Automotive Outlook: From Plateau to Uncertainty Where is the Industry Headed?

Automotive Outlook: From Plateau to Uncertainty Where is the Industry Headed? Jeff Schuster Senior Vice President, Global Forecasting September 15 th, 2016

Outline Global Automotive Backdrop North America Demand Environment and Trends North American Production Outlook and Sourcing Trends Summary 2

Global Economy by Major Market Real GDP Growth 2014 2015 2016 2017 USA 2.4% 2.4% 1.5% 2.3% Argentina 2.6% 2.4% 0.8% 3.4% Brazil 0.1% 3.9% 3.3% 0.1% Near term weaker, rebound expected Contraction expected in 16, risks high Cautious improvement Japan 0.1% 0.6% 0.4% 0.4% ASEAN 4.5% 4.5% 4.5% 4.6% China 7.3% 6.9% 6.5% 6.2% India 7.0% 7.2% 7.5% 7.2% UK 3.1% 2.2% 1.8% 1.1% Russia 0.7% 3.7% 0.8% 1.2% Germany 1.6% 1.5% 1.8% 1.5% Slightly better, but weak growth Stable, but some risk Downward pressure remains Positive environment, risks skewing downward Uncertainty high, endures slowdown Edging out of recession Shrugging off Brexit? More risk in 2017 World 2.8% 2.6% 2.2% 2.6% Slightly weaker in 2016, sable in 2017 Source: Oxford Economics 3

Global LV sales Current Environment World 2016 forecast: 91.9 mn, up 2.4 mn units (+2.7%) North America 6% 6% 1% 14 15 16F South America 14 15 16F Western Europe 5% 9% 6% 14 15 16F C&E Europe 2% 8% 13% 14 15 16F Asia Pacific 5% 3% 4% 14 15 16F China US Japan Germany India 2016 Top 5 Countries LV Sales (Mn) 3.3 3.4 4.8 17.4 11% 26.4 21% 13% 4 4% World 2% 3% 14 15 16F 100 96 92 88 84 Global LV Short term 96.4 91.9 93.2 89.5 2015 2016 2017 2018

Global LV Production Contribution to Growth millions 94 92 90 88 86 84 82 88.7 1.6 0.5 0.5 0.3 0.0 0.4 91.2 92.7 Volume expected to be up 2.8% from 2015, 2017 expected to increase 2% with demand. Western Europe still up 3% this year but next year expected to increase only 1% with some Brexit uncertainty focused more in 2 nd half of 2017 and into 2018. Bexit Russia and Brazil remain as volume decliners. Russia expected to be off by 110,000 units from 2015 and Brazil s now down by nearly 300,000 units. 5

Global OEMs Short term Outlook 8% 6% 4% 2% 0% 2% 4% 6% 2016F Global LV Production Growth from 2015 VW Toyota Ren Nis Hyundai/Kia GM Ford Honda FCA PSA Suzuki/Maruti Daimler BMW SAIC Global OEM leads mixed but up 3%. 3 groups dip into negative growth. VW diesel scandal risk China growth and US prod. stability driving pace Toyota improves some as Japan is stable RAV4 and C HR in EE doing well. R N growth with new product barrage Lannia in China, Kwid in India GM up with expansion in China (Cadillac) Ford slightly negative with weakness across Europe and exposure in BR/AR Honda tops growth Fit/Freed MPV in Japan and CR V/Ridgeline in NA. Note: GM does not include Wuling, Baojun, Jiefang 6 FCA gains with Alfa expansion and Fiat Egea in EE, but falls in NA/SA Suzuki transition in Asia ceases in Malaysia, down in Japan, growth in India

