National Auto Auction Association Annual Review. Over the Air and on the Ground, NAAA Auctions Always Have You Covered

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1 National Auto Auction Association 2009 Annual Review Over the Air and on the Ground, NAAA Auctions Always Have You Covered

Executive Officers Dave Angelicchio President New Stanton, PA Jay Cadigan President-Elect Nashvillle, TN Charlotte Pyle Vice President St.

President-Emeritus Bonita Springs, FL Bob McConkey Chairman of the Board Spokane, WA Frank Hackett Executive Director Directors Bonnie Williams Grand Praire, TX

Vernon, IA Karl Kiracofe Harrisonburg, VA Keith Lelux Moncks Corner, SC Austin McBride Fairfield, NJ Stephane St.

2 Executive Officers Dave Angelicchio President New Stanton, PA Jay Cadigan President-Elect Nashvillle, TN Charlotte Pyle Vice President St. Albans, WV Mike Broe Treasurer Atlanta, GA Warren Byrd Secretary Carmel, IN Warren Young, Sr. President-Emeritus Bonita Springs, FL Bob McConkey Chairman of the Board Spokane, WA Frank Hackett Executive Director Directors Bonnie Williams Grand Praire, TX John Blobner Atlanta, GA Jay Fahrendorff Dayton, MN Chet Goins Indianapolis, IN Mark Greb Mt. Vernon, IA Karl Kiracofe Harrisonburg, VA Keith Lelux Moncks Corner, SC Austin McBride Fairfield, NJ Stephane St. Hilaire Quebec, Canada Robert Sullivan Chattanooga, TN Dave Taylor Cicero, NY Kurt Zabel Tea, SD Dave Angelicchio President Frank Hackett Executive Director Special Thanks To Manheim ADESA Independent Auctions Ira Silver, Ph.D. Economist 2 National Auto Auction Association 5320 Spectrum Drive, Suite D, Frederick, MD f naaa@naaa.com

Table of Contents Overview & Highlights 4 Units Entered & Sold 5 Auction Units Sold by Source 6 Average Sales Price & Gross Value of Vehicles Sold 7 Source of Used Vehicle

Product 10 Housing Starts & House Prices 11 Employment Growth and Unemployment Rate 11 Used Vehicle Retail Sales & New Vehicle Retail Sales 12 New Vehicle Retail Sales

3 Table of Contents Overview & Highlights 4 Units Entered & Sold 5 Auction Units Sold by Source 6 Average Sales Price & Gross Value of Vehicles Sold 7 Source of Used Vehicle Inventory for Franchised Dealers 8 Source of Used Vehicle Inventory for Independent Dealers 9 Internet Sales Volume Share 9 Real Gross National Product & Real Gross Domestic Product 10 Housing Starts & House Prices 11 Employment Growth and Unemployment Rate 11 Used Vehicle Retail Sales & New Vehicle Retail Sales 12 New Vehicle Retail Sales (Percent Change) 13 New Retail Sales (Light Trucks & Autos) 13 NAAA Auctions Always Have You Covered 14 NAAA North American Member Auctions 15 NAAA Contact Information Back Cover 3

Overview & Highlights In 2009, the 312 National Auto Auction Association s North American member auctions sold 8.92 million vehicles with a gross value of $80.

4 Overview & Highlights In 2009, the 312 National Auto Auction Association s North American member auctions sold 8.92 million vehicles with a gross value of $80.5 billion, according to the association s 13th Annual Survey million vehicles entered the auction channel 8.92 million vehicles sold for $80.5 billion. Average auction has 78 acres and 146 employees. 1.2 million vehicles valued at $16.9 billion sold via Internet based sources. While somewhat down from 2008, the numbers show the ability of the industry to continue performing its service to buyers and sellers of used vehicles, even during a severe economic recession. Although difficult economic and auto industry conditions create many challenges to the auction industry, they provide opportunities for the more efficient and innovative auctions to create platforms that will be even more profitable as industry conditions improve. Seventy percent of the North American member auctions responded to the survey last year. The association s auctions moved 14.6 million vehicles through their lanes with a record sales rate of 61%. The average NAAA member auction covers 78 acres, has 146 full- and parttime employees and operates eight lanes. The largest auction has 446 acres and 33 lanes, while the smallest has just one lane. NAAA North American member auctions offer detail services (99%) and transportation services (100%), either in-house or contracted; body and paint repair (92%), and some level of mechanical services (98%). Ninety-eight percent of member auctions offer financing for automotive retailers, and seventy percent offer in-house dealer finance programs. Internet-based sales, both cyber auctions and simulcast sales as part of physical sales, have shown continued growth. Combined with the ease and growing availability, the average price per unit sold by simulcasting and cyber auctions was $14,400. In 2009, Internet auctions reported sales of 1.2 million vehicles, amounting to $16.9 billion. 4

Units Entered & Sold Millions * 14.6 million vehicles entered the auction channel in 2009, a decline of 14.5% from 2008. A record conversion rate resulted in a much smaller 5.

