How Old Cars And New Solutions Will Impact Our Industry New Car Market Trends Watch the Used Car Market Tariffs and Other Concerns The Evolution of Mobility 1
2018 MID-YEAR REVIEW TRANSFORMING THE WAY THE WORLD BUYS, SELLS AND OWNS CARS June 27 // DETROIT 2
NEW CAR MARKET TRENDS 3
Annual % Change We re Venturing Into Unchartered Territory With A 9-Year Expansion 10.0 9.0 8.0 7.0 US ECONOMIC GROWTH SINCE WORLD WAR II Recession Real GDP Growth (Annual) The economy continues to show momentum ECONOMIC MOMENTUM 6.0 5.0 4.0 3.0 2.0 1.0 0.0-1.0-2.0-3.0-4.0 1948 1953 1958 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 2013 2018F Will the deepest recession result in the longest expansion? What does the next recession look like? Source: United States Bureau of Economic Analysis, Cox Automotive Forecast 44
Millions The Used Market Grows Even As The New Market Plateaus 60.0 50.0 VEHICLE SALES BY YEAR AND TYPE, ACTUAL AND FORECAST New - Retail New - Fleet Used 2018 forecast is 16.8 million units, down from 17.2 in 2017 TOTAL VEHICLE SALES 40.0 30.0 20.0 10.0 0.0 38.0 38.6 39.4 39.5 36.7 37.6 35.8 39.5 2.7 2.7 2.8 3.0 3.1 3.0 2.9 2.8 11.8 12.9 13.6 14.4 14.3 14.2 13.9 13.6 2012 2013 2014 2015 2016 2017 2018F 2019F 2019 forecast is 16.4 million The used car market is massive and the forecast is healthy Source: BEA New Vehicle Sales, Bobit Fleet Sales, and IHS Markit Registrations (history); Cox Automotive forecast 55
Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15 Apr-16 Aug-16 Dec-16 Apr-17 Aug-17 Dec-17 Apr-18 The Time of Easy Money Is Gone, Impacting New Car Sales Net Percentage of Domestic Banks Tightening Standards for Auto Loans MILLENNIALS (18-35) VS ALL ADULTS Net Percentage of Domestic Banks Reporting Stronger Demand for Auto Loans 100.0% 40 10.7% 6.2% 90.0% 14.2% 30 80.0% 20.5% 10.2% 70.0% 20 60.0% 13.9% 16.3% CREDIT TIGHTENING 10 0-10 50.0% 40.0% 30.0% 20.0% 20.4% 34.3% 52.0% -20 10.0% -30 0.0% 18-35 Total US Super Prime (>=720) Prime (660-719) Near Prime (620-659) Subprime (530-619) Deep Subprime (<530) Unscorable Source: Federal Reserve Bank Senior Loan Officer Survey, Equifax Vantage Score Distribution of Active Credit Consumers December 2017 66
2012_01 2012_04 2012_07 2012_10 2013_01 2013_04 2013_07 2013_10 2014_01 2014_04 2014_07 2014_10 2015_01 2015_04 2015_07 2015_10 2016_01 2016_04 2016_07 2016_10 2017_01 2017_04 2017_07 2017_10 2018_01 2018_04 Incentive Spend as % of ATP High Levels of Incentives and Leasing Are Supporting Strong Sales 12% 11% 10% 9% 10.6% 60% 56.7% 50% 40% 32.4% 30% 52.1% 51.1% 29.6% INCENTIVES AND LEASING 8% 20% 29.0% 26.0% 22.0% 7% 10% 6% 0% 5% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2015 2016 2017 2018 Retail Lease Penetration Luxury Lease Penetration Non-Luxury Lease Penetration Source: KBB, Autodata 77
