The Future of the Automobile:A Look into the Crystal Ball

Presented byAuto Futures Group, LLC

1/13/2009

What is the Auto Futures Group?

• An organization oriented towards the future of the automobile.

• We provide comprehensive support services to car companies, the investment community and policy makers.

• We are an alternative to internal staff.• We get things done and we make things

happen……

Our TeamBob Austin• Marketing strategy• Brand development• Public Relations• Advertising• Event marketing• Relationship marketing• Marketing partnerships• Volvo Cars, Rolls-Royce

Our TeamBill Pettit• Market Research • Market Analysis• Strategic Planning• Customer Relationship Marketing• Brand Management• Performance Metric Development• Voice of the customer• BMW NA

Our TeamBert Holland• Marketing Strategy• Automotive Engineering• Strategic Planning• Marketing Innovation• Public Policy• Product Planning• Event Marketing• BMW AG, BMW NA, Porsche AG

Auto Futures Group did notcome in a corporate jet…

Auto Futures Group Senior Partnersdoes not have a corporate yacht

Auto Futures Group did not come here asking for money…yet

The Auto world…2008

US Light Vehicle Sales2008 vs. 2007

Light Vehicle Overview

• Total Sales declined 18.3%• Worst year since 1991• Cars Sales off 10.7%• Cars outsold Trucks in 2008 for

first time in several years • Truck Sales dropped 25%

Car Segment

Source: AutoData, Inc.

Truck Segment

Source: AutoData, Inc.

2008 “Winners”

• MINI Sales up 28%

• Rolls-Royce increased 17%

• Subaru about even (+.03%)

2008 Losers!• Hummer - 51%• Land Rover - 40%• Chrysler - 39%• Saab - 35%• Isuzu - 33%• Maybach - 33%• Bentley - 33%• Jaguar - 32%• Volvo - 32%• Jeep - 30%

Why Did This Happen?

• Real estate collapse • Escalating fuel prices• Stock market collapse• Credit market freeze• Job losses• “THE PERFECT STORM” for our industry• It hurt virtually everyone not just the D3!

Things you should note:

• In May of 2008 TechoMetrica’s Alternate Fuels Tracker showed consumers expected gas prices to remain over $4 per gallon and almost 40% thought it would climb to $6 within 3 years.

• Sales of SUVs and Light Trucks dropped precipitously during the summer and fall.

• By November, Toyota Prius demand had dropped off

The Detroit 3

• Detroit had been accused of making cars people do not want.

• Americans love big, roomy, comfortable, and powerful cars.

• The sudden increase in fuel prices drove Americans to smaller cars.

• The problem is production can not change as quickly as customer preferences.

The global car industry suffers

• European sales have dropped • BRIC country sales have dropped precipitously• Drop in demand resulted from local stock

market collapses and the prospect of unemployment due to diminished US demand

• They have always had higher fuel prices and smaller cars…

What lies ahead?

The slump is here to stay• Vehicles have become more reliable

– Replacement demand softened to 14 million– 2 million extra cars / yr were sold to reach 16 million– Today: Purchase intent down 18%

• Manufacturers compensated with Subventions– Today: Market is in withdrawal

• Credit Crisis began in 2008– Today: Credit causes about half of slump

• Confidence began to plummet in September– Today: Consumers are losing jobs as well

Legislation – One slide

• Obama administration will be very active• “Cash for Clunkers”• Distributed electric grid• Money for municipalities as incentives• Local government initiative will increase

– traffic zones and fees– plug-in parking spots– incentives for HOV and parking

Alternate Powerplants– One slide

• Gasoline will dominate• Diesel will make little progress• CNG and LNG will make more progress in local

delivery light trucks and busses• Electric will ultimately replace gasoline, but at

present lack of battery capacity and expense reduce it to a novelty for at least the next 5 years

• Corn based ethanol uses more energy than it delivers.

• Biomass ethanol will be somewhat better

What about Electric Cars?• In 1900 electrics were prevalent

– Energy density, speed of filling and costs• Future depends on three key factors

– Government incentives and regulations– Intensity of investment in batteries– Breakthrough concept needed – i.e. like iPod

• Pure electric – smaller cars, postal vehicles first

• Range-extended electrics will prevail– Volt is not just hype

Gradual Electrification of Vehicles

• Expansion of Hybrid to near 100% by 2020• High-speed sportscars, Trucks, Buses will

include piston engines for some time• Diesels, synthetic fuels, natural gas

– pricing policy of energy companies– government policy– opportunity for natural gas for truck fleets

• Powergrid, solar charging, distributed storage– depend on public policy and private initiatives

Prognosis

• 2009 US Sales will be around 11 million– Unlikely to go over 14 million in the next 3 years

• Trends– Trucks will weaken, especially larger ones– Practicality is crucial, but also emotion– Price is trump in 2009/2010

• Low end will go for price– Creative subventions, even rental/leases

• Brand reputation trumps on high end• Extinction of 2nd string luxury

Potential Winners

• Opportunity to grab share• Asian manufacturers in domestic clothes• Asian manufacturers who develop strong brands• European manufacturers who maximize Asian

sourcing for price• New manufacturers

– borrowing brand power (Google, Sony, Apple, GE)– new brands: Aptera, Mahindra (Fiskar, Tesla????)

Implications

Car companies will have to learn to live with lower volumes . . .

• Excess production capacity needs to be shut• Manufacturers need to tune up brands and

eliminate non-relevant offerings• Staff sizes will be reduced and work will be

outsourced as required• Politics…as much as business will determine

the fate of GM and Chrysler• Ford is the one eyed man in the land of the

blind

Dealerships are going to change . . .

• There are just too many dealerships with too little volume to carry the overhead.

• As many as 1000 more dealers may close.• The dealership paradigm may change from

brand palace to department store.– Provides more customer oriented experience– More cost effective facility

Conclusions

• The automobile will be the dominant form of transportation in the US for the foreseeable future. We like that!

• Car companies will need to focus on profit rather than volume.

• Brands need to be reviewed to see that they make a promise they deliver on, which is relevant, and desirable.

What are the biggest issues we face?• FEAR!!!

• Lack of confidence

• Lack of trust

• Lack of transparency

• This extends well beyond the auto business!!!

What can help us move forward?

• LEADERSHIP– In Government– In Business

• Efficient, distinctive, and well branded products• A domestic energy policy to help motivate

people to seek more fuel efficient vehicles• Global harmonization of safety and emissions

standards in the developed world.

And that is the way we see it…….

Thank you Auto Futures Group