LMC Automotive New Baseline UK Forecast New baseline forecast for UK Light Vehicle Sales adopted following EU referendum result. Volume loss, relative to pre Brexit forecast, rises to just over 400k units by 2018. With imports at approximately 90% of sales, most of the lost volume impact is felt outside the UK, in terms of lost production. 3.5 3.0 2.5 2.0 1.5 1.0 1996 1998 UK LV sales, mn units 2000 2002 2004 2006 2008 2010 2012 2014 Pre Brexit Vote New baseline 2016 2018 2020 2022 The importance of the UK market varies substantially by OEM. JLR, Honda and Ford share relatively high exposure to risks in the market. But JLR and Honda may gain competitive advantage, as a result of their manufacturing in the UK, if sterling weakness leads to price increases for competitors their prices may not need to rise as much. 50% 40% 30% 20% 10% 0% 46% 2016 (estimated) UK share of Pan European Light Vehicle sales 32% 28%24%22% 20% 17% 17%16% 14%13% 13%13% 12% 9% 8% 7

Brexit Direct Impact on Production Volume Impact on production in Europe is noticeable, but not disastrous, with 2018 forecast cut by 2% or 500k. Ongoing year on year gains still look likely (CAGR 2%), as long as the effects of Brexit remain mostly contained within the UK. Some insulation with export demand. UK production expected to fall by 25k in 2018. Over 300k of losses concentrated within the EU countries with Germany, as a large exporter to the UK, seeing the biggest volume of lost output (160k units). Volume outside Europe and UK expected to be <100k. Japan/Korea 50k NA 25k UK Sales LV Volume (mn) 26 25 24 23 22 21 20 19 18 3.00 2.90 2.80 2.70 2.60 2.50 2.40 European LV production, mn units May 16 Forecast Aug 16 Forecast 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Total UK LV market falls by 400K against pre Brexit Impact on EU LV production: 300K Impact on Non EU production: 75K Impact on UK LV production: 25K 8

China PV Sales Outlook Near term volatility/risk caused by tax change, ownerships restrictions, possible hits to confidence but longer term potential remains ; CAAM Wholesales; Vehicle Registrations 9

Will Global Growth be Sustained? 15% 10% Year on year growth, World LV Sales GDP Average historical growth rates LV Sales: 3.1% GDP: 2.9% 5% 2016: 92 mn 2023: 110 mn 0% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 5% Average 2015 2023 growth rates LV Sales: 2.7% GDP: 2.7% 10%, Oxford Economics 10

Outline Global Automotive Backdrop North America Demand Environment and Trends North American Production Outlook and Sourcing Trends Summary 11

North America Economic Outlook 5% 4% 3% 2% 1% 0% GDP Growth: Overall Outlook Trending Lower US Canada Mexico 2014 2015 2016 2017 2018 US We maintain our cautious view for real GDP growth in 2016, expecting 1.6%, followed by a modest rebound to 2.3% in 2017. Importantly, weak business investment is expected to constrain capital accumulation and productivity growth over the medium to long run. Canada The pace of growth in H2 is unlikely to be particularly robust, averaging just under 2.5% annualized. One problem is that nonenergy exports have struggled to gain any momentum, falling back sharply in Q2. Overall, we forecast real GDP growth of 1.2% on average in 2016, followed by a modest acceleration to around 2% next year. Mexico Following a downward revision to Q1 data and tighter than expected 2017 budget, we have lowered our GDP growth forecasts to 2.0% in 2016 and 2.6% in 2017. The 0.2% q/q fall in Q2 GDP was expected, but the revision of Q1 data of a 0.5% quarterly rise was an unwelcome surprise. 12

North America Light Vehicle Sales Outlook Millions 25 20 15 1.1 1.9 +6.2% +1.1% +0.4% +0.3% 1.3 1.6 1.6 1.6 1.9 1.9 2.0 2.0 10 16.5 17.4 17.4 17.4 17.5 5 0 2014 2015 2016 2017 2018 Slowing growth picture solidifying with recent performance, but stable outlook in near term is holding. Interest rates and political uncertainty are risks. 2017/2018 growth halts across the board with all three countries growth expected under 0.5%. 13

