THE SHORT-TERM &

LONG-TERM ECONOMICS

OF THE AUTO INDUSTRY &

RENTAL

Jonathan Smoke

Chief EconomistCox Automotive

@SmokeonCars

Sponsored by

Economic Growth Is Slowing

Source: United States Bureau of Economic Analysis

3.02.82.32.2

4.23.4

2.2

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

20

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Q3

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18

Q1

20

18

Q3

Real Gross Domestic Product (SAAR) % Growth by Quarter

Slowing Job Growth

-1000

-800

-600

-400

-200

0

200

400

600

800

Jan

-00

Jan

-01

Jan

-02

Jan

-03

Jan

-04

Jan

-05

Jan

-06

Jan

-07

Jan

-08

Jan

-09

Jan

-10

Jan

-11

Jan

-12

Jan

-13

Jan

-14

Jan

-15

Jan

-16

Jan

-17

Jan

-18

Jan

-19

Monthly Job Creation

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

Jan

-00

Jan

-01

Jan

-02

Jan

-03

Jan

-04

Jan

-05

Jan

-06

Jan

-07

Jan

-08

Jan

-09

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-10

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-11

Jan

-12

Jan

-13

Jan

-14

Jan

-15

Jan

-16

Jan

-17

Jan

-18

Jan

-19

Unemployment Rates

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

Source: BLS

Consumer Confidence Volatile

Source: The Conference Board, Moody’s Analytics

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

Jan

-11

Ap

r-1

1

Jul-

11

Oct

-11

Jan

-12

Ap

r-1

2

Jul-

12

Oct

-12

Jan

-13

Ap

r-1

3

Jul-

13

Oct

-13

Jan

-14

Ap

r-1

4

Jul-

14

Oct

-14

Jan

-15

Ap

r-1

5

Jul-

15

Oct

-15

Jan

-16

Ap

r-1

6

Jul-

16

Oct

-16

Jan

-17

Ap

r-1

7

Jul-

17

Oct

-17

Jan

-18

Ap

r-1

8

Jul-

18

Oct

-18

Jan

-19

Consumer Confidence Index (Index 1985=100, SA) Plans to Buy Auto in 6 Months (% SA)

Big Boost to Spending Last Year

Source: US Bureau of Economic Analysis Personal Income and Consumption

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

Income Taxes Disposable Income Interest Spending

Personal Income and Spending, 2018 Growth vs. Growth YTD

2018 2019YTD

Signs of Distress in Subprime

Source: Equifax

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

Auto Loan Severe Delinquencies Unit Rate

Total 60+ Unit Rate Subprime 60+ Unit Rate

12 per. Mov. Avg. (Total 60+ Unit Rate) 12 per. Mov. Avg. (Subprime 60+ Unit Rate)

Rate Trends Not Favorable to Auto

Source: Bankrate.com, US Federal Reserve, Bloomberg

0

1

2

3

4

5

6

Jan

-16

Feb

-16

Mar

-16

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May

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Au

g-1

6

Sep

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6

Dec

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Jan

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Feb

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-17

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7

May

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g-1

7

Sep

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-17

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v-1

7

Dec

-17

Jan

-18

Feb

-18

Mar

-18

Ap

r-1

8

May

-18

Jun

-18

Jul-

18

Au

g-1

8

Sep

-18

Oct

-18

No

v-1

8

Dec

-18

Jan

-19

Feb

-19

Mar

-19

Inte

rest

Rat

e %

Key Interest Rates

New Auto 60 Mo US 10 Year Treasury Fed Discount Rate 30 Year Fixed Mortgage

Affordability Is a Key Challenge

Source: Kelley Blue Book

7%

47%

24%

16%

6%2%

33%

23%18%

24%

0%

10%

20%

30%

40%

50%

< $20,000 $20,000-29,999

$30,000-39,999

$40,000-49,999

$50,000+

CONTINUED SHIFT TO EXPENSIVE VEHICLES

2012 2013 2014 2015 2016 2017 2018 2019

Payment Inflation Favors Used

$501

$568

$414

$350

$400

$450

$500

$550

$600

2014 2015 2016 2017 2018 2019

Average Monthly Payment

LeaseLoanUsed

$87

$66

$154

$20

$70

$120

$170

2014 2015 2016 2017 2018 2019

Payment Differences

Lease VS. Used

Source: Cox Automotive/Dealertrack

New Vehicle Sales Now Post-Peak

Source: BEA; Recessions (shaded) defined by NBER’s Business Cycle Dating Committee

0.00

2.00

4.00

6.00

8.00

10.00

12.00

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19

80

Q1

19

81

Q1

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82

Q1

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83

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84

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85

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86

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87

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Qu

arte

rly

New

Lt.

