Jonathan Smoke | Chief Economist, Cox Automotive

Market Update and Outlook

ECONOMIC CONTRACTION FROM IMPACT OF COVID-19

Source: United States Bureau of Economic Analysis

Real GDP declined 5.0% at an annualized rate in Q1 and 32.9% in Q2

2

1.72.93.93.8

2.72.11.32.91.52.6

-5.0

-32.9-35.0

-30.0

-25.0

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

2000

Q1

2000

Q3

2001

Q1

2001

Q3

2002

Q1

2002

Q3

2003

Q1

2003

Q3

2004

Q1

2004

Q3

2005

Q1

2005

Q3

2006

Q1

2006

Q3

2007

Q1

2007

Q3

2008

Q1

2008

Q3

2009

Q1

2009

Q3

2010

Q1

2010

Q3

2011

Q1

2011

Q3

2012

Q1

2012

Q3

2013

Q1

2013

Q3

2014

Q1

2014

Q3

2015

Q1

2015

Q3

2016

Q1

2016

Q3

2017

Q1

2017

Q3

2018

Q1

2018

Q3

2019

Q1

2019

Q3

2020

Q1

Real Gross Domestic Product (SAAR) % Growth by Quarter

Source: BLS

MAY STARTED THE JOBS RECOVERY; JULY PACE SLOWED

3

12.9 million net jobs lost since February; May, June, and July added 2.7, 4.8, and million respectively; U3 is 10.2%

0.0

5.0

10.0

15.0

20.0

25.0

Jan-

56Ja

n-57

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n-61

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n-69

Jan-

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n-81

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n-83

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n-87

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n-95

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Jan-

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n-01

Jan-

02Ja

n-03

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n-07

Jan-

08Ja

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n-19

Jan-

20

Unemployment RatesHeadline Unemployment % (U3) Underemployment Rate % (U6)

CONTINUING CLAIMS AT 15.5 MILLION NATIONALLY

Source: U.S. Department of Labor 4

CONSUMER SENTIMENT IMPROVING AGAIN IN AUGUST

Source: Morning Consult 5

Morning Consult’s Index of Consumer Sentiment now down 22.8% since end of February

114.23113.8

81.23

87.45

60

70

80

90

100

110

120

1/1/20

1/8/20

1/15/2

0

1/22/2

0

1/29/2

02/5

/20

2/12/2

0

2/19/2

0

2/26/2

03/4

/20

3/11/2

0

3/18/2

0

3/25/2

04/1

/204/8

/20

4/15/2

0

4/22/2

0

4/29/2

05/6

/20

5/13/2

0

5/20/2

0

5/27/2

06/3

/20

6/10/2

0

6/17/2

0

6/24/2

07/1

/207/8

/20

7/15/2

0

7/22/2

0

7/29/2

08/5

/20

8/12/2

0

ICS Value (7-Day Average)

Source: US Bureau of Economic Analysis Personal Income and Consumption

CRISIS PRODUCED DRAMATIC SWINGS IN INCOME AND SPENDING

6

Income declines again in June with stimulus payments ending; spending growth slowed

0.9% 0.9% 0.6%0.8% 0.7%0.0%

-1.8% -1.8%

-6.7%

12.1%

14.7%

-12.9%

-4.4%-5.1%

8.5%

-1.1% -1.4%

5.6%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

Income Disposable Income Spending

Monthly Changes in Income and Spending Jan-Jun 2020

Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20

Source: Equifax

DELINQUENCY RATES DECLINED AGAIN IN JULY BUT…

7

Accommodations are playing a role in preventing delinquency rate from moving higher

