SALVAGE REPORT JULY 2010

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1 AUTOMOTIVE SALVAGE TRENDS: JULY 2010 The mixed results of certain key salvage indicators in the month of July mirrored the uncertainty faced by many as to the pace and direction of the global economy. While the average prices of whole crushed auto bodies and platinum continued to experience downward pressure amidst falling global and domestic demand, the price of aluminum edged higher in July as a result of tightening supply. The U.S. Dollar Index declined as the dollar depreciated against the euro and yen while gaining slightly against the Mexican peso and Canadian dollar. Similarly, used car prices fell again in July following characteristic summer trends. Finally, the price of a gallon of gasoline remained unchanged from June. Scrap Metal: Whole Crushed Auto Bodies The month of July brought whole crushed auto body prices that were down an aveage of 7.26 percent from June across all five zones. Despite this recent performance, prices still remain above prior year levels by percent. According to Scrap Metal Prices and Auctions.com, Supply of scrap inbound into yards has remained constrained with construction activity continuing to be depressed and the overhang of auto bodies from the cash-for-clunkers scheme having been worked through. (Scrap Metal Prices and Auctions, 2010). Continued constrained supply will help maintain elevated scrap prices, which tend to be associated with higher prices of lower-end vehicles sold at auction. Whole Crushed Auto Body Prices (Dollars/ Gross Ton) $350 $300 $250 $200 $150 $100 $50 $0 Whole Crushed Auto Body Prices Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Source: American Recycler Zone 1 Zone 2 Zone 3 Zone 4 Zone 5 1

2 Platinum and Aluminum Prices Prices of platinum regressed slightly in July, however they did so at considerably slower rate than the previous two months. Prices fell by only 1.92 percent, and remain percent higher than they were the same time in According to Bloomberg News, Growth in emerging markets, fiscal and monetary stimulus in developed countries and increased capital spending by corporations will boost demand for base metals and the platinum group metals (Stablum and Larkin, 2010). Meanwhile, aluminum prices increased 3.09 percent in July and are currently percent above prior year levels. We may see aluminum prices continue to rise as a result of a reduction in global production capacity as well as a one million ton aluminum exchange-traded fund (ETF) that will likely be launched later this year (Burn, 2010). High platinum prices and increasing aluminum prices will tend to put upward pressure on lower-end vehicles sold at auction. $2,500 Platinum Platinum Prices (Dollars/Ounce) $2,000 $1,500 $1,000 $500 $0 Source: Johnson Matthey $1.60 Aluminum Aluminum Prices (Dollars/Pound) $1.40 $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 Source: International Monetary Fund 2

3 U.S. Dollar Following three consecutive months of gains, the U.S. Dollar Index declined in July by 2.86 percent. In particular, the dollar depreciated relative to the euro and yen as investors fled the low-yielding greenback for currencies closely tied to the pace of global growth (Davis, 2010a). Davis points to worse-than-expected U.S. data (Davis, 2010b) and fears about the state of the economy as reasons for the dollar s slide. The dollar fell a substantial 4.25 percent against the euro in July (the first month of decline since November 2009) as well as 3.70 percent against the yen. On the flip side, the greenback appreciated slightly against the Canadian dollar and Mexican peso, with modest monthly gains of 0.67 and 0.88 pecent, respectively. Disappointing Canadian jobs data led investors to ditch the Canadian dollar, according to Davis (2010c). A weaker dollar will tend to put upward pressure on the value of salvage vehicles for two reasons, through increasing the purchasing power of foreign buyers, and through its effect on commodity prices. A weaker dollar may also help offset some of the downward pressure on the value of salvage vehicles as a result of some declining indicators. Index Value U.S. Dollar Index Source: Federal Reserve Bank of St. Louis 3

4 0.85 Euro 0.80 Euro per U.S. 1 Dollar Yen Japanese Yen per 1 U.S. Dollar $15 $15 Peso $14 Pesos per 1 U.S. Dollar $14 $13 $13 $12 $12 $11 $11 $10 $1.30 Canadian Dollar Canadian Dollar per 1 U.S. Dollar $1.25 $1.20 $1.15 $1.10 $1.05 $1.00 $0.95 4

