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www.kbb.com In This Issue: MARKET ANALYSIS:

MARKET SOFTENS; AUCTION VOLUMES CAUSE AGGRESSIVE DROPS BLUE BOOK HYBRID, LUXURY SEGMENTS CONSIDERABLY UNDERPERFORM MARKET YEAR-TO-DATE OCTOBER COMPETITION IN THE SEGMENT Market Report 2010 EXPECTED TO GROW MERCEDES-BENZ, , LAND ROVER AND UNDERPERFORM MARKET Analysis from Kelley Blue Book’s Analytic Insights Team HOT USED- REPORT Annual Subscription Value: $500 Kelley Blue Book Public Relations Contacts: Robyn Eagles | Director, Public Relations Joanna Pinkham | Senior Public Relations Mgr Brenna Robinson | Public Relations Mgr Rebekah King | Consumer Communications Mgr 949.268.3049 | [email protected] 949.268.3079 | [email protected] 949.267.4781 | [email protected] 949.267.4982 | [email protected]

MARKET ANALYSIS: MARKET SOFTENS; AUCTION VOLUMES CAUSE AGGRESSIVE DROPS - Juan Flores, director of vehicle valuation, Kelley Blue Book - Alec Gutierrez, lead analyst of vehicle valuation, Kelley Blue Book t is business as usual with gas prices, unemployment rates and credit availability, all of which have been fairly consistent during the past several months. However, as Fall creeps in slowly Month-Over-Month Segment Change Mid-Size 0.8% and we enter the fourth quarter, there is a 1.5 percent drop in the overall market reported for I 0.5% September 2010. The month also showed that nearly every segment has softened, even given Mid-Size Sport Utility -0.9% current stable market conditions. These drops are mostly seasonal with increased auction volumes Full Size Car -1.0% influencing some of the more significant drops. Current demand has been unable to offset the -1.2% increased auction volumes that have resulted as vehicles leased in 2006 and 2007 return to the Mid Size Car -1.2% market. This primarily affects luxury vehicles since these vehicles are predominantly sold through -1.5% leasing programs. Full-Size Pickup Truck -1.7%

Leading in segment drops for the month are mid-size and full-size crossovers, falling 3.3 and 3.7 -1.7% percent, respectively. As manufacturers continue to add more vehicles to the crossover segment, -1.8% the potential for future weakness increases. The most hard-hitting drops come from vehicles that Full-Size Sport Utility -1.8% are a bit ‘long in tooth:’ Lincoln MKX (set for a refresh for model-year 2011) is down 8.5 percent, Compact Crossover -2.2% followed by ’s CX-7 (slightly updated for model-year 2010) which fell 7.8 percent, and -2.2%

Buick’s Rendezvous (old; no longer in production) with a 5.4 percent drop. Luxury Crossover -2.2%

Hybrid also dropped 2.3 percent, along with luxury SUVs and cars at 2.2 percent. Luxury Sport Utility -2.2%

Hybrid Car -2.3%

Hybrid Crossover -2.3%

Hybrid Sport Utility -3.2%

HYBRID, LUXURY SEGMENTS CONSIDERABLY Mid-Size Crossover -3.3% UNDERPERFORM MARKET YEAR-TO-DATE Full-Size Crossover -3.7% Hybrid Pickup Truck -3.7%

YTD Segment Change -4.5% -3.5% -2.5% -1.5% -0.5% 0.5% 1.5%

Full-Size Pickup Truck 16.5%

Minivan 7.3%

Full-Size Sport Utility 6.8% uxury and hybrid vehicles have not fared well this year. On a year-to-date basis, hybrid Hybrid Pickup Truck 6.7% and luxury segments have underperformed the market by a considerable margin. While Mid-Size Pickup Truck 6.5% values for these segments are up 2.75 percent from this time last year, we are seeing Compact Car 3.4% L significant year-to-date declines. Specifically, luxury crossovers have plunged 8.1 percent, Full-Size Car 2.9%

Average 2.8% followed by hybrid crossovers (-7.9 percent), hybrid cars (-6.0 percent), and luxury cars (-4.0

