1. Automotive in 2011 Detroit to the Dealer Wards Dealer Magazine Steve Finlay ESA & Company Adam Armbruster

2. The Good Old Days of Vehicle Sales? 199916,893,538 200017,349,755 200117,122,369 200216,816,368 200316,639,053 200416,866,920 200516,947,754 Question back then was: “When will we reach 20-million unit sales year?” But how good was it, really?

3. 3 What primarily drove those sales (some of them unhealthy) Push production (Bane of the industry.) Easy credit (Often too easy; people getting into heavy debt.) Hefty incentives (Expensive for the industry.) Strong housing values (Lot of people re-financing homes, buying cars) Low unemployment

4. 4 Then the storm hit in 2008 Gas prices soar. Financial markets collapses in September. Housing prices drop. Unemployment rises. Credit starts to freeze in 2008; goes Arctic in 2009, and auto makers and dealers get frostbite.

5. 5 The Devastation to Auto Sales: 2000: 17.8 million – the high-water mark. 2007: 16.4 million 2008: 13.4 million 2009: 10.6 million How bad? A 6-million unit drop in annual sales based on an average sale at $25,000 equals a revenue loss of $150 billion!

6. 6 The Silver Lining of the Great Storm: Auto makers and dealers right-size their operations. The “Push” System is dead. The “Pull” System replaces it. An automotive industry revolution. All knew push was flawed; it took a disaster to kill it.

7. 7 Where We’re at Now Recovery is slow, so some forecasters are downward revising original sales predictions. Impediments: soft job market, low housing values and tight lending. Ward’s projects 2010 sales at 11.3 million and a similar SAAR (seasonally adjusted annual rate) going into early 2011. GM publicly says 11.2 million to 12 million, always a range. Sales next year: 13.1 million. Depends on recovery. Tough number to hit. Need for sales to pick up at the second half. Today’s question: What is the new “normal” in annual sales?

8. 8 QUICK WORD ON INVENTORY Lowest in years. Auto makers holding back, awaiting a recovery. Could be holding back sales, too, though. Dealers want more fast-selling vehicles. Big question: Can you grow the market without building inventory? Need a better inventory mix, a smarter mix. Low on slow sellers, high on fast. Right now it’s chaotic. Solution: Flex manufacturing. Not there yet but headed in that direction.

9. 9 Sales Outlook Beyond Next Year 2012: 13,750,000 vehicles 2013: 15,300,000 * 2014: 14,700,000 2015: 15,500,000 The spike above trend in 2013 (it could happen in a different year) indicates a bump to catch up with pent-up demand. Unprecedented: Scrappage rates exceed build rates. We are moving towards market stability in 15.5 to 16 million range. When sales hit 16 million it will be a profitable “sweet 16” because both auto makers and dealers have right-sized.

10. 10 RECAP Overall recovery really slow. Banks hesitant to lend, auto makers hesitant to build until the recovery. But is that impeding it? Risk management fine but… Pull market replaces push – finally! Industry needs flexible manufacturing – the nimble ability to increase and decrease production of vehicles, depending on demand. Flex manufacturing + pull market = healthy profits, even if volumes are lower than “the good old days” of 17 million unit sales.

11. A Car Dealer Day ESA & Company Adam Armbruster

12. 19% spent in local television. Ward’s Dealer Business 2010 TV

13. To sell just 1 car … Ward’s Dealer Business 2010 6.5 customer walk-ins 8.5 customer phone calls 13.5 customer emails OR

14. Car buyers spend 20% more time to buy in 2010 Vs. 2008. Ward’s Dealer Business 2010 +20%

15. 66% of car buyers do not buy from the first dealer they contact. Ward’s Dealer Business 2010 66%

17. Top 3 2011 Car Dealer Issues ESA & Company Adam Armbruster

18. Auto Issue #1 “BUILD EM, PUSH EM” versus “SERVE THEM, SELL THEM”

28. 89%

30. 82%

33. 50% Buy a Car

36. 15%

38. Auto Issue #2 Local Dealers thinking like… Local Dealers.

44. 9,329

46. Auto Issue #3 Bad Timing

49. Typical Auto Buyer Foot Traffic

50. Weekly Auto Buyer Online / Phone Traffic

52. Steve Finlay Wards Dealer Business sfinlay@wardsauto.com Adam Armbruster ESA & Company Adam@ESAcompany.com