North America Auto Outlook - Wild Apricot · North America Auto Outlook: ... . 2015 Forecast ......

www.lmc-auto.com © 2015 LMC Automotive Limited, All Rights Reserved.

North America Auto Outlook: Market on Auto-Pilot…How Long Will it Last?

Jeff Schuster, Senior Vice President September 10, 2015

www.lmc-auto.com © 2015 LMC Automotive Limited, All Rights Reserved. 2

Outline

• Global Automotive Backdrop

• US/NA Near- and Mid-term Trend

• SUV Growth in Regulation Environment

• What’s Next For Auto – Long-term Prospects?


2015 Forecast – World 88.6 mn, up 1.1 mn units (+1.2%)

6% 5% 4%5%

8% 7%

-8%

-15%

-15%

-10%

-18%-23%

5%0.2% 2%

14 15YTD 15F

North America

Asia Pacific

C&E Europe Western Europe

South America

14 15YTD 15F

14 15YTD 15F

14 15YTD 15F

14 15YTD 15F

4%1% 1%World

14 15YTD 15F

Global LV Sales Market – Current Environment

Source: LMC Automotive


60

70

80

90

100

110

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Base

Adverse Reaction in BondMarkets as the FedTightensGreece Exits the Eurozonein an Orderly Manner

Greece Exits the Eurozonein a Disorderly Manner

US Economy Disappoints

Investment Collapse inChina

World EconomyAccelerates as the US andEurozone Surprise

Volume Scenarios – Balanced Volume Range

• Base - Global economic growth in 3-3.5% range for horizon supports autos • Long positive run expected with volume crossing 100mn by 2018 - CAGR of 4% 14-20 • All eyes still on China, but other risks exist as well!



2015 89mn

NA, 20% SA,

3%WE, 15%

EE, 8%

AP-China, 25%

China, 27%

ROW, 2%

NA, 18% SA,

4%WE, 14%

EE, 8%

AP-China, 23%

China, 30%

ROW, 3%

2020 107mn

25% 50% 75% 100%

NASA

WEEE

AP-ChinaChina

Row2020 2015

Utilization

Share of Global LV

Changing Tides of Production

• Global Production expected to be up 21%

• Expansion in China leads charge – share of global production increases to 30%.

• NA holds onto most gains with Mexico push but still drops 2 ppts.

• SA improves from very weak 2015, but growth prospects have been cut and investment not as strong as previously expected.

• Growth/Recovery also takes place in Middle East and Africa.

• Utilization improves everywhere except NA, but that is actually some relief as market remains very lean. Emerging markets as a whole are underperforming, but for different reasons. China’s setup to become global hub, SA may never get back to glory, EE making strides.



Outline






North America Economic Outlook


0%

1%

2%

3%

4%

5%

2014 2015 2016 2017

US Canada Mexico

GDP Growth

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022United States GDP Growth 2.3% 1.5% 2.4% 2.3% 2.8% 2.8% 2.7% 2.7% 2.7% 2.6% 2.5%

Consumer Spending Growth 1.8% 1.7% 2.7% 3.0% 3.0% 2.8% 2.6% 2.6% 2.5% 2.5% 2.4%Short-term Interest Rate 0.4% 0.3% 0.2% 0.4% 1.2% 2.3% 3.0% 3.6% 4.0% 4.0% 4.0%Unemployment Level 8.1% 7.4% 6.2% 5.3% 4.8% 4.7% 4.7% 4.7% 4.8% 4.8% 4.8%

Canada GDP Growth 1.9% 2.0% 2.4% 0.8% 2.2% 3.1% 2.8% 2.4% 2.2% 2.1% 2.1%Consumer Spending Growth 1.9% 2.5% 2.7% 1.5% 2.2% 2.5% 2.3% 2.3% 2.2% 2.1% 2.1%

Mexico GDP Growth 3.8% 1.7% 2.1% 2.5% 3.1% 3.3% 3.5% 3.4% 3.4% 3.3% 3.4%Consumer Spending Growth 4.6% 2.6% 2.0% 3.1% 2.5% 3.1% 3.3% 3.4% 3.4% 3.4% 3.4%

• US – Economy resilient despite global headwinds. Fed rate increase on watch. Slow pace of recovery is basis for lack of recession in forecast horizon.

• Canada – Economy contracted 0.5% in Q2 putting it in technical recession. Declining oil prices had negative impact on economy, but spending remained strong, Rebound in H2 still expected.

• Mexico - Outlook has been reduced as Q2 growth moderated to 2.2% YoY – structural issues constrain growth. Expansion to gain traction in 2016 with export growth and consumption-driven activity.


