1

Outlook for Franchised New Car Dealers

Paul Taylor, Ph.D., Chief Economist National Automobile Dealers Association, McLean, VAwww.nada.org

Fourteenth Annual Automotive Outlook SymposiumJune 1, 2007

0.9

50.9

100.9

150.9

200.9

250.9

300.9

350.9

Jun-9

6Nov

-96Apr

-97Sep

-97Fe

b-98

Jul-9

8Dec

-98May

-99Oct-

99Mar-

00Aug

-00Ja

n-01

Jun-0

1Nov

-01Apr

-02Sep

-02Fe

b-03

Jul-0

3Dec

-03May

-04Oct-

04Mar-

05Aug

-05Ja

n-06

Jun-0

6Nov

-06Apr

-07

Self

Serv

ice

cent

s p

er G

allo

n In

cl. T

axes

Source: Energy Information Administration

GasolineGasoline

DieselDiesel

Two Challenges/Opportunities facing Dealerships:Two Challenges/Opportunities facing Dealerships:1. Rising Average Retail Gasoline/Diesel Price1. Rising Average Retail Gasoline/Diesel Price

2. Rising Interest Rates

3%

4%

5%

6%

7%

8%

9%

10%

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Perc

enta

ge

Source: Federal Reserve, Bureau of Labor Statistics

Prime Rate

Unemployment Rate

4.6 percentApr, 2007

8.25 percentApr, 2007

8.25 percentApr, 2007

6.29 percent

Apr, 200730 Year Fixed Mortgage Rate

120

140

160

180

200

220

240

260

280

300

320

1999

M119

99M6

1999

M1120

00M4

2000

M920

01M2

2001

M720

01M12

2002

M520

02M10

2003

M320

03M8

2004

M120

04M6

2004

M1120

05M4

2005

M920

06M2

2006

M720

06M12

Ave

rage

Hom

e Pr

ice

(Tho

usan

d $)

90

140

190

240

290

340

390

440

490

Hom

e Eq

uity

Loa

ns (B

illio

n $)

Average Home Price Home Equity Loans Outstanding

Average Home Price Trend vs. Average Home Price Trend vs. Outstanding Home Equity LoansOutstanding Home Equity Loans

Sources: National Association of Realtors and FDIC Quarterly Banking Profile

$100

$300

$500

$700

$900

$1,100

$1,300

$1,500

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Bill

ion

$

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Perc

ent o

f Dis

posa

ble

Inco

me

Free Cash From Home Equity Free Equity Cash as % of Disposable Income

U.S. Households: Potential and Realized Cash from U.S. Households: Potential and Realized Cash from Home Equity ExtractionHome Equity Extraction

Source: Federal Reserve Board, Divisions of Research, Statistics & Monetary Affairs

Price Index of New One-Family Houses SoldIndex Value-1996=100 (Includes Lot)

0

50

100

150

200

250

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Inde

x v

alue

Northeast Midwest South West

7Source: U.S. Census Bureau

Total U.S. Licensed Drivers:Total U.S. Licensed Drivers:Rising at a More Modest Rate RecentlyRising at a More Modest Rate Recently

160,000,000

165,000,000

170,000,000

175,000,000

180,000,000

185,000,000

190,000,000

195,000,000

200,000,000

205,000,000

1990

1991

1992199319

9419

9519

96199719

9819

9920

00200120

0220

0320

04200520

0620

07Li

cens

ed D

river

s

Source: U.S. Department of Transportation, Federal Highway Administration

60,000

65,000

70,000

75,000

80,000

85,000

90,000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Thou

sand

Bar

rels

per

day

550

600

650

700

750

800

850

900

950

Mill

ions

World Oil Production World Vehicles in Operation

World Production of Crude Oil, NGPL & Other LiquidsWorld Production of Crude Oil, NGPL & Other Liquidsvs. World Vehicles in Operationvs. World Vehicles in Operation

Source: U.S. Energy Information Administration (EIA), Ward’s Automotive Group

U.S. Finished Motor Gasoline Stocks U.S. Finished Motor Gasoline Stocks vs. Gasoline Pricesvs. Gasoline Prices

0

25

50

75

100

125

150

175

200

22519

90M

119

90M

919

91M

519

92M

119

92M

919

93M

519

94M

119

94M

919

95M

519

96M

119

96M

919

97M

519

98M

119

98M

919

99M

520

00M

120

00M

920

01M

520

02M

120

02M

920

03M

520

04M

120

04M

920

05M

520

06M

120

06M

9

Mill

ion

Barr

els

0

50

100

150

200

250

300

350

Cent

s pe

r Gal

lon

Finished Gasoline Stocks Retail Gasoline Price Record High Price (Regular)

