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TOP INSIGHTS
SHAPING THE AUTOMOTIVE INDUSTRY
ISABELLE HELMS, VP, RESEARCH & MARKET INTELLIGENCE
JONATHAN SMOKE, CHIEF ECONOMIST
THE ECONOMY
3.02.82.32.2
4.23.5
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
Real Gross Domestic Product (SAAR) % Growth by Quarter
ECONOMIC EXPANSION ACCELERATED IN 2018
Source: United States Bureau of Economic Analysis
GROWTH SLOWED IN Q3 FROM VERY STRONG Q2; BEST 2 QUARTERS SINCE 2014
STRONG JOB GROWTH AND NEW LOWS IN UNEMPLOYMENT
Source: BLS
2018 SAW 2.6 MILLION JOBS CREATED OR 220K VS. 182K AVERAGE IN 2017 AND 195K AVERAGE IN 2016
-1000
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Monthly Job Creation
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Unemployment RatesHeadline Unemployment % (U3) Underemployment Rate % (U6)
$51,630
$(6,241)
$(901)
$44,488
$53,430
$(6,243)
$(1,008)
$46,179
$(10,000)
$-
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
Income Taxes Interest Payments Buying Power
Per Capita Income and Buying Power2017 2018
TAX REFORM BOOSTED DISPOSABLE PERSONAL INCOME
Source: US Bureau of Economic Analysis Personal Income and Consumption
LOWER TAX RATES EFFECTIVELY ALLOWED AVERAGE INCOME GAINS TO TRANSLATE INTO EQUIVALENT GAINS IN SPENDING
NEW VEHICLE SALES
NEW VEHICLE SALES MANAGED A SLIGHT GAIN IN 2018
Source: Cox Automotive, January 2019
17.2
8
9
10
11
12
13
14
15
16
17
18
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
LIGHT VEHICLE SALES OUTLOOK (MILLIONS)
7%FLEET SALES UP
OEMS PULLED THE FLEET LEVER IN 2018
RETAIL SALES DOWNVS.
1%
Source: Bobit // Kelly Blue Book // Autodata
THE MARKET’S RELATIVE STRENGTH HAS BEEN
SUPPORTED BY GROWTH IN FLEET SALES
FLEETING STRATEGY
USED VEHICLE SALES
33
34
35
36
37
38
39
40
Jan-13
Mar-13
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
Mar-15
May-15
Jul-15
Sep-15
Nov-15
Jan-16
Mar-16
May-16
Jul-16
Sep-16
Nov-16
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18
May-18
Jul-18
Sep-18
Nov-18
Millions
USED SALES REACHED A NEW PEAK
Source: Cox Automotive Estimates based on IHS Markit Registrations
USED VEHICLE REGISTRATIONS (ANNUALIZED VOLUME)
DECLINE OF CARS NOT REFLECTED IN WHOLESALE MARKET VOLUMES
Source: Autodata, Manheim
THE SUV REIGNS SUPREME IN NEW VEHICLE SALES WHILE CARS STILL DOMINATED THE USED CAR MARKET
50%
11%
33%
6%
0%
10%
20%
30%
40%
50%
60%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Manheim Sales by CategoryCAR PICKUP SUV VAN
30%
16%
49%
5%
0%
10%
20%
30%
40%
50%
60%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
New Vehicle Sales by CategoryCAR PICKUP SUV VAN
INTEREST RATES AND PAYMENTS
0
1
2
3
4
5
6
7
8
9
%
Interest RatesNew Auto 60 Mo New Auto 48 Mo Used Auto 36 Mo US 10 Year Treasury Fed Discount Rate
“BEST AVAILABLE” AUTO RATES AT SEVEN-YEAR HIGH
Source: Bankrate.com, US Federal Reserve, Bloomberg
THE DISCOUNT RATE ENDED 2018 UP 1% WHILE BEST AVAILABLE AUTO RATES WERE UP MORE AND UP 2.4% FROM ABSOLUTE LOW
PAYMENT INFLATION IMPACTED CONSUMERS
Source: Cox Automotive/Dealertrack
$350
$400
$450
$500
$550
$600
2014 2015 2016 2017 2018
LeaseLoanUsed
MONTHLY PAYMENT PAYMENT DIFFERENCES
$20
$40
$60
$80
$100
$120
$140
$160
2014 2015 2016 2017 2018
Lease VS. UsedNew Loan VS. LeaseNew Loan VS. Used
AUTO LENDING
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
$0.0
$20.0
$40.0
$60.0
$80.0
$100.0
$120.0
$140.0
$160.0
$180.0
04:Q
104
:Q2
04:Q
304
:Q4
05:Q
105
:Q2
05:Q
305
:Q4
06:Q
106
:Q2
06:Q
306
:Q4
07:Q
107
:Q2
07:Q
307
:Q4
08:Q
108
:Q2
08:Q
308
:Q4
09:Q
109
:Q2
09:Q
309
:Q4
10:Q
110
:Q2
10:Q
310
:Q4
11:Q
111
:Q2
11:Q
311
:Q4
12:Q
112
:Q2
