1. Economic Outlook and the Impact to Fleet Budgets Greg Corrigan, Vice President, PHH Strategic Consulting February 9, 2010

2. Presentation topics Year in review Economic outlook for 2010 and beyond –Overall economy –Fuel/Energy –Inflation, interest rates –Manufacturers Other cost considerations Fleet strategies

3. Economists… Two economists, three opinions

4. Measures of Economic Activity Moving 12-Month Total on ALL Roads 2,800 2,850 2,900 2,950 3,000 3,050 3,100 20052006200720082009 Year Vehicle-Distance Traveled (Billion Miles) Source: Department of Transportation

5. Measures of Economic Activity Source: Bureau of Economic Analysis Source: Bureau of Labor Statistics

6. Looking ahead What’s good –Leading indicators turning around: ISM Consumer confidence Hiring intentions What’s worrisome –Falling value of dollar –Exploding federal and state deficits –Inflation potential –Stimulus going away –Real Estate, residential & commercial –Global debt fears

7. Looking ahead The Positive Money supply growth Lower housing prices Government spending Stock market – a leading indicator Yield curve – steep curve is bullish The Negative Money supply growth Lower housing prices Government spending (un)Employment – a damper on consumer spending Banks still slow to lend Pending tax increases and regulation Source: http://money.cnn.comhttp://money.cnn.com

8. Survey says… Forecasters surveyed by WSJ: –Improved confidence to lead consumers to spend more –Employers to slowly increase hiring over next 12 months –Unemployment rate to climb some more before falling mid- 2010 –Job-market weakness expected to keep Fed from boosting short-term interest rates until at least August 2010

9. Fuel/Energy For 2010 futures market and the Energy Information Administration currently forecast $2.85 for gas and $2.96 for diesel, an approximate increase of 17% over 2009. It is possible the forecast may increase in their next update, as commodity prices have risen and the economic outlook begins to improve Recommend budgeting for $3 a gallon this year Diesel will probably just stay ahead of regular gasoline

10. Manufacturers What is the new reality for production? –10MM? 13MM? 15MM? –Fuel prices? –Interest rates? –Credit availability? Adjusting to new production schedules, staffing Still erratic demand at retail level The Michigan-based Center for Automotive Research predicted deliveries will climb to 12.4 million from 10.4 million in 2009. They believe U.S. auto sales will rise 20 percent in 2010, buoyed by pent-up demand and stronger credit markets. The forecast exceeded other projections by consultants and analysts for domestic industry deliveries which range from 11.3 million to 11.8 million light vehicles.

11. Manufacturers Source: Bureau of Economic Analysis

12. Other expense items Maintenance / Tires Insurance / Accidents Regulatory and Tax – Look out Fleet composition (age and mileage) is large determinant of total repair costs More vehicles are falling outside warranty coverage window Occasional parts supply shortage for newer vehicles

13. Budget Expectations for 2010 Expect base interest rates to start climbing in the second half of the year Expect vehicle prices to increase in MY 2011 and beyond Expect continued strong resale market Expect higher fuel prices Expect normal inflation for maintenance, however remember the age of your fleet Expect higher taxes and violations collections Expect total budget impact to be 5-7% increase over 2009, largely due to fuel

14. Retrospective: Fleet Strategy for 2009 Recommended deferring replacements –Economic uncertainty –Manufacturing uncertainty –Corporate downsizing –Used vehicle values were at all-time lows –No credit for retail buyers or new or used vehicles How did that work out? –Case studies showed a savings of $600-$1,500 per vehicle, net of all expenses What about 2010? How about…the opposite

15. Fleet Strategies Manage for the upside “Size up” your fleet Fall replacement – order early Plan for evolving production schedules Change MPG profile of fleet before fuel prices soar Get ahead of costly vehicle repairs Spec for future resale market

16. Questions?