The North American Automobile Industry...Chevrolet Equinox: July 2009 GMC CUV, XL7: Jan 2010 East Liberty, OH Element July 2008 20 FTARevenueEstimatingConference—Portland,OR9/17/06

1

The North American AutomobileIndustry:

Issues, Trendsand Revenue Implications

Kim HillAssociate Director, Economics and Business Group

Director, Automotive Communities Program

Center for Automotive ResearchAnn Arbor, MI

September 18, 2006

FTA Revenue Estimating Conference—Portland, OR 9/17/062

Center for Automotive Research• Independent non-profit research organization

• Don’t pick winners or losers

• Research activities• Economics and Business Group• Manufacturing, Engineering and Technology• Transportation and Information Systems

• Conference activities– Management Briefing Seminars

• Corporate, public sector, and academic interface• Maintain relationships with industry, government agencies,

universities, research institutes, labor organizations, and othermajor stakeholders of the international automotive community

• Focused on future trends

2


ItIt’’s All About Products All About Product……..Right???..Right???


WHOOPS!

3


ItIt’’s Not Hopelesss Not Hopeless


What Affects Corporate Revenues Affects JobsWhat Affects Corporate Revenues Affects Jobs

Annual U.S. sales

Segment shifts

Increased competition for segment market share

Products built at a plant

Restructuring

Miscellaneous

4


8.2 8.5 9.0 8.6 8.5 8.2 8.2 8.8 9.0 8.77.7 7.9 8.0 8.0

2.52.6 2.8 3.0 3.1 3.4

3.8 3.8 3.9 4.2 4.7 4.8 4.4

2.62.9

3.4 3.3

4.3 4.1 4.4 4.6

8.6 8.4

7.88.3

2.5

4.03.7

4.4

3.6

4.64.6

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07

Car MV/CSU/CUV Other Truck/Van

Mill

ions

Year

13.3 13.915.0 14.7 15.1 15.0 15.6

17.0 17.4 16.9 16.917.

2 16.416.8

16.6 16.6

Stuck on a PlateauStuck on a PlateauNew Light Vehicle Sales 1992 - 2007New Light Vehicle Sales 1992 - 2007

2006 and 2007 estimates by RSQE2006 and 2007 estimates by RSQE


Production Remains SteadyProduction Remains SteadyU.S. Motor Vehicle ProductionU.S. Motor Vehicle Production

1990 1990 –– 2006 2006(millions SAAR)(millions SAAR)

0

2

4

6

8

10

12

14

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006 Y

TD

Production

Source: Federal Reserve

5


But Employment Has FallenBut Employment Has Fallen……

839,500

665,300653,000

401,200 428,300

475,500

350,000

450,000

550,000

650,000

750,000

850,000

1990 1992 1994 1996 1998 2000 2002 2004 2006

YTD

MV Parts MV and Bodies


2.4

-6.3

-2.4

-10 -5 0 5 10

Passenger Cars

Light Trucks

Total

Percentage Change

U.S. Light Vehicle SalesYear-Over-Year Percent Change

(1st Half, 2006)

6


Percentage Change in U.S. Sales of Light Vehicles(2nd Quarter 2006 vs. 2005)

-13.2

-4.7

-8.3

5.2

4.1

6.1

-2.4

-4.3

1.6

-25 -20 -15 -10 -5 0 5 10 15 20 25

GM

Ford

Chrysler Group

Big 3

Japan

Korea

Int. Domestics

Imports

Total 8,375,314-201,831

1,802,165+103,853(21.52%)

2,094,387+82,008

(25.01%)

2,915,056+143,066(34.81%)

4,450,520-403,222(53.14%)

1,467,831-65,642

(17.53%)

1,124,325-55,910

(13.42%)

1,858,364-281,670(22.19%)

Percentage Change

Updated 7/26/06

Source: Automotive News

409,139+6,371(4.89%)


Percentage Change in U.S. Sales of Passenger Cars(2nd Quarter 2006 vs. 2005)

-2.8

5.8

2.3

4.0

5.2

3.5

3.5

7.8

4.6

-25 -20 -15 -10 -5 0 5 10 15 20 25 30 35

GM

Ford

Chrysler Group

Big 3

Japan

Korea

Int. Domestics

Imports

Total 4,156,391+139,870(49.63%)

