The U.S. Automobile Industry: An Outlook

FTA Revenue Estimating Conference 9-15-08

Kim Hill Associate Director, Economic and Business Group Director, Automotive Communities Program Center for Automotive Research

It’s always about product….. Auto manufacturing operations in 25 states

State Plants Employment

MI 49 78,159 OH 25 40,976 KY 5 23,606 IN 11 22,337 TN 6 18,904 AL 5 14,119 CA 3 12,019 MO 6 11,688 IL 4 9,048 SC 1 4,500 TX 2 4,307 MS 1 3,662 WI 2 3,289 NY 3 2,911 DE 2 2,540 KS 1 1,969 LA 1 1,877 GA 2 1,476 WV 1 1,150 MN 1 1,060 OK 1 788 AR 1 600 MD 1 423 PA 1 319 VA 1 102

Total 136 261,829

Automobile parts manufacturing operations in 50 states

Michigan !"! #$%&!'! Oregon !! $&$%' Ohio ()' )'&((* Minnesota !% $&*'' +,-./,/ $!# !"&#(' 0/,1/1 (% *&))% Tennessee #)% $"&'#* 23.45,/ !) *&6)! 07,89:;< #%$ $#&(6% Washington "' *&6%" +==.,5.1 *6! *"&%($ West Virginia #% *&#'# >/=.?53,./ 6*) *(&*'# Massachusetts (( #&!"' New York #6% **&!6$ Maryland $# #&6)( North Carolina #%$ #"&%#) Louisiana $* #&6'' 2=/@/A/ #'# #!&"*! New Hampshire #" #&6'' Wisconsin #(# #6&*!' >5=53/-5 %" #&*"" South Carolina )$ #(&6(* New Jersey %! #&''( Missouri #$) #$&6#6 North Dakota #$ )(' Pennsylvania #(% #*&(!* South Dakota #% !)( Texas *%) ##&"*# Nevada *6 6'' B753C./ ##) #'&$(% Vermont ( $!' +5D/ 6* !&%6% E7=/D/37 ( $#$ Virginia !$ 6&)%6 Maine ## *)' Mississippi %6 6&!#$ Rhode Island % *"! 23;/,1/1 (6 %&"(' Wyoming #' #6' F=53.-/ #!% (&")' Montana #( #'' >5,,7:8.:98 6' (&#') New Mexico #% #'' Utah (* (&''' +-/G5 ## 6" Oklahoma 6' $&)$# H/D/.. 6 *% Nebraska $' $&)'! 2=/1;/ * )

T o t a l Employment contribution of the automobile industry

• Of all the jobs created by the direct employment of the automobile industry: – 18% are in manufacturing – 82% are in non-manufacturing

Jobs in and created by the automotive sector

• Engineering • R&D, Scientistific • Administrative and support positions (Waste, IT, etc.) • Management • Logistics: Transportation & Warehousing • Manufacturing • Finance • Legal • Sales • Accounting • Public Relations and Marketing • Human Resources Auto jobs are good jobs: 2006 average annual salaries

Toyota U.S. Operations $73,141

Motor Vehicles $63,088

Motor Vehicle Parts $46,998

Insurance carriers $44,783

Durable Goods $38,054

Manufacturing $35,923

Financial activities $34,965

Total Private $29,529

$0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 $80,000

Sources: Toyota, Center for Automotive Research, and the Bureau of Labor Statistics, Employment Series CEU

Feb. 26, 2008: 3,650 direct employees Feb 29, 2008 March 7, 2008 By April 5, 2008: March15, 2008 40,000 assembly/ March 22, 2008 component employees April, 5, 2008 + 40,000 lower tier suppliers

3,650 => 80,000 Major Industry Challenges

• Economic cycle  • Credit crisis  • Price of energy  • Materials inflation  • Segment shifts  • Government mandates  • New competition  • Emerging markets  • New technologies 

