2007 afla conference

2007 AFLA Conference

Tom Webbwww.manheimconsulting.com

2

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 eliminate their product offerings

Anticipating / maximizing manufacturer incentive monies

Source: Survey conducted by Automotive Fleet and published in June, 2007 issue

3

50 Years of Fleet Operating Costs

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1955 1965 1975 1985 1995 2005

Depreciation Gasoline Insurance * All other

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

4

Topic Outline

Current wholesale pricing environment– Overall market

– End-of-service fleet units

Drivers of those changes

“Making the best of the hand your dealt”

5

Manheim Used Vehicle Value Index

All Manheim U.S. sales (5+ million annually)

Classify by market segment

Account for shifts in mileage

Weight to provide unchanging mix

Seasonally adjust

STEPS:

A single measure of used vehicle price changethat is independent of underlying shifts in the characteristics of vehicles being sold

Concept:

6

95

100

105

110

115

120

125

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: Manheim Consulting

Manheim Used Vehicle Value Index - January 1995 = 100

Manheim Used Vehicle Value Index

7

$4,500

$5,000

$5,500

$6,000

$6,500

$7,000

$7,500

$8,000

$8,500

Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07

actual prices mileage and seasonally adjusted


Average Auction Price - Commercial Fleet Units

8

70,000

75,000

80,000

85,000

90,000

95,000

Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07


Average Mileage - Commercial Fleet Units

9

$4,500

$5,000

$5,500

$6,000

$6,500

$7,000

$7,500

$8,000

$8,500

Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07



Average Auction Price - Mid-size Fleet Car

10

$9,500

$10,500

$11,500

$12,500

$13,500

Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07



Full-size Pickups – Average Auction Price

11

Auction Volume and Price Change by Vehicle Age

-15%

-10%

-5%

0%

5%

10%

15%

20%

Current and previousmodel year

2 - 3 model yearspast

4 - 6 model yearspast

% Change in Price % Change in Auction Volume


July 2007 versus July 2006

12

What Drives Used Vehicle Prices?

Demand– Overall economy

• Labor market & credit conditions• Tax policy, home refi’s, wealth effect

– Price of competing goods – new vehicles• Past prices• Current incentives

Supply– Off-lease volumes– Off-rental volumes– Overall level– Match with demand

13

Percent of Total Auction Volume by Price Tier

2.0%2.5%3.0%3.5%4.0%4.5%5.0%5.5%6.0%6.5%7.0%

$4K - $5K $5K - $6K $6K - $7K $7K - $8K $8K - $9K $9K -$10K

2004 2005 2006 July ytd 2007


14

0

5

10

15

20

25

30

35

40

45

50

Th

ou

san

ds

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.

15

New Vehicles Sold into Non-Rental Fleet

277 269 253 241 267 294

640558 514 594

692 717

0

200

400

600

800

1,000

1,200

2001 2002 2003 2004 2005 2006 JulyYTD,2007

Tho

usa

nds

Government Commercial

Source: Bobit Business Media

-0.9%

16

$4,500

$5,000

$5,500

$6,000

$6,500

$7,000

$7,500

$8,000

$8,500

Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07



Average Auction Price - Subprime Repossessions

17

Monthly Job Growth

-400

-300

-200

-100

0

100

200

300

400

500

600

Jul-91

Jul-92

Jul-93

Jul-94

Jul-95

Jul-96

Jul-97

Jul-98

Jul-99

Jul-00

Jul-01

Jul-02

Jul-03

Jul-04

Jul-05

Jul-06

Jul-07

Source: Bureau of Labor Statistics

nonfarm payrolls (establishment survey) - in thousands

18

200,000

250,000

300,000

350,000

400,000

450,000

500,000J

an

-92

Ja

n-9

3

Ja

n-9

4

Ja

n-9

5

Ja

n-9

6

Ja

n-9

7

Ja

n-9

8

Ja

n-9

9

Ja

n-0

0

Ja

n-0

1

Ja

n-0

2

Ja

n-0

3

Ja

n-0

4

Ja

n-0

5

Ja

n-0

6

Ja

n-0

7

Source: Bureau of Labor Statistics

Initial Jobless Claims – 4-week moving average

8/11/07312,500

19

Retail Sales Remain Strong –Annual growth rate

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

2000 2001 2002 2003 2004 2005 2006

Total Total - ex autos

Source: U.S. Bureau of Census

20

Interest Rates

0

1

2

3

4

5

6

7

8

9

Jul-93 Jul-95 Jul-97 Jul-99 Jul-01 Jul-03 Jul-05 Jul-07

10-yr T note 3-mo T bill

Source: Federal Reserve Board

21

Interest Rate Yield Curve

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0


per

cen

tag

e p

oin

ts


Spread between 10-year and 2-year Treasuries

22

Treasury Yields Plummet During Week of Turbulence

3.0

3.5

4.0

4.5

5.0

7/24/07 7/27/07 7/30/07 8/2/07 8/5/07 8/8/07 8/11/07 8/14/07 8/17/07

per

cen

t

Three-Month Treasury Bill - Daily Yield


23

Change in New Unit Sales vs. Change in GDP – 1960-2006

-30%

-20%

-10%

0%

10%

20%

30%

-4% -2% 0% 2% 4% 6% 8%

Real GDP

New

unit sales

Source: Automotive News & Dept. of Commerce

19661982

1984

24

4

6

8

10

12

14

16

18

20

1957 1967 1977 1987 1997 2007

New Car & Light Duty Truck Sales

millions of units

Source: Automotive News

25

New Vehicle Sales & New Home Sales

0.2

0.4

0.6

0.8

1.0

1.2

1.4

Jan-77

Jan-79

Jan-81

Jan-83

Jan-85

Jan-87

Jan-89

Jan-91

Jan-93

Jan-95

Jan-97

Jan-99

Jan-01

Jan-03

Jan-05

Jan-07

8

10

12

14

16

18

20

New Home Sales New Vehicle Sales

Source: U.S. Census Bureau & Automotive News

26

1.0

1.1

1.2

1.3

1.4

1.5

1.6

1.7

1.8

1.9


Housing Starts Fall to Decade LowNew Single Family Starts

3-month moving average – millions of units

Source: U.S. Census Bureau

27

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, defaults declining, recovery rates rising, credit

ratings upgraded.– Fragmented, but consolidating industry.

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

28

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

Collateral expectations and results

32

$0.65

$0.95

$1.25

$1.55

$1.85

$2.15

$2.45

$2.75

$3.05

$3.35

Aug-97

Aug-98

Aug-99

Aug-00

Aug-01

Aug-02

Aug-03

Aug-04

Aug-05

Aug-06

Aug-07

Source: Oil Price Information Service

Gasoline Prices Decline From May Peak

Unleaded Gasoline – Cost per Gallon – National Average

33

Prius prices

34

Price premium for diesels

35

Conclusions

Slower growth, but growth

Many conflicting forces impacting different demographic groups differently

Further separation between good and great dealers

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

36

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

Housing Market -- the drag continues.

Subprime Lending -- the differences between mortgages and auto loans.

Gasoline Prices -- world demand continues to grow.

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

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

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

2007 afla conference

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