us market update: auction academy southern auto auction may 13, 2014

US Market Update:Auction Academy

Southern Auto Auction

May 13, 2014

Topics of discussion

• Economy– Current Conditions

• New Vehicle Market– Sales– Incentives– Lease/Fleet Penetration

• Used Vehicle Market Outlook– Overall Market– Market Outlook

2

Economy

3

GDP Growth in the 1st Quarter was Stagnant.

• In the government’s 1st estimate (advanced

estimate), GDP increased in 2014Q1 by 0.1%,

after increasing by 2.6% in 2013Q4.

• Contributing to this weaker than expected rate

was the harsh winter weather experienced in

the United States.

• Prices (CPI) saw an increase in March of 1.5%

when compared to a year ago.

* Federal Reserve Statistical Release

^ Bureau of Labor Statistics

4

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

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% C

han

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ear e

arlie

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Consumer Price Index (not seasonally adjusted) -All Items ̂

RVI Analytical Services

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

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% C

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rev

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od

Growth in Real GDP at Annual Rates*


Unemployment decreased in April while gas prices continued to climb.

• The unemployment rate fell to 6.3% in April. In April of

2013, the unemployment rate was at 7.5%.

• Gas prices increased to $3.74/gallon in April (from

$3.60/gallon in March). Through the first week of may, gas

prices are at $3.76/gallon.

• Consumer sentiment increased to 84.1, up from 80.0 in

March.+ University on Michigan

# Department of Energy

^ Bureau of Labor Statistics5

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0Unemployment Rate (Seasonally Adjusted) ̂


$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50 US Gas Prices (All Grades & Formulations) #


50

60

70

80

90

100

110

120 U. of Michigan Index of Consumer Sentiment +


New Vehicle Market

6

Light vehicle sales were strong for the second straight month in April with 15.98 million units (SAAR).

• Light vehicle sales in April fell by 2.1% (15.98

million SAAR) from March.

• When compared to last April, light vehicle

sales increased 5.4%. This is the second

month where light vehicles sales were near or

above 16 million (SAAR). The last 2-month

period with comparable sales figures was Oct-

Nov 2007.

• Total Incentives in March were 15.43% of

MSRP. Up from 12.34% in February.

• Incentives climbed for much of 2013 before

dropping to 11.22% in January of 2014. Since

January, incentives have climbed upward and

are now above their 2013 level.

* Federal Reserve; SAAR = Seasonally Adjusted Annual Rate

& CNW Research 7

10.0%

12.5%

15.0%

17.5%

20.0%

22.5%

25.0%

27.5%

30.0%Total Incentives (% of MSRP)&


7.08.09.0

10.011.012.013.014.015.016.017.0

Mill

ion

s o

f Un

its

US Light Vehicles Sales (SAAR)*


New car prices saw a small increase on a year-over-year basis.

• New car prices in March increased by 0.2% from

a year ago.

• Since February, new car prices have remained

flat.

^ Bureau of Labor Statistics

8

0.90

0.92

0.94

0.96

0.98

1.00

1.02

1.04

Ind

ex (J

an 2

001

= 1.

0)

Consumer Price Index (New Vehicles)^


-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

% C

han

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Consumer Price Index (New Vehicles)^


9

Cash incentives offered on new vehicles will increase through the 2017 model year.

• Cash incentives will increase through the

2017 model year before seeing a small

decline.

• The major factors influencing the increase in

cash incentives are:

1) A Forecasted increase in competition among

manufacturers

2) Expected increases in interest rates on new

vehicles

2013 2014 2015 2016 2017 2018 2019Average Incentives 2.8% 2.7% 2.7% 3.3% 3.5% 3.4% 3.3%

$ Amount 934$ 908$ 926$ 1,127$ 1,197$ 1,164$ 1,145$ Y-O-Y % Change ($ Amount) -2.8% 2.0% 21.7% 6.2% -2.8% -1.6%

Average Cash Incentives - Market Level

$500

$600

$700

$800

$900

$1,000

$1,100

$1,200

$1,300

$1,400

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

Ca

sh

Va

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of

Inc

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As

a %

of

Ty

p. E

q. M

SR

P

Model Year

Cash Incentives as % MSRP

Incentives (% of MSRP) Incentives (Dollar Value) - Right Axis

10

Both lease and fleet penetration increased in the 4th quarter of 2013.

• The Lease penetration rate for 2013Q4 was

24.1%, up from 20.8% in 2013Q3

• The fleet penetration rate for 2013Q4 was

18.0%, up from 15.3% in 2013Q3. The fleet

penetration rate for 2012Q4 was 19.8%.

