Download Source: Bureau of Labor Statistics

MUSTAFA MOHATAREM
Chief Economist, General Motors
INTRODUCTION
The U.S. economy continues to grow at a gradual but also erratic pace
The current recovery is one of the slowest in the post-WWII U.S. history.
Consequently, we have not yet seen the excesses and imbalances built up as
much as we witnessed around the peak in previous cycles. Thus, I expect the
U.S. economy to continue growing at a modest pace
Labor market is improving. Household balance sheets are strong. Gasoline
prices dropped 28% in 2015 from 2014, and averaged $2.10 through July in
2016. Interest rates are at historical lows. These developments have created a
perfect environment for the auto industry, leading to record high vehicle sales
U.S. auto sales reached a record high of 17.9M, including medium and heavy
duty trucks, in 2015. We expect 2016 will be another record year
In the longer term, vehicle demand will remain healthy as population grows and
vehicle ownership rate recovers
THIS IS A VERY SLOW ECONOMIC
RECOVERY
Real GDP (Billions, $2009)
Current Recovery
1975 Recovery
1983 Recovery
1991 Recovery
20,000
19,000
18,000
17,000
16,000
15,000
14,000
13,000
2008
2009
2010
Source: Bureau of Economic Analysis, GM calculations
2011
2012
2013
2014
2015
LABOR MARKET RECOVERY HAS BEEN ESPECIALLY WEAK. IT
TOOK MORE THAN 5 YEARS TO RETURN TO THE EMPLOYMENT
LEVEL OF 2007
Unemployment Rate
U-6 Unemployment Rate
600
18
400
16
14
200
12
0
10
-200
8
-400
6
-600
4
-800
-1000
2005
2
0
2006
2007
Source: Bureau of Labor Statistics
2008
2009
2010
2011
2012
2013
2014
2015
2016
Unemployment Rate (%)
Employment Gain (Thousand)
Employment Gain
FISCAL POLICY HAS BEEN A SIGNIFICANT DRAG IN THIS
RECOVERY,
WHILE MONETARY POLICY WAS SUPPORTIVE
Government Contribution to Real GDP Growth
Effective Fed Funds Rate
25%
2.5%
2.0%
20%
1.5%
15%
1.0%
0.5%
10%
0.0%
5%
-0.5%
-1.0%
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Source: Bureau of Economic Analysis, Federal Reserve Board
0%
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
HOUSING RECOVERY IS MISSING IN THIS CYCLE, PARTIALLY
BECAUSE OF THE BUBBLE IN THE SECTOR IN THE EARLY 2000’S
Housing Starts (SAAR, Thousand Units)
12-Month Moving Average
Residential Investment % GDP
7.0%
2,500
6.5%
6.0%
2,000
5.5%
5.0%
1,500
4.5%
4.0%
1,000
3.5%
3.0%
500
2.5%
2.0%
1960
0
1970
1980
Source: Bureau of Economic Analysis
1990
2000
2010
2000 2002 2004 2006 2008 2010 2012 2014 2016
AUTO SALES HAVE BEEN A BRIGHT SPOT IN THIS RECOVERY
AND TRACKED PREVIOUS RECOVERIES
Vehicle Sales
Current Recovery
1975 Recovery
1983 Recovery
1991 Recovery
20
Units in Millions
18
16
14
12
10
8
2008
2009
2010
Source: Bureau of Economic Analysis, GM calculations
2011
2012
2013
2014
2015
2016
SUVs AND CUVs HAVE OUTPERFORMED
Market Share
Car
Crossover/SUV
Truck
80%
70%
60%
50%
40%
30%
20%
10%
0%
1975
1978
1981
Source: GM Sales Reporting
1984
1987
1990
1993
1996
1999
2002
2005
2008
2011
2014
HELPED BY THE LOWER OIL PRICES
West Texas Intermediate (USD Per Barrel) – Annual Data
100
100
80
80
60
61.65
48.68
37.38
40
2016
CYTD
60
40
20
20
0
0
1946
1951
1956
1961
1966
1971
1976
1981
1986
1991
1996
2001
2006
2011
Source: Energy Information Administration. Note: Shading Indicates Recession, Annual Data excluding 2016 which is calendar year to date.
