MARKET UPDATE & ECONOMIC OUTLOOK

Transcription

1 MARKET UPDATE & ECONOMIC OUTLOOK

2 Economic Expansion Accelerates For the Moment Growth surged in Q2 from average 2.1% pace over prior 14 quarters; best quarter since Real Gross Domestic Product (SAAR) % Growth by Quarter Source: United States Bureau of Economic Analysis 2

3 Impressive Employment Growth and 3.9% Headline Unemployment July saw 157k jobs added; YTD Ave 215k vs. 182k average in 2017 and 195k average in Monthly Job Creation 18.0 Headline Unemployment % (U3) Unemployment Rates Underemployment Rate % (U6) Jan-00 Sep-00 May-01 Jan-02 Sep-02 May-03 Jan-04 Sep-04 May-05 Jan-06 Sep-06 May-07 Jan-08 Sep-08 May-09 Jan-10 Sep-10 May-11 Jan-12 Sep-12 May-13 Jan-14 Sep-14 May-15 Jan-16 Sep-16 May-17 Jan Jan-00 Aug-00 Mar-01 Oct-01 May-02 Dec-02 Jul-03 Feb-04 Sep-04 Apr-05 Nov-05 Jun-06 Jan-07 Aug-07 Mar-08 Oct-08 May-09 Dec-09 Jul-10 Feb-11 Sep-11 Apr-12 Nov-12 Jun-13 Jan-14 Aug-14 Mar-15 Oct-15 May-16 Dec-16 Jul-17 Feb-18 Source: BLS 3

4 Consumer Confidence Remained Strong in July But Purchase Intention Waning Plans to purchase an auto were down 18% y/y in July; smoothed trend down 5% Consumer Confidence Index (Index 1985=100, SA) Plans to Buy Auto in 6 Months (% SA) Plans to Buy Auto (% 12 mo MA) Source: The Conference Board, Moody s Analytics 4

5 Disposable Personal Income Has Outpaced Consumption with Lower Taxes Lower spending on interest payments boosted spending on goods and services but that trend is reversing (up 12% y/y) Personal Income and Spending Indexed to 2000 Income Taxes Disposable Income Interest Spending Jan-00 May-00 Sep-00 Jan-01 May-01 Sep-01 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 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Source: US Bureau of Economic Analysis Personal Income and Consumption 5

6 Peak Auto Sales Were Supported by Easier Lending But Now Tighter Subprime lending had reached a post-recession peak in 2015 over 25% but now consistently trending lower Auto Loan Origination $ by Credit Score < <620% $ % $ % $140.0 $ % Billions $100.0 $ % 15.0% $ % $40.0 $ % $0.0 04:Q1 04:Q2 04:Q3 04:Q4 05:Q1 05:Q2 05:Q3 05:Q4 06:Q1 06:Q2 06:Q3 06:Q4 07:Q1 07:Q2 07:Q3 07:Q4 08:Q1 08:Q2 08:Q3 08:Q4 09:Q1 09:Q2 09:Q3 09:Q4 10:Q1 10:Q2 10:Q3 10:Q4 11:Q1 11:Q2 11:Q3 11:Q4 12:Q1 12:Q2 12:Q3 12:Q4 13:Q1 13:Q2 13:Q3 13:Q4 14:Q1 14:Q2 14:Q3 14:Q4 15:Q1 15:Q2 15:Q3 15:Q4 16:Q1 16:Q2 16:Q3 16:Q4 17:Q1 17:Q2 17:Q3 17:Q4 18:Q1 0.0% Source: New York Federal Reserve Consumer Credit Panel/Equifax 6

7 Best Available Auto Rates Edging Up Again The discount rate is up 75 basis points while best available auto rates are up ~80 basis points year-over-year Interest Rates New Auto 60 Mo New Auto 48 Mo Used Auto 36 Mo US 10 Year Treasury Fed Discount Rate % Source: Bankrate.com, US Federal Reserve, Bloomberg 7

8 Payments Have Risen the Most on Leases, Used Payments the Least In July, average new lease payments were up 4.3% y/y while new finance payments were up 3.2% and used only 0.7% Average New Loan Payment Average New Lease Payment Average Used Payment $600 $550 $500 $534 $450 $474 $400 $408 $350 $300 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Source: Dealertrack 8

