Michigan Automotive Industry Update

Kristin DziczekDirector, Industry, Labor & Economics GroupCenter for Automotive ResearchGovernor’s Economic Outlook Briefing22 November 2016

“…as we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns – the ones we don't know we don't know. And if one looks throughout the history of our country and other free countries, it is the latter category that tend to be the difficult ones.”

Donald H. Rumsfeld

12 February 2002

CAR U.S. Light Vehicle Sales Forecast 2016 – 2020

16

.1

13

.2

10

.4

11

.6

12

.8

14

.5

15

.6 16

.5 17

.4

17

.5

17

.6

17

.6

17

.5

17

.2

2007 2008 2009 2010 2011 2012 2013 2 0 1 4 2015 2016 2017 2018 2019 2020

U.S

. LV

SA

LES

IN M

ILLI

ON

S

Source: CAR Research, October 2016

0.6% 0.0% -0.6%-1.7%

3

0.6%

Michigan production and employment slow through 2020.

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

2015 2016 2017 2018 2019 2020

Emp

loym

ent

Pro

du

ctio

n

Michigan Vehicle Production & Automotive Employment Forecasts 2015 – 2020

Vehicle Production Automotive Employment

Sources: Production, LMC Automotive; Employment Forecast: CAR

The Economic and Political Context of CAR’s Forecast

On the positive side…• +2.1 million full-time employees since October

2015• Unemployment rate inched up to 5.0%, but

labor force participation rate increased by 0.3 percentage point from a year ago

• Equity markets are at the historic high• Gasoline is at low level and is expected to

remain low• U.S. housing starts maintained momentum at

annual rate of 1.1-1.2 million units• Light truck market share is over 60%—the

highest level ever• Auto loans are affordable for now, despite

higher light vehicle prices

Not so positive…• Uncertainty over future Trump economic

policies—what can he deliver?• Toughening immigration policies could hinder

domestic output and increase price inflation • The first three quarters of 2016 economic

growth was 1.7%—lower than expected• Total consumption spending on motor vehicle

declined• Business investment contracted due to low

energy prices• Strong dollar will drive higher interest rates and

inflation• Vehicle affordability will drop• What goes up, must come down…eventually

U.S. Share of North American Production is Shrinking.

15.4

12.9

8.8

12.2

13.5

15.816.5

17.418.1 18.4 18.7 18.8 18.7 18.5

10.8

8.7

5.7

7.78.7

10.311.1

11.7 11.9 12.1 12.2 12.3 12.2 12.1

70%

64%

67%

66%

66% 65%

40%

45%

50%

55%

60%

65%

70%

75%

80%

0

2

4

6

8

10

12

14

16

18

20

2220

07

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9

202

0

Veh

icle

Pro

du

ctio

n (

Mill

ion

s)

NA Prodution US Production US Share of NA

Source: Ward’s Automotive, CAR

Market Share Breakdown: U.S. Light Vehicle Sales by Automaker, YTD and October 2016

Source: Automotive News and CAR Research

8.1%

8.3%

9.2%

13.0%

13.6%

13.7%

18.9%

8.2%

9.0%

9.4%

13.1%

13.9%

15.0%

17.1%

0% 5% 10% 15% 20%

Hyundai- Kia

Nissan

Honda

FCA

Toyota

Ford

GM

YTD

October

Market Share Segment Breakdown:U.S. YTD LV Segment Sales Y/Y Change – October 2016 vs. 2015

Source: Ward’s Automotive Reports

-12.3%

-9.9%

-8.2%

-6.3%

-4.8%

4.1%

5.4%

5.7%

13.6%

26.6%

-0.2%

-15% -10% -5% 0% 5% 10% 15% 20% 25% 30%

Middle Car

Luxury Car

Large Car

Small Car

Large CUV

Middle CUV

SUV

Pickup

Van

Small CUV

Total

Michigan Motor Vehicle Production:Unchanged from September 2015

State Shares of U.S. Vehicle Production—2016 YTD (September)

0%

5%

10%

15%

20%

25%

30%

-

50,000

100,000

150,000

200,000

250,000

Production MI Share of U.S.