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Flee

t Pen

etra

tion

Quarter

Fleet Penetration by Quarter

5%

10%

15%

20%

25%

30%

Leas

e Pe

netr

ation

Quarter

Lease Penetration by Quarter Retail Sales

Total Sales

Lease Penetration will increase over the next 2 model years.

• Lease Penetration on a model year

level are expected to increase from

18.5% for 2013MYs to 18.7% for

2014MYs.

• A greater number of redesigned

vehicles along with higher

forecasted interest rates will lead to

greater leasing, offsetting increases

in used vehicles supply.

Source: Polk11

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

10%

12%

14%

16%

18%

20%

22%

24%

26%

Le

as

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olu

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Le

as

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en

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Ra

te

Model Year

Lease Penetration

Total Sales Retail Sales Lease Volume (Right Axis)

2013 2014 2015Lease Penetration 18.5% 18.7% 19.4%

Volume 2.86 3.11 3.22Y-O-Y % Change (Vol.) 8.8% 3.3%

Lease Penetration - Market Level Forecast

12

Fleet Penetration will decrease over the next 2 model years.

• Fleet Penetration will fall from 19.95

for the 2013 MY to 18.7% for the

2014 MY and 18.2% for the 2015 MY.

• Despite the predicted decrease in

Fleet Penetration, the volume of fleet

cars will increase for the 2014 MY.

This is due to the strong light

vehicle sales predicted over the next

2 years.1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

10%

12%

14%

16%

18%

20%

22%

24%

26%

Fle

et V

olu

me

Fle

et P

en

etr

ati

on

Ra

te

Model Year

Fleet Penetration

Fleet Penetration Fleet Volume (Right Axis)

2013 2014 2015Fleet Penetration 19.9% 18.7% 18.2%

Volume 3.07 3.11 3.02Y-O-Y % Change (Vol.) 1.3% -2.8%

Fleet Penetration - Market Level Forecast

Used Vehicle Market Outlook

13

Our used car price index increased 1.0% from March and has increased 5.4% from last April.

14

RVI Used Car Price Index (nominal prices) - Our index (January 2001 = 1.0) measures the wholesale values of used cars (2-5 yr-old vehicles) adjusted for mileage, mix, and seasonality.

0.60

0.80

1.00

1.20

1.40

1.60

1.80

Ind

ex (J

an 2

001

= 1

.0)

RVI Used Vehicle Price Index - US


After adjusting for MSRP, our residual value retention index increased 1.0% from February, with an increase of 2.4% from April of 2013.

15

RVI Residual Value Retention Index (real prices) - Our index (January 2001 = 1.0) measures the wholesale values of used cars (2-5 yr-old vehicles) as % of MSRP, adjusted for mileage, mix, and seasonality.

0.60

0.70

0.80

0.90

1.00

1.10

1.20

1.30

Ind

ex (

Jan

200

1 =

1.0)

RVI Residual Value Retention Index - US


16 segments saw increases in April when compared to March.

16

• In April, used prices in the Mid-Size

Sedan segment increased slightly from

March (0.4%). However when

compared to April 2013, used prices in

the segment increased by 3.0%.

• Used Small SUV prices remained flat

from March (up 0.1%), but have

increased 6.4% since April of last year.

• Used Compact prices also remained

flat in April from March (down 0.1%)

but have increased 3.0% since April of

2013.

• In April, the Luxury Small Sedan

segment is the only segment to see a

decrease in price from last April (a

decrease 2.9%).

RVI_SEGMENT Apr-14 Mar-14 Apr-13 M-to-M Y-to-YSPORTS CAR 1.403 1.266 1.320 10.9% 6.3%SUB-COMPACT 2.623 2.527 2.532 3.8% 3.6%LUXURY FULL-SIZE SEDAN 1.889 1.836 1.702 2.9% 11.0%MID-SIZE SUV 1.478 1.444 1.371 2.3% 7.7%LUXURY COUPE 1.777 1.745 1.690 1.8% 5.1%FULL-SIZE PICKUP 1.818 1.787 1.619 1.8% 12.3%SPORTY COUPE 1.549 1.523 1.522 1.8% 1.8%FULL-SIZE VAN 1.331 1.310 1.224 1.6% 8.8%MINIVAN 1.447 1.427 1.341 1.4% 7.9%FULL-SIZE SEDAN 1.508 1.489 1.378 1.3% 9.5%SMALL SEDAN 1.613 1.598 1.562 0.9% 3.3%FULL-SIZE SUV 1.322 1.311 1.269 0.9% 4.2%MID-SIZE SEDAN 1.417 1.412 1.376 0.4% 3.0%LUXURY MID-SIZE SEDAN 1.243 1.239 1.240 0.4% 0.3%SMALL SUV 1.491 1.489 1.402 0.1% 6.4%LUXURY SMALL SEDAN 1.272 1.271 1.310 0.1% -2.9%LUXURY SUV 1.439 1.438 1.403 0.0% 2.5%COMPACT 1.678 1.680 1.628 -0.1% 3.0%SMALL PICKUP 1.905 1.952 1.804 -2.4% 5.6%Total 1.544 1.528 1.464 1.0% 5.4%

