Dennis DesRosiers

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Strategic Review of the Canadian Automotive
Industry
Dennis DesRosiers May 9, 2008
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Topics of Discussion

• Review of the Canadian Market
• Canadian Market Outlook
• Top Developments in 2008

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Review of 2007 Market
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New Used Vehicle Sales in Canada 000s of
Units
Source DesRosiers Automotive Consultants Inc.
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New Used Vehicle Sales in Canada 000s of
Units
Source DesRosiers Automotive Consultants Inc.
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Canadian New Light Vehicle Sales 1990 2007
Fleet vs. Retail 1990 2007
Retail Units (Thousands)
Fleet Units (Thousands)
Consumer
Fleet
Calendar Year
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Canadian Consumer Market (All Light Vehicles)
1990 2007
Units (sales)
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Canadian Fleet Market (All Light Vehicles)
1990 2007
Units (sales)
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Consumer Retail Market Sales Trends 2007 vs.
2006
GM
Ford
Chrysler
Import Nameplates
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Fleet Market Sales Trends 2007 vs. 2006
Chrysler
GM
Ford
Import Nameplates
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Vehicle Consumers Purchase
Consumers are moving away from Mid-Sized Family
Vehicles as well as light truck for personal use
with negative implications for residual values.
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Vehicle Fleets Purchase
Fleets also moving away from the mid size/family
market with a distinct move up-scale and
down-scale.
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Entry Level Market Share vs. Gas Prices Jan.
2004 Apr. 2008
Entry Level Market Share
Gas Prices (cents)
Source MJ Ervin Associates, DesRosiers
Automotive Consultants Inc.
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Canadian Light Vehicle Market 2000 - 2007
Source DesRosiers Automotive Consultants Inc.,
AIAMC and CVMA
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Entry Level Vehicles 2000 - 2007
Source DesRosiers Automotive Consultants Inc.,
AIAMC and CVMA
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Mid-Size/Family Vehicles 2000 - 2007
Source DesRosiers Automotive Consultants Inc.,
AIAMC and CVMA
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Large/Luxury/Sports Vehicles 2000 - 2007
Source DesRosiers Automotive Consultants Inc.,
AIAMC and CVMA
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Commercial Use Vehicles 2000 - 2007
Source DesRosiers Automotive Consultants Inc.,
AIAMC and CVMA
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All Vehicles 2000 - 2007
Source DesRosiers Automotive Consultants Inc.,
AIAMC and CVMA
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• GM, Ford and Chrysler are going through a three
  step process to address their issue of lost
  market share
• First is to re-size their organizations
• Second is to re-structure their organizations to
  address their cost structures with the biggest
  task being the reworking of their Supplier
  Agreements and their Labour Contracts .UAW is
  done CAW is this year (more on this later)
• Third is to re-invest in new products and new
  plants which is in the early stages!

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Market Share Issues
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• Critical to Market Share changes are
• Product, product, product and which one of
  these three words dont you understand?
  product or product or product
• Competitiveness of each OEM (ie pricing factors)
• Speed to market
• Distribution Efficiency
• Excellence at the Retail Level

• All other issues are important but are in
  second place!

