Auto incentives and consumer spending on vehicles. Ted Chu, Senior Economist General Motors Corporation June 3, 2004

Transcription

1 Auto incentives and consumer spending on vehicles Ted Chu, Senior Economist General Motors Corporation June 3, 2004

2 Agenda Incentive pressures and consumer affordability Dept of Commerce Bureau of Economic Analysis (BEA) vehicle revenue revisions US auto industry revenue projections Page 2

3 10 Incentives were not a reaction to changes in total private consumption expenditures Quarterly Percentage Change at Annual Rate, Chained 1996$ Page 3

4 Main driver of incentives: Intensified competition Page 4

5 Incentives and market share: chicken and egg? Page 5 Average Big 3 per vehicle incentives ($) Big 3 market share (%) Avg incentives Share of Big 3 Source: Ward s

6 Incentives have driven down new vehicle CPI AverageBig3per vehicleincentives($) Avg incentives CPI: New Autos (yoy % change) Source: BEA Nominal Real Page 6

7 Consumer s perception may be different from CPI One reason KAR was so effective: cars were believed to be overpriced Question: Which do you feel are fairly priced, and which are overpriced in the US today (Feb 2001)? % saying overpriced New car prices 80 Credit card interest charges 76 Doctor fees 71 Brokerage commissions 47 Mutual fund fees 33 Mortgage rates 33 Source: DYG SCAN, Money Magazine national survey Page 7

8 EU vehicle prices had been more in line with income over last 25 years Source: MartecGroup.com, 4/2002 fuel econ Page 8

9 US auto deflation is very mild compared with other manufacturing sectors even after KAR Percentage price change (3/02-3/03) Outsourced to low cost countries, large productivity gains Computer TV Set -3.6 Clothing New Car Furniture Health Care Daycare Cable TV 7.3 College Tuition 8.9 Value-added in the US, hard to automate manual operations, and more leverage to pass on higher labor costs Auto Insurance Source: US Labor Dept. Business Week, Cheap to Buy, Pricey to Own, 3/19/2003 Page 9

10 Incentives have improved affordability AUTO AFFORDABILITY INDEX WEEKS OF MEDIAN FAMILY INCOME REQUIRED TO PURCHASE NEW VEHICLE Source: Comerica Bank Page 10

11 Bad Time to Buy Car/Truck (inverted scale) Surveys of Consumers, University of Michigan Nov '03 15 Oct '03 18 Nov ' Month Moving Average Average: Page 11

12 Incentives and total industry volume: hardly related Average Big 3 per vehicle incentives ($) Avg incentives Share of Big Big 3 market share (%) Industry volume up/below trend million units Page

13 Incentives have reduced volume/pce* Average Big 3 per vehicle incentives ($) Avg incentives Share of Big Big 3 market share (%) Industry volume per PCE * PCE: personal consumption expenditure. Page 13

14 Notable Changes in BEA GDP Data Source: Page 14

15 Notable Changes in BEA Auto Data The biggest change was in used truck spending (max 39% chg) Method is now consistent with used car accounting Still no direct measures Estimates of dealer margins and net transaction prices (from corp, government, etc.) were refined New auto spending adjustment mostly after 1996 (max 14% chg) New benchmark to 1997 input/output estimates International trade and transportation costs were refined No changes to auto lease estimates No adjustments to subsidized loans Only cash rebates have been incorporated with BLS data May overestimate PCE since late 2001 Page 15

16 Notable Changes in BEA Data (current previous data) (bn US$) % chg(bn US$) % chg(bn US$) % chg(bn US$) % chg(bn US$) % chg(bn US$) % chg GDP DPI Total PCE Auto PCE New Auto Used veh % % 8 0.2% 6 4% 0 0% 6 15% % % % 11 6% 0 0% 11 24% % % % 13 7% 0 0% 13 26% % % % 11 6% % 10 18% % % % 17 7% % 16 24% % % 7 0.1% 17 7% % 16 22% % % % 27 10% % 25 30% % % % 39 13% % 32 35% % % % 45 14% % 39 39% % % % 49 14% % 43 39% % % % 47 13% % 41 37% % % % 45 12% % 38 34% % % % 41 10% % 34 31% Note: There is no change in new auto leasing data except for 2002 (-0.6 bn$, -1.7% change.) Source: BEA Page 16

17 Implications of BEA Data Change: Consumer spending on autos has been significantly above historical average since mid 90s (but data may have overestimated spending over the last few years) PCE auto share DPI auto share Before After revision Before After revision % 4.7% 4.1% 4.2% % 4.1% 3.4% 3.7% % 4.4% 3.6% 3.9% % 4.6% 4.0% 4.2% % 4.9% 4.2% 4.5% % 4.9% 4.2% 4.5% % 5.0% 4.2% 4.6% % 5.2% 4.2% 4.8% % 5.4% 4.3% 4.9% % 5.6% 4.6% 5.2% % 5.4% 4.5% 5.1% % 5.5% 4.6% 5.2% % 5.3% 4.5% 5.0% Changes bump up historical averages by about 0.2 percentage point. Source: BEA Page 17

