Windows Into The Future: Leading Indicators and Forecasting

1
Windows Into The FutureLeading Indicators and
Forecasting

• June 7, 2007
• Jeremy Anwyl
• Edmunds Inc.

2
Agenda

• Edmunds Overview
• Update on 2004
• Incentives and other leading indicators of demand
• Q A

3
Traffic Over Time
2008 Forecast 33
Edmunds traffic doubled within the last two
years
Source Internal Traffic Measurement (Omniture)
4
Edmunds.com

• Online research and shopping for automotive
  consumers

5
Edmunds.coms New Search Tool
6
Edmunds Inside Line

• Online magazine for automotive enthusiasts

7
Edmunds CarSpace.com

• Online automotive community the Internets
  largest

8
Edmunds AutoObserver.com

• Online industry analysis and commentary

9
Incentives Prognosis for This Year

• Society of Automotive Analysts
• January 6, 2004

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What We Track

• National regional
• Consumer
• Cash
• APR/Lease
• Special group
• Dealer
• Lump sum
• Retros
• Per vehicle

11
Edmunds Incentive Data

• Raw sources
• OEs
• Dealers
• Validation
• Audit trail we know exactly where the numbers
  come from

12
Themes From 2004

• Incentives climbing

13
2,386
1,409
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Themes From 2004

• Incentives climbing
• Can they be reduced?

15
Not the Complete Picture

• Incentives had become embedded into the
  automotive marketing system
• Consumers
• Dealers
• Manufacturers

16
Consumer Impact

• Price/payment reductions
• Down payment assistance
• Trade-in allowance support
• Financing support
• A way to absorb negative equity

17
Negative Equity Growing
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Consumer Impact

• Price/payment reductions
• Down payment assistance
• Trade-in allowance support
• Financing support
• Handle negative equity
• Many won't buy without an incentive

19
Dealer Impact

• Lump sum/Retro/Flat
• Advertising/promotions
• Spiffs
• Profit support
• A shelf-space tool.

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Arguably, Less Efficient

• High Pass-Through
• Suzuki 0.77
• Jeep 0.77
• Isuzu 0.78
• Oldsmobile 0.79
• Chrysler 0.79
• Kia 0.80

• Low Pass-Through
• Scion 0.60
• Infiniti 0.64
• Mercedes 0.65
• Cadillac 0.65
• Audi 0.66
• BMW 0.67

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Manufacturer Impact

• Incentives embedded into price point strategy?

22
Pricing Strategy? Example
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Overall Impact

• Brand damage
• Residuals/used vehicles values hurt
• 80 of lease returns are currently below residual
• Finance terms are lengthening
• 96 month available
• A historical high 63.5 month average
• Down payments are dropping
• 5

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What Has Changed

• Value Pricing introduced in January 2006

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True Cost of Incentives
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2007 Overview

• Why Care?

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Why Incentives Matter

• Directly tie to OE profitability
• More subtly, a trailing indicator of the value
  curve

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Supply Demand The Vehicle Value Curve

• Online intent, transaction prices and incentives
  as indicators of demand

29
Vehicle value over time
Launch
Year 1
Year 2
Year 3
Year 4
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Industry Response
MSRP Transaction Price Invoice
Dealer profits shrink
Incentives are added/increased
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Edmunds Theory

• Transaction prices drop over time

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Example Ford Edge
MSRP Net Price MSRP TCI (2,796) Dealer
Discount (1,275) Invoice
30,138
28,442
Dealer profits shrink
26,067
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Example Ford Edge
MSRP Net Price Invoice
30,138
28,442
Dealer profits shrink
26,067
MSRP minus TCI (2,796) and dealer discount
(1,275)
34
Example Saturn Aura
MSRP Net Price MSRP TCI (1,847) Dealer
Discount (291) Invoice
24,705
23,142
Dealer profits shrink
22,567
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Example Saturn Aura
MSRP Net Price Invoice
24,705
23,142
Dealer profits shrink
22,567
MSRP minus TCI (1,847) and dealer discount
(291)
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Edmunds Theory

• Transaction prices drop over time
• Incentives increase over time

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Average Incentives
38
Incentive Activity Hyundai Santa Fe
39
Incentive Activity Jeep Liberty
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Edmunds Theory

• Transaction prices drop over time
• Incentives increase over time
• Both linked to Intent

Intent
TMV
Incentives
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What is Intent?

