03 sean mc alinden - auto ind recovery in 2025

w w w . a u t o s t e e l . o r g

U.S. Auto Industry in Recovery and in

2025

Sean P. McAlinden, Ph.D.

Executive Vice President of Research, Chief Economist

Center for Automotive Research

Ann Arbor, MI [email protected]

May 18, 2011

Great Designs in Steel Seminar

Steel Market Development Institute

Livonia, Michigan

mailto:[email protected]




So What Is Next?


Motor Vehicle Sales

By Countries:

0

2

4

6

8

10

12

14

16

18

20

1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Mill

ion

s

Japan S. Korea Germany Canada China U.S.


Top 15 Global LV Markets 2020

Fra

nce

Sp

ain

Can

ad

a

Ko

rea

Ind

on

esia

Iran

Italy

UK

Germ

an

y

Ru

ssia

Bra

zil

Jap

an

Ind

ia

US

AC

hin

a

5

10

15

20

25

30

35

40

Top 15 = 97M (82%)

Source: J.D. Power Automotive Forecasting

Millions

Source: J.D. Power Automotive Forecasting


U.S. Sales and Production

(Will Vehicles Get Smaller?)


U.S. Auto Sales & Production Will Steadily

Improve with Economy

•GDP Growth is Moderate (Slow)

•Used Vehicle prices and age of fleet are high

•Credit is more available/stock market recovering

•Dollar is low against Yen and OK against Euro

•Bin Laden is gone Bye Bye

But . . .

•Unemployment rate and length is terrible

•House prices are still falling and will fall more . . .

•States/Cities cutting spending and employment

•Consumer confidence was improving, now falling . . .

•Gas prices spiking with food prices

•Higher commodity prices = higher auto prices

•Japan crisis might halt automaker production as parts run short


U.S. Light Vehicle Sales Percent Change

YTD Through April: 2011 vs. 2010

17.6

21.9

19.6

0 5 10 15 20 25

PassengerCars

Light Trucks

Total

Percentage Change

Source: Automotive News


Steady But Slow Improvement U.S. Light Vehicle Sales Monthly SAAR:

April 2010 Through April 2011

11,489

11,823

11,067

11,553

10,820

12,217

12,687

12,250

13,099

12,640

13,450

13,120

13,170

9,000

9,500

10,000

10,500

11,000

11,500

12,000

12,500

13,000

13,500

14,000

Un

it S

ale

s in

Th

ou

sa

nd

s

Source: Automotive News Data Center


Only 1.8% Growth in 1st Quarter

Need 3% GDP Growth To Have a Positive Sales Growth GDP Growth Rate and Sales Growth Rate, 1950-2010

-30

-20

-10

0

10

20

30

40

50

-4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10Sale

s G

row

th, %

GDP Growth, %

2010


Back to 9%

Need Unemployment Rate Below 6%

to Have Growth?

Light Vehicle Sales and Unemployment Rate, 1978-2010

8

9

10

11

12

13

14

15

16

17

18

3 4 5 6 7 8 9 10 11 12

Ligh

t V

ehic

le S

ales

, Mill

ion

s

Unemployment Rate, %

2010


U.S. Light Vehicle Age and

Scrappage Rate

8.6 8.8 8.8 8.9 8.9 9.0 9.1 9.4 9.5 9.7 9.8 10.0 10.2

6.8

5.9 5.8

6.7 6.4 6.2

5.5

4.8 4.3

5.0 5.2 5.7

6.1

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Average Age Scrappage Rate (%)

Source: R.L. Polk


Changes from Jan ’07:

CPI-New Vehicle and CPI-Used Vehicle

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

Jan

-07

Mar

-07

May

-07

Jul-

07

Sep

-07

No

v-07

Jan

-08

Mar

-08

May

-08

Jul-

08

Sep

-08

No

v-0

8

Jan

-09

Mar

-09

May

-09

Jul-

09

Sep

-09

No

v-0

9

Jan

-10

Mar

-10

May

-10

Jul-

10

Sep

-10

No

v-1

0

Jan

-11

New Vehicle ('97 = 100) Used Vehicle ('82-'84 = 100)

Source: BLS


CAR Sales Forecast

+ 17 M

+ 3.2 M

- 6.2 M

- 12.7 M

+ 1.6 M

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

U.S. Sales

(Millions) 13.0 14.8 14.9 15.4 15.5 15.6 15.6 15.5 15.4 15.2


U.S. Light Vehicle

CAR’s Sales and Production Forecast

16.1

13.2

10.4 11.6

13.0

14.8 14.9

10.5

8.5

5.6

7.6 8.5

9.3 9.8

0

2

4

6

8

10

12

14

16

18

2007 2008 2009 2010 2011 2012 2013

Sales Production

Source: CAR Research, IHS Global Insight


Another Spike Gasoline Prices (Nominal)