AUTO LOAN SEVERE DELINQUENCIES UNIT RATE

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

1.40%

1.60%

1.80%

2.00%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

2010

0120

1003

2010

0520

1007

2010

0920

1011

2011

0120

1103

2011

0520

1107

2011

0920

1111

2012

0120

1203

2012

0520

1207

2012

0920

1211

2013

0120

1303

2013

0520

1307

2013

0920

1311

2014

0120

1403

2014

0520

1407

2014

0920

1411

2015

0120

1503

2015

0520

1507

2015

0920

1511

2016

0120

1603

2016

0520

1607

2016

0920

1611

2017

0120

1703

2017

0520

1707

2017

0920

1711

2018

0120

1803

2018

0520

1807

2018

0920

1811

2019

0120

1903

2019

0520

1907

2019

0920

1911

2020

0120

2003

2020

0520

2007

Ove

rall

Seve

re D

elin

quen

cy R

ate

Subp

rime

Seve

re D

elin

qune

cy R

ate

Subprime 60+ Unit Rate All 60+ Unit Rate (RH Axis) 12 per. Mov. Avg. (Subprime 60+ Unit Rate) 12 per. Mov. Avg. (All 60+ Unit Rate (RH Axis))

Source: Federal Reserve

AUTO LOAN DEMAND DECLINES WITH FURTHER TIGHTENING AT BANKS

8

More banks tightened standards further in Q3; demand for auto loans from banks fell again

-60

-40

-20

0

20

40

60

80

Apr-1

1Ju

n-11

Aug-

11O

ct-1

1D

ec-1

1Fe

b-12

Apr-1

2Ju

n-12

Aug-

12O

ct-1

2D

ec-1

2Fe

b-13

Apr-1

3Ju

n-13

Aug-

13O

ct-1

3D

ec-1

3Fe

b-14

Apr-1

4Ju

n-14

Aug-

14O

ct-1

4D

ec-1

4Fe

b-15

Apr-1

5Ju

n-15

Aug-

15O

ct-1

5D

ec-1

5Fe

b-16

Apr-1

6Ju

n-16

Aug-

16O

ct-1

6D

ec-1

6Fe

b-17

Apr-1

7Ju

n-17

Aug-

17O

ct-1

7D

ec-1

7Fe

b-18

Apr-1

8Ju

n-18

Aug-

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ct-1

8D

ec-1

8Fe

b-19

Apr-1

9Ju

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Aug-

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9D

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9Fe

b-20

Apr-2

0Ju

n-20

Net Percentage of Domestic Banks Tightening Standards for Auto Loans Net Percentage of Domestic Banks Reporting Stronger Demand for Auto Loans

Source: New York Federal Reserve Consumer Credit Panel/Equifax

AUTO CREDIT DECLINING AND SHOWING SIGNS OF TIGHTENING

9

Auto lending contracted 12.7% y/y in Q2 with the most declines in subprime (-23% y/y)

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

$0.0

$20.0

$40.0

$60.0

$80.0

$100.0

$120.0

$140.0

$160.0

$180.0

04:Q

104

:Q2

04:Q

304

:Q4

05:Q

105

:Q2

05:Q

305

:Q4

06:Q

106

:Q2

06:Q

306

:Q4

07:Q

107

:Q2

07:Q

307

:Q4

08:Q

108

:Q2

08:Q

308

:Q4

09:Q

109

:Q2

09:Q

309

:Q4

10:Q

110

:Q2

10:Q

310

:Q4

11:Q

111

:Q2

11:Q

311

:Q4

12:Q

112

:Q2

12:Q

312

:Q4

13:Q

113

:Q2

13:Q

313

:Q4

14:Q

114

:Q2

14:Q

314

:Q4

15:Q

115

:Q2

15:Q

315

:Q4

16:Q

116

:Q2

16:Q

316

:Q4

17:Q

117

:Q2

17:Q

317

:Q4

18:Q

118

:Q2

18:Q

318

:Q4

19:Q

119

:Q2

19:Q

319

:Q4

20:Q

120

:Q2

Billio

ns

Auto Loan Origination $ by Credit Score<620 620-659 660-719 720-759 760+ <620%

Source: Bankrate.com, US Federal Reserve, Bloomberg; Dealertrack

MOST CONSUMER RATES MOVING HIGHER IN AUGUST

10

Subprime consumers no longer seeing better rates than February and up more than a point y/y

