2015 U.S. Automotive Outlook CONTACTS: John Humphrey, Senior Vice President, Global Automotive Practice, J.D. Power [email protected] Beth Ann Bovino, U.S. Chief Economist, Standard & Poor’s Rating Services [email protected]

FEATURING: ■■

2015 Economic Outlook

■■

Automotive Industry Outlook

■■

Key Trends Affecting the Automotive Industry

March 2015

2015 U.S. AUTOMOTIVE OUTLOOK

TABLE OF CONTENTS 2015 Economic Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Automotive Industry Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Key Trends Affecting the Automotive Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Copyright © 2015 by McGraw Hill Financial Inc. All Rights Reserved. The information contained herein has been obtained by McGraw Hill Financial from sources believed to be reliable. However, because of the possibility of human or mechanical error by our sources, McGraw Hill Financial does not guarantee the accuracy, adequacy, or completeness of any information and is not responsible for any errors or omissions or for the results obtained from use of such information. This material is the property of McGraw Hill Financial or is licensed to McGraw Hill Financial. This material may only be reproduced, transmitted, excerpted, distributed or commingled with other information, with the express written permission of McGraw Hill Financial The user of this material shall not edit, modify, or alter any portion. Advertising claims cannot be based on information published in this special report.

2015 U.S. AUTOMOTIVE OUTLOOK

2015 ECONOMIC OUTLOOK While a number of economies around the world remain in—or are at risk of returning to—recession, the U.S. economy appears to be on the path to sustainable growth. At the very least, the economy is no longer facing the same pressures it confronted as recently as in early 2014. American companies are creating jobs at a healthy clip, and Standard & Poor’s Ratings Services expects higher wages to follow later in 2015. The market for residential real estate is gaining steam, with housing starts finally climbing above the 1 million mark (annualized), with a likelihood of increasing. The manufacturing sector has been strong, and S&P expects manufacturing to remain robust in 2015, as U.S. businesses pick up the pace of capital investment. According to S&P, other 2015 highlights include: ■■ Real GDP is expected to grow 3.3 percent for the year, led by private sector

growth and assisted by lower oil prices. ■■ After a solid year of job growth in 2014—with 2.95 million jobs added, the most

in 15 years—further improvement in payroll gains is expected this year, in the neighborhood of 200,000 average monthly gains. ■■ Consumers will boost spending in response to a decline in gasoline prices, gains in

employment, and real disposable income. ■■ The Federal Reserve will likely raise its policy rate in June of this year. S&P expects

the federal funds rate to reach 1.25 percent by the end of the year. ■■ The chance of the U.S. economy entering recession over the next 12 months is low

(10-15%). On the flip side, the dollar’s recent strength will likely work against U.S. exports more than originally believed. But the sharp drop in oil prices—and the cost of gasoline—is a net positive for the economy overall. All things considered, S&P sees all of these factors continuing to bolster GDP growth this year, adding to the momentum of the second half of 2014 that led to an expansion for the year that came in at about 2.4 percent. S&P believes that the U.S. economy will grow 3.3 percent this year, in real terms, again led by the private sector. A vibrant housing sector is at the core of the resurgent economy. By the end of 2014, consumer sentiment readings had surged to the strongest mark since early 2007, with business managers continuing to report solid activity and consistent employment gains. Household balance sheets have improved significantly—with debt-to-disposable income falling to 107 percent in the third quarter, compared with a high of 135 percent in 2007— making consumers less vulnerable to excessive debt loads and interest rate movements. More jobs, higher wages, relatively low interest rates, and healthier household balance sheets all support a strengthening U.S. housing market this year.

The near-term effects of low oil prices will help real disposable incomes of American households through lower cost of transportation and production channels.

While home-price appreciation slowed in 2014, there are signs that first-time buyers are warming up to the housing market. In addition, housing starts and permits consistently hovered just above the 1 million mark in the second half of 2014, and housing activity is expected to reach 1.2 million new groundbreakings this year with another 1.45 million in 2016, as income gains offset increases in effective mortgage rates. It’s not just higher incomes that will drive GDP growth. The recent sharp drop in oil prices will also be a net positive to the economy. While the U.S. is still a net importer

© 2015 McGraw Hill Financial Inc. All Rights Reserved.

