Analysis from Kelley Blue Book’s Analytic Insights Team

BLUE BOOKMarket Report

www.kbb.com

Robyn Eagles | Director, Public Relations949.268.3049 | reckard@kbb.com

Joanna Pinkham | Senior Public Relations Mgr949.268.3079 | jpinkham@kbb.com

Brenna Robinson | Public Relations Mgr949.267.4781 | berobinson@kbb.com

Rebekah King | Consumer Communications Mgr949.267.4982 | rking@kbb.com

Kelley Blue Book Public Relations Contacts:

In This Issue:MARKET ANALYSIS:

MARKET SOFTENS; AUCTION VOLUMES CAUSE AGGRESSIVE DROPS

HYBRID, LUXURY SEGMENTS CONSIDERABLY UNDERPERFORM MARKET YEAR-TO-DATE

COMPETITION IN THE CROSSOVER SEGMENT EXPECTED TO GROW

MERCEDES-BENZ, ACURA, LAND ROVER AND LEXUS UNDERPERFORM MARKET

HOT USED-CAR REPORT

OCTOBER 2010

MARKET ANALYSIS:

MARKET SOFTENS; AUCTION VOLUMES CAUSE AGGRESSIVE DROPS- Juan Flores, director of vehicle valuation, Kelley Blue Book- Alec Gutierrez, lead analyst of vehicle valuation, Kelley Blue Book

I t is business as usual with gas prices, unemployment rates and credit availability, all of which have been fairly consistent during the past several months. However, as Fall creeps in slowly and we enter the fourth quarter, there is a 1.5 percent drop in the overall market reported for

September 2010. The month also showed that nearly every segment has softened, even given current stable market conditions. These drops are mostly seasonal with increased auction volumes influencing some of the more significant drops. Current demand has been unable to offset the increased auction volumes that have resulted as vehicles leased in 2006 and 2007 return to the market. This primarily affects luxury vehicles since these vehicles are predominantly sold through leasing programs.

Leading in segment drops for the month are mid-size and full-size crossovers, falling 3.3 and 3.7 percent, respectively. As manufacturers continue to add more vehicles to the crossover segment, the potential for future weakness increases. The most hard-hitting drops come from vehicles that are a bit ‘long in tooth:’ Lincoln MKX (set for a refresh for model-year 2011) is down 8.5 percent, followed by Mazda’s CX-7 (slightly updated for model-year 2010) which fell 7.8 percent, and Buick’s Rendezvous (old; no longer in production) with a 5.4 percent drop.

Hybrid cars also dropped 2.3 percent, along with luxury SUVs and cars at 2.2 percent.

HYBRID, LUXURY SEGMENTS CONSIDERABLY UNDERPERFORM MARKET YEAR-TO-DATE

L uxury and hybrid vehicles have not fared well this year. On a year-to-date basis, hybrid and luxury segments have underperformed the market by a considerable margin. While values for these segments are up 2.75 percent from this time last year, we are seeing

significant year-to-date declines. Specifically, luxury crossovers have plunged 8.1 percent, followed by hybrid crossovers (-7.9 percent), hybrid cars (-6.0 percent), and luxury cars (-4.0 percent). In a soft economy, the premium for these vehicles is difficult to justify as consumers seek ways to cut back financially. Additionally, gas prices do not support a consumer’s need for a hybrid at current levels. An unusually swelled supply of luxury vehicles due to aggressive leasing back in 2006 and 2007 also has contributed to their depreciation.

While luxury crossover and hybrid segments continue to falter, trucks, minivans and full-size SUVs have been the top performers year-to-date. Full-size trucks are up 16.5 percent, followed by minivans at 7.3 percent, full-size SUVs up 6.8 percent and mid-size trucks at 6.5 percent. These segments are still recovering from an extremely soft 2009 market. Low inventories also are keeping values strong due to a lack of new sales and leases. Minimal leasing of trucks and SUVs also could indicate that low inventories of these vehicles will remain a concern for years to come, making these vehicles best bets for dealers.

