Insights Through March 2019 J o n a t h a n S m o k e & Z o - - PowerPoint PPT Presentation

Wholesale Market Insights

Through March 2019

J o n a t h a n S m o k e & Z o R a h i m

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T R A N S F O R M I N G T H E W AY T H E W O R L D B U Y S , S E L L S & O W N S C A R S

Manheim Used Vehicle Value Index

All Manheim U.S. sales Classify by market segment Account for differences in mileage Weight to provide smoother segment mix Seasonally adjust

3 Steps:

A single measure of used vehicle price change that is independent of underlying segment shifts in the characteristics of vehicles being sold

Concept:

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Used Vehicle Values Rebound with Start of Spring Bounce

Source: Manheim/Cox Automotive

136.0

90 95 100 105 110 115 120 125 130 135 140 145 Jan-95 Jan-98 Jan-01 Jan-04 Jan-07 Jan-10 Jan-13 Jan-16 Jan-19

Prices in March increased 0.58% versus February 2019 and were up 4.0% compared to March 2018

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Used Vehicle Values Continue to Stay Above Average

Year-over-year price performance has been much stronger than average over the last 24 months

4.0%

• 15%
• 10%
• 5%

0% 5% 10% 15% 20% 25% Jan-96 Jan-99 Jan-02 Jan-05 Jan-08 Jan-11 Jan-14 Jan-17

Source: Manheim/Cox Automotive

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Manheim Index versus Mix & Quality Adjusted New Vehicle Price with 3 ½ year Lag

Used vehicle prices back closer to historical new vehicle price relationship trend

30% 35% 40% 45% 50% 55% 60% Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17 Jan-19

Source: Bureau of Labor Statistics, Manheim/Cox Automotive

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Wholesale Used Vehicle Prices vs. New Vehicle Prices

Source: Manheim/Cox Automotive

$25,000 $27,000 $29,000 $31,000 $33,000 $35,000 $37,000 $39,000 $9,500 $10,000 $10,500 $11,000 $11,500 $12,000 $12,500 $13,000 $13,500 $14,000 $14,500 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18 Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 Manheim Non-Adjusted Price (LHS) Average new vehicle transaction price per KBB (RHS)

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2019 Weekly Price Trend Started Weak But Now Moving Up

Much higher than normal depreciation for start of year led to lower prices but prices have since turned

Source: Manheim/Cox Automotive

80.0% 85.0% 90.0% 95.0% 100.0% 105.0% 110.0% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52

3-Year-Old Model MMR Index by Week

2014 2015 2016 2017 2018 2019

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Spring Bounce Most Pronounced in Non-Luxury

Much higher than normal depreciation for start of year but now also improving

Source: Manheim/Cox Automotive

80.0% 85.0% 90.0% 95.0% 100.0% 105.0% 110.0% 115.0% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52

Non-Luxury 3YO Model MMR Index by Week

2014 2015 2016 2017 2018 2019

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Luxury Seeing Far Less Bounce

Much higher than normal depreciation for start of year but now also improving

Source: Manheim/Cox Automotive

80.0% 85.0% 90.0% 95.0% 100.0% 105.0% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52

Luxury 3YO Model MMR Index by Week

2014 2015 2016 2017 2018 2019

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2019 Weekly Price Trend Less Severe On One-Year-Old Vehicles

One-year-old vehicles saw less pronounced depreciation with much lower volumes and now on up trend

Source: Manheim/Cox Automotive

80.0% 85.0% 90.0% 95.0% 100.0% 105.0% 110.0% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52

1-Year-Old Model MMR Index by Week

2014 2015 2016 2017 2018 2019

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Retention Values Trended Lower to Start the Year

Adjusting for MSRP and fixing the basket of vehicles by what was sold now just above last year

Source: Kelley Blue Book/Cox Automotive

(1 to 3 year old models)

45% 47% 49% 51% 53% 55% 57% 59% 61% 63% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec CY 2017 CY 2018 CY 2019

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Tax Refunds by Week in Recent Years

Source IRS

$0.0 $50.0 $100.0 $150.0 $200.0 $250.0 $300.0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Billions

Amount of Refunds (Cumulative)

2014 2015 2016 2017 2018 2019

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Percent Change in Wholesale Prices for Major Market Segments

Most major segments saw year-over-year gains in March

Source: Manheim/Cox Automotive

4.0% 1.8% 7.2% 2.0% 3.4% 2.2%

• 1.5%
• 5%

0% 5% 10% 15% 20% 25% 30% Industry Compact cars Midsize cars Luxury cars Pickups SUV/CUV Vans 1 year 2 years 3 years 4 years

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Shifting Consumer Preferences Not Reflected in Wholesale Market Volumes

The SUV reigns supreme in new vehicle sales while cars still dominated the used car market

Source: Manheim/Cox Automotive

48% 11% 36% 5% 0% 10% 20% 30% 40% 50% 60% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Manheim Sales by Category

CAR PICKUP SUV VAN 32% 16% 47% 5% 0% 10% 20% 30% 40% 50% 60% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