1

2015 U.S. AUTOMOTIVE OUTLOOK

of energy, falling energy prices are a positive “terms of trade” shock for the country. As a result, lower oil prices mean less money is sent abroad, so more is available for domestic consumption. The near-term effects of low oil prices will help real disposable incomes of American households through lower cost of transportation and production channels. One way to think of it is as a pay raise at the pump. According to the U.S. Energy Information Administration (EIA), the typical household buys more than 1,000 gallons of gasoline each year. Gas prices have fallen more than a dollar per gallon since summer, which—assuming it stays at this level for the year—translates into at least an extra $1,000 per household that consumers can use toward other purchases or paying down debt. Consumers aren’t the only ones who will enjoy lower energy prices. Businesses in non-energy sectors may also thrive as consumer-driven domestic demand increases and lower energy prices drive down the cost of doing business, all else being equal. Most leading investment indicators in both manufacturing and non-manufacturing surveys of managers anticipate a pickup in investments by businesses.

STANDARD & POOR’S ECONOMIC OUTLOOK (% change unless otherwise noted)

2009

2010

2011

2012

2013

2014e

2015e

Real GDP (%)

(2.8)

2.5

1.6

2.3

2.2

2.4

3.3

Real non-residential construction

(18.9)

(16.4)

2.3

13.1

(0.5)

8.1

7.1

Residential structures construction

(21.2)

(2.5)

0.5

13.5

11.9

1.4

7.3

Core CPI

1.7

1.0

1.7

2.1

1.8

1.8

1.8

Unemployment rate (%)

9.3

9.6

8.9

8.1

7.4

6.2

5.5

131.2

130.3

131.8

134.1

136.4

138.9

141.6

Federal funds rate (%)

0.1

0.1

0.1

0.1

0.1

0.1

0.5

Mortgage rate (30-year conv.)

5.0

4.7

4.5

3.7

4.0

4.2

4.1

Savings rate (%)

6.1

5.6

6.0

7.2

4.9

4.8

4.5

Payroll employment (millions)

Source: Standard & Poor’s

© 2015 McGraw Hill Financial Inc. All Rights Reserved.

2

2015 U.S. AUTOMOTIVE OUTLOOK

AUTOMOTIVE INDUSTRY OUTLOOK The U.S. automotive sector has rebounded along with the economy. Total sales of new light vehicles reached 16.5 million units in 2014—a 5.7 percent increase over 2013—and the highest industry sales total since the 16.1 million sales achieved in 2007. Retail sales of new vehicles, which is arguably a more accurate barometer of industry health, reached a record 13.6 million units in 2014. Both industry and retail sales are expected to increase again in 2015, equaling or approaching all-time market highs.

U.S. LIGHT-VEHICLE SALES U.S. Retail

U.S. Total

16.1 13.2

11.6

10.4

12.8 10.6

'07

'08

8.6

9.2

'09

'10

12.7

10.3

14.5

11.7

'11

'12

15.5

12.8

'13

16.5

17.0

13.6

14.0

'14

'15e

Sources: Power Information Network (PIN) from J.D. Power and LMC Automotive

Retail vehicle transaction prices in 2014 averaged $30,026 ($800 more per vehicle than the previous year), leading to an all-time record of consumer spending on light vehicles of $408 billion ($32 billion more than the previous year). As a result, OEM profits were healthy for many automakers—although this was aided in part by the corporate restructurings that occurred during the recession, favorable changes to labor agreements, the reduction in retiree pensions and healthcare obligations, and reductions in production capacity. Further, average dealer profits are at an all-time high thanks in part to the combination of higher sales, higher transaction prices, low interest rates and fewer dealer competitors.

NEW-VEHICLE AVERAGE RETAIL TRANSACTION PRICES (less incentives)

$27,643 $25,504

'08

$28,337

$28,585

'11

'12

$29,298

$30,026

$26,316

'09

'10

'13

'14

Source: Power Information Network (PIN) from J.D. Power

© 2015 McGraw Hill Financial Inc. All Rights Reserved.

3

2015 U.S. AUTOMOTIVE OUTLOOK

U.S. RETAIL SALES (MILLIONS) AND TOTAL VEHICLE EXPENDITURES ($ BILLIONS) U.S. Retail Sales 13.2

13.0

12.8 10.6 8.6

$341

$340

10.3

'07

11.7

12.8

13.6 $408

$376 $335 $292

$227 '06

9.2

$340 $270

'05

Total Vehicle Expenditures

'08

'09

$254 '10

'11

'12

'13

'14

Source: Power Information Network (PIN) from J.D. Power

Overall, the business results achieved in 2014 are arguably the best in the history of the U.S. automotive industry. However, given the momentum of the economy and the overall fitness of the industry, 2015 is on track to be an even better year. Perhaps just as important, the industry is positioned to remain profitable should sales volumes decline. While all the aforementioned fundamentals bode well for the industry, there are several key trends that merit continuous scrutiny as the year unfolds.