9/03$1.62

5/04$1.95

9/05$2.86

7/06$2.92

5/07$3.12

7/08$4.00

12/08$1.67

6/09$2.60

4/10$2.85

4/11$3.80

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

$5.00

Source: Energy Information Administration, USDOE, 6/8/09

Pri

ce P

er

Ga

llo

n

*Regular Conventional Gasoline

All Price Nominal


Segment Breakdown - U.S. LV Sales Percent Change

April 2011 vs. April 2010

Source: Ward’s Automotive Reports

34.9

18.6

-22.3

17.3

20.7

16.7

3.5

6.5

17.7

-30.0 -20.0 -10.0 0.0 10.0 20.0 30.0 40.0

Small Car

Middle Car

Large Car

Luxury Car

CUV

SUV

Van

Pickup

Total

Percentage Change


April U.S. Light Vehicle Sales:

Market Share by Segment

Source: Ward’s Automotive Reports

20.6

21.7

2.4

7.2

24.2

6.3

5.8

11.8

0.0 5.0 10.0 15.0 20.0 25.0 30.0

Small Car

Middle Car

Large Car

Luxury Car

CUV

SUV

Van

Pickup

Market Share Current Month


Average Real Gasoline Price* and Detroit 3 U.S. Market Share

1970-2010

40

50

60

70

80

90

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

Pe

rce

nta

ge

Ma

rke

t S

ha

re

Months

Average Yearly Price per Gallon of Gas

Detroit 3 Yearly Market Share

Ga

s P

rice

pe

r G

allo

n

*Gas prices expressed in 2011 USD


Real Gasoline Price and D3 Market Share

Dependent Variable: D3MKT

Method: Least Squares

Sample (adjusted): 1986 2009

Included observations: 24 after adjustments

Coefficient Std. Error t-Statistic Prob.

C 96.46619 3.272152 29.48096 0.0000

GAS -17.58972 1.843779 -9.540034 0.0000

R-squared 0.805331 Mean dependent var 66.29250

Adjusted R-squared 0.796482 S.D. dependent var 9.107380

S.E. of regression 4.108607 Akaike info criterion 5.743700

Sum squared resid 371.3743 Schwarz criterion 5.841872

Log likelihood -66.92441 Hannan-Quinn criter. 5.769745

F-statistic 91.01225 Durbin-Watson stat 1.140955

Prob(F-statistic) 0.000000

• For every 10 cent

increase in real

gasoline price, Detroit

3 market share drops

by 1.7 percentage

point.


Small Car Segment Market Share & Real Regular Gasoline

Price: 1980-2010

25.1

26.8

24.6

23.1 22.4 22.4 22.6

24.3 24.2

22.4 22.3 23.0

21.0 20.0

17.3

15.5 14.9

14.0

12.6 13.0

15.2 15.1 14.7 14.1

13.6 14.2

15.3 15.8

19.0 19.6

17.8

3.33 3.34

2.87

2.67

2.49 2.39

1.78 1.77 1.69

1.76

1.90 1.78

1.71 1.63 1.60 1.61

1.69 1.65

1.39 1.51

1.90 1.77

1.65

1.87

2.16

2.56

2.82

2.98

3.33

2.41

2.81

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

198

0

198

1

198

2

198

3

198

4

198

5

198

6

198

7

198

8

198

9

199

0

199

1

199

2

199

3

199

4

199

5

199

6

199

7

199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

0

5

10

15

20

25

30

Market Share Price of Gas

Source: Ward’s Automotive, Energy Information Administration

Ma

rke

t Sh

are

P

rice

Pe

r G

allo

n


Small Cars Market Share

Results

Dependent Variable: MKT

Method: Least Squares

Sample (adjusted): 1980 2009

Included observations: 30 after adjustments

Convergence achieved after 15 iterations

MA Backcast: 1978 1979

Coefficient Std. Error t-Statistic Prob.

