U.S. Automotive Outlook

2004 FTA Revenue Estimation and Tax Research Conference September 19-22, 2004 Burlington, VT U.S. Automotive Outlook David P. Teolis Senior Economist North America Global Market & Industry Analysis

Presentation Overview U.S. Economic Outlook U.S. Economic Overview Key U.S. Indicators U.S. Real GDP Forecast Challenges to the U.S. Economic Outlook Vehicle Industry Outlook State of the Automotive Industry Key Vehicle Market Indicators Key Macroeconomic Indicators Short-term Industry Outlook Summary

U.S. Economic Overview U.S. economy is currently working its way through a soft patch U.S. economy grew at a 2.8% annualized rate in Q2, down from the 4.5% pace in Q1. Personal consumption grew at a 1.6% annual rate as spending on durable goods was flat for the quarter Consumer spending rebounded in July, rising 0.8% m-o-m Business sector activity capital spending, manufacturing, and housing is providing underlying support to the economic expansion During Q2, the business sector on a combined basis contributed 2.7 points to real GDP growth Economy likely to face major challenges from Transition from policy-led growth High and volatile energy prices Geopolitical tensions

Key U.S. Economic Indicators 1 Year Following Recession 1 Recession 2 Previous Year 3 Latest Data 4 Real GDP Average Q/Q% @ AR -0.2% 2.5% 4.7% 2.8% Real Consumption Average Q/Q% @ AR 1.5% 3.6% 3.6% 1.6% Index of Consumer Sentiment Average Index 88.2 89.8 94.2 95.9 Corporate Profits Average Y/Y% Change -1.5% 21.7% 22.7% 17.9% ISM-Manufacturing Index Average Index 44.3 51.9 60.9 59.0 Home Sales Average, Thousands 6,181 6,524 7,642 7,854 West Texas Intermediate Average $/Bbl 25.67 25.26 35.69 44.94 CPI Inflation Average Y/Y% Change 2.8% 1.5% 2.3% 3.0% Fed Funds Rate Average % 3.5% 1.7% 1.1% 1.5% Notes: 1 2001:Q1-2001:Q3 for quarterly data or March 2001 - November 2001 for monthly data. 2 2001:Q4-2002:Q3 for quarterly data or December 2001 - November 2002 for monthly data. 3 2003:Q3-2004:Q2 for quarterly data: August 2003 - July 2004 or September 2003 - August 2004 for selected monthly data. 4 Latest quarter or month.

U.S. Economic Outlook Year-Over-Year Percentage Change 2004 2005 2006 General Motors (September 2004) 4.2% (--) 3.5% (--) 3.1% BAK-Oxford (September 2004) 4.3% (--) 3.7% (--) 3.1% Blue Chip (September 10, 2004) 4.3% (4.4%) 3.6% (3.7%) NA Economist Intelligence Unit (August 2004) 4.2% (4.3%) 3.1% (3.5%) NA Economy.com (August 2004) 4.3% (4.4%) 3.4% (3.5%) 3.4% Macroeconomic Advisers (August 2004) 4.3% (4.4%) 3.9% (--) 3.7% RSQE (August 2004) 4.3% (4.6%) 3.3% (4.1%) 3.4% Notes: Prior Month's forecast in parenthesis. (--) indicates no change

Challenges to the U.S. Economic Outlook Spiking oil prices Gradual removal of monetary stimulus Could potentially bring EOP fed funds rate to 2.25% for 2004 and 4.25% for 2005 if Fed continues with measured pace of policy tightening Diminishing tax stimulus Real disposable income on y-o-y basis down sharply in July Investment tax incentives expire at the end of 2004 Sluggish employment growth providing minimal support to wage gains Following 8.1% m-o-m increase in July, layoff announcements up 6.6% m-o-m in August Impact from hurricanes likely to be reflected in subsequent employment reports Growth in real debt outstanding slightly outpacing growth in disposable income Mortgage refinancing activity down 34% from peak in March Expected slowdown in home price appreciation could further limit refinancing activity

West Texas Intermediate Crude Oil Price Average Monthly Price Per Barrel, in 2000 Dollars $90 $80 $70 $60 $50 $40 $30 $20 $10 $0 During the Gulf Crisis, real oil prices peaked in Oct 1990 at $46.37 per barrel. Shaded bars indicate recessions, horizontal lines are decade averages. Decade Averages 1974-79 $40.44 1980-89 $45.66 1990-99 $22.88 2000-03 $27.41 Latest data as of September 13: $39.76 Real $43.88 Nominal 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 After reaching a peak $48.70/bbl on August 19, the price of oil has fallen by roughly $5/bbl. Still, strong demand combined with constrained supply will likely provide underlying support to oil prices. Sources: BLS, Department of Energy Calculations: General Motors