• Online behavior that correlates to sales

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Online Intent Leads TMV
Transaction Price
Online Intent
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Online Intent Leads TMV
Transaction Price
Online Intent
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Online Intent Leads TMV
Online Intent
Transaction Price
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New TMV Tool

• Buy New/hold advisories

46
Forecasting Demand

• Summer 2007

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Forecasting Success Rate

• It is tough to make predictions,
• especially about the future
• Yogi Berra.

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Is this a perfect forecast?

• No several factors can cause future sales
  patterns to differ
• Changes in advertising
• Changes to incentive programs
• Pricing changes
• The emergence of new competitors
• Macroeconomic changes (gas prices, unemployment,
  interest rates, etc.)
• Supply issues (e.g., the configuration desired by
  consumers is unavailable)
• Dealer impacts (e.g., can they get the shopper
  into an alternative vehicle?)

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Segment Overview

• Small Cars show largest increase in intent
• up 15

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Segment Overview

• Small Cars show largest increase in intent
• up 15
• Large SUVs show largest decrease in intent
• - down 10
• Midsize Truck-Based SUVs also have large drop
• - down 10
• Large Trucks Luxury SUVs
• - 9

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Performance by Individual Vehicle

• Vehicles showing the largest increase in purchase
  intent
• Enclave
• Escape Hybrid
• Prius
• Mariner Hybrid
• VUE

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Performance by Individual Vehicle

• Vehicles showing the largest decrease in purchase
  intent
• Rainier
• Endeavor
• M45
• Rondo
• M35

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Small Car Performance

• Vehicles showing the largest increase in purchase
  intent (gt25)
• Prius
• Rio
• Sentra
• Versa
• Yaris

• Vehicles showing the largest decrease in purchase
  intent (gt10)
• Rondo
• Impreza

54
Large Truck Performance

• Vehicles showing the largest decrease in purchase
  intent (gt10)
• F-150
• Ram Pickup 1500

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Large SUV Performance

• Vehicles showing the largest decrease in purchase
  intent (gt10)
• Land Cruiser
• Expedition EL
• Sequoia
• Expedition

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Luxury Car Performance

• Vehicle showing the largest increase in purchase
  intent (gt25)
• 5 Series

• Vehicles showing the largest decrease in purchase
  intent (gt15)
• M45
• M35

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Luxury SUV Performance

• Vehicles showing the largest decrease in purchase
  intent (gt15)
• X5
• LR3
• Cayenne

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Compact Truck Performance

• Vehicles showing the largest decrease in purchase
  intent (gt5)
• Mitsubishi Raider
• Nissan Frontier

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Midsize Car Performance

• Vehicles showing the largest increase in purchase
  intent (gt10)
• Camry Hybrid
• Altima Hybrid
• Altima
• Sebring

• Vehicle showing the largest decrease in purchase
  intent (gt15)
• Monte Carlo

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Crossovers

• Vehicles showing the largest increase in purchase
  intent (gt25)
• Enclave
• Highlander Hybrid

• Vehicles showing the largest decrease in purchase
  intent (gt10)
• B9 Tribeca
• CX-9
• CX-7
• Pilot

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SUV Performance

• Vehicles showing the largest decrease in purchase
  intent (gt15)
• Rainier
• Commander
• Aspen

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Small SUV Performance

• Vehicles showing the largest increase in purchase
  intent (gt40)
• Escape Hybrid
• Mariner Hybrid
• VUE

• Vehicles showing the largest decrease in purchase
  intent (gt15)
• Endeavor
• Nitro
• Outlander

63
Sport Car Performance

• Vehicles showing the largest increase in purchase
  intent (gt5)
• Eclipse
• TT

• Vehicles showing the largest decrease in purchase
  intent (gt5)
• Tiburon
• RX-8
• MX-5 Miata

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Van/Minivan Performance

• Vehicles showing the largest decrease in purchase
  intent (gt10)
• Quest
• Freestar
• Terraza

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Final Thoughts

• Incentives exist in supply/demand ecosystem
• Tracking intent allows us to anticipate incentive
  changes

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Q A

• Jeremy Anwyl
• President
• Edmunds Inc.