12:Q
312
:Q4
13:Q
113
:Q2
13:Q
313
:Q4
14:Q
114
:Q2
14:Q
314
:Q4
15:Q
115
:Q2
15:Q
315
:Q4
16:Q
116
:Q2
16:Q
316
:Q4
17:Q
117
:Q2
17:Q
317
:Q4
18:Q
118
:Q2
18:Q
3
Billio
ns
Auto Loan Origination $ by Credit Score<620 620-659 660-719 720-759 760+ <620%
EASIER LENDING SUPPORTED PEAK AUTO SALES; LENDING EXPANDED IN Q3
Source: New York Federal Reserve Consumer Credit Panel/Equifax
LENDING GREW BY 4.6% Y/Y IN Q3 BY 10% GAINS IN SUBPRIME AND 8% GAINS IN 760+ $ VOLUMES
USED CAR PRICES
4.3%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
Jan-96 Jan-97 Jan-98 Jan-99 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
USED VEHICLE VALUES SAW ANOTHER ABOVE AVERAGE YEAR
Source: Manheim
YEAR-OVER-YEAR PRICE PERFORMANCE ON MANHEIM USED VEHICLE VALUE INDEX HAS BEEN STRONGER THAN AVERAGE
Monthly Average = 1.3%
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 Week2014 2015 2016 2017 2018
THREE-YEAR-OLD VEHICLES SAW ABNORMAL SUMMER APPRECIATION
Source: Manheim
11 WEEKS OF APPRECIATION IN THE SUMMER BROUGHT PRICES TO A NEW EQUILIBRIUM REFLECTING AN AVERAGE 2% INCREASE IN VALUE
AFFORDABLE CARS OUTPERFORMED THE USED CAR MARKET
Source: Manheim
PERCENT CHANGE IN MANHEIM INDEX YEAR-OVER-YEAR IN 2018
4.7%
5.8%
4.2%
0.9%
3.5%4.0%
6.7%
0%
1%
2%
3%
4%
5%
6%
7%
8%
Industry Compact cars Midsize cars Luxury cars Pickups SUV/CUV Vans
TARIFFS
FRANCHISE DEALERS WORRY ABOUT IMPORT TARIFFS
OVERALL Q4 2018 Q3 2018
Positive Impact 10% 11%
No Impact 51% 51%
Negative Impact 39% 38%
FRANCHISE
Positive Impact 9% 9%
No Impact 34% 35%
Negative Impact 57% 56%
INDEPENDENT
Positive Impact 11% 11%
No Impact 56% 57%
Negative Impact 33% 32%
Dealer Sentiment Index Q4 2018Dealer Sentiment Index Q4 2018
Q: Which of the following best describes the impact on your business’ profitability next quarter if tariffs are imposed on imported vehicles and parts?
Source: Cox Automotive Dealer Sentiment Index Q4 2018
THE US MARKET IS HEAVILY DEPENDENT ON A COMPLEX GLOBAL SUPPLY CHAIN
Source: Cox Automotive estimates based on IHS Markit Registrations
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
COMPACT CAR LUXURY CUV VAN PICKUP MIDSIZE CAR SUV
USA MEXICO+CANADA JAPAN SOUTH KOREA EUROPE
COMPOSITION OF NEW VEHICLES SOLD IN THE US BY MAJOR SEGMENTS AND MAJOR REGIONS OF ORIGIN
EACH BRAND’S EXPOSURE TO TARIFFS DIFFERS
Source: Cox Automotive
100% 99%
89%
81%76%
64% 64% 62%
53% 53% 53%51% 49% 48%
46%
36% 34% 33% 31%29%
27%
18%14%
7%
0%0% 1%
11%
19%24%
36% 36% 38%
47% 47% 47%49% 51% 52%
54%
64% 66% 67% 69%71%
73%
82%86%
93%
100%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Domestic Share Import Share
ALFA ROMEOASTON MARTIN
AUDIBENTLEYFERRARI
FIATGENESISJAGUAR
LAMBORGHINILAND ROVER
LOTUSMASERATI
MAZDAMCLAREN
MINIPORSCHE
ROLLS ROYCESMARTCAR
VOLVO
… B A S E D O N N O N - U S A P R O D U C T I O N
DIGITAL RETAILING
“I AM SATISFIED WITH…”
77%Test Drive
73%Interactions with
Sales people
59%Interactions with
F&I Department
46%Length of Process
Source: 2018 Cox Automotive Car Buyer JourneyBase: Total 2018 (n=1,755)
Q102. How satisfied were you with each of the following? Please use a scale from 1 to 10 where 10 means ‘Extremely satisfied” and 1 means “Not at all satisfied”.% Satisfied (8-10)
Source: Cox Automotive Future of Digital Retail Study (November 2017)
want to do one or more steps of
the purchase process online
%
Average time saved on the deal
by completing steps online
30 MINUTESSource: 2018 Cox Automotive Car Buyer Journey
CBJ: Heavy DR 2018 (n=85), Non DR 2018 (n=1,438) Q1521. Approximately how much time did you spend with the dealership/seller where you purchased/leased your vehicle?