Source: U.S. Department of Energy Monthly Energy Review, EIA

The Conference Board’s Consumer Confidence Index

40

60

80

100

120

140

160

'89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07

Cons

umer

Con

fiden

ce In

de

Source: Conference Board

Gulf War Iraq War

11

44

64

84

104

124

144

164

184

1977 III 1982 III 1987 III 1992 III 1997 III 2002 III 2007

NA

DA

Inde

x M

easu

re

Optimism

Sales

NADA Dealer Optimism IndexLeading Indicator of New-Vehicle Sales

Source: NADA Industry Analysis

Source: NADA Industry Analysis

0

2

4

6

8

10

12

14

16

18

20

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Mill

ions

of U

nits

Lt. Trucks

Cars

U.S. Light Vehicle Sales: 16.5 Million Units in 2006 U.S. Light Vehicle Sales: 16.5 Million Units in 2006 and near 16.5 Million Units likely in 2007and near 16.5 Million Units likely in 2007

16.9 17.4 17.1 16.8

13

16.6 16.8 16.5 16.5(Est.)

Crossovers, Small and Large Cars had Sales Growth Percentage Sales Growth in Full-Year 2006

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

Truck-based SUVs

Pickups

Minivans, Vans

Luxury Cars

Midsize Cars

Large Cars

Small Cars

Crossover Utility Vehicles

Full Year 2006

Full Year 2005

Source: Ward’s Automotive14

Crossovers and Small Cars are the only Categories with Sales Growth, Year-to-Date April 2007

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

Large Cars

Minivans, Vans

Truck-based SUVs

Midsize Cars

Pickups

Luxury Cars

Small Cars

Crossover Utility Vehicles

YTD Apr 2007

YTD Apr 2006

Source: Ward’s Automotive15

Source: R.L. Polk

Median Vehicle Age Moving Higher

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5

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

Med

ian

vehi

cle

age

in y

ears

Cars

Trucks

16

Light Vehicle Market Share PercentagesBy Major Manufacturer

6.4

24.6

17.315.4

13

9.1

6.2

16.3 15.714

9.2

6.78.6

13.6

18.3

13.3

26.3

23.2

0

5

10

15

20

25

30

GM Ford Toyota Chrysler Honda Nissan

Per

cent

age

Full Year 2005 Full Year 2006 YTD April 2007

Source: NADA Industry Analysis 17

$0

$5

$10

$15

$20

$25

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

$ Tr

illio

ns

Net Household Wealth = Total Financial Assets - Total Liabilities(excludes home equity but includes all mortgage debt)

U.S. Household Net Financial Assets

Source: Federal Reserve Flow of Funds Data, Z.l., Table L.10.

Manufacturer Incentives:Lower in 2007 Thus Far, through April

Exception is the Euro-badged Vehicles

Manufacturer Incentives:Lower in 2007 Thus Far, through April

Exception is the Euro-badged Vehicles

$1,192

$3,147

$3,139

$1,750

$2,342

$0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000

Domestic

European

Japanese

Korean

Industry

Apr-07Dec-06Dec-05Dec-04

Source: Edmunds.com

Source: AuctionNet ( NADA Guides and NAAA ) and EIA, regular gasoline price 20

AuctionNet Wholesale Used SUV Prices and Gas PricesAuctionNet Wholesale Used SUV Prices and Gas PricesWardWard’’s SUV and Pickup Segmentss SUV and Pickup Segments

$10,000

$11,000

$12,000

$13,000

$14,000

$15,000

$16,000

$17,000

$18,000

$19,000

Jan-0

5Mar-

05May

-05Ju

l-05

Sep-0

5No

v-05

Jan-0

6Mar-

06May

-06Ju

l-06

Sep-0

6No

v-06

Jan-0

7Mar-

07May

-07

Ave

rage

Pri

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

Gas

Pric

SUV

PICKUP

Gas Price

Source: N.A.D.A. Analytical Services and NAAA AuctionNet

AuctionNet Average Wholesale Used Vehicle AuctionNet Average Wholesale Used Vehicle Price and Smoothed Trend (Red Line)Price and Smoothed Trend (Red Line)

What will $3 Plus Gas and Higher New Car Incentives Do? What will $3 Plus Gas and Higher New Car Incentives Do?

$10,500

$11,000

$11,500

$12,000

$12,500

$13,000

$13,500

$14,000

$14,500

$15,000

Apr-05

Jun-

05

Aug-05

Oct-05

Dec-05

Feb-

06

Apr-06

Jun-

06

Aug-06

Oct-06

Dec-06

Feb-

07

Apr-07

Ave

rage

Pric

e

Avg. Wholesale Price

Based on 9 million transactions

21

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