9 New Sales Move Up and Down Within Business Cycles A below fundamental demand turn in new vehicle sales usually caused by recession or credit event Quarterly New Lt. Vehicle SAAR (Millions) Q1 1980Q3 1981Q1 1981Q3 1982Q1 1982Q3 1983Q1 1983Q3 1984Q1 1984Q3 1985Q1 1985Q3 1986Q1 1986Q3 1987Q1 1987Q3 1988Q1 1988Q3 1989Q1 1989Q3 1990Q1 1990Q3 1991Q1 1991Q3 1992Q1 1992Q3 1993Q1 1993Q3 1994Q1 1994Q3 1995Q1 1995Q3 1996Q1 1996Q3 1997Q1 1997Q3 1998Q1 1998Q3 1999Q1 1999Q3 2000Q1 2000Q3 2001Q1 2001Q3 2002Q1 2002Q3 2003Q1 2003Q3 2004Q1 2004Q3 2005Q1 2005Q3 2006Q1 2006Q3 2007Q1 2007Q3 2008Q1 2008Q3 2009Q1 2009Q3 2010Q1 2010Q3 2011Q1 2011Q3 2012Q1 2012Q3 2013Q1 2013Q3 2014Q1 2014Q3 2015Q1 2015Q3 2016Q1 2016Q3 2017Q1 2017Q3 2018Q1 Source: BEA; Recessions (shaded) defined by NBER's Business Cycle Dating Committee 9

10 The New Vehicle Market Now In Relatively Healthier Position New Vehicle Days' Supply vs SAAR Days Supply SAAR Days Supply Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Light Vehicle SAAR (millions) Source: Autodata Days Supply, United States Bureau of Economic Analysis New Lt. Vehicle SAAR 10

11 Shifting Consumer Preferences Not Reflected in Wholesale Market Volumes The SUV reigns supreme in new vehicle sales while cars still dominated the used car market New Vehicle Sales by Category CAR PICKUP SUV VAN Manheim Sales by Category CAR PICKUP SUV VAN 60% 60% 50% 47% 50% 51% 40% 40% 30% 32% 30% 33% 20% 20% 16% 10% 10% 11% 5% 6% 0% % Source: Motor Intelligence/Autodata, Manheim, Cox Automotive 11

12 The Industry Can t Sell What It Doesn t Have the Hole from to 9 year old vehicles are outnumbered by 20 million and 10 million by younger and older cohorts, respectively LIGHT VEHICLES IN OPERATION AS OF APRIL 2018 ANNUALIZED USED SALES BY AGE OF VEHICLE Millions Millions Age MY 0-4 Age MY 5-8 Age MY 9-12 Age MY Age MY Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Source: IHS Markit, Cox Automotive 12

13 Used Sales Have Reached a New Peak at 39.5 Million Annualized Rate Annualized used vehicle sales of 39.5 million in July, up 1% compared to last year Millions Source: IHS Market Registrations and Cox Automotive Estimates 13

14 Manheim Used Vehicle Value Index at New Record Prices in July increased 1.51% versus June 2018 and were up 5.1% compared to July Manheim Used Vehicle Value Index (SA) January 1995 = Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17 Source: Manheim 14

15 Percent Change in Wholesale Prices in July for Major Market Segments 35% 30% 1 year 2 years 3 years 4 years 25% 20% 15% 10% 7.2% 5% 5.1% 5.2% 3.3% 4.5% 3.4% 0% 0.2% -5% Industry Compact cars Midsize cars Luxury cars Pickups SUV/CUV Vans Source: Manheim 15

16 Three-Year-Old Vehicles Seeing Much Stronger Prices The spring bounce in 2018 moved prices higher relative to the start of the year; now seeing abnormal summer bounce 110.0% 3-Year-Old Model MMR Index by Week 105.0% 100.0% 95.0% 90.0% 85.0% 80.0% Source: Manheim 16

17 Retention Values Have Been Trending Higher This Year Relative to Last Year Adjusting for MSRP and fixing the basket of vehicles by what was sold showing gains over last year and approaching % 61% 59% 57% 55% 53% 51% 49% 47% CY 2016 CY 2017 CY 2018 (1 to 3 year old models) 45% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: Kelley Blue Book 17

18 Q1: How would you describe the current market for vehicles in the areas where you operate? OVERALL SCORE 0 Weak Average Q1 2018: Strong FRANCHISE DEALERS Q1 2018: 55 INDEPENDENT DEALERS Q1 2018: 47 D E A L E R S E N T I M E N T I N D E X : Q

19 Q2: What do you expect the market for vehicles in your area to look like 3 months from now? OVERALL SCORE 56 Q1 2018:70 0 Weak 50 Average 100 Strong FRANCHISE DEALERS Q1 2018: 73 INDEPENDENT DEALERS Q1 2018: 70 D E A L E R S E N T I M E N T I N D E X : Q