1,181,744+39,951

(28.43%)

1,250,962+61,751(30.1%)

1,688,041+64,723

(40.61%)

1,723,685+37,858

(41.47%)

551,805+39,782

(13.28%)

376,357+20,593(9.05%)

795.523-22,517

(19.14%)

Percentage ChangeSource: Automotive News

282,844+12,492(6.81%)

Updated 7/26/06

7


-19.6

-9.3

-13.9

6.8

2.5

11.5

-7.5

-10.3

-4.6

-25 -20 -15 -10 -5 0 5 10 15 20 25 30 35

GM

Ford

Chrysler Group

Big 3

Japan

Korea

Int. Domestics

Imports

Total4,218,923--341,701(50.37%)

620,421+63,902

(14.71%)

843,425+20,257

(19.99%)

1,227,015+70,002

(29.08%)

2,726,835-441,080(64.6%)

916,026-105,424(21.71%)

747,968-76,503

(17.73%)

1,062,841-259,153(25.19%)

Percentage ChangeSource: Automotive News

126,295+-6,121(2.99%)

Updated 4/11/06

Percentage Change in U.S. Sales of Light Trucks(2nd Quarter 2006 vs. 2005)


0.2

4.6

10.5

-13.9

-8.0

-11.0

10.9

-4.2

-20 -15 -10 -5 0 5 10 15 20

Small Car

Middle Car

Large Car

Luxury Car

CUV

SUV

Van

Pickup

Percentage Change

Segment Breakdown - U.S. LV SalesYear-Over-Year Percent Change

(1st Half, 2006)

8


Truck Sales Headed DownTruck Sales Headed Down………………..


0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

Jan-99

Apr-99

Jul-99

Oct-99

Jan-00

Apr-00

Jul-00

Oct-00

Jan-01

Apr-01

Jul-01

Oct-01

Jan-02

Apr-02

Jul-02

Oct-02

Jan-03

Apr-03

Jul-03

Oct-03

Jan-04

Apr-04

Jul-04

Oct-04

Jan-05

Apr-05

Jul-05

Oct-05

Jan-06

Apr-06

Jul-06

Gas

olin

e P

rice

s $

1.0

3.0

5.0

7.0

9.0

11.0

13.0

15.0

Lig

ht

Tru

ck S

ales

SA

AR

(M

illi

on

s)

Light Truck Sales

Monthly SAAR

Nominal Gasoline Prices

All Grades All Fuels

Sources: EIA, Ward's Automotive

$3.02

$1.02

11.2

12.6

Fall ‘01GM-Keep America

Rolling

Summer ‘05Big 3-EmployeeDiscounts for All

7.48.6

Light Truck Sales No Longer Immuneto Gas Price Fluctuation

9


New Vehicle RolloutsNew Vehicle Rollouts——20072007


3,878,451

592,875

2,196,592

2,853,762

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009Year

MA

V, C

UV

, C

SU

V

2,000,000

2,100,000

2,200,000

2,300,000

2,400,000

2,500,000

2,600,000

2,700,000

2,800,000

2,900,000

All S

UV

s

MAV, CUV, CSUV

All SUVs

SUVs & CUVs

Source: CSM, JD Power

10


CUVs Built in the Upper MidwestOakville, OntarioFord Edge, Lincoln MKX:October, 2006Ford Fairlane,Lincoln CUV: Mar 2008

Alliston, Ontario Acura MDX: Sep 2006 Honda MAV: Jan 2009

Delta Township, MIGMC Acadia, Saturn Oulook: Nov 2006Buick Enclave: April 2007Chevrolet CUV: June 2008

CAMI—Ingersoll, Ontario Suzuki XL7: August 2006 Chevrolet Equinox: July 2009 GMC CUV, XL7: Jan 2010

East Liberty, OHElementJuly 2008


Light Trucks and The Product Development Cycle

• 6-12 month business case development• A number of factors must be considered including return oninvestment (ROI); market surveys; forecasts of market size, sales,fuel costs, and future consumer preferences; along withtechnology availability.• Capacity on existing lines, powertrain availability

• 24 month product development engineering cycle

• Many market factors can change in this period—gas prices,etc.

