Industry Research Report Auto Dealers, GM

Northeast U.S.

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Introduction

This study examines auto dealer industry and the related area of vehicle manufacturing in the U.S. The focus of the report is to identify trends within the auto industry, as well as to identify key elements that drive the sector. This study also examines the industry in and around the Des Moines, Iowa area and identifies trends that influence the auto industry as well as demographic data that drive the sector. The accompanying charts are provided in support of the information provided. This study is intended to give a realistic view of the industry and can serve as a guide in comparing a particular business to the industry at large.

Auto Dealerships

This industry comprises establishments primarily engaged in retailing new automobiles and light trucks, such as sport utility vehicles, and passenger and cargo vans, or retailing these new vehicles in combination with activities, such as repair services, retailing used cars, and selling replacement parts and accessories. The auto dealers market consists of new and used passenger cars, as well as light commercial vehicles, sold through car dealerships or auction-houses within the country. It does not include sales of motorcycles or vehicles that weigh over 3.5 tons. According to most recent (April 2008) statistics from Datamonitor, the global automotive retail sector generated total revenues of $3.9 trillion in 2007, representing a compound annual growth rate (CAGR) of 4.5 percent for the period spanning 2003-2007 The auto dealers segment was the sector's most lucrative in 2007, generating total revenues of $1.7 trillion, equivalent to 44 percent of the sector's overall value. The performance of the sector is forecast to decelerate, with an anticipated CAGR of 3.7 percent for the five-year period 2007-2012, which is expected to drive the sector to a value of $4.7 trillion by the end of 2012. The U.S. is the largest commercial and professional use automotive market in the world, accounting for 30 percent of world automotive sales. The automotive industry is one of the prime drivers of the U.S. economy. The vastness of the U.S. market has traditionally inhibited domestic manufacturers from focusing on exports, while most U.S. vehicle models are designed specifically for the U.S. market and have limited appeal to buyers in most other countries. However, during the recent domestic downturn, large U.S manufacturers are having increased success with the emerging middle class in Asian and S. American markets. For foreign manufacturers, the U.S. market provides significant potential in terms of sales and profits. The industry is dominated by the Big Three U.S. firms (General Motors, Ford and DaimlerChrysler) and three Japanese companies with large-scale operations in the US (Honda, Toyota and Nissan). General Motors and Ford are U.S-based, DaimlerChrysler is

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a German-registered company created in 1998 by Daimler’s acquisition-merger of Chrysler Motor Company in 1998. The Big Three face overcapacity, huge unfunded pension and healthcare liabilities, and fierce competition from their Japanese rivals. General Motors and Ford have been losing market share at home for several years and both are actively engaged in recovery plans to close the competitive advantage enjoyed by their local Japanese competitors. The U.S. is the world’s biggest producer of passenger vehicles, typically defined in the U.S. to include light trucks as well as passenger cars. Suppliers to this sector include automobile manufacturers, who often enter into franchise agreements with market players. Car dealers may have agreements with several different car companies and brands. Companies in this sector often have large-scale operations, high fixed costs and high exit barriers, which combine to produce a high level of rivalry. Large auto dealers face high fixed costs and profitability is largely dependent on the volume of cars sold. Such companies benefit from significant economies of scale in terms of purchasing. In addition, dealers often receive cars from manufacturers through an allocation system that considers past sales levels. Dealers often have limited influence over the colors and features of the cars they receive. A number of suppliers have integrated forward in to retailing as well as manufacturing their automobiles, putting pressure on market players. For example, Toyota owns a number of dealerships. New car customers are generally a loyal clientele, with factors such as increased reliability and prestige cited as reasons for purchase. With drastically reduced consumer confidence reports, skyrocketing gas prices and a more restrictive lending climate, metro-area car and truck registrations have dipped dramatically in the last few months, forcing dealerships and manufacturers to offer financial incentives that are coming out of their own pockets. Dealerships blame the sketchy economy, increasing fuel prices and the fact that people are keeping their vehicles longer than before. To boost sales, dealerships and manufacturers have significantly slashed prices on new cars and trucks, offering incentives that favor consumers with good credit. But those incentives could have a negative effect on the auto industry because dealers are absorbing the extra costs.

Sales are forecast be soft through 2008 because of the weak economy and anxious consumers. AutoNation Inc., America's largest automotive retailer, said its third-quarter 2007 profits tumbled 12 percent. AutoNation Chairman and Chief Executive Mike Jackson said he expected auto sales will be hurt by confidence-sapping weakness in the housing market well into 2008 despite tight management of expenses and inventory. Few people are buying the biggest SUVs and pickups, abandoning them for smaller cars and so-called "crossovers" that have the styling of SUVs but the chassis of cars. Published reports say half as many SUVs will be sold this year as in the peak years that enjoyed annual sales of 3 million units. Sales of large SUVs plummeted 28 percent in the first quarter this year, while subcompact sales rose 32 percent, Autodata Corp. reported.

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While no one is surprised that consumers have turned away from big, gas-guzzling pickups and SUVs and toward more fuel efficient cars and crossovers, industry analysts are slack-jawed at the speed at which demand for trucks has gone from merely eroding to downright collapsing. Not surprisingly, the catalyst appears to have been gas prices. The American Automobile Association reported the national average price for regular gas hit $3.96 on May 30, 2008 versus $3.19 a year ago.

Meanwhile, U.S. sales of large pickups have quickly gone from bad to worse. Large pickups fell only 3.2 percent to about 2.1 million for all of 2007, versus about 2.2 million in 2006. But in January 2008, large pickups fell five percent from the year-ago month; in February, down 9.9 percent; and in March, down 14.9 percent, according to AutoData Corp., Woodcliff Lake, N.J.

More recent developments include the sub-prime credit crunch, the bust in housing construction, and the strategic decision among the U.S. domestic brands to try and keep a lid on incentives, sacrificing sales volume in hopes of regaining profitability.

Ford Motor cut its second-quarter production schedule on May 22, and warned of cuts in the third and fourth quarter. Following the announcement, Ford President and CEO was widely quoted saying that gas prices seem to have reached a “tipping point” where shoppers are changing their behavior. Even wealthy households have increasingly begun taking gas mileage into account when choosing a vehicle, according to CNW Marketing Research.

