ALG July/August 2011 Edition Report

ALG July/August 2011 Edition Report Introduction: For the July/August 2011 edition, ALG has updated both gas price and used supply outlook to reflect the latest available consensus of economic forecasting experts. In ALG s residual value forecasting model, the impact of both gas prices and used supply primarily occurs at the segment level, as such, the changes for the July/August 2011 edition relative to the previous May/June 2011 edition vary significantly across the various vehicle segments. No changes were required to the outlook at the brand level. As with every edition, forecasts at the individual model level for incentives and rental fleet penetration were updated with varying results. Summary of events: The industry sales weighted decline for the July/August 2011 edition is 2.7 ppts Average expected declines (vehicle depreciation due to age plus seasonal impact) for July/ August editions is approximately 2.0 ppts across the industry ALG has updated gas price forecast in the short term (2011-2013); long term forecast remains unchanged vs. the May/June 2011 edition forecast (2014 and beyond) Gas price increases most heavily impacted Fullsize Pickup, Fullsize SUV and Premium Fullsize SUV segments, negatively impacting these segments approximately 2.2 ppts on average Gas price increases positively impacted the Mid Compact and Entry Compact segments approximately 1.2 ppts on average Used supply forecast has been updated to reflect additional sales of approximately 600,000 units in 2011CY and 1.5M units in each year for 2012-2015 vs. the sales forecast utilized for the May/June 2011 edition Used supply increases are having the largest negative impact on the Entry Premium CUV, Entry Compact and Midsize vehicle segments, with an average negative impact of 2.3 ppts Declines in used supply are positively contributing approximately 0.6 ppts to the Premium CUV, Near Luxury and Compact Pickup segments on average Slight modifications to the wage forecast (positive) and housing price forecast (negative) offset each other in the July/August 2011 edition

Background Information Gas Price outlook for July/August 2011 Edition and impact Since finalizing the May/June 2011 edition the U.S. Energy Information Administration (EIA) forecast for 2011 gas prices has increased 17.5% and now stands at $3.70 for the annual national average price of a gallon of gas. According to the EIA, the average national gasoline price for early May 2011 was $3.96 per gallon roughly $1 higher than a year ago. The West Texas Intermediate (WTI) crude oil price is currently sold for $105 per barrel as the spot price clipped the $100 mark again in March 2011. The recent and ongoing unrests in the Middle East and Northern Africa have clearly impacted the crude oil price in the short term while the barrel price has spiked 30% since early Q4 of 2010. Based on the short term increases in the crude oil price and persistent unrest, ALG has adjusted the 1 to 2 year gas price outlook upwards; the updated forecast for 2011 is on average $3.65 compared to $3.25 for the May/June edition. For the July/Aug edition, ALG expects gas prices to average $3.75 (compared to $3.50 for May/June) for 2012 and $3.83 for 2013. For 2014, ALG foresees gas prices to remain unchanged at $3.89 from the May/ June outlook. The EIA is currently predicting an average of $3.80 in 2014. Consequently, 36-month residuals are impacted by a negative 0.5 ppt on average with larger vehicle segments experiencing 2 ppts drops as a result of the adjustment. As evidenced in the gas spike of 2008, fuel cost has an immediate and significant impact on the pricing of and demand for, used vehicles at the segment level. Simply put, fuel efficient vehicles and segments are in higher demand and command a greater price as fuel costs rise and vice versa. Luxury passenger cars and midsize and compact SUVs are marginally impacted by swings in fuel costs. CUVs are more fuel efficient than traditional SUVs, so also may experience increases in demand as fullsize CUV and SUV owners downsize. The luxury buyer demographic is by nature more insulated from gas price volatility.

