Wholesale Market Insights - Manheim Auctions...prices year-over-year are mixed with the most affordable non-luxury cars outperforming other segments. Rank Source(Rank) Cat egory Subcat

Wholesale Market InsightsThrough September 2018

J o n a t h a n S m o k e & Z o R a h i m

1

T R A N S F O R M I N G T H E W AY T H E W O R L D B U Y S , S E L L S & O W N S C A R S

Manheim Used Vehicle Value Index

All Manheim U.S. sales

Classify by market segment

Account for differences in mileage

Weight to provide unchanging segment mix

Seasonally adjust

Steps:

A single measure of used vehicle price

change that is independent of underlying

segment shifts in the characteristics of

vehicles being sold

Concept:

4

Used Vehicle Values Set New Record for Third Straight Month

Source: Manheim/Cox Automotive

139.9

90

95

100

105

110

115

120

125

130

135

140

145

Jan-95 Jan-98 Jan-01 Jan-04 Jan-07 Jan-10 Jan-13 Jan-16

Prices in September increased 0.14% versus August 2018 and were up 3.7% compared to September 2017

5

Used Vehicle Values Set New Record for Third Straight Month

Year-over-year price performance has been much stronger than average over the last 12 months

3.7%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%



6

Manheim Index versus Mix & Quality Adjusted New Vehicle Price with 3 ½ year Lag

After recent increases, used prices have shifted above the new vehicle price trend

30%

35%

40%

45%

50%

55%

60%

Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17

Source: Bureau of Labor Statistics, Manheim/Cox Automotive

7

Wholesale Used Vehicle Prices vs. New Vehicle Prices


$25,000

$27,000

$29,000

$31,000

$33,000

$35,000

$37,000

$39,000

$9,500

$10,000

$10,500

$11,000

$11,500

$12,000

$12,500

$13,000

$13,500

$14,000

$14,500

Jan-1

2

Ma

r-1

2

Ma

y-1

2

Jul-1

2

Sep-1

2

No

v-1

2

Jan-1

3

Ma

r-1

3

Ma

y-1

3

Jul-1

3

Sep-1

3

No

v-1

3

Jan-1

4

Ma

r-1

4

Ma

y-1

4

Jul-1

4

Sep-1

4

No

v-1

4

Jan-1

5

Ma

r-1

5

Ma

y-1

5

Jul-1

5

Sep-1

5

No

v-1

5

Jan-1

6

Ma

r-1

6

Ma

y-1

6

Jul-1

6

Sep-1

6

No

v-1

6

Jan-1

7

Ma

r-1

7

Ma

y-1

7

Jul-1

7

Sep-1

7

No

v-1

7

Jan-1

8

Ma

r-1

8

Ma

y-1

8

Jul-1

8

Manheim Non-Adjusted Price (LHS) Average new vehicle transaction price per KBB (RHS)

8

Three-Year-Old Vehicles Seeing Much Stronger Prices

After 11 straight weeks of increases then normalization, prices are up 1% when normally would be down 3.6%


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 Week

2015 2016 2017 2018

9

Three-Year-Old Non-Luxury Vehicles Now Seeing Much Stronger Prices

2018 spring bounce stronger than last 3 years followed by summer ramp up


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 Non-Luxury Model MMR Index by Week

2015 2016 2017 2018

10

Three-Year-Old Luxury Vehicles Were Seeing Normal Depreciation

Luxury vehicles moved later and less than non-luxury but also slightly ahead of last year


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 Luxury Model MMR Index by Week

2015 2016 2017 2018

11

One-Year-Old Vehicles Had Seen Little Depreciation This Year Until Recently

One-year-old vehicles now below last year but down only slightly from beginning of the year


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

1-Year-Old Model MMR Index by Week

2014 2015 2016 2017 2018

12

Retention Values Have Been Trending Higher This Year Relative to Last Year

Adjusting for MSRP and fixing the basket of vehicles by what was sold showing 2 full points over last year

Source: Kelley Blue Book/Cox Automotive

45%

47%

49%

51%

53%

55%

57%

59%

61%

63%

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

CY 2016 CY 2017 CY 2018

13

Percent Change in Wholesale Prices for Major Market Segments

All major segments saw year-over-year gains in September


3.7%

7.1%

4.4%

0.1%

2.4% 2.7%

1.2%

0%

5%

10%

15%

20%

25%

30%

35%

Industry Compact cars Midsize cars Luxury cars Pickups SUV/CUV Vans

1 year

2 years

3 years

4 years

14

Shifting Consumer Preferences Not Reflected in Wholesale Market Volumes

The SUV reigns supreme in new vehicle sales while cars still dominated the used car market


