U.S. AUTO INDUSTRY UPDATE Federal Reserve Bank of Chicago

Automotive Outlook Symposium

Emily Kolinski Morris

Chief Economist

May 2015

1.1

1.3

1.8 1.8

15.5

16.9

0.8 0.9

1.2

NORTH AMERICA INDUSTRY VOLUME SUMMARY

Fiscal Austerity Led To Double Dip Recession Solid Industry Sales Trends Across The Region

10.6

13.0

16.8

1.5 1.6

1.9

13.1

15.9

20.2

Canada (Mils.)

U.S. (Mils.)

Mexico (Mils.)

Total North America* (Mils.)

2009 2014

2009 2014 2009 2014

April 2015

SAAR

2010 2012 2013 2011 2009

* U.S., Canada, Mexico, and 37 emerging markets

2014

2014 2015

2014 2015

2014 2015 Note: 2014 FY are estimates

12.9 10.5

8.5 9.2 10.2 11.7

12.8 13.6 13.6 13.5

3.6

3.0

2.1 2.6

2.8

3.1 3.1

3.2 3.5 3.4

16.5

13.5

10.6 11.8

13.0

14.8 15.9

16.8 17.1 16.9

2007 2008 2009 2010 2011 2012 2013 2014 1Q April

Total

Fleet

Retail

Mils. Units, SAAR

U.S. TOTAL NEW VEHICLE SALES

2015

Full Year 2015 Sales Outlook Of 17.0 – 17.5 Million Units

Including Medium And Heavy Trucks

52.9 54.1 56.0

55.6

57.6

51.5

2015

April

U.S. KEY ECONOMIC INDICATORS

Key Economic Indicators Suggest A Favorable Backdrop For Auto Sales

75.0 74.3

84.5

85.1

81.8

95.9

8.3

5.5

2.6

1.6

3.1

1.9 2.4

3.0

Unemployment Rate (Pct.)

Consumer Sentiment Index Mfg. Purchasing Managers’ Index (PMI)

Real GDP (Pct. Change, YoY)

2012 2013 2014 2012 2013 2014

2012 2013 2014 1Q

2012

1Q

2013

1Q

2014

1Q

2015

2015

March

2015

April

50 Expansion

Contraction

15.9

9.6

12.6

14.3 16.7

0.8

0.5 0.4

0.3

0.4 0.5

2007 2008 2009 2010 2011 2012 2013 2014 2015

(19.0)

4.6

(4.5)

13.7

5.0

2007 2008 2009 2010 2011 2012 2013 2014 2015

New Home

Sales

6.7 6.5

4.8

5.0

3.4

4.5

3.7

2007 2008 2009 2010 2011 2012 2013 2014 2015

1.49

1.05

0.69

1.14

19.0

9.0 13.0 14.0

47.0

57.0 54.0

2007 2008 2009 2010 2011 2012 2013 2014 2015

Housing Starts

Housing Sector Recovery Remains Modest

New Home and Light Vehicle Sales (SAAR, Mils.)

Note: Based on six-month moving average

Housing Starts (SAAR, Mils.) and

Home Builders’ Survey Index 30-Year Mortgage Rate (Pct.)

Case-Shiller Home Prices (Pct. Change, YoY)

Note: Includes 20 major metropolitan areas

Home Builders’

Survey Index

Light Vehicle

Sales

0

U.S. HOUSING UPDATE

0.0

0.5

1.0

1.5

2.0

2.5

0.0

5.0

10.0

15.0

20.0

25.0

1977 1981 1985 1989 1993 1997 2001 2005 2009 2013

Policy Rate (%, Lt. Scale)

Industry Volume (Mils., SAAR, 6MMA, Lt.Scale)

Housing Starts (Mils. SAAR 6MMA, Rt. Scale)

U.S. HOUSING STARTS, INDUSTRY SALES AND

INTEREST RATES

Historically Strong Relationship Between Interest Rate Cycles,

Housing Starts And Vehicle Sales

Note: Shaded areas show tightening cycles with industry downturn or flattening

DELINQUENCIES OF SUBPRIME MORTGAGES AND AUTO LOANS

Auto And Mortgage Loan Performance Has Diverged Since The Crisis

0%

5%

10%

15%

20%

25%

30%

35%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Subprime Mortgage: Total Subprime Mortgage: Adjustable-Rate

Subprime Mortgage: Fixed-Rate Subprime Auto Loan: Total

Sources: S&P as of July 2014, Mortgage Bankers Association as of December 2014

(120)

(80)

(40)

0

40

2004 2006 2008 2010 2012 2014

All residentialmortgage loansPrime

Subprime

Nontraditional

2011 2012 2013 2014 2015

Credit card loans

Auto loans

Other consumer loans

(120)

(80)

(40)

0

40

2004 2006 2008 2010

All consumer loans

U.S. LOAN DEMAND INDICATORS Net Percentage of Domestic Banks

Reporting Increased Demand for Residential Mortgages

Net Percentage of Domestic Banks

Reporting Stronger Demand for Consumer Loans

Incre

asin

g

Decre

asin

g

Incre

asin

g

Decre

asin

g

• Demand for residential

mortgages has increased in

the early Second Quarter

2015, following the weak First

Quarter

• Domestic banks have, on net,

reported increased demand

for auto loans in every quarter

since the Second Quarter of

2011

Source: Federal Reserve SLOOS

1Q 2015 2Q 2015

GSE

Government

QM non-jumbo non-GSE

QM jumbo

Non-QM jumbo

Non-QM non-jumbo

Subprime

(40)

