INNOVATION AND DISRUPTION

Automotive Industry Outlook

G. Mustafa Mohatarem,

Chief Economist, General MotorsJune 6-8, 2017

Introduction

• Global economic growth has slowed dramatically since the “Great Recession”

• The slowdown has been described by former Treasury Secretary Larry Summers as “secular stagnation”. Christine Lagarde, the Managing Director of the IMF, was even more colorful in her description, calling it the “new mediocre”

• After suffering a sharp contraction during the Great Recession, the U.S. economy has sustained a modest, but steady, pace of economic growth

• But, the current recovery is one of the slowest in the post-WWII U.S. history. Consequently, we have not yet seen the accumulation of excesses and imbalances compared to the peak in previous cycles. Thus, we expect the U.S. economy to continue growing at a modest pace

• The Trump presidency is adding uncertainties to the economic outlook, both on the upside and downside. It is too early to draw definitive conclusions regarding the impact of President Trump’s economic policies

• The Chinese economy has slowed while transitioning from an investment/export growth model to a consumption-based model

• Emerging market economies are especially impacted by China’s slowdown

• Moderate economic expansion in Europe has continued, driven by strong domestic demand

• Political climate in major regions has changed

– Brexit

– The election of Donald Trump as President of the U.S.

– Growth of nationalist movements in many European countries

Auto industry has seemingly decoupled from the global

economic malaise

• China had a bumper year in 2016, with sales increasing by more than 3 million units over 2015 to 28.3 million

– A temporary reduction in the consumption tax and supportive monetary policy contributed to this remarkable performance

• North America also reported a record year, led by strong growth in Mexico

– The U.S. reported the seventh consecutive year of growth, posting a new record high

– Canada also reported an all-time high in vehicle sales

• Sales in Western Europe exceeded consensus forecasts

• UK reported an all-time sales record, belying some of the fears about BREXIT

• India continued its steady growth

• Auto sales in Brazil and Russia remain at recessionary levels

– There are some signs that both countries have reached bottom

• Expect these trends to continue

– However, another bumper year in China is unlikely given the government’s decision to partially reverse the cut in the consumption tax

-4%

-2%

0%

2%

4%

6%

8%

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

Slowest U.S. Recovery Post World War II

• Tepid pace of current recovery minimized imbalances displayed in prior periods

• Leads to expectation that current recovery will continue

Source: Bureau of Economic Analysis; GM calculations

Real GDP Growth (Pct. Chg. YoY)

-1.00

-0.50

0.00

0.50

1.00

1.50

2.00

2.50

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

Government Contribution to Real GDP Growth (Pct.)

Source: Office of Management and Budget

Fiscal policy has been significant drag in this recovery;

possible uplift from Trump administration

Monetary policy has been supportive

Note: Shading Indicates recession

0

5

10

15

20

25

1960 1966 1972 1978 1984 1990 1996 2002 2008 2014

Effective Federal Funds Rate (Pct.)

Source: Bureau of Economic Analysis; Federal Reserve Board

Oil prices are likely to remain low for longer

0

50

100

150

200

250

1984 1988 1992 1996 2000 2004 2008 2012 2016

Nov. 1985

June 2005

WTI (Real, 1985 = 100), USD Per Barrel

236 Months

Source: Energy Information Administration

Indicators support continued industry strength

8.0

10.0

12.0

14.0

16.0

18.0

20.0

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Current Recovery 1975 Recovery 1983 Recovery 1991 Recovery

Vehicle Sales (Mils. Units)

Source: Bureau of Economic Analysis; GM calculations

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

1975 1979 1983 1987 1991 1995 1999 2003 2007 2011 2015

Car Crossover/SUV Truck

Larger vehicles are outperforming

Market Share (Pct.)