Down the Slippery Slope! Total U.S. Sales of Light Vehicles: 1992 - 2009 Car MV/CSU/CUV Other Truck/Van 20.0 17.4 18.0 17.0 17. 16. 2 16. 16.6 9 16.9 16.5 16.1 15.6 8 16.0 15.0 14.7 15.1 15.0 14.5 4.6 4.6 4.3 4.4 4.4 14.3 14.0 13.3 13.9 4.4 4.1 3.9 3.7 3.4 3.3 3.6 4.0 12.0 2.6 2.9 3.7 3.8 6.8 6.9 Millions 2.6 3.8 3.9 4.2 4.7 4.9 4.8 10.0 2.5 2.5 2.8 3.0 3.1 3.4 4.8 4.8 8.0 6.0 9.0 9.0 4.0 8.2 8.5 8.6 8.5 8.2 8.2 8.8 8.7 8.3 7.8 7.7 7.7 7.8 7.6 7.5 7.6 2.0 0.0 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 Year Source: Ward’s Automotive Reports U.S. Automotive Manufacturing Sector Capacity Utilization 1978-2008 YTD 100 91 87 84 82 79 n 73

o 80 i t

a 73 z i

l 60 67

i 63 t U 51

y 40 t i c a

p 20 a C 0 2 1 1 1 1 1 1 1 1 2 2 2 1 1 2 1 9 9 9 9 0 9 9 9 9 0 0 0 9 9 0 9 8 8 9 9 0 9 9 0 0 8 8 8 9 0 0 7 0 6 8 6 8 0 2 0 2 4 6 4 2 4 8 8

Year Source: Federal Reserve, data through June 2008

Percentage Change in U.S. Sales of Light Vehicles: YTD Through August: 2008 vs. 2007

9,800,814 Total -11.2 -1,235,657

2,495,358 Imports -2.6 -67,289 (25.5%)

2,848,235 Int. Domestics -3.6 -106,985 (29.1%)

566,218 Korea -1.8 -10,345 (5.8%)

4,020,151 Japan -3.4 -143,317 (41.0%)

4,457,221 Big 3 -19.2 -1,061,383 (45.5%)

1,076,426 Chrysler Group -23.9 -338,802 (11.0%)

1,421,591 Ford -15.2 -254,734 (14.5%)

1,959,204 GM -19.3 -467,847 Updated (20.0%) 0909/08

-30 -25 -20 -15 -10 -5 0 5 10 15 20 25 30

Source: Automotive News Percentage Change 12 Percentage Change in U.S. Sales of Passenger Cars: YTD Through August: 2008 vs. 2007

5,285,787 Total -2.4 -131,319 (53.9%)

1,766,113 Imports +87,382 5.2 (33.4%) 1,779,057 Int. Domestics +23,177 1.3 (33.7%) 401,913 Korea +41,414 11.5 (7.6%) 2,529,433 Japan +63,859 2.6 (47.9%) 1,740,617 Big 3 -12.2 -241,878 (32.9%) 346,398 Chrysler Group -21.3 -93,660 (6.6%)

510,299 Ford -5.1 -27,490 (9.7%)

883,920- GM -12.0 120,728 Updated 09/09/08 (16.7%)

-35 -25 -15 -5 5 15 25 35

Source: Automotive News Percentage Change

Percentage Change in U.S. Sales of Light Trucks: YTD Through August: 2008 vs. 2007

4,515,027 Total -19.7 -1,104,338 (46.1%) 729,245 -154,671 Imports -17.5 (16.2%) 1,069,178 -130,162 Int. Domestics -10.9 (23.7%)

164,305 -51,759 Korea -24.0 (3.6%)

1,490,718 Japan -12.2 -207,176 (33.0%) 2,716,604 Big 3 -819,505 -23.2 (60.2%)

730,028 Chrysler Group -25.1 -245,142 (16.2%)

911,292 Ford -20.0 -227,244 (20.2%)

1,075,284 Updated 09/09/08 GM -24.4 -347,119 (23.8%)

-40 -30 -20 -10 0 10 20 30 40

Source: Automotive News Percentage Change Down Below 50% “Detroit 3” U.S. Market Share 1986 – August 2008 (Sales of Detroit 3 N. American “owned” production)

Ford GM Chrysler

45.0 39.2 40.0 33.5 35.0

30.0 25.5 t

n 25.0 21.8 e 20.0 c r

e 20.0 P 14.7 14.5 15.0 11.4 10.0 11.0 5.0 0.0 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 YTD Year Source: CAR Research

