Pub. 2 2014 Issue 3

Toyota, 19.7% Ford, 11.5% Honda, 11.4% Nissan, 8.0% Chevrolet, 4.9% Volkswagen, 4.4% Hyundai, 4.0% Kia, 3.9% BMW, 3.9% Lexus, 3.4% Others, 24.9% Covering Fourth Quarter 2013 San Diego Auto Outlook San Diego Auto Outlook Comprehensive information on the San Diego County new vehicle market Market Summary % Chg. Mkt. Share 2012 2013* '12 to '13 2013* TOTAL 126,570 139,169 10.0% Car 78,922 85,506 8.3% 61.4% Light Truck 47,648 53,663 12.6% 38.6% Detroit Three 29,798 34,902 17.1% 25.1% European 21,636 22,926 6.0% 16.5% Japanese 62,888 70,356 11.9% 50.6% Korean 12,248 10,985 -10.3% 7.9% San Diego County Brand Market Share - 2013 Detroit Three consists of vehicles sold by GM, Ford, and Chrysler. *Figures for December, 2013 were estimated by Auto Outlook. Source: Polk. 3 Key Market Trends 1. San Diego County new retail light vehicle registrations in- creased 10% from 2012 to 2013, exceeding the 8.6% im- provement in the Nation. 2. Light truck market share increased to 38.6% in 2013, up one point from 2012. 3. Detroit Three registrations were up 17.1% in ‘13, higher than the 10% increase for the industry. County Detroit Three market share still trailed U.S. (25.1% in county vs. 40.6% in Nation). The graph above shows market share leaders in 2013. Source: Polk. FORECAST County New Vehicle Market Predicted to Move Higher in 2014 New retail registrations are expected to approach 148,000 units and increase for the fifth straight year Forecasting automotive sales is a delicate balancing act. There are frequently conflicting indicators that can provide mixed signals on future market conditions. The trick is identifying these trends, sepa- rating the meaningful from the meaningless, and forming a consensus on where the market is headed. Below, we identify the key positive and negative forces that are likely to impact the market in 2014. Forces leading the market higher • Low interest rates and strong affordability. Low interest rates and mild inflation, combined with decent personal income growth have kept new vehicle affordabilliy at historically strong levels. • Improving economic growth. Most economists expect GDP growth to accelerate in 2014, which should give a boost to the job market. • Pent up demand and benefits to “upgrade.” The average age of vehicles on the road exceeds 10 years. This will continue to prompt many consumers to purchase a new vehicle based on need (pres- ent vehicles are wearing out) and desire (new vehicles offer many advantages over the average 10 year old vehicle). Forces holding the market back • Consumer sentiment. Although consumer attitudes have improved somewhat, there is still a pervading sense of concern about the future, a lingering consequence of the 2008 financial crisis, and ensuing economic recession. • Household balance sheets. Consumers have made considerable headway in reducing debt, but are largely hesitant to fund increas- es in spending by adding on more debt. Wrap up: Positive factors will lead the market higher in 2014, but we believe that for at least the next two years, the negative factors will place a ceiling on how high new vehicle sales will go, and we could approach that ceiling by 2015.