Wholesale Market Insights Through June 2019 J o n a t h a n S m o - - PowerPoint PPT Presentation

Wholesale Market Insights

Through June 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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Spring Bounce Fading

Source: Manheim/Cox Automotive

140.5 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

January 1995 = 100

Prices in June increased 0.61% versus May 2019 and were up 4.1% compared to June 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

4.1%

• 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 stay above the 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 Feb-12 Feb-13 Feb-14 Feb-15 Feb-16 Feb-17 Feb-18 Feb-19 Manheim Non-Adjusted Price (LHS) Average new vehicle transaction price per KBB (RHS)

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2019 Weekly Price Trend Looking Like Last Two Years

Much higher than normal depreciation for start of year, then strong spring bounce, and now low appreciation

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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Weekly Price Trend Up in Non-Luxury

Despite weak start of the year, prices remain above January levels and trending higher

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 Now Seeing Improving Trend

Luxury vehicles saw steep depreciation in first quarter, then stabilization, and now appreciation

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 Stable on One-Year-Old Vehicles

One-year-old vehicle prices have been very stable with little to no depreciation

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 Holding Up Relative to Last Year

Adjusting for MSRP and fixing the basket of vehicles by what was sold remain 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 16 Billions

Amount of Refunds (Cumulative)

2014 2015 2016 2017 2018 2019

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Percent Change in Wholesale Prices for Major Market Segments

All major segments saw year-over-year gains in June

Source: Manheim/Cox Automotive

4.1% 0.4% 4.8% 4.1% 5.3% 2.5% 1.2% 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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Spring Bounce Stronger In Non-Luxury

Source: Manheim/Cox Automotive

Luxury prices in June were up 2.5% compared to June 2018, while non-luxury prices increased 4.2%

115.8 138.5

80 90 100 110 120 130 140 Jan-00 Jan-03 Jan-06 Jan-09 Jan-12 Jan-15 Jan-18

Luxury Non-Luxury

January 2000 = 100

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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 30% 17% 48% 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 June up 4% y/y and down 0.2% 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 June was up 9% compared to a year ago and up 3% m/m

Source: Manheim/Cox Automotive

46,621

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 Q2 2018 Q2 2019 Q2

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

2,624 3,023 3,337

Share accounted for top 10 YMMB

16.0% 13.5% 12.0%

Share accounted for top 25 YMMB

29.6% 22.9% 22.3%

Number of YMMB to reach 50% share

70 109 106

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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 2019 Q2 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 2019 Q2 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

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0% 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 2019 Q2 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 June at Manheim saw mixed levels of low depreciation and appreciation in the last 30 days (June 3 – July 2) as sedans dominated and saw low depreciation to slight appreciation, and luxury vehicles again were not represented in top volume list. Prices year-over-year were also quite varied but generally lower than normal.

Rank Source(Rank) Category Subcategory Vehicle 2-Jul Past 30 Days Last Year Current Dep L12M Dep/Mo 1 All SUV SUV Midsize 2016 NISSAN ROGUE AWD 4D SUV 2.5L SV $14,450 $14,500 $16,150

• 0.3%
• 0.9%

2 All Compact Car Compact Car Premium 2017 HYUNDAI ELANTRA 4D SEDAN SE $10,700 $10,700 $10,500 0.0% 0.2% 3 All Midsize Car Midsize Car Premium 2016 NISSAN ALTIMA 4C 4D SEDAN S $10,650 $10,600 $10,900 0.5%

• 0.2%

4 All Compact Car Compact Car Premium 2016 HONDA CIVIC 4D SEDAN LX $11,750 $11,800 $12,050

• 0.4%
• 0.2%

5 All SUV SUV Midsize 2016 NISSAN ROGUE AWD 4D SUV 2.5L S $13,200 $13,200 $14,450 0.0%

• 0.7%

1 Dealer Dealer Pickup Pickup Lite Duty Fulls 2016 FORD F150 4WD V8 FFV CREW CAB 5.0L XLT $27,400 $27,500 $28,900

• 0.4%
• 0.4%

1 Lease Lease SUV SUV Midsize 2016 NISSAN ROGUE AWD 4D SUV 2.5L SV $14,500 $14,500 $16,150 0.0%

• 0.9%

1 Rental Rental Van Van Compact 2018 CHRYSLER PACIFICA MINIVAN TOURING L $21,700 $21,800 $24,600

• 0.5%
• 1.0%

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Used Vehicle Sales Plateau

Source: Cox Automotive estimates based on IHS Markit Registrations

39.4

25 28 31 34 37 40 43 46 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 USED VEHICLE SALES OUTLOOK (MILLIONS)

COX AUTOMOTIVE FULL-YEAR FORECASTS

2018

39.4

2019

39.2

2020*

39.0

COX AUTOMOTIVE USED RETAIL FORECASTS

2018

19.5

2019

19.8

2020*

20.0

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Q2 2019 Cox Automotive Dealer Sentiment Index

U.S. auto dealer sentiment in Q2 2019 remained similar to Q1, as the overall current market index remained in negative territory on the Cox Automotive Dealer Sentiment Index (CADSI). The index reading of 49 indicates that slightly more dealers feel that the current market is weak compared to the number who feel that the current market is strong. The slight increase from last quarter’s 48 was not statistically significant. Year-over-year, the current market index was down two points, which was also not statistically significant. Improvements in key drivers supported the slight upturn in the current market view. The customer traffic index and profit index both saw statistically significant gains from Q1. At the same time, the costs index saw a

• decline. Both the traffic and profit indexes are at their

highest readings ever, dating back to the start of the quarterly survey in Q2 2017. The cost index is at its lowest point. Based on the way dealers describe the market, used- vehicle sales saw gains in Q2 from Q1 but remained similar to last year. The index on used-vehicle inventory, however, fell and was noted as declining, which was a reversal from the growth trend last quarter. That trend draws into question whether strong used-vehicle sales can continue as inventories tighten. Expectations for the next quarter fell but remained in positive territory at 55. The decline was driven by a big drop in expectations by independent dealers. By contrast, expectations for the next 90 days was unchanged among franchise dealers. The top 5 factors holding back the business across all dealers remained the same in Q2 as Q1, but relative positions changed. Market Conditions remained in the top spot as the most cited negative factor. Competition remained in second place. Limited Inventory jumped up to number 3, moving ahead of Credit Availability for Consumers, now number 4, and Expenses, which dropped to fifth place.

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Growth of Off-Lease Has Reached Its Peak

Source: Cox Automotive

1.5 1.8 2.2 2.5 3.0 3.4 3.9 4.1 4.1 0.5 1 1.5 2 2.5 3 3.5 4 4.5 2012 2013 2014 2015 2016 2017 2018 2019F 2020F Millions of Vehicles

Estimated Off-Lease Maturities

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TARIFF ACTIONS & KEY DATES

Ratification of USMCA (ITC Report Delivered) Immigration Related Tariffs on Mexico Section 232 Tariff on Imported Autos and Parts (Action on EU and Japan Postponed to Nov. 18) China Trade Deal (March 1; TBD) EU Trade Deal Japan Trade Deal UK Trade Deal Post Brexit?

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Thank You

Jonathan Smoke & Zo Rahim

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