Hispanic, African-Am Auto Sales Slowly Recover; Aug. TDR & Share Rise

Transcription

1 August 2014 Hispanic, African-Am Auto Sales Slowly Recover; Aug. TDR & Share Rise The Great Recession took the life out of the auto industry and two of its main market segments: Hispanic and African-American. Combined they represented 4.13 million of the industry s 17.4 million sales. In 2009, for example, the Hispanic auto market lost nearly 900,000 sales vs. the stellar 2000 calendar year while African-American sales fell behind by more than a million units. Recovery Begins CNW projects that the True Delivery Rate (similar to SAAR) will hit about 1.6 million in August for the Hispanic Market and 1.75 million for the Af-Am market. Total U.S. TDR should climb to with non- Hispanic/Af-Am at million. The latter includes Asian, Caucasian and Pacific Islanders. Share of Sales In cy2000, the Hispanic and Af-Am share of sales stood at 11.3 percent and 12.4 percent, respectively. At the depths of the recession, share of total sales fell to 9.6 and 10.5 percent with a slow unsteady upward movement until this year. In January, for example, on 1.01 million sales, Hispanics were responsible for about 10.3 percent of sales while African-Americans saw their sales share drop behind Hispanics to 9.7 percent. Through the first half of the year, Hispanic sales rarely rose above to the 10 percent mark with the rest of the year looking as if it will slip to below 9 percent. For African-Americans, the share of sales in January was below Hispanics at 9.7 percent or 98,001 units, but quickly grew to over 12 percent in July. CNW is projecting that August s Af-Am TDR will see share of sales slip to under 11 percent and contract to around 8.8 percent by December. CONTEXT: Combined, these two ethnic groups hold sway over significant sales. Neither tends to be enthusiastic leasing supporters instead relying on conventional financing at slightly higher interest rates due to credit histories that have only turned more sour for both groups.

2 2 Chinese Student Vehicles; Avg. $52,000 v. $19,500 for U.S. Students There s no wonder many auto dealerships in and around high-asian enrollment schools are hiring Chinese speaking salespeople. The average price paid by these students for a new car tops $52,000 and leans heavily toward cash purchases 31.8 percent -- almost the polar opposite of non-chinese students at the same high schools, colleges and universities. Non-Chinese students spend far less on a new vehicle -- $19, with only 4.8 percent paying cash for a new vehicle and 39.7 percent paying cash for a used car or truck. Sample Bases Chinese students measured in the CNW study carried exchange student, student visa and parental work visa documents. The samples included 539,015 Chinese students and a similar demographic profile for the 516,804 non-chinese students. While slightly half of the Chinese students were in high school, that didn t keep them out of new-car dealerships. The average price paid for their new vehicle was in excess of $42,600. College students vehicles had an average cost in excess of $56,800 while grad students averaged $62,339. All well above their non-chinese counterparts. Brands Selected Among grad students, Mercedes-Benz held 18 percent of the new-car sales the greatest share among brands. College students also tended toward M-B with 13.5 percent selecting that brand. College Grad Chinese Totals U.S. Students Same Profile $56,828 $62,339 $52,796 $19,472 $40,082 $49,326 $36,498 $14,178 Some parental control was Value New Value Used Ttl Value applied for high school students, High School $2,741,948,432 $2,732,054,839 $5,474,003,271 however, with the largest share of College $4,808,578,099 $2,279,966,969 $7,088,545,068 sales going to Toyota, Ford and Grad $2,048,625,631 $876,679,980 $2,925,305,610 Honda. Chinese Totals $9,599,152,162 $5,888,701,787 $15,487,853,949 Cash Sales U.S. Students Same Profile $2,307,727,849 $2,409,028,199 $4,716,756,048 Nearly one-third of new-vehicle owning Chinese students are driving a vehicle that was purchased