European 1 Market Automotive Monitor 1
European Trend 1 Tracker Market NOLVs: Values for OEM parts were mixed, as improved sales were offset by increases in lower-recovering inventory segments. NOLVs: Values were consistent for tires as both gross margins and pricing held steady, despite increased sales. NOLVs: NOLVs for aftermarket replacement parts increased as gross margins improved and expenses were leveraged due to increased inventory levels. 1
European Overview 2 Market The U.S. auto industry put the pedal to the metal in 2014. Unit sales totaled 16.5 million vehicles for the year, an increase of approximately 6% as compared to 2013. This represented a fifth consecutive year of growth, following the 27-year low of 10.4 million vehicles witnessed during the Great Recession. Experts predict that the industry will post continued gains through 2018, with sales potentially exceeding 17 million vehicles in 2015. The sales gains bode well for the industry as a whole, as demand for various automotive sectors, including OEM parts and tires, is directly tied to the growing number of new vehicles on the road. Industry data asserts that the average age of a vehicle on the road plateaued at 11.4 years in 2014, where it is expected to hold steady as consumers are now replacing their older vehicles, spurred by attractive financing options and dropping gas prices. Demand for replacement and repair parts is therefore projected to remain strong in the coming year, in keeping with the elevated age of cars on the road. Despite a slight dip in consumer spending levels witnessed in December 2014, certain economic factors, such as disposable incomes, have been increasing. This translates into positive news for many industries, including the automotive market, as higher disposable incomes allow consumers to increase their purchasing power. 2
European Overview 3 Market Driven by lower gas prices and more attractive financing arrangements, the U.S. auto industry continued the trend of consistent sales growth through year-end 2014. Sales in October increased approximately 6% from the same month in 2013, with an annual sales rate of 16.4 million vehicles. Experts noted that this represented the seventh month in 2014 in which the sales rate fell between the 16.0 and 16.9 million range. November sales displayed similar strength, increasing 4.5% over the same period in 2013. The month surpassed industry expectations, with an annual sales rate of 17.1 million, coming in above predictions of 16.5 and marking only the second time the annual sales rate exceeded 17.0 million for the year. The industry finished strong in December, aided by relatively light snowfall and even lower gas prices. Sales for the month increased 10.7% over the prior year, with the annual sales rate of 16.4 million representing the highest December rate since 2006. Electric cars performed well for the year, with approximately 118,500 plug-in vehicles sold in 2014, an increase of 27% as compared to 2013. This represents the third consecutive year of increases since modern electric vehicles went on the market in 2010. U.S. Auto Sales 12 Months Ended December 2014 versus 2013 (in Units Sold) 1,600,000 1,500,000 1,400,000 1,300,000 1,200,000 1,100,000 1,000,000 This Year Last Year 3
European Overview 4 Market According to a recent press release, Ford witnessed a sales increase of 15% in January 2015, selling over 178 thousand vehicles. Ford noted that retail sales increased 13%, marking its best January retail performance since 2004. Its F-Series line of pickup trucks, the best-selling truck in America for the 38 th straight year, continued to drive sales growth, increasing 17% for the month. General Motors performed well in January, with unit sales reaching 202,786 vehicles, representing the company s best January in seven years. Additionally, retail sales increased 14%. The gains were due to strong consumer demand for the company s trucks and crossover models, with large pickup sales increasing 22% for the month. Sales of crossovers and SUVs increased 36% over the same period in 2014. Chrysler Group reported its 58 th consecutive month of year-over-year sales increases. Vehicles sales reached 145,007 vehicles for the month, representing a 14% increase from 2014. Chrysler s Jeep brand continued to post strong sales, the highest of all the company s nameplates, with sales increasing 23% from the same month in 2014. General Motors Ford Toyota Chrysler Honda Nissan Hyundai Kia Volkswagen Subaru BMW Daimler Mazda Mitsubishi Jaguar Land Rover Volvo Porsche Tesla Maserati Ferrari Suzuki U.S. Light Vehicle Retail Sales Year-to-Date December 2014 versus 2013 0 500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 Year-to-Date - December 2013 Year-to-Date - December 2014 Source: Autodata Corporation 4