September 2016:208,976

Michigan20%

Ohio13%

Kentucky11%

Indiana11%

Alabama9%

Missouri6%

Tennessee6%

Illinois6%

All Other States18%

Mo

tor

Veh

icle

Pro

du

ctio

n in

Un

its

Source: Automotive News

MI Motor Vehicle Production

2009 avg.:85,647

Michigan Automotive Manufacturing Employment:59,000 Jobs Added Since 2009, Up 53%

MI Motor Vehicle & Parts Manufacturing Employment

15%

17%

19%

21%

23%

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

Employment MI Share of U.S.September 2016:

165,000

State Shares of U.S. Motor Vehicle and Parts Manufacturing Employment—September 2016

Michigan21%

Ohio12%

Indiana10%

Kentucky7%

Alabama5%

All other states45%

Nu

mb

er

of

Emp

loye

es

*U.S. data is one month behind state data

Source: Current Employment Statistics, Bureau of Labor Statistics; NAICS 3361 & 3363

2009 avg.:108,100

Segment Breakdown of Michigan Production vs. U.S. Sales:Michigan Production Concentrated on Pickups and SUVs (2016 YTD through September)

Source: Automotive News; Ward’s Automotive Reports

Large Car2.4%

Large CUV13.3%

Luxury Car 10.6%

SUV14.9%

Pickup38.2%

Middle Car 14.6%

Small Car5.9%

Michigan LV Production Share

Large Car1.7%

Large CUV3.2%

Small CUV5.9%

Van6.0%

Luxury Car6.3%

SUV7.4%

Pickup14.7%

Middle Car 15.5%

Small Car16.7%

Middle CUV22.5%

U.S. Share

2,1

67

2,2

42

50

3

1,2

61

70

2

2,3

18

2,3

05

1,0

65

1,7

24

(16

0)

2,0

17

2,9

18

1,3

27

1,0

19

1,0

35

2,2

77

3,2

86

1,3

23

1,3

16

1,1

63

1,9

89

2,6

19

1,2

66

1,9

24

85

1

3,0

99

3,0

41

1,8

81

1,5

47

68

0

2,6

27

3,7

84

2,0

83

1,2

78

26

1

3,6

32

3,3

17

2,2

90

2,2

20

1,9

75

3,3

84

1,8

37

2,2

80

GM FORD FCA US* TO YO TA HOND A

2010

2011

2012

2013

2014

2015

Q1 2016

Q2 2016

Q3 2016

North America Per Vehicle Operating Profits:2010 – Q3 2016, USD Billions

*Former Chrysler Group LLC after 2014 data is for FCA Group instead of FCA US

**Honda also excludes motorcycle, finance, and power products

***Honda and Toyota have yet to release Q3 figures

Source: CAR Research based on companies’ financial reports.

$2

4,9

00

$2

4,1

76

$2

2,7

93

$3

1,6

32

$3

0,8

49

$2

8,0

36

$2

9,0

29

$3

0,4

82

$2

9,9

67

$3

0,2

78

$3

0,0

75

$3

0,1

73

$2

4,0

22

$2

2,8

96

$2

5,7

98

$2

6,7

00

$2

7,9

31

$2

7,7

90

$2

8,7

74

$2

8,9

85

$2

9,8

96

$2

9,3

46

$2

9,2

02

$3

1,7

32

$2

7,6

69

$2

9,6

39

$2

5,4

66

$2

5,2

53

$2

5,0

08 $

29

,58

1

$2

9,0

86

$2

9,1

32

$2

9,9

26

2007 2008 2009 2010 2011 2012 2013 2014 2015 Q1 2016 Q2 2016 Q3 2016

GM Ford FCA US*

Source: CAR Research based on companies’ financial reports.