with cash rather than financed. That s a far cry from the 4.8 percent of non-chinese students who paid cash. Among those students who acquired a used vehicle, nearly 60 percent of the Chinese students paid cash compared to 39.7 percent of non-chinese students. Chinese Students Brand Purchases HS College Grad Mercedes 4.46% 13.54% 18.24% Lexus 5.82% 8.58% 11.17% BMW 5.91% 9.74% 11.05% Porsche 1.48% 3.23% 6.23% Buick 3.87% 7.53% 9.58% Cadillac 2.24% 4.44% 6.08% Ford 15.78% 9.24% 4.36% Toyota 18.22% 10.36% 7.32% Honda 16.34% 7.74% 7.11% Ultra- Luxury Sportscar 0.81% 1.06% 1.34% Ultra- Luxury Sedan 0.39% 1.12% 1.16% Other 24.68% 23.42% 16.36% % % % No. Visa * Own Veh Ttl Veh High School 281,394 PW, S, X 53.67% 151,024 College 197,569 S 71.62% 141,499 Grad 60,052 S 84.32% 50,636 Chinese Totals 539, % 343,159 U.S. Students Same Profile 516,804 Citizen 55.81% 288,428 Avg Tran Prc Avg Tran Prc Percent Cash Purchases 31.82% 58.22% CONTEXT: Foreign exchange and students from certain wealthy or increasingly wealthy families off shore come to the U.S. school system for a host of U.S. Students Same Profile 41.09% 118, % 169,913 reasons, they tell CNW. Parental jobs, specialized Percent Cash Purchases 4.83% 39.72% educational subjects unavailable at home or simply better schools of higher education. Because of their family economics, they can acquire goods and services costing far more in their home countries. This was also true of Japanese students and adults in the 1980s and 1990s as that country seemed to be on a buying spree around the world and especially in the U.S. For new-car sales and especially dealerships in areas with a high-population of Chinese students, this is yet another business opportunity worth accepting. NEW USED High School $42,619 $31,516 % New # NEW % Used # USED High School 42.6% 64, % 86,688 College 59.8% 84, % 56,883 Grad 64.9% 32, % 17,773 Chinese Totals 52.98% 181, % 161,344

3 August Sales On Track To 16.4 Million TDR; Sub-Prime Grows 9.91% 9.91% 3 With fleet business picking up and dealers doing more local contractor-farmer-rancher and nonconsumer sales, the August sales projection is on track to a 16.4 million True Delivery Rate (similar to SAAR). As shown on the Back Page this month, the TDR for African- American and Hispanic markets are also on the mend and should hit 1.76 million and 1.61 million respectively % % 5.18% Jitters Notch Down The Jitters Index remains excessively high at 7.44 compared to prerecession figures in the mid-3s. The good news is that it is now beginning what CNW believes is a medium-term sagging in the number that could put it below 7 by the end of the year. Aug: 60.15% 5.40% Students Search for Brands Also working in August are somewhat improved closing ratios backed by higher sub-prime approvals and significantly higher overall floor traffic from which to find customers. Note, August is the beginning of the new-car buying season for college-bound students. While much of the shopping floor traffic is aimed at distinguishing what brands and styles of vehicles the student should get, the actual sales will be closer to early September and may not show up in the August reports. Diesel Demand Rising August s floor traffic surveys show diesel interest and consideration at its highest level of the year with 39 percent of new-car shoppers saying they are will to pay an average of $1,328 more for a diesel than gas vehicle, also highest of the year % 0.72% 0.72% 4.35% $1, %

