Auto Finance Summit 2021

Auto Finance Summit 2021:

Economic Outlook for the Automotive & Auto Finance Industries

Edgar J. Faler

Senior Industry Analyst, Center for Automotive Research

28 October, 2021

CENTER FOR AUTOMOTIVE RESEARCH

The Current Situation:

What is “Normal” anymore??

3CENTER FOR AUTOMOTIVE RESEARCH

Current Situation


• Lingering affects of global COVID-19 pandemic… light vehicle market recovery stalled by microchip shortage (the headlines)

• Supply chain and logistics issues impacting light vehicle deliveries –it’s NOT all about the chips shortage or COVID-19 anymore

• Vehicle demand outpaces supply, for now…


GDP and Vehicle Sales


Historic sales rebound following last year’s COVID-19 pandemic lockdowns… stalled

-30

-20

-10

0

10

20

30

40

50

-4

-2

0

2

4

6

8

10

12

1956 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016 2021

Veh

icle

Sal

es

Gro

wth

Rat

e

GD

P G

row

th R

ate

Sales Growth GDP Growth

Source: Bureau of Economic Analysis, University of Michigan RSQE 3Q-4Q 2021 estimates

U.S. GDP Growth Rate and Vehicle Sales Correlation1956 – 2Q 2021; Forecasted 3Q-4Q 2021


Sales growth from last year sees dramatic increase – until the global chip shortage

-50

-40

-30

-20

-10

0

10

20

30

40

50

60

-40

-30

-20

-10

0

10

20

30

40

1Q 2

000

3Q 2

000

1Q 2

001

3Q 2

001

1Q 2

002

3Q 2

002

1Q 2

003

3Q 2

003

1Q 2

004

3Q 2

004

1Q 2

005

3Q 2

005

1Q 2

006

3Q 2

006

1Q 2

007

3Q 2

00

7

1Q 2

008

3Q 2

008

1Q 2

009

3Q 2

009

1Q 2

010

3Q 2

010

1Q 2

011

3Q 2

011

1Q 2

012

3Q 2

012

1Q 2

013

3Q 2

013

1Q 2

014

3Q 2

014

1Q 2

015

3Q 2

015

1Q 2

016

3Q 2

016

1Q 2

017

3Q 2

017

1Q 2

018

3Q 2

018

1Q 2

019

3Q 2

019

1Q 2

020

3Q 2

02

0

1Q 2

021

3Q 2

021

Veh

icle

Sale

sG

row

thR

ate

GD

P G

row

th R

ate

GDP Vehicle Sales

Sources: BEA (Actual 1Q 2000 – 2Q 2021), University of Michigan RSQE (GDP forecast 3Q-4Q 2021), Center for Automotive Research (U.S. vehicle sales forecast 3Q-4Q 2021)

GDP and U.S. Vehicle Sales Growth Quarterly1Q 2000 – 2Q 2021 Actual; 3Q-4Q 2021 Forecast


Vehicle Price and Sales


Light vehicle sales fall as prices are on the rise

150

152

154

156

158

160

162

164

8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

New

Veh

icle

Pri

ce In

dex

(1

98

2=

10

0)

Light Vehicle Sales SAAR

2015-16 2017-2018 2019-2020 2021

March 2020

June 2021

COVID-19 VEHICLE ASSEMBLY PLANT CLOSURES

Light Vehicle Sales SAAR & New Vehicle Price IndexJanuary 2015 – September 2021

Source: BEA, BLS, CAR analysis

April 2020

May 2020 June 2020

Sept 2021 Aug 2021July 2021


Changes from Jan ‘07: CPI – New Vehicle and CPI-Used Vehicle

-20%

-10%

0%

10%

20%

30%

40%

50%

New Vehicle ('82-84 = 100) Used Vehicle ('82-'84 = 100)

Source: BLS

Changes from Jan ‘07: CPI – New Vehicle and CPI-Used VehicleJanuary 2007 – September 2021


NADA New Vehicle Selling Price

40,773

4.7%

4.0%

-5%

0%

5%

10%

15%

20%

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Veh

icle

Pri

ce In

flat

ion

Ve

hic

le P

rice

, $

NADA selling price Vehicle price inflation CPI Inflation

Source: NADA DATA; RSQE

NADA New Vehicle Selling Price1978 – 2021 (August)


