LMC AUTOMOTIVE OUTLOOK BRIEFING Losing momentum as we round the final corner Gregory Daco Chief US Economist [email protected] Follow us on Twitter @GregDaco @OxfordEconomics October 2020 A less-than-ideal health situation entering flu season 1 An uneven impact across the world GDP impact from coronavirus GDP level Q2 2020 vs Q4 2019, in % 5 0.3 0 -5 -7.2 -10 -8.4 -10.2 -11.5 -15 -13.4 -17.6 -17.3 -20 -18.9 -22.1 -25 -22.7 ES UK FR IT PT CA DE US JP AU CN Source: Oxford Economics/Haver Analytics Eurozone countries in blue 2 Questions: Use the question panel A surprising Phase 1 of the recovery World: Economic surprise indices Index 300 US Eurozone UK 200 100 0 -100 -200 -300 -400 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source : Oxford Economics/Haver Analytics 3 Absent a strong employment rebound, fiscal aid is key 4 Midwest states have become new hotspot US: New cases of Covid-19 7-day MA of cases per 100,000 70 North Dakota 60 Florida South New York Dakota 50 Arizona Montana New Jersey 40 Wisconsin Texas 30 California 20 10 0 Mar Apr May Jun Jul Aug Sep Oct Source: Oxford Economics/Haver Analytics 5 Easy and rapid employment gains are behind us US: Nonfarm payroll employment Millions 155 150 Sep 145 +0.7mn Feb-Apr: Aug: 140 -22.1mn +1.4mn July: +1.8mn 135 June: +4.8mn 130 May: +2.7mn 125 120 1998 2003 2008 2013 2018 Source: Oxford Economics/Haver Analytics 6 Unemployment rate still near recession peaks US: U3 unemployment rate % 16 Apr: 14.7% 14 12 10.8% 10.0% 10 9.0% Sep: 7.8% 7.9% 8 7.1% 6.1% 6.3% 6 4 2 Average of 6 prior recessions 0 1960 1970 1980 1990 2000 2010 2020 Source: Oxford Economics/Haver Analytics 7 The low hanging fruits have been picked 8 The importance of fiscal aid 9 Rebound in consumer spending driven by low income earners US: Consumer credit and debit card spending % difference from January 2020 5 0 -5 -10 -15 -20 Low Income -25 Middle Income -30 High income -35 -40 13-Jan-20 20-Feb-20 31-Mar-20 08-May-20 17-Jun-20 27-Jul-20 Source: Oxford Economics/Opportunity Insights/Haver Analytics 10 The importance of fiscal aid 11 Savings provides temporary buffer, but it’s falling fast 12 US Recovery Tracker falls in final week of September US: Recovery Tracker Financial Mobility (January 31st = 100) Production 100 Employment Demand Health Recovery Tracker 80 60 40 20 0 01/31 02/28 03/27 04/24 05/22 06/19 07/17 08/14 09/11 Sources: Oxford Economics Most regions lost ground in mid-September US: State Recovery Tracker, by region %; 2/29=100 120 Northeast South Midwest Southwest & Mountains 100 Pacific 80 60 40 20 0 2/29 3/21 4/11 5/2 5/23 6/13 7/4 7/25 8/15 9/5 9/26 Note: Weighted by states' contribution to regional GDP Source: Oxford Economics/Haver Analytics A two-phased recovery 15 Rates held near zero until 2024… 16 Questions: Use the question panel on the right US Election: What do political models show? 17 Economic Election Models: Electoral college vote 18 Uncertainty across key states on election night 19 Trump vs Biden: a slower post-Covid recovery Multiple risks around the baseline ❑ The pace of the recovery has slowed markedly. We see the economy contracting 3.5% in 2020 but expect a relatively soft GDP 3.7% rebound in 2021. ❑ The economy has regained two thirds of the output lost in March and April, but many risks on the horizon: fiscal stimulus expiring, flu season approaching and election uncertainty rising ❑ The jobs rebound has been strong, but employment remains 10.7mn below pre-Covid levels. September gain was only 661k vs 1.4mn in August & the unemployment rate of 7.9% is still close to previous recession peaks. ❑ The pre-election uncertainty surrounding a fiscal stimulus package could represent a watershed moment for the US economy as fiscal stimulus is expiring and employment is slowing. The absence of additional fiscal aid would constrain GDP by 1.5% over the next year. ❑ Our Biden-lite scenario sees real GDP growth at 5.7% in 2021. This compares with 3.7% in our “status quo” policy baseline and 2.3% under a Trump sweep (presidency + Congress) scenario. ❑ Fed Chair Powell stressed the importance of conditional dovish forward guidance. The Fed will keep interest rates at the ELB until the economy is assessed to be at full employment and inflation has risen to 2% and is on track to moderately exceed 2% for some time. 21 Global headquarters Europe, Middle East Americas Asia Pacific Oxford Economics Ltd and Africa Abbey House Oxford New York Singapore 121 St Aldates London Philadelphia Hong Kong Oxford OX1 1HB Belfast Boston Tokyo UK Frankfurt Chicago Sydney Tel: +44 (0)20 185 268 900 Paris Los Angeles Melbourne Millan Toronto London Stockholm Mexico City 4 Millbank Cape Town London SW1P 3JA Dubai UK Tel: +44 (0)20 3910 8000 New York Frankfurt: 5 Hanover Square (8th floor) Marienstr. 