U.S. Market Share Forecast Through 2011 (Sales of Detroit 3 N. American “owned” production)

Detroit 3 Internationals

80.0 72.4 73.7

70.0

60.0 56.0 t

n 50.4 e

c 50.0 r

e 44.0

P 49.6 40.0

27.6 30.0 26.3

20.0 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

Source: CAR Research Market Share: Segment Breakdown - U.S. LV Sales Through August: 2008

Pickup 14.4

Van 6.3

SUV 8.7

CUV 18.0

Luxury Car 7.6

Large Car 3.5

Middle Car 21.6

Small Car 19.8

0.0 5.0 10.0 15.0 20.0 25.0 Source: Ward’s Automotive Reports Percent Share

Segment Breakdown - U.S. LV Sales YOY % Change Through August: 2008

Pickup -23.5

Van -19.5

SUV -32.5

CUV -4.5

Luxury Car -9.6

Large Car -27.0

Middle Car -3.1

Small Car 8.9

-40 -35 -30 -25 -20 -15 -10 -5 0 5 10 15 20 Source: Ward’s Automotive Reports Percentage Change Ford Sales Performance by Segment YOY Difference thru August: 2008 vs. 2007

Pickups - 23.4% (28% of total Ford Sales) Contractors are buying fewer pickups due to housing market slump, pickups no longer viable for commuting

SUVs - 38.9% (8% of total Ford Sales) Explorer is selling poorly despite recent redesign, CUVs replacing this segment for most buyers

Cars - 7.0% (38% of total Ford Sales) Reduced fleet sales and incentives

CUVs -0.9% (18% of total Ford Sales) The Edge and Escape continue to sell well, Flex arriving in showrooms

Source: Automotive News Data Center

GM Sales Performance by Segment YOY Difference thru August: 2008 vs. 2007

Pickups - 23.4% (24% of total GM Sales) Contractors are buying fewer pickups due to housing market slump, pickups no longer viable for commuting

SUVs - 35.6% (13% of total GM Sales) GMT900’s and GMT360’s struggle

Cars - 9.7% (46% of total GM Sales) Too much old product; Aura and Malibu to the rescue

CUVs - 5.9% (11% of total GM Sales) Lambdas transform GM’s CUV lineup

Source: Automotive News Data Center Chrysler Sales Performance by Segment YOY Difference thru August: 2008 vs. 2007

Pickups - 30.9% (18% of total Chrysler Sales) Contractors are buying fewer pickups due to housing market slump, pickups no longer viable for commuting

Minivan - 15.7% (17% of total Chrysler Sales) Transition to new platform, strong competition

SUVs - 35.5% (23% of total Chrysler Sales) New Wrangler, Nitro not offsetting struggling Aspen, Durango and Commander

Cars - 19.6% (32% of total Chrysler Sales) New Sebring not living up to expectations

CUVs + 12.1% (9% of total Chrysler Sales) Addition of Compass, Patriot, and Journey boosting sales

Source: Automotive News Data Center

Toyota Sales Performance by Segment YOY Difference thru August: 2008 vs. 2007

Pickups - 12.6% (13% of total Toyota Sales) Contractors are buying fewer pickups due to housing market slump, pickups no longer viable for commuting Minivans - 11.3% (5% of total Toyota Sales) Strong competition, slumping segment

SUVs - 30.8% (5% of total Toyota Sales) Sequoia sales are up but the 4Runner is struggling

Cars - 2.5% (62% of total Toyota Sales) Overall market weakness

CUVs -14.0% (10% of total Toyota Sales) Highlander slumping slightly, RAV4 down nearly 20 percent Source: Automotive News Data Center It’s a Short-term Thing…Right??

