market conditions...source: nada’s market beat, lubes’n’greases through the 2nd quarter of...

Copyright of SOPUS

Market Conditions

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Copyright of SOPUS 3

Source: The Conference Board

Source: U.S. Dept. of Labor, Bureau of Labor Statistics Source: IHS / Polk, DOT, NADA, Ward’s

Source: IHS Auto

• Millions of Americans lost jobs due to the Coronavirus crisis, as hundreds of thousands of businesses have been forced to close or cut back on their hours of operation. In April, the unemployment rate shot up over +10 points to record high of 14.7% – this is the highest rate and the largest over-the-month increase in the history of the data (back to January of 1948).

• Consumer Confidence tumbled to a six-year low of 87% in April, as COVID-19 cases surged and many consumers’ short-term outlook deteriorated.

• Despite the generous manufacturer incentives offered in April, New Vehicle sales through June ‘20 were down -23%.• The average age of all registered Light Vehicles in Operation inched up to 12.1 years by the end of Q2 ‘20.

Forecast

Unemployment Rate Spikes, Consumer Confidence Slips, New Car Sales Crash

New Vehicle Sales

54.1 58.066.9 72.8

87.097.6 99.5

120.8 130.0 128.2

109.2

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020TD

Consumer Confidence Index

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Unemployment Rate

11.6

12.8 14.5

15.6

16.5

17.4

17.6

17.2

17.3

17.0

13.3 16

.5

16.4

16.7

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10 12 14 16 18 20

Mill

ions

10.611.0 11.1

11.5 11.6 11.7 11.8 11.8 11.8 11.9 12.1 12.1 12.2

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

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2021

P

2022

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Avg Age of Vehicle Population in U.S.

Copyright of SOPUS CONFIDENTIAL

Consumer Confidence plunged in April, but bounced back and beat expectations in June.• In April, the index tumbled to a reading of 86.9, the lowest level in nearly six years. Consumer confidence plunged as millions lost their

jobs and there was an unprecedented deterioration of an index that monitors their attitudes about current business and work conditions.

• By June, Consumer confidence rose to 98.1 - more than expected, as the U.S. loosened stay-at-home and quarantine restrictions, raising hope for an economic recovery, according to data released Tuesday. Economists polled by Dow Jones expected consumer confidence to rise to 91 from a May reading of 85.9.

• “The re-opening of the economy and relative improvement in unemployment claims helped improve consumers’ assessment of current conditions,” said Lynn Franco, senior director of economic indicators at The Conference Board.

• Franco noted, however, “the Present Situation Index suggests that economic conditions remain weak. Looking ahead, consumers are less pessimistic about the short-term outlook, but do not foresee a significant pickup in economic activity.”

• “Faced with an uncertain and uneven path to recovery, and a potential COVID-19 resurgence, it’s too soon to say that consumers have turned the corner and are ready to begin spending at pre-pandemic levels,” said Franco.

• The board’s “present situation” index rose to 86.2 from 68.4 while the short-term outlook among consumers also improved.• States across the country have ramped up efforts to reopen the U.S. economy by easing some measures aimed at curbing the

coronavirus pandemic. This not only increased confidence among consumers, but sent stock prices flying. However, some states have had to roll back their re-openings as coronavirus cases increased once again.

• The Conference Board’s Consumer Confidence Index is composed of consumers’ assessment of present conditions and expectations about the future. It provides an indication of future developments of household consumption and saving, based upon panelists’ answers provided regarding their expected financial situation, sentiment about the general economic situation, unemployment and capability of savings.

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Source: The Conference Board

Copyright of SOPUS

• Overall total miles driven in Q2 ’20 fell -26%/ -218 billion miles (vs. Q2 ‘19)

• Conventional gasoline prices were down -31% in Q2 ‘20, averaging $1.85 per gallon, before rising to $2.09 by the last week in Jun ‘20.

• Cumulative miles of travel for 2020 = 1,331.2 billion, down -16.6% vs. YAGO, equating to a decrease of -264.2 billion vehicle miles.

• The total Light Vehicle population continues to see growth, while “Miles Driven” is sustaining significant declines, causing the average annual miles driven per-vehicle to decline each year since 2016.

Miles Driven YTD through Jun ’20 fell -16.6% / -264 Billion

Sources: FHWA, DOT, EIA, “Miles Driven” uses 12M moving avg.