% Change fromRVI USED CAR PRICE INDEX

When adjusting for MSRP, the price changes are less dramatic but show similar trends.

17

• After adjusting for MSRP, used Mid-Size

Sedan prices have increased 1.7% from

April 2013.

• In April, used Small SUV prices saw no

change from March but have increased

3.4% since April of 2013.

• Used Compact prices increased 3.0%

from April of 2013 on a nominal level.

However, once adjusting for MSRP the

year-over-year price increase is less

dramatic (0.7%).

• In April, Luxury Small Sedan prices fell

on a nominal level by 2.9% from last

April. Adjusting for MSRP, our Retention

index shows a more dramatic decrease

in prices of 4.1%.

RVI_SEGMENT Apr-14 Mar-14 Apr-13 M-to-M Y-to-YSUB-COMPACT 1.755 1.693 1.751 3.6% 0.2%MID-SIZE SUV 1.247 1.220 1.188 2.3% 5.0%FULL-SIZE VAN 1.047 1.024 0.977 2.2% 7.2%SPORTY COUPE 1.147 1.126 1.123 1.9% 2.1%SPORTS CAR 1.003 0.986 1.014 1.8% -1.1%FULL-SIZE PICKUP 1.078 1.064 1.012 1.4% 6.6%SMALL SEDAN 1.214 1.199 1.198 1.2% 1.3%LUXURY FULL-SIZE SEDAN 1.047 1.034 1.071 1.2% -2.2%MINIVAN 1.143 1.131 1.101 1.1% 3.8%FULL-SIZE SEDAN 1.105 1.093 1.064 1.1% 3.8%LUXURY SUV 1.163 1.155 1.161 0.7% 0.2%FULL-SIZE SUV 1.034 1.027 1.018 0.7% 1.6%MID-SIZE SEDAN 1.133 1.127 1.114 0.5% 1.7%LUXURY SMALL SEDAN 1.036 1.032 1.080 0.3% -4.1%COMPACT 1.183 1.180 1.175 0.3% 0.7%LUXURY MID-SIZE SEDAN 1.032 1.031 1.023 0.1% 0.9%SMALL SUV 1.038 1.038 1.004 0.0% 3.4%LUXURY COUPE 1.060 1.068 1.046 -0.8% 1.3%SMALL PICKUP 1.277 1.294 1.243 -1.4% 2.7%Total 1.144 1.133 1.117 1.0% 2.4%

% Change fromRVI USED CAR PRICE INDEX-RETENTION INDEX

We expect to see used car prices begin to decline from current levels in 2015.

18

%Bureau of Labor Statistics#Department of Energy*Federal Reserve¹Moody’s Analytics Forecast^RVI Analytical Services

Positives

1. Unemployment declines through 2018

(wealth effect)

Negatives

2. Used car supply steadily increasing from 2014 through 2019.

3. New car prices are expected to decline throughout our forecast.

4. Higher new vehicle sales through 2015 (substitution effect)

Apr-14 2014 2015 2016 2017 2018 2019Unemployment%¹ 6.3 6.5 6.0 5.8 5.6 5.5 5.5

Gas Prices#¹ 3.74$ 3.61$ 3.86$ 3.92$ 4.02$ 4.10$ 4.18$ vs Previous Year 0.9% 6.9% 1.8% 2.5% 2.0% 2.0%

New Vehicle Sales (SAAR)*¹ 15.98 16.53 16.86 15.67 15.40 15.52 15.61vs Previous Year 7.0% 2.0% -7.1% -1.8% 0.8% 0.6%

RVI Competitive Index^ 0.959 0.966 0.995 1.025 1.043 1.054 1.066vs Previous Year 0.0% 3.0% 3.0% 1.7% 1.1% 1.1%

RVI New Car Price Index^ 1.027 1.025 1.017 1.011 1.007 1.005 1.002vs Previous Year 0.1% -0.7% -0.6% -0.4% -0.3% -0.3%

