WELCOME

AUTOMOTIVE COMMUNITIES PARTNERSHIP

& CAR AFFILIATES OUTLOOK

JANUARY 12, 2017

HOSTED AT GENERAL MOTORS WORLD HEADQUARTERS

DETROIT, MI

CAR Affiliates

Industry Collaboration & Working Groups

Industry Collaboration & Partnership Examples:

• Advanced Powertrain Thought Leadership Roundtable

• Connected & Automated Vehicle Working Group (MDOT)

• Coalition for Automotive Lightweighting Materials (CALM)

• Automotive Cybersecurity Roundtable

• Automotive Communities Partnership (ACP)

The Center for Automotive Research brings together industry stakeholdersfor thought leadership and industry education.

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A Tale of Two Plateaus Average Monthly Sales (SAAR)

1992 – 2020

Source: Automotive News Data Center and CAR Research

CAR Forecast

Average Monthly Sales

?

Early 2000s

• OEM and supplier overcapacity

• Major market share shifts

• Major geographic shifts– Closures predominantly in the North

– Internationals grew predominantly in the South

2015 – 202X• Industry struggling with capacity

constraints• Steady market share by company• Steady geographic footprint

– But growth going to Mexico

• The result: Automotive economic development strategy uniformity– Retain existing OEM base– Expansion, not new plants, most

realistic OEM opportunity– Retention of supply base critical– Select opportunities for supplier growth

A Tale of Two Plateaus

The Next Few Years

• Steady sales and production belie underlying transformation• Rapid adoption of new technologies and materials

• Fuel economy• Emissions Reduction• Safety• Connectivity • Autonomous capability

• It’s not just the vehicle that’s changing• New production processes, technologies, and capabilities will be essential• Constant need for R&D• Constant demands on region’s workforce abilities and availability

• Is your community or company ready?

UPCOMING

EVENTS

CAR Industry Briefing:

Cross-Border Collaboration: Driving Regional

Competitiveness in Advanced Mobility

FEBRUARY 8, 2017Schoolcraft College, VisTaTech Center

Livonia, MI

T3 Manufacturing Summit:

Technology • Tooling • Talent

APRIL 24-25, 2017DeVos Place

Grand Rapids, MI

CAR Management Briefing Seminars:

JULY 31 – AUGUST 3, 2017Grand Traverse Resort

Traverse City, MI

VISIT CARGROUP.ORG FOR MORE INFORMATION

TODAY’S AGENDA

North American International Auto Show Preview

8:00 Room Opens / Continental Breakfast Available

8:30 Meeting Begins, Welcome and Introductions – Bernard Swiecki, Director of ACP, CAR

General Motors Welcome – John Blanchard, Director, Local Government Relations

Thomas Klier, Senior Economist, Federal Reserve Bank of Chicago

Sue Yingzi Su, Senior Economist–North America and China, General Motors

10:00 Break

Dave Andrea, Executive Vice President of Research, CAR

Jeff Schuster, Senior Vice President, LMC Automotive U.S. Inc.

Charles Chesbrough, Executive Director, Strategy & Research and Senior Economist Original Equipment Suppliers Association

Closing Remarks – Bernard Swiecki, Director of ACP, CAR

12:00 Lunch

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The Automotive Landscape:Increasingly Abstract

Dave Andrea, Center for Automotive Research

CAR Automotive Communities PartnershipJanuary 12, 2017

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U.S. Light Vehicle Sales

Percent Change YTD Through December: 2016 vs. 2015

-8.9%

7.4%

0.3%

-10% -8% -6% -4% -2% 0% 2% 4% 6% 8% 10%

Passenger Cars

Light Trucks

Total

Source: Automotive News; CAR Research

56,211

17,539,052

100%

+ 729,801

10,645,974

60.7%

-673,590

6,893,078

39.3%

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U.S. Market Share

2000 – December 2016 YTD

28.2%

17.3%

9.3%

14.0%

24.2%

14.8%14.5%

12.9%

4.3%

8.9%6.7%

9.3%

2.3%

8.1%

0%

5%

10%

15%

20%

25%

30%

35%

Perc

ent

of

U.S

. Mar

ket

Sale

s

Year

GM

Toyota

Ford

Chrysler

Nissan

Honda

Hyundai-Kia

Source: Automotive News; CAR Research

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Segment Breakdown - U.S. LV Sales Percent Change

December YTD 2016 vs December YTD 2015

-11.3%

-9.3%

-8.3%

-5.6%

-3.6%

5.9%

5.9%

6.3%

8.9%

23.5%

0.4%

-15% -10% -5% 0% 5% 10% 15% 20% 25% 30%

Middle Car

Luxury Car

Large Car

Small Car

Large CUV

Middle CUV

Pickup

SUV

Van

Small CUV

Total

Source: Ward’s Automotive Reports

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Trend, Cycle and Mix are In-Play

Trend

Units

Mix

• Personal & Corp. Tax Policy

• Fiscal Stimulus

• Employment/Income Growth

• Consumer Confidence

• Monetary Policy

• Immigration Policy• Federal & State

Government Philosophy• Trade Policies

• Energy Policy

• CAFE/GHG/ZEV mandates

• Safety Regulations

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CAR U.S. Light Vehicle Sales Forecast, 2017 – 2022

11.612.7

14.415.5

16.517.4 17.5 17.5 17.4 17.3 17.0 17.5 17.6

0

5

10

15

20

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

U.S

. LV

Sal

es

in M

illio

ns

Source: CAR Research, January 2017

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CAR Sales Forecast

15.0 M

16.0 M

17.4 M17.5 M

Source: CAR Research, January 2017

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Big Question: What Falls First – Spending or Units?