Big 3 Market Share and Historical Cost of Gas in Real 2008 Dollars !"#$%&''(% '" !*)" )*+%,-./01%% !*## '# Real 2008 US Dollars 2345( +*%" &" +*"# &# +*)" %" +*## )*%" %# )*"# $" )*)" $# )*## "" (*%" (*"# "# (*)" !" (*##

%# %) %! %$ %& &# &) &! &$ && '# ') '! '$ '& ## #) #! #$ #& (' (' (' (' (' (' (' (' (' (' (' (' (' (' (' )# )# )# )# )# ,-./+/012345/67124 819/:2-;49 Year

Sources: Energy Information Administration (EIA) April 2008 Monthly Energy Review; Bureau of Labor Statistics CPI Data; EIA Annual Energy Review 2006,Automotive News Market Data Books ‘96, ‘98, ‘03, ’06-’08 Light Truck Sales No Longer Immune to Gas Price Fluctuations

3.5 $3.51 Summer ‘05 15.0 Big 3-Employee Fall ‘01 Discounts for All $3.02 3 GM-Keep America Rolling 12.6 M 13.0 ) s

11.2 M n o

2.5 i l l 11.0 i M (

9.3 M R $

8.6M A

s 2 e A c

i 9.0 r S

P

s e

n 6.2 M e i l l o a

s 1.5 a S

G 7.0 k

7.4M c u r T

1 5.0 t h g $1.02 Light Truck Sales i Monthly SAAR L 0.5 Nominal Gasoline Prices 3.0 All Grades All Fuels

0 1.0 J S S S J M S M S M S M M M S M M M J J J J J J J S S J M a a a a a a a a a a e e e e e e e e e a a a a a a a a a a n n n n n n n n n n p p p p p p p p p y y y y y y y y y y ------0 0 9 0 0 0 0 0 0 0 ------0 9 0 0 0 0 0 0 0 9 0 0 0 0 0 0 0 0 0 2 1 9 0 3 4 5 6 7 8 5 0 1 2 6 7 3 4 9 6 0 1 2 3 4 5 9 7 8 Sources: EIA, Ward's Automotive

Recent New Vehicle Rollouts, Unfortunately The Future . . . They will be Smaller

Subtract $3,000 – 5,000 for Fixed Costs!

Variable Profit by Segment Small Car $ 2,400 Mid SUV $ 4,700 Small CUV $ 2,900 Large Pickup $ 5,200

Small Pickup $ 2,900 Large SUV $ 6,800 Large Van $ 3,700 Luxury CUV $ 7,300 Mid Car $ 3,900 Luxury Car $ 8,400 Large Luxury Mid CUV $ 4,400 SUV $11,100 Minivan $ 4,600 Mid Luxury SUV $12,600 Source: UMTRI, WARD’S AutoInfoBank and CIR Ests

(CitiGroup Investment Research) How Can This Be Maintained? Big 5 Research & Development Expenditures 2003 2004 2005 2006 2007

10

8 s

n 6 o i l l i B

4 $

2

0 GM Ford Chrysler Toyota Honda

Big 5 Cash and Cash Equivalent

2003 2004 2005 2006 2007 1st Half 2008

30 -$5.19 bil. 24.55 -$865 mil./mo. 25 23.77 -$3.70 bil. 20.70 -$616 mil./mo. 20 19.36 s 17.00 16.26 16.37 n 16.00 16.10 15.19 o 14.40 13.82 i l 13.40 13.52 12.00 l 15 13.10 13.36 i 11.70

B 10.45 10.83 10.10 9.37

$ 9.13 10 7.19 8.05 6.90 6.51 6.10 5

0 GM FORD Chrysler Toyota Honda Big 5 Operations Income ( Automotive Sector)

2003 2004 2005 2006 2007 1st Half 2008

25 21.68

20 17.38 13.98 14.44 15 13.79

10 6.82

s 5.25 4.29 5.11 n 4.04

o 5 1.37 0.98 i

l 0.60 1.10

l 1.10 i 0 B

-0.20 -1.87 -1.28 $ -1.41 -3.02 -5 -3.90 -6.15 -4.97 -10 -5.30

-15 -13.23 -13.07 -20 -17.04 GM FORD Chrysler Toyota Honda

Source: Company 10-Ks, 2Q 2008 10-Qs, and company’s press releases

Not Much Time or Money Left . . .