15, 60329 Frankfurt am Main, Germany New York NY 10004 Tel: +49 69 96 758 658 USA Tel: +1 646 503 3050 Email: [email protected] Singapore: 6 Battery Road Website: # 38-05 www.oxfordeconomics.com Singapore 049909 Tel: +65 6850 0110 22 Questions: Use the question panel on the right Sales What does the recovery look like? Augusto Amorim, Sr. Manager, Americas Vehicle Sales Forecasts Global Light Vehicle Outlook Briefing, Detroit October 15, 2020 © 2020 LMC Automotive Limited, All Rights Reserved. US 2020 sales are forecast to total 13.4 mn Light Vehicles US Monthly Sales ▪ Sales grew just in 1,800 18 February 1,600 16 Millions and Thousands 1,400 14 September 1,200 12 ▪ September 1,000 10 SAAR was 800 8 at 97% of 600 6 February rate 400 4 200 2 ▪ Sales YTD 0 0 are down by Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 19% YoY, Retail Fleet SAAR losing 2.4 mn units Source: LMC Automotive © 2020 LMC Automotive Limited, All Rights Reserved. 2 Cars and MPVs are off by 33% YoY through September Body Style Market Share ▪ Large Pickup was 100% the US market 80% leader in April 60% ▪ Cars are about 3 pp 40% down from Jan-Feb 20% ▪ SUVs 0% reached a Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec record high SUV Pickup Car MPV Van Sporty 53.5% share in June Source: LMC Automotive © 2020 LMC Automotive Limited, All Rights Reserved. 3 Premium sales have fluctuated more during the pandemic ▪ Pickups Status Market Share gave Non- 100% Premium an 89% share 80% of US sales in April 60% ▪ Premium reached a 40% 14.5% share in June 20% ▪ Lease extensions are now 0% hurting Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Premium Non-Premium Premium Super-Premium sales Source: LMC Automotive © 2020 LMC Automotive Limited, All Rights Reserved. 4 Prices keep breaking records and reached USD36,000 Average Transaction Prices in the US ▪ ATP has been above $37,000 USD35,000 $36,000 since June ▪ SUVs, $35,000 Large $34,000 Pickups and Premium $33,000 bring prices up $32,000 ▪ Incentives $31,000 were below Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec USD4,000 2019 2020 in September Source: J.D. Power © 2020 LMC Automotive Limited, All Rights Reserved. 5 An 8% recovery is expected for next year, to 15.4 mn units US Annual Sales 18 Millions -1.4% 17 1.6% 2.7% 4.9% 16 7.8% 15 17.0 -15.7% 16.6 16.9 14 16.2 15.4 13 14.3 12 2019 2020 2021 2022 2023 2024 Source: LMC Automotive © 2020 LMC Automotive Limited, All Rights Reserved. 6 Pickups are projected to outsell Cars in the US next year Body Style Market Share 100% 18.7% 17.5% 17.0% 16.2% 80% 25.1% 20.9% 19.4% 19.6% 19.5% 19.8% 19.9% 60% 17.9% 40% 55.6% 55.6% 56.3% 48.8% 51.7% 53.9% 20% 0% 2019 2020 2021 2022 2023 2024 SUV Pickup Car MPV Van Sporty Source: LMC Automotive © 2020 LMC Automotive Limited, All Rights Reserved. 7 Vehicle activity will likely help Premium to recover faster Status Market Share in the US 100% 13.2% 13.2% 14.2% 14.4% 14.7% 14.9% 80% 86.6% 86.6% 85.6% 85.4% 85.0% 84.8% 60% 2019 2020 2021 2022 2023 2024 Non-Premium Premium Super-Premium Source: LMC Automotive © 2020 LMC Automotive Limited, All Rights Reserved. 8 A rapid upturn could bring sales back to 17 mn in 2021 US Annual Sales 20 Millions 18 16 14 12 10 2019 2020 2021 2022 2023 2024 Base Premature easing Second wave Financial crisis Rapid upturn Source: LMC Automotive/Oxford Economics © 2020 LMC Automotive Limited, All Rights Reserved. 9 Brazil is forecast to have the strongest recovery in 2021 3 2 -3% 6% -8% 2 -20% 11% 9% 13% Millions Millions 1 -27% 1 1.9 1.3 1.6 1.7 1.8 1.0 1.0 1.2 0 0 2019 2020 2021 2022 2019 2020 2021 2022 600 3 8% 26% 8% -43% -26% 400 13% 11% 2 -31% Millions 2.7 2.5 2.7 1 2.0 Thousands 200 438 302 341 378 0 0 2019 2020 2021 2022 2019 2020 2021 2022 Source: LMC Automotive © 2020 LMC Automotive Limited, All Rights Reserved.