Source: GM Sales Reporting; Data through 2016E

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Under 35 35-49 50-69 >=70

2010 2016

Contrast to popular belief - people are driving much more

than before, and younger consumers are becoming a major

force in the market

2.70

2.75

2.80

2.85

2.90

2.95

3.00

3.05

3.10

3.15

3.20

2001 2003 2005 2007 2009 2011 2013 2015 2017Source: Federal Highway Administration Source: J.D.Power /PIN, General Motors

Share of Vehicle Sales by Age GroupMiles Traveled (Trils., 12-month rolling sum)

0

5

10

15

20

25

1901 1906 1911 1916 1921 1926 1931 1936 1941 1946 1951 1956 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016

Auto sales have reached new record high, expected to

remain near record

TheRoaring Twenties

First Oil Shock

Second Oil Shock

The GreatModeration

1991 S&L CrisisThe GreatRecession

Source: Bureau of Economic AnalysisNote: Shading Indicates recession

Auto Sales, Mils.

A Global View

-6

-4

-2

0

2

4

6

8

10

12

1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019 2022

World Advanced Economies Emerging & Developing Economies

Global economic growth picking up speed

The Davos Man

Real GDP Growth (Pct. Chg. YoY)

Source: IMF

Vehicle sales outside the U.S.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

-

5

10

15

20

25

30

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Western Europe North America China Brazil

Source: GM Global Reporting

Units. Mils.

(Rt. Axis)

The Top 20 Vehicle Markets Represent 88% of Global Sales

Source: GM Global Reporting

2000 2016

United States 17.814 China 28.274

Japan 5.970 United States 17.886

Germany 3.694 Japan 4.966

Italy 2.692 Germany 3.709

France 2.611 India 3.667

United Kingdom 2.523 United Kingdom 3.129

China 2.190 France 2.478

Spain 1.713 Italy 2.064

Canada 1.587 Brazil 2.050

Brazil 1.459 Canada 1.984

South Korea 1.433 South Korea 1.825

Russia 1.065 Mexico 1.646

Mexico 0.887 Russia 1.454

India 0.844 Spain 1.347

Australia 0.787 Australia 1.178

Netherlands 0.712 Indonesia 1.065

Turkey 0.632 Turkey 1.008

Belgium/Lux 0.628 Thailand 0.769

Poland 0.520 Argentina 0.712

Taiwan 0.427 Saudi Arabia 0.699

% of Total 88.0% % of Total 88.0%

Top 20 Vehicle Markets

Millions of New Sales

Emerging/Developing Economies

Advanced/Developed Economies

0

100

200

300

400

500

600

700

800

900

0 20,000 40,000 60,000 80,000 100,000 120,000

Real GDP per Capita versus Vehicle DensityVehicle Parc per 1,000 Population

Real GDP per Capita (2010USD)

Venezuela

Mexico

ParaguayEcuador

Brazil

Argentina

United States

Switzerland

Greece

Croatia

Netherlands

Denmark

Belgium

Malta

Cyprus

Canada

Costa Rica

El Salavador

Nicaragua

Guatemala

Honduras

Bolivia

Uruguay

Colombia

Chile

Finland

Sweden

Norway

Slovakia

Czech Republic

Romania

Poland

Bulgaria

Luxembourg

UK

Lithuania

Latvia

Estonia

Israel

Japan

Portugal

Spain France

ItalyGermany

Ireland

Hungary

Austria

Slovenia

Panama

PeruSources: World Bank, Polk, OICA, United Nations, Haver Analytics; Calculations: GM Economics Team

Kuwait

Puerto Rico

Korea

Bahamas

UAE

Singapore

Qatar

Bermuda

Brunei

Bahrain AustraliaSignificant Upside

Vehicle Ownership

Potential for

Emerging and

Developing

Economies

Source: World Bank, Polk, OICA, United Nations, GM calculations

Percentage of households that have a car is the lowest in

Asia, Africa, and South America

0 20 40 60 80 100

Peru

Colombia

Mexico

Venezuela

Argentina

Brazil

Chile

United States

GMNA and GMSA Regions

0 20 40 60 80 100

UkraineRussia

PolandUK

GreeceSpain

FranceGermany

Italy

GME

0 20 40 60 80 100

VietnamPakistanUganda

IndonesiaKenya

IndiaPhilippines

GhanaChina

NigeriaEgypt

TunisiaSouth Africa

TurkeyJordan

ThailandIsrael

LebanonJapan

MalaysiaSouth Korea

GMGC and GMI Regions

Percentage of Households that have a Car: 2015

Source: Poushter, Jacob, Car, bike or motorcycle? Depends on where you live, Pew Research Center, April 16

