TRANSFORMING THE WAY THE WORLD BUYS, SELLS 2018 MIDAND-YEAR OWNS CARS REVIEW June 27 // DETROIT Wireless Username: Madison Password: Bro@dw@y# 1 2018 MID-YEAR REVIEW June 27 // DETROIT 2018 MID-YEAR REVIEW June 27 // DETROIT Welcome! Wireless Username: Madison Password: Bro@dw@y# 2 Chintan Talati COX AUTOMOTIVE Senior Director, Cox Automotive PUBLIC RELATIONS Mark Schirmer Senior Manager, Cox Automotive Dara Hailes Manager, Cox Automotive Andrew Nicolai Director, Media Solutions Lois Rossi Senior Director, Inventory Solutions Julie Shipp Manager, Inventory Solutions 3 Mark O’Neil Chief Operating Officer Jessica Stafford General Manager, Autotrader Isabelle Helms VP Research and Market Intelligence Drew Heckman Chief of Strategy, Flexdrive Charlie Chesbrough Senior Economist Rebecca Lindland Executive Analyst, Kelley Blue Book Michelle Krebs Executive Analyst, Autotrader Zohaim Rahim COX AUTOMOTIVE Manager, Research LEADERSHIP 4 SCHEDULE OF EVENTS 2:00 p.m. State of the Industry The Economy – Charlie Chesbrough The CUV Tsunami – Zohaim Rahim The Scores at Halftime – Michelle Krebs Then and Now – Michelle Krebs Q&A 3:00 p.m. Break 3:15 p.m. The State of Change Predictions – Mark O’Neil Accelerate – Jessica Stafford Evolution of Mobility – Isabelle Helms Subscription Landscape – Drew Heckman Q&A – Rebecca Lindland 4:30 p.m. End 5 THE ECONOMY Charlie Chesbrough | Senior Economist 6 BUYING CONDITIONS ARE FAVORABLE U.S. ECONOMIC OUTLOOK Consumer and business confidence high Stock market high, corporate profits strong Wages and employment improving Elevated incentives supporting demand Lots of new products/innovations Housing prices have recovered OVER 56 MILLION VEHICLES WILL BE SOLD IN 2018 7 BUYING CONDITIONS ARE CHANGING U.S. ECONOMIC OUTLOOK Tighter monetary policy impacting economy Buyers, dealers, OEMs, suppliers – costs rising Oil price increase limiting tax reform gains Margins weaker as incentives/inventory costs rise Late stage in cycle – market fatigue Inflation offsetting already slow VEHICLE DEMAND ROBUST, wage growth BUT RISKS ELEVATED 8 LABOR MARKET STRONG BUT NOT WAGES - YET UNEMPLOYMENT RATE HOURLY WAGE GROWTH 12 5.0% 4.5% 10 4.0% 3.5% 8 3.0% 6 2.5% 2.0% 4 1.5% 1.0% 2 0.5% 0 0.0% 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 1988 1993 1998 2003 2008 2013 2018 Source: Department of Labor 9 GLOBAL TOWN HALL SALES VULNERABLE TO INTEREST RATE INCREASES US AVERAGE AMOUNT FINANCED (NEW VEHICLE) AUTO LOAN AVAILABILITY (NET PERCENTAGE YES) $31,000 30 25 $30,000 20 $29,000 15 $28,000 10 5 $27,000 0 $26,000 -5 -10 $25,000 -15 $24,000 -20 2011 2012 2013 2014 2015 2016 2017 2018 2011 2012 2013 2014 2015 2016 2017 2018 Stronger Demand for Auto Loans