51%

11%

33%

6%

0%

10%

20%

30%

40%

50%

60%

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Manheim Sales by Category

CAR PICKUP SUV VAN

31%

16%

48%

5%

0%

10%

20%

30%

40%

50%

60%

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

New Vehicle Sales by Category

CAR PICKUP SUV VAN

15

Average Auction Price – Rental Risk Units

Average price for rental risk units sold in September up 6% y/y and flat m/m


$13,500

$14,000

$14,500

$15,000

$15,500

$16,000

$16,500

$17,000

$17,500

1 2 3 4 5 6 7 8 9 10 11 12

2015

2016

2017

2018

16

Average Mileage – Rental Risk Units Sold at Auction

Average mileage for rental risk units in September was up 5% compared to a year ago and up 2% m/m


44,339

20,000

25,000

30,000

35,000

40,000

45,000

50,000

55,000

60,000


17

Distribution of Rental Risk Vehicles


2016 Q3 2017 Q3 2018 Q3

Number of unique

year, make, model,

body configurations

sold

3,352 2,404 2,980

Share accounted for

top 10 YMMB 15.7% 11.8% 11.1%

Share accounted for

top 25 YMMB 27.1% 21.2% 20.6%

Number of YMMB to

reach 50% share 97 117 132

18

Rental Risk Units Sold by Condition


0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

2015 Q4 2016 Q1 2016 Q2 2016 Q3 2016 Q4 2017 Q1 2017 Q2 2017 Q3 2017 Q4 2018 Q1 2018 Q2 2018 Q3

0 - 1.9 2.0 - 2.9 3.0 - 3.9 4.0 - 4.9 5.0

19

Rental Risk Units Sold by Make


0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

2015 Q4 2016 Q1 2016 Q2 2016 Q3 2016 Q4 2017 Q1 2017 Q2 2017 Q3 2017 Q4 2018 Q1 2018 Q2 2018 Q3

Chevrolet Ford Nissan Toyota Dodge Hyundai Chrysler VW Jeep Kia Mazda All other

20

Rental Risk Units Sold by Segment


0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

2015 Q4 2016 Q1 2016 Q2 2016 Q3 2016 Q4 2017 Q1 2017 Q2 2017 Q3 2017 Q4 2018 Q1 2018 Q2 2018 Q3

Compact Car Midsize Car Luxury Car Pickup Sports Car SUV Van

21

Manheim Market Report (MMR) Vehicle Insights


Top selling vehicles in September at Manheim depreciated in the last 30 days (September 1 – October 1), while

prices year-over-year are mixed with the most affordable non-luxury cars outperforming other segments.

Rank Source(Rank) Category Subcategory Vehicle 1-Oct Past 30 Days Last Year Current Dep L12M Dep/Mo

1 All Midsize Car Midsize Car Premium 2015 NISSAN ALTIMA 4C 4D SEDAN S $10,550 $10,650 $10,650 -0.9% -0.1%2 All Luxury Luxury Car Premium 2015 MERCEDES-BENZ C CLASS 4D SEDAN C300 $19,500 $19,900 $23,100 -2.0% -1.3%

3 All Luxury Luxury Car Premium 2015 MERCEDES-BENZ C CLASS 4D SEDAN C300 4MATIC $20,400 $20,700 $23,200 -1.4% -1.0%

4 All Compact Car Compact Car Premium 2016 FORD FUSION FWD 4D SEDAN 2.5L SE $12,150 $12,300 -1.2%5 All Compact Car Compact Car Premium 2015 NISSAN SENTRA 4D SEDAN SV $9,225 $9,325 $8,875 -1.1% 0.3%

1 Dealer Dealer Pickup Pickup Lite Duty Full 2016 FORD F150 4WD V8 FFV CREW CAB 5.0L XLT $28,800 $29,000 $30,700 -0.7% -0.5%

