National Conference State Fleet Administrators

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National Conference State Fleet Administrators Powered By Docstoc
					  National Conference
State Fleet Administrators
         9/10/2007


                     Tom Webb
                     www.manheimconsulting.com
Top five factors influencing acquisitions:
   Need to keep fuel costs within budgetary constraints

   Corporate initiatives to reduce “carbon footprint”

   Right-sizing cargo-carrying vehicles and SUVs to improve fuel
   efficiency

   Finding “van” replacements as manufacturers change or
   Fi di “      ”    l        t      f t        h
   eliminate their product offerings

   Anticipating / maximizing manufacturer incentive monies


                                Source: Survey conducted by Automotive Fleet and
                                published in July, 2007 issue                      2
50 Years of Fleet Operating Costs

                    Depreciation               Gasoline    Insurance *          All other

    100%
     90%
     80%
     70%
     60%
     50%
     40%
     30%
     20%
     10%
       0%
                  1955            1965           1975     1985        1995         2005

 * includes accident expense net of accident recoveries
                                                          Source: PHH Arval, as reprinted in
                                                          Automotive Fleet                     3
Topic Outline


  Current wholesale pricing environment
   – Overall market
   – End-of-service fleet units

  Drivers of those changes

  “M ki the b     f h hand       dealt”
  “Making h best of the h d your d l ”




                                          4
Manheim Used Vehicle Value Index

          A single measure of used vehicle price change
 Concept: that is independent of underlying shifts
          in the characteristics of vehicles being sold

          STEPS:
               All Manheim U.S. sales (5+ million annually)
               Cl   if by    k t       t
               Classify b market segment
               Account for shifts in mileage
               Weight to provide unchanging mix
               Seasonally adjust

                                                              5
Manheim Used Vehicle Value Index

        Manheim Used Vehicle Value Index - January 1995 = 100
 125


 120


 115


 110


 105


 100                                                        August 2007 115.1
                                                            +2.7% year-over-year
                                                            +2 7% year over year
                                                            +12.4% from 4/03
  95
   Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan-
     95  96   97   98   99   00   01   02   03   04   05   06   07


                                                      Source: Manheim Consulting   6
Average Auction Price -
Commercial Fleet Units

                actual prices        mileage and seasonally adjusted

 $8,500
 $8 500

 $8,000

 $7,500

 $7,000

 $6,500
 $6,000

 $5,500

 $5 000
 $5,000

 $4,500
     Jan-00   Jan-01   Jan-02   Jan-03   Jan-04   Jan-05   Jan-06   Jan-07


                                                     Source: Manheim Consulting   7
Average Mileage -
Commercial Fleet Units


 95,000
 95 000


 90,000


 85,000


 80,000


 75,000


 70,000
     Jan-01   Jan-02   Jan-03   Jan-04   Jan-05      Jan-06     Jan-07


                                                  Source: Manheim Consulting   8
Average Mileage -
Mid-size Fleet Cars


 75,000
 75 000


 70,000


 65,000


 60,000


 55,000


 50,000
     Jan-02   Jan-03   Jan-04   Jan-05   Jan-06       Jan-07


                                         Source: Manheim Consulting   9
Average Auction Price -
Mid-size Fleet Car

              actual prices            mileage and seasonally adjusted

 $8 500
 $8,500

 $8,000

 $7,500

 $7,000

 $6,500
 $6,000

 $5,500

 $5,000
 $5 000

 $4,500
     Jan-02   Jan-03          Jan-04      Jan-05      Jan-06      Jan-07


                                                     Source: Manheim Consulting   10
Is it lower supply, higher
     demand, or both?



                             11
Percent of Total Auction Volume by Price Tier

                 2004    2005     2006     August YTD 2007

 7 0%
 7.0%
 6.5%
 6.0%
 5.5%
 5 5%
 5.0%
 4.5%
    %
 4.0%
 3.5%
 3.0%
 2.5%
 2.0%
        $4K - $5K $5K - $6K $6K - $7K $7K - $8K $8K - $9K      $9K -
                                                               $10K


                                                Source: Manheim Consulting   12
Number of Unique Buyers by Price Tier
                   Each year Manheim has approximately 100,000 unique buyers. The number of
                   unique buyers within each price tier is evenly distributed even when the supply
                   of vehicles is not.
             50
 Thousands




             45
             40
             35
             30
             25
             20
             15
             10
              5
              0
                  2K

                        3K

                                 4K

                                       5K

                                                6K

                                                      7K

                                                               8K

                                                                     9K



                                                                                 $1 11K

                                                                                 $1 12K




                                                                                 $1 14K

                                                                                          K
                                                                                 $1 13K
                                                                             K




                                                                                       15
                                                                          10
              -$

                       -$

                             -$

                                      -$

                                            -$

                                                     -$

                                                           -$

                                                                    -$



                                                                                     -$

                                                                                     -$

                                                                                     -$

                                                                                     -$

                                                                                     -$
                                                                         -$
             $1

                   $2

                            $3

                                  $4

                                           $5

                                                 $6

                                                          $7

                                                                $8

                                                                     $9

                                                                            0

                                                                                   1

                                                                                   2

                                                                                   3

                                                                                   4
                                                                          $1




                                                                                  Source: Manheim Consulting   13
Message to Remarketers:

  Your vehicles are not unique

  The supply of vehicles in the middle price tiers are destined to
  grow.