North America Light Vehicle Sales Outlook


2015: 1.88mn

+1%

2015: 17.18mn

+4%

2015: 1.26mn

+11%

11.612.7

14.515.6

16.517.2 17.5

1.61.6

1.71.7

1.91.9 1.9

.8.9

1.01.1

1.11.3 1.5

2010 2011 2012 2013 2014 2015 2020

Mill

ions

18.4 19.5

13.9

20.3 20.9

15.2

17.1

+4%


13.6mn

12.8mn

2013 2014 1. Disposable

Income

2. Unemp. Stock

Market

4. 3. Housing Market

5. Fuel

Prices

6. Credit/ Terms

10. Product Activity

7. Vehicle Equity

2015F

Volu

me

Vehicle Price

8. 9. Incentive Actions

Total Sales 16.5mn

14.0mn

13.8mn

Risk 4% YoY

17.2mn Total Sales

Macro Factors Consumer Internals & OEM Drivers

Source: LMC Automotive, Oxford Economics, JDP PIN, Industry Sources

US LV Sales Driven by Multitude of Factors


2011 2012 2013 2014 2015 YTD<$40K 80% 76% 70% 62% 55%>=$40K 20% 24% 30% 38% 45%>=$50K 5% 7% 8% 13% 15%

US Sales Large Pickup Price Mix

40

60

80

100

120

3-Ja

n-11

16-M

ay-1

1

23-S

ep-1

1

3-Fe

b-12

18-J

un-1

2

24-O

ct-1

2

6-M

ar-1

3

15-J

ul-1

3

19-N

ov-1

3

31-M

ar-1

4

6-Au

g-14

12-D

ec-1

4

23-A

pr-1

5

24-A

ug-1

5

CAFE?…We Don’t Need (Want) No Stinking CAFE…At least for now!

6%

Share – 12.0%

Brent Crude Price (USD)

2015 YTD

2015 Forecast

Large Pickup Wars – The Battle is On (Profits Up)!



17.017.5

17.9

VWToyota

TeslaNissan

MitsubishiMazda

HyundaiHonda

GMFuji Heavy

FordFCA

DaimlerBMW

-40.0% -20.0% 0.0% 20.0% 40.0% 60.0% 80.0% 100.0%

2014 to 2015 YoY Change

• Volume growth is steady – Capacity remains tight with utilization above 90% even with capacity at 20mn by 2016.

• Slow F150 launch gains traction by Q4 with new Mustang and full year Transit supporting.

• Honda gains on SUV output for CR-V and new HR-V.

• BMW and Daimler benefit from new adds.

• Mitsubishi winds down operation Nov-15.

• Subaru continues under radar but could use additional capacity.

3%

NA Short-term Production Outlook


2014 2015 2016


0.5%

1.9%2.6%

0%

1%

2%

3%

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

3Q17

4Q17

Libor Rate – Auto Loan Risk

• The US economy is the most robust in the world, but Fed likely delay rate hike to December in light of sluggish global growth, a strong dollar and heightened market stress.

• Project increase to be 0.5% to 1.0%

per year through 2018 before leveling off.

• Interest rates risk to auto topline volume expected to be low - Can be managed with loan terms, incentives or consumer’s decision to buy less vehicle.

• Some mix implications - may push buyers into lower content or smaller vehicles.

200 BPS increase from current loan rate: 60 month, $485 to $510 +$25 72 month, $410 to $435 +$15

Interest Rates Risk on Auto Growth

Source: Oxford Economics, LMC Automotive


1% 1% 1% 1% 2% 3% 3%

22% 23% 26% 29% 30% 32% 33%

09 10 11 12 13 14 15Fcast

>84 Month >72 Month

Transactions, Terms and Auto Growth

• Longer terms and higher lease penetration used to manage monthly payment – could be buffer for rising interest rates.

• Average term length continues to rise as does % > 72 months – Consumers buying more as well – ATP has remained at/above $30K for more than a year.

• Our expectation is for this trend to continue for the next two years - +72 months may reach 35% before flatten out – leasing expected to remain near 30%.

• In isolation, these factors should not pose a substantial risk but may cause slowing of replacement rate if leasing levels decline or long loans are reduced.

Source: JDP PIN, LMC Automotive

23%

27% 28%

15%

17% 17%

09 10 11 12 13 14 15 Fcast

+72 Month LoansMillennial % Sub-Prime %

10%

19% 20% 21%24%

26% 28%

09 10 11 12 13 14 15Fcast

% Leased


Regulations and Powertrain Mix



17.3 17.4 17.517.2

17.116.9

15.7 16.2 17.0

10

12

14

16

18

2020

11

2012

2013

2014

2015

2016

2017

2018

2019

2020

• US LV topline is expected to grow at a CAGR of 1.1% from 2014-2020 - slowing but stable growth rates are consistent with economic growth of 2.5-3% and a fleet that remains old.

• Technology is a wildcard and could play a role in the average age of fleet decreasing. • Recession scenario is mild with short duration – volume falls to 15.7 million unit in 2018, a 10%

drop from baseline. Recovery may be hampered by lower density growth.