• GM will be at $11 Bil. to $14 Bil. operating cash limit within 12 months. Sooner if Delphi folds and GM must fund Delphi’s under- funded pension obligations and operational needs. • Ford will be at its limit in 18 months. • Chrysler LLC ??? • “Institutional Debt Markets are closed to OEMs and Suppliers.” Effective rates are at 15.5+% a year. Use Visa. • Detroit 3 can borrow from no one . . . • Lehman Bro. estimates GM will burn $11.3 Bil. more in cash thru end of 09’ and must raise $7.3 Bil. in Capital. D-Bank estimates an $11.0 cash burn. • GM may need to borrow $12.2 Bil. if overseas markets collapse What Can Be Done?

• Sell Assets: But GM’s Hummer, Mid-sized Truck, rest of GMAC, and OnStar have no bidders. Ford has pledged all assets against loans. Can sell Volvo/Saab – for what? • Issue Equity to retire and acquire debt – spin-off international divisions and issue new shares for these subsidiaries. $10 Bil. at GM? • Cut Costs. This is being done, but the bone is being cut . . . And the companies are shrinking. • Ask the Feds for a $50 Bil. bailout Loan at T-Bill rate. • Re-negotiate again with the UAW . . . Or Ch. 11.

So . . . GM Will be the Size of Ford, and Ford the Size of Chrysler and Chrysler the Size of . . . 2004-2010 Change in North American Vehicle Production Capacity

8 About 26% since 2004, or 3.6 mil. units 7 (2.0 million to cut from 2006) 6 5 4 6.2 Millions 3 4.6 4.6 2 3.2 2.9 1 2.3 0 GM-2004 GM-2010 Ford- Ford- Chrysler- Chrysler- 2004 2010 2004 2010 Source: CSM Worldwide

34 GM, Ford, Chrysler, Delphi & ACH U.S. and Canadian Plant Shutdowns (Retreat to the Core??) Announced and Executed, 2005-2011 Drayton Plains PC - 2008 Lansing Craft Centre-2006 Flint North Components - 2011 Oshawa Truck - 2009 Lansing Metal - 2006 Portland SPO - 2006 Saginaw Malleable - 2007 Livonia Engine - 2010 Lansing M - 2005 Twin Cities - 2011 Wixom – 2007 Massena Foundry - 2008

Essex Engine – 2007

GM, Ford & Chrysler Shutdowns: 36 Plants Windsor Casting – 2007 45,500 in Announced Plant Shutdowns Conner Ave - 2010 19,000 Salaried Janesville - 2009 Maumee Stamping – 2007

Delphi Job Cuts: 21 Plants 23,200 in Plant Shutdowns and Selloffs Brook Park Casting – 2010 ACH Job Cuts: 14 Plants Linden - 2005 21,400 in Plant Shutdowns and Selloffs Newark –2009 Baltimore - 2005 500 other salaried Pittsburgh Metal - 2007 Norfolk – 2007 Shutdown Total = 111,100 Lorain - 2005 Line Trimming, Sold, & Unidentified = 47,300 Toledo South – 2006 Total Impact = 156,800 Jobs Moraine - 2010 Batavia – 2008 Indianapolis Metal - 2011 St Louis South – 2008 Ford Shutdowns Atlanta – 2006 St. Louis - Chrysler Plant Shutdowns 2006 Doraville - 2008 St. Louis Bulk Center – 2009 Delphi Plant Shutdowns Spring Hill - 2006 Oklahoma City-2006 ACH Plant Shutdowns Updated: Aug 26, 2008

Economic Impact of the Automotive Industry in Michigan, Ohio & Indiana TOTAL Tri-State Rest of U.S. Indiana Michigan Ohio Total U.S. Losses Direct Employment 10,906 18,912 14,000 43,818 0 43,818 Intermediate Employment 15,075 36,200 25,265 76,540 40,860 117,400 Spin-off Employment 25,392 39,219 34,608 99,219 104,763 203,982 Total Employment 51,373 94,331 73,873 219,577 145,623 365,200 % of Labor Force 1.8% 2.2% 1.4% 1.8% 0.1% 0.3% $ $ Total Wages $ $ $ 15,23 $ 23,71 ($ Millions) 3,714 6,701 4,817 2 8,486 8 Tax Revenues $ $ $ $ $ $ ($ Millions) 438 776 646 1,861 1,133 2,994 Average Annual $ $ $ $ $ $ Wages Lost Per 72,29 71,03 65,21 69,37 58,27 64,94 Worker 5 5 1 0 2 5

Source: CAR Research, Regional Economic Models Inc. The Darkest Part of the Tunnel… Motor Vehicle & Parts Manufacturing Employment 1999 – May 2008

Michigan Indiana Ohio U.S.

