Wholesale Market Insights Through June J o n a t h a n S m o k e & Zo R a h i m - C o x A u t o m o t i v e

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1 Wholesale Market Insights Through June 2018 J o n a t h a n S m o k e & Zo R a h i m - C o x A u t o m o t i v e

2 T R A N S F O R M I N G T H E W A Y T H E W O R L D B U Y S, S E L L S & O W N S C A R S

3 Manheim Used Vehicle Value Index Concept: A single measure of used vehicle price change that is independent of underlying segment shifts in the characteristics of vehicles being sold Steps: All Manheim U.S. sales Classify by market segment Account for differences in mileage Weight to provide unchanging segment mix Seasonally adjust 3

4 Manheim Used Vehicle Value Index Up Third Consecutive Month Prices in June increased 0.5% versus May 2018 and were up 4% compared to June January 1995 = Jan-95 Jan-98 Jan-01 Jan-04 Jan-07 Jan-10 Jan-13 Jan-16 Source: Manheim, Cox Automotive 4

5 Manheim Used Vehicle Value Index Y/Y Trend Year-over-year price performance has been much stronger than average over the last 12 months 25% 20% 15% 10% 5% 4.3% 0% -5% -10% -15% Jan-96 Jan-99 Jan-02 Jan-05 Jan-08 Jan-11 Jan-14 Jan-17 Source: Manheim, Cox Automotive 5

6 Manheim Index versus Mix & Quality Adjusted New Vehicle Price with 3 ½ year Lag 60% After recent increases, used prices have shifted above the new vehicle price trend 55% 50% 45% 40% 35% 30% 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: Bureau of Labor Statistics, Manheim, Cox Automotive 6

7 Wholesale Used Vehicle Prices vs. New Vehicle Prices Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18 $14,000 Y/Y new prices now up 3% while wholesale up 5% and inflation up 2% $39,000 $13,500 $13,000 $12,500 $12,000 $37,000 $35,000 $33,000 $11,500 $11,000 $10,500 $10,000 $31,000 $29,000 $27,000 $9,500 $25,000 Manheim Non-Adjusted Price (LHS) Average new vehicle transaction price per KBB (RHS) Source: Manheim, Kelley Blue Book, Cox Automotive 7

8 3-Year-Old Vehicles Saw Abnormal Depreciation Pattern in % 2018 saw a strong spring bounce and now another upward trend 3-Year-Old Model MMR Index by Week 105.0% 100.0% 95.0% 90.0% 85.0% 80.0% Source: Manheim Manheim Market Report (MMR) 3 Year Old Model Weekly Trend, Cox Automotive8

9 3-Year-Old Vehicles Saw Abnormal Depreciation Pattern in % Non-Luxury 3-Year-Old Vehicles have seen a strong second quarter 3-Year-Old Non-Luxury Model MMR Index by Week 105.0% 100.0% 95.0% 90.0% 85.0% 80.0% Source: Manheim Manheim Market Report (MMR) 3 Year Old Model Weekly Trend, Cox Automotive9

10 3-Year-Old Vehicles Saw Abnormal Depreciation Pattern in % Luxury 3YO models have not seen the same strength but now on upward trend 3-Year-Old Luxury Model MMR Index by Week 105.0% 100.0% 95.0% 90.0% 85.0% 80.0% Source: Manheim Manheim Market Report (MMR) 3 Year Old Model Weekly Trend, Cox Automotive 10

11 Retention Values Now Up From Last Year 63% 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 Auction Values as a % of MSRP and New Vehicle Sales Weighted 11

12 Percent Change in Wholesale Prices for Major Market Segments Most major segments saw year-over-year gains in June 30% 25% 20% 1 year 2 years 3 years 4 years 15% 10% 5% 4.3% 5.8% 5.1% 2.3% 4.5% 3.6% 0% -5% -1.0% -10% Industry Compact cars Midsize cars Luxury cars Pickups SUV/CUV Vans Source: Manheim, Cox Automotive 12

13 Shifting Consumer Preferences Not Reflected in Used Volumes Cars still dominate the wholesale market, while the SUV reigns supreme in new New Vehicle Sales by Category CAR PICKUP SUV VAN 60% Manheim Sales in June 50% 47% 6% 40% 30% 32% 34% 50% Car Pickup SUV 20% 16% Van 10% 0% % 11% Source: Motor Intelligence/Autodata, Manheim, Cox Automotive 13

14 Average Auction Price Rental Risk Units $17,500 $17,000 $16,500 Average price for rental risk units sold in June up 7% y/y and down 1% m/m $16,000 $15,500 $15,000 $14,500 $14,000 $13,500 (mix and mileage adjusted) Source: Manheim, Cox Automotive 14