20 What are the top factors holding your business back? FRANCHISE DEALER RANK 1 Market Conditions 47% 2 Competition 36% 3 Credit Availability for Consumers 24% 3 OEM Mandates/Restrictions 24% 5 Limited Inventory 23% 5 Expenses 23% INDEPENDENT DEALER RANK 1 Market Conditions 42% 2 Limited Inventory 41% 3 Credit Availability for Consumers 40% 4 Expenses 26% 5 Competition 25% Source: Q1 Dealer Sentiment Research, March 2018, Cox Automotive 20

21 Auto Market Growth Is Plateauing With New Declining Marginally 2017 began the decline of New vehicle sales, in Fleet and Retail, but increase in Used more than offset the decline Vehicle Sales by Year and Type, Actual and Forecast 60.0 New - Retail New - Fleet Used Millions F 2019F Source: IHS Markit Registrations (history); Cox Automotive forecast 21

22 Growth in Maturities Continues But At Decelerating Pace 4.5 Estimated Lease Maturities Million Units Source: Cox Automotive 22

23 Off-Lease Mix Changing to Fewer Cars and More CUVs 60.0% % % % 20.0% 10.0% % CAR CUV SUV PICKUP VAN CAR CUV SUV PICKUP VAN Source: Cox Automotive, 2018 Used Car Market Report & Outlook 23

24 Wholesale Volumes Only Seeing Minor Growth Growth remains limited to off-lease while other sources are stable Million Units Dealer Off Lease Rental Repo Factory/Fleet/Other* F 2019F Source: Cox Automotive 24

25 The US Market Is Heavily Dependent on a Global Supply Chain 35% Composition of New Vehicles Sold in the US by Major Segments and Major Countries of Origin 70% 30% 60% 25% 50% 20% 40% 15% 30% 10% 20% 5% 10% 0% VAN SUV MIDSIZE CAR LUXURY COMPACT CAR PICKUP CUV USA MEXICO CANADA JAPAN SOUTH KOREA GERMANY UK ITALY SWEDEN Import Share 0% Source: IHS Markit, Cox Automotive 25

26 Each Brand s Exposure To Tariffs Differs Based On Non-USA Production 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 100% 99% 0% 1% 89% 11% 81% 19% 76% 24% 64% 64% 36% 36% 62% 38% 53% 53% 53% 47% 47% 47% 51% 49% 49% 51% 52% 48% 46% 54% 36% 64% 66% 67% 34% 33% 31% 69% 29% 71% 27% 73% 18% 82% 14% 86% 7% 93% 100% 0% ALFA ROMEO ASTON MARTIN AUDI BENTLEY FERRARI FIAT GENESIS JAGUAR LAMBORGHINI LAND ROVER LOTUS MASERATI MAZDA MCLAREN MINI PORSCHE ROLLS ROYCE SMARTCAR VOLVO Domestic Share Import Share Source: Cox Automotive estimates based on IHS Markit Registrations 26

27 Kentucky Shares More of the F Series Than Other Vehicles Produced in the State Source: Cox Automotive estimates based on IHS Markit Registrations 12 Months Ending May

28 Kentucky Produced Vehicles Represent 6.6% of New Registered Vehicles Source: Cox Automotive estimates based on IHS Markit Registrations 12 Months Ending May

29 Kentucky Produced Vehicles Represent 6.6% of New Registered Vehicles Source: Cox Automotive estimates based on IHS Markit Registrations 12 Months Ending May

30 Kentucky Produced Vehicles Represent 6.6% of New Registered Vehicles Source: Cox Automotive estimates based on IHS Markit Registrations 12 Months Ending May

31 Kentucky Produced Vehicles Represent 6.6% of New Registered Vehicles Source: Cox Automotive estimates based on IHS Markit Registrations 12 Months Ending May

32 Kentucky Produced Vehicles Represent 6.6% of New Registered Vehicles Source: Cox Automotive estimates based on IHS Markit Registrations 12 Months Ending May

33 Kentucky Auto Production Sales Demand Trend for Sedans Units Registered 12 mo ending May 2018 Source: Cox Automotive estimates based on IHS Markit Registrations 12 Months Ending May

34 Kentucky Auto Production Sales Demand Trend for Trucks & Utilities Units Registered 12 mo ending May 2018 Source: Cox Automotive estimates based on IHS Markit Registrations 12 Months Ending May

35 Kentucky Produced Vehicle Sales State Distribution 30% of US demand for KY vehicle production goes to 3 states (TX, CA, FL) Source: Cox Automotive estimates based on IHS Markit Registrations 12 Months Ending May

36 Thank You Jonathan Smoke