                                                                     14
New Vehicles Sold into Non-Rental Fleet


                             Government          Commercial
             1,200
   ousands




             1,000
 Tho




              800
                                                           717
              600    640                         692
                            558    514    594
              400                                                  -0.8%
              200
                     277    269    253    241    267       294
                0
                     2001   2002   2003   2004   2005     2006     Aug YTD,
                                                                     2007

                                                  Source: Bobit Business Media   15
Repossessions Likely to Reach Record in 2008
                        Repossessions in Millions - New and Used Contracts
  1.7

  1.6
  16

  1.5

  1.4

  1.3

  1.2

  1.1

  1.0

  0.9

  0.8
        1998   1999   2000   2001   2002    2003    2004    2005    2006 2007 e 2008e


                                                               Source: Manheim Consulting   16
Average Auction Price -
Fleet Units versus Subprime Repossessions

                 Fleet Units               Subprime Repos

 $8 500
 $8,500

 $8,000

 $7,500

 $7,000

 $6,500
 $6,000

 $5,500

 $5,000
 $5 000

 $4,500
     Jan-02   Jan-03     Jan-04   Jan-05      Jan-06        Jan-07


                                              Source: Manheim Consulting   17
Retail Demand Driven by Labor Market
       and Credit Conditions




                                       18
Monthly Job Growth
                 nonfarm payrolls (establishment survey) - in thousands
600
500                        Average monthly job gain:
400                                          2005 212K
300                                          2006 189K
                           First five months 2007 147K
200
                               Last three months     44K
100
  0
-100
-200
-300
-400
   Aug- Aug- Aug- Aug- Aug- Aug- Aug- Aug- Aug- Aug- Aug- Aug- Aug- Aug- Aug- Aug- Aug-
    91   92   93   94   95   96   97   98   99   00   01   02   03   04   05   06   07

                                                        Source: Bureau of Labor Statistics   19
Initial Jobless Claims –
4-week moving average

 500,000

 450,000

 400,000

 350,000
                                                                                                                                                            9/1/07
 300 000
 300,000                                                                                                                                                   325,750


 250,000

 200,000
           Jan-92

                    Jan-93

                             Jan-94

                                      Jan-95

                                               Jan-96

                                                        Jan-97

                                                                 Jan-98

                                                                          Jan-99

                                                                                   Jan-00

                                                                                            Jan-01

                                                                                                     Jan-02

                                                                                                              Jan-03

                                                                                                                       Jan-04

                                                                                                                                Jan-05

                                                                                                                                         Jan-06

                                                                                                                                                  Jan-07
                                                                                                        Source: Bureau of Labor Statistics                     20
Average Weekly Overtime


  5.5

  5.0

  4.5

  4.0

  3.5

  3.0
      1



               3



                        5



                                 7



                                          9



                                                   1



                                                              3



                                                                        5



                                                                                   7
   -9



            -9



                     -9



                              -9



                                       -9



                                                -0



                                                           -0



                                                                     -0



                                                                                -0
  ug



           ug



                    ug



                             ug



                                      ug



                                               ug



                                                         ug



                                                                   ug



                                                                             ug
 A



          A



                   A



                            A



                                     A



                                              A



                                                        A



                                                                  A



                                                                            A
                                                    Source: Bureau of Labor Statistics   21
Wage and Salary Growth

                       Annual Increase in Wages and Salary
 9%
 8%
 7%
 6%
 5%
 4%
 3%
 2%
 1%
 0%
      1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 July
                                                                       YTD
                                                                       2007


                                            Source: Bureau of Economic Analysis   22
Interest Rates

                    10-yr T note            3-mo T bill
  9
  8
  7
  6
  5
  4
  3
  2
  1
  0
  Sep-93   Sep-95   Sep-97    Sep-99   Sep-01   Sep-03      Sep-05     Sep-07



                                                Source: Federal Reserve Board   23
Interest Rate Yield Curve
                               Spread between 10-year and 2-year Treasuries
                       3.0
                       2.5
                       2.0
                ints
   percentage poi




                       1.5

                       1.0
                       05
                       0.5
                       0.0
                       -0.5
                        05
                       -1.0
                         Sep-86 Sep-89 Sep-92 Sep-95 Sep-98 Sep-01 Sep-04 Sep-07

                                                             Source: Federal Reserve Board   24
                                                           percent
                                7/
                                  24
                                     /2




                                               3.0
                                                     3.5
                                                            4.0
                                                                     4.5
                                                                           50
                                                                           5.0
                                        00
                                7/
                                                                                                                           Turbulence