US LV sales Monthly Selling Rate (SAAR) Trend 20 19 18 17 16 15 14 13 12 11 10 9 8 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 SAAR Moving Average Annual Sales pace at beginning of year started off ahead of expectations but have leveled off. YTD August is clinging to a Y on Y gain of 0.7%, with the SAAR averaging just under 17.3mn H2 poses challenge to meet or exceed 2015, given current slowing trend and 17.9mn average in H2 2015 now expect H2 2016 to be solid but track at 17.5mn average, a risk as the July/August pace is 17.4mn. 14

How Healthy is the Auto Industry? YTD16 Vs. YTD15 Indicators showing potential risk ahead! Light Vehicle Volume +0.7% YTD Aug16, but Retail Sales Volume 1.3% Fleet Mix 20.3% +1.6ppts Lease Mix 30.7% +3.1ppts 84mo + Loan Mix 5.3% +1.2ppts FICO <650 Mix 16.0% 0.9ppts Loan To Value Ratio 101.2 +1.5ppts Lease Maturities 2.1mn +37% Used Price Index 118.6 3.6ppts Incentive % of MSRP 9.6% +0.5ppts 15

Fleet sales + Fleetail Has Masked Demand Slowing Retail has outpaced non retail only 4x since 2015 Source: JDP PIN, LMC Automotive 16

US LV Sales Driven by Multitude of Factors Volume Total Sales 17.4mn Total Sales 16.5mn 14.2mn 13.6mn Growth in Fleet/Contraction in Retail Fleet at 20%, up from 18% in 2015 Total Sales 17.4mn 14.0mn Risk 13.8mn 1.8% YoY 2014 2015 1. Disposable Income 2. Unemp. 3. Housing Market 4. Stock Market 5. Fuel Prices 6. Credit/ Terms 7. Vehicle Equity 8. 9. Vehicle Price Incentive Actions 10. Product Activity 2016F Macro Factors Consumer Internals & OEM Drivers, Oxford Economics, JDP PIN, Industry Sources 17

Incentive Levels in US on Watch August incentives ended at $3,657, 7% Y on Y gain with % of MSRP hitting postrecession high of 10.2% Incentive Spend % MSRP 8mo Avg: 10.9% 8moAvg: 9.6% 1.3ppts to peak recession level 0.9 ppts in last year 18

2016 US Sales Segment Share Movement 1.8% SUV growth slows from very strong 2015, but gains on small/compact demand, expanded lineups, favorable fuel prices. 38.8% share 1.4% 13.8% share After falling 1 ppt. in 2015, D Segment Cars continue to lose share to SUV demand. 0.0% 0.2% 0.1% SUVs gain, but lower compact car demand hurts Premium. 12.3% share 0.5% Pickups continue to gain ground given low gas prices and new products. 15.0% share 0.5% 7.1% share 19 Vans gain from new Pacifica, Metris, plus Transit. SUVs cut into personal MPV market.

US Demand Still Expected Grow? 20 19 18 17 17.4 17.4 17.9 17.5 17.7 17.9 16 15 14 15.4 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Baseline US LV topline is expected to grow at a CAGR of just 0.4% from 2015 2023 with slow (2%) economic growth supporting long run in autos! Risks to baseline include lease maturities (used car substitute) and tighter credit. Negative bias with recession scenario mild with short duration as volume falls to 15.4mn in 2019, a 12% drop from baseline. Recovery may be hampered by lower density growth, car sharing and regulations impact. Outperform scenario Near term up from VW buyback and lease maturities followed by technology driven increase as market transitions. CAGR sill only 0.8%. 20

US Product Activity Remains High US Flat Demand! 16.5 17.4 17.4 17.4 17.5 17.5 17.6 2014 2015 2016 2017 2018 2019 2020 New Entry 18 14 19 15 22 23 13 Redesign 32 28 27 38 35 45 41 Facelift 27 30 46 37 29 35 49 Drop 8 8 28 12 5 6 4 Fragmentation and competition increases exponentially going forward along with SUVs, dedicated HEVs, EVs are a priority. 92 new entries from 2016 forward, with 186 redesigns planned. 21