Tighter Standards for Auto Loans Source: Federal Reserve, Federal Reserve Loan Officer Survey, 4 quarter average 10 GLOBAL TOWN HALL JUNE SAAR EXPECTED TO RISE SLIGHTLY FROM MAY 22 20 18 16 14 12 10 8 6 4 2 0 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Total Ca r Light Truck Source: Cox Automotive/Bureau of Economic Analysis 11 GLOBAL TOWN HALL REVENUE GROWTH DECLINING BUT STILL POSITIVE TOTAL REVENUE (SALES X TRANSACTION PRICE) SHARE OF MSRP REVENUE GROWTH (ANNUAL CHANGE) $650,000,000,000 94.4% 12% 94.2% 10% $600,000,000,000 94.0% 8% $550,000,000,000 93.8% 6% $500,000,000,000 93.6% 4% $450,000,000,000 93.4% 2% $400,000,000,000 93.2% 0% Ja n - 13 Ja n - 14 Ja n - 15 Ja n - 16 Ja n - 17 Ja n - 18 Ja n - 14 Ja n - 15 Ja n - 16 Ja n - 17 Ja n - 18 Total Revenue Share ofMSRP Source: Cox Automotive Estimates, 12 month average 12 GLOBAL TOWN HALL SINCE THE RECORD NEW- VEHICLE SALES YEAR IN 2016 Gasoline price up 40% or $60/month (18 mpg/15k) Cost of $30,000/5-year loan up $500 or $9/month Amount borrowed now at $30,500, up $1,871 or 7% 30-year mortgage up from 3.65% to 4.40% $130/month (300k) Personal savings rate now at 2.8%, down from 4.9% CONSUMER FINANCES ARE CHANGING 13 THREAT TO NEW-VEHICLE VOLUME WILL INCREASE Affordability becoming more difficult Used-vehicle market providing a “value” alternative Off-lease vehicles don’t reach peak volume until 2019 HEADWINDS BLOWING CONSUMERS TOWARDS USED VEHICLES 14 RISING LEASE PAYMENTS IMPACTING CHOICES MONTHLY PAYMENT PAYMENT DIFFERENCES $600 $160 $140 $550 $120 $500 $100 $80 $450 $60 $400 $40 $350 $20 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 Ne w Lea se Lease vs. Used Ne w Loa n Ne w Loa n vs . Le ase Us ed Loan Ne w Loa n vs . Us ed Source: Cox Automotive/Dealertrack 15 GLOBAL TOWN HALL SHARE OF MARKET BELOW $30,000 DECLINING RAPIDLY TRANSACTION PRICE MARKET SHARE (2012-2018) 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% <= $20,000 $20 - $30K $30 -$40K $40 -$50K $50 -$60K $60 - $100K+ 2012 2013 2014 2015 2016 2017 2018 Source: Cox Automotive/Kelley Blue Book 16 GLOBAL TOWN HALL HEADWINDS LEAD TO MODEST DECLINE IN 2018 LIGHT VEHICLE SALES OUTLOOK (MILLIONS) 16.8 18 17 16 15 14 13 12 11 10 9 8 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2018 2019 2020 COX AUTOMOTIVE FULL-YEAR FORECASTS 16.8 16.4 16.5 (Up 100K from earlier forecast) Source: Cox Automotive, June 2018 17 GLOBAL TOWN HALL THE CUV TSUNAMI Zohaib Rahim | Manager Economic & Industry Insights 18 USED SALES CONTINUE TO TREND HIGHER USED-VEHICLE REGISTRATIONS (ANNUALIZED VOLUME) 40 , 00 0, 00 0 39 , 00 0, 00 0 38 , 00 0, 00 0 Used-Vehicle Market 37 , 00 0, 00 0 (MILLIONS) 2016 38.6 36 , 00 0, 00 0 2017 39.4 35 , 00 0, 