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Miles Driven (12M Moving Avg.) vs. Gas Prices

Miles Driven (12M)

Gasoline Prices

10.5

10.8

11.0

11.3

11.5

11.8

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12.3

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2011

2012

2013

2014

2015

2016

2017

2018

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2020

TD

Thou

sand

s Average Miles Traveled per Light Vehicle(rolling 12M)

2,920

2,970

3,020

3,070

3,120

3,170

3,220

3,270

3,320

Annual Vehicle Mileage Volume (Billions)


Vehicle Miles Traveled bottomed-out in April, due to coronavirus-related stay-home orders and business shutdowns.

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Source: “Traffic Volume Trends,” Federal Highway Administration

Total Miles Driven in the U.S., YTD fell -16.6% / -264.2 billion miles• At the height of the pandemic-induced lockdown, miles driven saw unprecedented

declines, falling to 169.5 billion in Apr ‘20.• “Urban” miles driven plunged -18%, YTD, while “Rural” declined -15%.


Through late June, vehicle travel steadily ascended to pre-pandemic levels. Since mid-April, passenger vehicle travel gradually climbed back up to “normal” levels, as states and municipalities re-opened.

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Source: DOT, Inrix Trip Trends


Every Region has sustained double-digit VMT* declines, YTD

Sources: DOT, FHWA, *Miles traveled in prior time periods are “adjusted” by FHWA, *Vehicle Miles Traveled

• Every region saw double-digit mileage declines through Q2 ‘20• South Atlantic accounts for 23% of the net mileage decrease• South Gulf has seen the mildest decline, down -13.9%

-16.5%-57.5 B

-15.6%-54.0 B

-13.9%-45.4 B

-20.5%-44.4 B

-16.9%-60.4 B

% Change

Vol. Change


Change in Total Miles Driven YTD – Region and State Levels

Sources: DOT, FHWA

• Urban mileage volumes have sustained heaviest decline in Total U.S., YTD (down -18%)• The Northeast saw the greatest mileage destruction, while the South Gulf experienced the mildest impact• Hawaii, CT, Wash. D.C., NM, VT, MD & RI experienced the highest mileage percentage declines• Wyoming, Arkansas, Montana and Georgia only seeing single-digit VMT drops

(16.2%)(15.0%)

(17.5%)

(14.5%)

(30%)

(20%)

(10%)

0%

North Central Northeast South Atlantic South Gulf West Total U.S.

Mileage % Change YTD (Jan - Jun '20)

Total Miles Rural Veh Miles Urban Veh Miles Other Miles

(30%)(25%)(20%)(15%)(10%)(5%)0%

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North Central Northeast South Atlantic South Gulf West

Total Mileage % Change YTD (Jan - Jun '20)


Through the end of H1 ‘20, Gasoline Prices fell -16%, plummeting to $1.66 by the end of April, impacted by Crude Oil Prices dropping to historic lows.

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$2.08

-$0.39 YoY

-15.7%

2020 PPG (Regular)

trend

•By the end of Jun ‘20, the price-per Conventional gallon appeared to be experiencing a V-shaped recovery, after dropping to a 4-year low in April, when crude oil barrel prices dropped below zero for the 1st time in history.•Petroleum demand in the U.S. decreased by 26.7% (-5.2mm b/d) between March & April ’20 drove the largest monthly drop in demand for Gasoline delivery (-31.1% m/m, -2.6mm b/d).•The national avg. price per gallon for regular gas purchased in H1 ‘20 was $2.08, down -15.7%/-$0.39 vs. H1 ‘19.

Sources: EPA, FHWA, EIA, DOT, AAA, BIC, The Hill, Gas Buddy, Gasoline Pump Graphic detail through Q2 ‘20

$2.09

$1.60

$1.85

$2.10

$2.35

$2.60

$2.85

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Weekly U.S. Regular Conventional Retail Gasoline Prices (Dollars per Gallon): 5YR Trend

2015 2016 2017 2018 2019 2020


Source: NADA’s Market Beat, Lubes’N’Greases

Through the 2nd quarter of 2020, total New Light Vehicle Sales were down -23%• Passenger Car segments fell -36%, while Light Trucks fell -18%

• New Light Vehicle Sales in Jun ‘20 fell -24% (vs. YAGO)• Retail sales fell only -6% vs. Fleet sales falling a whopping -73%!