WHAT CONSUMERS WANT VS. WHAT THEY DO TODAY
71% 43% 51%
% of buyers who did at
least one step online
away from dealership56% 25% 14%
Note: Search, Service dept tour, and Vehicle orientation not includedBase: Total n=2550
B4a-B12. Which of these would you most prefer to do [per step]?
find info on incentives, trade-in value,
info on add-ons, trade-in offer
apply for financing, notified of
financing qualification
select add-ons, four square,
make a deposit, finalize price
Source: Cox Automotive Future of Digital Retail Study (November 2017) //
2018 Cox Automotive Car Buyer Journey
GET INFORMATION
ABOUT THE DEAL
UNDERSTAND &
SECURE FINANCINGSTRUCTURE
THE DEAL
more likely to buy from a
dealership that allows them to
complete steps of the vehicle
purchase online
Base: Total n=2550, D1. If a dealership offered the following options for purchasing/leasing a vehicle, how would each impact your decision to purchase/lease from that particular dealership, if at all? Source: Cox Automotive Future of Digital Retail Study (November 2017)
%
FIXED OPERATIONS
Source: 2018 Cox Automotive Service Industry Study
70% of consumers who purchased or leased from a
dealer did not return for service in the past year
1estimate based on revenue calculations from NADA Data 2017: Annual Report and the 2018 Cox Automotive Service Industry Study.2 Based on an estimated 16,800 franchise dealers in the United States
$266Bannual lost revenue
across all franchise dealers1
$15.9Mannual lost revenue
per franchise dealer2
Source: 2018 Cox Automotive Service Industry Study
1. Total cost is NOT reasonable
2. NOT a convenient location
3. They will overcharge me
4. Unreasonable labor charges
5. Unreasonable parts charges
Cost and Location Are the Top Barriers to Retention
TOP REASONS WHY CONSUMERS
DON’T USE DEALER OF PURCHASE
FOR SERVICE
• Source: Cox Automotive Consumer Community, 2018
60% of consumers are more willing to
travel further for service
54% of consumers are willing
to pay more for service
IF THE PROVIDER OFFERED ENHANCED SERVICES (on left)…
ENHANCEMENTS:
Request service visit add-ons online
Review/approve estimates electronically
Ride-sharing services provided
Valet service
Guaranteed loaner vehicle
Minimal-click scheduling via mobile device
Video or pictures of recommended service
Online bill pay
In-lane bill pay via mobile device
Ultimately, Consumers Want Ease!
• Source: KBB Ownership Study
MUST HAVES
DIFFERENTIATING FEATURES
UNDERLYINGMOTIVATIONS
Peace of mind
Ultra-convenientStress-free
Predictive
Flexibility PersonalizedTransparency
Saves money Saves effortSaves time
MOBILITY
“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
…in 5 years …in 10 years
28% 35%
“Consumers’ Primary Mode of TransportationWill Not Be a Personally-Owned Vehicle”
(among dealers)
Source: 2018 Cox Automotive Evolution of Mobility Study
93%72%
Share of Miles Traveled byPersonally-Owned Vehicle
Future Scenario:Wide Accessibility
of Alternatives*
Today:Limited Accessibility
of Alternatives*
-23%
*transportation alternatives: public transportation, ride-hailing, car-sharing, & vehicle subscription
Car Subscription*: 0.2%
Ride-hailing: 2.1%
Car sharing: 0.5%
Car subscription*: 9.5%
Ride-hailing: 1.3%
Car sharing: 1.1%
+4,650%
-38%
+120%
Source: 2018 Cox Automotive Evolution of Mobility Study
Share of Miles Traveled by Alternative Ownership Models
Future Scenario:Wide Accessibility
of Alternatives
Today:Limited Accessibility
of AlternativesChange:
*Defined as Multi-vehicle Luxury Subscription
Transportation alternatives: public transportation, ride-hailing, car-sharing, & vehicle subscription
Source: 2018 Cox Automotive Evolution of Mobility Study
Dealer Motivators for Offering Car Subscription / Car Sharing Solutions (in descending order)
To create NEW revenue streams
To appeal to a NEW consumer base
To appeal to younger consumers
To stay relevant
To prepare for the future
12
34
5
75%of dealers believe there are
benefits to offering car subscription / car-sharing services
Source: 2018 Cox Automotive Evolution of Mobility Study
Dealer Barriers For Offering Car Subscription / Car-Sharing (in descending order)
Not enough knowledge about how to set it up
Concern that it would cost more to incorporate than it would be worth
It would require too many resources to change the business model
Need for outside support to get it off the ground
It’s too different from the current dealership model
12
34
5
83%of dealers believe there are
challenges to ramping up a car subscription / car-sharing service
44Source: 2018 Cox Automotive Evolution of Mobility Study
Ideal Partner Among Franchise Dealers Who Plan
to Adopt a Fleet-Based Model
Third party/specialty company
Technology-only company
OEM/Franchise & third party/specialty company
OEM/Franchise
10%
4%
46%
33%
None, I’d prefer to do it myself 6%