                                  27 7
                                     /2
                                        00
                                7/
                                  30 7
                                     /2
                                        00
                                 8/        7
                                   2/
                                      20
                                         07
                                 8/
                                   5/
                                      20
                                         07
                                 8/
                                   8/
                                      20
                                8/       0
                                  11 7
                                     /2
                                        00
                                8/
                                  14 7
                                     /2
                                        00
                                8/
                                  17 7
                                     /2
                                        00
                                8/
                                  20 7
                                     /2
                                        00
                                8/
                                  23 7
                                     /2
                                        00
                                                                                                                           Treasury Yields Plummet During Week of




                                8/
                                  26 7
                                     /2
                                        00
                                                                                 Three-Month Treasury Bill - Daily Yield




                                8/
                                  29 7
                                     /2
                                        00
                                 9/        7
                                   1/
                                      20
                                         07
                                 9/
                                   4/
                                      20
                                         07
Source: Federal Reserve Board
25
New Vehicle Sales & New Home Sales

                         The Coal Mine Canaries
                            3 month
                            3-month moving average (in millions)
  1.4                                                                                 20
                        New Home Sales             New Vehicle Sales
  1.2                                                                                 18


  1.0                                                                                 16


  0.8                                                                                 14


  0.6                                                                                 12


  0.4                                                                                 10


  0.2                                                                                 8
    Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan-
    Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan
     77   79   81   83   85   87   89   91   93   95   97   99   01   03   05   07

                                       Source: U.S. Census Bureau & Automotive News        26
Housing Starts Fall to Decade Low
                              New Single Family Starts
                      3-month moving average – millions of units
  1.9
  1.8
  18
  1.7
  1.6
  1.5
  1.4
  1.3
  1.2
  1.1
  1.0
    Jul-00   Jul-01     Jul-02    Jul-03    Jul-04    Jul-05       Jul-06   Jul-07


                                                        Source: U.S. Census Bureau   27
Why Subprime Auto Loans Do Not Equal
Subprime Mortgage Loans

  Better loans

  Fixed rates versus adjustable

  Experience with previous cycles

  Mortgage broker / lender relationship versus F&I manager /
  lender relationship
                    p

  Collateral expectations and results




                                                               28
Subprime Auto Lending

   Hard to over-emphasize importance
   – $100 billion in annual originations.
   – More than 40% of all used vehicle financing is subprime.

   Industry currently in “sweet spot”
     Originations growing, d f lt d li i
   – O i i ti         i                                   t    i i       dit
                           defaults declining, recovery rates rising, credit
     ratings upgraded.
   – Fragmented, but consolidating industry.

   Cautions
   – Borrowers are highly leveraged and sensitive to gas prices.
                    p          g g
   – Growth in subprime mortgages adds a new wrinkle.
   – Industry is prone to cycles.




                                                                               29
30
31
Gasoline Prices Decline From May Peak

                Unleaded Gasoline – Cost per Gallon – National Average

   $3.35
   $3.05
   $2.75
   $2.45
   $2.15
   $1.85
   $1.55
   $1.25
   $0.95
   $0.65
       Sep-   Sep-   Sep-   Sep-   Sep-   Sep-     Sep-    Sep-    Sep-    Sep-    Sep-
        97     98     99     00     01     02       03      04      05      06      07


                                                 Source: Oil Price Information Service    32
Prius Auction Prices by Model Year

                2003 MY    2004 MY     2005 MY        2006 MY
 $25,000

 $23,000

 $21,000

 $19,000

 $17,000

 $15,000

 $13,000

 $11,000

  $9,000
       Jan-05     Jul-05   Jan-06    Jul-06      Jan-07       Jul-07


                                              Source: Manheim Consulting   33
04 & 05 MY Prius Sold in 2007

  $25,000


  $20,000


  $15,000


  $10 000
  $10,000


   $5,000


      $0
            0   20 000
                20,000   40,000
                         40 000   60 000
                                  60,000   80 000
                                           80,000   100,000 120,000 140,000
                                                    100 000 120 000 140 000

                                                      Source: Manheim Consulting   34
Price premium
 for diesels



                35
Full-size Pickups – Average Auction Price

               actual prices       mileage and seasonally adjusted

 $13 500
 $13,500



 $12,500



 $11,500



 $10,500



  $9,500
      Jan-01   Jan-02    Jan-03   Jan-04   Jan-05    Jan-06     Jan-07


                                                 Source: Manheim Consulting   36
Conclusions

  Slower growth, but growth

  Many conflicting f
  M                       impacting diff
            fli ti forces i               t demographic
                               ti different d       hi
  groups differently

  Further separation between good and great dealers

  The tailwinds that have pushed wholesale used vehicle prices
                    slightly
  upward will ease slightly.




                                                                 37
Summary and Review of Economic and Industry
Events That Will Influence Used Vehicle Values

   Housing Market -- the drag continues.

   Subprime Lending -- th differences b t
   S b i      L di     the diff                  t
                                      between mortgages
   and auto loans.

                                                grow.
   Gasoline Prices -- world demand continues to grow

   UAW Negotiations -- concessions for sure, but how willingly
   given?

   U.S. Economic Recovery -- solid fundamentals, but slower
          ahead.
   growth ahead

   Retail Used Vehicle Market -- profitable, but higher
   acquisition costs increasingly difficult to pass on.

                                                                 38