U.S. Light Vehicle Sales by Cars and Trucks

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

1/1

/19

76

1/1

/19

78

1/1

/19

80

1/1

/19

82

1/1

/19

84

1/1

/19

86

1/1

/19

88

1/1

/19

90

1/1

/19

92

1/1

/19

94

1/1

/19

96

1/1

/19

98

1/1

/20

00

1/1

/20

02

1/1

/20

04

1/1

/20

06

1/1

/20

08

1/1

/20

10

1/1

/20

12

1/1

/20

14

1/1

/20

16

1/1

/20

18

1/1

/20

20

1/1

/20

22

Cars Share of Sales Light Trucks Share of Sales

Source: BEA

U.S. Light Vehicle Sales by Cars and Trucks1976 – September 2021


Commodity Prices, Interest Rates, and Inflation


Inflation is projected to increase

2.8%

3.8%

-0.4%

3.2%

2.2%

1.5%

4.3%

2.1%

-1%

0%

1%

2%

3%

4%

5%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Source: RSQE August 2021, FOMC September 2021

Inflation by Percentage2007-2020, projections for 2021-2024


Producer Price Index – Commodities

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

450.0

Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18 Jan-19 May-19 Sep-19 Jan-20 May-20 Sep-20 Jan-21 May-21 Sep-21

Pro

du

cer

Pri

ce In

dex

Steel Aluminum Plastic Petroleum Health Benefits

Source: BLS

Producer Price Index – CommoditiesJanuary 2017 – September 2021


Changes in PPI – Commodities January 2017 – September 2021

90

140

190

240

Jan

-17

May

-17

Sep

-17

Jan

-18

May

-18

Sep

-18

Jan

-19

May

-19

Sep

-19

Jan

-20

May

-20

Sep

-20

Jan

-21

May

-21

Sep

-21

Steel

90

110

130

150

170

Jan

-17

May

-17

Sep

-17

Jan

-18

May

-18

Sep

-18

Jan

-19

May

-19

Sep

-19

Jan

-20

May

-20

Sep

-20

Jan

-21

May

-21

Sep

-21

Aluminum

90

100

110

120

130

140

150

Jan

-17

May

-17

Sep

-17

Jan

-18

May

-18

Sep

-18

Jan

-19

May

-19

Sep

-19

Jan

-20

May

-20

Sep

-20

Jan

-21

May

-21

Sep

-21

Plastic

50

70

90

110

130

150

170

190

Jan

-17

May

-17

Sep

-17

Jan

-18

May

-18

Sep

-18

Jan

-19

May

-19

Sep

-19

Jan

-20

May

-20

Sep

-20

Jan

-21

May

-21

Sep

-21

Petroleum

90

95

100

105

110

115

120

Jan

-17

May

-17

Sep

-17

Jan

-18

May

-18

Sep

-18

Jan

-19

May

-19

Sep

-19

Jan

-20

May

-20

Sep

-20

Jan

-21

May

-21

Sep

-21

Health Benefits

90

95

100

105

110

115

120

Jan

-17

May

-17

Sep

-17

Jan

-18

May

-18

Sep

-18

Jan

-19

May

-19

Sep

-19

Jan

-20

May

-20

Sep

-20

Jan

-21

May

-21

Sep

-21

Auto Parts

Source: BLS


1-year and 10-year treasury yields and recessions

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018 2021

Bo

nd

Yie

ld R

ate,

%

recession 10-year 1-year

Source: Federal Reserve Economic Research

1-year and 10-year Treasury Yields and Recessions1976 – 2021 YTD


Housing and Credit


U.S. Housing Starts and Auto Sales

0.0

5.0

10.0

15.0

20.0

25.0

0

500

1,000

1,500

2,000

2,500

Ligh

t V

ehic

le S

ale

s (M

illio

ns

SAA

R)

New

Pri

vate

ly O

wn

ed H

ou

sin

g U

nit

s St

arts

(Th

ou

san

ds

SAA

R)

Housing Starts Auto Sales

Source: U.S. Census Bureau and U.S. Department of Housing and Urban Development, New Privately-Owned Housing Units Started: Total Units

U.S. Housing Starts and Auto SalesJuly 2001 – September 2021


Consumer Credit and Light Vehicle SAAR

-25.00

-20.00

-15.00

-10.00

-5.00

0.00

5.00

10.00

15.00

20.00

25.00

0

5

10

15

20

25

Jan

-01

Au

g-0

1

Mar

-02

Oct

-02

May

-03

Dec

-03

Jul-

04

Feb

-05

Sep

-05

Ap

r-0

6

No

v-0

6

Jun

-07

Jan

-08

Au

g-0

8

Mar

-09

Oct

-09

May

-10

Dec

-10

Jul-

11

Feb

-12

Sep

-12

Ap

r-1

3

No

v-1

3

Jun

-14

Jan

-15

Au

g-1

5

Mar

-16

Oct

-16

May

-17

Dec

-17

Jul-

18

Feb

-19

Sep

-19

Ap

r-2

0

No

v-2

0

Jun

-21

% C

hg.

