Automo&ve  Outlook    2015  FTA  Revenue  Es0ma0on  &  Tax  Research  Conference    

   September  29,  2015  

Kim  Hill  Managing  Director  and  President  

U.S.  Sales  growing  slowly  

16.1  

13.2  

10.4  11.6  

12.8  14.5  

15.6   16.5   17.2   17.5   17.7   17.8  

0  

5  

10  

15  

20  

2007   2008   2009   2010   2011   2012   2013   2014   2015   2016   2017   2018  

Million  

Source:  CAR,  Automo/ve  News,  Words  Automo/ve  

U.S.  Vehicle  Produc&on  remains  steady  

10.8  

8.7  

5.8  

7.8  8.7  

10.4   11.1   11.7   11.9   11.9   11.8   11.7  

0  

2  

4  

6  

8  

10  

12  

14  

2007   2008   2009   2010   2011   2012   2013   2014   2015   2016   2017   2018  

Million  

Source:  Wards,  Auto  News  

Employment  &ed  to  produc&on  

2013% 2014% 2015% 2016% 2017% 2018%

Vehicle%Produc6on% 11,100,000%% 11,600,000%% 12,000,000%% 12,300,000%% 12,100,000%% 12,100,000%%

Automo6ve%Employment% 686,100% 736,000% 760,000% 780,000% 760,000% 760,000%

500,000%

600,000%

700,000%

800,000%

%10,000,000%%

%10,500,000%%

%11,000,000%%

%11,500,000%%

%12,000,000%%

Employmen

t%

Prod

uc6o

n%

Source:  Automo0ve  News,  Center  for  Automo0ve  Research,  BLS    

Detroit  3—losing  hourly  jobs  

!304!!!287!! !279!!

!261!!!250!!

!213!!

!176!!

!140!!

!114!! !115!! !114!! !120!!!135!! !142!! !147!! !147!! !145!! !145!!

!105!! !100!! !98!! !95!! !90!! !85!!!74!!

!62!! !56!! !59!! !62!! !67!!!77!! !81!! !85!! !85!! !83!! !84!!

25.8%& 26.7%&

28.6%&30.6%&

33.8%&35.8%& 36.5%& 36.5%& 36.5%&

0!

50!

100!

150!

200!

250!

300!

350!

2001!

2002!

2003!

2004!

2005!

2006!

2007!

2008!

2009!

2010!

2011!

2012!

2013!

2014!

2015!

2016!

2017!

2018!

Employees!(Th

ousand

s)!

Hourly! Salaried! Salaried&Share&of&Employment&

North  American  produc&on  grows—in  Mexico  2  million  unit  increase  between  2012-­‐2018  

15.2  12.7  

8.6  

12.0  13.3  

15.6   16.5   17.4   17.5   17.8   18.1   18.6  

0  

5  

10  

15  

20  

2007   2008   2009   2010   2011   2012   2013   2014   2015   2016   2017   2018  

Million  

Source:  Auto  News,  Wards  

What  is  Auto  Manufacturing?  Automo&ve  Employment  and  Establishments  in  Michigan  

Forging  &  Stamping  

Machine  Shops    &  Threaded  Product  

Coa&ng,  Engraving    &  Heat  Trea&ng  

Ferrous  Nonferrous  

Tool/Die/Mold/  Jig/Fixture  

Gasoline  Engine/Parts  

Powertrain  

Electric  Equipment  Steering/Suspension  

Brake  Systems  

Sea&ng/Interior  Trim  

Metal  Stamping  

Other  Parts  

Assembly  

0  

20,000  

40,000  

60,000  

80,000  

100,000  

120,000  

332   331   3335   3363   3361  

Fabricated  Metal   Foundaries   Metalworking  Machinery   Motor  Vehicle  Parts  &  Components  

Motor  Vehicle  Manufacturing  

Employmen

t  

TOTAL  Michigan    Automo&ve  Industry:  250,000  Employees  4,500  Establishments  

Source:  U.S.  Department  of  Labor,  Bureau  of  Labor  Sta/s/cs,  QCEW  

Engineering  Services  

7  

Contribu&ons  

•  Na0onally,  6-­‐8  mul0plier—en0re  company/industry  •  Assembly  plant—10  or  higher  •  In-­‐state,  between  3-­‐5  mul0plier  (automo0ve  states—14)  •  $500  billion  compensa0on,  $70  billion  tax  revenue,  na0onally  •  Jobs  supported  throughout  en0re  economy—direct,  indirect  

and  induced  

Effects  of  investment  

•  Suppliers—1st  and  lower  0ers  add  jobs,  build  facili0es  •  Sequencing  facili0es  •  Supply  chain  and  logis0cs  configura0ons  •  Many  service  provider  jobs—legal,  finance,  educa0on,  

healthcare  

And,  major  contribu&ons  across  many  sectors    

•  Manufacturing    •  Professional  and  Technical  Services  •  Administra0on  and  Services    •  Wholesale  Trade    •  Retail  Trade    •  Transporta0on  and  Warehousing  •  Finance  and  Insurance    •  Management  of  Companies    •  Other  Non-­‐Manufacturing    

Job  crea&on  in  states  across  the  country  

South  Carolina  woos  Volvo  •  $500  million  plant  investment  by  Volvo  •  No  unions—ac0vely  prohibit  (legal  staff  involvement)  •  Port  of  Charleston—overseas  exports  •  Labor  force  and  training  