© 2015 McGraw Hill Financial Inc. All Rights Reserved.

4

2015 U.S. AUTOMOTIVE OUTLOOK

KEY TRENDS AFFECTING THE AUTOMOTIVE INDUSTRY Interest Rates According to Standard & Poor’s, a solid employment market, low inflation, home prices recovered and stabilized, the number of jobless claims on the decline and improving economic activity—with consumers willing to spend and invest—suggest that the U.S. economy has the momentum needed to keep moving forward. This is likely to further boost the Federal Reserve’s confidence in the growth outlook for 2015. It also supports S&P’s expectation that the Fed will begin a cycle of interest-rate hikes in June, the first in 11 years, with the federal funds rate reaching 1.25 percent by year-end. The 1 percent range is where the Fed had historically lowered its policy rate in previous recessions.

FEDERAL FUNDS RATE (%) 1.4

0.4 0.1

0.1

0.1

0.1

0.1

0.1

'09

'10

'11

'12

'13

'14

'15e

'16e

Source: Standard & Poor’s

Low interest rates have been a key contributor to the rebound in automotive sales—providing buyers with additional spending power and enabling consumers looking to buy more expensive vehicles. Based on data gathered by PIN, the decline in the average APR on 72-month loans has added approximately $2,000 to the spending power of new-vehicle buyers.

PRIME 72-MONTH AUTO LOANS: AVERAGE APR 6.7% Decline in 72-month APR interest rate forprime vehicle buyers has added approximately $2,000 inadditional consumer spending power

6.1% 5.3% 4.7%

4.2%

'08

'09

'10

'11

'12

3.9%

3.8%

'13

'14

Source: Power Information Network (PIN) from J.D. Power

Should interest rates rise, the increase will undoubtedly impact consumer spending, likely moving many new-vehicle buyers into smaller, less expensive models, or delaying their newvehicle purchase altogether. PIN analysis indicates that the annual impact of a 100-basis-points increase in interest rates could result in up to 300,000 lost vehicle sales—or roughly $8 billion

© 2015 McGraw Hill Financial Inc. All Rights Reserved.

5

2015 U.S. AUTOMOTIVE OUTLOOK

in lost revenue annually. As a result, automakers and dealers need to watch interest rates closely to measure their impact on sales and tailor their production and sales plans accordingly.

Long-Term Loans and Leasing Low interest rates have been a primary catalyst behind the industry shift toward 72-month loans and leasing since the recession, as they have allowed consumers to make monthly payments on vehicles they otherwise would not have been able to afford (see chart below at right). Consequently, the percentage of leased vehicles among retail purchases has risen from 13 percent in 2009 to 26 percent in 2014, and the percentage of 72-month loans has grown from 22 percent to 32 percent during the same period. An increase in interest rates would have a negative impact on consumers’ ability to lease or finance higher-priced vehicles, likely causing a migration to more affordable vehicle segments.

LEASING AND AVERAGE (THOUSANDS) 72-MONTH LOANS 72-Month Loans

TRANSACTION PRICES AND AVERAGE MONTHLY PAYMENTS

Leasing

Prices 32%

Payments $30.0

$462

26% 22%

$457 $25.5

13%

'09

'10

'11

'12

'13

'14

'08

'09

'10

'11

'12

'13

'14

Source: Power Information Network (PIN) from J.D. Power

While long-term loans (72 months or longer) undoubtedly entice more consumers into the newvehicle market—or allow more consumers to move up into more expensive vehicle segments— they do come with some risks. For example, the percentage of all-new vehicle sales attributed to subprime buyers has grown from 10 percent in 2009 to 17 percent in 2014. Moreover, among the vehicle financing agreements sold to subprime buyers, seven in 10 involve a term of 72 months or longer. More concerning is a trend toward “risk stacking” in the market. While risks to individual subprime buyers are not yet a concern, a concern does emerge when risks are stacked upon each other. For example, in 2014, 56 percent of all retail vehicle purchases were financed; of the buyers who financed their vehicle purchase, 32 percent acquired their vehicle with a loan of 72 months or longer; of the buyers who had a 72-month or longer loan, 14 percent had a loanto-vehicle valuation of 110 percent (i.e., they had negative equity in their vehicle); and of the buyers who had a 72-month loan and a 110 percent LTV, 5 percent were subprime. After doing the math, it seems that more than 650,000 sales in 2014 involved a combination of three drivers of elevated risk, up from just 162,000 in 2009. While the retail market grew about 60 percent between 2009 and 2014 (from 8.6 million to 13.6 million units), the percentage of higher-risk loans increased 300 percent during the same period.

