Transcript Economic Briefing May

Outlook for the
Auto Industry
University of Michigan * Auto Lunch Series
September 11, 2006
Auto Industry Leading Indicators
Ability To Buy
August ’05
August ‘06
Disposable Income
Green
Yellow
Household Debt
Green
Yellow
Yield Curve
Green
Red
Inflation
Green
Red
Composite
DC Strategy, Alliances & Business Development
Economic & Market Intelligence (S/E)
Green
Red
Real Disposable Income
Per Household
% Change
Year Over Year
8
6.6%
6
4
1.1%
July
2
0
-2
-4
- 4.2%
-6
-8
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Consumer Debt Payments
Installment, Mortgage & Auto Leases
% of Disposable
Personal Income
15.4%
15.5%
14.7%
June
15.0%
14.5%
14.0%
13.5%
13.0%
12.5%
12.0%
11.5%
11.0%
10.5%
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The Yield Curve
10 Yr Minus 1 Yr Treasuries
Percentage
Points
Oil
Shock
6
Oil
Shock
4
- 0.21%
Aug
2
0
-15
-12 -19
-13
-14
-11
-12
-2
-4
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'65
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'69
'73
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'81
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'89
'93
'97
'01
'05
U.S. Federal Funds Target
Percent
7.0
6.50
6.0
5.25
5.0
4.0
3.0
2.0
1.00
1.0
0.0
'00
'01
DC Strategy, Alliances & Business Development
Economic & Market Intelligence (S/E)
'02
'03
'04
'05
'06
'07
Consumer Prices
All Items, Not Seasonally Adjusted
% Change
Yr/Yr
18
16
14.8%
14
12
10
8
4.1%
July
6.3%
6
4
2
0
-2
-4
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Consumer Prices: Core Inflation
All Items Less Food & Energy, NSA
% Change
Yr/Yr
18
16
13.6%
14
12
10
8
5.6%
6
2.7%
July
4
2
0
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New Vehicle Consumer Prices
% Change
Year/Year
4.5%
3.5%
2.5%
1.5%
+ 0.4%
July
0.5%
-0.5%
-1.5%
-2.5%
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DC Strategy, Alliances & Business Development
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Monthly Data
Auto Industry Leading Indicators
Willingness to Buy
August ’05
August ‘06
Green
Yellow
Green
Green
Consumer Attitudes
2
0
1
5
1
0
Unemployment Claims
5
0
-5
-1
0
'9
1
'9
2
'9
3
'9
4
'9
5
'9
6
'9
7
'9
8
'9
9
'0
0
Workweek
Yellow
Green
Stock Market
Green
Green
Composite
Green
Green
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Consumer Attitudes
Average of U of M & Conference Board
Index
140
128.4
120
90.8
Aug
100
80
60
58.1
40
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Source: University of Michigan
& The Conference Board
Buying Conditions for Vehicles
During Next 12 Months
Index
165
170
164
160
Good
150
124
August
140
130
120
119
110
Bad
104
100
90
80
70
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Economic & Market Intelligence (S/E)
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Source: University of Michigan
Buying Conditions for Houses
During Next 12 Months
Index
200
Good
175
180
175
160
117
August
140
120
Bad
100
106
102
80
60
40
20
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Source: University of Michigan
Initial Unemployment Claims
4 Week Moving Average
Thousands
700
674
600
501
500
497
400
315
300
287
268
200
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Manufacturing Workweek
Includes Part-time & Overtime
Hours
43
41.3
August
42
41
40
40.0
39.7
39
38
37
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U. S. Productivity
% Change
Previous Quarter
SAAR
9.6
10
8
7.0
6.3
6
6.0
5.6
5.1
4.1
3.6
4
4.3
3.0
1.1
-0.5
Q1 '01
2.3
1.9
1.8
2
0
4.4
Q1 '02
-2
DC Strategy, Alliances & Business Development
Economic & Market Intelligence (S/E)
0.0
Q1 '03
-0.6
Q1 '04
1.6
0.2 0.4
Q1 '05
-0.1
Q1 '06
Stock Market
Dow Jones Industrial Average
Index
11,257
Aug
12,000
10,000
8,000
6,000
4,000
2,000
0
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U. S. Economic Growth
Quarterly SAAR Data
% change
8
7
7.5%
6.4%
6
5.6%
5
4
2.9%
3
2
1
0
-1 '00
'01
-2
DC Strategy, Alliances & Business Development
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'02
'03
'04
'05
'06
The Effect of Gas Prices
on Auto Sales
U. S. Auto Industry Sales