Ford recently cut its full-year forecast for the entire industry to a range of only 15 million to 15.4 million vehicles, including medium and heavy trucks. The middle of that range translates to fewer than 15 million “light vehicles,”excluding medium and heavy trucks. That would be the worst result in more than a decade, and a sharp comedown from U.S. sales of about 16.1 million light vehicles in 2007. Some analysts thought J.D. Power and Associates was too pessimistic when it predicted in March 2008 that industry sales would fall below 15 million, but as other forecasters have been following suit. In addition, truck inventories also remain too high at General Motors, even after a strike that cut sharply into truck production.

“While we were pleased with Ford management’s rapid response to the deteriorating demand, we believe that the actions signaled so far may not be enough,” he said. Ford production is expected to be down 13 percent this year, including a 17 percent cut in truck production.

Table 1-Average Dealership Profile 2001 2002 2003 2004 2005 2006 %

Change

05-06 Total dealership sales $31,670,046 $31,275,581 $32,296,859 $33,009,335 $32,318,461 $31,855,768 -1.4%

Total dealership gross $4,154,469 $4,175,456 $4,315,654 $4,363,870 $4,307,479 $4,338,448 0.7%

As % of total sales 13.1% 13.4% 13.4% 13.2% 13.3% 13.6%

Total dealership $3,535,496 $3,576,246 $3,751,511 $3,804,184 $3,776,446 $3,848,964 1.9%

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Table 1-Average Dealership Profile 2001 2002 2003 2004 2005 2006 %

Change

05-06 expense

As % of total sales 11.2% 11.4% 11.6% 11.5% 11.7% 12.1%

Net profit before taxes $618,974 $615,673 $564,143 $559,686 $531,033 $489,484 -7.8%

As % of total sales 2.0% 1.9% 1.7% 1.7% 1.6% 1.5%

Net pretax profit in constant 1982 dollars

$337,272 $339,027 $306,600 $304,177 $288,605 $266,024 -7.8%

New-vehicle department sales

$18,808,644 $18,651,091 $19,359,130 $20,116,264 $19,469,000 $18,795,482 -3.5%

As % of total sales 59.4% 59.6% 59.9% 60.9% 60.2% 59.0%

Used-vehicle department sales

$9,187,234 $8,942,973 $9,142,647 $9,090,534 $9,067,128 $9,266,366 2.2%

As % of total sales 29.0% 28.6% 28.3% 27.5% 28.1% 29.1%

Service and parts sales $3,674,168 $3,681,518 $3,795,081 $3,802,537 $3,782,334 $3,794,920 0.3%

As % of total sales 11.6% 11.8% 11.8% 11.5% 11.7% 11.9%

New-vehicle average selling price

$25,797 $26,163 $27,565 $28,060 $28,381 $28,451 0.2%

Used-vehicle average selling price

$13,930 $13,840 $13,473 $14,247 $14,923 $15,518 4.0%

Average net worth (as of 12/31)

$2,016,200 $2,230,699 $2,243,589 $2,301,417 $2,258,753 $2,160,181 -4.4%

Net profit as % of net worth

30.7% 27.6% 25.1% 24.3% 23.5% 22.7%

Source: National Auto Dealers Association Industry Analysis Division

Table 2- Expectations for dealership profits Increase No Change Decrease Value Index

Apr-94 67.8% 29.1% 3.1% 180

Apr-95 32.2% 46.1% 21.6% 112

Apr-96 54.1% 35.0% 11.0% 154

Apr-97 42.4% 44.0% 13.6% 135

Apr-98 41.9% 43.3% 14.8% 134

Apr-99 56.5% 37.8% 5.7% 164

Apr-00 49.0% 39.9% 11.1% 149

Apr-01 31.5% 40.7% 27.8% 107

Mar-02 53.2% 36.7% 10.1% 153

Mar-03 13.5% 46.2% 40.2% 133

Mar-04 7.8% 31.7% 60.4% 163

Mar-05 9.4% 39.6% 51.1% 151

Mar-06 15.9% 41.4% 42.7% 134

Mar-07 15.7% 36.8% 47.5% 141

Source: National Auto Dealers Association Industry Analysis Division

August 2008 reporting from the New York Times confirmed that U.S. car buyers have grown less satisfied with their purchases from domestic automakers while their Asian and

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European competitors continue to improve, according to a new survey. Consumer satisfaction with U.S. auto brands slipped as Lexus and BMW tied for first place, followed by Toyota and Honda, according to the University of Michigan's American Customer Satisfaction Index.

General Motors Corp.'s Buick and Cadillac brands, and Ford Motor Co.'s Lincoln and Mercury lines, fell from their No. 2 perch at a time when U.S. companies are struggling to outshine their competitors and reverse their shrinking sales and market share. Traditionally, U.S. brands improve their customer satisfaction scores each year, just not as much as their overseas counterparts. Now the domestic companies' ratings are declining while their competitors' scores continue to climb.

The auto industry's customer satisfaction has increased steadily over time and its overall score of 82, unchanged from the high set a year ago, is higher than many other industries the index tracks. In addition, just 11 points separate the best-scoring brand from the worst, but domestic automakers are having the hardest time adapting to high gas prices and a shift in demand toward more fuel-efficient vehicles, and that is manifesting itself in weaker customer satisfaction.

Experts say there is little question that the domestic automakers are somewhat strapped for resources, and will have to raise capital in order to weather the current climate in the industry. Asian and European automakers crowded the upper end of the rankings. BMW gained 1 point, to score 87, tying Toyota Motor Corp.'s Lexus luxury brand, which held the top spot alone last year. Toyota's namesake brand and fellow Japanese automaker Honda Motor Co. both rose 2 points, to 86.

Several U.S. brands, by contrast, saw their ratings slump. Buick and Cadillac fell a point, to a score of 85, while Chevrolet slipped 3 points, to 79. GM's Saturn brand, however, jumped 4 points, to 85, which was largely due to the brand's better fuel economy.

Lincoln and Mercury lost 3 points, to 83, while the score for Ford's namesake brand was unchanged at 80. Chrysler LLC's brands fared the worst among the domestic automakers. Its Dodge and Jeep lines sat at the bottom of the 22-brand ranking, while its namesake brand shared the fifth-to-last spot with Ford. All of Chrysler's ratings came in below the average rating.

Table 3 - U.S. Light Vehicle Sales Summary

Month Calendar Year-to-Date

April % Share DSR. January - April Vol.

2008 2007 Current Year-

Ago

%

Chg. 2008 2007

%

Chg.