5 Average Used Car Prices/ U.S. Average Gas Price The average wholesale price of a used car in July declined by 2.2% from June coming off of its record high in April, according to Tom Kontos of ADESA Analytical Services. However this level is still 0.4% higher than July 2009, and prices normally decline at this time of the year (Kontos, 2010). As noted in previous Salvage Index reports, Kontos expected used prices to recede as the premium between used and new vehicles became too narrow to justify further used car price growth, but they should remain at historically high levels for some time. Despite the month-over-month decline in retail sales volume of used car dealers of 11.3%, year-over-year volume was up 9.0%. Year-over-year auction inventory levels declined from 33 days in July 2009 to 29 days in July 2010, indicating that supplies of vehicles still remain tight compared to a year ago. The average price of a gallon of gasoline remained unchanged from June at $2.68. $12,000 Average Used Car Prices Used Car Prices in U.S. Dollars $10,000 $8,000 $6,000 $4,000 $2,000 $0 Source: ADESA Analytical Services $4.50 U.S. Monthly Average Per Gallon Price of Gasoline Price per Gallon of Gasoline (U.S. Dollars) $4.00 $3.50 $3.00 $2.50 $2.00 $1.50 Source: Energy Information Administration We will continue to monitor the market trends that affect salvage vehicle values and share updates as appropriate. To subscribe to IAA s Salvage Index, Please salvagereport@iaai.com. 5

6 List of References Burns, Stuart (July 19, 2010) Alcoa Exceeds Expectations as Production Capacity is Cut in China Metal Miner Retrieved Friday, August 13, 2010 from Davis, Bradley (August 2, 2010a) Euro Hits 3-Month High On Global Manufacturing Data Wall Street Journal Retrieved Tuesday, August 10, 2010 from Davis, Bradley (August 6, 2010b) Payrolls Fallout: Dollar Hits 2010 Low Against Yen Wall Street Journal Retrieved Tuesday, August 10, 2010 from anadian+dollar%22 Davis, Bradley (July 29, 2010c) Dollar Sees New Pressures Wall Street Journal Retrieved Tuesday, August 10, 2010 from Kontos, Tom (July, 2010) July 2010 Kontos Kommentary Current Used Vehicle Market Conditions and Outlook Scrap Metal Prices and Auctions.com (July 30, 2010) Scrap Metal Prices Up July Retreived from scrapmetalpricesandauctions.com/2010/07/scrap-metal-prices-up-july / Stablum, Anna and Larkin, Nicholas (July 27, 2010) Industrial Metals to Advance Next Year on Demand, Natixis Says Bloomberg News Retreived Friday, August 6, 2010 from 6

7 OVERVIEW OF IAA Insurance Auto Auctions, Inc. provides the advantage in salvage auto auctions with their Hybrid Auction Model combining live and live-online auctions, North America s broadest salvage auction facility footprint, a strong global buyer base and high vehicle returns. IAA s more than 150 facilities across the United States and Canada provide vehicle suppliers and buyers with powerful solutions to process and acquire total-loss, recovered-theft, fleet lease, donation and rental vehicles. The IAA Hybrid Auction Model, including live, live-online, and proxy bidding, united with their mature global buyer base and diverse inventory produce some of the industry s highest returns for vehicle providers. With 28 years in the industry, IAA holds a comprehensive warehouse of salvage auction data. For more information regarding IAA visit our website at ABOUT THE AUTHOR Jeanene O Brien is vice president of Provider Marketing at Insurance Auto Auctions, Inc. a role she has served since Ms. O Brien diligently tracks, analyzes and reports business and economic trends that impact the overall salvage industry. She helps showcase IAA s depth of industry expertise and history of industry leadership. Ms. O Brien is responsible for IAA s branding, public relations, advertising, and customer event programs. A 15-year veteran in the property and casualty claims industry, Ms. O Brien has a history of executing innovative and comprehensive marketing plans. She led marketing efforts for nearly 10 years at CCC Information Services Inc. and consulted for five years with claims vendors, including independent appraisal firms, collision repair facilities, and integrated technology providers. Ms. O Brien earned a bachelor s degree in English from the College of Wooster (Ohio) and a master s degree with focus in market research and advertising from Loyola University Graduate School of Business in Chicago. 7