© 2015 McGraw Hill Financial Inc. All Rights Reserved.

6

2015 U.S. AUTOMOTIVE OUTLOOK

% New-vehicle buyers…

2009

2014

…who financed their vehicle purchase

58%

56%

…at a 72-month or longer term

23%

32%

…and had a loan-to-value ratio > 110%

9%

14%

…and were subprime borrowers

2%

5%

162,000

653,000

2014 Higher-risk loans Source: Power Information Network (PIN) from J.D. Power

While delinquency rates are relatively low right now among subprime buyers, this would likely change quickly were there to be a downturn in the economy. If nothing else, it will be very difficult for these consumers to buy another vehicle any time soon. With respect to the lease market, there are concerns about the sheer volume of lease vehicles making their way to the used-vehicle market. During the recession and post-recession years, the relatively low volume of new vehicles being sold or leased meant that fewer vehicles were making their way to the used-vehicle market, which drove up average used-vehicle prices. With new-vehicle sales and leases now approaching all-time market highs, the inverse could occur, returning the large supply of leased vehicles to the market and potentially depressing usedvehicle prices. In 2016, for example, 3.1 million vehicle leases are expected to mature, nearly 800,000 units more than in 2015.

NUMBER OF RETAIL LEASE MATURITIES BY YEAR 3.10 2.65

2.44

Millions

1.89

2.22

2.32

'14

'15e

1.73 1.29

'09

'10

'11

'12

'13

'16e

Source: Power Information Network (PIN) from J.D. Power

This scenario should be of particular concern to retail consumers who purchased a vehicle with a 72-month loan, as the residual value of their vehicle—should they want to trade it in early to purchase another new vehicle—would be significantly less than what they still owe on it. The result is that owners would be forced to hold on to their vehicles longer or take a large and unanticipated financial hit on the trade-in of their current vehicle. For the industry, the bigger concern is the increased cost of leasing if residuals decline. Certified pre-owned vehicle plans have done well in mitigating downward pressure on usedvehicle residuals. However, the increasing volume of lease maturities will require automakers to remain vigilant in managing their fleets.

© 2015 McGraw Hill Financial Inc. All Rights Reserved.

7

2015 U.S. AUTOMOTIVE OUTLOOK

Energy According to the World Bank, the average price of a barrel of Brent crude oil declined from $107 to $62—a reduction of 48 percent—between January 2014 and December 2014. In addition to the reduction in oil demand due to a slowing economy in China, much of the decline in global oil prices can be attributed to an available surplus because of the mining of shale oil in the U.S., the world’s largest consumer of oil. As a consequence, energy experts believe that relatively inexpensive fuel is here to stay for the near term—at least until/unless OPEC countries decide to cut back production.

2014 AVERAGE MONTHLY PRICE OF A BARREL OF BRENT CRUDE OIL $109

$108

$107

$109

$111

$106

$101

U.S. Dollars

$107

$97 $87 $76 $62

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Source: World Bank

The decline in oil prices has had a similar impact on the price of gasoline at the pump in the U.S. According to AAA, the average price of a gallon of gasoline dropped 37 percent in January 2015 to $2.06, down from $3.28 per gallon in January 2014. If gasoline prices were to remain between $2 and $3 per gallon, the reduction would add hundreds of dollars to the annual discretionary spending budgets of U.S. consumers or be reallocated to the monthly payment of a larger and more expensive vehicle. Although AAA expects the price of gasoline to rise as the year progresses—due to seasonal trends—it does not expect average gasoline prices to reach $3.00 per gallon in 2015. J.D. Power research consistently shows that fuel economy is one of the most important criteria for new-vehicle buyers when making their purchase decision. As a result, the availability of cheap gasoline has a substantial impact on the types of vehicles that U.S. consumers purchase. When the cost of fuel is low, consumers tend to remain loyal to—or migrate to—the purchase of larger vehicles (like pickup trucks and SUVs), and vice versa when fuel prices are high. Indeed, the passenger car segment share of the U.S. market fell from 51 percent at the beginning of 2012, when the average price of gasoline was $3.96 a gallon, to 44 percent as of February 2015.