• YTD, Light Truck segments have gained 5 share points, as 3 out of every 4 vehicles sold were Light Trucks.• The overall SAAR* for June was 13.05 million units, compared to 17.3 mm in YAGO.• Sales continue to show signs of recovery after bottoming out in Apr ‘20 at 8.6mm SAAR, the lowest on

record since the federal government began tracking sales (~30 years).

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Light Vehicle Sales (SAAR*): Jun ‘20 / Jan-Jun ‘20

Vehicle Type Jun 2020 Y/Y % Chg Jan – Jun ‘20 YTD % Chg YTD %

ShareChg vs. YAGO

Total Passenger Car 2.97 -39.3% 3.13 -36.1% 24% -5

Total Light Truck 10.07 -18.1% 9.89 -17.9% 76% 5

Total Light Vehicles 13.05 -24.0% 13.03 -23.1% 100%


Retail vs. Fleet Sales Performance in Q2 ‘20

• Total New Vehicle unit sales for Q2 were expected to be down -34% from last year when adjusted for the same number of selling days

and down -19% from Q1 when adjusted for the same number of selling days.

• Total Retail sales for Q2 expected to be down -26%. Down -5% from Q1 when adjusted for the same number of selling days.

• Fleet sales down -70% in Q2 ‘20.

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Sources: Automotive World News, ALG

3.592.66

0.84

0.26

Q2 '19 Q2 '20

Retail vs. Fleet Sales for the Top 13 Manufacturers: Q2 ‘20 (mm Units)

Fleet

Retail


Source: NADA’s Market Beat

Gain

No Change

Loss

• Light Trucks accounted for 75% of all new Light Vehicles sold through Q2 ‘20, with the strongest gains seen in the Pickup Truck segment, which gained +2.9 share points.

• Every Passenger Car segment posted YoY share declines.• Small Cars sustained the steepest loss at -2.7 points.

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Light Vehicle Sales - Market Share by Segment


U.S. Light Vehicle Sales for Top Nameplates through Q2 ‘20

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Through Q2 ‘20, total Light Vehicle Sales Units fell -23% / -1.9mm units• General Motors saw the greatest absolute unit decline, down -21% / -295K units• Nissan sustained the heaviest unit % decline, down -39% / -282K units,

accounting for 15% of the net Light Vehicle unit loss. • Of the top makes, only Tesla saw a unit increase, up +7% / +5,700 units• Sales for Jun ‘20 saw a -20% decline (vs. Jun ‘19).Sources: NADA, GCBC

0.0 0.2 0.4 0.6 0.8 1.0 1.2

General Motors

Ford

Toyota

FCA

Honda

Nissan

Hyundai

Subaru

Kia Motors

VW Group

Daimler

Mazda

BMW

TESLA

Millions

U.S. Light Vehicle Sales (Jan-Jun '20)Leading Makes

(350) (300) (250) (200) (150) (100) (50) 0 50

Thousands

Unit Var. (YTD vs. YAGO)Leading Makes


Market Share by Manufacturer: YTD vs. YAGO

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Market Share of New Vehicle Units by Powertrain

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92.7% 92.3%

2.9%3.1%

2.3% 2.6%

1.5% 1.5%

0.5% 0.4%

Q2 2019 Q2 2020

Plug-in Hybrid

Electric

Hybrid

Diesel

Gasoline

• Diesel and Hybrid-powered vehicle platforms each saw slight share increases in Q2 ’20, impacting most notably the share of Gasoline, while the share for EVs and Plug-In’s remained unchanged.



Everyone Loves EVs…except the Public. Are Dealers one of the biggest barriers? EV infrastructure remains a Work In Progress.

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Source: Ward’s Auto, Sierra Club’s EV Study, AAA, Electrek

• 74% of Auto Dealerships nationwide aren’t selling EVs. Salespeople often failed to provide information on federal or state consumer incentives, or were either poorly informed or uninformative about EV technology.

• 44% of the Dealerships that did sell Electric Vehicles had no more than two EVs available on the lot. Of the Dealerships that sold EVs, more than 66% did not display EVs prominently, with vehicles sometimes buried far in the back of the Dealer’s lot.

• 10% of the time when new car buyers asked to test drive an EV, the vehicle was insufficiently charged and unable to be driven.

