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Industry Update for Larry H. Miller Automotive

Industry Update for Larry H. Miller Automotive. 1/19/11. Auction Industry Offers Unique Vantage Point From Which to Assess Industry Trends. Generally speaking, markets know more than the people who write about them” Jim Grant. Daily interaction with all the players

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Industry Update for Larry H. Miller Automotive

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  1. Industry UpdateforLarry H. Miller Automotive 1/19/11

  2. Auction Industry Offers Unique Vantage Point From Which to Assess Industry Trends Generally speaking, markets know more than the people who write about them” Jim Grant • Daily interaction with all the players • Manufacturers, captive finance companies, banks, credit unions, sub-prime lenders, rental companies, and commercial fleets • Dealers: franchised, independent, and wholesalers • Used vehicle market is: • Large: $370 billion annually at retail in the U.S. • Inextricably entwined with new vehicle market • More representative of the national population than the new vehicle market • Real-time pricing information • Derived in a competitive-bid process with knowledgeable parties on both sides of the transaction • A view of future supply trends into the used vehicle market

  3. Topic outline • Economic environment • New and used vehicle retail markets • Wholesale used vehicle pricing and supply

  4. The recovery: an upward slanted “W” The reasons why • Financial crisis leaves lasting scars • De-leveraging is slow and painful process • Policymakers add obstacles and uncertainty • Second dip in housing is likely • Quantitative easing part deux • Lasting weakness in the labor market

  5. Nonfarm Payrolls Increase by1.1 Million in 2010 Monthly Change in Nonfarm Payrolls (in thousands) Source: Bureau of Labor Statistics

  6. Monthly Change In Nonfarm Payrolls3-month moving average – in thousands Source: Bureau of Labor Statistics

  7. Initial Jobless Claims Show Signs of Improvement Initial Jobless Claims - Four-Week Moving Average Source: Bureau of Labor Statistics

  8. Personal Income & Wages and Salaries Year-over-year percent change based on 3-month moving average Source: Bureau of Economic Analysis

  9. Retail Sales Recover from Summer Slowdown Retail Sales, excluding motor vehicles - Monthly Percent Change - Seasonally Adjusted Source: U.S. Department of Commerce

  10. Savings Rate Rises Personal Savings as % of Disposable Personal Income Source: Bureau of Economic Analysis

  11. Household net worth dips againin second quarter of 2010 Percent Change from Previous Quarter Source: Federal Reserve Board

  12. Household net worth recovers, but remains $11 trillion below its peak. Household Net Worth – In Trillions

  13. New and Used Vehicle Retail Markets

  14. New Vehicle Sales New Car & Light-Duty Truck Sales millions of units Peak-to-troughs: 1973 to 1975 -24% 1978 to 1982 -33% 1986 to 1991 -23% 2000 to 2009 -41% Source: Automotive News

  15. 1966 1982 2009 Annual % Change in New Vehicle Sales versus % Change in Real GDP 1960 to 2009 Source: Automotive News & Bureau of Economic Analysis

  16. New Car & Light-Duty Truck Sales Seasonally Adjusted Annual Rate - 3-Month Moving Average Source: Automotive News

  17. Scrappage as % ofVehicles in Operation Source: R.L. Polk

  18. Ratio of New Vehicle Sales to Number of Households Source: Automotive News & U.S. Dept. of Commerce

  19. Annual Growth of Vehicles in Operation Five-year Moving Average - In Millions Source: R.L. Polk

  20. Used Vehicle Production New Vehicle Sales:A long-term perspective New Car & Light-Duty Truck Sales millions of units Source: Automotive News

  21. Vehicles in Operation from 2 & 3 Model Years Past (in millions of units)

  22. Vehicles in Operation from 6, 7, & 8 Model Years Past (in millions of units)

  23. Used Vehicle Retail Sales Source: CNW Marketing Research

  24. Used Vehicle Sales Inherently More Stable then New Vehicle Sales • In 25 of the last 33 years, the absolute % change in new vehicle sales was greater than for used vehicles. • Used vehicle retail sales perform considerably better than new vehicles during an economic recession. • The simple correlation between changes in new vehicles sales and real GDP is .79; for used vehicles it is only .54 • Used vehicle sales are more of a “need” rather than discretionary purchase. There is also substitution from new purchases to used purchases during times of economic weakness. Source: Automotive News & CNW Marketing Research

  25. Ratio of Used Vehicles Retailedto New Vehicles Retailed Source: Automotive News & CNW Marketing Research

  26. % Change Used Units Retailed – Same Store Basis (Publicly-traded Dealership Groups) Weighted average for KMX *, AN, PAG, SAH, GPI, ABG, and LAD *KMX shifted forward one month to correspond with calendar quarter Source: Company filings

  27. Wholesale Supplies

  28. New Vehicle Sales Into Rental &Rental Fleet Size Source: Bobit Business Media

  29. New Vehicle Sales into Rental Source: Bobit Business Media

  30. Distribution of New Vehicle Sales into Rental - Program versus Risk Source: Bobit Business Media & Manheim Consulting

  31. Average Auction Price – Rental Risk Units Source: Manheim Consulting

  32. Average Mileage – Rental Risk Units Source: Manheim Consulting

  33. New Lease Originations Millions of Units Source: Manheim Consulting

  34. Lease Penetration Ratesby Manufacturer Source: J.D. Power and Associates

  35. Ford Credit Auction Values at Constant Third Quarter 2010 Mix Source: Ford Credit

  36. GMAC Sales Proceeds as % of ALG – U.S. Lease Terminations Source: Ally

  37. Off-Lease Volumes – Another Down Cycle Ahead Source: Manheim Consulting

  38. Repossession Volumes Decline in 2010 Millions of Units Source: Manheim Consulting

  39. Repossession Frequency & Severity –Ford Credit 2007 2008 2009 2010 Source: Ford Motor Credit

  40. Source: GM Financial

  41. Credit Default Rates Source: S&P / Experian

  42. Auto ABS Issuance (in billions) Source: Securities Industry and Financial Markets Association

  43. New Vehicle Sales into Commercial and Government Fleets Source: Bobit Business Media

  44. New Vehicle Sales to Commercial Fleets Source: Bobit Business Media

  45. What Drives Dealer Consignment Volumes • Level of new vehicle sales • Level of retail used vehicle sales • Gross margin and inventory turn for retail used vehicles • Dealership wholesaling percentages • Share of wholesale volume captured by NAAA member auctions

  46. The Forecast: Dealer Consigned Vehicles Sold at NAAA Member Auctions Source: 1999-2009 NAAA Surveys, 20010-2015 Manheim Consulting estimate

  47. Auction Volumes Source: Manheim Consulting

  48. Concept: A single measure of used vehicle price change that is independent of underlying shifts in the characteristics of vehicles being sold Manheim Used Vehicle Value Index • All Manheim U.S. sales (5+ million annually) • Classify by market segment • Account for shifts in mileage • Weight to provide unchanging mix • Seasonally adjust Steps:

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