•  Experience  in  High-­‐tech  manufacturing  •  Abrac0ve  investment  environment  (business-­‐friendly)  •  Has  $50—$120  million  bond-­‐borrowing  power  (no  legisla0ve  approval  needed)  •  Incen0ve  package  es0mated  to  be  upwards  of  $200  million  

Missouri  dances  with  Ford  •  Ford  Motor  Company  has  major  plant  in  KC  

•  Company  needed  to  upgrade  plant  for  new  product  (Transit)  and  revamp  current  (F-­‐150)  

•  Major  investment  needed,  not  much  public  support  

•  Ford  began  looking  at  other  op0ons  

•  Gov.  called  legislature  into  special  session  

•  Package  of  bills  approved,  crea0ng  large  fund  to  support  investment  by  “major  

transporta0on  manufacturing  companies”  ($200  million)  

•  Ford  immediately  announced  new  product,  later  upgrade  and  new  investment  for  F-­‐150    

One  assembly  plant  spends  a  lot  of  $$  

Source:  CAR  report  

The  North  American  automo&ve  industry:  Its  all  about  the  labor  pool  availability  and  capability  

Almost  500  automaker  facili&es,  and  over  7500  supplier  facili&es  in  the  United  States  

Shie  in  manufacturing  •  No  new  plants  in  U.S.  since  2009  

–  S.C.  plant  undersized—likely  a  CKD  •  Major  MX  investments-­‐9  new  announced  •  Ontario  and  Canada,  mixed  bag—currency  exchange,  higher  wages,  

tough  union,  distance  •  Reten0on  of  exis0ng  facili0es  becomes  main  priority  in  states  

across  the  country  and  in  Canada  •  Near-­‐border  states  will  see  impact  

–  (southern  +,  northern  -­‐)  

What’s  affec&ng  sales  mix  

•  Gas  prices—not  going  up  for  a  while  –  Pickups,  SUVs  are  hot  sellers  •  Ford  sells  71,000+  F-­‐series  in  August  

–  Small  cars,  electrics—not       •  VW  

–  Are  you  kidding  me???    –  Diesel  stock  just  went  down  –  No  comparable  in  the  industry  

 

What  affects  produc&on  

•  Supplier  capacity  –  Carmakers  went  through  major  restructuring  and  the  supply  base  went  through  massive  

restructuring,  as  well  –  “It  just  takes  one  supplier  not  having  the  capacity  and  you  can’t  build  a  vehicle  or  a  powertrain,”  Joe  

Hinrichs  (Ford)  says  

•  Supply  chain  interrupts  –  West  coast  ports  impacted  auto  for  six  months  –  Especially  Asian  assemblers  in  U.S.  

•  New  materials  –  Availability  –  Processing    

A  short  look  forward  •  Mexico  is  a  big  play  

–  Major  investment  in  vehicle  produc0on  facili0es  –  FCA  moving  small,  less  profitable  vehicles  there,  large  trucks  etc.,  into  

U.S.  –  Ford  moving  Focus  out  of  MI,  GM  Sonic  next?  

•  Alterna0ve  fuel  vehicles  are  tough  sell  –  Without  s0ff  regula0ons,  mandates  –  $2.50  gas  

•  China  slowdown  having  posi0ve  effect  on  U.S.  industry  –  Commodi0es  prices  have  fallen  as  China  demand  wanes—copper,  

steel,  oil,  etc..  

What’s  the  future  of  the  car?  •  A  Kodak  moment—the  least  important  players  are  the  manufacturers  •  Electronics  becoming  soul  of  the  vehicle  •  Entry  of  IT  in  a  big  way  

–  Apple—cat’s  out  of  the  bag  –  Google—hires  Krafcik  –  Uber—Tech  center  in  Pibsburgh  

•  New  Jeep  pickup?  •  Who  wants  a  new  car  anyway?    Average  income  of  new  car  buyer=

$80,000  •  Average  age  new  car  buyer=51.7  years,  average  age  of  U.S.  

popula0on=36.8  years  

•  An  average  vehicle  contains  around  60  microprocessors  to  run  electric  content  –more  than  300  million  lines  of  sorware  code  

•  CISCO  es0mates  90%  of  new  value  will  be  sorware-­‐related  

Growth  in  Electronics  (>40%)  

Advanced  Drive  Assistance  System  

Dedicated  Short  Range  Communica0ons  

That  darned  consumer  

•  NADA  predicts  GDP  through  2019  less  than  3%    •  Gas  below  $2.50/gallon  long  term  •  Lights  trucks  at  56.8%  in  August  2015,  up  8.6%  from  same  

period  a  year  ago  •  Top  3  vehicles-­‐    F-­‐series,  Silverado,  Ram  (all  trucks)  •  4th  vehicle,  Accord  sold  41,000  in  August,  F-­‐series  sold  71,000      

Factors  that  affect  sales—a  mixed  bag  

•  Labor  force  par0cipa0on—historic  low  •  However,  full-­‐0me  employment  drives  up  auto  sales  •  Household  wealth  effect  •  Low  interest  rates  •  Increasing  household  financial  burdens—Apple  wants  a  piece  of  monthly  

payments  (phone  lease  plan)  •  Household  budget  outlays  are  shiring  •  Student  debt  burden—graduate  with  nega0ve  equity  •  Motor  vehicle  price  is  rising—average  price  above  $31,000  

•  Youth  movement  to  ci0es—demand  alterna0ve  transporta0on  

 

Thank  you      

kimhill@hwa-­‐analy0cs.com  734-­‐355-­‐1740