2016
YTD
OIL PRICES ARE LIKELY TO REMAIN LOWER FOR
LONGER
WTI (Real, 1985 Peak = 100)
250
200
Shale, Iran
236 Months
150
Nov. 1985
June 2005
100
North Sea
50
0
1985
1988
1991
Source: Energy Information Administration
1994
1997
2000
2003
2006
2009
2012
2015
THE IMBALANCES THAT USUALLY BUILD UP AT THIS STAGE OF
RECOVERY ARE NOT VISIBLE – HOUSEHOLD BALANCE SHEETS
REMAIN HEALTHY
Household Debt as % of DPI
140
Household Debt % DPI
700
650
600
100
550
80
500
60
450
40
400
1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015
Source: Federal Reserve Board
Household Net Worth % DPI
120
Household Net Worth as % of DPI
INFLATION REMAINS LOW
Inflation (Percent Change YoY)
CPI
Core CPI
16%
14%
12%
10%
8%
6%
4%
2%
0%
-2%
-4%
1974
1977
1980
Source: Bureau of Labor Statistics
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
2013
2016
U.S. DOLLAR HAS STRENGTHENED
SINCE THE FED ENDED QUANTITATIVE EASING
Nominal Broad Trade-Weighted Exchange Value of the USD (Jan-97=100)
140
120
100
80
60
The Fed
Ended QE
40
20
0
1973
1976
1979
Source: Federal Reserve Board
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
2012
2015
WEAK DEVELOPMENT OVERSEAS DOESN’T HELP EITHER –
LARGE EMERGING ECONOMIES HAVE SLOWED DOWN OR ARE IN
RECESSION
BRIC Real GDP Growth Y/Y
12%
10%
8%
6%
4%
2%
0%
1997
1999
2001
Source: National Bureau of Statistics
2003
2005
2007
2009
2011
2013
2015
EUROPE IS RECOVERING BUT AT A VERY
GRADUAL PACE
EU28 Real GDP Growth (Y/Y)
6%
4%
2%
0%
-2%
-4%
-6%
1996
1998
2000
2002
Source: Statistical Office of the European Communities
2004
2006
2008
2010
2012
2014
2016
BREXIT ADDED NEW RISKS AND UNCERTAINTY
TO THE UK AND EUROPEAN OUTLOOK
USD/GBP
1.50
1.45
1.40
1.35
1.30
1.25
Jan 2016
Feb 2016
Source: Wall Street Journal
Mar 2016
Apr 2016
May 2016
Jun 2016
Jul 2016
PERFORMANCE OF GLOBAL VEHICLE SALES
CLOSELY TRACKING ECONOMIC FUNDAMENTALS
China, Western Europe, U.S. Vehicle Sales – 2000-2015
Millions
Western Europe
North America
China
30
25
20
15
10
5
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
BRIC (Brazil, Russia, India, China) Vehicle Sales – 2000-2015
Brazil
India
Russia
China (2nd axes)
United States (2nd axes)
30
25
20
15
10
5
0
3.0
2.0
1.0
0.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Source: GM Sales Reporting
Millions
Millions
4.0
AUTO INDUSTRY IS UNDERGOING
SIGNIFICANT CHANGES, FOR BETTER
Miles Traveled
Share of Vehicle Sales by Age Group
(Billion Miles, 12-Month Rolling Sum)
3,200
2010
3,150
45.0%
3,100
40.0%
3,050
35.0%
3,000
30.0%
2,950
25.0%
2,900
20.0%
2,850
15.0%
2,800
10.0%
2,750
5.0%
2,700
0.0%
2001
2004
2007
Source: Federal Highway Administration
2010
2013
2016
Under 35
35-49
Source: J.D.Power/PIN, General Motors
2015
50-69
>=70
NEW AND INNOVATIVE MOBILITY OPPORTUNITIES, SUCH AS
RIDESHARING AND AUTONOMOUS VEHICLES, ARE CHANGING THE
CENTURY-OLD INDUSTRY
SUMMARY
The U.S. is an island of stability in a turbulent world. We expect
the U.S. economy will continue to grow at a modest pace with auto
sales remaining at record high in 2016
Low oil and gasoline prices will continue to support sales of larger
vehicles, especially crossovers
Long-term demand for vehicles remains very promising. We don’t
see that this time is different
– Contrary to popular belief that young people will not buy vehicles, they are coming
to the market as a major group of buyers
– New mobility opportunities such as ridesharing and autonomous vehicles will
increase demand for trips by providing mobility to those who are restricted
otherwise and, therefore, presents a new opportunity to the industry
BRANDS THAT INSPIRE PASSION AND
LOYALTY