Light Vehicles, Million Units
Total Industry
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2004
2005
YTD
2006
17.3
17.4
17.2
Oil Prices
2005 Dollars
Per Barrel
Oil
Shock
Oil
Shock
100
$94
90
$ 73
August
80
70
60
Real
50
40
30
20
Nominal
10
0
'70
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'74
'76
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Economic & Market Intelligence (S/E)
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OPEC Spare Capacity
MMB/D
5
4
3
PIRA
Forecast
2
1
0
'99
'00
DC Strategy, Alliances & Business Development
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'01
'02
'03
'04
'05
'06
Major Output Risks
2006 Q2
Saudi Arabia: 9.3 MMB/D
Infrastructure Sabotage
Iraq: 1.9 MMB/D
Pipeline Sabotage
Political Instability
Venezuela: 2.6 MMB/D
Post-Referendum
Lack of Investment
Lingering Strike Effects
Iran: 3.9 MMB/D
Confrontation Over
Nuclear Weapons
Possible UN Sanctions
Notional
Spare Capacity
0.84 MMB/D
Nigeria: 2.3 MMB/D
Labor Tensions
Ethnic Tensions
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Russia: 9.3 MMB/D
Yukos Affair
Pipeline Sabotage
Chechnya
Weather
Accidents
Loading Delays
Oil Inventories
U.S. Excluding Strategic Reserve Units
Millions of
Barrels
400
350
300
250
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Oil Futures Speculation
Crude Oil, Light Sweet
Non-Commercial
Long Positions
# of Contracts
250,000
200,000
150,000
100,000
50,000
0
Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep
'02 '02 '02 '03 '03 '03 '04 '04 '04 '05 '05 '05 '06 '06 '06
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Current Oil Price Forecasts
West Texas Intermediate, $/bbl
Actual
2004 2005
PIRA
Forecast *
2006
2007
$ 70
$ 67
Global Insight
72
76
Macro Advisors
71
74
Energy Information Agency
69
69
$ 71
$ 72
Average
$ 41
$ 56
* July ’06
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Gasoline Prices
Average All Types
Cents Per Gallon
(2005 $)
350
$3.00
August
$3.06
300
250
200
Real
150
100
$1.13
Nominal
50
0
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Consumer Spending
Energy Goods & Services
% of
Disposable Income
9.0%
8.0%
7.0%
6.3%
July
6.0%
5.0%
4.0%
3.0%
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DC Strategy, Alliances & Business Development
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Cost Per Mile Driven
Cents
20
18
16
14
12
Trucks
10
8
Cars
6
4
2
DC Strategy, Alliances & Business Development
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5
'0
20
03
20
01
9
'9
19
97
19
95
3
'9
19
91
19
89
7
'8
19
85
19
83
1
'8
19
79
19
77
'7
5
0
Importance of Fuel Economy in
Vehicle Buying Decisions
Ranking
2001
2002
22nd
19th
2003
2004
13th
11th
2005*
2006
9th
4th
* Pre-Katrina/Rita
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U. S. Auto Industry
Car/Truck Mix
% Share of Light
Vehicle Industry
80%
70%
Cars
60%
50%
Trucks
40%
30%
20%
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U. S. Auto Industry
Car/Truck Mix
% Share of Light
Vehicle Industry
65
60
Trucks
55
50
Cars
45
40
35
Jan Apr
'04 '04
Jul
'04
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Oct Jan Apr Jul
'04 '05 '05 '05
Oct Jan Apr Jul
'05 '06 '06 '06
Oct
'06
U.S. Auto Industry
Market Share: Light Trucks
Share of Total Light
Vehicle Industry
25
Pickups
20
15
Full & Large SUVs
Minivans
10
Mid Size SUVs
Sports
Tourers
5
0
Jan
'04
Small & Compact SUVs
Apr
Jul
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Oct
Jan
'05
Apr
Jul
Oct
Jan
'06
Apr
July
Oct
Used Vehicle Prices & Gasoline
Compact Cars & Full Size SUVs
% Change
Yr/Yr
Cents per
Gallon
0.30
350
Compact Car
0.25
(left scale)
300
0.20
0.15
250
0.10
0.05
Gas Prices
200
(right scale)
0.00
-0.05
150
-0.10
Full Size SUVS
(left scale)
-0.15
Jan '02
DC Strategy, Alliances & Business Development
Economic & Market Intelligence (S/E)
100
Jan '03
Jan '04
Jan '05
Jan '06
U. S. Auto Industry
SUV On-Road / Off-Road Mix
% Share of SUV
80
70
Off-Road
60
50
On-Road
40
30
20
Jan Apr
'04 '04
Jul
'04
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Oct Jan Apr Jul
'04 '05 '05 '05
Oct Jan Apr Jul
'05 '06 '06 '06
Oct