Ve

hic

le

SAA

R (

Mill

ion

s)

New vs. Used

32%

16%

47%

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

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

Source: Manheim/Cox Automotive

Used Market Peaking

33

34

35

36

37

38

39

40

Mill

ion

s

Source: Cox Automotive

Tremendous Growth in Off-Lease

Now at Peak

2.2

2.5

3.1

3.5

3.94.1

3.93.7 3.6

2.0

2.5

3.0

3.5

4.0

4.5

2014 2015 2016 2017 2018 2019 2020 2021 2022

Estimated Off-Lease Maturities, Annual Volume in Millions

Source: Cox Automotive

Above Average Used Price Performance

4.0%

-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

Y/Y Change in Manheim Used Vehicle Value Index

Source: Manheim

Two, Now Three Very Interesting Years

Source: Manheim

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

Higher Retention Values

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

(1 to 3 year old models)

Source: Kelley Blue Book/Cox Automotive

U.S. Car Rental Market Revenue

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$0

$5

$10

$15

$20

$25

$30

$35

19

90

19

91

19

92

19

93

19

94

19

95

19

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97

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98

19

99

20

00

20

01

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20

15

20

16

20

17

20

18

Total Revenue (Billions $) Revenue per Vehicle

Source: Auto Rental News

New Sales into Rental & Share of Total Sales

Source: Bobit, BEA

5%

6%

7%

8%

9%

10%

11%

12%

13%

14%

15%

0.5

0.7

0.9

1.1

1.3

1.5

1.7

1.9

2.1

2.3

Millio

ns

New sales into rental Share of total new vehicle sales

New Sales into Rental by Manufacturer

Source: Bobit

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2015 2016 2017 2018

Mazda (+148%)

Subaru (+2%)

Kia (-2%)

Hyundai (-13%)

Toyota (+10%)

GM (+10%)

Ford (-8%)

Nissan (+11%)

FCA (+21%)

Total Wholesale Supply: Off-Rental

0.5

0.7

0.9

1.1

1.3

1.5

1.7

1.9

2.1

2.3

Millio

ns

Source: Cox Automotive

Off-Rental “Return Rate”

Source: Cox Automotive

0%

10%

20%

30%

40%

50%

0.0

0.1

0.2

0.3

0.4

0.5

0.6

2015 2016 2017 2018 2019F 2020F

Millio

ns

Units Percent

Rental Risk Average Auction Price

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

Source: Manheim

Distribution of Rental Risk Vehicles

2017 Q1 2018 Q1 2019 Q1

Number of unique year,

make, model, body

configurations sold2,736 3,005 3,030

Share accounted for top 10

YMMB 13.4% 13.1% 11.7%

Share accounted for top 25

YMMB 25.1% 23.3% 22.0%

Number of YMMB to reach

50% share 82 108 114

Source: Manheim/Cox Automotive

Rental Risk Units Sold by Segment

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

Van

SUV

Sports Car

Pickup

Luxury Car

Midsize Car

Compact Car

Source: Manheim/Cox Automotive

Cox Automotive Forecast

Source: IHS Markit Registrations (history); Cox Automotive forecast

11.8 12.9 13.6 14.4 14.3 14.2 14.2 14.0 13.8

2.7 2.7 2.8 3.0 3.1 3.0 3.0 2.8 2.7

37.6 35.8 36.7 38.0 38.6 39.4 39.5 39.5 39.2

0.0

10.0

20.0

30.0

40.0

50.0

60.0

2012 2013 2014 2015 2016 2017 2018 2019F 2020F*

Mill

ion

s

Vehicle Sales by Year and Type, Actual and Forecast

New - Retail New - Fleet Used

2

7

YOUNGER PEOPLE SPEND MORE TODRIVE A VEHICLE

Average Cost Per Mile For Ownership(Among those who use/own vehicle once a month or more)

Generation Z $0.71

Millennials $0.79

Generation X $0.56

Baby Boomers $0.50

Silent Generation $0.45

Source: 2018 Cox Automotive Evolution of Mobility Study

2

8

CONSUMER ATTITUDES ABOUT VEHICLE OWNERSHIP ARE CHANGING

“Having Transportation is

Necessary, but Owning a

Vehicle is Not”% Agree

35% 39%↑2015 2018

Source: 2018 Cox Automotive Evolution of Mobility Study

Source: 2018 Cox Automotive Evolution of Mobility Study 2

9

CONSUMER-OWNED VEHICLES DOMINATE TRANSPORTATION

93%

Driving your

own vehicle

Public

Transportation

4%

Car-sharing/

Car Subscription

1%

2% Ride-hailing

Share of

Miles Traveled

per Month*(Average Consumer)

*only includes transportation methods shown on this slide (excludes other methods such as Taxi/cab, Car rental, Borrowing a vehicle, Carpooling, Motorcycle/scooter)

3

0

INCREASED ACCESS TO ALTERNATIVES IMPACTS NEW VEHICLE RETAIL SALES

When Personally-Owned

Vehicles Drop To

72% of Miles Traveled…

…New Vehicle Retail

Units Sold Are Expected to

Drop by 6%

Source: Cox Automotive Analysis

Source: 2018 Cox Automotive Evolution of Mobility Study 3

1

SHARE OF MILES TRAVELED BY PERSONAL VEHICLE FALLS AS AVERAGE PRICE OF ALTERNATIVE OWNERSHIP MODELS DROP

*Personal Vehicle Ownership cost held constant at current cost ($0.50)

**Alternative Ownership includes Car Subscription, Car-sharing, and Ride-hailing. The Alternative Ownership (Net) is comprised of their optimal solutions, with Autonomous driver used for Ride-hailing

THANK YOU!

Jonathan Smoke

Chief Economist

Cox Automotive

@SmokeonCars