4 4 Anticipated Aug Actual Aug % Chng YTD YTD % Chng Document 106m cy14 cy13 14 v 13 cy14 cy13 14 v 13 Franchised Dealer Sales 1,466,944 1,546, % 10,470,490 10,599, % Independent Dealer Sales 1,263,488 1,395, % 9,392,129 9,563, % Casual (Private) Sales 1,227,863 1,140, % 8,937,089 8,647, % Total Sales 3,958,295 4,082, % 28,799,708 28,810, % Franchised Independent Franchised Franchised Independent Independent Document 107m Asking Price Asking Price Trans Price % of Asking Trans Price % of Asking Jan-14 $11,429 $9,942 $10, % $9, % Feb '14 $11,221 $9,694 $10, % $9, % Mar '14 $11,396 $9,847 $10, % $9, % Apr '14 $11,372 $9,811 $10, % $9, % May '14 $11,408 $9,967 $10, % $9, % June '14 $11,516 $10,482 $11, % $10, % July '14 $11,502 $10,336 $11, % $9, % Aug. 14 $11,229 $10,311 $10, % $9, % Aug '13 $11,592 $10,227 $11, % $9, % Sept '13 $11,729 $10,437 $11, % $9, % Oct '13 $11,482 $10,223 $10, % $9, % Nov. '13 $11,367 $10,205 $10, % $9, % Dec. 13 $11,419 $10,324 $10, % $9, % Mo. Vs Yr Ago -3.13% 0.82% -1.58% 1.60% 2.83% 2.00% This Mo v Last Mo -2.37% -0.24% -2.39% -0.02% 0.12% 0.36% August Sales Slip Slightly to Under 4-Million Units Even with the wholesale market in a jumble of lower prices, dealers were able to get a higher percentage of their used-car asking prices in August. Franchised dealers received 96.9 percent of asking price compared to 95.4 percent a year ago. Independent dealers were up nearly 2 percentage points from 94.7 percent to 96.6 percent. Sales, however, are a tad weaker, probably slipping to under 4 million units in August, down about 3 percent all on the backs of franchised and independent dealerships. The Private Party (Casual) market is having a significant gain this month of around 7.7 percent. All of this results in more inventory on the lot causing the used-car days supply to jump three 2.97% percent foretelling a continued decline in month-over-month retail prices. Used Leases % Chng Cap Cost % Chng Jan , % $40, % Feb 67, % $40, % Mar 75, % $40, % Apr 89, % $40, % May 96, % $38, % June 94, % $38, % July 95, % $38, % Non- CPO CPO CPO Turnover Turnover Premium Jan. ' $2,852 Feb $2,876 Mar $2,911 Apr $2,889 May $2,936 June $2,944 July $2,881 Aug est $2,842

5 Kontos Kommentary Su The softening trend in wholesale prices continued in July, as retail used vehicle sales were down on a year-over-year basis (though up month-overmonth). Supply also grew as more off-lease and off-rental units entered the online upstream and physical auction channels, and as dealers took more trades from strong new vehicle sales. Growing auction inventories are also exerting downward pressure on wholesale prices. According to ADESA Analytical Services monthly analysis of Wholesale Used Vehicle Prices by Vehicle Model Class 1, wholesale used vehicle prices in July averaged $9, down 2.2% compared to June, and up 3.3% relative to July Prices declined between June and July for virtually all model classes. Minivans and Mini SUVs were particularly hard-hit, with month-over-month price declines of 5.7% and 3.8% respectively. Prices for used vehicles remarketed by manufacturers were down 1.9% month-overmonth and down 4.7% yearover-year, indicating weaker demand for high off-rental program vehicle inventories. Average Prices ($/Unit) Latest Month Versus: Jul-14 Jun-14 Jul-13 Prior Month Prior Year Total All Vehicles $9,743 $9,958 $9, % 3.3% Total Cars $8,642 $8,901 $8, % 1.6% Compact Car $6,708 $6,861 $6, % 1.6% Midsize Car $7,864 $8,116 $7, % 2.1% Fullsize Car $6,854 $7,114 $6, % 2.4% Luxury Car $12,117 $12,397 $11, % 3.0% Sporty Car $12,578 $12,931 $12, % -1.1% Total Trucks $10,318 $10,502 $9, % 9.3% Mini Van $6,375 $6,761 $5, % 7.2% Fullsize Van $10,967 $11,206 $9, % 16.3% Mini SUV $12,143 $12,626 $11, % 3.5% Midsize SUV $7,376 $7,456 $6, % 9.1% Fullsize SUV $10,221 $10,542 $9, % 3.0% Luxury SUV $19,295 $19,478 $18, % 5.4% Compact Pickup $7,445 $7,539 $7, % 2.6% Fullsize Pickup $12,966 $13,116 $11, % 9.4% Total Crossovers $12,154 $12,323 $12, % -3.1% Compact CUV $10,924 $11,293 $11, % -3.0% Mid/Fullsize CUV $13,409 $13,408 $13, % -3.3% Prices for fleet/lease consignors were down 0.9% sequentially but up 2.2% annually, though prices for off-rental risk units within this segment were down significantly. Dealer consignors saw a 2.9% average price decrease versus June, and their prices were flat relative to July Based on data from CNW Research, retail used vehicle sales in July were up 1.2% monthover-month but down 5.2% year-over-year. Sales of certified pre-owned (CPO) vehicles were down 10.4% versus June, though they were up 9.4% from the prior year, based on figures from Autodata. The analysis is based on over six million annual