U.S. AUTO INDUSTRY UPDATE Federal Reserve Bank of Chicago Automotive Outlook Symposium Emily Kolinski Morris Chief Economist May 2015
NORTH AMERICA INDUSTRY VOLUME SUMMARY 13.1 Total North America* (Mils.) 15.9 20.2 10.6 13.0 U.S. (Mils.) 16.8 15.5 April 2015 SAAR 16.9 2009 2010 2011 2012 2013 Canada (Mils.) 2014 2009 2014 2014 2015 Mexico (Mils.) 1.5 1.6 1.9 1.8 1.8 0.8 0.9 1.2 1.1 1.3 2009 2014 2014 2015 2009 2014 2014 2015 * U.S., Canada, Mexico, and 37 emerging markets Solid Fiscal Industry Austerity Sales Led Trends To Double Across Dip The Recession Region Note: 2014 FY are estimates
U.S. TOTAL NEW VEHICLE SALES Mils. Units, SAAR Total Fleet Retail 16.5 3.6 13.5 3.0 10.6 2.1 11.8 2.6 13.0 2.8 14.8 3.1 15.9 3.1 16.8 17.1 16.9 3.2 3.5 3.4 12.9 10.5 8.5 9.2 10.2 11.7 12.8 13.6 13.6 13.5 2007 2008 2009 2010 2011 2012 2013 2014 1Q April 2015 Full Year 2015 Sales Outlook Of 17.0 17.5 Million Units Including Medium And Heavy Trucks
U.S. KEY ECONOMIC INDICATORS Consumer Sentiment Index Mfg. Purchasing Managers Index (PMI) 75.0 74.3 84.5 85.1 81.8 95.9 52.9 54.1 50 Expansion Contraction 56.0 55.6 57.6 51.5 2012 2013 2014 2015 2012 2013 2014 April Unemployment Rate (Pct.) Real GDP (Pct. Change, YoY) 2015 April 8.3 2.6 3.1 3.0 5.5 1.6 1.9 2.4 2012 2013 2014 2015 1Q March 2012 1Q 2013 1Q 2014 1Q 2015 Key Economic Indicators Suggest A Favorable Backdrop For Auto Sales
U.S. HOUSING UPDATE Housing Starts (SAAR, Mils.) and Home Builders Survey Index 30-Year Mortgage Rate (Pct.) 1.49 Housing Starts 1.05 0.69 47.0 57.0 54.0 1.14 6.7 6.5 4.8 5.0 4.5 19.0 9.0 13.0 14.0 Home Builders Survey Index 3.4 3.7 2007 2008 2009 2010 2011 2012 2013 2014 2015 Case-Shiller Home Prices (Pct. Change, YoY) Note: Includes 20 major metropolitan areas 13.7 2007 2008 2009 2010 2011 2012 2013 2014 2015 New Home and Light Vehicle Sales (SAAR, Mils.) Note: Based on six-month moving average 0 (19.0) 4.6 (4.5) 5.0 15.9 0.8 Light Vehicle Sales 0.5 9.6 0.4 16.7 14.3 12.6 New Home Sales 0.4 0.5 0.3 2007 2008 2009 2010 2011 2012 2013 2014 2015 2007 2008 2009 2010 2011 2012 2013 2014 2015 Housing Sector Recovery Remains Modest
U.S. HOUSING STARTS, INDUSTRY SALES AND INTEREST RATES 25.0 20.0 Policy Rate (%, Lt. Scale) Industry Volume (Mils., SAAR, 6MMA, Lt.Scale) Housing Starts (Mils. SAAR 6MMA, Rt. Scale) 2.5 2.0 15.0 1.5 10.0 1.0 5.0 0.5 0.0 1977 1981 1985 1989 1993 1997 2001 2005 2009 2013 Note: Shaded areas show tightening cycles with industry downturn or flattening Historically Strong Relationship Between Interest Rate Cycles, Housing Starts And Vehicle Sales 0.0
DELINQUENCIES OF SUBPRIME MORTGAGES AND AUTO LOANS Sources: S&P as of July 2014, Mortgage Bankers Association as of December 2014 Subprime Mortgage: Total Subprime Mortgage: Adjustable-Rate Subprime Mortgage: Fixed-Rate Subprime Auto Loan: Total 35% 30% 25% 20% 15% 10% 5% 0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Auto And Mortgage Loan Performance Has Diverged Since The Crisis
U.S. LOAN DEMAND INDICATORS Net Percentage of Domestic Banks Reporting Increased Demand for Residential Mortgages Demand for residential mortgages has increased in the early Second Quarter 2015, following the weak First Quarter Domestic banks have, on net, reported increased demand for auto loans in every quarter since the Second Quarter of 2011 40 0 (40) (80) All residential mortgage loans Prime Subprime Nontraditional (120) 2004 2006 2008 2010 2012 2014 40 0 (40) (80) All consumer loans GSE Government QM non-jumbo non-gse QM jumbo Non-QM jumbo Non-QM non-jumbo Subprime 1Q 2015 2Q 2015 Net Percentage of Domestic Banks Reporting Stronger Demand for Consumer Loans Credit card loans Auto loans Other consumer loans Increasing Decreasing Increasing Decreasing Source: Federal Reserve SLOOS (120) 2004 2006 2008 2010 2011 2012 2013 2014 2015
