Automotive in 2011 Detroit to the Dealer Wards Dealer Magazine Steve Finlay ESA & Company Adam Armbruster.

Automotive in 2011 Detroit to the Dealer Wards Dealer Magazine Steve Finlay ESA & Company Adam Armbruster The Good Old Days of Vehicle Sales? ,893, ,349, ,122, ,816, ,639, ,866, ,947,754 Question back then was: When will we reach 20-million unit sales year? But how good was it, really? 3 What primarily drove those sales (some of them unhealthy) Push production (Bane of the industry.) Easy credit (Often too easy; people getting into heavy debt.) Hefty incentives (Expensive for the industry.) Strong housing values (Lot of people re-financing homes, buying cars) Low unemployment 4 Then the storm hit in 2008 Gas prices soar. Financial markets collapses in September. Housing prices drop. Unemployment rises. Credit starts to freeze in 2008; goes Arctic in 2009, and auto makers and dealers get frostbite. 5 The Devastation to Auto Sales: 2000: 17.8 million the high-water mark. 2007: 16.4 million 2008: 13.4 million 2009: 10.6 million How bad? A 6-million unit drop in annual sales based on an average sale at $25,000 equals a revenue loss of $150 billion! 6 The Silver Lining of the Great Storm: Auto makers and dealers right-size their operations. The Push System is dead. The Pull System replaces it. An automotive industry revolution. All knew push was flawed; it took a disaster to kill it. 7 Where Were at Now Recovery is slow, so some forecasters are downward revising original sales predictions. Impediments: soft job market, low housing values and tight lending. Wards projects 2010 sales at 11.3 million and a similar SAAR (seasonally adjusted annual rate) going into early GM publicly says 11.2 million to 12 million, always a range. Sales next year: 13.1 million. Depends on recovery. Tough number to hit. Need for sales to pick up at the second half. Todays question: What is the new normal in annual sales? 8 QUICK WORD ON INVENTORY Lowest in years. Auto makers holding back, awaiting a recovery. Could be holding back sales, too, though. Dealers want more fast-selling vehicles. Big question: Can you grow the market without building inventory? Need a better inventory mix, a smarter mix. Low on slow sellers, high on fast. Right now its chaotic. Solution: Flex manufacturing. Not there yet but headed in that direction. 9 Sales Outlook Beyond Next Year 2012: 13,750,000 vehicles 2013: 15,300,000 * 2014: 14,700, : 15,500,000 The spike above trend in 2013 (it could happen in a different year) indicates a bump to catch up with pent-up demand. Unprecedented: Scrappage rates exceed build rates. We are moving towards market stability in 15.5 to 16 million range. When sales hit 16 million it will be a profitable sweet 16 because both auto makers and dealers have right-sized. 10 RECAP Overall recovery really slow. Banks hesitant to lend, auto makers hesitant to build until the recovery. But is that impeding it? Risk management fine but Pull market replaces push finally! Industry needs flexible manufacturing the nimble ability to increase and decrease production of vehicles, depending on demand. Flex manufacturing + pull market = healthy profits, even if volumes are lower than the good old days of 17 million unit sales. A Car Dealer Day ESA & Company Adam Armbruster 19% spent in local television. Wards Dealer Business 2010 TV To sell just 1 car Wards Dealer Business customer walk-ins 8.5 customer phone calls 13.5 customers OR Car buyers spend 20% more time to buy in 2010 Vs Wards Dealer Business % 66% of car buyers do not buy from the first dealer they contact. Wards Dealer Business % Top Car Dealer Issues ESA & Company Adam Armbruster Auto Issue #1 BUILD EM, PUSH EM versus SERVE THEM, SELL THEM 89% 82% 50% Buy a Car 15% Auto Issue #2 Local Dealers thinking like Local Dealers. 9,329 Auto Issue #3 Bad Timing Typical Auto Buyer Foot Traffic Weekly Auto Buyer Online / Phone Traffic Steve Finlay Wards Dealer Business Adam Armbruster ESA & Company