sales transactions from over 150 of the largest U.S. wholesale auto auctions, including those of ADESA as well as other auction companies. ADESA Analytical Services segregates these transactions to study trends by vehicle model class. The views and analysis provided herein relate to the vehicle remarketing industry as a whole and may not relate directly to KAR Auction Services, Inc. The views and analysis are not the views of KAR Auction Services, its management or its subsidiaries; and their accuracy is not warranted. The statements contained in this report and statements that the company may make orally in connection with this report that are not historical facts are forward-looking statements. Words such as should, may, will, anticipates, expects, intends, plans, believes, seeks, estimates, bode, promises, likely to and similar expressions identify forward-looking statements. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the results projected, expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include those matters disclosed in the company s Securities and Exchange Commission filings. The company does not undertake any obligation to update 5 Lease Residuals Trail Actual Prices CNW tracks the current month s lease activity. It compares the contract residual value projection with the likely actual value at the End of Term. The percentages shown here indicate the different between the actual contract and the eventual actual sale price. For example, a General Motors lease in January of this year carries a lease residual that was percent of what the actual market is likely to pay for those vehicles. See Doc. 128m for further details. cy14 GM* Ford Chrysler Industry Toyota Honda Nissan January 83.59% 86.21% 85.47% 84.65% 86.02% 86.13% 85.28% February 83.04% 85.52% 83.98% 84.72% 85.11% 84.69% 83.83% March 82.17% 85.64% 83.97% 84.66% 85.20% 84.71% 83.88% April 81.59% 85.79% 84.24% 84.69% 85.06% 84.72% 83.81% May 81.85% 86.62% 85.58% 84.93% 85.34% 84.88% 84.97% June 81.82% 86.67% 85.85% 85.13% 85.51% 85.23% 85.29% July 81.52% 86.79% 86.70% 85.88% 85.76% 86.01% 85.13%

6 6 Jean Halliday s Ad Wrap Crowd-Sourcing Vehicles Instead of Focus Groups Once upon a time, automakers used focus groups, calling on the public for input on future products. Carmakers would invite people to participate in these face-to-face discussions about the kind of features, colors or looks they'd like to see in future vehicles. How passe! These days automakers are increasingly turning to crowdsourcing, which is sort of the same thing as focus groups, except the interactions are online. The idea is to outsource concepts to a crowd of volunteers. More and more car companies are giving crowdsourcing a whirl. Nissan is the latest automaker making hay about it. In January, Nissan launched Project Titan, at the Shooting, Hunting and Outdoor Trade Show in Las Vegas. The brand set up camp at the show to get the word out to trade reporters. Nissan announced it would build a one-of-a-kind Titan, based on fan votes on Facebook. The initial YouTube video for this didn't get much traction...less than 7,000 views in 7.5 months. Then, in early June, Project Titan opened the voting to its 80,000 truck fans on Facebook at facebook.com/nissantrucks. In the first week of August, with the voting closed, Nissan unveiled a video explaining how the stock 2014 V-8 Titan will be outfitted. Turns out fans voted to replace the suspension and opted for hardcore, off-road tires. That video, on Nissan USA's YouTube video channel, out performed the initial video, with 20,000 views in a little over three days. More videos are on the way. Come September, Nissan will document Project Titan's travels in Alaska. Nissan teamed with the Wounded Warrior Project, which helps empower injured service personnel. A pair of veterans from Wounded Warriors, David Guzman and Kevin McMahon, are driving the Titan for a week across Alaska. Look for some mountain climbing, towing, and hauling. This is Nissan's second crowdsourcing effort. Back in 2012, the brand also called on its Facebook