1

The U.S. Automobile Industry:What Lies Ahead?

Kim HillAssociate Director, Economic and Business Group

Center for Automotive Research (CAR)

The Center for Automotive Research

• An independent non-profit research organization• Don’t pick winners or losers

• A corporate, public sector, and academic interface

• Funded by:• Private companies and organizations (contract research)• Public entities (federal, state & local governments), and• Foundations

• Focused on future trends

2

132,400

225,600

68,900

96,100 84,700

113,800

620,100

837,100

50,000

100,000

150,000

200,000

250,000

300,000

1999 2000 2001 2002 2003 2004 2005 2006 2007

April

400,000

500,000

600,000

700,000

800,000

900,000

Michigan Indiana Ohio U.S.

Motor Vehicle Parts Manufacturing1999-2007 April

Sta

te L

evel U

.S.

Source: BLS

- 36%

- 42%

- 25%

- 28%

The Darkest Part of the TunnelThe Darkest Part of the Tunnel……Motor Vehicle & Parts Manufacturing EmploymentMotor Vehicle & Parts Manufacturing Employment

1999 1999 –– 2007 April 2007 April

189,000

316,300

82,200105,100

111,100

153,500

846,900

1,128,400

75,000

125,000

175,000

225,000

275,000

325,000

375,000

1999 2000 2001 2002 2003 2004 2005 2006 2007

April

Sta

te L

ev

el

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

U.S

.

Michigan Indiana Ohio U.S.

Source: BLS

U.S.: -281,500, or -25%

Michigan: -127,300, or- 40%

3

Percentage Change in U.S. Sales of Light Vehicles: YTD July 2007 vs. YTD July 2006

-21.2

-2.2

-13.8

3.8

0.5

5.0

-3.2

-13.1

-7.6

-30 -20 -10 0 10 20 30

GM

Ford

Chrysler Group

Detroit 3

Japan

Korea

Int. Domestics

Imports

Total 9,557,516-311,867

2,249,006+106,064(23.5%)

2,488,065+12,122(26.0%)

3,524,531+128,311(36.9%)

4,509,141-723,455(47.2%)

1,472,718-222,155(15.4%)

1,285,086-29,236(13.5%)

1,751,337-472,064(18.3%)

Percentage Change

Updated 8/22/07

Source: Automotive News

498,356-41,099(5.2%)

The Situation is GrimThe Situation is GrimOver $86 Billion in Losses Since 2000!Over $86 Billion in Losses Since 2000!

U.S. AutomotiveU.S. AutomotiveCapacity Utilization and ProfitsCapacity Utilization and Profits

1978 1978 –– 2007/Q2 YTD 2007/Q2 YTD

7560

92

64

80

-8.8

-21.8

9.0

-5.4-4.3 -11.2

-17.9

-12.3

0

10

20

30

40

50

60

70

80

90

100

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

Year

Cap

acit

y U

tilizati

on

-25.0

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

Pro

fits

$ B

il.

Cap. Util. Profits

Source: Federal Reserve, U.S. DOC/BEA

4

0.21.9

0.72.9

0.96.5

1.19.3

1.413.5

1.415.6

1.616.1

1.922.8

Too Much Competition?Too Much Competition?New Market Structure?New Market Structure?

U.S. Market Share of Light Vehicle Sales: 1U.S. Market Share of Light Vehicle Sales: 1stst Half-2007 Half-2007

% %

Down Below 50%Down Below 50%Detroit 3 U.S. Market Share*Detroit 3 U.S. Market Share*

1986 1986 –– 2011 2011

45.2

73.772.4

54.8

27.626.3

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

Year

Pe

rce

nt

Big 3 Internationals

52.8

47.2

* Detroit 3 North American * Detroit 3 North American ““ownedowned”” production. production.

5

3.5

-2.7

18.0

-9.2

-16.9

-4.0

-11.7

-3.0

-20 -15 -10 -5 0 5 10 15 20

Small Car

Middle Car

Large Car

Luxury Car

CUV

SUV

Van

Pickup

Percentage Change

Segment Breakdown - U.S. LV SalesYOY % Change

First Half 2007

Source: Ward’s Automotive Reports

So . . .So . . .GM will be the size of Ford, and Ford the size of ChryslerGM will be the size of Ford, and Ford the size of Chrysler

and Chrysler will be even smaller . . .and Chrysler will be even smaller . . .2004-2010 Change in North American2004-2010 Change in North American