The Future of Personal Mobility

The Auto Industry Is Undergoing Significant Changes

Four Game Changers

CONNECTIVITY SHARING ALTERNATIVE PROPULSION

AUTONOMOUS

The Role of Connectivity in The Future of Personal Mobility

75%IN 2020

ACTIVELY CONNECTED

OF OUR GLOBAL SALES VOLUME WILL BE

IN SOME WAY

“….THE REAL STORY BEHIND DISRUPTIVE

INNOVATION IS NOT ONE OF DESTRUCTION, BUT OF

ITS OPPOSITE: IN EVERY INDUSTRY CHANGED BY

DISRUPTION, THE NET EFFECT HAS BEEN TOTAL

MARKET GROWTH.”

Drivers of High-Disruptive

and ‘Low-Disruptive’ Scenarios

Source: McKinsey

New Revenue

Sources

Adoption of autonomous vehicles may occur at

significantly different rates across different consumer

groups

Early Adopters(32% of Consumers)

“Stressed Urbanite Vehicle Commuters” (6%)

“Suburban Busy Families” (9%)

“Fast Followers” (17%)

Younger

More likely to have children in HH

Urban/Suburban

Long commute time/distance

Tech savvy

Use mass transit and ride sharing

Highly educated

High HH income

Gradual Adopters(35% of Consumers)

“Suburban/Rural Traditionalists” (30%)

“Non-Owner Shared Adopters” (5%)

Late Adopters/Resistors(33% of Consumers)

“Don’t Need It” (4%)

“Set In Their Ways” (22%)

“Unattainable & Irrelevant” (7%)

Older

Less likely to have children in HH

Suburban/Rural

Less tech savvy

Low ride sharing use

Lower income

Price sensitive

Insight #6: Adoption Of AVs, SAVs And PSAVs May Occur At Significantly Different Rates Across Different

Consumer Groups

Our research results show positive responses to

autonomous vehicles

• Overall, reactions to autonomous vehicles, both Owned and Shared, were very positive.

• Consumer perceived benefits for autonomous vehicles included:

– Increased safety.

– Comfort, convenience, and reduced stress from driving.

– Regained time and increased productivity.

– Ability to safely use communication devices and personal electronics while traveling.

• Consumer concerns for autonomous vehicles included:

– Lack of trust--needs to be proven over time, reliability concerns, fear of giving up control of the vehicle.

– Liability for malfunctions and accidents.

– Security concerns regarding being tracked or having their vehicle hacked.

– Increased maintenance costs & complexity.

– HMI and uncertainty around how to control the vehicle.

• TRUST in autonomous technology is an important concern that brands/manufacturers need to help build.

– To help alleviate trust issues, consumers wanted to “try it out” first (e.g. test drives, pay-per-use, etc.).

– They also want to see others using an autonomous vehicle and want manufacturers to publish / show tests & trials.

Autonomous vehicles (owned or shared) will not derail the growth of auto

sales and will unlikely destroy the private ownership model

Speed of adoption of electric vehicles will vary strongly at the local level

• Vehicle pricing/affordability

• Range from one charge

• Desirable products

• Charging stations/infrastructures

• Emission/efficiency regulations

Factors affecting electric vehicle adoption

Penetration of battery electrified vehicles in global sales

Summary

• The Auto Industry is in a sweet spot

• Oil prices are expected to remain low

• Customers have decided to upgrade to crossovers

• Political stresses constitute the biggest risk

• Innovative mobility opportunities are disruptive and yet promising

• Long term demand for vehicles remains very solid