400,000 1,128,400 1,200,000 31% change 350,000 320,600 1,000,000

l 300,000 769,500 e

v 800,000

250,000 U e . L 49% change S 200,000 600,000 e 162,800 . t 153,500 35% change a

t 150,000 400,000 S 99,500 100,000 105,100 75,200 200,000 50,000 28% change 0 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 May 2008

Source: BLS July 2008

Currency Moves in Favor of U.S. Production

Euro Yen

1.20 140 1.17 132.68 1.10 130

1.00 120

0.90 110 100.76 0.80 100

0.70 90 0.68 0.60 80

99 00 01 02 03 04 05 06 07 08 n- n- n- n- n- n- n- n- n- n- Ju Ju Ju Ju Ju Ju Ju Ju Ju Ju Roads Heading South …?

MI International MITSUBISHI-NORMAL Supplier HONDA EAST LIBERTY HONDA MARYSVILLE And I-75 TOYOTA-PRINCETON I-65 Manufacturer OH HONDA GREENSBURG IL Locations TOYOTA-SUBARU IN TOYOTA-GEORGETOWN TOYOTA-HUNTSVILLE KY NISSAN TN SPARTANBURG-BMW TOYOTA-BLUE SPRING VOLKSWAGEN- CHATTANOOGA AL SC GA KIA-TROUP COUNTY MS TX HONDA-LINCOLN HYUNDAI-HOPE HULL NISSAN-CANTON MERCEDES BENZ-VANCE

TOYOTA-SAN ANTONIO 39

Japanese U.S. Light Vehicle Sales: 1986 – 2007

Transplants Imports Total Japan Sales

7.00 6.15 6.00

s 5.00 n o i

l 3.86

l 3.87 i 4.00 M

n i

3.00 3.48

s 2.21 e l a

S 2.00

1.00 0.38 Vehicles in Millions Vehicles in Millions 0.00 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07

Year Source: Automotive News News in Europe

MAR 25 2008

The US becomes a low-cost location

News in Europe

FEB 25 2008

Suppliers asked to produce in dollar region News in North America

Headline News: Detroit to Export Cars!

APR 08 2008 VW Will Build Plant(s) for U.S. Production

New Plants: • Car Assembly of most likely VW Passat/Audi models • Will likely need engine and transmission plants as well • VW has confirmed that Chattanooga TN will home to new $800 million assembly plant • VW must protect itself from the rising Euro; has announced very ambitious goals for N. American sales

Emerging Global Vehicle Development Centers of Expertise – a lot of vehicles we don’t build... Yet

Vehicle Segment Location Prominent Example Small Cars Korea, Germany GM/Daewoo, Astra, Cruze Mid-size FWD Cars Germany, Japan Next GM Saturn Aura Mid-size/Large RWD Cars Australia, U.S. 09 Camaro, Future Mustang Luxury RWD/FWD U.S. Cadillac, Buick Small CUVs Korea, Europe Hyundai Santa Fe, Opel Antara Mid/Large CUVs U.S. GM Lambda Platform Small SUVs/Pickups Brazil GM/Isuzu, Ford Full-size SUVs/pickups U.S. Big Three, Toyota, Nissan The U.S. Market: Mature but Will Grow Again…

19 18 17 17.0 17.5 16 16.1 16.0 16.5 15 14 14.3 14.5 ) 13 s

n 12 o

i 11 l l i 10 M

( 9

s 8 e

l 7 a 6 S 5 4 3 2 1 0 2007 2008 2009 2010 2011 2012 2013 Year Source: CSM Worldwide

So, Does the Industry Need a $50 Billion Loan Guarantee? (not a bailout)

• Economically significant industry • Unfunded mandates…