GOOD NEWS, BAD NEWS. Initial Quality Trophies Go To. JULY

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1 GOOD NEWS, BAD NEWS Despite the unknown consequences of the Trump administration s proposed auto industry tariffs, three of the major industry analysis firms forecasted strong sales for June, although the month had one extra selling day than June 2017, and included sales through July 2nd. Actual sales were much better than the experts forecasts, with June sales increasing 5.2%, which calculates to a SAAR of million, compared to million for June 2017 and million for May For the first half of 2018, sales were 1.9% ahead of the first half of LMC/J.D. Power projected a 3.2% increase compared to June 2017, and joined with Cox Automotive forecasting a SAAR (seasonally adjusted, annualized sales) of 16.9 million. Edmunds was a bit more optimistic, with a SAAR of 17.1 million for June. Consumers still appear to be in a buying mood since credit is accessible to most of them, the employment/wages picture is brighter and the average incentive per new vehicle was $3,765 during June. Balanced against this positive trend is the increase in interest rates, how tariffs could affect new car prices and a glut of late-model, used vehicles. Initial Quality Trophies Go To At the end of June, J.D. Power released its 2018 U.S. Initial Quality Study SM (IQS), which measures the number of problems consumers experienced per 100 vehicles (PP100) during the first 90 days of ownership. The big winners were the South Korean brands, Genesis, Kia and Hyundai, which captured the top three positions at 68 PP100 for Genesis, 72 PP100 for Kia and 74 PP100 for Hyundai. For the entire industry, the PP100 improved to 93 compared to 97 from the 2018 study. The Big Three domestic automakers improvements from 2017 exceeded the industry average: Fiat Chrysler Automobiles (FCA), 7 fewer problems/100 vehicles; Ford Motor Co., 5 fewer; and General Motors, 5 fewer. J.D. POWER 2018 INITIAL QUALITY STUDY WINNERS, BY CATEGORY CATEGORY/BRAND CATEGORY/BRAND CATEGORY/BRAND Compact car: Toyota Corolla Midsize sporty car: Ford Mustang Small premium SUV: Mercedes-Benz GLA Small car: Kia Rio Minivan: Dodge Grand Caravan Midsize premium SUV: BMW X6 Midsize car: Nissan Altima Compact SUV: Buick Envision Midsize pickup: Nissan Frontier Large car: Nissan Maxima Small SUV: Hyundai Tucson Large light-duty pickup: Chevrolet Silverado Compact premium car: BMW 4 Series Midsize SUV: Kia Sorento Large heavy-duty pickup: Ford Super Duty Small premium car: Acura ILX Midsize premium car: Lincoln Continental Large premium car: Genesis G90 J.D. Power, June 2018 Large SUV: Ford Expedition Compact premium SUV: Lincoln MKC Small premium SUV: BMW X1 Large heavy-duty pickup: Chevrolet Silverado HD 1

2 MARKETING FORWARD Finding Value in Digital Ad Spending emarketer Retail s newest forecast (June 2018) for selected industries digital ad spending shows the automotive sector remaining in the second position, behind retail at #1, during 2018 and Although the automotive sector s digital ad spending increased 16.9% from 2017 to 2018 (projected) and another 15.3% for 2019 (projected), it will be in the middle of the pack of the 11 industries in the emarketer forecast for the period, at a CAGR (compounded annual growth rate) of 14.4%. The fastest-growing sectors for the period are projected to be entertainment, at a CAGR of +17.7%; media, +16.8%; and computing products & consumer electronics, +16.6%. US DIGITAL AD SPENDING, BY SELECTED INDUSTRIES, INDUSTRY CAGR Retail $15.83 B $19.80 B $23.50 B $27.58 B +14.9% Automotive $9.14 B $11.61 B $13.57 B $15.65 B +14.4% Financial services $8.78 B $11.01 B $13.05 B $15.25 B +14.8% Telecom $7.92 B $9.81 B $11.43 B $13.15 B +13.5% CPG & consumer products $6.26 B $7.92 B $9.40 B $11.03 B +15.2% Travel $5.97 B $7.38 B $8.59 B $9.81 B +13.2% Computing products & consumer electronics $5.47 B $6.85 B $8.33 B $10.12 B +16.6% Media $4.25 B $5.22 B $6.52 B $7.89 B +16.8% Entertainment $3.45 B $4.41 B $5.45 B $6.64 B +17.7% Healthcare & pharma $2.02 B $2.52 B $2.84 B $3.14 B +11.7% Other $3.10 B $3.86 B $4.61 B $5.48 B +15.3% Total $72.20 B $90.39 B $ B $ B +14.9% emarketer Retail, June 2018 Following Consumers on the Digital Byways Based on the latest J.D. Power New Autoshopper Study SM (September 2017), it s not surprising that automakers and auto dealers are increasing their digital ad spending during 2018 and The primary finding of the study was 13% of new-vehicle buyers are consumers who tend to use what J.D. Power calls disruptive Websites and apps, such as Zappos, Uber and Airbnb. These buyers spent more time on their smartphones conducting research before visiting a dealership. As you might expect, 33% were Millennials, but 18% were Gen Xers and 6% were older and younger Baby Boomers. Whether new-vehicle buyers were or weren t users of disruptive Websites and apps, they both shopped for and bought a new vehicle during a four-month period. The differences between the two groups, however, was disruptive Website and app users spent 19 hours doing research and visited 12 automotive sites while non-disruptive users spent 12 hours and visited 9 sites. Although both groups spent many hours and visited many sites, the study revealed 53% of automotive Internet shoppers knew what vehicle they wanted to buy prior to starting the shopping process, and then bought it. For this reason, consumers list of vehicles they may buy and the number of dealer Websites they may visit has decreased since