U.S. RETAIL SEGMENT SHARES Light Trucks and SUVs 52%

48%

51% 49%

51%

49%

Passenger Cars

56%

53%

47% 44%

'11

'12

'13

'14

YTD '15

Source: Power Information Network (PIN) from J.D. Power © 2015 McGraw Hill Financial Inc. All Rights Reserved.

8

2015 U.S. AUTOMOTIVE OUTLOOK

LARGE PICKUP SEGMENT DEFECTION RATES AND FUEL PRICES Segment Defection Rate

Fuel Prices

34%

$4.00 $3.60 $3.20 $2.80 $2.40 $2.00

30% 26% 22% 18% Jan '13

Apr '13

Jul '13

Oct '13

Jan '14

Apr '14

Jul '14

Oct '14

Jan '15

Sources: Power Information Network (PIN) from J.D. Power and AAA

In the near term, as long as gasoline prices remain relatively low, automakers with strong truck/SUV portfolios stand to benefit the most from low prices at the pump. That said, for automakers and their suppliers, tracking and accurately predicting gasoline prices will become critical to their product and production planning. Should gasoline prices increase abruptly for unforeseen reasons, the increase would likely change the types of vehicles consumers buy, raising the potential to miss sales targets and creating the need for a new round of price discounting. The decrease in the price of gasoline presents another potential concern. While consumers are trending toward the purchase of larger vehicles, automakers must balance satisfying consumer demand with meeting government-mandated Corporate Average Fuel Economy (CAFE) regulations. CAFE requirements are scheduled to increase to 55.8 mpg for passenger cars and to 39.8 mpg for light trucks by 2025, both figures double the 2010 CAFE requirement. Since larger vehicles typically have lower fuel economy ratings, complying with current and future CAFE mandates will require automakers to continue investing in the development of expensive fuel-saving technologies (e.g., start-stop engines, cylinder deactivation, and turbocharging). Striking an appropriate balance between meeting consumer demand for large vehicles and conforming to government regulations will continue to be a delicate balancing act.

Getting Production Right Critical to a healthy U.S. automotive industry will be the management of automaker production capacity. One of the major challenges that faced the U.S. automotive industry during—and in the years leading up to—the recession was an increase in vehicle production capacity. With billions of dollars invested in new product development, production facilities and tooling, automakers were eager to recoup their capital investment by building and selling as many vehicles as possible to their dealership networks. As market competition became more acute, automakers were forced to cut prices and increase incentives to attract buyers, which created a downward spiral on profits. In the U.S., the general rule of thumb in the industry is that a plant must produce at 80 percent of capacity to reach profitability (much depends on the age of the model being produced, its market price, plant production capacity, the age of the plant and its tooling, and the size of the plant’s workforce). Before the recession, North American capacity utilization was at 81.5 percent, before taking a precipitous dip during and immediately following the end of the recession. In 2014, capacity utilization exceeded 90 percent.

© 2015 McGraw Hill Financial Inc. All Rights Reserved.

9

2015 U.S. AUTOMOTIVE OUTLOOK

NORTH AMERICAN PRODUCTION AND CAPACITY UTILIZATION RATES Production

20

81.5%

68.1%

3.3

48.5%

5.9

Millions

15

15.0

12.5

76.2%

88.5%

92.5% 1.4

90.9%

2.0

92.7% 1.3

15.4

16.1

16.9

17.4

'12

'13

'14

'15e

1.7

4.1

5.0

9.0 10

70.1%

Unutilized

13.0

11.8 8.5

5

'07

'08

'09

'10

'11

Source: LMC Automotive

Despite the withdrawal of several vehicle brands from the U.S. market during the recession, the number of automotive brands and models being sold in the U.S. is near an all-time high. In 2014, the number of new products (e.g., new entries and all-new or major redesigns) increased nearly 50 percent, compared with the preceding three years—a pace that is expected to continue in 2015. Such an increase in new product activity is typically viewed as a positive development, as new products usually stimulate more sales. But as total industry sales volumes eventually begin to moderate, a glut of new product launches—and the urgency to sell these vehicles—could cause financial challenges for automakers. In 2015, with 50 new or redesigned models expected to hit the market and retail sales forecasted to grow just 400,000 units, the pressure will be on. As a result, the need for discipline in production planning is just as critical as ever.

