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Outlook for Franchised New Car Dealers Fourteenth Annual Automotive Outlook Symposium June 1, 2007 Paul Taylor, Ph.D., Chief Economist National Automobile Dealers Association, McLean, VA www.nada.org
Two Challenges/Opportunities facing Dealerships: 1. Rising Average Retail Gasoline/Diesel Price 350.9 Jun-96 Nov-96 Apr-97 Sep-97 Feb-98 Jul-98 Dec-98 May-99 Oct-99 Mar-00 Aug-00 Jan-01 Jun-01 Nov-01 Apr-02 Sep-02 Feb-03 Jul-03 Dec-03 May-04 Oct-04 Mar-05 Aug-05 Jan-06 Jun-06 Nov-06 Apr-07 300.9 250.9 200.9 150.9 100.9 50.9 Self Service cents per Gallon Incl. Taxes 0.9 Source: Energy Information Administration Diesel Gasoline
2. Rising Interest Rates 10% 9% Prime Rate 8.25 percent Apr, 2007 Percentage 8% 7% 6% 5% 30 Year Fixed Mortgage Rate Unemployment Rate 6.29 percent Apr, 2007 4% 4.6 percent Apr, 2007 3% 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Source: Federal Reserve, Bureau of Labor Statistics
320 300 280 260 240 220 200 180 160 140 Average Home Price (Thousand $) Home Equity Loans (Billion $) Average Home Price Trend vs. Outstanding Home Equity Loans 490 440 390 340 290 240 190 140 120 90 1999M1 1999M6 1999M11 2000M4 2000M9 2001M2 2001M7 2001M12 2002M5 2002M10 2003M3 2003M8 2004M1 2004M6 2004M11 2005M4 2005M9 2006M2 2006M7 2006M12 Average Home Price Home Equity Loans Outstanding Sources: National Association of Realtors and FDIC Quarterly Banking Profile
U.S. Households: Potential and Realized Cash from Home Equity Extraction $1,500 18% $1,300 16% Billion $ $1,100 $900 $700 $500 14% 12% 10% 8% 6% 4% Percent of Disposable Income $300 2% $100 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 0% Free Cash From Home Equity Free Equity Cash as % of Disposable Income Source: Federal Reserve Board, Divisions of Research, Statistics & Monetary Affairs
Price Index of New One-Family Houses Sold Index Value-1996=100 (Includes Lot) Northeast Midwest South West 250 200 Index value 150 100 50 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Source: U.S. Census Bureau 7
Licensed Drivers 205,000,000 200,000,000 195,000,000 190,000,000 185,000,000 180,000,000 175,000,000 170,000,000 165,000,000 160,000,000 Total U.S. Licensed Drivers: Rising at a More Modest Rate Recently 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Source: U.S. Department of Transportation, Federal Highway Administration
World Production of Crude Oil, NGPL & Other Liquids vs. World Vehicles in Operation 90,000 950 Thousand Barrels per day 85,000 80,000 75,000 70,000 65,000 900 850 800 750 700 650 600 Millions 60,000 1990 1991 1992 1993 1994 1995 1996 1997 World Oil Production 1998 1999 2000 2001 2002 2003 2004 2005 World Vehicles in Operation 2006 550 Source: U.S. Energy Information Administration (EIA), Ward s Automotive Group
225 U.S. Finished Motor Gasoline Stocks U.S. Finished Motor Gasoline Stocks vs. Gasoline Prices 350 200 175 150 125 100 75 50 25 300 250 200 150 100 50 0 1990M1 1990M9 1991M5 1992M1 1992M9 1993M5 1994M1 1994M9 1995M5 1996M1 1996M9 1997M5 1998M1 1998M9 1999M5 2000M1 2000M9 2001M5 2002M1 2002M9 2003M5 2004M1 2004M9 2005M5 2006M1 2006M9 Million Barrels Cents per Gallon 0 Finished Gasoline Stocks Retail Gasoline Price Record High Price (Regular) Source: U.S. Department of Energy Monthly Energy Review, EIA