3 ROAD SIGNS Auto Financing in Good Shape Automakers, dealerships and financial institutions all welcome a robust loan-and-lease market, so they are likely pleased Experian s State of the Automotive Finance Market Q report shows record loan balances, improving delinquency rates, a slight increase in used-vehicle financing and other positive trends. The total open automotive loan balance during Q was $1.108 trillion, a 2.33% increase from Q1 2017, but a much lower increase than the 7.82% from Q to Q In addition, credit unions have had the largest increase since Q From Q to Q1 2018, the 30-day loans and leases delinquency rate decreased from 1.96% to 1.90% and 30-day loan balances decreased from 1.93% to 1.86%, respectively. Sixty-day delinquency rates in both categories were unchanged, at 0.67% and 0.66%, respectively. TOTAL OPEN AUTOMOTIVE LOAN BALANCES, BY FINANCING TYPES, Q FINANCING TYPE Q Q Q % CHANGE All banks $343 B $364 B $369 B +7.6% Captive auto $244 B $253 B $259 B +6.1% Credit unions $249 B $287 B $319 B +28.1% Finance $170 B $180 B $162 B -4.7% Experian, June 2018 LOAN BALANCE RISK DISTRIBUTION, BY CREDIT CATEGORY, Q CREDIT CATEGORY Q Q Q Deep subprime 3.45% 3.76% 3.47% Subprime 15.70% 15.94% 15.23% Nonprime 19.10% 18.86% 18.55% Prime 42.09% 41.70% 42.46% Super prime 19.66% 19.74% $202.9% Experian, June 2018 The other good news is the percentages of deep subprime and subprime loan balances also decreased. States Take Lead in Electric Charging Stations The total electric vehicles (EV) sold worldwide may be just a few million and less than a million in the US, but California, New York and New Jersey realize to increase the pace of adoption requires more charging stations, both public and personal. Although currently approximately 80% of all EV charging occurs at home, Southern California Edison has committed to spend $343 million and Pacific Gas & Electric Company (PG&E) $236 million during the next 5 years to construct charging stations at approximately New York State is planning to spend as much as $250 million during the next 7 years for 200 DC fast-charging stations accessible on its Interstate highways as well as new installations near LaGuardia and Kennedy airports. 1,500 locations. PG&E will invest another $22 million for 234 DC fast-charging stations at approximately 50 locations. Public Service Enterprise Group (PSEG), New Jersey s largest utility company, is prepared to commit $300 million to install as many 50,000 charging stations on highways as well as residential communities and commercial locations. 3

4 MONTHLY AUTOMOBILE SALES CHART General Motors has decided to announce light-vehicle sales quarterly instead of monthly GM sales will be announced July 3, October 2 and January 3, Because GM reported sales, Chevrolet, GMC, Buick, Cadillac and GM are included in this month s table. RANK AUTOMAKER JUNE 2018 % CHANGE FROM JUNE YEAR TO DATE % CHANGE FROM 2017 YEAR TO DATE #1 Ford 220, % 1,226, % #2 Toyota 185, % 1,069, % #3 Chevrolet 175, % 1,001, % #4 Nissan 134, % 708, % #5 Honda 132, % 714, % #6 Jeep 86, % 495, % #7 Hyundai 63, % 327, % #8 Subaru 59, % 327, % #9 Kia 56, % 293, % #10 Ram 51, % 260, % #11 Dodge 46, % 250, % #12 GMC 46, % 269, % #13 BMW 29, % 153, % #14 Mercedes-Benz* 28, % 177, % #15 Volkswagen 28, % 172, % #16 Mazda 26, % 163, % #17 Lexus 23, % 134, % #18 Audi 19, % 105, % #19 Buick 17, % 109, % #20 Chrysler 13, % 88, % #21 Cadillac 13, % 75, % #22 Mitsubishi 11, % 67, % #23 Infiniti 10, % 72, % #24 Acura 10, % 68, % #25 Volvo 9, % 47, % #26 Lincoln 9, % 50, % #27 Land Rover 6, % 44, % #28 Tesla 6, % 30, % #29 Porsche 4, % 31, % #30 Mini 4, % 22, % 4

5 RANK AUTOMAKER JUNE 2018 % CHANGE FROM JUNE YEAR TO DATE % CHANGE FROM 2017 YEAR TO DATE #31 Jaguar 2, % 14, % #32 Alfa Romeo 2, % 12, % #33 Fiat 1, % 8, % #34 Genesis % 7, % #35 Maserati % 5, % #36 Bentley % % #37 Smart % % General Motors 252, % 1,455, % Ford Motor Company 229, % 1,276, % Toyota Motor Corporation 209, % 1,204, % FCA/Chrysler Group 202, % 1,118, % Nissan Motor Company/Infiniti /Mitsubishi 156, % 848, % American Honda Motor Company 142, % 783, % Hyundai-Kia Automotive Group 120, % 628, % Volkswagen Group 53, % 309, % BMW Group 33, % 176, % Daimler AG 29, % 177, % Jaguar/Land Rover 9, % 59, % TOTAL 1,531, % 8,559, % Source: Automakers and ANDC * Includes Mercedes-Benz vans Includes Audi, Bentley, Porsche and Volkswagen brands, but not Lamborghini Industry total takes into account Automotive News figures/ estimates for brands, such as Tesla and other low-volume, high-priced manufacturers Media Group Online, Inc. All rights reserved. Sources: Automotive News Website: J.D. Power Website: emarketer Retail Website: Experian Website: The Verge Website: Good Car Bad Car Website: 5