RVI Used Vehicle Stock Index^ 0.782 0.771 0.833 0.904 0.954 0.996 1.023vs Previous Year 5.1% 8.1% 8.4% 5.5% 4.4% 2.8%

RVI Used Car Price Index^ 1.544 1.513 1.498 1.465 1.448 1.442 1.440vs Previous Year 0.8% -1.0% -2.2% -1.2% -0.4% -0.1%

vs Current Levels -2.0% -3.0% -5.1% -6.2% -6.6% -6.7%

19

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.321.331.341.351.361.371.381.391.401.411.42

Use

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(Ja

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)

Mid-Size Sedan

RVI Used Car Price Index RVI Used Vehicle Stock Index (Right Axis)

We expect strong prices in the Mid-Size Sedan segment in 2014 and 2015 before beginning to decline in 2016.

Variable Apr-15 Apr-17Unemployment -0.2% -0.5%

GDP Growth Rate 0.2% -0.3%

Light Vehicle Sales (SAAR) 0.4% -0.9%

Gas Prices 0.6% 0.8%

RVI Used Vehicle Supply Index 0.2% -2.1%

RVI Competitive Index 0.2% 0.1%

Other Factors -0.4% -0.1%

RVI UCPI 1.0% -3.0%

RVI Used Car Price Index Factors - Mid-Size SedanImpact from Apr-14

20

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.591.601.611.621.631.641.651.661.67

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Compact


Compact cars will also see a decrease in prices in 2016-2017 as supply and competition go up.





RVI Used Vehicle Supply Index -1.0% -2.6%

RVI Competitive Index -0.6% -1.2%

Other Factors -0.2% 0.2%

RVI UCPI 0.1% -3.0%

RVI Used Car Price Index Factors - CompactImpact from Apr-14

21

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.30

1.35

1.40

1.45

1.50

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Small SUV


Prices in the Small SUV segment will decline from current levels through 2017 as the supply of used Small SUVs will increase.






RVI Competitive Index -0.1% -1.3%


RVI UCPI -0.8% -7.6%

RVI Used Car Price Index Factors - Small SUVImpact from Apr-14

22

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.50

1.55

1.60

1.65

1.70

1.75

1.80

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1.0

)

Full-Size Pickup


Full-Size Pickups will decline through 2019 due to increases in gas prices and the supply of used vehicles within the segment.




Gas Prices -1.1% -1.7%


RVI Competitive Index 0.1% 0.2%


RVI UCPI -1.9% -7.4%

Impact from Apr-14RVI Used Car Price Index Factors - Full-Size Pickup

Appendix:

RVI Used Car Price Index Forecast

by Segment

23

24

Appendix: RVI Used Car Price Index Forecast by Segment

RVI_SEGMENT Apr-14 2014 2015 2016 2017 2018 2019SUB-COMPACT 2.623 2.530 2.549 2.501 2.494 2.500 2.539

vs Previous Year 0.1% 0.7% -1.9% -0.3% 0.3% 1.5%vs Current Levels -3.6% -2.8% -4.7% -4.9% -4.7% -3.2%

COMPACT 1.678 1.660 1.656 1.619 1.616 1.620 1.625vs Previous Year 1.5% -0.2% -2.2% -0.2% 0.3% 0.3%

vs Current Levels -1.1% -1.3% -3.5% -3.7% -3.5% -3.2%SMALL SEDAN 1.613 1.584 1.574 1.553 1.559 1.561 1.565

vs Previous Year 0.1% -0.7% -1.3% 0.4% 0.2% 0.2%vs Current Levels -1.8% -2.4% -3.7% -3.4% -3.2% -3.0%

MID-SIZE SEDAN 1.417 1.407 1.404 1.371 1.357 1.350 1.356vs Previous Year 1.4% -0.2% -2.4% -1.0% -0.5% 0.4%

vs Current Levels -0.7% -0.9% -3.3% -4.2% -4.7% -4.3%FULL-SIZE SEDAN 1.508 1.479 1.492 1.479 1.448 1.451 1.450

vs Previous Year 3.3% 0.9% -0.9% -2.1% 0.2% 0.0%vs Current Levels -1.9% -1.1% -1.9% -4.0% -3.8% -3.8%

SPORTY COUPE 1.549 1.515 1.527 1.533 1.533 1.514 1.500vs Previous Year -2.2% 0.8% 0.4% 0.0% -1.2% -1.0%

vs Current Levels -2.2% -1.4% -1.0% -1.0% -2.2% -3.2%SPORTS CAR 1.403 1.282 1.258 1.223 1.190 1.166 1.124

vs Previous Year -3.9% -1.9% -2.7% -2.7% -2.1% -3.5%vs Current Levels -8.6% -10.4% -12.8% -15.2% -16.9% -19.9%