00 0 2018 39.5 (F) 2019 39.5 (F) 34 , 00 0, 00 0 2020 39.2 (F) 33 , 00 0, 00 0 1/ 1 /2 013 7/ 1 /2 013 1/ 1 /2 014 7/ 1 /2 014 1/ 1 /2 015 7/ 1 /2 015 1/ 1 /2 016 7/ 1 /2 016 1/ 1 /2 017 7/ 1 /2 017 1/ 1 /2 018 Source: IHS & Cox Automotive Estimates 19 GLOBAL TOWN HALL OFF-LEASE VOLUME REACHING PEAK ESTIMATED OFF-LEASE MATURITIES (ANNUAL VOLUME, MILLIONS) 4.5 4.1 4.0 3.9 3.9 3.7 3.6 3.5 3.5 3.1 3.0 2.5 2.5 2.2 2.0 2014 2015 2016 2017 2018 2019 2020 2021 2022 Source: IHS & Cox Automotive Estimates 20 GLOBAL TOWN HALL SHIFTING CONSUMER PREFERENCES BY TYPE NEW-VEHICLE SALES BY CATEGORY WHOLESALE-VEHICLE SALES BY CATEGORY (ANNUAL AVERAGE) CAR PICKUP SUV VAN CAR PICKUP SUV VAN 60 % 60 % 50 % 50 % 51% 47% 40 % 40 % 33% 32% 30 % 30 % 20 % 20 % 16% 10 % 10 % 11% 5% 6% 0% 0% 20 09 20 10 20 11 20 12 20 13 20 14 20 15 20 16 20 17 20 18 20 09 20 10 20 11 20 12 20 13 20 14 20 15 20 16 20 17 20 18 Source: Motor Intelligence & Manheim Data 21 GLOBAL TOWN HALL OFF-LEASE MIX CHANGING TO FEWER CARS AND MORE CUVs SEGMENT SHARE SEGMENT SHARE GROWTH 5 CAR SUV PICKUP VAN 20 17 20 18 20 19 20 20 60 . 0% 4 3 50 . 0% 2 40 . 0% 1 0 30 . 0% -1 20 . 0% -2 -3 10 . 0% -4 0. 0 % -5 20 16 20 17 20 18 20 19 20 20 CAR SUV PICKUP VAN Source: IHS & Cox Automotive Estimates 22 GLOBAL TOWN HALL WHOLESALE PRICES UP SECOND CONSECUTIVE MONTH MANHEIM USED VEHICLE VALUE INDEX 14 0 13 5 134.2 13 0 12 5 12 0 11 5 11 0 10 5 10 0 95 90 Ja n -9 5 Ja n -9 8 Ja n -0 1 Ja n -0 4 Ja n -0 7 Ja n -1 0 Ja n -1 3 Ja n -1 6 Source: Manheim 23 GLOBAL TOWN HALL PRICE PERFORMANCE VARIED BY SEGMENT MANHEIM USED VEHICLE VALUE INDEX – Y/Y CHANGE 30 % 1 year 2 years 3years 4 years 25 % 20 % 15 % 10.2% 10 % 5.7% 5% 4.9% 4.0% 5.0% 2.0% 0.2% 0% -5% -10% Industry Co mpactcars Mi d si ze ca r s Luxurycars Pickups SUV/CUV Vans Source: Manheim 24 GLOBAL TOWN HALL NEW- AND USED-VEHICLE PRICING NEW-VEHICLE AVERAGE TRANSACTION PRICE WHOLESALE/USED-VEHICLE PRICE $3 5, 00 0 Ba se MMR Es ti ma ted R et ail $31,615 $3 5, 00 0 $3 0, 00 0 $28,144 $27,768 $3 0, 00 0 $2 5, 00 0 $2 5, 00 0 $2 0, 00 0 $19,400 $2 0, 00 0 $17,950 $16,250 $15,950 $15,050 $1 5, 00 0 $1 5, 00 0 $13,200 $1 0, 00 0 $1 0, 00 0 $5 , 000 $5 , 000 $0 $0 201 5 H ond a C R-V E X (F WD) 201 5 Nis san Rog ue S (FWD) 201 5 T oyot a RA V4 LE Honda CR-V N issan Rogue To yota RAV 4 (FWD) Source: Kelley Blue Book & Manheim 25 GLOBAL TOWN HALL THE SCORES @ HALFTIME Michelle Krebs | Executive Analyst, Autotrader 26 THE STRONG GROW STRONGER SEGMENT & SHARE LOSS / GAIN KEY TAKEAWAY Compact SUV/Crossover 18.19% 2.43 Subcompact SUV/Crossover 3.49% .83 Car share continues slide, led by Mid-size SUV/Crossover 14.77% .83 midsize and compact car Mid-size Pickup Truck 3.00% .45 segments.