U.S. NEW PRODUCT INTRODUCTIONS New Entry 2015e

13

2014

10

12

2012

10 7 9

19 0

10

25 19

17

2011

Major Redesign

27

20

2013

All-New

13 11

20

10 30

40

50

60

70

Source: LMC Automotive

Limiting supply can also mitigate the need for automakers to offer financial incentives to sell vehicles, thus, increasing profits per vehicle. Due to lower inventories and higher consumer demand for vehicles, the average industry incentive as a percentage of vehicle MSRP has dropped 1.2 percent. With the average transaction price of a new vehicle in the U.S. now exceeding $30,000, the reduction in incentive spending collectively translates into billions of dollars for automakers.

© 2015 McGraw Hill Financial Inc. All Rights Reserved.

10

2015 U.S. AUTOMOTIVE OUTLOOK

AVERAGE INDUSTRY INCENTIVES AS % OF MSRP 9.8%

8.6%

8.6%

'13

'14

8.3% '08

'09

'10

'11

'12

Source: Power Information Network (PIN) from J.D. Power

That said, it will be critical to the industry’s health for automakers to maintain discipline in curbing production/sales of fleet vehicles and limiting incentive spending, as both had been creeping up toward the end of 2014 and in early 2015. The inextricable relationship between interest rates, fuel prices and new model introductions will put more pressure on automakers to get their production plans right.

Looking Forward While the aforementioned trends pose a degree of risk for some automakers, J.D. Power believes that the industry as a whole is well positioned for the near term. Looking forward, the industry must consider several key issues that are likely to challenge growth assumptions and threaten the industry’s current business model. In addition to shifts in economic and market dynamics, the sheer volume of people and vehicles in the U.S. also poses a challenge to automakers. According to a United Nations study on world urbanization prospects, about 180 million people lived in urban areas in the U.S. in 1985, or about 76 percent of the total population. In 2015, the number of urban dwellers is expected to reach 269 million—or 84 percent of the total population—and that figure is expected to grow to 312 million by 2030. Moreover, when comparing the largest vehicle markets globally, the U.S. has the highest vehicle density worldwide by a wide margin.

VEHICLES PER 1,000 PEOPLE 1,000 800 600 400 200 0 USA

Italy

Japan

France Germany

UK

Russia

China

India

Source: World Bank 2013

© 2015 McGraw Hill Financial Inc. All Rights Reserved.

11

2015 U.S. AUTOMOTIVE OUTLOOK

With tens of millions more people living in urban areas—in both the U.S. and other large industrialized countries—the question of sufficient road and parking infrastructure comes into play. Massive gridlock and its accompanying lost economic efficiency are real possibilities. This could lead to a “peak car” scenario—in which there simply isn’t enough demand or enough room to accommodate more vehicles—and the gradual migration away from personal car ownership and a movement toward mobility solutions, in which vehicles are shared by owners, rented, or ride-services are offered. According to the American Public Transport Association (APTA), commuters in urban areas are increasingly turning to mass transportation (e.g., trains, buses, and subways) for their commuting needs. By the end of 2014, the number of mass transportation riders nationally had increased in 13 of the past 16 fiscal quarters, and the overall number of mass transit users in 2014 exceeded the annual ridership in 2013, which was the highest total since 1956. While these trends will take time to play out, their impact could be substantial in challenging an industry that has not encountered a significant disruption in decades.

© 2015 McGraw Hill Financial Inc. All Rights Reserved.

12

2015 U.S. AUTOMOTIVE OUTLOOK

CONTRIBUTORS John Humphrey Senior Vice President, Global Automotive Practice J.D. Power

Beth Ann Bovino U.S. Chief Economist Standard & Poor’s Rating Services

Thomas King Vice President, Power Information Network J.D. Power

Tim Dunne Director, Global Automotive Analytics J.D. Power

© 2015 McGraw Hill Financial Inc. All Rights Reserved.

13

2625 Townsgate Road, Suite 100 Westlake Village, CA 91361 888-JDPOWER (888-537-6937)

© 2015 McGraw Hill Financial Inc. All Rights Reserved.