto Market Overview
Copyright © 2012 IHS Inc. All Rights Reserved. 14
New Vehicle Buyers Average Credit Score
650
660
670
680
690
700
710
720
730
740
750
760
770
780
Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11
6%
7%
8%
9%
10%
11%
12%
13%
14%
15%
16%
17%
18%
FICO SCORE % UNDER 670
Avg. Score
Source: CNW Marketing
Copyright © 2012 IHS Inc. All Rights Reserved. 15
5.0
5.5
6.0
6.5
7.0
7.5
8.0
8.5
9.0
9.5
10.0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Quarters
(Percent)
Federal Reserve Board
New Auto Loan Rates – Commercial Banks
Copyright © 2012 IHS Inc. All Rights Reserved.
12
14
16
18
20
22
24
26
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
(Percent)
CNW Marketing
Months
Incentives to MSRP
Copyright © 2012 IHS Inc. All Rights Reserved. 17
30%
40%
50%
60%
70%
80%
90%
100%
Jan-
06
Jul-06 Jan-
07
Jul-07 Jan-
08
Jul-08 Jan-
09
Jul-09 Jan-
10
Jul-10 Jan-
11
Jul-11
GM Ford Chrysler IndustryToyota Honda Nissan
Source: CNW Marketing Months
Residual Value Index
(Index = Lease contract residual value versus CNW estimate of residual at end of lease term)
Copyright © 2012 IHS Inc. All Rights Reserved. 18
20%
21%
22%
23%
24%
25%
26%
27%
28%
29%
Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11
Leases by Month
(Share)
U.S. Light Vehicle Sales — Lease Penetration
Source: CNW Marketing
Lease share to eventually return to 30%
Copyright © 2012 IHS Inc. All Rights Reserved. 19
U.S. Light Vehicle Inventory — Units
Months — Seasonally Adjusted
(Units in thousands)
1,500
2,000
2,500
3,000
3,500
4,000
4,500
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Copyright © 2012 IHS Inc. All Rights Reserved. 20
U.S. Light Vehicle Inventory — Days Supply
30
40
50
60
70
80
90
100
110
120
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
(Days Supply)
Months — Seasonally Adjusted
Light Trucks
Cars
There was no inventory cushion to buffer ―Japan‖
Copyright © 2012 IHS Inc. All Rights Reserved. 21
8
10
12
14
16
18
20
22
Jan-
00
Jan-
01
Jan-
02
Jan-
03
Jan-
04
Jan-
05
Jan-
06
Jan-
07
Jan-
08
Jan-
09
Jan-
10
Jan-
11
Jan-
12
Jan-
13
Acutal Forecast
Months
(Units in millions)
United States — Car & Truck Sales, SAAR
Copyright © 2012 IHS Inc. All Rights Reserved. 22
8
10
12
14
16
18
1990 1994 1998 2002 2006 2010 2014 2018
8
10
12
14
16
18
January 2012 Forecast July Forecast Pessimistic - 30% Optimisitc - 15%
(Units in millions)
U.S. Light Vehicle Sales
2008: 13.2M units
2009: 10.4M units
2010: 11.6M units
2011: 12.7M units
2012: 13.5M units
2013: 14.7M units
2014: 15.6M units
2015: 16.2M units
Copyright © 2012 IHS Inc. All Rights Reserved. 23
U.S. Sales — Major Manufacturers Market Share
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
GM FORD CHRYSLER/FIAT TOYOTA
HONDA NISSAN HYUNDAI/KIA
Copyright © 2012 IHS Inc. All Rights Reserved. 24
Auto Market – Forecast Drivers 2011 - 2016
• Average Real GDP growth from 2011-2013 of 1.8% per year, was 2.6%
in July forecast
• Economy does not start adding more than 2.0 million jobs per year until
2014
• Recovery in housing bounces along the bottom through 2012, starts
eventually return to 1.7 a year by 2016
• Gradual easing of credit
• Consumer returns but not to past historical levels – real consumption
stubborn at 2.0% per annum, higher savings, premium on value
• Recovery slowly releases pent-up demand; high level of replacement
demand in medium term
• Outbound household formation and growth in driving age population
sustain sales
• Long-term Gen Y becomes a big driver as the job market returns
Copyright © 2012 IHS Inc. All Rights Reserved. 25
(Percent)
7%
9%
11%
13%
15%
17%
19%
