Cash for Clunkers: Examining Program Benefits REMI Webex March 23, 2010

1. Cash for Clunkers: Examining Program BenefitsREMI WebexMarch 23, 2010 Adam Cooper & Debbie Maranger Menk Center for Automotive Research Ann Arbor, MI

2. Major Findings • 395,000 units net new vehicle sales (677,081 approved transactions)* • 58 percent net new • 40,200 jobs created • $2.1 billion increase in gross personal income • $1.3 billion net federal and state revenue * As of January 8, 2010 there were 678,360 paid transactions.

3. Our Approach • Develop econometric monthly light vehicle sales forecast model for June-December 2009 using EViews 6 • Primary Variables • Lagged unemployment rates • Gasoline prices • New vehicle PCE • Seasonal Effects • Identify net new production activity due to C4C program • Allocate OEM and drivetrain production at a plant-state level • Account for NAFTA area motor vehicle parts flows • Model employment benefits

4. Program Effects on SalesInter-temporal & Cross Market Source: CAR Research

5. U.S. Light Vehicle Sales February 2009 through February 2010 Study Parameters: July-October Source: Automotive News Data Center, CAR Research

6. Inventory and SalesJan 09-Feb 10 Source: Automotive News Data Center, CAR Research

7. 2009: Major Movements Source: Automotive News Data Center, CAR Research

8. Net New C4C Induced Production Source: CAR Research, NHTSA

9. Mexican & Canadian Assembled Vehicles Create US Jobs • Powertain accounts for 35 percent of total vehicle value • US manufactured powertrain are used in • 61 percent of Canadian vehicles • 25 percent of Mexican vehicles Source: CAR Research

10. Direct Benefits • U.S. OEM production related employment and income taxes • U.S. powertrain employment and income taxes associated with Canadian and Mexican assembled vehicles • Revenue from net new motor vehicle sales tax and registration fee

11. Indirect & Induced Benefits • Parts employment associated with net new U.S. OEM production • Employment retention and recovery in service, finance, insurance, and other ancillary industries • Sales tax (non-auto), income tax, and payroll tax increase • Reduction in Government Outlays (treated as a benefit)

12. Policy Question • What if the program only provided a voucher for a NAFTA area produced vehicle?

13. Research Findings • Large employment and income related gains could have been realized if the program regulations were set differently. • But, what about the WTO??? Source: CAR Research

14. Where Are We Heading?

15. Where Are We Heading? • In 2009 U.S. government played its part as lender of last resort and demand generator. • What economic/policy/business actions are needed to secure demand for new motor vehicle sales going forward? • What can auto companies do to boost demand? • Sleepers and unknowns? • What are the automotive community perspectives on a C4C V.2?

16. GDP Percent Change (q/q) Source: BEA

17. U.S. Light Vehicle SalesYOY % Change YTD through February: 2010 vs. 2009 Source: Automotive News Data Center, CAR Research

18. Percentage Change in Sales of Light Vehicles Per OEM:YTD Through February: 2010 vs. 2009 Source: Automotive News Data Center, CAR Research

19. Sleepers and Unknowns • Scrappage, De-stocking, Household Vehicle Saturation and Sales Going Forward • Aging Vehicle Fleet • Higher scrappage rates could trigger significant replacement demand • Yet, Households are reassessing their need for vehicles and are holding onto them longer • 72 month leases • Extended warranties • 2007: U.S. vehicles per driver peaked at 1.2 • 2.0+ Vehicles per household • The ownership boom in the mid-’00s was discretionary demand driven. Will that be that case in the coming few years?

20. And the survey says… • Citi Investment Research & Analysis Poll (n=2,000+) • Gauged respondent’s plans for vehicle ownership 2 years from now (2012) due to • Lifestyle (48%) • Economy (20%) • Household Change (17%) • Other (15%) • Fewer: 12%, More:14%, No Change:74% • Study provides slight nod towards growth in motor vehicle sales due to… Source: Citi Investment Research

21. Pent-up Demand!? Source: Citi Investment Research, Conference Board

22. Stimulus, Incentives & Planning • An economic recovery will increase US light vehicle sales (and production) • 2010 GDP forecast is 2.5-3.0 • Access to capital is improving • Fixed costs of vehicle ownership is a vexing challenge going forward • Job assurance programs offer variable cost arrangements to buyers • Incentive wars on the horizon???

23. Do Dealers Want Another Clunker Plan? • Surprisingly mixed response • “We need stability, not false stimulation. Erratic swings are not good for planning” • “Who wouldn’t” • “It was stupid, but sure good for business!” • January 2010 Automotive News Survey (n=193) • 51 percent “Yes” • 49 percent “No”

24. It’s All About Employment • Right sizing, restructuring, and a drop in new vehicle sales lead to a massive shed of ~300,000 motor vehicle & parts jobs in the US in the last 3 years • As light vehicle sales and production pick up the initial gains will be seen in employment productivity with large increases indirect hires to follow • Michigan net +6,200 private non-farm jobs in January 2010 +11,400 in Manufacturing • Look at Ohio as a bellwether for the nation Mix of Domestic and International OEMs Large supplier base +2,700 Manufacturing jobs in January 2010 Source: CAR Research, BLS

25. Thank You • Please feel welcome to send us your comments and questions: acooper@cargroup.org dmenk@cargroup.org • Please visit the car website for more information and a link to the study. www.cargroup.org