C 34.44039 4.007248 8.594524 0.0000

INCOME -0.000768 0.000142 -5.422039 0.0000

GAS 2.800797 0.804730 3.480420 0.0019

GDPR -0.242260 0.101095 -2.396354 0.0247

MA(1) 1.226285 0.029495 41.57645 0.0000

MA(2) 0.918106 0.023180 39.60775 0.0000

R-squared 0.945034 Mean dependent var 18.93667

Adjusted R-squared 0.933583 S.D. dependent var 4.407320

S.E. of regression 1.135833 Akaike info criterion 3.269466

Sum squared resid 30.96280 Schwarz criterion 3.549706

Log likelihood -43.04199 Hannan-Quinn criter. 3.359117

F-statistic 82.52692 Durbin-Watson stat 1.329571

Prob(F-statistic) 0.000000

Inverted MA Roots -.61+.74i -.61-.74i

Results:

One dollar increase in gasoline

price per gallon will increase small

car market share by 2.8%.

However, a one thousand dollars

increase in per capita personal

disposable income will offset the

small cars market share by 0.77%.

Therefore, if gasoline price

increases by one dollar, it takes

$3,646 increase on per capita

personal disposable income to

cancel out the effect on small cars

market share.


Materials

and

Fuel Economy


Material Trends

1. The current trend substituting for mild steel still has a way to go (e.g., aluminum doors and magnesium/ titanium/ composite components).

2. There is a threshold at which you can no longer continue to substitute lighter-mass materials due to structural performance (e.g., stiffness). (Other concerns arise with manufacturability, safety, repairability, recyclability and supply chain.)

3. Aggressive mass reduction will eventually require a significant architectural redesign to accommodate, for example:

– Aluminum (e.g., space frame structure)

– Magnesium & composites (major molded unibody components)


0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

1975 1980 1985 1990 1995 2000 2005 2010

Mas

s (%

of

Tota

l)

Year

Regular steel

High and medium strength steel

Stainless steel

Iron castings

Aluminum

Magnesium castings

Plastics and plastic composites

Ward’s Communications, Ward’s Motor Vehicle Facts and Figures, 2009, (and updates, 2010), Detroit, MI, 2009, p. 63

The average light vehicle in 2008 contained more than 2,000 pounds of steel, most of it

conventional steel. High and medium strength steel, however, made up more than 10% of the

vehicle. The use of aluminum grew from 1995 to 2008, while the use of iron castings declined.

Average Material Consumption for a Domestic Light Vehicle


Today’s Example of State-of-the-Art Honda Civic

HSS Usage Rate: 32% HSS Usage Rate: 50%

50%

9% 3%

38% 68% 2%

19%

11%

590

440

340

270

Grade 590

440

340

270

Grade

05M Civic

50% of body now high strength steel

590 MPa steel use

tripled

CONFIDENTIAL - DRAFT


$-

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

36 180 360 720

NAS Estimate

TAR Estimate

Mass reduction (pounds)

$1,500

Mass Reduction, in General, is not Free

10% reduction in mass 6% - 7% reduction in fuel consumption

More expensive materials, slower fabrication, joining/interface complexity

“Re-optimize” vehicle: 30% additional benefit in secondary mass reductions

w w w . a u t o s t e e l . o r g John German, ICCT, EIA Energy Conference, April 26, 2011


Primary Magnesium Production

0

100

200

300

400

500

600

700

800

900

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Tho

usa

nd

To

ns

U.S./Canada

China

Global

Source: International Magnesium Association

A 40% reduction in 2008 mass of 4,070 lbs. (net of

powertrain)

using 16% magnesium would require 2.2 million

tons for U.S. production of 10 million vehicles. But

world production only 800 thousand tons in 2007.


Material and Vehicle Price Indexes (Producer Price Index, 1998 = 100)

50

100

150

200

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Iron and steel mills

Aluminum sheet, plate and foilmanufacturing

Magnesium Ingot

Motor Vehicles

Source: Bureau of Labor Statistics, U.S. Geological Survey


Pathway Source of

Estimate Technology Description

Reduction in

Consumption

Improvement

2008 Total

Estimated

Incremental

RPE

Annual %

Cost

Reduction

(5 yr)

2025 Total

Incremental RPE

(5 year)

1) Spark Ignited NAS DCT, GDI, Turbo &

Downsize, 5% mass 29.0% $2,159 0.5% $2,105

2) SI Extended Mass NAS/CAR

(Above plus:) 15%

mass (10% addn.

mass) 37.5% $3,089 0.5% $3,012

3) SI Extended Stop/Start NAS/CAR (Above plus:) stop/start 40.0% $3,974 0.6% $3,855