• It is remarkable when a company launches a new vehicle thatconsumers want—at the exact time they want it.

11


This Didn’t Work . . .


““Detroit 3Detroit 3”” U.S. Market Share U.S. Market Share1986 1986 –– 2006/2Q 2006/2Q

(Sales of Detroit 3 N. American (Sales of Detroit 3 N. American ““ownedowned”” production) production)

25.5

21.8

39.2

33.5

11.4

14.7

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06/2Q

Year

Percent

Ford GM Chrysler

17.5%

13.4%

22.2%

Down Below 54%Down Below 54%

12


Over $60 Billion in Losses Since 2000!Over $60 Billion in Losses Since 2000!U.S. Automotive Capacity Utilization and ProfitsU.S. Automotive Capacity Utilization and Profits

1978 1978 –– 2005 2005

7880

64

92

60

-12.3-17.9

-4.3 -5.4

9.0

-18.2

0

10

20

30

40

50

60

70

80

90

100

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006 Y

TDYear

Ca

pa

cit

y U

tili

za

tio

n

-25.0

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

Pro

fits

$ B

il.

Cap. Util. ProfitsSource: Federal Reserve, U.S. DOC/BEA


So . . .So . . .GM Is Preparing To Be SmallerGM Is Preparing To Be Smaller

2004-2008 Change in North American Vehicle Production Capacity2004-2008 Change in North American Vehicle Production Capacity

6.2

4.3

0

1

2

3

4

5

6

7

8

GM-2004 GM-2008

Mill

ions

13


Ford Will Also ShrinkFord Will Also Shrink

2004-2008 Change in North American Vehicle Production Capacity2004-2008 Change in North American Vehicle Production Capacity

4.6

3.3

0

1

2

3

4

5

6

7

8

Ford-2004 Ford-2008

Mill

ions


Oklahoma City-2006

Lansing Craft Centre-2006

Spring Hill - 2006

Atlanta – 2008

Oshawa 1 - 2006Oshawa 2 - 2008

Moraine - 2006

Lansing Metal - 2006

Pittsburgh Metal - 2007

Portland - 2006

Ypsilanti SPO - 2007

St. Catherine’sPowertrain -2008

Flint Engine 1 - 2008

Baltimore - 2005Linden - 2005

Lansing M - 2005

Lorain - 2005

U.S. Announced and Executed Closures 2005-2008U.S. Announced and Executed Closures 2005-2008

St. Louis - 2006Doraville - 2008

Wixom – 2007

Batavia – 2008

Windsor Casting – 2008St Thomas – 2008

Ford Shutdowns, +7 More TBDDelphi PlantShutdowns

ACH Plant Shutdowns

Twin Cities - 2008

Norfolk - 2008

GM & Ford Shutdowns = 22 PlantGM & Ford Shutdowns = 22 Plantand Line Shutdownsand Line ShutdownsDelphi Sale and Closures = 21 PlantsDelphi Sale and Closures = 21 PlantsACH Sale and Shutdowns = 14ACH Sale and Shutdowns = 14PlantsPlants

14


Source: Kim Korth, IRN presentation to OESA 2005 Nashville Regional meeting

1999 2000 2001 2002 2003 2004 2005

BREED Technologies

(9/99)

Key Plastics(3/00)

Cambridge Industries(5/00)

Mexican Industries

(7/01)

A.G. Simpson(10/01)

Federal Mogul(12/01)

Harvard Industries(2/02)

DCT(8/02)

GenTek(10/02)

Exide Technologies

(4/02)

Talon Automotive

(7/01)

Hayes Lemmerz(12/01)

Aetna Industries(2/02)

Insilco(1/03)

Valeo(1/02)

Venture Industries

(5/03)

Atchison Casting(8/03)

Precision Tool & Die

(12/03)

Veltri Metal(1/04)

Citation(9/04)

Amcast Industrial(12/04)

Oxford Automotive(12/04)

Intermet(11/04)

Tower(2/05)

Collins & Aikman(5/05)

Meridian(4/05)

EaglePicher(4/05)

2006

Dana(3/06)

Delphi(9/05)

Hayden(2/06)

Major Supplier Bankruptcies— Not Everyone Will Make It……..