5 Units Entered & Sold Millions * 14.6 million vehicles entered the auction channel in 2009, a decline of 14.5% from A record conversion rate resulted in a much smaller 5.9% decline in the number of vehicles sold by NAAA member auctions. Compared to the 21.2% drop-off in new vehicle sales at the retail level, the decline in auction sales was mild. This comparative stability reflects the pricing flexibility and the varied sources of supply that are integral to the auction channel % % 59.6% 59.5% 59.6% 58.4% 58.3% 56.8% 57.2% % Units Entered Units Sold Percent Change Units Sold Millions * % 0.6% 1.8% 0.8% 1.2% 0.3% -0.6% -3.0% -2.8% -5.9% Units Sold Percent Change *Source: NAAA Survey Linda Silverstein NAAA Hall of Fame Linda Silverstein was inducted into the NAAA Hall of Fame during the Association s 2009 Annual Conference in San Francisco. She began her career with Ford Motor Company in 1982 as an analyst in their Detroit District Sales office. Since that time she has worked in marketing and sales, dealer communications, advertising, crossline strategy and product development. She is currently Manager, Remarketing and Rental Operations and works with 56 NAAA auctions in North America. 5

6 Total auction volume is less related to current economic conditions than retail sales. While dealer consignment closely follows retail unit sales, the number of fleet and off-lease vehicles offered and sold at auction is dependent on the number of units going into fleets and leases over the past few years. In addition, repossessions pick up as economic conditions deteriorate and retail unit sales decline. This varied sourcing increases the stability of the auction industry and helps it weather difficult economic conditions. While the lack of new car sales and, hence, trade-ins, has constrained auction supply over the past two years, units entered from leasing/fleet/repos, reflecting past activity have offset some of the weakness Dealers Auction Units Sold by Source Percent Change Lease/Fleet/Repo Factory Auction Units Sold by Source Percent Other 3.5% 2.8% 2.2% 2.4% 2.8% 2.0% 2.6% 1.9% 2.4% 3.0% 19.4% 19.3% 17.2% 18.7% 18.6% 16.9% 16.4% 12.8% 12.7% 10.3% 36.6% 38.5% 40.6% 38.5% 32.2% 29.4% 30.1% 35.3% 42.8% 47.3% * * 40.5% 39.4% 40.0% 40.5% 46.3% 51.6% 50.9% 50.0% 42.0% 39.3% Dealers Leasing/Fleet/Repo Factory Other *Source: NAAA Survey Mike Hockett NAAA Industry Pioneer Mike Hockett was honored during the Association s 2009 Annual Conference in San Francisco. He and his father founded the Indianapolis Auto Auction in In 1992, he formed ADESA Corporation and took the auction business public on the NASDAQ Stock Exchange. Today, he and his son operate Auction Broadcasting Company. 6

7 Average Sales Price* 9,138 9,310 8,778 $8,361 8,440 8,505 8,319 8,430 8,762 9, % 0.9% 0.8% -2.2% 1.3% 4.1% 4.1% 1.9% 3.0% Reflecting a sharp drop in demand in 2008, prices fell almost 6%. As demand increased in 2009 and supply dropped, prices moved up 3% to over $9,000, the third highest in a decade. -5.9% Average Price Percent Change % Gross Value of Vehicles Sold* Billions of Dollars % 2.8% 2.3% 2.2% 1.6% 1.2% -1.7% % % Auto auctions are close to a pure market where shifts in demand are quickly transmitted to price. In 2009, the sharp decline in units entered led to a 3% increase in average price to $9,026. Lower volume and higher prices in 2009 resulted in a 3.1% decline in gross value of vehicles sold to $80.5 billion. Gross Value Percent Change *Source: NAAA Survey 7

Source of Used Vehicle Inventory for Franchised Dealers By Department 2008 Franchise dealers sourced 35% of their used vehicle inventory from auto auctions in 2008, compared to 22% in 1998.

8 Source of Used Vehicle Inventory for Franchised Dealers By Department 2008 Franchise dealers sourced 35% of their used vehicle inventory from auto auctions in 2008, compared to 22% in Other 9% Auction Purchase 35% Trade-In On New Vehicle 30% Trade-In On Used Vehicle 20% Street Purchase 6% Other 3% 1998 Auction Purchase 22% Street Purchase 7% Trade-In On New Vehicle 50% Trade-In On Used Vehicle 18% 2009 Estimate Source: NADA Forrest Mendenhall NAAA Auctioneer of the Year Forrest Mendenhall was presented the Bernie Hart Auctioneer of the Year Award during the Association s 2009 Annual Conference in San Francisco. In 1962, he established the Mendenhall School of Auctioneering located in High Point, NC. He is lifetime member of the National Auctioneers Association (NAA), inductee of the NAA Hall of Fame and has been an auctioneer since