Vehicle Production CapacityVehicle Production Capacity

6.2

4.3 4.6

3.3 3.1

2.7

0

1

2

3

4

5

6

7

8

GM-2004 GM-2008 Ford-

2004

Ford-

2010

Chrysler-

2004

Chrysler-

2008

Mill

ions

Down about 26% since 2004, or 3.6 mil. units

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Oklahoma City-2006

Lansing Craft Centre-2006

Spring Hill - 2006

Atlanta – 2008

Oshawa 2 - 2008

Moraine - 2006

Lansing Metal - 2006

Pittsburgh Metal - 2007

Portland - 2006

Ypsilanti SPO - 2007

St. Catherine’sPowertrain -2008

Flint Engine 1 - 2008

Baltimore - 2005

Linden - 2005

Lansing M - 2005

Lorain - 2005

GM, Ford, Chrysler, Delphi & ACHGM, Ford, Chrysler, Delphi & ACHU.S. and Canadian Plant Shutdowns and Line TrimmingsU.S. and Canadian Plant Shutdowns and Line Trimmings

Announced and Executed, 2005-2009Announced and Executed, 2005-2009

St. Louis -2006

Doraville - 2008

Wixom – 2007

Batavia – 2008

Windsor Casting – 2008

Ford Shutdowns, +7 More TBD

Delphi Plant ShutdownsACH Plant Shutdowns

GM, Ford & Chrysler Job Cuts:30 Plants and Lines55,790 in Plant Shutdowns19,000 Salaried to start

Delphi Job Cuts: 21 Plants23,000 in Plant Shutdowns and Selloffs600 other salaried

ACH Job Cuts: 14 Plants27,600 in Plant Shutdowns and Selloffs500 other salaried.

Total = 128,220 Jobs

Twin Cities - 2008

Norfolk - 2008

Essex Engine – 2007

Maumee Stamping – 2008

Chrysler Plant Shutdowns

Newark – 2007/2009

Detroit Trans. - 2009

Cleveland SPO. - 2007

St. Louis South - 2008

Warren - 2007

Updated: February 22, 2007

Brook Park Engine – 2009Brook Park Casting – 2009

Why are the Detroit 3 Losing Share in their Why are the Detroit 3 Losing Share in their ““HomeHome”” Market? Market?

• Too many sales and too much capacity in light truck segments:• GM = 57%, Ford = 63%, Chrysler = 69%, Market = 51.0%

• Over-reliance on car “fleet” sales (over 35%) and employee sales (5-10%). Reduces residuals and resale.

• Product models are older and product development is slower.• Quality and productivity has “almost” caught up to best of Japanese

but has not caught them yet. The Koreans have . . .• Technology to design & build modern vehicles has diffused. No

technical barriers. Koreans have caught up, and now . . . China?• Companies are restructuring to their real share of the market where

price can deliver profits – but they must re-negotiate fixed costs....• If 07’ GDP growth below 2.5% - then sales will fall fast. Scrappage

rates are very low. Falling housing prices and tighter credit are havinga negative wealth effect. Fuel and other operating costs at recordhighs. Interest rates higher.

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Stuck on a Plateau or Worse!Stuck on a Plateau or Worse!Total U.S. Sales of Light Vehicles:Total U.S. Sales of Light Vehicles:

1992 - 20071992 - 2007

8.2 8.5 9.0 8.6 8.5 8.2 8.2 8.8 9.0 8.7 7.7 7.7 7.8 8.1

2.52.6 2.8 3.0 3.1 3.4

3.8 3.8 3.9 4.2 4.7 4.8 4.9 4.8

2.6 2.93.4 3.3

4.3 4.1 4.4 4.4 3.9

8.1

7.88.3

2.5

4.03.7

4.4

3.6

4.64.6

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07

Car MV/CSU/CUV Other Truck/Van

Mill

ions

Year

13.3 13.915.0 14.7 15.1 15.0 15.6

17.0 17.4 16.9 16.917.

2 16.216.8

16.6 16.5

Source: Ward’s Automotive Reports

Not at 12 Million!Not at 12 Million!U.S. Light Vehicle ProductionU.S. Light Vehicle Production

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Mil

lio

ns

of

Un

its

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0P

erc

en

tag

e o

f U

.S.

Pro

du

cti

on

Intl. Prod. as a % of Total Prod.

Intl. U.S. Production

15%

34%

Internationals added 140k a yr. over last 10 years, but 180k a year over last 5 years. Will need to add about 280k a year to replace coming Big cuts in capacity/production.

8

North American LV ProductionFord and GM NA production

below recession levels

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

GM Ford Chrysler Group Other

Thou

sand

s of

Uni

ts

Source: Automotive News

16

TXMS

ALGA

SC

TN

KY

INIL

MI

MITSUBISHI-NORMAL

TOYOTA-PRINCETON

TOYOTA-SUBARU

HONDA EAST LIBERTY HONDA MARYSVILLE

TOYOTA

SPARTANBURG-BMW

I-65

NISSAN-CANTONHYUNDAI-HOPE HULLHONDA-LINCOLN

TOYOTA-SAN ANTONIO

MERCEDES BENZ-VANCE

TOYOTA-HUNTSVILLE

OH

NISSAN

I-75

Roads Heading …?