Of

Co

nsu

me

r C

red

it

Ligh

t V

ehic

le S

ales

Light Vehicle Sales SAAR Percent Change of Consumer Credit

Source: Federal Reserve Statistical Release, G.19, Consumer Credit; Automotive News SAAR

Consumer Credit and Light Vehicle SAARJanuary 2001 – September 2021


Gasoline Price and Market Share


U.S. Market Shares of Passenger Cars and CUVs/SUVs and Real Gasoline Price

Cars: 80.5%

Cars: 23.0%CUVs/SUVs: 1.4%

CUVs/SUVs: 54.7%

0.00

1.00

2.00

3.00

4.00

5.00

6.00

0

10

20

30

40

50

60

70

80

90

19

80

19

81

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

YTD

Rea

l Gas

olin

e P

rice

Mar

ket

Shar

e in

Per

cen

tage

Real Gasoline Price Passenger Cars SUVs/CUVs

Source: Wards Intelligence

U.S. Market Shares of Passenger Cars and CUVs/SUVs and Real Gasoline Price1980 – 2021 YTD


U.S. Market Shares of Passenger Cars, CUVs/SUVs, and Pickups

Cars: 80.5%

Cars: 21.2%SUVs: 1.4%

SUVs: 54.0%

Pickups: 17.8%0

10

20

30

40

50

60

70

80

90

19

80

19

81

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

YTD

Mar

ket

Shar

e in

Per

cen

tage

Passenger Cars SUVs/CUVs Pickups

Source: Wards Intelligence

U.S. Market Shares of Passenger Cars, CUVs/SUVs, and Pickups1980 – 2021 YTD


Consumer Confidence


Household Net Worth and Vehicle Sales

0

2

4

6

8

10

12

14

16

18

20

1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

0

20

40

60

80

100

120

140

160

Ligh

t V

ehic

le S

ales

Ho

use

ho

ld N

et W

ort

h in

Tri

llio

ns

Light Vehicle Sales Household Net Worth

Source: Federal Reserve Statistical Release , Z.1, Flow of Funds Accounts of the United States

Household Net Worth and Vehicle Sales1978 – Q2 2021


Consumer Confidence & Sentiment

0

20

40

60

80

100

120

140

160

Jan

-07

May

-07

Sep

-07

Jan

-08

May

-08

Sep

-08

Jan

-09

May

-09

Sep

-09

Jan

-10

May

-10

Sep

-10

Jan

-11

May

-11

Sep

-11

Jan

-12

May

-12

Sep

-12

Jan

-13

May

-13

Sep

-13

Jan

-14

May

-14

Sep

-14

Jan

-15

May

-15

Sep

-15

Jan

-16

May

-16

Sep

-16

Jan

-17

May

-17

Sep

-17

Jan

-18

May

-18

Sep

-18

Jan

-19

May

-19

Sep

-19

Jan

-20

May

-20

Sep

-20

Jan

-21

May

-21

Sep

-21

Consumer Confidence Index UofM Consumer Sentiment Index

Source: The Consumer Confidence Survey, conducted for the Conference Board; Federal Reserve Economic Data

Consumer Confidence & SentimentJanuary 2007 – September 2021


Business Cycles and Industry Trend


US Business Cycles Months of Expansion Since 1945

3745

39

24

106

36

58

12

92

120

73

128

0

20

40

60

80

100

120

140

Oct 1945 -Nov 1948

Oct 1949 -July 1953

May 1954 -Aug 1957

Apr 1958 -Apr 1960

Feb 1961 -Dec 1969

Nov 1970 -Nov 1973

Mar 1975 -Jan 1980

Jul 1980 - Jul1981

Nov 1982 - Jul1990

Mar 1991 -Mar 2001

Nov 2001 -Dec 2007

Jun 2009 -Feb 2020

Mo

nth

s o

f Ex

pan

sio

n

Average Duration of Expansion: 64 Months

Source: National Bureau of Economic Research

US Business Cycles Months of Expansion Since 1945Quarterly, 1945-2021


U.S. Manufacturing Employment & Unemployment Rate

0

2

4

6

8

10

12

14

16

10,500

11,000

11,500

12,000

12,500

13,000

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

Ap

r-1

9

Jul-

19

Oct

-19

Jan

-20

Ap

r-2

0

Jul-

20

Oct

-20

Jan

-21

Ap

r-2

1

Jul-

21

Oct

-21

Un

em

plo

yme

nt

Rat

e

Tho

usa

nd

s o

f W

ork

ers

Manufacturing Employment US Unemployment Rate

Jan. 2013-Jan. 2017: 386,000 increase in manufacturing employment under Obama administration