Domestic Cars 432,430 429,801 34.8 32.3 -7.1 1,629,840 1,665,729 -2.2

Import Cars 228,546 197,002 18.4 14.8 7.1 773,436 760,089 1.8

Total Cars 660,976 626,803 53.1 47.0 -2.7 2,403,276 2,425,818 -0.9

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Table 3 - U.S. Light Vehicle Sales Summary

Month Calendar Year-to-Date

April % Share DSR. January - April Vol.

2008 2007 Current Year-

Ago

%

Chg. 2008 2007

%

Chg.

Domestic Light Trucks 480,577 596,310 38.6 44.8 -25.6 1,989,482 2,329,907

-14.6

Import Light Trucks 102,079 109,290 8.2 8.2 -13.8 413,232 452,078 -8.6

Total Light

Trucks 582,656 705,600 46.9 53.0 -23.8 2,402,714 2,781,985

-

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Domestic Light Vehicles 913,007 1,026,111 73.4 77.0 -17.9 3,619,322 3,995,636 -9.4 Import Light Vehicles 330,625 306,292 26.6 23.0 -0.4 1,186,668 1,212,167 -2.1

Total Light

Vehicles 1,243,632 1,332,403 100.0 100.0 -13.8 4,805,990 5,207,803 -7.7 Source: Ward's Automotive Group

Table 4 - North America Vehicle Production Summary

Month Calendar Year-to-Date

April April % Share Vol. January - April % Share Vol.

2008 2007 Current Year-Ago % Chg. 2008 2007 Current Year-Ago % Chg.

U.S. Car 328,661 319,230 27.8 24.6 3.0 1,341,232 1,360,664 28.2 26.0 -1.4

U.S. Light Truck 451,052 576,082 38.1 44.4 -21.7 1,887,370 2,223,701 39.7 42.5 -15.1 Total Light

Vehicle 779,713 895,312 65.9 69.1 -12.9 3,228,602 3,584,365 67.9 68.5 -9.9

U.S. Med./Hvy. Truck 20,559 22,544 1.7 1.7 -8.8 80,788 111,803 1.7 2.1 -27.7

Total U.S. Vehicle 800,272 917,856 67.6 70.8 -12.8 3,309,390 3,696,168 69.6 70.6 -10.5

Canada Car 109,274 115,476 9.2 8.9 -5.4 402,769 456,110 8.5 8.7 -11.7 Canada Light Truck 87,289 106,010 7.4 8.2 -17.7 340,896 441,796 7.2 8.4 -22.8

Total Light

Vehicle 196,563 221,486 16.6 17.1 -11.3 743,665 897,906 15.6 17.2 -17.2 Canada Med./Hvy. Truck 2,835 3,846 0.2 0.3 -26.3 10,789 17,263 0.2 0.3 -37.5

Total Canada

Vehicle 199,398 225,332 16.8 17.4 -11.5 754,454 915,169 15.9 17.5 -17.6

Mexico Car 93,874 85,197 7.9 6.6 10.2 365,228 367,917 7.7 7.0 -0.7 Mexico Light Truck 82,631 60,226 7.0 4.6 37.2 298,683 224,364 6.3 4.3 33.1 Total Light

Vehicle 176,505 145,423 14.9 11.2 21.4 663,911 592,281 14.0 11.3 12.1

Mexico Med./Hvy. Truck 7,807 7,671 0.7 0.6 1.8 28,842 31,596 0.6 0.6 -8.7

Total Mexico

Vehicle 184,312 153,094 15.6 11.8 20.4 692,753 623,877 14.6 11.9 11.0

Total Car 531,809 519,903 44.9 40.1 2.3 2,109,229 2,184,691 44.3 41.7 -3.5

Total Light Truck 620,972 742,318 52.4 57.3 -16.3 2,526,949 2,889,861 53.1 55.2 -12.6

Total Light 1,152,781 1,262,221 97.4 97.4 -8.7 4,636,178 5,074,552 97.5 96.9 -8.6

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Vehicle

Total Med./Hvy. Truck 31,201 34,061 2.6 2.6 -8.4 120,419 160,662 2.5 3.1 -25.0

Total Vehicle 1,183,982 1,296,282 100.0 100.0 -8.7 4,756,597 5,235,214 100.0 100.0 -9.1

Source: Ward's AutoInfoBank

Franchised dealership service and parts sales reached some $80.5 billion in 2006, down slightly from 85 billion the previous year. In recent years, competition from independent service stations and quick lube centers has cut into dealers’ service work. Last year’s sales were powered by a strong light vehicle market a growing, technologically advanced vehicle population, and more miles driven on average. Dealers provided 388,140 service stalls, employed 254,700 technicians, and carried a parts inventory valued at $5.8 billion. Dealership’s parts and sales departments are attempting to cater to customers needs and make full use of space, offering evening hours, weekend hours, or both. The average dealership service department is open for business 55 hours per week.

Employment

Industries in the Motor Vehicle and Parts Dealers sub-sector retail motor vehicles and parts from fixed point-of-sale locations. Establishments in this sub-sector typically operate from a showroom and/or an open lot where the vehicles are on display. The display of vehicles and the related parts require little by way of display equipment. The personnel generally include both the sales and sales support staff familiar with the requirements for registering and financing a vehicle as well as a staff of parts experts and mechanics trained to provide repair and maintenance services for the vehicles. Specific industries have been included in this sub-sector to identify the type of vehicle being retailed.

Table 5 - Earnings by Occupation

Wages, 2007

Hourly Annual

Data series

Median Mean Median Mean

Automotive service technicians and mechanics

$18.15 $19.14 $37,760 $39,800

Cleaners of vehicles and equipment

$9.50 $10.18 $19,770 $21,160

First-line supervisors/managers of retail sales workers

$25.46 $30.54 $52,950 $63,530

Parts salespersons $12.94 $14.42 $26,920 $29,990

Retail salespersons $16.90 $19.73 $35,140 $41,050

General Motors

The U.S. auto industry is in a recession, but General Motors Corp. has prepared for it by cutting costs and rolling out new products, according to GM's Fritz Henderson, the automaker's No. 2 executive. GM is selling below trends for the third straight year, but