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In Spending (Billion of 2009 $) In Units

Source: BEA, Table 7.2.6B. Real Motor Vehicle Output, Chained Dollars

Both Spending and vehicle sales exceed 2006 level

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The Industry Is Making Investments on Many Fronts

and Individual Company Focus is Very Different

Corporate Competitive Sets and Customer Markets Blurring on these Fronts

Powertrain

Vertical Integration

Global FootprintMobility Services

Connected/Automated

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Personal Vehicles - The Commute Workhorse:

U.S. Principal Means of Transportation to Work

Source: U.S. Department of Housing and Urban Development, American Housing Survey, 1989 , U.S. Census Bureau

U.S. Department of Commerce, American Community Survey, 2011, U.S. Census Bureau

Automobile85%

Public Transportation

5%

Walks Only3%

Work At Home5% Other

2%

2015

Automobile87%

Public Transportation

5%

Bicycle and Motorcycle

1%

Walks Only3%

Work At Home2% Other

1%

1989

VMT is Where It’s At, But We Need to Get to

Passenger and Ton Freight Miles Traveled

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What If Transportation Was Seamless and Led

Consumers to Truly Purchase Mobility?

Barriers to Pure Extrapolation• Economics (vs. 9,500 miles average):

• Carshare BE = 8,200 miles• Rideshare BE = 2,200 miles

• Public Transportation InterfaceHow are the first and last miles

• Technology Limits – Where does complexity overtake convenience

• Inflection Points – How will competition will react; when doesdemographic and urbanization trendsrun their course

Source: The Impact of New Mobility Services on the Auto Industry, CAR, August 2016

Creating the New Value Model

• Individual v. Fleet

• Utilization cycles

• Absolute levels

VMT – Levels and

Ownership

• Reliability and durability requirements

• Replacement cycles

• Distribution of system value

Vehicle

Design and Specification

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Autonomous Will Come “Bottom Up & Top Down”

Tesla“Autopilot 2.0” (Level 3 in 2017, with subsequent updates to higher levels)

Audi “Piloted Driving” (Level 3)

Honda“Automated HW Driving” (Level 3?)

Nissan “Autonomous Drive” (Level 3?)

Lyft/GM Automated Taxis (Level 4)

Mercedes “Autonomous Drive” (Level 4)

Volvo“DriveMe” Deployment(Level 3? 4?)

Volvo“DriveME” Pilot(Level 3)

FordAutomated Ridesharing (Level 4)

BMW“Highly/Fully Autonomous”(Level 4? 5?)

UberAutonomous Taxis(Level 4)

Source: Center for Automotive Research

The Industry May Be Rocked By Disintermediation (Yes, a Loose Use in Its Pure Form)

Disintermediation, the process of removing intermediaries from a supply chain, a transaction, or, more broadly, any set of social, economic, or political relations.

Encyclopedia Britannica

• OEMs – powertrain value, if not the vehicle design itself (how much vertical integration is needed in an EV world and will crowd design take hold?)

• Suppliers – systems integration and value creation one more level removed (will current first tiers concede leverage to software, AI and integrated chip suppliers?)

• Dealerships – the transaction, if not the dealership itself (is COSTCO, Amazon and TESLA bigger than the NADA lobby?)

• Fuels – fueling stations, if not the fuel itself (will plugging-in get the consumer right to the “refinery?”)

• Services – truly all pay for play (will digitization allow consumers to pay for true use of mobility, insurance, streaming services, and the like?)

In Conclusion:

It Will Be a Brave, New World• With the cycle/revenues flattening out it will be a game of:

– vehicle/content mix

– manufacturing cost containment

– capital/R&D investment off of current low cost of capital and cash reserves

• With disintermediation capital intensity will move changing ownership structures and business valuation models

• New mobility services forecast models do not incorporate legacy players responses

• Clock speed of technology cycles and market fragmentation will come sooner and harder to all players

• Regulation and public policy is being created simultaneously with the commercialization of new product and services creating uncertain rules of engagement

Guest Presentations

• Thomas Klier - Senior Economist, Federal Reserve Bank of Chicago

• Sue Yingzi Su - Senior Economist, General Motors

• Jeff Schuster - Senior Vice President, Global Forecasting - LMC

• Charles Chesbrough - Executive Director: Research, Analysis and Senior Economist | Original Equipment Suppliers Association (OESA)

Guest presentations reserved exclusively for CAR Affiliates and ACP members

Understanding Mexico’s

growing role in North

America’s

vehicle production

ACP meeting

Detroit, MI

January 12, 2017Thomas Klier

Senior EconomistFederal Reserve Bank of Chicago

thomas.klier@chi.frb.org

Disclaimer

The analysis and conclusions set forth are those of the authors and do not indicate concurrence

by other members of the research staff or the Federal Reserve Bank of Chicago

Global automotive industry Outlook

Sue Yingzi Su

Senior Economist

January 12th, 2016

www.lmc-auto.com© 2016 LMC Automotive Limited, All Rights Reserved.

Automotive Outlook:Where is the Industry Headed…Plateau?

Jeff Schuster - Senior Vice President, Global ForecastingJanuary 12th, 2017

Join. Engage. Advance.

Join. Engage. Advance.

SUPPLIERS’ MARKET OUTLOOK

Q1 2017

Charles ChesbroughExecutive Director: Research, Analysis and Senior Economist

Original Equipment Suppliers Association

Thank You

Enjoy the show!