Annual Subscription Value: $500

-3.7%

-3.7%

-3.3%

-3.2%

-2.3%

-2.3%

-2.2%

-2.2%

-2.2%

-2.2%

-1.8%

-1.8%

-1.7%

-1.7%

-1.5%

-1.2%

-1.2%

-1.0%

-0.9%

0.5%

0.8%

-4.5% -3.5% -2.5% -1.5% -0.5% 0.5% 1.5%

Hybrid Pickup Truck

Full-Size Crossover

Mid-Size Crossover

Hybrid Sport Utility

Hybrid Crossover

Hybrid Car

Luxury Sport Utility

Luxury Crossover

Luxury Car

Compact Crossover

Full-Size Sport Utility

Sports Car

Subcompact Car

Full-Size Pickup Truck

Minivan

Mid Size Car

Compact Car

Full Size Car

Mid-Size Sport Utility

Van

Mid-Size Pickup Truck

Month-Over-Month Segment Change

-8.1%

-7.9%

-6.0%

-5.2%

-4.0%

-1.7%

-1.3%

-1.0%

-1.0%

0.5%

0.6%

0.6%

0.7%

1.4%

2.8%

2.9%

3.4%

6.5%

6.7%

6.8%

7.3%

16.5%

-12.0% -8.0% -4.0% 0.0% 4.0% 8.0% 12.0% 16.0% 20.0%

Luxury Crossover

Hybrid Crossover

Hybrid Car

Hybrid Sport Utility

Luxury Car

Full-size Crossover

Subcompact Car

Luxury Sport Utility

Mid-Size Crossover

Mid-Size Sport Utility

Compact Crossover

Sports Car

Mid-Size Car

Van

Average

Full-Size Car

Compact Car

Mid-Size Pickup Truck

Hybrid Pickup Truck

Full-Size Sport Utility

Minivan

Full-Size Pickup Truck

YTD Segment Change

2 BLUE BOOK Market Report OCT 2010

COMPETITION IN THE CROSSOVER SEGMENT EXPECTED TO GROW

T here has been strong support for crossover leasing by OEMs, which is a reflection of the shift in consumer demand toward these vehicles. Crossovers are increasingly prevalent in the marketplace. As a result, availability of used crossovers during the next several years will be high. Since 2006, crossovers have gained more market share than any other segment. Cars and crossovers combined now account for 75 percent of overall market share,

compared to 62 percent in 2006, which was prior to peak gas prices and the current recession.

Competition will be high in the crossover segment as more manufacturers convert existing truck=based SUVs to unibody crossovers. For example, the Ford Explorer will move from a SUV to a crossover for model-year 2012, and Dodge’s Durango will do the same. The truck-based SUV will continue to decline in popularity as fuel economy and handling remain top priorities for consumers. Dealers would be wise to keep inventories of used crossovers up.

Leasing patterns since 2008 are a prime example of the industry’s move away from truck-based SUVs and trucks toward unibody crossovers. While leasing activity for trucks and SUVs dropped aggressively and has remained low following the onset of the recession in 2008, leasing activity for crossovers has been on the rebound after leveling off in early 2009. Moving forward, Kelley Blue Book expects continued lease support for crossovers while lease deals for trucks and SUVs will remain few and far between.

MARKET ANALYSIS:continued

MERCEDES-BENZ, ACURA, LAND ROVER AND LEXUS UNDERPERFORM MARKET

A s a result of car shoppers making budget conscious decision in the current economy, Mercedes-Benz, Acura, Land Rover and Lexus have underperformed the market on a year-to-date basis. Luxury brands are not

performing well in the used-car marketplace. The demand for these vehicles today is not sufficient enough to absorb the significant lease volumes coming back into the marketplace.

As an example, Mercedes-Benz’ R-Class is down 21 percent year-to-date, followed by the Acura MDX and Lexus GS (both fell 13 percent year-to-date) and Range Rover dropping 11 percent year-to-date. Luxury vehicles could remain soft through the rest of the yearand into 2011, until leases returning to auction more closely match with current demand. Most leases are returning for two- to three-year-old vehicles, so we currently are seeing leases from 2006 to 2008 model-years hitting the marketplace. If current demand remains consistent, it could be well into 2011 before lease returns match up with current market demand.

This commentary focuses on Model Years 2007-2009. The statements set forth in this publication are the opinions of the authors and are subject to change without notice. This publication has been prepared for

informational purposes only. Kelley Blue Book assumes no responsibility for errors or omissions.