1.62

0.69

3.69

3.14

4.29

3.85

17.61

18.88

15.00

15.50

16.00

16.50

17.00

17.50

18.00

18.50

19.00

19.50

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20

% A

PR S

ubpr

ime

% A

PR

10-Year vs. Mortgage and New Auto Loan RatesUS 10 Year Treasury 30 Year Fixed Mortgage New Super Prime New Sub Prime (R ight Axis)

RETAIL SALES RECOVERY ESTIMATES

Source: Cox Automotive 11

-21.5%

-2.6%

-70.0%

-60.0%

-50.0%

-40.0%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

1/8/

2020

1/15

/202

0

1/22

/202

0

1/29

/202

0

2/5/

2020

2/12

/202

0

2/19

/202

0

2/26

/202

0

3/4/

2020

3/11

/202

0

3/18

/202

0

3/25

/202

0

4/1/

2020

4/8/

2020

4/15

/202

0

4/22

/202

0

4/29

/202

0

5/6/

2020

5/13

/202

0

5/20

/202

0

5/27

/202

0

6/3/

2020

6/10

/202

0

6/17

/202

0

6/24

/202

0

7/1/

2020

7/8/

2020

7/15

/202

0

7/22

/202

0

7/29

/202

0

8/5/

2020

8/12

/202

0

Y/Y % Change in 7-Day Moving Average of Retail Sales

New Used

NEW SALES HAMPERED BY SUPPLY

Source: Cox Automotive 12

2,000,000

2,200,000

2,400,000

2,600,000

2,800,000

3,000,000

3,200,000

3,400,000

3,600,000

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

Active New Vehicle Inventory by Week

2019 Active Inventory 2020 Active Inventory

Source: Kelley Blue Book and Autodata

INCENTIVES DECLINING AND DISCOUNTING FALLING

13

Incentives have fallen from near record high in April and discounting now at lowest point since 2016