4) Compression Ignited NAS CI, DCT, 5% mass 37.5% $5,905 0.5% $5,757

5) CI Extended Mass NAS/CAR (Above with 15% mass

(10% addn. mass) 46.0% $6,835 0.5% $6,664

6) Full Hybrid NAS Power Split, 5% Mass 43.9% $6,027 2.2% $5,364

7) Full Hybrid - Extended NAS/CAR (Above with 15% mass

(10% addn. mass) 52.4% $6,957 1.9% $6,296

8) Hybrid - Strong NAS/CAR Series PHEV 40, 15%

mass (2009) 2.5 (250%) $14,156 2.1% $12,670

9) Electric Vehicle CAR/EPA/

NAS

BEV 75, 10% mass,

27kwh ($300/kwh in

2025) 6 (600%) $10,584

Technology Pathways

(Intermediate, Mid-size Vehicle)


FE Technology Segmentation

Two important assumptions:

• Unknown impact from A/C credits (to lower CAFE requirements)

• BEV forecast by J.D. Power is 0.9% of market for 2020


Average Fuel Expenditures at Increasing MPG Levels:

Holding Annual Average VMT= 13,000

$4,550

$2,275

$1,517 $1,138

$910 $758

$650

$7,800

$3,900

$2,600

$1,950

$1,560

$1,300 $1,114

$0.00

$1,000.00

$2,000.00

$3,000.00

$4,000.00

$5,000.00

$6,000.00

$7,000.00

$8,000.00

$9,000.00

10 20 30 40 50 60 70

$3.50/gal. $6.00/gal.

Miles Per Gallon Source: CAR Research

An

nu

al Fu

el C

ost


Present Value of Fuel Savings from MPG Increases (Netted for

Electricity Cost) & Estimated Average Retail Price Increase to

Improve MPG

$3,385

$241 $230

-$591

$5,851

$551 $571

-$233

$3,744

$1,526 $1,443

$3,077

-$1,000

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

22.0-37.6 MPG 37.6 - 40.8 MPG 40.8 - 44.8 MPG 44.8 - 49.6 MPG

Savings Pgas=$3.50

Savings Pgas=$6.00

Estimated Retail Price Increase

Scenario I Scenario II Scenario III Scenario IV

Source: CAR Research, DOT NHTS 2009

Increases in MPG r=10% (discount rate);

Rebound rate=10%;

Fuel Savings valued over 5 years

VMT average years 1-5: Scenario (S) I=13,737; SII=13,923; SIII=14,157miles; SIV= 14,436


Effect on U.S. Vehicle Sales, Production and Automotive Employment of

Higher Retail and Net Vehicle Prices due to Higher Fuel Economy and Safety

Net Price Increase

Baseline -2.1% 1.3% 4.3% 15.7% 6.4% 10.9% 15.0% 27.7%

Net MV

Exp.(Billion $) 713 718 709 701 669 695 682 671 636

Total MV Exp.

(Billion $) 713 867 864 847 803 771 760 748 692

Gross Vehicle Price (2009$)

$28,966 $34,210 $35,736 $37,180 $40,256 $34,210 $35,736 $37,180 $40,256

Gross Vehicle Price (2025$)

$39,764 $46,963 $49,058 $51,040 $55,263 $46,963 $49,058 $51,040 $55,263

Net Vehicle Price (2025$)

$39,764 $38,932 $40,271 $41,469 $46,012 $42,316 $44,080 $45,747 $50,782

Light Vehicle

Sales (Million

Units)

17.9 18.5 17.6 16.9 14.5 16.4 15.5 14.7 12.5

Light Vehicle

Production

(Million Units)

10.8 11.1 10.6 10.1 8.7 9.9 9.3 8.8 7.5

Automotive

Employment 877,075 903,135 861,739 826,950 711,538 803,548 757,700 717,626 612,567

MPG/GAS Price 22.0/n.a. 37.6/$6.00 40.8/$6.00 44.8/$6.00 49.6/$6.00 37.6/$3.50 40.8/$3.50 44.8/$3.50 49.6/$3.50


Net Vehicle Price Change Percentages and Automotive

Manufacturing Employment

877,075 903,135

861,739 826,950

711,538

803,548 757,700

717,626

612,567

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

Baseline 37.6/$6.00 40.8/$6.00 44.8/$6.00 49.6/$6.00 37.6/$3.50 40.8/$3.50 44.8/$3.50 49.6/$3.50

Au

tom

oti

ve M

anu

f. Em

plo

ymen

t

MPG/Gasoline Price

4.3% 6.4%

10.9% 15.0%

Baseline

15.7%

1.3%

27.7%

-2.1%


Conclusions

• Sales/Production/Employment will increase as

economy slowly improve

• Vehicles fleet at record age – replacement

sales must happen

• Long run threat from extreme fuel economy mandates

• May shrink industry sale, production, and employment

03 sean mc alinden - auto ind recovery in 2025

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