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GM’s management blames the sales drop on the troubled housing market, tight credit and higher gasoline prices that are sending consumers from trucks to cars at a rate much faster than the company has ever seen. Meanwhile, GM also is seeing sales growth in emerging markets. GM sees more downside risk than upside opportunity for the remainder of 2008. The Detroit-based automaker cut its industry-wide U.S. sales outlook for 2008 to between 15.3 million and 15.5 million light vehicles from 16 million at the beginning of the year, largely due to plummeting sales of trucks and sport utility vehicles. That's still higher than Ford Motor Co., which is forecasting 15 million. Some industry analysts have gone below 15 million, a 14-year low. Henderson said the 11-week strike at parts supplier American Axle and Manufacturing Holdings Inc. has had only a minimal effect on the company's retail sales, largely because it had built up a large inventory of pickup trucks and sport utility vehicles at a time when the market shifted to smaller vehicles. Car News reported that in July 2008, General Motors' lost $15.5 billion in the second quarter of 2008, its third-worst result ever. The company sold 235,184 units, off 26.7 percent from July '07. Sales gainers included Chevy Malibu (+79%), Aveo (+17%), Cobalt (+4%), Pontiac G5 (+17%), Vibe (+7%), G6 (+6%), Saturn Aura (+24%), Sky (14%, but offset by a nearly equal drop in Solstice sales), and the best Astra month ever (1,555), plus Buick Enclave (+28%, but far too little to offset Lucerne and LaCrosse drops) and Cadillac CTS (+38%). Obviously, this wasn't enough to keep trucks and big SUVs from growing cobwebs on dealer lots. The Hummer division dropped 61.7 percent to 1877 units. That's for all three models. And even CUVs Saturn Outlook (-29.2%) and GMC Acadia (-5.2%) were off, as was Chevy Impala (-37%). Like other automakers, GM says it's running short on some small models like HHR (-10.8%) and could have sold more Aveos and Cobalts if it had stock.

At GM and Ford, management says the credit crunch is becoming as big a factor in car sales as gas prices, which coincides, of course, with strict cutbacks in lease programs –the sort that in recent years could get you in much more car or truck than you could afford, the same way E-Z mortgages could get you into that McMansion you always wanted. GM's Mark LaNeve says the automaker's July lease take rate was about 10 percent, down from a year-to-date total of 17 percent of sales. Quoting J.D. Power, he says Chrysler was leasing 26 percent, Honda 21 percent, Nissan 23 percent, and Toyota 15 percent.

With its leasing program discontinued, Chrysler announced its "Shop Until You Drive" program, which allows customers to buy a car for about the same monthly payment as was needed to lease. In other words, price incentives: up to 28 percent off a Jeep Grand Cherokee, up to 25 percent off other SUVs, and up to 40-percent off the Dodge Ram, so Chrysler can make way for the new '09 model.

General Motors will drastically slash North American production to 425,000 vehicles in the first quarter of 2009 — fewer than half the total it built in the first quarter of this year. Company spokesman Chris Lee said GM is cutting 175,000 units from the first-quarter forecast that it had issued on Dec. 2. The production cuts offer dramatic evidence that

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GM expects no letup in the sales slump that grips the entire auto industry. GM is reeling from a 41 percent drop in its November U.S. sales. GM cited the U.S. market's rapid, deep slide and a lack of consumer credit as reasons for the production cutbacks. So the automaker plans to produce fewer vehicles in the first quarter than rival Ford Motor Co., which plans to build 430,000 units. That hasn't happened since the second quarter of 1998, when GM production was hobbled by a strike. GM, smarting from last week's Senate rejection of an emergency loan package, has scheduled temporary shutdowns at 20 plants in the United States, Canada and Mexico. The shutdowns affect virtually all GM plants in North America. The only U.S. plants not named in the announcement were included in previous production cutbacks or will be permanently closed this year. GM's production cuts are especially deep in comparison with the first quarter of 2008, when it built 885,000 vehicles. At the time, that was considered to be a poor quarter after the company lost 93,000 units of production during a strike at American Axle & Manufacturing Holdings Inc. The production cuts in 2009 will start early in the first quarter, but Lee denied that GM was shutting all plants for January. Ford said on Dec. 2 that it planned to build 430,000 units, 38 percent less than first-quarter 2008. Chrysler is planning a two-week holiday shutdown through Jan. 5.

Northeast Region

The Northeast is the smallest in area of the four Census Bureau-defined regions of the U.S. The region has a landscape varying from the rocky coast of New England to the fertile farmland of the Ohio River Valley behind the Allegheny Front in Pennsylvania. The sometimes urban character of the region gives it a strange mix of reputations, and many view Northeastern cities as places of economic opportunity.

The Northeast economy is generally a thriving, broad-based economy with strong activity in the professional, business and information services, as well as late-cycle activity in the financial sector. The region has a stable and affluent population that does not create the same swings in housing demand found in other regions. In June of 2007, the Northeast (-3.6%) was the only region to almost match its starts level in June of 2006. All of the other regions were down at least -20% year over year in the latest month.

The decreased importance of manufacturing has left many of the cities without an economic base, giving some of them a reputation for urban decay. Notable examples of cities left damaged and often severely depopulated from loss of manufacturing include Yonkers, Utica, Buffalo, Syracuse, and even parts of New York City in New York state; Newark, Trenton and Paterson in New Jersey; Lowell, Lawrence, Worcester and Springfield in Massachusetts; Hartford and Bridgeport in Connecticut; and Pittsburgh, Scranton, and Harrisburg in Pennsylvania; Providence in Rhode Island. However, examples dot the entire region and much of the neighboring region of the American Midwest.

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Some of these cities, though, have enjoyed revivals in recent years, replacing their economic reliance on manufacturing with job development in the medical, technical and educational industries. Pittsburgh, for example, now counts only 23 percent of its workforce in blue collar occupations according to a 2005 report from the Bureau of Labor Statistics. The last of the city's steel mills closed in 1998.

Table 7 - Northeast Population by City/State, July 2007

Rank Metropolitan Area State Population

1 New York NY 18,815,988

2 Philadelphia PA 5,827,962

3 Washington D.C. DC 5,306,565

4 Boston MA 4,482,857

5 Baltimore MD 2,668,056

6 Pittsburgh PA 2,355,712

7 Providence RI 1,600,856

8 Hartford CT 1,189,113

9 Buffalo NY 1,128,183

10 Rochester NY 1,030,435 Source: U.S. Census Bureau

Until World War II, the Northeast's economy was largely driven by industry. In the second half of the 20th century, most of New England's traditional industries have relocated to states or foreign countries where goods can be made more cheaply. In more than a few factory towns, skilled workers have been left without jobs. The gap has been partly filled by the microelectronics, computer and biotech industries, fed by talent from the region's prestigious educational institutions.