*Former Chrysler Group LLC after 2014 data is for FCA Group instead of FCA US

North American Automotive Revenue Per Vehicle @ FCA, F, GM:2007 – Q3 2016

Per Vehicle Labor Cost Changes, 1999-2019

$3

,60

6 $4

,16

7

$1

,77

1

$2

,50

0

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

1999 2007 2014 2019

Ave

rage

Pe

r V

eh

icle

Lab

or

Co

st

$2

,46

6

$4

,20

4

$2

,40

1

$2

,60

0

1999 2007 2014 2019

$4

,09

1

$4

,49

8

$2

,37

4

$2

,35

0

1999 2007 2014 2019

Source: Center for Automotive Research estimates

2015

Michigan, 41%

Remainder of US, 46%

Canada, 7%

Mexico, 6%

Source: Center for Automotive Research Book of Deals, October 2016

2010 through 2014

Michigan, 34%

Remainder of US, 52%

Canada, 5%

Mexico, 9%

2016 through Q3

Michigan, 24%

Remainder of US, 59%

Canada, 6%

Mexico, 12%

Announced Automotive Investment:

Michigan Captured 24% of NAFTA Investment Through Q3 2016

Recent Research from CAR

Potential Cost Savings and Additional Benefits of Convergence of Safety Regulations between the United States and the European Union

The Growing Role of Mexico in the North American Automotive Industry - Trends, Drivers and Forecasts

Mixed Materials Solutions: Alternative Materials for Door Assemblies

Impact of Automated Vehicle Technologies on Driver Skills

The Impact of New Mobility Services on the Auto Industry

The Economic Implications of Potential NHTSA and EPA Regulatory Revisions on U.S. Light Truck Sales and Manufacturing

The Potential Effects of the 2017-2025 EPA/NHTSA GHG/Fuel Economy Mandates on the U.S. Economy

An Assessment of Powertrain Technology Costs Associated with Meeting CAFE and GHG Standards

Assessing the Fleet-wide Material Technology and Costs to Lightweight Vehicles

Building Capacity and Capability in the Bio-based Materials Manufacturing Sector

The Growing Role of Mexico in the North American Automotive Industry Trends, Drivers and Forecasts

Prepared by

Prepared for

The Growing Role of Mexico in the North American Automotive Industry Trends, Drivers and Forecasts

Prepared by

Prepared for

July 2016

Mexican Automotive Wages are One-Eighth to One-Fifth the

Wages Paid to U.S. Hourly Auto & Parts Workers

5.64

2.47

$0

$5

$10

$15

$20

$25

$30

20

07

20

08

20

09

20

10

20

11

20

12

20

13

Motor Vehicles Parts

27.83

19.91

$0

$5

$10

$15

$20

$25

$30

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

U.S

. D

ollars

/Ho

ur

Motor Vehicles Parts

Average Hourly Wages for Production and Non-Supervisory Workers in Motor Vehicle and Parts, 2007-2014

Sources: U.S. Department of Labor, Bureau of Labor Statistics;

Mexico National Institute of Statistics and Geography (INEGI: Instituto Nacional de Estadística y Geografía)

Mexico is a Global Export Base for Autos and Parts

13 FTAs, 44 CountriesNorth American Free Trade

Agreement (NAFTA)

Colombia - Mexico

Costa Rica - Mexico

European Union - Mexico

Nicaragua - Mexico

Chile - Mexico

EFTA - Mexico

Israel - Mexico

Northern Triangle - Mexico

Uruguay - Mexico

Japan - Mexico

Peru - Mexico

Central America – Mexico

Mexican Production and Exports

• Can reach 60% of global GDP tariff-free

• Nine new plants announced since 2009: $10.6 billion(BMW, Ford, Honda, Hyundai-Kia, Mazda, Nissan-2, Toyota, VW/Audi)

• Exported $46.2 billion in vehicles and $39.9 billion in parts to U.S. in 2014 (Net $63.6 billion)