New Vehicle Sales by Category

CAR PICKUP SUV VAN

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Average Auction Price – Rental Risk Units

Average price for rental risk units sold in March down 1% y/y and up 2% m/m

Source: Manheim/Cox Automotive

13,000 13,500 14,000 14,500 15,000 15,500 16,000 16,500 17,000 1 2 3 4 5 6 7 8 9 10 11 12

2015 2016 2017 2018 2019

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Average Mileage – Rental Risk Units Sold at Auction

Average mileage for rental risk units in March was up 0.4% compared to a year ago and up 1% m/m

Source: Manheim/Cox Automotive

45,256 20,000 25,000 30,000 35,000 40,000 45,000 50,000 55,000 60,000 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17 Jan-19

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Distribution of Rental Risk Vehicles

Source: Manheim/Cox Automotive

2017 Q1 2018 Q1 2019 Q1

Number of unique year, make, model, body configurations sold

2,736 3,005 3,030

Share accounted for top 10 YMMB

13.4% 13.1% 11.7%

Share accounted for top 25 YMMB

25.1% 23.3% 22.0%

Number of YMMB to reach 50% share

82 108 114

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Rental Risk Units Sold by Condition

Source: Manheim/Cox Automotive

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2015 Q4 2016 Q1 2016 Q2 2016 Q3 2016 Q4 2017 Q1 2017 Q2 2017 Q3 2017 Q4 2018 Q1 2018 Q2 2018 Q3 2018 Q4 2019 Q1 0 - 1.9 2.0 - 2.9 3.0 - 3.9 4.0 - 4.9 5.0

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Rental Risk Units Sold by Make

Source: Manheim/Cox Automotive

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2015 Q4 2016 Q1 2016 Q2 2016 Q3 2016 Q4 2017 Q1 2017 Q2 2017 Q3 2017 Q4 2018 Q1 2018 Q2 2018 Q3 2018 Q4 2019 Q1 All other Mazda Kia Jeep VW Chrysler Hyundai Dodge Toyota Nissan Ford Chevrolet

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Rental Risk Units Sold by Segment

Source: Manheim/Cox Automotive

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2015 Q4 2016 Q1 2016 Q2 2016 Q3 2016 Q4 2017 Q1 2017 Q2 2017 Q3 2017 Q4 2018 Q1 2018 Q2 2018 Q3 2018 Q4 2019 Q1 Van SUV Sports Car Pickup Luxury Car Midsize Car Compact Car

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Manheim Market Report (MMR) Vehicle Insights

Source: Manheim/Cox Automotive

Top selling vehicles in March at Manheim saw mixed levels of depreciation in the last 30 days (March 2 – April 1) as non-luxury vehicles appreciated while luxury saw high depreciation rate. Prices year-over-year were more comparable but luxury remained the worst performer.

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Used Vehicle Sales Plateau

Source: Cox Automotive estimates based on IHS Markit Registrations

33 34 35 36 37 38 39 40 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18 Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 Millions

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Q1 2019 Cox Automotive Dealer Sentiment Index

Overall dealer sentiment rebounded this quarter according to the CADSI, but the current market index stayed in negative territory with a score of 48. The improvement from last quarter’s more negative score of 44 was statistically significant. Year-over-year, the current market index was down only one point. Expectations for the next quarter also rebounded, more than reversing decline in dealer optimism in Q4 of 2018.The increase in expectations was statistically significant from last quarter, but the expectations index remains significantly lower than year-ago levels, when

• ptimism was at an all-time high for the study.

Dealers cited the government shutdown, concerns about tax refunds and auto tariffs, and winter weather as all influencing their sentiment. Market conditions, consumer confidence, and interest rates are the key measurable differences relative to this time last year when peak optimism was based largely on expectations

• f strong demand fueled by tax reform.

“We’ve seen a turnaround in dealer sentiment and the

• utlook for the future this quarter compared to the

fourth quarter,” said Cox Automotive Chief Economist Jonathan Smoke. “However, gone is the euphoria we saw this time last year as views of new and used sales are lower.” The top 5 factors holding back the business across all dealers remained the same in Q1 2019 as Q4 2018, but relative positions changed. Market Conditions held the top spot as the most cited negative factor. Competition moved into second place, pushing Credit Availability for Consumers into third. Expenses moved into the fourth place as Limited Inventory slid to fifth.

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Growth of Off-Lease Is Decelerating and Nearing a Peak

Source: Cox Automotive

2.2 2.5 3.1 3.5 3.9 4.1 3.9 3.7 3.6 3.5

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Million Units

Estimated Lease Maturities

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TARIFF ACTIONS & KEY DATES

Ratification of USMCA (Report on April 19) Section 232 Tariff on Imported Autos and Parts (Details by May 18; 15 days to implement) China Trade Deal (March 1; TBD) EU Trade Deal Japan Trade Deal UK Trade Deal?

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Thank You

Jonathan Smoke & Zo Rahim

Economic Industry Insights jonathan.smoke@coxautoinc.com zohaib.rahim@coxautoinc.com @SmokeonCars @autosanalyst