15 Average Mileage Rental Risk Units Sold at Auction Average mileage for rental risk units sold in June was up 5% y/y 60,000 55,000 50,000 45,000 40,000 42,698 35,000 30,000 25,000 20,000 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17 Source: Manheim, Cox Automotive 15

16 Distribution of Rental Risk Vehicles 2016 Q Q Q2 Number of unique year, make, model, body configurations sold 3,469 2,624 3,023 Share accounted for top 10 YMMB 20.0% 16.0% 13.5% Share accounted for top 25 YMMB 33.0% 29.6% 22.9% Number of YMMB to reach 50% share Source: Manheim, Cox Automotive 16

17 Rental Risk Units Sold by Condition 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2015 Q Q Q Q Q Q Q Q Q Q Q Source: Manheim, Cox Automotive 17

18 Rental Risk Units Sold by Make 100% 90% 80% 70% 60% 50% 40% 30% 20% All other Mazda Kia Jeep VW Chrysler Hyundai Dodge Toyota Nissan Ford Chevrolet 10% 0% 2015 Q Q Q Q Q Q Q Q Q Q Q2 Source: Manheim, Cox Automotive 18

19 Rental Risk Units Sold by Market Segment 100.0% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% Van SUV Sports Car Pickup Luxury Car Midsize Car Compact Car 20.0% 10.0% 0.0% 2015 Q Q Q Q Q Q Q Q Q Q Q2 Source: Manheim, Cox Automotive 19

20 Manheim Market Report (MMR) Vehicle Insights Most top selling vehicles in June at Manheim showed no depreciation or even appreciation in the last 30 days (June 2- July 2), while depreciation over the last 12 months has been varied. Rank Source(Rank) Category Subcategory Vehicle 2-Jul Past 30 Days Last Year Current Dep L12M Dep/Mo 1 All Midsize Car Midsize Car Premium 2015 NISSAN ALTIMA 4C 4D SEDAN S $10,600 $10,600 $10, % 0.0% 2 All Midsize Car Midsize Car Entry 2018 KIA OPTIMA 4D SEDAN 2.4L LX $14,850 $15, % 3 All Midsize Car Midsize Car Entry 2018 KIA FORTE 4D SEDAN LX $12,650 $12, % 4 All Luxury Luxury Car Premium 2015 MERCEDES-BENZ C CLASS 4D SEDAN C300 $21,100 $21,000 $26, % -1.7% 5 All Van Van Compact 2017 CHRYSLER PACIFICA 4D WAGON TOURING-L $20,600 $20,500 $24, % -1.4% 1 Dealer Dealer Midsize Car Midsize Car Premium 2015 NISSAN ALTIMA 4C 4D SEDAN S $10,600 $10,600 $10, % 0.0% 1 Lease Lease Midsize Car Midsize Car Premium 2015 NISSAN ALTIMA 4C 4D SEDAN S $10,600 $10,600 $10, % 0.0% 1 Rental Rental Midsize Car Midsize Car Entry 2017 CHEVROLET MALIBU 4D SEDAN 1LT $13,650 $13,600 $15, % -1.0% Source: Manheim, Cox Automotive 20

21 Used Sales Have Plateaued at a 39.4 Million Annualized Rate 40,000,000 Annualized Used Vehicle Sales 39,000,000 38,000,000 37,000,000 36,000,000 35,000,000 34,000,000 33,000,000 Source: Cox Automotive estimates based on IHS Markit Registrations 21

22 Dealer Sentiment Points to Increasing Challenges Cox Automotive s Q Dealer Sentiment Index indicated that dealers were more positive about the current market than last year or last quarter, but their expectations for the next quarter (3Q 2018) were less optimistic than 90 days ago. The index for the next three months was 56, still positive, with more dealers expecting conditions to be strong in the future compared to those who believe conditions will be weak. The index was far more positive at 70 in Q1. Higher costs, inventory concerns and rising interest rates are likely driving dealers to believe the best times in this cycle may soon be in the rearview mirror. Franchises remain more positive than Independents. In fact, the decline in optimism was driven mostly by Independents. Of note for the wholesale market, Independents reported that used vehicle inventory was declining. Source: Q1 Dealer Sentiment Research, March

23 Growth of Off-Lease Is Decelerating and Nearing a Peak Million Units 4.5 Estimated Lease Maturities Source: Cox Automotive 23

24 Wholesale Market Expected to See Only Minor Growth Million Units Dealer Off Lease Rental Repo Factory/Fleet/Other* F 2019F Source: Cox Automotive 24

25 Channel Growth Is Digital and Upstream 18.0 Traditional Auction Offsite Digital Direct to Dealer/Dealer to Dealer Commercial Direct to Consumer F 2019F Source: Cox Automotive 25

26 Jonathan Smoke & Zo Rahim Economic Industry Insights 26