European Recent 5 Appraisal Market Trends Manufacturers and distributors in the OEM parts sector continued to perform well through year-end 2014, with sales increasing up to 30% due to increased business with existing customers. Sales of aftermarket replacement parts increased in the fourth quarter of 2014, up an average of 10%. GA observed the increase was driven by overall economic improvement and increased demand as a result of the elevated average age of vehicles on the road. Gross margins increased slightly, with GA noting a gain in gross margins of approximately one to two points. Gains were linked to stronger market conditions and slight price increases on some industry products. Gross margins generally fluctuate throughout the year, as contracts are lost and gained, each receiving different margins. Additionally, margins tend to shift in relation to market prices. Overall, GA s engagements exhibited mixed gross margins, fluctuating ten percentage points in either direction. In a shift from the previous monitor, inventory levels increased up to 10%, primarily driven by an improvement in overall demand. The increase in inventory levels additionally leveraged expenses overall, benefitting NOLVs. As demand for industry products has increased, inventory levels for those companies supplying the OEM market have increased as well. However, GA noted that the growth rate for inventory levels has not matched that of sales. NOLVs for OEM parts were mixed for the fourth quarter of 2014. Despite increased sales, the increases in lower-recovering raw materials and work-inprocess inventory worked to offset these improvements. The aforementioned factors have led to increased NOLVs for participants in the aftermarket replacement parts sector. The amount of increase varied by participant, anywhere from zero to four percentage points. 5
European Recent 6 Appraisal Market Trends In general, sales for tire manufacturers and distributors increased up to 15% in the fourth quarter of 2014. The increased sales can be attributed to an overall improvement in market conditions, as well as initiatives by various participants to increase market share. GA observed that gross margins remained consistent for participants in the tire industry, holding steady on an annual basis. Inventory levels continued to increase through year-end 2014, rising up to 10%. The increases were driven by heightened demand, as well as a number of large in-transit inventory shipments. Despite the increase in sales levels, NOLVs for tire manufacturers remained consistent in the fourth quarter of 2014, in keeping with overall gross margins. 6
European 7 Market After struggling through much of 2013, the European automotive industry picked up speed in 2014. New car registrations increased 3% for the year, the first year of growth for the industry since 2007. Registrations totaled 13 million units for the year, driven by various incentives, including tax breaks and discounting efforts. This growth held strong through year-end, with December sales increasing 5% as compared to the same period of 2013. December sales reached 997,238 total vehicles, representing the 16 th consecutive month of growth for the industry. Industry experts assert that this is the longest stretch of consistent gains since 1990, when figures were first complied. Markets in southern Europe that struggled following the financial crisis began to show signs of improvement in 2014. Italy s new vehicle registrations, which posted consistent declines for the past six years, increased 4% to total 1.4 million vehicles in 2014. Additionally, Spain witnessed growth of 18%, the strongest annual growth in 15 years, driven by a government-sponsored scrappage program that has encouraged owners to trade in older models. Despite the positive trends, industry analysts warn that the European automotive market remains in a modest state of rebound. The majority of growth was driven by government-supported buying plans, increased discounts, and cheaper financing options, rather than a full resurgence in consumer confidence. However, growth is expected for 2015, as buyers will continue to replace aging vehicles, resulting in a 2.5% projected increase in sales for the year. The UK continued to be a strong performer in 2014, leading western Europe in growth for the year. UK registrations rose by 9% to 2.5 million units, the highest level since 2004. The increase in UK registrations was linked to the generous financing incentives auto manufacturers offered to consumers, as well as pent-up demand. Germany s sales rebounded after two years of declines, increasing 3% in 2014, for a total of 3.0 million new vehicles. France experienced slight growth for the year, increasing 0.3% to 1.8 million new vehicles in 2014. Most major automotive companies reported positive results for 2014. The Volkswagen Group, the largest automotive manufacturing group in Europe, reported that new car registrations increased 7% for the year, buoyed by strong postings by its SEAT and Skoda nameplates. The PSA Group, which includes Peugeot and Citroen, reported that new car registrations increased 4% in 2014. American-based manufacturers fared well in the region, as General Motor s European brands, including Opel and Vauxhall, reported an increase in new vehicle registrations of 7% for the year. However, the company s total registrations for the region decreased 5% in 2014 due to the removal of its Chevrolet nameplate from the European market. Ford reported a 5% improvement for 2014. 7
European Experience 8 Market GA has worked with and appraised numerous companies within the automotive industry. While our clients remain confidential, they include companies throughout the automotive supply chain, including manufacturers, importers, distributors, and retailers of aftermarket, performance, replacement, and OEM parts and accessories. GA s extensive list of appraisal experience includes: A remanufacturer and distributor of alternators and starters for imported and domestic vehicles with over $170 million in sales and over $60 million in inventory, including $20 million of core inventory. A U.S.