Like New England, the Mid-Atlantic region has seen much of its heavy industry relocate elsewhere. Other industries, such as drug manufacturing and communications, have taken up the slack. The economy of the New York City sub-regions is more complex; its fortunes heavily (but far from completely) dependent on the financial industry and the stock market.

As the service sector is less dependent on heavy labor than the formerly dominant industrial sector, the incentives unskilled immigrants and unskilled laborers once had to move to the Northeast have diminished. They lack the skills to compete in, for example, the financial, technical, educational, and medical markets. However, the Northeast remains a magnet for skilled workers from around the world.

The Northeast area is the wealthiest region of the country. The Upper East Side of the New York City borough of Manhattan hosts the largest concentration of individual wealth in the world. Connecticut and New Jersey are the wealthiest states in the union in terms of both per capita and household income. Also, in history, the Northeast was always known for its trading because of its location on the Atlantic Ocean, and its abundance of harbors.

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The housing downturn in the Northeast has been much milder than in the nation as a whole, in fact, according to Global Insight, housing in the Northeast has been much less affected than some Sunbelt states, particularly Florida, Arizona, Nevada and California. Florida, which some observers believe is now in a recessionary stage, is the most severe case along the East coast. In these states, prices not only collapsed, but new home construction contracted. New home building is not nearly as important to the relatively “built-out” Northeast economy as it is to the economy of many Sunbelt states.

In addition, the use of exotic mortgage instruments and the willingness of lenders to extend credit to buyers, which began in California where prices escalated rapidly, was also less prevalent in the Northeast. Hence, experts predict that foreclosures will continue to be much more of a problem for Sunbelt states and the Midwest region than for the Northeast.

Exports soften the Blow for the Northeast

Another element softening the blow on the Northeast economy is exports, which have been aided by a falling dollar. Foreign demand for U.S. exports is adding at least a percent to U.S. GDP. The export-oriented manufacturing in the older industrial northeast is helping the regional economy. Tourism is also helping the northeast regional economy, where the falling dollar has made vacationing in the U.S. relatively cheap.

Finally, helping the NY/NJ/CT metropolitan region, bonuses paid at the end of 2007 on Wall Street were still fairly high because firms had three relatively strong quarters. However, experts warned that more cutbacks will likely come in addition to those announced during the fourth quarter and these will significantly impact the New York metro area, although they will not be felt by states until next fiscal year – FY 2009.

Observers caution that the extent of the losses on Wall Street are hard to know given that, nationally, home prices continue to decline, but the Global Insight report was relatively optimistic that the housing prices were close to bottoming out. However, if home prices drop another 10-20 percent, the ramifications for income statements and balance sheets on Wall Street could be that much more severe.

Importance of U.S. Economy for the Northeast

Swings in the national economy can have a profound affect on regional economies—including the northeast. According to Global Insight, since January of 2007, durable goods orders are down consistently, non-residential construction is still falling, the last monthly BLS employment numbers declined for the fourth consecutive time, making it clear the U.S. is in a recession.

The federal fiscal stimulus, which is substantial-over $100 billion, is expected to help pull the U.S. out of recession; consumers are expected to spend about 60 percent of the rebates. However, after the impact of the rebates checks go away, growth in first quarter 2009 is expected to be very low-- under 1 percent--with the risk of a double dip

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recession. Real recovery growth isn’t expected for the states until next fiscal year, FY2010.

State by State/regional economic outlook for 2008

In 2008, Global Insight forecasts flat employment for NH, VT, MA, RI and DE. Northeast states projected to lose jobs in 2008 include:

• NY and NJ, losing 20,000 jobs each • CT - 10,000 jobs • PA -7,000 jobs • ME -2,500 jobs

Global Insight was forecasting a mild recession for 2008 of relatively short duration for the Northeast, but with plenty of risks to the forecast.

In December 2008, the First Federal Reserve District headquartered in New York reported that the Second District's economy has deteriorated substantially since the last report. Both manufacturers and other firms report widespread declines in business activity and employment levels, and a growing number plan to curtail capital spending in the months ahead. Firms in a broad array of industries report that both their input costs and selling prices have leveled off, after rising through the third quarter. Retailers report weak sales for October and early November, though inventories are not said to be too out of line; retailers say that prices are flat to lower. An annual survey of consumers in the region suggests that holiday season spending will be considerably lower than in 2007. Tourism activity in New York City is reported to have declined sharply in recent weeks. Both residential and commercial real estate markets have softened substantially since the last report, most notably in Manhattan. Finally, bankers report widespread weakening in loan demand across all segments, substantial tightening in credit standards, and higher delinquency rates on all types of loans.

Consumer Spending

Retail sales were said to be well below plan in October and early November, with same-store sales running 5 to 10 percent lower than a year earlier. One large chain notes that its sales performance might have been weaker still, if not for unseasonably cold weather in early November spurring sales of outerwear and winter apparel. The most pronounced weakening has been in New York City, which had been out-performing the rest of the region until recently. In contrast, two retail contacts in the Buffalo-Niagara region report that sales have remained fairly brisk through October. Despite the overall weakness in sales, retail inventories are not reported to be substantially above desired levels. Retail contacts report that this season is shaping up to be more promotional than last year's, with steeper markdowns and effective prices generally lower than in 2007. Looking ahead to the upcoming holiday season, retailers anticipate year-over-year percentage declines in same-store sales ranging up to the low double digits. Based on an annual supplementary question on the Conference Board's November consumer confidence survey, consumers

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in the Middle Atlantic region plan to spend roughly 10 percent less on holiday-season gifts than in last November's survey.

Tourism activity in New York City has weakened sharply since the last report. Overall revenues of Manhattan hotels have plummeted in recent weeks: after running about 10 percent ahead of comparable 2007 levels in the third quarter, revenues are reported to be down more than 10 percent from a year earlier in October and are estimated to be down more than 20 percent in early November. The recent drop-off reflects declines in both occupancy rates and room rates. Also, Broadway theaters report that business slowed in mid-October and has remained weak since. Comparisons with 2007 are not relevant, due to a strike last November, but both attendance and revenues have been sluggish, running more than 10 percent lower than two years ago. Average ticket prices have been relatively steady.