Jan-09 Jun-09 Nov-09 Apr-10 Sep-10 Feb-11 Jul-11 Dec-11 May-12 Oct-12 Mar-13 Aug-13 Jan-14 Jun-14 Nov-14 Apr-15 Sep-15 Feb-16 Jul-16 Dec-16 May-17 Oct-17 Mar-18 The CUV Continues Its Rise But New Faces More Nearly-New Competition SHARE OF NEW LIGHT VEHICLE SALES OFF-LEASE MATURITIES SEGMENT SHARE 60% 60% 50% 50% THE SHIFT EVOLVES 40% 40% 30% 30% 20% 20% 10% 0% CUV Car Van SUV Pickup 10% 0% 2016 2017 2018 2019 2020 CAR CUV SUV PICKUP VAN Source: Motor Intelligence/Autodata new sales by segment, IHS Market registrations, Cox Automotive analysis 88
WATCH THE USED CAR MARKET 9
12/1/2012 2/1/2013 4/1/2013 6/1/2013 8/1/2013 10/1/2013 12/1/2013 2/1/2014 4/1/2014 6/1/2014 8/1/2014 10/1/2014 12/1/2014 2/1/2015 4/1/2015 6/1/2015 8/1/2015 10/1/2015 12/1/2015 2/1/2016 4/1/2016 6/1/2016 8/1/2016 10/1/2016 12/1/2016 2/1/2017 4/1/2017 6/1/2017 8/1/2017 10/1/2017 12/1/2017 2/1/2018 4/1/2018 6/1/2018 Even In A Strong Economy, The Used Car Market Continues To Grow 40,000,000 39,000,000 38,000,000 37,000,000 Annualized Used Vehicle Sales Used sales will continue to grow as the mix of vehicles moves to off-lease used CUVs and SUVs USED CAR MARKET 36,000,000 35,000,000 34,000,000 33,000,000 As credit tightens, the used car market becomes even more attractive Source: Cox Automotive estimates based on IHS Markit Registrations 1010
Off Lease Vehicles Will Peak In 2019, Flooding The Market With Choices 4.5 4.0 3.5 3.0 2.5 2.0 ESTIMATED OFF-LEASE MATURITIES (ANNUAL VOLUME, MILLIONS) 2.2 2.5 3.1 3.5 3.9 2014 2015 2016 2017 2018 2019 2020 2021 2022 4.1 3.9 3.7 3.6 OEMs are releasing 7 all-new and 22 redesigned CUVs as off-lease peaks New vehicle launches face pricing and demand competition from used vehicles Even as volume declines, the share of CUVs increases USED CAR MARKET MIX Source: Cox Automotive estimates based on IHS Markit Registrations 111
Shifting Consumer Preferences Are Not Reflected In The Used Supply - Yet The SUV reigns supreme in new vehicle sales while cars dominated the used car market but that s changing New Vehicle Sales by Category Manheim Sales by Category CAR PICKUP SUV VAN CAR PICKUP SUV VAN 60% 60% 50% 50% 47% 51% USED CAR MARKET MIX 40% 40% 30% 32% 30% 33% 20% 20% 16% 10% 5% 10% 11% 6% 0% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 0% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: Motor Intelligence/Autodata, Manheim, Cox Automotive 12
135 130 125 120 115 110 105 100 95 Wholesale Prices Continue To Climb As Demand Increases Prices in June increased 0.5% versus May 2018 and were up 4% compared to June 2017 90 Jan-95 Jan-98 Jan-01 Jan-04 Jan-07 Jan-10 Jan-13 Jan-16 134.9 Used wholesale prices will continue to grow as the mix of vehicles moves to offlease used CUVs and SUVs Small and mid-sized cars are also becoming more attractive as affordability pushes consumers into used cars The abnormal strength in summer prices reflects demand and hedging? USED CAR MARKET PRICES Source: Manheim 1313
TARIFFS AND OTHER CONCERNS 14