-based producer and recycler of automotive and industrial lead acid batteries, with locations throughout North American and the world, an inventory of approximately $200 million, and sales of $1.2 billion. An Internet retailer of aftermarket replacement automotive parts, including auto body and engine parts, as well as accessories, to customers worldwide. The company s $50 million of inventory includes approximately 1.8 million types of aftermarket auto parts for nearly all makes and models of domestic and foreign cars and trucks. The company s nearly $300 million in sales are primarily generated via hundreds of websites. OEM parts suppliers to the big three U.S. automakers, which includes manufacturers of transmission, interior, wheel, and accessory products. An importer and wholesaler of specialized aftermarket automotive wheels and parts, including wheels for the U.S. auto market available in a variety of diameters, widths, and finishes. A cooperative and a distributor of automotive aftermarket parts, supplies, and accessories, such as water pumps, master cylinders, motors, spark plugs, hose clamps, axles, automatic transmission parts, filter kits, exhaust manifolds, batteries, bearings and seals, chassis parts, hydraulics, engine bearings, oil and lubricants, starters and alternators, chemicals, and numerous other goods. A distributor and retailer of aftermarket tires for passenger cars, light trucks, and a variety of other commercial, industrial, agricultural, and recreational vehicles, as well as related supplies such as repair parts, mounting equipment, wheels, and other goods. GA has also liquidated a number of manufacturers and distributors of OEM and aftermarket parts, including Midas Corporation, Trak Auto, Smittybilt Outland Automotive Group, Inc., and American Products Company, Inc. In addition to our vast liquidation and appraisal experience, GA maintains contacts within the automotive industry that we utilize for insight and perspective on recovery values. 8
European Monitor 9 Information Market The Automotive Monitor relates information covering most automotive products, including industry trends, market pricing, and their relation to the valuation process. GA provides our customer base with a concise document highlighting the automotive industry. GA strives to contextualize important indicators in order to provide a more in-depth perspective of the market as a whole. This publication will provide you with market value and industry trends for a variety of products within the automotive sector. GA internally tracks recovery ranges for parts, but we are mindful to adhere to your request for a simple reference document. Should you need any further information or wish to discuss recovery ranges for a particular segment, please feel free to contact your GA Business Development Officer. GA s Automotive Monitor provides market value and industry trend information for a variety of automotive products. The information contained herein is based on a composite of GA s industry expertise, contact with industry personnel, liquidation and appraisal experience, and data compiled from a variety of well-respected sources believed to be reliable. We do not guarantee the completeness of such information or make any representation as to its accuracy. 9
European Appraisal 10 Market & Valuation Team Mike Marchlik National Sales & Marketing Director mmarchlik@greatamerican.com (818) 746-9306 Jennie Kim Vice President, Western Region jkim@greatamerican.com (818) 746-9370 Ryan Mulcunry Executive Vice President - Northeast Region, Canada & Europe rmulcunry@greatamerican.com (617) 692-8310 Dan Williams Managing Director, New York Region dwilliams@greatamerican.com (646) 381-9221 David Seiden Executive Vice President, Southeast Region dseiden@greatamerican.com (770) 551-8114 Bill Soncini Senior Vice President, Midwest Region bsoncini@greatamerican.com (312) 777-7945 Drew Jakubek Managing Director, Southwest Region djakubek@greatamerican.com (972) 265-7981 Mark Weitz President mweitz@greatamerican.com (818) 884-3737 Ken Bloore Chief Operating Officer kbloore@greatamerican.com (818) 884-3737 Thomas Mitchell Project Manager, Automotive Parts/Petroleum Specialist tmitchell@greatamerican.com (818) 746-9356 About Great American Group Great American Group is a leading provider of asset disposition solutions and valuation and appraisal services to a wide range of retail, wholesale, and industrial clients, as well as lenders, capital providers, private equity investors, and professional services firms. In addition to the Automotive Monitor, GA also provides clients with industry expertise in the form of monitors for the chemicals and plastics, metals, food, and building products sectors, among many others. For more information, please visit www.greatamerican.com. Great American Group, LLC is a wholly owned subsidiary of B. Riley Financial, Inc. (OTCBB: RILY), which provides collaborative financial services and solutions through several subsidiaries, including: B. Riley & Co. LLC, a leading investment bank which provides corporate finance, research, and sales & trading to corporate, institutional and high net worth individual clients; Great American Group, LLC, a leading provider of advisory and valuation services, asset disposition and auction solutions, and commercial lending services; B. Riley Asset Management, LLC, a provider of investment products to institutional and high net worth investors; and MK Capital Advisors, LLC, a multi-family office practice and wealth management firm focused on the needs of ultra-high net worth individuals and families. B. Riley Financial, Inc. is headquartered in Los Angeles with offices in major financial markets throughout the United States and Europe. For more information on B. Riley Financial, Inc., please visit www.brileyfin.com. Headquarters 21860 Burbank Blvd. Suite 300 South Woodland Hills, CA 91367 800-45-GREAT www.greatamerican.com 10