Car49%

Crossover13%

SUV13%

Truck17%

Van8%

2006 Share of New Sales

Car52%

Crossover22%

SUV7%

Truck13%

Van6%

2010 Share of New Sales

0

10,000

20,000

30,000

40,000

50,000

60,000Lease Volume - Select Segments

Crossover SUV Truck

Source: Polk Registrations

0

10,000

20,000

30,000

40,000

50,000Lease Volume - Luxury Cars

Source: Polk Registrations

3OCT 2010 BLUE BOOK Market Report

HOT USED-CAR REPORT:

SPORTS CARS, LUXURY VEHICLES DRIVING SHOPPER INTEREST; HYBRID SHARE DECLINESKelley Blue Book’s Hot Used-Car Report captures monthly used-car shopper activity on kbb.com, including a list of the top and bottom movers in the same time period. Results are provided by the Kelley Blue Book Market Intelligence Team, in an effort to help dealers better understand which used ve-hicles consumers are looking at most each month.

T he 2009 BMW 5 Series increased its share of used-car retail shopper activity by 46.9 percent in a month’s span, the most of any used vehicle on kbb.com. Increased interest in the 5 Series is primarily driven by the state of California, which accounts for 17.4 percent of traffic share to this vehicle. In terms of segment shopper activity, it appears that luxury vehicles are up; however, interest in hybrids have cooled. All hybrid segments are down with

the hybrid pickup segment experiencing the greatest decline in share, down 28 percent month-over-month. This isn’t abnormal given that the used hybrid market is still small and subject to volatility due to limited inventories. Kelley Blue Book recommends that dealerships focus on sports cars and luxury vehicles as interest rises.

About Kelley Blue Book (www.kbb.com) Since 1926, Kelley Blue Book, The Trusted Resource®, has provided vehicle buyers and sellers with the new- and used-vehicle information they need to accomplish their goals with confidence. The company’s top-rated website, www.kbb.com, provides the most up-to-date pricing and values, including the New Car Blue Book® Value, which reveals what people actually are paying for new cars. The company also reports vehicle pricing and values via products and services, including software products and the famous Blue Book® Official Guide. According to the C.A. Walker Research Solutions, Inc. - 2009 Spring Automotive Website Usefulness Study, kbb.com is the most useful automotive information website among new- and used-vehicle shoppers, and half of online vehicle shoppers visit kbb.com. Kelley Blue Book’s kbb.com also is a W3 Gold Award winner, sanctioned by the International Academy of Visual Arts. Kbb.com is a leading provider of new car prices, used car values, car reviews, new cars for sale, used cars for sale, and car dealer locations.

-30.3%

-27.9%

-24.2%

-24.1%

-23.5%

-22.5%

-22.0%

-20.9%

-20.5%

-19.6%

24.5%

24.5%

25.6%

25.9%

27.4%

27.8%

29.7%

34.4%

35.5%

46.9%

-100% -50% 0% 50% 100%

2006 TOYOTA MATRIX

2007 ACURA TSX

2009 HYUNDAI ELANTRA

2006 INFINITI M

2008 MERCURY MILAN

2009 KIA SEDONA

2007 ACURA TL

2008 SUZUKI SX4

2007 TOYOTA MATRIX

2007 HYUNDAI ACCENT

2009 DODGE CHALLENGER

2007 KIA SPORTAGE

2008 LAND ROVER RANGE ROVER SPORT

2005 CHEVROLET SILVERADO 2500 HD …

2008 CHEVROLET AVALANCHE

2008 VOLKSWAGEN NEW BEETLE

2006 BMW X3

2007 PORSCHE 911

2007 HONDA ELEMENT

2009 BMW 5 SERIES

% Change in Share Month-Over-Month

Monthly Shopping Activity Growth Top/Bottom 10 Models

-28.0%

-20.6%

-13.0%

-5.9%

-3.7%

-3.6%

-3.4%

-2.9%

-2.2%

-1.6%

-1.2%

-1.2%

-0.4%

0.2%

1.0%

1.4%

2.7%

3.1%

4.7%

5.1%

5.4%

-50% 0% 50%

Hybrid Pickup Truck

Hybrid Car

Hybrid Sport Utility

Hybrid Crossover

Full-Size Crossover

Compact Car

Subcompact Car

Minivan

Compact Crossover

Mid-Size Car

Mid-Size Crossover

Mid-Size Sport Utility

Mid-Size Pickup Truck

Van

Full-Size Car

Full-Size Sport Utility

Full-Size Pickup Truck

Luxury Crossover

Luxury Car

Luxury Sport Utility

Sports Car

% Change in Share Month-Over-Month

Monthly Shopping Activity Growth Segments