Fed Funds Rate: Projected vs Prior Rate Hikes Percent 6.50 1994 versus 2004 Forecasted Rate Hikes 4.50 6.00 4.00 5.50 3.50 5.00 3.00 4.50 2.50 4.00 2.00 1994 - Left Axis 3.50 2004 Actual - Right Axis 1.50 25 bps Increase at Each FOMC Meeting - Right Axis 3.00 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 1.00 6.75 1999 versus 2004 Forecasted Rate Hikes 4.50 Months After Start of Interest Rate Hikes 6.55 6.35 4.00 6.15 3.50 5.95 3.00 5.75 5.55 2.50 5.35 2.00 Source: Federal Reserve 5.15 4.95 4.75 1999 - Left Axis 2004 Actual - Right Axis 25 bps Increase at Each FOMC Meeting - Right Axis 1.50 1.00 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Months After Start of Interest Rate Hikes

Wages & Salaries versus Disposable Personal Income Year-Over-Year Percentage Change, Chained 2000$ 10 8 6 4 2 0-2 -4 Source: Bureau of Economic Analysis 90 92 94 96 98 00 02 04 Wage and Salary Disbursements Disposable Personal Income The slowing growth in real disposable incomes reflects the diminishing influence of recent tax stimulus whereas the slow recovery in wages mirrors the weak job market gains since the recession.

Real Wages vs Payroll Employment 600 < All Employees: Total Nonfarm Difference - Period to Period SA, Thous Real Wages and Salary Disbursements > % Change - Year to Year 10.0 400 7.5 200 5.0 0 2.5-200 0.0-400 90 91 92 Sources: BEA, BLS, Haver 93 94 95 96 97 98 99 00 01 02 03-2.5 04

Real Income vs Consumer Debt 15 < Real Disposable Personal Income % Change - Year to Year Real Consumer Debt Outstanding > % Change - Year to Year 15 10 10 5 5 0 0-5 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04-5 Sources: BEA, Federal Reserve, Haver

Real Income vs Mortgage Refinancing < Real Disposable Personal Income % Change - Year to Year MBA: Total Loans: Percent of Number of Refinancing Loans > 8 Percent 100 6 80 4 60 2 40 0 20-2 90 91 92 93 94 95 96 Sources: BEA, MBA /Haver 97 98 99 00 01 02 03 04 0

Vehicle Industry Outlook Vehicle Industry Outlook State of the Automotive Industry Key Vehicle Market Indicators Key Macroeconomic Indicators Short-term Industry Forecast

State of Vehicle Industry Since 2001 Recession Moderation in vehicle sales from record levels Compared to prior recessions, industry adjustment came from price rather than volume Underlying purchase patterns persist despite cyclical ups and downs Moderate overall vehicle demand growth Luxury segments/trucks continue to dominate Competitive pressures from used vehicles

U.S. Industry Vehicle Sales Including Deviation of Trough from Trend Millions 20.0 18.0 16.0 14.0 12.0-17.0 10.0-9.8-10.5-23.1 8.0 6.0-18.5 4.0 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 Trend History 95% Upper Confidence Band 95% Lower Confidence Band Source and Calculations: General Motors

Vehicle Sales Comparison During Business Cycles Vehicle Sales At Business Cycle Peak = 100 130 125 120 115 110 105 100 95 90 85 80 2001 Recession Average of 1970, 1973, 1981, and 1990 Recessions -4-3 -2-1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Quarters Prior To and Following Business Cycle Peak (Peak = 0) Source: BEA Calculations: General Motors

CPI Real New Vehicles Year-Over-Year Percentage Change 6 4 2 0-2 -4-6 Source: BLS Calculations: General Motors 86 88 90 92 94 96 98 00 02 04 Compared to the post-1991 recovery, pricing pressures since the 2001 recession remain intensely competitive.

New Vehicle Affordability Payment as a Percentage of Disposable Income per Household 9.0% 8.5% 8.0% 7.5% 7.0% 6.5% 6.0% 5.5% 5.0% Data Sources: Bureau of Economic Analysis, Census Bureau, PIN (All Sales Types), Haver Analytics Calculations: General Motors June 2004 = 6.04% Aug-00 Oct-00 Dec-00 Feb-01 Apr-01 Jun-01 Aug-01 Oct-01 Dec-01 Feb-02 Apr-02 Jun-02 Aug-02 Oct-02 Dec-02 Feb-03 Apr-03 Jun-03 Aug-03 Oct-03 Dec-03 Feb-04 Apr-04

CPI Used Vehicles Year-Over-Year Percentage Change 20 15 10 5 0-5 -10-15 Source: BLS 90 92 94 96 98 00 02 04 Nominal Real On a y-o-y basis, used vehicle prices in July fell 9.3% and 12.0% in nominal and real terms, respectively.