What are your top concerns regarding tariffs? Dealers: n=222 (Franchise Dealers n=159; Independent Dealers n=63) Field Dates: 6/27 7/3/2018 Consumers: n=773 Fielding Dates: 6/18 6/25/2018 About half of Franchise dealers are concerned about the potential of increasing tariffs on imported vehicles and parts, primarily because of the added cost to dealers and consumers alike. Switch the type of vehicle they are interested in Switch from shopping new to used or CPO Switch from shopping imported models to domestically produced models Delay purchasing until the tariff goes away 18% 12% 15% 30% Consumers expressed similar concerns, with close to half saying potential tariff increases will impact their decisions Simply pay more for the imported vehicles 7%
Each Brand s Exposure To Tariffs Differs Based On Non-USA Production 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 100% 99% 0% 1% 89% 11% 81% 19% 76% 24% 64% 64% 36% 36% 62% 38% 53% 53% 53% 47% 47% 47% 51% 49% 49% 51% 52% 48% 46% 54% 36% 64% 66% 67% 34% 33% 31% 69% 29% 71% 27% 73% 18% 82% 14% 86% 7% 93% 100% 0% ALFA ROMEO ASTON MARTIN AUDI BENTLEY FERRARI FIAT GENESIS JAGUAR LAMBORGHINI LAND ROVER LOTUS MASERATI MAZDA MCLAREN MINI PORSCHE ROLLS ROYCE SMARTCAR VOLVO Domestic Share Import Share Source: Cox Automotive estimates based on IHS Markit Registrations 16
What are the top factors holding your business back? F R A N C H I S E D E A L E R R A N K 1 Market Conditions 47% 2 Competition 36% 3 Credit Availability for Consumers 24% 3 OEM Mandates/Restrictions 24% 5 Limited Inventory 23% 5 Expenses 23% I N D E P E N D E N T D E A L E R R A N K 1 Market Conditions 42% 2 Limited Inventory 41% 3 Credit Availability for Consumers 40% 4 Expenses 26% 5 Competition 25% Source: Cox Automotive Dealer Sentiment Index 17
THE EVOLUTION OF MOBILITY a 3-Part Research Study
FREEDOM AND INDEPENDENCE OF VEHICLE OWNERSHIP REIGNS SUPREME BUT ANTICIPATE A SHIFT IN PRIMARY MODE OF TRANSPORTATION 14% will not use a vehicle they own as their primary mode of transportation in 5 years 27% among Millennials (23-36 years old) Source: Cox Automotive 19
AN EXPLOSION OF ALTERNATIVES IS SURFACING MOBILITY SERVICES MODEL Traditional Ownership Traditional Ownership Public Transportation Taxi / Rideshare Public Transportation Taxi / Rideshare Ride Hailing Shared Ownership Subscription Services OWNERS FLEETS 20
RIDE-HAILING SEEING SIGNIFICANT GROWTH 2015 73% AWARENESS 2018 88% AWARENESS C H A N G E +15 22% USAGE 39% USAGE +17 Source: Cox Automotive 21
CAR SHARING IS EVOLVING MORE SLOWLY 2015 43% AWARENESS 2018 54% AWARENESS C H A N G E +11 12% USAGE 14% USAGE +2 Source: Cox Automotive 22
CAR SUBSCRIPTIONS SHOWING APPEAL 2018 25% AWARENESS 10% LIKELY TO CONSIDER Source: Moody s economic forecast January 2018 23
EVOLUTION OF MOBILITY STUDY PHASE 1: Understand consumer acceptance of emerging mobility options over last 3 years 1,250 consumers ages 12+ Release: August 2018 PHASE 2: Understand dealer awareness, perceptions and readiness of emerging mobility trends 400 automotive dealers Release: Late 3Q18 PHASE 3: Understand the mobility choices consumers would make assuming all mobility options were available, considering trade-offs on monthly costs, convenience, etc. 2,000 consumers ages 12+ Release: 4Q18 24
THANK YOU! Rebecca Lindland Executive Analyst Kelley Blue Book Rebecca.Lindland@coxautoinc.com 25