Construction and Real Estate

Housing markets in the District have deteriorated further since the last report. A major residential appraisal firm reports substantial deterioration in New York City's housing market over the past two months: prices of Manhattan co-ops and condos are reported to have fallen by 15 to 20 percent since mid-summer, though it is hard to get a clear handle on prices due to thin volume--much of the recent activity is reportedly from desperate sellers. Transaction activity has dropped off noticeably, and there has been a large increase in the number of listings. Some buyers that had signed contracts for units under construction earlier this year are having trouble getting financing at the contract price now that market values have dropped. Many of those having difficulty selling their apartments are putting them up for rent, boosting the number of rental listings substantially--particularly in doorman buildings. Average asking rents are reported to be down 1 to 4 percent from a year earlier.

New Jersey's housing market has also deteriorated substantially since the last report. A building industry expert describes buyer traffic at new developments as almost non-existent and notes that larger construction firms are backing out of new developments and cutting jobs, while a number of smaller firms are contemplating either moving into the rehab segment of the market or going out of business. Multi-family development, which had been holding up somewhat through the summer, has ground to a halt more recently. A real estate contact in northern New Jersey indicates that selling prices for existing homes are down 20 to 25 percent from a year ago, but that the number of transactions has held up, as sellers are increasingly negotiable; many potential sellers have taken their homes off the market, keeping the inventory of unsold homes relatively low. The low end of northern New Jersey's housing market is said to be holding up fairly well, whereas the market for higher-priced homes (over $400K) is described as moribund. In contrast, real estate contacts in western New York State report that prices have continued to increase modestly through October, though sales volume has tapered off moderately.

Commercial real estate markets in the New York City area have weakened noticeably. Manhattan's office vacancy rate continued to climb in October, rising more than ½ point,

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led by Midtown. Leasing activity has slowed markedly, and many tenants are requesting short-term renewals, with landlords generally willing to oblige. Actual rents have continued to decline, while asking rents, which had remained slightly above 2007 levels through the third quarter, have now turned down as well. There has been a particularly sharp increase in the amount of available sub-lease space--largely from financial firms. Office markets on the outskirts of New York City are also reported to be softening, but not as dramatically as Manhattan's.

Other Business Activity

There have been widespread signs of weakening in the labor market. A major New York City employment agency, specializing in office jobs, reports that there are now very few job openings, and a large and growing supply of job applicants. Many of the recent job candidates are people let go from entry level management jobs. Hiring by large investment banks remains nearly non-existent; more recently, legal firms, hedge funds and private equity firms have cut back dramatically on hiring.

More generally, paralleling the weakness reported in our recently-released survey of New York State manufacturers, non-manufacturing firms in the District report widespread deterioration in employment, as well as in business activity. Non-manufacturing firms also anticipate further declines in both employment and business activity in the months ahead, and a growing number plan to reduce capital spending. A growing proportion of firms--both manufacturers and other firms--report tightening credit conditions over the past three months. Firms across a wide range of industries report that their selling prices have leveled off, while their prices paid have decelerated.

Financial Developments

Bankers report weakening demand for loans in all categories--most noticeably in the residential mortgage segment, where 68 percent of bankers report lower rates and 6 percent reported higher rates. For all loan categories, respondents indicate widespread tightening of credit standards. The percentage of bankers reporting higher standards ranged from 45 percent in the residential mortgage category to 54 percent in the commercial and industrial loan category; none of the bankers surveyed indicates an easing of credit standards. Respondents note an increase in the spreads of loan rates over cost of funds for both commercial loan categories but no change in spreads for consumer loans and residential mortgages. Respondents indicate no change in the average deposit rate. Finally, bankers report fairly widespread increases in delinquency rates across all loan categories.

Industry Outlook

Employment growth will result from an increased focus on sales of automotive-related services at both new and used dealers. Finance and insurance services, automotive repair, and sales of used cars at new car dealerships will be responsible for many of the new jobs in this industry. Opportunities will be good for salespersons and customer service

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representatives with related experience and computer skills, and for automotive service technicians who have several years of experience or are ASE certified.

Wage and salary jobs at automobile dealers are projected to grow 11 percent over the 2006-2016 period, the same as the 11 percent growth for all industries combined. Although, job growth in automobile dealers typically is a reflection of consumer confidence and purchasing habits. The long-term strength of the Nation’s economy and trends in consumer transportation preferences will heavily influence the employment outlook for this industry.

Through 2016, growth in the driving-age population may increase demand for passenger vehicles and boost employment in automobile dealers. However, trends in environmental sustainability and for the public to keep vehicles longer than in the past may have a dampening effect on motor vehicle sales. New and used car dealers may also face increasing competition from online electronic auctions that enable new and used goods, including vehicles, to be traded consumer-to-consumer and business-to-consumer.

Any future dealer consolidation should have a minimal effect on the industry because of continued demand for vehicles and related services. Dealers will continue to seek greater financial and operational efficiency and flexibility, resulting in greater emphasis on aftermarket services, such as financing and vehicle service and repair. This focus will require additional workers—for example, loan officers and service technicians—to help with the larger workload.

Independent used car dealers may increasingly also provide repair services for their vehicles and will demand more service technicians, although some used car dealers still prefer to contract out their warranty and service-related work to other dealers or perform them at satellite service facilities.

In the future, dealers will seek more highly educated salespersons, and those who have a college degree and previous sales experience will have the best job opportunities.

Opportunities in vehicle maintenance and repair should be very good for persons who complete formal automotive service technician training. The growing complexity of automotive technology increasingly requires highly trained automotive service technicians and mechanics to service vehicles. Automotive service technicians in this industry may expect steady work because changes in economic conditions have little effect on this part of the dealer’s business.

Opportunities in management occupations will be best for persons with college degrees and those with considerable industry experience. However, consolidation of new car dealers will slow the growth of managerial jobs. Competition for managerial positions will remain relatively keen.

The need to replace workers who retire or transfer to other occupations will result in many additional job openings for workers in automobile dealers—retail salespersons in particular. Some dealers are trying to reduce turnover among salespersons by using alternative sales techniques and compensation systems, such as paying salaries rather

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than commissions. This may lead to more income stability and less turnover in sales departments.