?


U.S.Assembly Plant

2,000 Jobs

.56 Powertrain Plantsor 560 Jobs

.56 Stamping Plants or850 Jobs

3,800 Parts & ComponentJobs or a Total of

7,210 Manufacturing Jobs!

And another 7,700 Non-manufacturingSupplier Jobs

Vehicle Assembly is Huge Driver of Economy

Source: CAR Research

15


7.5

Approximate NationalAutomotive Manufacturing Multiplier

of

6.5 U.S. Jobsfor each Job at a

U.S. Motor Vehicle Firm

Source: Contribution of the U.S. Motor Vehicle to the Economies of the United States, California, New York, and New Jersey, Center forAutomotive Research, 2003,Contribution of Toyota to the Economies of Fourteen States and the United States in 2003, Center for Automotive Research 2005


2003 Average Annual Salary (U.S.)

$26,902

$31,661

$33,075

$44,675

$63,825

$34,919

$40,506

$0 $10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

Non-Farm Private

Sector

Financial activities

Manufacturing

Durable Goods

Insurance carriers

MV Parts

Light Trucks & Autos

16


For Example:Upper Midwest Pickup and SUV Assembly

2,916,820 2,990,772 37,057

173,712 172,273 2,298Princeton WestIndianaToyota

234,248 218,583 2,416Pontiac AssemblyMichiganGM

236,504 314,810 3,435Oshawa TruckOntarioGM

241,204 299,020 3,580MoraineOhioGM

257,560 260,760 2,587Fort WayneIndianaGM

122,952 176,066 2,414FlintMichiganGM

199,280 138,700 3,040Michigan TruckMichiganFord

208,304 228,744 2,786Kansas City 2MissouriFord

225,600 207,263 2,760Dearborn TruckMichiganFord

242,520 231,423 4,056WarrenMichiganDCX

159,800 96,381 974Toledo SouthOhioDCX

201,536 220,718 2,013Toledo NorthOhioDCX

165,440 147,400 2,109St Louis NorthMissouriDCX

248,160 278,631 2,589Jefferson NorthMichiganDCX

CapacityProductionEmploymentPlantStateCompany

Source: The Harbour Report 2006


Upper Midwest Light Truck Significance

37,057 Employees

x 7.5 Multiplier* _______________________

≈ 280,000 Jobs Impacted in Great Lakes Region

*Source: CAR Research

This includes dealerships, of which 1/3 of Ford and GM dealers are losing money

17


An Integrated Industry


New International Assembly Facilities as of 2005New International Assembly Facilities as of 2005

300,0001,1002,000Hope Hull, ALHyundai

262,0001,3501,315Lafayette, INSubaru

200,000

250,000

2,200

500 (originalinvestment)

4,600

2,775

Spartanburg, SC

Ingersoll, ON

BMW

CAMI-GM

5,152,000 Total

250,000

300,000

500,000

2,400

2,600

5,310

4,342

4,659

6,934

Cambridge, ON

Princeton, IN

Georgetown, KY

TMM-Canada

TMM-Indiana

TMM-Kentucky

370,0001,3005,715Fremont, CANUMMI-GM

400,000

550,000

1,430

1,600

4,100

6,700

Canton, MS

Smyrna, TN

Nissan

240,0008501,900Normal, ILMitsubishi

160,0002,2004,000Vance, ALMercedes-Benz

300,000

390,000

240,000

440,000

1,200

1,500

920

3,200

4,300

4,375

2,230

4,315

Lincoln, AL

Alliston, ON

East Liberty, OH

Marysville, OH

Honda

Actual Capacity as of2005

Total Investment-through 2005

($ million)

Employment as of2004LocationCompany

Source: Automotive News, Harbour Report, CAR research

64,260

18


Honda in the Midwest—Minimize Costs, Logistics, SupplierUpheaval

Source: Honda of America, 2006

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Toyota in the Midwest (and beyond)—Minimize Costs, Logistics, Supplier Upheaval?

