FEBRUARY 6, 2012

CORPORATES

SPECIAL COMMENT

Strong January Vehicle Sales Support Our Full-Year Forecast

US Automotive Manufacturers

We expect US light-vehicle sales of 14 million units in 2012

US light-vehicle sales gaining momentum. US light-vehicle sales reached a seasonally adjusted annual rate (SAAR) of 14.2 million units in January 2012. This is consistent with our base-case estimate of 14 million units for all of 2012, up 9.3% from 2011.1 Our forecast reflects: 1) Moodys outlook for modest economic growth in the US; 2) pent-up demand for cars and light trucks; 3) the high average age of US vehicles on the road; and 4) a rising trend in monthly SAAR. Strong sales in January. Januarys 14.2 million unit SAAR was the highest since May 2008, excluding the brief jump during August 2009 that was driven by the Cash for Clunkers scrappage program. Monthly SAAR (see Figure 1) has increased at a steady pace from 11.5 million units in June 2011. We believe this momentum will continue through 2012. Pent-up demand built during weak sales years. The below-trend level of sales during recent years has contributed to pent-up demand that we expect will increasingly be satisfied during 2012. This should help support full-year sales of 14 million units. As shown in Figure 2, US light-vehicle sales from 2009 through 2011 were well below the levels of 1999 through 2007. Vehicles on the road are aging. The average age of US vehicles in operation has increased steadily since 1995 (Figure 3). This increase is due, in part, to the improving quality and durability of vehicles. However, the aging of US vehicles accelerated materially following the 2008 economic downturn due to the significant falloff in new car sales and the slower pace at which vehicles were scrapped. We estimate that the annual vehicle scrappage rate was: 13.5 million in 2008; 12.4 million in 2009; 12.5 million in 2010; and 11.7 million in 2011. These two factors (the decline in new vehicle purchases and the slower scrappage rate) drove the average age of vehicles to 10.8 years in 2011 from 10 years in 2008.

Analyst Contacts:
NEW YORK Bruce Clark Senior Vice President bruce.clark@moodys.com 1.212.553.1653 1.212.553.4814

Michael J. Mulvaney 1.212.553.1610 Managing Director-Corporate Finance michael.mulvaney@moodys.com

See Outlook Update: Global Auto Manufacturers, January 26, 2012.

CORPORATES

Sharp rise in used-car prices. Another sign of pent-up demand for new cars is the sharp rise in the price of used cars. The Manheim index of used car prices (Figure 4) increased moderately from 100 in 1995 to 107 in 2008. However, the index rose sharply to 125 by 2011. This steep increase reflects the shift in vehicle demand from the new car market to the used car market. Moodys 2012 US economic outlook supports 14 million unit industry. Notwithstanding the significant level of pent-up demand, the key drivers of vehicle purchases are economic growth, employment levels and consumer confidence. Moodys November 2011 macroeconomic outlook anticipates 1.5% to 2.5% real growth in US GDP for 2012 compared with 1.7% growth during 2011. Our outlook for 2012 unemployment is 8.5% to 9.5% compared with actual unemployment rates of 9.6% in 2010 and 8.9% in 2011. This 2012 economic outlook represents only modest improvement over 2011. Nevertheless, we believe that it is sufficient to support increased satisfaction of pent-up demand and to maintain vehicle sales on the SAAR trajectory exhibited during late 2011 and January 2012. Base-case sales forecast supports automakers positive rating outlooks. The health of the US economy continues to face considerable uncertainty and there is consequently some downside risk inherent in our 14 million unit estimate. Nevertheless, this base-case view of vehicle sales, combined with the operating characteristics and financial profiles of the Detroit-3 auto manufacturers, supports the rating and positive outlook of each company: Ford Motor Company (Ba1 positive); General Motors Company (Ba1 positive); and Chrysler Group LLC (B2 positive).

FIGURE 1

Monthly US Light Vehicle SAAR

Millions of units
15

14

13

12

11

10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12

Source: Automotive News

FEBRUARY 6, 2012

US AUTOMOTIVE MANUFACTURERS: STRONG JANUARY VEHICLE SALES SUPPORT OUR FULL-YEAR FORECAST

CORPORATES

FIGURE 2

US Light Vehicle Sales

Millions of units
18 17 16 15 14 13 12 11 10 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012F

Source: Moodys Analytics FIGURE 3

Average Age of US Light Vehicles

11

10

(years)

7 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Source: RL Polk & Co. FIGURE 4

Manheim Index of Used Car Prices

130 125 120

(1995: Base = 100)

115 110 105 100 95 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Source: Manheim

FEBRUARY 6, 2012

US AUTOMOTIVE MANUFACTURERS: STRONG JANUARY VEHICLE SALES SUPPORT OUR FULL-YEAR FORECAST

CORPORATES

Report Number: 139591

Authors Bruce Clark Michael Mulvaney Mell Matlow

Production Associate Masaki Shiomi

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FEBRUARY 6, 2012

US AUTOMOTIVE MANUFACTURERS: STRONG JANUARY VEHICLE SALES SUPPORT OUR FULL-YEAR FORECAST