InternationalSupplierAndManufacturerLocations

KIA-TROUP COUNTY

HONDA GREENSBURG

TOYOTA-BLUE SPRING

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Source: Automotive News, Harbour Report, CAR Research

International Assembly Facilities in U.S. & CanadaEmployment Investment Capacity

(Thru June 2006, Millions $)South 32,634 15,580 2,410,000North 31,626 15,420 2,742,000TOTAL 64,260 31,000 5,152,000

Employment Investment Capacity(2006 - 2009, Millions $)

South 6,500 3,350 650,000North 3,500 1,800 450,000TOTAL 10,000 5,150 1,100,000

EXISTING

FUTURE

They Bring Their Friends…

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AZ

MS

LATX

AR

MO

IA

MN

ND

SD

WY NY

FL

NM

OK

KS

CO

UT

NV

CA

WA

OR

ID

MT

AL

CT

DCDE

GA

IL IN

KY

MI

NC

NE

NH

NJOH

PA

RI

SC

TN

VA

WI

WV

ME

Parts suppliers are located in all 50 states:Parts suppliers are located in all 50 states:(over 783,000 direct employment)(over 783,000 direct employment)

Top 5 Employer

Top Employer

(Ranked by Size Compared to Other Industries in State)

Parts suppliers are top employer in 7 states,Parts suppliers are top employer in 7 states,top 5 employer in 12 other statestop 5 employer in 12 other states(over 3 percent of workforce in the 17 states)(over 3 percent of workforce in the 17 states)

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7.5

Motor Vehicle Manufacturing Multiplier ofMotor Vehicle Manufacturing Multiplier of

6.5 additional jobs for each job at aU.S. Motor Vehicle Firm

Source: Contribution of the U.S. Motor Vehicle to the Economies of the United States, California, New York, and New Jersey, Center forAutomotive Research, 2003,Contribution of Toyota to the Economies of Fourteen States and the United States in 2003, Center for Automotive Research 2005,Contribution of the Motor Vehicle Supplier Sector to the Economies of the United States and Its 50 States, Center for Automotive Research 2007

5.7

4.7 additional jobs for every one job at a parts making company

Motor Vehicle Parts Supplier Multiplier of

Total Impact From Supplier Direct EmploymentTotal Impact From Supplier Direct Employment

4.5 million total jobs impact

Ten states have 150,000 or more employees impacted by the suppliersector

Fifteen states have 100,000 or more impacted

Thirty states have 35,000 or more impacted

For the nation as a whole this industry impacts 3% of the labor force,and for 17 states, this industry represents 3 percent or more of theworkforce

However, threats to U.S. manufacturing and jobs are and will alterlandscape

12

79%

70%

However, more parts are imported.......However, more parts are imported.......

13

Pending Legislation in the U.S. CongressPending Legislation in the U.S. Congress

Source: Alliance of Automobile Manufacturers, Presentation on 8/8/07

They Will Be Small . . .(but where are they built?)

14

Source: EIA, Ward’s Automotive, BEA

Gas Prices Triple, and Truck Sales Begin to SlideNominal Price Per Gallon and Quarterly Light Truck Sales (SAAR)

Through May 2007

0

2

4

6

8

10

12

2000-II 2001-IV 2003-II 2004-IV 2006-II

Lig

ht

Tru

ck

Sa

les

SA

AR

(M

illi

on

s)

100

150

200

250

300

350

Ga

so

lin

e P

ric

e $

Light Truck Sales

Nomnal Gasoline Prices

(All Grades)

The U.S. Market: Mature but GrowingThe U.S. Market: Mature but Growing

16.2

16.0

16.7

17.1

17.3

17.5

17.9

15

16

16

17

17

18

18

19

2007 2008 2009 2010 2011 2012 2013

Year

Sa

les

(M

illi

on

s)

Source: CSM Worldwide

15

Source: CSM

North American Production—Forecasted2007 – 2012

4.2

2.9

1.8

4.0

2.8

1.9

4.1

2.7

2.1

4.2

2.5

2.4

4.5

2.3

2.5

4.5

2.4

2.7

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

2007 2008 2009 2010 2011 2012

GM Ford ToyotaU

nits

(Mill

ions

)

In Conclusion....• U.S. sales market will recover by 2009 and then grow . . .• International producers will take 50% of the market in 07’, 50% of

production in ‘11.• Detroit 3 will fall below 50% market share, “retreat to the core” and

move some production off-shore.– Fuel economy requirements could hasten off-shoring

• Less total workers in motor vehicle and parts manufacturing segmentsas productivity improvements and size rationalizing among Detroit 3continues

• States in some regions of the country will fare better than others• Sales of vehicles will go up, but where will they come from?????

– As housing sales go up, houses will be built here, cars may not be built here.