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

MIl

lion

s o

f U

nit

s

Mexican Production and Forecast

Mexican Production Capacity

Source: LMC and U.S. ITA

U.S.-Mexico Parts Trade: Top Five Categories, 2010-2015

Ranking

By

Volume

2015

2010 2011 2012 2013 2014 2015

5-year

change

Total Motor Vehicle Parts Exports

(In million $) 17,419 21,429 24,292 26,525 29,051 29,989 72.2%

1 PARTS AND ACESSORIES FOR

VHCLS 8701 TO 8705, NESOI

2,795 4,842 4,981 4,186 3,172 4,596 64.4%

2 PTS AND

ACCESSORIES,NESOI,OF

BODIES HDG 8701,8705

2366 1,969 2,065 2,730 2,739 2,686 13.5%

3 COMPRESSION-IGNITION

INTERNAL COMBUSTION

PISTON ENGINES FOR

PROPULSION OF VEHICLES OF

CHAPTER 87, TO BE INSTALLED

IN ROAD

TRACTORS,BUSES,AUTOS,TRU

CKS

1,216 1,693 1,863 2,228 3,779 2,635 116.7%

4 PARTS FOR SPARK-IGNITION

INTERNAL COMBUSTION

PISTON ENGINES FOR USE IN

ROAD TRACTORS, MOTOR

BUSES, AUTOMOBILES OR

TRUCKS

546 934 1,018 1,126 1,257 1,296 137.4%

5 GEAR BOXES FOR VEHICLES

OF HEADING 8703

811 805 941 1,113 1,021 1,100 35.6%

Top Five Auto Parts Exported from the United States to Mexico, 2010-2015

Ranking

By

Volume

2015

2010 2011 2012 2013 2014 2015

5-year

change

Total Motor Vehicle Parts Imports

(In million $) 28,436 34,134 39,376 42,432 46,772 50,142 76.3%

1 INSULATED IGNITION WIRING

SETS & WIRING SETS FOR

VEHICLES, AIRCRAFT OR SHIPS 3,774 4,743 5,510 5,686 6,522 7,074 87.4%

2 OTHER PARTS AND

ACCESSORIES, NESOI, OF

BODIES (INC CABS) OF

HEADING 8701 TO 8705 2,250 2,654 3,316 3,732 4,082 4,482 99.2%

3 SEAT PARTS OF A KIND USED

FOR MOTOR VEHICLES,NESOI 1,398 1,682 2,271 2,634 3,082 3,467 148.0%

4 SPARK-IGNITION

RECIPROCATING PISTON

ENGINES TO BE INSTALLED IN

ROAD TRACTORS,MOTOR 820 1,533 1,832 2,458 2,432 2,279 177.9%

5 PARTS, NESOI, OF MOTOR

VEHICLES, NESOI, OF

HEADINGS 8701 TO 8705, 1,166 1,385 1,630 1,663 1,895 2,185 87.4%

Top Five Auto Parts Imported to the United States from Mexico, 2010-2015

Source: U.S. International Trade Administration

Automaker Investment Announcements2013-2016 YTD through October

Source: CAR “Book of Deals”

Total North American InvestmentAnnouncements

$68.5 billion

Canada $4.4 billion(6%)

U.S. $49.4 billion(72%)

Michigan $18.0 billion(26% of North America)

Mexico $14.8 billion(22%)

White paper and full report

available on the CAR website,

in the Publications section.

Ridehailing Carsharing

Ridesharing Bikesharing

Microtransit

Mobility-

as-a-

Service

Shared

Autonomous

Vehicles

New mobility services are enabled by emerging

technologies and wireless connectivity that allow for

more convenient, efficient, and flexible travel.

Effects on Light Vehicle Sales In North America, 41 percent…

of carsharing members affirm they have foregone or postponed a vehicle as a result of using a carsharing service

In Europe, 32 percent…

In Australia, 28 percent…

In 2021, one carsharing vehicle will

replace

7.7 private vehicles in North America

4 private vehicles in Europe

3.8 private vehicles in Asia - Oceania

Net loss of new and used vehicle sales due to carsharing, 2010 to 2021

Annual Average

Total (2010 to 2021)

North America 15,163 164,606

United States 12,663 137,507

Europe 28,844 267,533

Asia - Oceania 49,213 398,712

Total 93,220 830,850

The Economic Implications of Potential

NHTSA and EPA Regulatory Revisions on

U.S. Light Truck Sales and Manufacturing

OCTOBER

2016

U.S. Light-duty Truck CAFE Targets and 2015 Model Year Pickup Truck Performance Without Credits (Share of Pickup Truck Sales)