CPI Comparison Selected Consumer Goods Indexed to 1997 160 Education Cable Television 140 Medical Care 120 100 Telephone Services: Local Charges Motor Vehicle Maintenance & Repair Food New Vehicles 80 Apparel 60 40 Household Appliances Telephone Services: Long Distance Charges Toys Cellular Telephone Services 20 0 1997 Source: BLS Calculations: General Motors 1998 1999 2000 2001 2002 2003 2004Q2 Computer Software and Accessories TV Sets Other Video Equipment Personal Computers & Peripheral Eqpt

Light Vehicle Sales Millions - Seasonally Adjusted Annual Rates Six-Month Moving Average 20.0 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 Total Light Vehicle Sales Light Car Sales Light Truck Sales 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 Source: BEA

Vehicle Industry Competitive Landscape U.S. New Vehicle Entries 2000 2005 Car 163 222 Truck 96 155 Total 259 377 Memo: Utilities 54 88

Light Vehicle Sales: Luxury vs Non-Luxury Thousands - Seasonally Adjusted Annual Rates Six-Month Moving Average 1,400 10,000 1,200 1,000 800 600 400 200 0 Luxury Cars - Left Axis Luxury Trucks - Left Axis Non-Luxury Cars - Right Axis Non-Luxury Trucks - Right Axis 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Source: General Motors

Inventories Light Vehicles Millions Not Seasonally Adjusted 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Total Car Truck 96 97 98 99 00 01 02 03 04 Sources: BEA, Ward s Communications

Key U.S. Vehicle Sales Indicators 1 Year Following Recession 1 Recession 2 Previous Year 3 Latest Data 4 Nonfarm Payroll Employment Thousands -1,636-566 1,686 144 Real Disposable Income Average Y/Y% Change 1.8% 3.0% 3.6% 1.8% Real New Vehicle Prices Average Y/Y% Change -3.4% -2.8% -3.3% -3.5% Real Fed Funds Rate Average % 0.7% 0.2% -1.2% -1.7% Gasoline Prices Average $/Gallon 1.46 1.32 1.73 1.88 Vehicle-Buying Attitudes Average % "Bad Time to Buy" 24.4 16.4 20.4 23 New Orders for Consumer Durables Average Y/Y% Change -5.1% 5.6% 5.0% -3.2% Notes: 1 2001:Q1-2001:Q3 for quarterly data or March 2001 - November 2001 for monthly data. 2 2001:Q4-2002:Q3 for quarterly data or December 2001 - November 2002 for monthly data. 3 2003:Q3-2004:Q2 for quarterly data: August 2003 - July 2004 or September 2003 - August 2004 for selected monthly data. 4 Latest quarter or month.

Impact of Rising Gasoline Prices During the Past Eight Months Passenger Cars As of: $/Gallon 2 Per Week Per Month Per Year December 31, 2003 1.48 15.66 67.86 814.38 August 30, 2004 1.87 19.77 85.68 1,028.17 Net Change 0.39 4.11 17.82 213.79 Notes: 1 Based on average annual per car fuel consumption of 551 gallons as of 2002 (the latest data available). Source: Ward's Automotive Yearbook 2004 (page 280). Light Trucks Per Vehicle Gasoline Consumption Cost 1 Current Dollars As of: $/Gallon 2 Per Week Per Month Per Year December 31, 2003 1.48 18.33 79.44 953.31 August 30, 2004 1.87 23.15 100.30 1,203.57 Net Change 0.39 4.82 20.86 250.26 Notes: 1 Assumes average annual per light truck fuel consumption of 645 gallons as of 2002 (the latest data available). Source: Ward's Automotive Yearbook 2004 (page 280). 2 U.S. Retail Gasoline Price - All Formulations. Source: Department of Energy Per Vehicle Gasoline Consumption Cost 1 Current Dollars

U.S. Vehicle Industry Outlook Supported by still-low interest rates and competitive pricing, new vehicle-buying fundamentals remain generally favorable Drag from high gasoline prices not likely to have a material impact on sales, but continues to be closely monitored Industry mix patterns are largely unchanged growth in luxury and in trucks expected to continue Key concern is whether current soft patch evolves into a more prolonged slowdown

Summary Economy transitioning from policy-led growth As a result of key imbalances, downside risks dominate U.S. vehicle sales expected to moderate toward trend New vehicle affordability is providing underlying support to the industry Industry dynamics suggest persistent competitive pressures Downward price pressures New product entries Used vehicles