0

40

80

120

2004 2006 2008 2010 2012 2014

All residentialmortgage loansPrime

Subprime

Nontraditional

1Q 2015 2Q 2015

GSE

Government

QM non-jumbo, non-GSE

QM-jumbo

Non-QM Jumbo

Non-QM non-jumbo

Subprime

2011 2012 2013 2014 2015

Credit Card Loans

Auto loans

Other consumer loans

(40)

0

40

80

120

2004 2006 2008 2010

Credit cardloans

Otherconsumerloans

U.S. LENDING STANDARDS Net Percentage of Domestic Banks

Tightening Standards for Residential Mortgage Loans

Net Percentage of Domestic Banks

Tightening Standards for Consumer Loans

Tig

hte

nin

g

Easin

g

Tig

hte

nin

g

Easin

g

• Lending standards for well-

qualified mortgages have

eased considerably within the

past year

• Substandard mortgage

lending standards have

remained tight since the

financial crisis

• Relaxed lending standards for

auto loans, following the

financial crisis, promoting

strong industry growth

Source: Federal Reserve SLOOS

U.S. AVERAGE AGE OF CARS AND TRUCKS

Source: Polk VIO registrations

9.6 9.8

9.4

11.5

2002 2004 2006 2008 2010 2012 2014

Passenger Cars

Light Trucks

All Light Vehicles

(Age, years)

Elevated Vehicle Age Continues To Support Replacement Demand

32

52 52

86

$20

$30

$40

$50

$60

$70

$80

$90

1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

U.S. HOUSEHOLD AND NEW VEHICLE BUYER MEDIAN INCOMES

Source: U.S. Census Bureau, NVCS

(000s)

New Vehicle Buyers Have Higher Median Income

Than U.S. Households Overall

3.57

3.52

3.59

3.72

4.00

3.87 3.86 3.90

3.87

3.77

3.2

3.3

3.4

3.5

3.6

3.7

3.8

3.9

4.0

4.1

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Data Source: NVCS

Years Between Next Purchase

U.S. EXPECTED VEHICLE HOLDING PERIOD

Holding Periods Edging Down But Still Above Pre-Crisis Levels

938

1,021

967

962

1,118

1,161

1,205 1,212

1,163

900

950

1000

1050

1100

1150

1200

1250

1990 1994 1998 2002 2006 2010

Total

Working Age

U.S. VEHICLE DENSITY

Aging Population Contributing To Lower Overall Vehicle Density

Vehicles per 1,000 Pop.

Source: Polk, Census Bureau

Source: U.S. Census Bureau

Vehicles Available per Worker

U.S. METROPOLITAN VEHICLE DENSITY

Note: Top 51 most populated metropolitan areas

Metropolitan Vehicle Ownership Rates Have Remained Steady

1.97 1.97

1.96

1.95 1.95

1.94

1.95

1.96

1.90

1.91

1.92

1.93

1.94

1.95

1.96

1.97

1.98

1.99

2.00

2006 2007 2008 2009 2010 2011 2012 2013

37 38 39 43

12 15 15 16

2014 2015 2016 2020

2 2 2 2

2 3 3 2

2014 2015 2016 2020

20 20 21 23

6 6 6 5

2014 2015 2016 2020

21 21 21 23

3 4 4 4

2014 2015 2016 2020

LIGHT VEHICLE CAPACITY BY REGION

Source: IHS Automotive April 2015 Forecast

Americas (Mils.)

Middle East & Africa (Mils.)

Europe (Mils.)

Asia Pacific (Mils.)

Memo: Excess as Pct. of Production 14% 18% 20% 18%

Memo: Excess as Pct. of Production 28% 28% 28% 23%

Memo: Excess as Pct. of Production 123% 121% 133% 103%

Memo: Excess as Pct. of Production 33% 39% 39% 39%

24 25 26

28 26 26 26

28

4 5 5 5

49 53 54

59

1.7 0.8

(11.8)

17.0

(0.5)

(15)

(10)

(5)

0

5

10

15

20

2006 2008 2010 2012 2014

New Vehicle CPI

Used Vehicle CPI

U.S. NEW AND USED VEHICLE CPI

% Change Over Year Ago

SLIDE 16 Vehicle Pricing Trends Have Moderated Recently

• U.S. economy recovering at a steady pace, with income and job gains

supportive of vehicle buying conditions

• Interest rates remain low, supported by global liquidity conditions and with

pace of Federal Reserve policy rate increases expected to be very gradual

• Housing market recovery remains subpar

• Replacement demand remains a key driver of U.S. vehicle sales

• Durability and consumer preferences for longer holding periods support

elevated vehicle age

• Density growth has moderated, driven largely by demographics

• Global capacity conditions imply limited upside to U.S. industry pricing

SUMMARY

SLIDE 17