fans to outfit a performance Z. Nissan dubbed Project 370Z the world's first crowd sourced track car. Let's be clear: Nissan is not the first to the crowdsourcing party. Back in the summer of 2009, Fiat Brazil kicked off a year-long, online project that asked people to submit ideas for a show car. That effort, which went global, resulted in nearly 17,000 registrants to Fiat's dedicated web site and more than 11,000 ideas. The car was unveiled in fall 2010 at the Sao Paulo auto show. Hmmm. Not exactly a real beauty, huh? Porsche has also been part of the crowdsourcing crowd. Last summer, the German automaker asked its 5 million Facebook fans to help design a unique 911 as part of that model's 50th anniversary. Some 54,000 of Porsche's Facebook fans voted on specs for the car, including a spoiler, blue metallic paint and 20 wheels. It's good for carmakers to listen to consumers. And automakers have been doing this for decades. Back in 1932, General Motors' Henry Buck Weaver, the automaker's first market research director, revealed a consumer's sketch of a wish-list vehicle in his special in-house report. The long tear-dropped shaped vehicle had a forward driver's seat, large wrap-around windshield, rear engine and large, windowed, wide, double side doors. It actually looks an awful lot like VW's Transporter, that arrived in the '50s and was popular for two decades. (From Meeting of the Minds by Vincent Barabba, ex GM corporate strategy director). The challenge for carmakers today using crowdsourcing in vehicle design is that few people outside the industry understand the design, engineering, safety and regulatory challenges that go into building a car, according to Scott Monty, Ford's ex-global digital manager. Monty, now exec VPstrategy at SHIFT Communications, said he used to keep an image on his desktop at Ford, to remind him about the dangers of crowdsourcing. It shows the car the bumbling Homer Simpson designed when his long-lost half-brother Powell put him in charge of designing the next car at Powell Motors. DOH! But Monty says carmakers can make crowdsourcing work, as long as the efforts have the right guidelines. With moderation, clear expectations and a constant back-and-forth between the public and the company, crowdsourcing done well can have a positive impact. Of course companies need market research to listen to their customers. But market research is more than data. One still needs smart marketers to sift through the data, interpret it and focus on what is real.

7 Back Page 7 *Deliveries not sales Aug Aug % Chng Actual Sales Aug. '14 Full Mo New Cars cy2014 cy v 13 Aug. '13 Sales Change Extension Detroit 3 129, , % 223, , % Asian 149, , % 447, , % European 31,461 30, % 95, , % Ttl Pass. Cars 309, , % 767, , % New Trucks Detroit 3 187, , % 434, , % Asian 36,116 35, % 263, , % European 3,888 3, % 36,186 37, % Ttl Lt. Trucks 227, , % 733, , % Ttl Industry 537, , % 1,500,669 1,601, % Aug Full Aug. % Chng Prev Mo Prev Mo % Chng cy2014 cy v 13 cy2014 cy v 13 Lease Share 29.3% 27.5% 6.5% 29.5% 26.8% 10.1% Floor Traffic - New (105m) % % Floor Traffic - Used (105m) % % Aug Prev Yr % Chng v % Chng cy 14 cy2013 Pent Up Demand Units Same Mo '13 Prev Mo Aug. est. '14 101,200 Avg. New MSRP (101m) $38,567 $38, % 0.38% Aug. '13 105,800 Total Discounts $6,163 $5, % 0.70% % Change -4.3% Manufacturer Incentives $4,925 $4, % 0.81% Dealer Incentives $1,238 $1, % 0.25% Purchase Delay Months Core Transaction Price**** $32,404 $32, % 0.32% Aug. est. ' % Mfg Incentive of MSRP 12.77% 11.03% 15.8% Aug. ' % Ttl Discounts of MSRP 15.98% 14.63% 9.2% % Change -4.3% Jitters Index Summary Fed Gas Child's Job Day to Day Condition of Food Local Jitters Taxes Prices Edu* stability Needs**** Investments** Prices Taxes*** Index v Prev Mo -0.73% -0.11% 5.74% -2.54% -2.37% -0.39% 0.20% -0.51% -0.55% v Mo. ' % 4.77% 5.74% % -3.77% % 0.00% -1.71% -4.23% % True Delivery Rate Total U.S. Hispanic African- American Non- Hisp/AA Aug TDR In Millions: Delivery Rate is similar to SAAR Data shows the monthly deliveries projected to full- year deliveries