'06
Light Vehicle Production
Industry, NAFTA
(in 000)
Q1
Q2
Q3
Q4
2005
2006
2007
3,965
4,130
3,990
4,138
4,102
3,983
3,731
3,473
3,701
3,919
3,468
3,826
Total
15,753
15,173
15,500
- 0.9% - 6.9% - 11.5%
- 2.9% +6.6% 10.3%
- 3.7%
+2.2%
% Change Yr/Yr
’06/’05
’07/’06
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+4.2%
- 3.4%
U. S. Auto Industry Sales
Stock and Days Supply
Stock
Days Supply
Chrysler Group
503
76
General Motors
969
72
Ford Motor Co.
662
75
DC Strategy, Alliances & Business Development
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U. S. Auto Industry Sales
Forecast Consensus
2006
2007
Outsiders
17.1
17.0
Blue Chip
17.1
16.8
DaimlerChrysler
17.3
17.0
Outsides include Global Insight, J.D. Power, CSM & Mike Lucky
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U.S. Auto Industry
Number of Vehicles per Year
Million Units
Oil
Shock
20
Oil
Shock
17.8
18
16.3
15.4
16
14
12
12.5
10
10.5
8
6
4
2
0
'60
'65
'70
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'75
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'10
Worldwide Vehicle Sales
Passenger Vehicles
2006
Total Worldwide Sales
57 M
ROW
22.8%
ROW
26.1%
NAFTA
33.7%
India
2.1%
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India
4.6%
NAFTA
30.8%
China
9.8%
China
6.8%
Japan
8.4%
2017
Total Worldwide Sales
71 M
W. Europe
26.2%
Japan
7.1%
W. Europe
21.6%
Segment Growth – 2006 - 2017
Volume, Thousands of Units
World
NAFTA W. Europe Japan
China
India
ROW
Small Car
4,400
302
-126
216
671
1,240
2,150
Compact Car
2,449
91
74
43
933
102
1,207
Standard Car
378
-193
-30
17
358
33
192
Luxury Car
570
58
26
22
278
11
176
Specialty Car
436
306
59
1
22
1
47
MPV
1,425
116
153
-167
400
322
602
Sports Tourer
1,004
514
172
27
64
114
114
SUV (On)
2,057
964
265
87
254
45
442
SUV (Off)
953
377
-9
53
110
158
264
1,140
371
1
4
114
99
551
14,812
2,906
585
303
3,151
2,124
5,744
Pick-up
TOTAL PV
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Segment Growth – 2006 - 2017
Percent of Total World PV Growth
NAFTA W. Europe Japan
China
India
ROW
Small Car
6.9
-2.9
4.9
14.0
28.2
48.9
Compact Car
3.7
3.0
1.8
38.1
4.2
49.3
Standard Car
-51.1
-7.9
4.5
94.9
8.7
50.8
Luxury Car
10.1
4.5
3.8
48.7
1.9
31.0
Specialty Car
70.2
13.6
0.2
5.0
0.2
10.7
8.1
10.7
-11.7
28.1
22.6
42.2
Sports Tourer
51.1
17.1
2.7
6.3
11.3
11.4
SUV (On)
46.9
12.9
4.2
12.3
2.2
21.5
SUV (Off)
39.5
-0.9
5.5
11.6
16.5
27.7
Pick-up
32.6
0.1
0.3
10.0
8.7
48.3
TOTAL PV
19.6
4.0
2.0
21.3
14.3
38.8
MPV
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Conclusions

Economic growth expectations for the second half of 2006 are for below trend at 2.5% due to a
combination of the downturn in the housing market, the volatility in the oil markets and high
commodity prices.

The Federal Reserve held the Fed Funds rate at 5.25% at its August meeting ending its
tightening bias. The meeting minutes from the FOMC indicate that more hikes might be needed
due to continuing concerns over consumer prices. The consensus remains for a hike to 5.5%
by the end of the year.

Consumer confidence lost ground overall in August, but showed some improvement toward the
end of the month as gas prices and inflation expectations fell. Home and vehicle buying
attitudes were at their lowest levels since 1990.

The end of the peak driving season and the lack of hurricane activity in the Gulf of Mexico have
brought gasoline prices down by over 30 cents per gallon. Most analysts expect the drop to be
limited; the hurricane season is only half over, strong world demand is still evident, and
geopolitical risks still remain.

Auto industry sales will likely continue to move towards more fuel efficient vehicles. The shifts
between segments will not be great, but consumers will shift within segments to more efficient
entries. Overall industry sales are likely to be flat to down this year (with risks on the down
side) and down modestly in 2007 as the economy slows and consumers feel the pinch of higher
debt service costs and falling housing prices, as well as continued expensive energy.
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