The performance of the global automotive retail sector is forecast to decelerate, with an anticipated CAGR of 3.7 percent for the five-year period 2007-2012, which is expected to drive the sector to a value of $4.7 trillion by the end of 2012. U.S. sales are forecast be soft through 2008 because of the weak economy and anxious consumers. AutoNation Inc., America's largest automotive retailer, said its third-quarter 2007 profits tumbled 12 percent. AutoNation Chairman and Chief Executive Mike Jackson said he expected auto sales will be hurt by confidence-sapping weakness in the housing market well into 2008 despite tight management of expenses and inventory. At latest report, economists predict U.S. auto sales in 2009: negative 13 percent. J.D. Power and Associates predicts a drop to 11.4 million units for light vehicles sales in '09, while Deutsche Bank predicts sales of 11.5 million. An analyst at J.D. Power predicts that global auto sales will fall 8.2 percent in 2009. These woeful conditions were discussed today at a Society of Automotive Analysts roundtable.

The prediction at least shows a slowing of the precipitous drop in auto sales; it seems that 2008's dismal 18 percent drop in U.S. light vehicle sales might be the worst of it. Nonetheless, Deutsche Bank analyst Rod Lache feels that the probability of at least one automaker going bankrupt during a long, slow recovery is "greater than not."

GM sees more downside risk than upside opportunity for the remainder of 2008. The Detroit-based automaker cut its industry-wide U.S. sales outlook for 2008 to between 15.3 million and 15.5 million light vehicles from 16 million at the beginning of the year, largely due to plummeting sales of trucks and sport utility vehicles. Ford production is expected to be down 13 percent this year, including a 17 percent cut in truck production.

About 2,000 U.S. new-vehicle dealerships — nearly one of every 10 — will close in 2008 and 2009, the National Automobile Dealers Association projects. And that's the best-case scenario, under which no automaker files for bankruptcy or dies next year. A bankruptcy would accelerate dealership shutdowns. The Detroit 3 are trying to consolidate and shrink their dealer networks. But many of the closings so far do not involve the metro-area stores the automakers want to eliminate. Peter Welch, president of the California Motor Car Dealers Association, offers even a more dire forecast than NADA. He said California lost 116 dealerships in the first 11 months of 2008 and has just over 1,500 new-vehicle dealerships left. He believes closures will total 150 by year end and predicts as many as 500 closings in 2009. "We had only 20 dealers close in all of last year," said Welch. "But that's accelerating. We had 17 go down in the month of November." For much of 2008, Detroit 3 dealerships accounted for about two-thirds of store closures, NADA chief economist Paul Taylor says. That share will rise to more than 80 percent next year, Taylor predicts. Taylor says the poor economy, plunging new-vehicle sales and tight credit for dealers and consumers are taking a heavy toll.

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At the beginning of this year, Automotive News counted 21,461 new-vehicle dealerships in the United States. By the end of 2008, NADA expects that about 900 will have closed and 200 will have opened, for a net loss of 700. Next year, Taylor predicts 1,100 dealerships will close and 200 will open, for a net loss of 900. "The new dealership openings will be largely offshore brands, including Mahindra and Mahindra of India," he said. Distributor Global Vehicles USA Inc. plans to launch the Indian-import Mahindra light-truck franchise in late 2009.

January 2009 Information contained in this report has been obtained by the KeyValueData, from sources believed to be reliable. KeyValueData is not able to guarantee the accuracy or completeness of this information, nor is KeyValueData, responsible for any errors, omissions or damages arising from the use of this information. ©2009 KeyValueData, 4575 Galley Road, Suite 200E, Colorado Springs, CO 80915, ALL RIGHTS RESERVED.

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Appendix A. U.S. CAR AND LIGHT-TRUCK SALES, NOV.2008

U.S. CAR AND LIGHT-TRUCK SALES, NOV.2008

2008 2007 Car Truck 2008 2007 Total

Car Car Car Car percent percent Total Total Total Total Percent

Make 2008 2007 Share Share change change 2008 2007 Share Share change

Toyota Division 62,738 89,130 16.8% 15.2% -29.6% -37.4% 108,809 162,722 14.6% 13.8% -33.1% Ford Division 26,749 41,908 7.2% 7.1% -36.2% -27.5% 102,556 146,455 13.7% 12.4% -30.0%

Chevrolet 36,476 58,963 9.8% 10.0% -38.1% -35.9% 95,095 50,364 12.7% 12.7% -36.8% Honda Division 40,119 58,895 10.7% 10.0% -31.9% -28.8% 68,345 98,521 9.1% 8.3% -30.6%

Dodge 14,068 29,318 3.8% 5.0% -52.0% -39.9% 44,941 80,670 6.0% 6.8% -44.3% Nissan Division 23,734 39,164 6.4% 6.7% -39.4% -50.7% 38,974 70,079 5.2% 5.9% -44.4%

Jeep - - - - - -41.8% 20,302 34,908 2.7% 3.0% -41.8% Chrysler Division 10,003 27,182 2.7% 4.6% -63.2% -45.4% 20,017 45,510 2.7% 3.9% -56.0%

GMC - - - - - -42.0% 19,402 33,446 2.6% 2.8% -42.0% Hyundai division 12,508 19,711 3.4% 3.4% -36.5% -44.8% 19,221 31,883 2.6% 2.7% -39.7%

Lexus 8,941 14,892 2.4% 2.5% -40.0% -26.9% 16,223 24,848 2.2% 2.1% -34.7% BMW division 12,106 18,627 3.2% 3.2% -35.0% -40.0% 15,217 23,808 2.0% 2.0% -36.1%

Kia 7,151 11,632 1.9% 2.0% -38.5% -36.0% 15,182 24,177 2.0% 2.0% -37.2% Volkswagendivision 11,519 16,736 3.1% 2.8% -31.2% 191.3% 14,295 17,689 1.9% 1.5% -19.2%

Mazda 9,437 13,020 2.5% 2.2% -27.5% -37.9% 14,134 20,580 1.9% 1.7% -31.3% Mercedes-Benz 9,219 16,269 2.5% 2.8% -43.3% -25.5% 14,108 22,828 1.9% 1.9% -38.2%