Ave Vehicle Age from Experian is 11.3 years, trending up - Cycle could have legs still

Mild recession globaleconomic pressure, rising interest rates/tightening

Recovery returns but meets slowing density growth

US LV Demand with Recession Scenario



922 14 14 21

305

109 10

1312

0

15

30

45

2013 2014 2015 2016 2017 2018

Redesign New-Entry

Vehicle

Body Styles 2017 34 New Vehicles 13 New Entries – 10<100K 21 Redesigns – 12<100K

2017 47 New Body Styles

Trim Level

2017 150+ New

Trim Levels

Competition = Fragmentation, Saturation & Complexity



20%

40%

60%

80%

100%

0

4

8

12

16

20

24

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

NA Domestic Asian Domestic Euro Domestic Utilization

55+ New Entries in NA

Localization Drives Growth – Alters Mix


Change in Share 2014-2020 NA: 54% to 50% AP: 39% to 40% EU: 7% to 10%


Outline






2005 • Multiple models across brands –

“Badge Engineering” • Most were Midsize and above • Most were BOF with some BFI • “Truck” Fuel Economy

GM • 19 models across 7 brands • 14 entries Midsize and above • Volume per entry 56,000 units

2015 • Multiple models and sizes across

brands – “Platform Engineering” • Mix of Compact to Large, Small

gaining • Most are BFI, BOF for Large • Moving towards more “Car-like”

Fuel Economy

GM • 11 models across 3 brands • 4 entries Compact and below • Volume per entry 88,000 units

• Fragmentation expands: Multiple models and sizes across brands – “Modular Engineering”

• Mix of Small to Large • Most are BFI, BOF for Large • “Car-like” Fuel Economy – add

HEV/PHEV/Downsizing

GM

• 13 models across 3 brands • 5 entries Compact and below • Volume per entry 82,000 units

2020

Chevy Mid-SUV (2017)

SUV Fragmentation – What’s Old is New Again…Sort of



Midsize Car • Average wheelbase similar to Compact SUV

(109 in v 108 in) • ATP on-par with Compact SUV • Comparable Fuel Economy

Compact SUV • Higher ride height • Over double the average cargo volume (34

vs 15 cu. ft) • Widespread AWD/4WD availability

I Want More!

Compact SUV Inflow by Type Compact SUV Inflow by Size

0%

20%

40%

60%

2010 2011 2012 2013 2014 CYTD2015

Car Van/MPV Pickup SUV

2015 Top 5 Trades • Compact SUV • Midsize Car • Compact Car • Midsize SUV • Large Car

Segment Migration – Why and From Where?



17

12

19

13 16

23

13 10

29% 9%

37% 29% 44% 52% 54% 60%

152 New Entries/Majors/Minors!

More SUVs are Coming to the Party!



-3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0%

VanCar

PickupIndustry

MPVSporty

SUV

5 Year CAGR (2014-19)2.2% CAGR and… SUVs will

account for 75% of the ~900K volume growth over that period

Premium (+210K)

Non-Premium (+430K)

Which Leads to Growth Well Ahead of Industry



Outline






• Will cars be readily available…everywhere? on-demand? • Topline Volume will be impacted over time – phase in period • Families will own fewer vehicles or won’t own a vehicle at all • Sharing will be Lifestyle or Use-driven – Cost based on use • Increased vehicle maintenance – Need additional vehicles to

buffer downtime • Replacement part demand could get boost • Will Individualism Disappear?

17.220.0

17.2

12.0

What will the US Auto Market Look Like?

or

16-18mn Range…

Still requires a lot of cars… hint:

US Census: 2015

NYC – Cars for hire stats

Taxi Other ServiceCars on Road 13,437 50,000+Ave age of Taxi 3.3 years 6+ yearsPassangers per Day - 600,000 500.000+

2014 NYC Taxi Cab Factbook

…again still need a lot of cars!

Car Sharing Autonomous Future

2015 2030 2015 2030


• How do brands differentiate themselves ? • Consolidation likely to follow shift to

sharing • Centralized Manufacturing – Some OEMs

could specialize or shift focus to this • How many brands/vehicle types are

necessary? • Economy • Sporty • Premium • Utility • People mover • Commercial

300+ Unique Model Lines

10% of today? 30?

Unique Model Lines

…but Will We Need all Vehicle Types and Brands?


Summary

• Globally, the auto market is stable at topline with marginal growth, with near-term risk centered in the emerging markets

• US demand continues to show signs that growth hasn’t yet peaked - demand remains positive, but with a slowing growth rate. Competition intensifies as well.

• North American production outpaces demand, investment pouring in – volume approaches 20mn with substantial increase in launch activity

• A renewed and pronounced shift to Mexico and the Southern US drives most of growth in region. This is playing out now during the UAW talks

• Long-term industry transformation underway, shift to autonomous car sharing – risk band is wide, but topline volume loss may not be dire…fallout below topline with OEMs and model consolidation likely


Accurate real-time automotive intelligence, forecasting and analysis

Thank You!

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North America Auto Outlook - Wild Apricot · North America Auto Outlook: ... . 2015 Forecast ......

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