The Conference Board s Consumer Confidence Index 160 Gulf War Iraq War 140 Consumer Confidence Inde 120 100 80 60 40 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 Source: Conference Board 11
NADA Dealer Optimism Index Leading Indicator of New-Vehicle Sales 184 164 Optimism NADA Index Measure 144 124 104 84 Sales 64 44 1977 III 1982 III 1987 III 1992 III 1997 III 2002 III 2007 Source: NADA Industry Analysis
U.S. Light Vehicle Sales: 16.5 Million Units in 2006 and near 16.5 Million Units likely in 2007 20 18 16 Lt. Trucks Cars 16.9 17.4 17.1 16.8 16.6 16.8 16.5 16.5 (Est.) Millions of Units 14 12 10 8 6 4 2 0 1996 1997 1998 Source: NADA Industry Analysis 1999 2000 2001 2002 2003 2004 2005 2006 2007 13
Crossovers, Small and Large Cars had Sales Growth Percentage Sales Growth in Full-Year 2006 Crossover Utility Vehicles Small Cars Large Cars Midsize Cars Luxury Cars Minivans, Vans Pickups Truck-based SUVs Full Year 2006 Full Year 2005-20% -15% -10% -5% 0% 5% 10% 15% 20% 25% 30% 35% Source: Ward s Automotive 14
Crossovers and Small Cars are the only Categories with Sales Growth, Year-to-Date April 2007 Crossover Utility Vehicles Small Cars Luxury Cars Pickups Midsize Cars Truck-based SUVs Minivans, Vans Large Cars YTD Apr 2007 YTD Apr 2006-20% -15% -10% -5% 0% 5% 10% 15% 20% 25% Source: Ward s Automotive 15
9.5 9.0 8.5 8.0 7.5 7.0 6.5 6.0 5.5 5.0 Source: R.L. Polk Median Vehicle Age Moving Higher Cars Trucks 16 2002 2003 2004 2005 2006 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Median vehicle age in years
Light Vehicle Market Share Percentages By Major Manufacturer 30 25 26.3 24.6 23.2 Full Year 2005 Full Year 2006 YTD April 2007 Percentage 20 15 10 18.3 17.3 16.3 13.3 15.4 15.7 13.6 13 14 8.6 9.1 9.2 6.4 6.2 6.7 5 0 GM Ford Toyota Chrysler Honda Nissan Source: NADA Industry Analysis 17
U.S. Household Net Financial Assets $ Trillions $25 $20 $15 $10 $5 $0 Net Household Wealth = Total Financial Assets - Total Liabilities (excludes home equity but includes all mortgage debt) 1985 1986 Source: Federal Reserve Flow of Funds Data, Z.l., Table L.10. 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Manufacturer Incentives: Lower in 2007 Thus Far, through April Exception is the Euro-badged Vehicles $2,342 Industry $1,750 Korean Apr-07 Dec-06 Dec-05 Dec-04 Japanese $1,192 European Domestic $3,139 $3,147 $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 Source: Edmunds.com
AuctionNet Wholesale Used SUV Prices and Gas Prices Ward s s SUV and Pickup Segments $19,000 $3.50 $18,000 $17,000 $16,000 $3.00 $2.50 Average Pri $15,000 $14,000 $13,000 $12,000 $11,000 $10,000 Jan-05 Mar-05 May-05 Jul-05 Sep-05 Nov-05 Jan-06 Mar-06 May-06 Jul-06 Sep-06 Nov-06 Jan-07 Mar-07 May-07 $2.00 $1.50 $1.00 $0.50 $0.00 Source: AuctionNet ( NADA Guides and NAAA ) and EIA, regular gasoline price 20 SUV PICKUP Gas Price Gas Pric
$15,000 AuctionNet Average Wholesale Used Vehicle Price and Smoothed Trend (Red Line) What will $3 Plus Gas and Higher New Car Incentives Do? $14,500 $14,000 $13,500 Average Price $13,000 $12,500 $12,000 Avg. Wholesale Price $11,500 Based on 9 million transactions $11,000 $10,500 Apr-05 Jun-05 Aug-05 Oct-05 Dec-05 Feb-06 Apr-06 Jun-06 Aug-06 Oct-06 Dec-06 Feb-07 Apr-07 Source: N.A.D.A. Analytical Services and NAAA AuctionNet 21
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