Jan. 2017-Jan 2021: 156,000 decrease in manufacturing employment under Trump administration

Source: BLS

U.S. Manufacturing Employment & Unemployment RateJanuary 2013 – September 2021


Auto Finance and Debt


Weighted Average New Car Loans Maturity

30

35

40

45

50

55

60

65

70

75

30

35

40

45

50

55

60

65

70

75

2Q

19

71

4Q

19

72

2Q

19

74

4Q

19

75

2Q

19

77

4Q

19

78

2Q

19

80

4Q

19

81

2Q

19

83

4Q

19

84

2Q

19

86

4Q

19

87

2Q

19

89

4Q

19

90

2Q

19

92

4Q

19

93

2Q

19

95

4Q

19

96

2Q

19

98

4Q

19

99

2Q

20

01

4Q

20

02

2Q

20

04

4Q

20

05

2Q

20

07

4Q

20

08

2Q

20

10

4Q

20

11

2Q

20

13

4Q

20

14

2Q

20

16

4Q

20

17

2Q

20

19

4Q

20

20

Mo

nth

s

Maturity of New Car Loans at Auto Finance Companies Maturity of New Car Loans at Finance Companies

Source: Federal Reserve Economic Research and Data, G.19 Consumer Credit

Weighted Average New Car Loans Maturity1971 – Q2 2021


Finance Rate at Auto Finance Companies and Commercial Banks

0

2

4

6

8

10

12

14

16

18

20

1Q

19

78

1Q

19

79

1Q

19

80

1Q

19

81

1Q

19

82

1Q

19

83

1Q

19

84

1Q

19

85

1Q

19

86

1Q

19

87

1Q

19

88

1Q

19

89

1Q

19

90

1Q

19

91

1Q

19

92

1Q

19

93

1Q

19

94

1Q

19

95

1Q

19

96

1Q

19

97

1Q

19

98

1Q

19

99

1Q

20

00

1Q

20

01

1Q

20

02

1Q

20

03

1Q

20

04

1Q

20

05

1Q

20

06

1Q

20

07

1Q

20

08

1Q

20

09

1Q

20

10

1Q

20

11

1Q

20

12

1Q

20

13

1Q

20

14

1Q

20

15

1Q

20

16

1Q

20

17

1Q

20

18

1Q

20

19

1Q

20

20

1Q

20

21

Auto Finance Companies Commercial Banks

Finance Rate at Auto Finance Companies and Commercial Banks1978 – Q2 2021

Source: Federal Reserve Economic Research and Data, G.19 Consumer Credit


Households are Carrying More Debt

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

-

200

400

600

800

1,000

1,200

1,400

1,600

1Q

20

03

1Q

20

04

1Q

20

05

1Q

20

06

1Q

20

07

1Q

20

08

1Q

20

09

1Q

20

10

1Q

20

11

1Q

20

12

1Q

20

13

1Q

20

14

1Q

20

15

1Q

20

16

1Q

20

17

1Q

20

18

1Q

20

19

1Q

20

20

1Q

20

21

Tota

l in

Bill

ion

$

Deb

t in

Bill

ion

$

Student Loans Auto Loans Credit Card Other Total

Source: FRBNY Consumer Credit Panel/Equifax

*Excludes mortgage and home equity line of credit

Household Non-Housing Debt Q1 2003 – Q2 2021


Household Mortgage and Home Equity Debt

-

2,000

4,000

6,000

8,000

10,000

12,000

1Q

20

03

1Q

20

04

1Q

20

05

1Q

20

06

1Q

20

07

1Q

20

08

1Q

20

09

1Q

20

10

1Q

20

11

1Q

20

12

1Q

20

13

1Q

20

14

1Q

20

15

1Q

20

16

1Q

20

17

1Q

20

18

1Q

20

19

1Q

20

20

1Q

20

21

De

bt

in B

illio

n $

Mortgage Home Equity Loans

Source: FRBNY Consumer Credit Panel/Equifax

Household Mortgage and Home Equity DebtQ1 2003 – Q2 2021


Vehicle Sales Outlook


2021 U.S. Sales Forecasts:Units in Millions

15.8 (9/21)

15.5 (10/21)

15.7 (9/21)

15.6 (9/21)

15.0 (9/21)

15.2 (10/21)

15.5 (10/21)


Concluding Remarks:



Concluding Remarks


• CY21 SAAR outlook = 15.47m consensus (subject to downward revision)

• Supply chain and logistics issues to remain into 2022

• U.S. consumer outlook improves, although vehicle sales recovery skewed

Documents

Auto Finance Summit 2021