Subaru 13,084 13,451 3.5% 2.3% -2.7% -56.1% 13,706 14,868 1.8% 1.3% -7.8%

Pontiac 11,383 24,042 3.0% 4.1% -52.7% -62.1% 12,140 26,040 1.6% 2.2% -53.4%

Cadillac 4,879 11,362 1.3% 1.9% -57.1% -30.7% 8,815 17,041 1.2% 1.4% -48.3%

Saturn 3,532 6,981 0.9% 1.2% -49.4% -43.4% 8,130 15,105 1.1% 1.3% -46.2%

Lincoln 5,217 3,200 1.4% 0.5% 63.0% -49.5% 8,019 8,744 1.1% 0.7% -8.3%

Acura 5,106 6,340 1.4% 1.1% -19.5% -57.7% 7,888 12,910 1.1% 1.1% -38.9%

Mercury 5,306 9,331 1.4% 1.6% -43.1% -37.1% 7,744 13,204 1.0% 1.1% -41.4%

Infiniti 5,643 7,722 1.5% 1.3% -26.9% -31.0% 7,631 10,605 1.0% 0.9% -28.0%

Buick 5,220 9,214 1.4% 1.6% -43.3% -43.0% 7,516 13,245 1.0% 1.1% -43.3%

Audi 5,877 7,566 1.6% 1.3% -22.3% -40.8% 6,788 9,104 0.9% 0.8% -25.4%

Scion 5,275 9,619 1.4% 1.6% -45.2% - 5,275 9,619 0.7% 0.8% -45.2%

Mitsubishi 3,368 5,294 0.9% 0.9% -36.4% -35.7% 5,096 7,983 0.7% 0.7% -36.2%

Mini 4,545 3,177 1.2% 0.5% 43.1% - 4,545 3,177 0.6% 0.3% 43.1%

Volvo 3,259 5,983 0.9% 1.0% -45.5% -49.0% 4,404 8,227 0.6% 0.7% -46.5%

Suzuki 1,694 3,625 0.5% 0.6% -53.3% -35.6% 3,216 5,987 0.4% 0.5% -46.3% LandRover‡* - - - - - -46.9% 2,310 4,352 0.3% 0.4% -46.9%

Smart 1,889 - 0.5% - - - 1,889 - 0.3% - -

Hummer - - - - - -63.9% 1,454 4,029 0.2% 0.3% -63.9%

Porsche 678 1,430 0.2% 0.2% -52.6% -43.2% 1,378 2,662 0.2% 0.2% -48.2%

Jaguar‡* 910 1,114 0.2% 0.2% -18.3% - 910 1,114 0.1% 0.1% -18.3%

Saab 717 1,693 0.2% 0.3% -57.6% -56.5% 852 2,003 0.1% 0.2% -57.5%

Bentley 207 340 0.1% 0.1% -39.1% - 207 340 0.0% 0.0% -39.1%

Maserati 158 305 0.0% 0.1% -48.2% - 158 305 0.0% 0.0% -48.2%

Isuzu - - - - - -73.8% 130 496 0.0% 0.0% -73.8%

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U.S. CAR AND LIGHT-TRUCK SALES, NOV.2008

2008 2007 Car Truck 2008 2007 Total

Car Car Car Car percent percent Total Total Total Total Percent

Make 2008 2007 Share Share change change 2008 2007 Share Share change

AstonMartin‡‡* 100 172 0.0% 0.0% -41.9% - 100 172 0.0% 0.0% -41.9% Rolls-Royce* 22 36 0.0% 0.0% -38.9% - 22 36 0.0% 0.0% -38.9%

Maybach* 10 13 0.0% 0.0% -23.1% - 10 13 0.0% 0.0% -23.1%

Other** 390 446 0.1% 0.1% -12.6% - 390 446 0.1% 0.0% -12.6%

TOTAL 373,237 587,903

100.0% 100.0% -36.5% -36.8% 747,544

1,180,315 100.0%

100.0% -36.7%

MadeinNorthAmerica*** 243,885

406,198 65.3% 69.1% -40.0% -36.4% 553,982 894,056 74.1% 75.7% -38.0%

MadeinJapan 66,402 91,367 17.8% 15.5% -27.3% -37.9% 112,792 166,037 15.1% 14.1% -32.1% MadeinEurope 43,784 63,680 11.7% 10.8% -31.2% -40.7% 51,142 76,083 6.8% 6.4% -32.8% MadeinKorea 18,033 26,658 4.8% 4.5% -32.4% -40.2% 28,495 44,139 3.8% 3.7% -35.4% TotalDetroit3(1) 122,833

221,501 32.9% 37.7% -44.5% -36.5% 356,131 588,761 47.6% 49.9% -39.5%

Total Japan(2) 179,139

261,152 48.0% 44.4% -31.4% -38.1% 289,427 439,218 38.7% 37.2% -34.1%

Total Europe(3) 51,606 73,907 13.8% 12.6% -30.2% -28.6% 67,583 96,276 9.0% 8.2% -29.8% Total Korea(4) 19,659 31,343 5.3% 5.3% -37.3% -40.3% 34,403 56,060 4.6% 4.7% -38.6% Genera lMotors 62,207

112,255 16.7% 19.1% -44.6% -38.8% 153,404 261,273 20.5% 22.1% -41.3%

Toyota MotorSalesU.S.A. 76,954

113,641 20.6% 19.3% -32.3% -36.1% 130,307 197,189 17.4% 16.7% -33.9%

Ford MotorCo.† 40,531 61,536 10.9% 10.5% -34.1% -31.8% 122,723 182,096 16.4% 15.4% -32.6% ChryslerLLC†† 24,071 56,500 6.4% 9.6% -57.4% -41.5% 85,260 161,088 11.4% 13.6% -47.1% AmericanHondaMotorCo. 45,225 65,235 12.1% 11.1% -30.7% -32.9% 76,233 111,431 10.2% 9.4% -31.6% Nissan NorthAmerica 29,377 46,886 7.9% 8.0% -37.3% -49.0% 46,605 80,684 6.2% 6.8% -42.2% Hyundai-KiaAutomotive 19,659 31,343 5.3% 5.3% -37.3% -40.3% 34,403 56,060 4.6% 4.7% -38.6% VolkswagenGroupofAmerica 17,603 24,642 4.7% 4.2% -28.6% 48.0% 21,290 27,133 2.8% 2.3% -21.5%

BMWGroup 16,673 21,840 4.5% 3.7% -23.7% -40.0% 19,784 27,021 2.6% 2.3% -26.8% DaimlerAG†† 11,118 16,282 3.0% 2.8% -31.7% -25.5% 16,007 22,841 2.1% 1.9% -29.9% TataMotors†††* 910 - 0.2% - - - 3,220 - 0.4% - -

Source: Automotive News, December 2008.

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