Van 1.4% percent). In a soft economy, the premium for these vehicles is difficult to justify as consumers Mid-Size Car 0.7% seek ways to cut back financially. Additionally, gas prices do not support a consumer’s need Sports Car 0.6% for a hybrid at current levels. An unusually swelled supply of luxury vehicles due to aggressive Compact Crossover 0.6% leasing back in 2006 and 2007 also has contributed to their depreciation. Mid-Size Sport Utility 0.5%

Mid-Size Crossover -1.0%

Luxury Sport Utility -1.0% While luxury crossover and hybrid segments continue to falter, trucks, and full- Subcompact Car -1.3% size SUVs have been the top performers year-to-date. Full-size trucks are up 16.5 percent, Full-size Crossover -1.7% followed by minivans at 7.3 percent, full-size SUVs up 6.8 percent and mid-size trucks at Luxury Car -4.0%

Hybrid Sport Utility -5.2% 6.5 percent. These segments are still recovering from an extremely soft 2009 market. Low

Hybrid Car -6.0% inventories also are keeping values strong due to a lack of new sales and leases. Minimal Hybrid Crossover -7.9% leasing of trucks and SUVs also could indicate that low inventories of these vehicles Luxury Crossover -8.1% remain a concern for years to come, making these vehicles best bets for dealers. -12.0% -8.0% -4.0% 0.0% 4.0% 8.0% 12.0% 16.0% 20.0% MARKET ANALYSIS: continued COMPETITION IN THE CROSSOVER SEGMENT EXPECTED TO GROW here has been strong support for crossover leasing by OEMs, which is a reflection of the shift in consumer demand toward these vehicles. Crossovers are increasingly prevalent in the marketplace. As a result, availability of used crossovers during the next several years will be high. Since 2006, T crossovers have gained more market share than any other segment. Cars and crossovers combined now account for 75 percent of overall market share, compared to 62 percent in 2006, which was prior to peak gas prices and the current recession.

2006 Share of New Sales 2010 Share of New Sales

Van Van 8% 6% Truck Truck 13% 17% Car SUV 49% 7% Car 52% SUV 13% Crossover 22% Crossover 13%

Lease Volume - Select Segments 60,000 Crossover SUV Truck Competition will be high in the crossover segment as more manufacturers convert existing truck=based SUVs to unibody crossovers. For example, the 50,000 will move from a SUV to a crossover for model-year 2012, and ’s Durango will do the same. The truck-based SUV will continue to decline in popularity as fuel 40,000 economy and handling remain top priorities for consumers. Dealers would be wise to keep inventories of used crossovers up.

30,000 Leasing patterns since 2008 are a prime example of the industry’s move away from

20,000 truck-based SUVs and trucks toward unibody crossovers. While leasing activity for trucks and SUVs dropped aggressively and has remained low following the onset of the recession in 2008, leasing activity for crossovers has been on the rebound after 10,000 leveling off in early 2009. Moving forward, Kelley Blue Book expects continued lease support for crossovers while lease deals for trucks and SUVs will remain few and far 0 between.

Source: Polk Registrations

MERCEDES-BENZ, ACURA, LAND ROVER AND LEXUS UNDERPERFORM MARKET

Lease Volume - Luxury Cars s a result of car shoppers making budget conscious decision in the 50,000 current economy, Mercedes-Benz, Acura, Land Rover and Lexus have A underperformed the market on a year-to-date basis. Luxury brands are not performing well in the used-car marketplace. The demand for these vehicles today 40,000 is not sufficient enough to absorb the significant lease volumes coming back into the marketplace.

30,000 As an example, Mercedes-Benz’ R-Class is down 21 percent year-to-date, followed by the Acura MDX and Lexus GS (both fell 13 percent year-to-date) and Range 20,000 Rover dropping 11 percent year-to-date. Luxury vehicles could remain soft through the rest of the yearand into 2011, until leases returning to auction more closely match with current demand. Most leases are returning for two- to three-year-old 10,000 vehicles, so we currently are seeing leases from 2006 to 2008 model-years hitting the marketplace. If current demand remains consistent, it could be well into 2011 before lease returns match up with current market demand. 0

Source: Polk Registrations This commentary focuses on Model Years 2007-2009. The statements set forth in this publication are the opinions of the authors and are subject to change without notice. This publication has been prepared for informational purposes only. Kelley Blue Book assumes no responsibility for errors or omissions.