• Is there a major disconnect between the Auto Industry and would-be EV Consumers? The public’s interest in EVs is definitely rising, but that doesn’t necessarily equate to buying them. A recent study reveals that it isn’t just premium pricing alone that represents the biggest challenge to EV sales. • If Dealerships don’t talk much about EVs, it’s hard for people to learn about them. The Dealerships are the gatekeepers to EV adoption and for the most part, so far, they have been stingy with the keys to that gate. So stingy, in fact, that Tesla, the one company with its own trained sales staff, sells more cars than the rest of the industry combined. Surely a large part of the reason for this is because Tesla’s dealers don’t sell against their EVs.•According to a AAA survey, the biggest deterrents to buying an EV all concerned charging. Respondents worried about the lack of places to charge, the prospect of running out of power and EVs not holding enough of a charge for long-distance driving. •EVs are up against vehicles with internal-combustion engines which have billions of dollars & more than 120 years of research and development going for them. Today, those ICEs power ~96% of vehicles on American roads.


More Car Shoppers are Turning to the Used Market during the PandemicAnalysts say economic uncertainty combined with shrinking New car inventory could push more shoppers out of “New” market• Unique market conditions due to the COVID-19 pandemic could be driving more consumers out of the New market and into

Used vehicles, according to the car shopping experts at Edmunds. Analysts note that June’s Used vehicle finance figures and Edmunds website data indicate shifts in shopping behavior that are not usual for the Used vehicle market and could point to more typical New car shoppers entering the fray:

• "More consumers are looking for value in their next car purchase due to the economic challenges of the coronavirus pandemic, so the more favorable loan conditions we're seeing are likely a direct result of more consumers with good credit shifting into the used market," said Jessica Caldwell, Edmunds' executive director of insights. "Thanks to a shortage of New vehicle inventory, more automakers and dealers have leaned into promoting attractive certified pre-owned programs, which might be driving more typical New car shoppers into the Used market.“

• Used vehicle inventory is always much larger than New and lease returns have been picking back up, adding a flood of two to three-year-old vehicles back into the used market. **

Manheim’s Used Vehicle Value Index: 149.3; ↑ 6.26% YoY• Wholesale used vehicle prices (on a mix-, mileage- and seasonally-adjusted basis) increased 8.95% month-over-month in June.

This brought the Manheim Used Vehicle Value Index to 149.3%, a 6.3% increase from a year ago and a new record-high for the index.

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Sources: Edmund’s, Manheim, **ALG


The Pandemic drives increased demand for Older & Used Vehicles

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Source: IHS Markit

•With the shuttering of new vehicle production by the top OEMs during the pandemic, demand for Used vehicles & CPO* saw unprecedented growth in Q2 ‘20.•8-11 year-old group is seeing the strongest increase.•0-3 year-old group experiencing the most significant drop.

16.9% 15.1% 14.3% 15.8% 17.1% 18.2% 18.9% 19.2% 19.3% 18.4% 14.3%

25.5% 25.2% 24.3% 21.4% 19.4% 17.8% 17.2% 19.0% 20.3% 22.4%23.2%

23.9% 24.1% 23.8% 23.8% 23.2% 22.9% 21.4% 18.6% 16.7% 15.0% 19.9%

33.7% 35.7% 37.6% 39.0% 40.3% 41.4% 42.4% 43.1% 43.8% 44.2% 42.6%

0%

10%

20%

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40%

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2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 TD

Age Mix of Vehicles in Year Range Categories: 2010-2020

12+ yrs

8-11 yrs

4-7 yrs

0-3 yrs


When it comes to Vehicle Service, Germ-Free Cars are nice, but nothing tops a Low Price• When states across the country issues stay-at-home orders during the

pandemic, most service customer parked their cars and put off needed repair work, even though many Dealership service lanes were considered an essential service and therefore stayed open.

• Now that many states are slowly reopening, will service customers begin booking appointments at their local Dealerships?

• Customer surveys during the pandemic showed some reluctance on the part of consumers to reengage with Advisers and techs on the service drive. Some worried about how clean their vehicle would be after the repair work was completed and others expressed a desire to avoid face-to-face interactions.

• FixedOps Journal polled service customers on what their most important considerations would be when they return to take their vehicles in for repairs at the Dealership.• Half of the nearly 12K respondents said “Price” still matters most when

deciding where to take their vehicles for service.• “Location” came in second for both Mass-Market and Luxury Brand

customers.• Being sure their vehicle will be sanitized and that there would not be face-

to-face interaction, finished at the bottom of the poll for both customer segments.