U.S. LENDING STANDARDS Lending standards for wellqualified mortgages have eased considerably within the past year Substandard mortgage lending standards have remained tight since the financial crisis Relaxed lending standards for auto loans, following the financial crisis, promoting strong industry growth Source: Federal Reserve SLOOS 120 80 40 0 All residential mortgage loans Prime Subprime Nontraditional (40) 2004 2006 2008 2010 2012 2014 120 80 40 0 Net Percentage of Domestic Banks Tightening Standards for Residential Mortgage Loans Credit card loans Other consumer loans (40) 2004 2006 2008 2010 GSE Credit Card Loans Auto loans Government QM non-jumbo, non-gse QM-jumbo Non-QM Jumbo Non-QM non-jumbo Subprime Other consumer loans 1Q 2015 2Q 2015 Net Percentage of Domestic Banks Tightening Standards for Consumer Loans 2011 2012 2013 2014 2015 Tightening Easing Tightening Easing
U.S. AVERAGE AGE OF CARS AND TRUCKS (Age, years) Passenger Cars Light Trucks All Light Vehicles 11.5 9.8 9.6 9.4 2002 2004 2006 2008 2010 2012 2014 Elevated Vehicle Age Continues To Support Replacement Demand Source: Polk VIO registrations
U.S. HOUSEHOLD AND NEW VEHICLE BUYER MEDIAN INCOMES $90 (000s) $80 86 $70 $60 $50 $40 52 52 $30 32 $20 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Source: U.S. Census Bureau, NVCS New Vehicle Buyers Have Higher Median Income Than U.S. Households Overall
U.S. EXPECTED VEHICLE HOLDING PERIOD Years Between Next Purchase 4.1 4.0 4.00 3.9 3.87 3.86 3.90 3.87 3.8 3.7 3.72 3.77 3.6 3.5 3.57 3.52 3.59 3.4 3.3 3.2 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Data Source: NVCS Holding Periods Edging Down But Still Above Pre-Crisis Levels
U.S. VEHICLE DENSITY 1250 1200 1150 Total Working Age 1,161 Vehicles per 1,000 Pop. 1,205 1,212 1,163 1100 1,118 1050 1,021 1000 962 950 967 938 900 1990 1994 1998 2002 2006 2010 Source: Polk, Census Bureau Aging Population Contributing To Lower Overall Vehicle Density
U.S. METROPOLITAN VEHICLE DENSITY 2.00 Vehicles Available per Worker 1.99 1.98 1.97 1.96 1.95 1.97 1.97 1.96 1.95 1.95 1.94 1.95 1.96 1.94 1.93 1.92 1.91 1.90 2006 2007 2008 2009 2010 2011 2012 2013 Source: U.S. Census Bureau Note: Top 51 most populated metropolitan areas Metropolitan Vehicle Ownership Rates Have Remained Steady
LIGHT VEHICLE CAPACITY BY REGION Americas (Mils.) Europe (Mils.) 25 26 24 3 4 4 28 4 26 26 26 6 6 6 28 5 21 21 21 23 20 20 21 23 2014 2015 2016 2020 Memo: Excess as Pct. of Production 14% 18% 20% 18% Middle East & Africa (Mils.) 2014 2015 2016 2020 Memo: Excess as Pct. of Production 28% 28% 28% 23% Asia Pacific (Mils.) 4 2 5 5 5 3 3 2 49 53 54 12 15 15 59 16 2 2 2 2 37 38 39 43 2014 2015 2016 2020 Memo: Excess as Pct. of Production 123% 121% 133% 103% Source: IHS Automotive April 2015 Forecast 2014 2015 2016 2020 Memo: Excess as Pct. of Production 33% 39% 39% 39%
U.S. NEW AND USED VEHICLE CPI 20 15 % Change Over Year Ago 17.0 10 5 0 1.7 0.8 (0.5) (5) (10) New Vehicle CPI (11.8) Used Vehicle CPI (15) 2006 2008 2010 2012 2014 Vehicle Pricing Trends Have Moderated Recently SLIDE 16
SUMMARY U.S. economy recovering at a steady pace, with income and job gains supportive of vehicle buying conditions Interest rates remain low, supported by global liquidity conditions and with pace of Federal Reserve policy rate increases expected to be very gradual Housing market recovery remains subpar Replacement demand remains a key driver of U.S. vehicle sales Durability and consumer preferences for longer holding periods support elevated vehicle age Density growth has moderated, driven largely by demographics Global capacity conditions imply limited upside to U.S. industry pricing SLIDE 17