The charts below represent the top five segments both positively and negatively impacted by the updated gas price forecast for the July/August 2011 edition. The total industry impact is negative, reflecting the decreasing demand for personal automotive transportation in general as a result of increased operating costs. Gas Price Impact for July/August 2011 Edition: Segment Negative Segment Positive Fullsize Pickup -2.2% Entry Compact 1.2% Fullsize SUV -2.2% Mid Compact 1.1% Prem Fullsize SUV -2.1% Midsize 0.9% Prem Midsize SUV -2.0% Sporty 0.6% Midsize SUV -1.7% Entry Luxury 0.4% Used Supply outlook for July/August 2011 Edition and impact For this edition ALG updated its used supply outlook to reflect the latest new vehicle sales projections by segment as well as the latest overall industry trends. In general, new vehicle supply is projected to increase more than previously expected based on a strong April 2011 YTD new sales trend. The current overall seasonally adjusted annualized rate (SAAR) of total vehicle sales is hovering around 13 million units for 2011; ~14% higher than in 2010. The higher sales rate for 2011 as well as the forecasted 6% average growth rate (YOY) in new vehicle sales for 2012 through 2015 will significantly impact future used supply. Used Supply Impact for July/August 2011 Edition: Segment Negative Segment Positive Entry Prem CUV -2.5% Compact Pickup 0.7% Entry Compact -2.3% Near Luxury 0.6% Midsize -2.0% Prem CUV 0.4% Fullsize Van -1.7% Entry Luxury 0.4% Compact SUV -1.2% Prem Fullsize SUV 0.3% The result is a more robust SAAR for 2011 than previously anticipated. This increase in projected sales, combined with overall forecasted increase in leasing, results in a significant increase in the total used supply inventory in the next 2 to 4 years. The limited availability of late model cars in the current used market, and continued declines in overall used supply in the near future are key drivers of the all time highs existing in the current used market. As used vehicle supply starts to increase and demand shifts from used to new cars due to a stronger economy and more confident consumer sentiment, used values are expected to retreat from these historical levels. The earthquake in Japan has not substantially derailed the 13 million SAAR level so far recorded in March and April. This is expected to have more negative impact on overall residual projections for 2 to 4 year old vehicles based on higher used market supply on average, though there is variation

by segment. ALG has implemented a more aggressive ~1.5 ppt negative adjustment on 36-month residuals on average. Entry Compact, Midsize and Entry Prem CUV segments are forecasted to experience the largest increases in used supply. Other drivers The impact of modest changes in housing prices and wage growth outlook offset each other in the July/ August 2011 edition. Wage growth forecast in 2014 was increased slightly by 1-2% for an average impact of 0.1 ppts in the July/August edition, while a 1% decline in expected housing prices in 3 years had a negative impact of approximately 0.1 ppts across the industry. Many OEMs also took incremental pricing on their products in response to current or expected reductions in inventory due to the Japan earthquake, increases in material costs or competitive strategy. As discussed in the Japan Crisis Report made available earlier in 2011, ALG anticipates the increases in transaction prices as a result of limited supply of Japan sourced vehicles will be temporary. As the industry augments pricing with increases in overall production, boost in incentive spending becomes a more likely scenario. The sum of total sales goals across all auto manufacturers currently outpaces even the most optimistic sales forecast. Inevitably, some OEMs must concede either sales targets or pricing power in the market. Incentive spending has been trending down since 2009 when OEMs realigned sales goals in response to the global recession and many OEMs were able to restructure manufacturing obligations and reduce production capacity. While automotive manufacturers have recently witnessed the negative repercussions of heavy incentive strategies on brand value and used vehicle retention, incentive spending wars can quickly escalate and erode the recent gains in transaction prices. Total Impact of July/August 2011 edition by segment: July/August 2011 Edition Declines: Segment Impact Segment Impact Fullsize Van -3.5% Entry Compact -2.4% Entry Prem CUV -3.5% Prem Sporty -2.2% Compact SUV -3.1% Prem CUV -2.1% CUV -3.1% Fullsize -2.1% Prem Luxury -3.0% Convertible -2.1% Mid Compact -3.0% Prem Midsize SUV -2.0% Midsize -2.9% Near Luxury -2.0% Fullsize Pickup -2.7% Sporty -2.0% Minivan -2.6% Entry Luxury -1.8% Prem Convertible -2.6% Prem Fullsize SUV -1.7% Luxury -2.5% Compact Pickup -1.5% Fullsize SUV -2.4% Midsize SUV -0.4%