Society of Automotive Analysts

Strategic Planning Summit Dave Andrea

Center for Automotive Research

dandrea@cargroup.org

September 13, 2016

The Center for Automotive Research (CAR)

Automotive industry contract research and service organization (non-profit ) with more than 30 years experience forecasting industry trends, advising on public policy, and sponsoring multi-stakeholder communication forums.

• CAR conducts leading edge Research that impacts

the future of the global automotive industry.

• CAR hosts Events and Conferences that engage

industry leaders in the discussion of critical topics.

• CAR’s Affiliates — automotive manufacturers and suppliers

benefit from advance access to research results, exclusive networking, and participation in working groups.

CAR Research Themes (current iteration)

• Mobility Networks- investigating passenger and cargo models for access, purchase, and operation

• Public Policy Initiatives – exploring the regulation, legislation, and economic incentives to deliver societal goals

• Industry Impact – understanding financial and human capital, global trade and investment and economic development

• Human Capital Needs – assessing the industry’s stock and future need of human talent and skills

• Product and Manufacturing Technology Requirements – evaluating future product designs, materials, engineering, procurement, manufacturing, and sales/service ……………………………….

• Industry 4.0 Futuring – mapping tomorrow’s industry, product, and manufacturing and business processes transformation

Industry Meeting Current CAFE Mandate CAGR;

It is Keeping up with the Future is the Question

18.0

26.0 27.5

33.3

55.3

19.9

36.5

17.5

20.7

39.3

18.2

26.4

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

55.0

60.0

Mile

s p

er

Gal

lon

(m

pg)

Model Year

PC Standard PC Performance LT Standard LT Performance

Source: NHTSA 2009, NHTSA 2011, and NHTSA 2014

Midterm Evaluation (MTE) Three Step Process

Final Determination due by April 1, 2018 (no joke)

Gasoline Prices (Real)

January ‘03 – June ‘16

$2.19 $2.50

$3.47 $3.49

$3.61 $4.43

$2.91 $3.11

$4.12 $4.04 $3.79 $3.68

$2.92 $2.81

$2.37

$1.00

$2.00

$3.00

$4.00

$5.00Ja

n-0

3

Jul-

03

Jan

-04

Jul-

04

Jan

-05

Jul-

05

Jan

-06

Jul-

06

Jan

-07

Jul-

07

Jan

-08

Jul-

08

Jan

-09

Jul-

09

Jan

-10

Jul-

10

Jan

-11

Jul-

11

Jan

-12

Jul-

12

Jan

-13

Jul-

13

Jan

-14

Jul-

14

Jan

-15

Jul-

15

Jan

-16

Source: EIA

Do

llars

pe

r G

allo

n

Positive Economic Factors/CAFE Headwinds

Increase/decrease in gasoline prices by $1.00 per gallon results in an increase/decrease in the small car/EV market share 1.1 percent.

For every $1,000 increase/decrease in

PDI, small car/electric vehicle share

will decrease/increase by .50 percent.

For every 100 basis point increase/decrease in

unemployment rate, small car/electric vehicle

share will decrease/increase by .6 percent.

U.S. Light Vehicle Sales By Cars and Trucks

1976 – July 2016

0%20%40%60%80%

100%1

/1/1

97

6

10

/1/1

977

7/1

/19

79

4/1

/19

81

1/1

/19

83

10

/1/1

984

7/1

/19

86

4/1

/19

88

1/1

/19

90

10

/1/1

991

7/1

/19

93

4/1

/19

95

1/1

/19

97

10

/1/1

998

7/1

/20

00

4/1

/20

02

1/1

/20

04

10

/1/2

005

7/1

/20

07

4/1

/20

09

1/1

/20

11

10

/1/2

012

7/1

/20

14

4/1

/20

16

Cars Share of Sales Light Trucks Share of Sales

Source: BEA

Segment Breakdown - U.S. LV Sales Percent Change

July YTD 2016 vs July YTD 2015

-9.7%

-9.4%

-6.7%

-3.4%

-2.5%

4.0%

4.8%

6.1%

22.1%

38.5%

1.1%

-20% -10% 0% 10% 20% 30% 40% 50%

Middle Car

Luxury Car

Small Car

Large Car

Large CUV

Middle CUV

SUV

Pickup

Van

Small CUV

Total

Source: Ward’s Automotive Reports

SOLUTIONS ARE APPARENT TO CONSUMERS

Agencies’ Technical Assessment Report Assumptions, 2025 GHG CAFE

Turbocharged and downsized gasoline engines 33% 54%

Higher compression ratio, naturally aspirated gasoline engines 44% <1%

8-speed and other advanced transmissions 90% 70%

Mass reduction 7% 6%

Stop-start 20% 38%

Mild hybrid 18% 14%

Full hybrid <3% 14%

Plug-in hybrid electric vehicles <2% <1%

Electric vehicle <3% <2%

Environmental Protection Agency and National Highway Traffic Safety Administration Technical Assessment Report Table ES-3

2025 Pathways Diverge Between Agencies

And with Industry –

Particularly with Electrification

Industry greatly disagrees,

– expecting 5 to 10 times more electrification.