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

$5,000

-800

-600

-400

-200

0

200

400

600

Jan-

12M

ar-1

2M

ay-1

2Ju

l-12

Sep

-12

Nov

-12

Jan-

13M

ar-1

3M

ay-1

3Ju

l-13

Sep

-13

Nov

-13

Jan-

14M

ar-1

4M

ay-1

4Ju

l-14

Sep

-14

Nov

-14

Jan-

15M

ar-1

5M

ay-1

5Ju

l-15

Sep

-15

Nov

-15

Jan-

16M

ar-1

6M

ay-1

6Ju

l-16

Sep

-16

Nov

-16

Jan-

17M

ar-1

7M

ay-1

7Ju

l-17

Sep

-17

Nov

-17

Jan-

18M

ar-1

8M

ay-1

8Ju

l-18

Sep

-18

Nov

-18

Jan-

19M

ar-1

9M

ay-1

9Ju

l-19

Sep

-19

Nov

-19

Jan-

20M

ar-2

0M

ay-2

0Ju

l-20

Aver

age

Ince

ntiv

es

$ Sp

read

of A

TP O

ver I

nvoi

ce

Spread Over Invoice and Incentives3mo Ave ATP Spread Average Incentives

NEW VEHICLE MARKET SHARE YTD 2020 – TOP BRANDS BY SHARE GAIN/LOSS

Source: Cox Automotive/KBB 14

Through July 2020

0.02

0.05

0.06

0.06

0.08

0.09

0.11

0.12

0.20

0.28

0.29

0.33

0.35

0.41

0.47

0.00 0.10 0.20 0.30 0.40 0.50

Ford

Subaru

Volkswagen

Lexus

Volvo

Mercedes-Benz

GMC

Lincoln

Jeep

Ram

Tesla

Hyundai

Mazda

Chevrolet

Kia

0.00

0.00

-0.01

-0.02

-0.03

-0.03

-0.05

-0.07

-0.09

-0.10

-0.12

-0.13

-0.17

-0.59

-1.56

-2.20 -1.70 -1.20 -0.70 -0.20 0.30

Honda

Genesis

Jaguar

Fiat

Audi

MINI

Toyota

Cadillac

Chrysler

Infiniti

Mitsubishi

Buick

BMW

Dodge

Nissan

USED INVENTORY DOWN

Source: Cox Automotive 15

0.0 Days

20.0 Days

40.0 Days

60.0 Days

80.0 Days

100.0 Days

120.0 Days

140.0 Days

160.0 Days

02/0

1/20

02/0

5/20

02/0

9/20

02/1

3/20

02/1

7/20

02/2

1/20

02/2

5/20

02/2

9/20

03/0

4/20

03/0

8/20

03/1

2/20

03/1

6/20

03/2

0/20

03/2

4/20

03/2

8/20

04/0

1/20

04/0

5/20

04/0

9/20

04/1

3/20

04/1

7/20

04/2

1/20

04/2

5/20

04/2

9/20

05/0

3/20

05/0

7/20

05/1

1/20

05/1

5/20

05/1

9/20

05/2

3/20

05/2

7/20

05/3

1/20

06/0

4/20

06/0

8/20

06/1

2/20

06/1

6/20

06/2

0/20

06/2

4/20

06/2

8/20

07/0

2/20

07/0

6/20

07/1

0/20

07/1

4/20

07/1

8/20

07/2

2/20

07/2

6/20

07/3

0/20

08/0

3/20

08/0

7/20

Inve

ntor

y Da

ys' S

uppl

y

Days Supply Wholesale Inventory and Retail Inventory

Rolling 7 Day Supply Retail Rolling 7 day Supply Wholesale

Source: Manheim

USED VEHICLE VALUES SET NEW RECORD FOR SECOND STRAIGHT MONTH

16

Prices in July increased 5.84% from June 2020 and were up 12.5% compared to June 2019

158.0

90

95

100

105

110

115

120

125

130

135

140

145

150

155

160

165

Jan-95 Jan-98 Jan-01 Jan-04 Jan-07 Jan-10 Jan-13 Jan-16 Jan-19

January 1995 = 100

USED PRICES AGAIN AT NEW HIGH POINTS

Source: Cox Automotive 17

80%

85%

90%

95%

100%

105%

110%

115%

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

MY 2017 Retail and Wholesale Price Indices (wk1=100)

2019 Retail Index 2020 Retail Index 2019 Wholesale Index 2020 Wholesale Index

Source: Cox Automotive, Dealertrack

RETAIL PRICE TO COST SPREAD ABNORMALLY HIGH

18

Average cost of vehicles sold in July decreased slightly, and retail price increased, so margin moved even higher

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

$0

$5,000

$10,000

$15,000

$20,000

$25,000

Jan-

16Fe

b-16

Mar

-16

Apr

-16

May

-16

Jun-

16Ju

l-16

Aug

-16

Sep

-16

Oct

-16

Nov

-16

Dec

-16

Jan-

17Fe

b-17

Mar

-17

Apr

-17

May

-17

Jun-

17Ju

l-17

Aug

-17

Sep

-17

Oct

-17

Nov

-17

Dec

-17

Jan-

18Fe

b-18

Mar

-18

Apr

-18

May

-18

Jun-

18Ju

l-18

Aug

-18

Sep

-18

Oct

-18

Nov

-18

Dec

-18

Jan-

19Fe

b-19

Mar

-19

Apr

-19

May

-19

Jun-

19Ju

l-19

Aug

-19

Sep

-19

Oct

-19

Nov

-19

Dec

-19

Jan-

20Fe

b-20

Mar

-20

Apr

-20

May

-20

Jun-

20Ju

l-20

Ave

rage

Mar

gin

Used Vehicle Cost vs. Price and SpreadAverage Cost Average Price Average Margin % (RH axis)

18.8MUSED RETAIL SALES

MANHEIM USED VEHICLE VALUE

INDEX

+7.6%

NEW LEASE VOLUME

2.8M

1.9M

2.5MCPO SALES

FLEET SALES24%LEASE

PENETRATION

NEW RETAIL SALES11.7M

2020FORECASTS

13.6MNEW SALES

35.4MUSED SALES

19