LUXURY COUPE 1.777 1.730 1.716 1.695 1.646 1.582 1.532vs Previous Year -3.8% -0.8% -1.2% -2.9% -3.9% -3.2%

vs Current Levels -2.7% -3.5% -4.6% -7.4% -10.9% -13.8%LUXURY SMALL SEDAN 1.272 1.268 1.255 1.233 1.216 1.215 1.214

vs Previous Year -4.6% -1.0% -1.8% -1.5% -0.1% 0.0%vs Current Levels -0.3% -1.3% -3.0% -4.4% -4.5% -4.5%

LUXURY MID-SIZE SEDAN 1.243 1.229 1.190 1.158 1.146 1.146 1.145vs Previous Year -3.0% -3.2% -2.7% -1.0% 0.0% -0.1%

vs Current Levels -1.1% -4.2% -6.9% -7.8% -7.8% -7.9%LUXURY FULL-SIZE SEDAN 1.889 1.847 1.858 1.794 1.741 1.705 1.688

vs Previous Year 2.0% 0.6% -3.4% -3.0% -2.1% -1.0%vs Current Levels -2.2% -1.7% -5.0% -7.8% -9.8% -10.6%

Market Level 1.544 1.517 1.498 1.465 1.448 1.442 1.440vs Previous Year 1.1% -1.2% -2.2% -1.2% -0.4% -0.1%

vs Current Levels -1.8% -3.0% -5.1% -6.2% -6.6% -6.7%

USA - RVI Used Car Price Index - Forecast by Segment (Cars)

25

Appendix (Continued)

RVI_SEGMENT Apr-14 2014 2015 2016 2017 2018 2019SMALL PICKUP 1.905 1.944 1.887 1.876 1.865 1.860 1.856

vs Previous Year 3.3% -3.0% -0.6% -0.6% -0.3% -0.2%vs Current Levels 2.1% -1.0% -1.5% -2.1% -2.4% -2.6%

FULL-SIZE PICKUP 1.818 1.761 1.723 1.671 1.640 1.627 1.614vs Previous Year 4.8% -2.1% -3.0% -1.9% -0.8% -0.8%

vs Current Levels -3.1% -5.2% -8.1% -9.8% -10.5% -11.2%MINIVAN 1.447 1.405 1.364 1.321 1.309 1.314 1.321

vs Previous Year 1.3% -3.0% -3.1% -0.9% 0.3% 0.6%vs Current Levels -2.9% -5.8% -8.7% -9.5% -9.2% -8.7%

FULL-SIZE VAN 1.331 1.294 1.258 1.215 1.179 1.160 1.158vs Previous Year 0.9% -2.8% -3.4% -2.9% -1.6% -0.2%

vs Current Levels -2.8% -5.5% -8.7% -11.4% -12.8% -13.0%SMALL SUV 1.491 1.474 1.447 1.396 1.360 1.360 1.364

vs Previous Year 4.9% -1.8% -3.5% -2.6% 0.0% 0.3%vs Current Levels -1.1% -2.9% -6.3% -8.8% -8.8% -8.5%

MID-SIZE SUV 1.478 1.415 1.409 1.379 1.355 1.343 1.335vs Previous Year 1.9% -0.4% -2.1% -1.8% -0.9% -0.6%

vs Current Levels -4.3% -4.6% -6.7% -8.3% -9.2% -9.7%FULL-SIZE SUV 1.322 1.291 1.300 1.278 1.258 1.260 1.267

vs Previous Year -3.2% 0.6% -1.7% -1.5% 0.1% 0.6%vs Current Levels -2.3% -1.7% -3.3% -4.8% -4.7% -4.2%

LUXURY SUV 1.439 1.421 1.416 1.393 1.378 1.362 1.348vs Previous Year 0.4% -0.4% -1.6% -1.0% -1.2% -1.1%

vs Current Levels -1.2% -1.6% -3.2% -4.2% -5.3% -6.3%Market Level 1.544 1.517 1.498 1.465 1.448 1.442 1.440

vs Previous Year 1.1% -1.2% -2.2% -1.2% -0.4% -0.1%vs Current Levels -1.8% -3.0% -5.1% -6.2% -6.6% -6.7%

USA - RVI Used Car Price Index - Forecast by Segment (Light Trucks, Vans, and SUVs)

us market update: auction academy southern auto auction may 13, 2014

Documents

fleet penetration rate

lease penetration rate

new vehicles

new car prices

light vehicle sales

light vehicles sales

expected rate

cash incentives