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New Model Launches by Model Year
of New Model Launches
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Age of Vehicle Platforms 1996 - 2007 Percentage
of Sales by Platform Age
Japanese Nameplates
GM / Ford / Chrysler
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48 Month Light Vehicle Actual Resale Values
Resale Values Relative to Original MSRP (base
models)
All Residual Value Data is from Canadian Black
Book Base Model Sales Weighted
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Brands Above Average
Mini
( 35.4 plus 17.6 53.0 )
Toyota
Mazda
Acura
Passenger Cars
Volkswagen
Resale Value for Passenger Cars bought Four Years
Ago
Honda
Lexus
Industry Average
Audi
Mercedes Benz
35.4
BMW
Not for advertising purposes without permission
from Canadian Black Book.
Mitsubishi
35.4
Note Add Brand Percentage to Industry Average to
Calculate Brand Average
All Residual Value Data is from Canadian Black
Book Base Model Sales Weighted
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Subaru
Brands below Average
Nissan
Passenger Cars
Volvo
Saturn
Resale Value for Passenger Cars bought Four Years
Ago
Suzuki
Infiniti
Buick
Industry Average
Pontiac
Hyundai
Cadillac
35.4
Chevrolet
Jaguar
Lincoln
Not for advertising purposes without permission
from Canadian Black Book.
Chrysler
Kia
SAAB
Ford
Mercury
( 35.4 minus 15.8 19.6 )
35.4
Note Subtract Brand Percentage from Industry
Average to Calculate Brand Average
All Residual Value Data is from Canadian Black
Book Base Model Sales Weighted
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Lexus
Resale Value for Light Trucks bought Four Years
Ago
Infiniti
Toyota
Industry Average
Hyundai
34.5
Honda
BMW
Light Trucks
Acura
Subaru
Not for advertising purposes without permission
from Canadian Black Book.
Suzuki
Nissan
Kia
Mercedes
Mazda
Ford
Note Add or Subtract Brand Percentage from
Industry Average to Calculate Brand Average
GM
Chrysler
34.5
All Residual Value Data is from Canadian Black
Book Base Model Sales Weighted
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Canadian Market Outlook
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New Vehicles
19.8 Million Vehicles on the Road ----------------
--- 461 Billion Kilometers Driven
Need to Buy
Ability to Buy

• Age Structure
• Usage
• Technology/Quality
• State of Repair

• Employment
• GDP
• Inflation
• Exchange Rates
• Vehicle Pricing
• Incentives
• Operating Cost

Willingness to Buy

• Confidence
• New Products

Scrappage Exports
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Upside Opportunities

• Canadian economic outlook is cautiously
  optimistic
• Wage increases
• Employment Growth
• Product introductions still strong
• New and emerging segments
• Population Growth
• Immigration has been increasing
• Incentives
• More manufacturers are willing to use
  incentivesnot limited to GM, Ford, and Chrysler

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Downside Threats

• The value of the dollar (highly related to energy
  and resource prices)
• Used vehicle prices
• Operating costs
• Consumer debt loads (sensitive to interest rates)

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Ability to Buy
Percent Change in Base Model MSRPs Canada
(Sales Weighted)
GST
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2008
2009 - 2010
GDP
Unemployment
CPI
Incentives
Exchange Rate
Interest Rates
US Economic Conditions
US Vehicle Sales
Debt
Fuel Prices
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Need to Buy
Record Number of newer vehicles are currently on
the road not much upside potential.
Light Vehicles on the Road in the Canada
Millions of Units
Source DesRosiers Automotive Consultants Inc.
and R.L. Polk Co.'s NVPP Vehicle Registration
Database, as of 7/1 of each year
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Willingness to Buy
Canadian Index of Consumer Attitudesand Light
Vehicle Sales (1976-2006)

• Some evidence of over buying

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Summary
A cautious outlook, appears to have more downside
threats than upside opportunities. A serious
decline highly unlikely.
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Total Canadian New Vehicle Sales 1960 - 2012F
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New and Used Vehicle Sales in Canada - 000's of
units
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Market Outlook

• The market will basically be stable in 2008
• More downside threat than upside opportunity
• We are worried about the value of the dollar and
  its impact on residual values
• Low used vehicle pricing should provide upside to
  used vehicle market sales

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Top Industry Developments to Watch For in 2008
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Top Industry Developments in 2008

• CAW negotiations with GM, Ford, and Chrysler
• Finding the bottom in the OE parts sector
• Troubles in the market (U.S. more so than Canada)
• Softness, mix deterioration, and continued share
  loss at GM, Ford, and Chrysler
• Federal focus on climate change
• Can OEMs balance the governments climate change
  agenda with consumer desire for increased
  performance?
• Increased residual value risk
• What is the role of government policy? Can the
  Govt play in this sector, if so how, how
  aggressively, where etc.

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Questions?
www.desrosiers.ca
Dennis DesRosiers DesRosiers Automotive
Consultants Inc. 80 Fulton Way, Suite
101 Richmond Hill, Ontario t 905.881.0400 f
905.881.7456 e dennis_at_desrosiers.ca