9 Source of Used Vehicle Inventory for Independent Dealers Percent of Respondents 77.2% 79.2% 37.4% 43.0% 48.9% 59.1% According to NIADA s 2009 Used Car Industry Report, used car dealers reported a slight increase in vehicles bought over the previous year at wholesale auto auctions. The information presented on this chart is the percentage of respondents who use wholesale auctions, other dealers and online/other. Wholesale Auctions Other Dealers Online/Other Source: NIADA Survey 1.1% 3.0% Internet* Sales Volume Share Unit Volume 4.5% 5.4% 7.0% 10.6% 14.0% In 2009, 1.2 million vehicles valued at $16.9 billion were sold through NAAA Internetbased sources. The fast growth of Internet-based sales (Cyberauctions and Simulcasting) has increased the Internet share from insignificance to about one in every seven sales in just six years. * Cyberauctions and Simulcasting Source: NAAA Survey 9

10 In 2009 the U.S. economy went through a transition from recession to recovery. After starting the year off with a 6.4% annual rate of decline, real gross domestic product (GDP) was increasing at an annual rate of 5.6% in the final quarter. Despite the resumption of growth during the year, real GDP declined 2.4% in This was the largest recession-related GDP decline in the post World War II economy Q 1.5 2Q Real Gross National Product Percent Change at Annual Rate Q 4Q 1Q 2Q 3Q 4Q The collapse of the housing market and the ensuing financial crisis were the principal causes of the recession. Massive monetary and fiscal stimulus helped turn the economy around. Now that economic growth has begun and financial markets are returning to normal, the large amount of pent-up demand created during the long and severe recession will turn the recovery into a self-sustaining expansion Real Gross Domestic Product Percent Change

11 Housing Starts & House Prices 2,073 1,850 1,854 1,710 1,812 1,573 1,601 1, Housing Starts Percent Change in House Price Declining housing starts in 2006 and 2007 were a drag on economic growth that turned into a recession driver in 2008 and 2009, as house prices declined and housing collapsed. The drop in house prices was unprecedented and had not been factored into the valuation of securities backed by home mortgages. Declining mortgage backed security values led to massive problems for highly levered financial institutions, causing an almost complete shutdown of credit markets and a sharp drop in economic activity in late 2008 and early Although at a historically low level, housing starts have stabilized and are beginning to increase as house prices have stopped declining and are moving up in some areas. Going forward, housing is expected to be an economic driver rather than the drag it has been for the past four years. 1, , Employment Growth and the Unemployment Rate , , ,060 1, Change in Employment (000s) Unemployment Rate (%) 5.8-3, ,781 The expectation by most firms of a worse recession than actually occurred led to a very sharp decline in employment. In 2008, 3.6 million jobs were lost and in 2009, 4.8 million. The unemployment rate followed the reduction in employment and increase from 4.6% in 2007 to 9.3% in In October it reached a cyclical high of 10.1%, a post-wwii level only exceeded in

12 Used vehicle retail sales declined in 2008 and 2009, at a lower rate than new car sales. In fact, after a large decline of 11.8% in 2008 somewhat related to the gasoline price surge, used vehicle sales stabilized and only fell 2.8% in Used car sales typically are less cyclical than new vehicle sales as new car buyers will trade down to used vehicles during difficult economic periods. However, very weak new vehicle sales in 2008 and 2009, combined with the cash-for-clunker program, constrained the supply of used vehicles in Used Vehicle Retail Sales Millions of Units & Percentage Change Used Vehicle Sales Percent Change Following its typical cyclical path during a recession, new light vehicle retail sales declined sharply in 2008 and 2009 as employment dropped, the unemployment rate soared, credit condition tightened, and household wealth plunged. In the second half of 2009, as economic growth resumed, credit conditions improved, and household wealth increased, light vehicle sales moved up, helped by the cash-forclunkers program New Vehicle Retail Sales Millions of Units Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

13 New Vehicle Retail Sales Millions of Units Change % -1.3% -1.8% -1.0% 1.3% 0.5% -2.6% -2.5% On an annual basis, new retail unit sales declined 21% in 2009 to 10.4 million units, after declining 18% in The last time auto sales were this low was in the period when sales were below 11 million units for two years in a row % -21.2% New Vehicle Sales Percent Change In addition to the large decline in total new vehicles sales in 2008 and 2009, the mix saw a drastic shift away from light trucks to autos. For both years, the auto share exceeded 50%. The last time that happened was in The 47.6% share for light trucks in 2009 was the lowest in over a decade. 13

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National Auto Auction Association, 5320 Spectrum Drive, Suite D, Frederick, MD 21703 301-696-0400 National f.

16 National Auto Auction Association, 5320 Spectrum Drive, Suite D, Frederick, MD National f Auto Auction Association 5320 Spectrum Drive, Ste. D, Frederick, Md

Vehicle Remarketing Industry Dynamics

Vehicle Remarketing Industry Dynamics 6 Ownership changes during "the vehicle life cycle" are often expedited via the vehicle remarketing industry, which includes wholesale used vehicle and salvage auctions