2025 Light-duty Vehicle Fleet

Advanced Gasoline Vehicle Technologies

Electrification - Strong hybrids 3% - EV/PHEVs 4%

Regulators say few electrics needed…

2.6%

0.00

1.00

2.00

3.00

4.00

0

100

200

300

400

500

600

Pe

rce

nt

of

LV S

ale

s (%

) R

eal

Gas

Pri

ce (

$)

U.S

. Ele

ctri

fie

d S

ale

s (0

00

’s)

Electrified LV Sales % of LV Sales

U.S. Electrified Light Vehicle Sales

and Take Rate 1999 – 2016 June YTD

Note: Electrified vehicles consist of BEV, HEV and PHEV

Source: Ward’s Automotive Reports, HybridCars.com and CAR Research; EIA

Gasoline Saved for Incremental Fuel Economy Improvement

And the Customer Demands a Three-Year Payback

0

20

40

60

80

100

120

140

10 20 30 40 50 60 70

An

nu

al g

allo

ns

save

d p

er

MP

G im

pro

vem

en

t

Miles Per Gallon

40 Gallons 600 Gallons 200 Gallons 100 Gallons 60 Gallons 28.5 Gallons

(area under curve represents total fuel saved for that increment per year at 12,000 miles per year)

Source: CAR Research

Technology Pathway and Relative Cost

Mild Steel BIW Mild Steel Closures

HSS BIW Mild Steel Closures

AHSS BIW HSS/Al Closures

AHSS/UHSS BIW Aluminum Closures

Aluminum Body Aluminum Closures Magnesium I.P. beam & seats

The steps get bigger

Carbon Fiber/Al. Body Aluminum/Mag. Closures Mag. I.P. beam & seats

MY 2015 Representative Vehicle

Cost ($/lb.)

NET Mass Reduction Percentage

5% 10% 15% 0%

$X

$3X

$6X

Net Mass Reduction = (Mass Reduction) – (Weight add-back)

The lightweighting cost and vehicle performance varies significantly for each of these vehicles

Which truck is more expensive to lightweight?

Model Year 2011

Curb Weight 4,800 lbs1

Platform Launch 1998

Body Architecture Mild Steel

1 - 4.3L V6 Regular Cab Short Box 2 - 4.3L V6 Regular Cab Short Box 3 - 3.5L V6 Regular Cab Short Box

Model Year 2015

Curb Weight 4,050 lbs3

Platform Launch 2014

Body Architecture Aluminum

Model Year 2015

Curb Weight 4,521 lbs2

Platform Launch 2014

Body Architecture High Strength Steel

0%

Cars – 4.71% Trucks – 4.88%

Safety Performance* Safety Performance

AVERAGE % cost reduction per year

2.45% 2.26% 1.85% 3.03%

Agency Recognition

Net Mass Reduction = (Mass Reduction) – (Weight add-back)

Weight Add-Back

*Performance – NVH, torsional rigidity, handling

Time Period AHSS/UHSS Aluminum Magnesium Composites

AVERAGE % cost reduction/year

2012-2021 0.80% 1.30% 1.13% 1.80%

2022-2027 0.56% 1.26% 0.88% 2.36%

3% / year 2% / year

Agency Recognition

Industry does NOT agree with the learning factors applied uniformly for all materials in the agency analysis

Learning Curves

Direct Manufacturing Cost Reduction between 2012-2027

Agencies OEMs

32% 10-17% Metals 26% Composites

CAR Calculated Mandate Rate = 1.86

• Retail Price Equivalent = 1.5

• Corrected for dealership gross margin rate

• Corrected for vehicle sales tax

• Corrected for incremental consumer financing

• Corrected for incremental insurance costs

There is no average…

Manufacturers are pursuing many technology pathways. No two manufacturers have the same product and technology portfolio,

nor fuel economy strategy. Therefore, applying an “industry average” for technology cost or implementation may be

misleading. Some manufacturers will bear a much greater burden than other manufacturers.

Impact on U.S. Automotive Industry, 2016-2025 Long Run Demand Impact

Baseline -1.30% -4.95% -8.60% -0.76% -4.41% -8.06% +0.82% -2.83% -6.48%

GAS Price/Cost of

FE -

$2.44/ $2,000

$2.44/ $4,000

$2.44/ $6,000

$3.00/ $2,000

$3.00/ $4,000

$3.00/ $6,000

$4.64/ $2,000

$4.64/ $4,000

$4.64/ $6,000

Total MV

Expenditure

($Billion)

$792 $782 $753 $724 $786 $757 $728 798 770 741

Impact of 2025

CAFE

($Billion)

- -10.0 -39.0 -68.0 -6.0 -34.9 -63.9 +6.5 -22.4 -51.4

Vehicle Price (2025$)

$42,491 $43,397 $45,940 $48,483 $43,022 $45,565 $48,108 $41,922 $44,465 $47,008

Light Vehicle

Sales (Million

Units)

18.64 18.01 16.39 14.93 18.27 16.61 15.14 19.05 17.31 15.76

Light Vehicle

Production

(Million Units)*

12.93 12.59 11.68 10.86 12.73 11.80 10.98 13.17 12.19 11.32

Automotive

Employment 862,000 839,100 778,400 724,100 848,700 787,000 731,700 877,700 812,800 754,900

*Include vehicles for export

20

Sources: CAR Research 2015

Thoughts and Observations

to Align Market and Policy • Raise gasoline/fuels taxes to ensure fuel economy technologies are a net benefit to

consumers and to prevent a rebound in VMT . . . All the way to consider replacing the CAFE program entirely with a sufficient carbon tax on motor fuels.

• Provide strong hybrids (HEVs) and plugin hybrids (PHEVs) sacrifice less in terms of standard vehicle attributes and may result in a larger number of miles traveled on electricity than BEVs because of their potentially higher sales volumes and travel miles per year.

• Provide additional off-cycle credits for advanced fuel economy technologies to encourage commercialization by overcoming price inflation and to support the development of new supply chains for light-weighting materials and advanced ICE and EV components.

• Provide the industry an additional five years assuming further long-term development for customer needs to accept such vehicles and the industry to produce these technologies at a more affordable cost and develop an adequate infrastructure.