1 Lease Lease Luxury Luxury Car Premium 2015 MERCEDES-BENZ C CLASS 4D SEDAN C300 $19,500 $19,900 $23,100 -2.0% -1.3%

1 Rental Rental Van Van Compact 2017 DODGE GRAND CARAVAN FFV 4D WAGON SXT $15,150 $15,500 $18,950 -2.3% -1.7%

22

Used Sales Have Fallen Slightly from 39.5 Million Annualized

Source: Cox Automotive estimates based on IHS Markit Registrations

33

34

35

36

37

38

39

40

Jan

-13

Mar

-13

May

-13

Jul-

13

Sep

-13

No

v-13

Jan

-14

Mar

-14

May

-14

Jul-

14

Sep

-14

No

v-14

Jan

-15

Mar

-15

May

-15

Jul-

15

Sep

-15

No

v-15

Jan

-16

Mar

-16

May

-16

Jul-

16

Sep

-16

No

v-16

Jan

-17

Mar

-17

May

-17

Jul-

17

Sep

-17

No

v-17

Jan

-18

Mar

-18

May

-18

Jul-

18

Sep

-18

Mill

ion

s

23

Q3 2018 Cox Automotive Dealer Sentiment Index

U.S. automobile dealers were more positive than

negative in describing the current market in the third

quarter according to the Q3 2018 Cox Automotive

Dealer Sentiment Index (CADSI). With an index score

of 51, the improvement relative to last year’s Q3 score

of 45 was statistically significant.

The index for the next three months is 57, indicating

dealers expecting conditions to be strong in the future

outnumber those who think conditions will be weak. The

difference from last year’s score of 52 shows that

dealers believe the market is strong and optimism is not

fading.

As seen consistently in the CADSI data, sentiment

skews more positive for franchised dealers compared to

independents. While the aggregate view of the current

market was a strong 51, franchised dealers were

positive at 59 and independents were weak at 48.

However, the gap in optimism about the next 90 days

closed this quarter as franchises saw a decline from

69 to a not-quite-as-positive 61. Independents, on

the other hand, saw a gain in optimism, rising to 55 in

Q3 from 52 in Q2.

In the Q3 2018 CADSI, we also explored dealers

expectations on the impact of proposed auto tariffs on

business profitability in the future.

More than a third of dealers in total and over half of

franchised dealers expect tariffs on imported vehicles

and parts to have a negative impact on their business’

profitability.

While only 11 percent of dealers indicated there

would be a positive impact if import tariffs are

imposed, the silver lining seems to be what

consumers will purchase more of instead of imports,

namely used vehicles and domestic vehicles.

24

Consumers Fear Higher Prices and Higher Interest Rates

Source: Cox Automotive and Morning Consult, August 2018

71% of consumers are following

news about new proposed tariffs on

autos

81% of consumers are following

news on interest rates

75% of vehicle owners report being

concerned about new auto tariffs

A whopping 84% of recent auto

buyers expect prices to increase

including on domestic and used

vehicles

More than half of recent vehicle

purchasers surveyed indicated that

news on tariffs on imported vehicles

and parts impacted their vehicle

shopping.

Consumers with a sensitivity to

potential payment inflation are likely

thinking twice about delaying any auto

purchase plans.

25

The US Market Is Heavily Dependent on a 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

Composition of New Vehicles Sold in the US by Major Segments and Major Regions of Origin

USA MEXICO+CANADA JAPAN SOUTH KOREA EUROPE

26

Growth of Off-Lease Is Decelerating and Nearing a Peak

Source: Cox Automotive

2.2

2.5

3.1

3.5

3.9

4.13.9

3.7 3.63.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Mill

ion U

nits

Estimated Lease Maturities

27

Auction Volumes Are Declining and No Longer Supporting Growth in Used Sales

Source: Cox Automotive

Absolute volumes peaked in 2017; growth remains limited to offsite online channels and growth in off-lease

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2014 2015 2016 2017 2018F 2019F 2020F 2021F 2022F 2023F

Mill

ions

Total Auction Volumes (Physical and Offsite Online)

Factory/Fleet/Other* - Physical Factory/Fleet/Other* - Offsite Online Dealer Wholesale Units - Physical

Dealer Wholesale Units - Offsite Online Rental (Risk) - Physical Rental (Risk) - Offsite Online

Repos - Physical Repos - Offsite Online Off Lease - Physical

28

Thank You

Jonathan Smoke & Zo RahimEconomic Industry Insights

[email protected]

[email protected]

@SmokeonCars

@autosanalyst

Documents

Wholesale Market Insights - Manheim Auctions...prices year-over-year are mixed with the most affordable non-luxury cars outperforming other segments. Rank Source(Rank) Cat egory Subcat