2 BLUE BOOK Market Report OCT 2010 HOT USED-CAR REPORT: SPORTS CARS, LUXURY VEHICLES DRIVING SHOPPER INTEREST; HYBRID SHARE DECLINES Kelley Blue Book’s Hot Used-Car Report captures monthly used-car shopper activity on kbb.com, including a list of the top and bottom movers in the same time period. Results are provided by the Kelley Blue Book Market Intelligence Team, in an effort to help dealers better understand which used ve- hicles consumers are looking at most each month.

he 2009 BMW 5 Series increased its share of used-car retail shopper activity by 46.9 percent in a month’s span, the most of any used vehicle on kbb. com. Increased interest in the 5 Series is primarily driven by the state of California, which accounts for 17.4 percent of traffic share to this vehicle. In T terms of segment shopper activity, it appears that luxury vehicles are up; however, interest in hybrids have cooled. All hybrid segments are down with the hybrid pickup segment experiencing the greatest decline in share, down 28 percent month-over-month. This isn’t abnormal given that the used hybrid market is still small and subject to volatility due to limited inventories. Kelley Blue Book recommends that dealerships focus on sports cars and luxury vehicles as interest rises.

Monthly Shopping Activity Growth Monthly Shopping Activity Growth Top/Bottom 10 Models Segments

2009 BMW 5 SERIES 46.9% Sports Car 5.4%

2007 ELEMENT 35.5% Luxury Sport Utility 5.1%

2007 911 34.4% Luxury Car 4.7%

2006 BMW X3 29.7% Luxury Crossover 3.1%

2008 NEW BEETLE 27.8% Full-Size Pickup Truck 2.7%

2008 AVALANCHE 27.4% Full-Size Sport Utility 1.4%

2005 2500 HD… 25.9% Full-Size Car 1.0% Van 0.2% 2008 LAND ROVER SPORT 25.6% Mid-Size Pickup Truck -0.4% 2007 SPORTAGE 24.5% Mid-Size Sport Utility -1.2% 2009 24.5% Mid-Size Crossover -1.2% 2007 -19.6% Mid-Size Car -1.6% 2007 MATRIX -20.5% Compact Crossover -2.2% 2008 SX4 -20.9% Minivan -2.9% 2007 ACURA TL -22.0% Subcompact Car -3.4% 2009 KIA SEDONA -22.5% Compact Car -3.6%

2008 MILAN -23.5% Full-Size Crossover -3.7%

2006 M -24.1% Hybrid Crossover -5.9%

2009 -24.2% Hybrid Sport Utility -13.0%

2007 ACURA TSX -27.9% Hybrid Car -20.6%

2006 -30.3% Hybrid Pickup Truck -28.0%

-100% -50% 0% 50% 100% -50% 0% 50% % Change in Share Month-Over-Month % Change in Share Month-Over-Month

About Kelley Blue Book (www.kbb.com) Since 1926, Kelley Blue Book, The Trusted Resource®, has provided vehicle buyers and sellers with the new- and used-vehicle information they need to accomplish their goals with confidence. The company’s top-rated website, www.kbb.com, provides the most up-to-date pricing and values, including the New Car Blue Book® Value, which reveals what people actually are paying for new cars. The company also reports vehicle pricing and values via products and services, including software products and the famous Blue Book® Official Guide. According to the C.A. Walker Research Solutions, Inc. - 2009 Spring Automotive Website Usefulness Study, kbb.com is the most useful automotive information website among new- and used-vehicle shoppers, and half of online vehicle shoppers visit kbb.com. Kelley Blue Book’s kbb.com also is a W3 Gold Award winner, sanctioned by the International Academy of Visual Arts. Kbb.com is a leading provider of new car prices, used car values, car reviews, new cars for sale, used cars for sale, and car dealer locations.

OCT 2010 BLUE BOOK Market Report 3