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
Non-farm Payroll
U.S. Light Vehicle Sales:
Relative to Employment
Copyright © 2012 IHS Inc. All Rights Reserved. 26
U.S. Light Vehicle Sales — Car Segments (54%)
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
SMALL - 6.5% COMPACT - 15.5% LOWER MID - 15% U. MID & LRG. - 4% PREMIUM - 8% SPECIALTY - 4%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Units
Copyright © 2012 IHS Inc. All Rights Reserved. 27
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
4,000,000
4,500,000
5,000,000
CUV - 26.5% SUV- 3% VANS - 5% FULLSIZE PUPS - 11% SMALL - PUPS 2%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Units
U.S. Light Vehicle Sales
— Light Truck Segments (46%)
Copyright © 2012 IHS Inc. All Rights Reserved. 28
14%
16%
18%
20%
22%
24%
26%
28%
30%
32%
34%
36%
38%
1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021
TRANSPLANT IMPORT
(Market Share)
Foreign Manufacturers:
Share of U.S. Market — Sales
Copyright © 2012 IHS Inc. All Rights Reserved. 29
• Lost volume due to
Japan & Thailand
disasters temper growth
in 2011
• Broader market volatility
creates some downside
risk in 2012
• Mixed signals from
some fundamentals
• Low growth outlook
• Lean inventory
• Fleet volume to ease
• Production localization
efforts bearing fruit
Pro
du
ctio
n in
Mill
ion
s
Short-Term Outlook North American Light Vehicle Production
Copyright © 2012 IHS Inc. All Rights Reserved. 30
Production Outlook North American Produced Vehicle Exports Bolster Prospects
• Greater use of global
platforms allows for more
―export ready‖ product
• Free trade agreements
have made Mexico a
particularly strong export
player
• European sovereign debt
crisis poses a headwind
to export growth,
although other regions
are growing (e.g. South
America)
• Economic downgrade
tempers export prospects
No
rth
Am
erica
n V
eh
icle
Exp
ort
s (
Mill
ion
s)
North American Vehicle Exports by Region
0.74
1.05
0.82
0.99
0.92
1.17
1.38 1.35
Copyright © 2012 IHS Inc. All Rights Reserved.
4.9 4.2
1.93.1 3.5
0.0
4.4
2.9
1.9
2.73.0
0.0
2.9
2.5
0.9
1.92.0
2.0
2.4
4.6
3.2
4.1
6.3
6.4
0.50.8
0.5
1.0
1.4
1.4
0
3
6
9
12
15
18
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
Millio
ns
31
Production Outlook North American Light Vehicle Production by OEM
• Downward revisions to production outlook, yet inventory position and export activity offset
some of the impact
• BMW, Hyundai, VW, Toyota & Honda drive additional capacity expansion
• Ford tweaks sourcing – on GM’s heels; Chrysler/Fiat potential, yet hurdles remain
15.6 15.1
German 3
Asian 4
Chrysler/
Fiat
Ford
General
Motors
Others
8.6
13.0
16.6
Copyright © 2012 IHS Inc. All Rights Reserved. 32
Autos - The Bottom Line
• The auto industry is in its best shape to withstand economic adversity
• Auto credit quality is outstanding, availability will improve this year
• Industry pricing power will continue to improve
• Leasing is on the way back
• Small cars will gain market share but crossovers will remain very popular
• Higher fuel economy standards are the next big challenge (opportunity)
• The industry has done a great job reducing capacity and cost, but we can’t
rest on our laurels
• Initially replacement demand drives volume, longer term demographics
sustain sales
• Forecast assumes one vehicle per diver, two per household
• Eventually the economy will support volume levels that are more normal for
the auto industry
• The industry has become more profitable and once volume returns, it will
become even more so
Thank You for Your Participation!
George Magliano
Senior Principal Automotive Economist, Americas
212 -884 -9509
January 2012