140 120 100 80 60 40 20 0 Collision Course? Consumers want SUVs! 29% YTD Aug10 US Sales SUV share 36% 38% 40%+ YTD Aug15 YTD Aug16 Price of Oil to 2025 2020F Regulation coming tougher on cars to hit milestones Expected price of oil will not drive push toward compact car Evs SUVs continue to grow but will likely need stronger EV penetration Pickups have place in future, share expected to hold at 15% Thousands 500 400 300 200 100 0 Hybrid/EV Sales are Down! YTD Aug Hybrid/EV Sales YTD Aug16 4% 22

More SUVs are Coming! Number of New Entries 25 20 15 10 5 0 New SUV Entries SUV Mix of Majors/Minors 23 22 18 19 17 14 15 13 13 73.9% 50.0% 60.0% 50.0% 31.6% 24.9% 38.9% 30.8% 7.7% 2012 2013 2014 2015 2016 2017 2018 2019 2020 150 New Entries/Majors/Minors! 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 23

Electrification by Regulation Millions 2.5 2 1.5 1 0.5 14% 12% 10% 8% 6% 4% 2% PHEV EREV MHEV FHEV FCEV BEV Share of TLV 0 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 0% The full range of electrification is expected to accelerate from 2016, despite fuel prices. Significant expansion of the number of product offerings combined with improvements in technology as the industry grapples with regulation will drive share to more than 12% when including mild hybrids. We expect full hybrid to remain dominate but share of electrification expected to fall from 70% in 2016 to <50% by 2023 as BEV, PHEV and Mild growth accelerates. 24

Outline Global Automotive Backdrop North America Demand Environment and Trends North American Production Outlook and Sourcing Trends Summary 25

Short Term NA Production Outlook 2016 volume up 3% with as launch activity remains strong 16 new production entries or in first full year. Volume reduced slightly in 2016 (25k) on flattening demand. 2017 outlook remains solid but lower growth rate of 1.1%. As demand is on watch so will be production but most risk is beyond 2017. Millions 19.0 18.0 17.0 16.0 17.45 m 0.28 m Drops 0.34m New Entries 0.44m Additional Growth 17.95m 18.16 15.0 14.0 2015 2016 2017 26

Inventory (millions) Inventory is In Check 4.0 3.9 3.8 3.7 3.6 3.5 3.4 3.3 3.2 3.1 3.0 2.9 0 Aug 14 Nov 14 Feb 15 May 15 Aug 15 Nov 15 Feb 16 May 16 Aug 16 Inventory very stable and in good shape through August at a 61 day supply suggesting industry has not started an overbuild as demand flattens out though there are some trouble spots in certain vehicle types Interplay between inventory levels and incentives will be key indicator! 90 80 70 60 50 40 30 20 10 Days Supply 27

NA Production Trend by Month Production Volume (Millions) 1.8 1.6 1.4 1.2 1.0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec % YoY Change 16 17 2015 2016 2017 12% 10% 8% 6% 4% 2% 0% 2% 4% 6% 8% NA up nearly 2.6% or 200k in 2H16 after 3.1% growth in 1H16, but build plans not aligned with our expectation for reduced demand suggesting volume risk in 4Q, mainly in Nov/Dec, but currently projected at 4% increase. Expecting slightly different pattern in 2017, with 3.1% growth in 1H17 and slight contraction in 2H17. Given the current strong monthly growth rates through June and demand uncertainty, risk is concentrated in 1H. 28