11

.4%

1.4

%

1.8

%

0.0

%

3.7

%

1.8

%

1.5

%

0.0

%

9.7

%

1.8

%

1.5

%

0.1

%

36

.0%

11

.7%

2.8

% 5.2

%

6.3

%

1.4

%

0.0

%

0.0

%

1.4

%

0.4

%

0.0

%

0.1

%

53

≤ X

<5

6

56

≤ X

<6

2

62

≤ X

<6

6

66

≤ X

<7

0

70

≤ X

<7

2

72

≤ X

<7

7

53

≤ X

<5

6

56

≤ X

<6

2

62

≤ X

<6

6

66

≤ X

<7

0

70

≤ X

<7

2

72

≤ X

<7

7

53

≤ X

<5

6

56

≤ X

<6

2

62

≤ X

<6

6

66

≤ X

<7

0

70

≤ X

<7

2

72

≤ X

<7

7

53

≤ X

<5

6

56

≤ X

<6

2

62

≤ X

<6

6

66

≤ X

<7

0

70

≤ X

<7

2

72

≤ X

<7

7

6 8 . 5 % D O N O T M E E T 2 0 1 5 S T A N D A R D 1 8 . 5 % M E E T O N L Y T H E 2 0 1 5 S T A N D A R D 7 . 7 % M E E T 2 0 1 6 - 2 0 1 9 S T A N D A R D S 5 . 3 % M E E T 2 0 2 0 - 2 0 2 3 S T A N D A R D S

Source: (U.S. Environmental Protection Agency, 2016); Center for Automotive Research analysis

U.S. Light Truck Sales Move in Step with N.A. ProfitsFord and GM Combined North American Profits and Combined U.S. Light Truck Sales,

Q3 2009 – Q1 2016

$(6,000)

$(4,000)

$(2,000)

$-

$2,000

$4,000

$6,000

$8,000

-

200,000

400,000

600,000

800,000

1,000,000

1,200,000

2009 2010 2011 2012 2013 2014 2015

NO

RTH

AM

ERIC

AN

QU

AR

TER

LY P

RO

FITS

, MIL

LIO

NS

OF

$

U.S

. LIG

HT

TRU

CK

SA

LES

IN U

NIT

S

Light truck sales Profits

Source: (Ford Motor Company, 2016) (General Motors Company, 2016) (LMC, 2016)

What is at stake if they don’t?Economic Contribution of U.S. Body-on-Frame Truck Manufacturing, 2015

Economic Impact

U.S. Body-on-Frame

Truck ManufacturingEMPLOYMENT

Direct 84,200

Intermediate 437,300

Subtotal (Direct + Intermediate) 521,500

Spin-Off 821,400

Total (Direct + Intermediate + Spin-off) 1,342,900

MULTIPLIER

(Direct+Intermediate+Spin-off)/Direct* 15.9

TOTAL EARNINGS BY PLACE OF WORK, PRIVATE NON FARM

($ BILLIONS NOMINAL) $98.46

Less: Contributions for Government

Social Insurance $10.51

Less: Personal Current Transfer

Receipts $3.69

Less: Personal Income Taxes $12.36

Equals Private Disposable Personal Income ($ Billions Nominal)$71.90

CONTRIBUTION AS % OF TOTAL PRIVATE ECONOMY

Employment 0.82%

Compensation 1.06%

Source: Center for Automotive Research analysis

Conclusions

• Known Knowns– U.S. auto sales are in the 7th year of a recovery in a highly cyclical industry—and what goes up, must come down– U.S. production involves global companies, using global platforms, and relying on global supply chains– Consumer acceptance of mobility services and automated driving features is high– EU, China and other regulators will move forward with FE/GHG regulations– Michigan and Michigan-based companies rely on “truck” production and sales

• Known Unknowns– When will the economy tip into recession? Will it be global? How deep will it be?– What will President-Elect Trump do to fulfill his promise to get tough on trade? Will others retaliate?– If Trump disrupts NAFTA or trade with China, how will automakers & suppliers respond—retrench in U.S.,

relocate to other low cost countries, or lie low and wait out the 4 (8?) years of this presidency?– What will be the impact of increasingly automatedautonomous vehicles on auto sales & production?– What will be the impact of new mobility business models on the auto industry?– Will Trump’s EPA and NHTSA pull back from FE/GHG regulations?– Is the EIA forecast on future low fuel prices correct?

• Unknown Unknowns– ???

Discussionkdz@cargroup.org