• Toyota Pursuing:• Increased Local Sourcing• Additional Engine plant• Additional Assembly plant(s)

19


Announced International Assembly Facilities:2006-2008

Source: Automotive News, Harbour Report, CAR research

950,000Total

150,000

50,000

100,000

50,000

100,000

300,000

200,000

800

50

650

300

230

1,200

550

2,000

-----

1,300

700

1,000

2,500

1,500

San Antonio, TX

San Antonio, TX

Woodstock, ON

Woodstock, ON

Lafayette, IN

Troup County, GA

Greensburg, IN

TMM-TexasTMM-Texas (Addition)

TMM-CanadaTMM-Canada

(Addition)Toyota-Subaru

KiaHonda

NewCapacity

Investment

($ million)EmploymentLocationCompany

9,000


Average IncentivesCompared to Kia and Toyota 2006 Announcements

$409.2

$130.0

$68.0

$22.2

$0.0

$50.0

$100.0

$150.0

$200.0

$250.0

$300.0

$350.0

$400.0

Toyota-Lafayette, IN

North Average South Average Kia, GA

Toyota-Lafayette, IN

North Average

South Average

Kia, GA

Source: CAR research—Book of Deals

Mill

ions

20


Average Incentive Comparison(OEM Plants 1993-2005)

$57.1 $44.2

$61.1

$24.7

$6.8

$4.1

$0.0$20.0$40.0$60.0

$80.0$100.0$120.0$140.0$160.0

$180.0$200.0

North SouthTax Abatements Infrastructure Employee Recruitment, Trg., ScreeningSource: CAR research—Book of Deals

Mill

ions


Automotive Jobs Drive All Wages UpAutomotive Jobs Drive All Wages Up

A Grant County (Indiana) example—10 countyregion:

– A county with significant automotive industry employment(>6%) has higher salaries in all industries.

– On average all jobs in a county will pay between 15% and18% more than a similar county with low automotiveindustry employment.

– This is true even in fields unrelated to manufacturing or theautomotive industry.

21


Developments

Honda assembly plant in Indiana

Honda engine plant in Ontario

Honda transmission plant in Alabama

Linamar Corporation ($1B) in Ontario

Chrysler to build Challenger (LX platform)– Where it would be built is big question—Brampton already

on 3 shifts

GM to build Camaro in Ontario

Ford upgrading 3 Mexican plants over several years

Kia assembly plant in Georgia


Developments

Toyota to double the amount of hybrids it offers byearly next decade

Hybrid Accord sales dropping off—other hybrids?– cancelled

GM investing $330 million at Warren (MI)transmission plant—new six speed

Ethanol (E-85)—alternative fuels becoming just asimportant as alternative powertrains

Ford investing $1 billion in MI—potential 13,000direct jobs—56,000 with indirect in MI, potential foradditional 32,000 jobs across region

22


A Recap: What Affects State Revenues?A Recap: What Affects State Revenues?

Annual U.S. sales —mixed with sales of imported vehicles

Segment shifts —gas prices catch some automakers off guard,movement down-segment in times of tight money (recession)

Increased competition for segment market share —mostareas of former Big 3 strength have been matched by new U.S.-based international vehicle companies

Products built at a plant —falling sales can jeopardize a plant’sfuture (e.g., St. Louis—Explorer)

Restructuring —Ford and GM downsizing: less employees,direct impact on suppliers

Miscellaneous —tax abatements on new investment—both newstructure and equipment within old structure


WhatWhat’’s It All Mean?s It All Mean?

Big 3 production being replaced (slowly) by new U.S.facilities of international MV companies

Productivity improvements mean less jobs, shortterm,

But, corresponding reduction in labor cost aspercentage of total cost may attract more companiesto manufacture in the U.S.

Automobile industry will be (is) as strong as it hasever been, but individual communities and statesmay suffer, while others prosper

23


“…the management upheavals pointto a new order in what remains oneof the most important industries inthe U.S. economy.”

—The Wall Street Journal, Saturday, September 16, 2006


QUESTIONS???

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Documents

The North American Automobile Industry...Chevrolet Equinox: July 2009 GMC CUV, XL7: Jan 2010 East Liberty, OH Element July 2008 20 FTARevenueEstimatingConference—Portland,OR9/17/06