NA Short Term Production by OEM Group Volume growth slows through 17 investment help offset slowing US demand Hyundai/Kia localizing at Monterrey plant drives growth, Montgomery adds Santa Fe Daimler in 16 benefits from full year of GLE Coupe and Metris van; 17 pullback with aging GLE/GLS, R Class exit GM 16 gains on strong SUV and Pickup volume and new CT6/Bolt; 17 falls on lower Car and Large PU/SUV output Ford F 150, new Midsize SUV s drive growth 16; 17 slight growth with new Continental VW for 16 under pressure, offset by new Audi capacity; 17 adds needed SUVs FCA 16 off with Toluca and Sterling Heights downtime; 17 falls on sourcing shifts/changeovers Toyota decline in 17 on Camry changeover, Venza and GCC Sequoia end 29 Subaru continues expansion with Legacy/Outback growth and adds Impreza

NA Production and Capacity Long term Trend Millions Utilization % Localization and exports production expansion strongest through 2019. Utilization settling in above 85% but some risks with new capacity remain. Demand flattening impacts production levels in longer term but to lesser extent due to resourcing trends. Stability with sales expectations does help to maintain volume levels, risk grows post 2017/18. 30

NA Production by OEM Grouping Detroit 3 Asian OEMs European OEMs Production (millions of units) Capacity Utilization % 2015 2020 CAGR: 0.1% New Entries/Redesigns: 83 2015 2020 CAGR: 1.8% New Entries/Redesigns: 82 2015 2020 CAGR: 5.5% New Entries/Redesigns: 26 31

North America Capacity and Sourcing Movement Mexico gains 7 new plants with 3 others getting investment to account for 55% of new capacity in region is in Mexico FTA s, incentives and low costs work in favor. Push for B and C segment vehicles. US aided initially by weaker dollar, now currency hedge (but some risk now) adds 5 new plants (3 low volume) and 10+ with capacity investment. Costs and lack of incentives hurt Canada as GM is expected to shutter Oshawa by 2017 but some boost to Ingersoll to offset. 32

North American Production Body Type Mix 38 39 7 3 23 29 47 55 9 7 10 14 34 42 4 2 3 9 # of models # of models # of models Car share falls slightly as another shift to trucks continues to progress. Shift of small car to Mexico drives volume to increase to 4 million units by 2017. Consumer demand for SUVs drives significant expansion with volume reaching 40% of total NA production. US continues to dominate but expansion in Mexico leads to significant growth (140%). Demand for Premium has been underperforming but strong capacity investment in Mexico, will drive production growth Audi/BMW/MB Infiniti investment. 33

Small/Compact Cars and SUVs Move to Mexico Mexico segment type mix 2.0 ~30% of Small/Compact build is in Mexico 2015 1.5 1.0 0.5 Mexico segment type mix 0.0 3.0 Small/Compact Car Small/Compact MPV which grows to ~47% by 2023 Small/Compact SUV 2023 Midsize 13% Large 10% 2.5 2.0 1.5 1.0 Small/Compact 77% 34 0.5 0.0 Small/Compact Car Small/Compact MPV Small/Compact SUV

While SUVs Continue to Gain Ground in the US US SUV Size Growth 2015 2023 SUV production in the US surpasses 5 million units, driven by Midsize and Compact entries as margins help business case in the US 11 new Midsize SUV entries as OEMs fill whitespaces and expand their showrooms Compact gains on new Premium entries 35

Outline Global Automotive Backdrop North America Demand Environment and Trends North American Production Outlook and Sourcing Trends Summary 36

Summary Globally, the auto market is stable at topline with marginal growth, but with risks in both emerging and mature markets. Brexit, Emerging market economic stability and US/WE/Japan leveling off dominate risks. US demand growth appears to be coming to a halt, with some risk in the second half of 2016. No evidence of major contraction coming, but longterm growth expected to average less than 0.5%. North American production outpaces demand, investment still pouring in with volume into the 19 mn unit range. Launch activity is strong, though some risk with new plants being underutilized if demand slows further. Number of entries increase, adding opportunity but also complexity and risk, with SUV production leading growth. 37

Thank You BRinna@lmc auto.com 38