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Sources: Automotive News, FixedOps Journal


In addition to the sudden drop in Miles Driven, the CV-19 pandemic has also caused more drivers to put off Vehicle Maintenance, including Oil Changes.

• Among the 100 parts, services and chemicals IMR’s Vehicle Maintenance study tracks, Oil Changes are the most delayed category, with 4.5% of all vehicles on the road having an Oil Change delayed between April and June of this year. Scheduled maintenance, which may include Engine Oil and Transmission Fluid changes, was the 4th most deferred.

• A whopping 20.1% of vehicles had some type of maintenance delayed in the second quarter of this year, up from 17.6% in Q1. The increase represents approximately 8.5 mm vehicles for which respondents decided to postpone service.

• Reports of delays had been declining each quarter since IMR began tracking in 2016, from 23.6% to 17.6% in Q1 of 2020. “That steady decline in delayed maintenance was clearly interrupted as we entered Q2 ‘20 with the shelter-in-place orders and as we watched miles driven plummet,”.

• The top three reasons for deferring maintenance haven’t changed since 2016. The cost of the repair was cited by 31.5% of households that reported putting off maintenance, while “finding a convenient time” and the “importance of the repair for drivability of the vehicle” were each cited by 18% of those respondents. However, the survey found a significant jump in “other reasons” for delays, with 59% of those reasons related to the pandemic.

• “The main reasons for delayed maintenance, Oil Changing or otherwise, were Shelter-in-Place orders, stores closed or limited hours, not yet comfortable having work done and not feeling the service was necessary because they weren’t driving as much. In short, they weren’t really driving anywhere and with shelter-in-place orders and other restrictions, people were hesitant to do work unless it was necessary.”

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Source: IMR


Retail Channel Winners and Losers

Winners• E-Commerce: Amazon’s Net sales increased +40% to $88.9 billion. Net income of $5.2 billion, up +100% from $2.6 billion in Q2 ‘19.

• Essential Businesses: Grocers, Convenience Stores, Gas Stations, Automotive Repair Shops, Hardware / Home Centers.

• Dollar Stores: Dollar General has a blowout quarter, reporting its biggest same-store rise in more than 10 years; 2020 store expansion on

track, planning 1K new stores, 1,500 mature store remodels & 80 relocations. The retailer paid out $60mm in bonuses to front-line workers.

• Hardware Stores/ Home Centers: Home Depot saw its comp sales for Q1 rise +7.5%*.

• Auto Parts Retailers: O’Reilly Auto Parts smashed expectations w/ a +16.2% comp sales mark in Q2 vs. +0.6 consensus.

Losers• Big Box Retailers: Share of visits / foot traffic / transactions for Mass Retailers erodes, as consumers preferred to shop in smaller format stores.

• Looser shelter-in-place behaviors are bringing increased Retail visit frequency of Younger (urban & affluent skewing) consumer segments who are not a focus

group of Mass Channel leader Walmart.

• Consumers are also increasingly choosing retailers by either price/promos, program memberships and product quality, which may be steering some consumers to

Dollar Stores, Club retailers or Supermarkets over Walmart.

• Recent geographic shifts of improving Retail traffic trends in the Northeast, where Walmart is not naturally as large as other parts of the country.

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Sources: Cleveland Research, Sense360, *U.S. stores only


DIY & Home Project Resilience? Hardware Stores showed some of the strongest, well above-normal Foot Traffic increases in Retail.

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Source: Foursquare


By employing tactics such as “bringing the parts to their customers”, Auto Parts Retailers are staging a recovery and ensuring the health of DIY activity.

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Source: Hedges & Company

According to weekly credit card transaction data, the top Auto Parts Chains are working on a “Retail Comeback” during the coronavirus pandemic.


Business Phases of COVID-19: NPD has identified 5 phases Consumers and Retailers will move through during this public health crisis. The Automotive Aftermarket is currently in the Reality phase of weak demand and an idle vehicle population.

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Source: NPD

Copyright of SOPUS CONFIDENTIAL 26

The Retail Aftermarket posted its 11th consecutive week of double-digit growth during the week ending July 4th. YTD dollar sales were up +4% / units down -4%.

Source: NPD


Looking Ahead: Aftermarket Tailwinds and Headwinds

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Source: NPD

market conditions...source: nada’s market beat, lubes’n’greases through the 2nd quarter of...

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