18 6.0% US Vehicle Expenditures as a Share of PCE 5.0% 4.91% period avg 4.0% 3.0% 2.0% 1.0% 0.0% New Motor Vehicle Purchases Used Motor Vehicle Purchases New Motor Vehicle Leasing Source: BEA Page 18

19 6.0% Vehicle Expenditures as a Share of Disposable Personal Income By Type of Vehicle Expenditure 5.0% 4.4% period avg 4.0% 3.0% 2.0% 1.0% 0.0% New Motor Vehicle Purchases Used Motor Vehicle Purchases New Motor Vehicle Leasing Source: BEA Page 19

20 Billion Dollars US New Vehicle Expenditures by Ownership 7.4% avg annual growth Private Business Public Source: BEA Page 20

21 Average Transaction Prices (000) Annual avg price increase ( , BEA): 5.8% Annual avg price increase ( , BEA): 4.0% Annual avg price increase ( , PIN) : 1.5% BEA PIN Source: BEA, J.D. Power PIN Implied spending diff by PIN data: Page 21

22 Total Vehicle Revenue as Share of GDP 6% 5% 4% avg: 4.2% 3% 2% 1% 0% Implied share by PIN data: 3.8% in 2003 Source: BEA Page 22

23 Updated Historical Data GDP PCE DPI Pri Auto Total Auto Ind Vol ($bn) ($bn) ($bn) ($bn) ($bn) (000) Source: BEA Page 23

24 Spending on new vehicles as share of total PCE 6.0% 5.5% BEA TCE PIN 5.0% 4.5% 4.0% 3.5% 3.0% Source: BEA, TCE survey, JD Power Page 24

25 Spending on new vehicles as share of total PCE probably declined in % 5.0% BEA BEA mv avg PIN mv avg PIN 4.5% 4.0% 3.5% 3.0% Jan-98 May-98 Sep-98 Jan-99 May-99 Sep-99 Jan-00 May-00 Sep-00 Jan-01 May-01 Sep-01 Jan-02 May-02 Sep-02 Jan-03 May-03 Source: BEA and JD Power Page 25

26 Changes in private inventories of autos (bn $) Total New Source: BEA Page 26

27 Annual change in spending Total New Auto PCE PCE BEA TCE PIN % 10.2% 14.6% % 11.1% 17.5% % 1.6% 8.2% % 5.2% 9.9% % 6.7% 5.1% % 9.9% 6.0% % 12.1% 3.9% % 6.2% 7.1% % 7.4% 2.4% % 3.8% 0.0% -0.6% Source: BEA, TCE survey, JD Power Page 27

28 Spending on cars, motorcycles, and other vehicles as share of total consumer spending France 3.5% 3.8% 4.2% 4.2% 4.3% 4.2% Germany 6.3% 6.7% 6.8% 6.8% 6.9% 6.7% UK 5.6% 5.6% 5.1% 4.9% 4.8% 4.7% Canada 7.1% 7.0% 6.6% 6.8% 6.8% 6.8% Mexico 1.8% 2.2% 1.6% 1.6% 1.7% 1.7% Japan 2.2% 2.5% 2.2% 2.2% 2.2% 2.3% Source: Euromonitor International Page 28

29 20000 Auto Revenue and Industry Volume Industry volume (000) Auto Revenue ($bn) Page 29

30 US: Nominal Shares of Major GDP Components PCE Gross Private Domestic Investment Governent C & GI Net Exports Page 30

31 Improving affordability may not lead to higher sales Ownership saturation and lack of killer apps in PC market 2000 Average PC Prices 18 US Personal Com puter Sales Constant 2003 dollars Millions Source: Consumer Electronics Association, NYT 3/6/2003 Page 31

32 It may even lead to decline in total spending PC s share of PCE peaked in 1996, the year prices peaked % PC spending (millions 2003 dollars) PC spending as share of PCE % 0.20% 0.15% 0.10% 0.05% PC spending as share of PCE 0.00% Source: Consumer Electronics Association, NYT 3/6/2003, Haver Analytics Page 32

33 Revenue of US long distance phone market Revenue (bn dollars) AT&T Total Ind AT&T sh 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% AT&T market share Source: FCC, NYT 6/1/2004 Page 33

34 Concluding Remarks Incentives were a response to competitive pressure Incentives vs Everyday low prices Latest BEA data revision on consumer spending on vehicles was significant New data show higher spending Evidence so far shows incentives having only a slight negative impact on revenue Comparison with PIN data suggests that BEA data not fully reflective of incentive impacts Incentives induce customers to move up market In the context of manufacturing sector, incentives have only been a relatively mild deflationary shock to demand The value of the dollar and other competitive pressure could be key drivers of incentive levels Page 34