Merrill Lynch does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may 

have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their 

investment decision. Customers of MLPF&S and BAS in the US can receive independent, third-party research on companies covered in this report, at no 

cost to them, if such research is available. Customers can access this independent research at http://www.ml.com/independentresearch or can call 1-

800-637-7455 to request a copy of this research. 

Refer to important disclosures on page 48 to 50. Analyst Certification on Page 46. Price Objective Basis/Risk on page 45. 10852885

 The US automotive product pipeline 

 

Car Wars 2010-2013 

In-depth study of the U.S. automotive product pipeline 

Car Wars is an annual proprietary study that assesses the relative strength of 

automakers’ product pipeline in the U.S. The purpose is to quantify industry 

product trends and then relate our findings to investment decisions. 

Product pipelines more difficult to predict than ever before

Given the current tenuous state of the U.S. auto industry, forecasting the future 

product pipeline is more difficult than ever, but it is critical to understanding the 

industry so we will once again take our best shot. 

Macro demand meltdown a game changer 

The severe downturn in demand in 2008 and 2009 has dramatically altered our 

conclusions from last year’s study. We believe that the impact will be long lasting 

and put GM and Chrysler at a larger disadvantage relative to Ford. 

Car Wars thesis and investment relevance 

We believe the replacement rate drives showroom age, which drives market 

share, which in turn drives capacity utilization, profitability, and stock and bond 

prices. OEMs with the highest replacement rate and youngest relative showroom 

age have gained market share from 1999-2009 (Table 1). We expect this 

relationship to remain over our forecast period of MY2010-13 (Charts 1 & 2). 

Five key findings of our study 

1) Replacement rate & showroom age are major determinants of market share. 

2) Product activity is sporadic among OEMs and relative gaps are opening again.

3) GM’s market share will likely drop below the targeted range of 18%-19%. 

4) Ford’s market share gains should continue driving upside in estimates. 

5) Chrysler’s product pipeline is dubious and likely to drive market share losses. 

Investment implications: 

GM: Product cycle downshifts 

GM’s market share losses are likely to be greater than expected and more severe 

in CY2009 and CY2010 while easing in later years. We believe that GM’s 18%-

19% market share target is optimistic and a more realistic range is 15%-16%. 

Ford: Relative position should continue to improve 

Ford’s market share gains in 1H:09 should continue due to the relative strength of 

its product replacement rate over the next four years. This appears to be a result 

of planning as well as the fortuitous stress at its two major competitors. 

Parts/Dealers: Exposure to strong OEMs as important as ever 

Exposure to profitable and growing OEMs is important for profitability and returns. 

All else equal, exposure to OEMs with the highest replacement rates and lowest 

average age is a key to the success of both suppliers and dealers. 

Industry Overview 

Equity | United States | Autos/Car Manufacturers & Auto 

Parts 

15 July 2009 

John Murphy, CFA +1 212 449 7045 

Research Analyst 

MLPF&S 

john_murphy@ml.com 

See Team Page for Full List of Contributors

Table 1: Replacement Rate, Showroom Age, 

Market Share (1999-2009) 

Avg. 

Replacement 

Rate 

Avg. 

Showroom 

Age O/(U) 

U.S. Market 

Share D[1]

GM 14% 0.3 -9.4%

Chrysler 14% 0.2 -6.6%

Ford 15% 1.2 -8.7%

GM-Stub 16% (0.7) 0.2%

European 17% (0.3) 3.3%

Toyota 19% (0.7) 7.3%

Nissan 20% (1.0) 3.4%

Honda 19% (0.9) 4.7% 

Korean 22% (1.1) 5.6%

Source: Banc of America Securities-Merrill Lynch 

[1] Market Share is based on Calendar Years 1998-2008 

Chart 1: Product Replacement Rate 2010e-2013e 

33%

45%

53%

63%

67%

68%

72%

97%

99%

108%

0% 20% 40% 60% 80% 100% 120%

Chrysler

GM

GM-Stub

European

Nissan

Toyota

Industry

Honda

Ford

Korean

Source: Banc of America Securities-Merrill Lynch 

Chart 2: Average Showroom Age 2010e-2013e 

3.3

3.1

2.6 2.6 2.6 2.4 2.4 2.4

2.0

1.0

1.5

2.0

2.5

3.0

3.5

4.0

GM European Industry

Average

Chrysler Nissan Toyota Korean Ford Honda

Source: Banc of America Securities-Merrill Lynch 

RC 
2 

The US automotive product pipeline 

15 July 2009 

 

Contents 

Executive summary 3 

Car Wars background 5 

Investment implications 9 

Industry & manufacturer trends 13 

Company analysis 21 

Conclusions 37 

Appendix 41 

Team Page 51 

RC 
The US automotive product pipeline 

15 July 2009 

3

Executive summary 

Car Wars is a proprietary study we conduct every year to assess the relative 

strength of automakers’ product pipeline in the U.S. The study is based on 

numerous primary and secondary sources, including industry contacts, auto show 

visits, trade publications, enthusiast magazines, supply chain relationships, and 

our general knowledge of platform strategies, and product cycle planning. 

The purpose is to quantify industry product trends and then relate our findings to 

investment decisions. 

The key metrics that we use are replacement rate, the estimated percentage of 

an OEM’s sales volume to be replaced with new models or next generation 

models; average showroom age, the number of years on the market, for the 

average design in an OEM’s showroom; and new model volume mix, the mix of 

new models by segment during the forecast period for each OEM. 

Car Wars thesis 

We believe that the replacement rate drives showroom age, which drives market 

share, which drives capacity utilization, which in turn drives profitability and 

ultimately stock and bond prices. Table 2 shows the average annual replacement 

rate, relative showroom age, and market share change of the largest OEMs 

between MY99 and MY09. OEMs with the youngest showroom age relative to the 

industry have gained market share. 

Table 2: Historical Replacement Rate, Showroom Age, Market Share (1999-2009) 

 Avg. Replacement Rate Avg. Showroom Age O/(U) U.S. Market Share D[1]

GM 14% 0.3 -9.4%

Chrysler 14% 0.2 -6.6%

Ford 15% 1.2 -8.7%

GM-Stub 16% (0.7) 0.2%

European 17% (0.3) 3.3%

Toyota 19% (0.7) 7.3%

Nissan 20% (1.0) 3.4%

Honda 19% (0.9) 4.7% 

Korean 22% (1.1) 5.6%

Source: Banc of America Securities-Merrill Lynch 

[1] Volume weighted average age variance 

[2] Market Share is Based on Calendar Years 1998-2008 

Although other factors, including mix, pricing, execution, distribution, and brand 

power impact market share, we think this data strongly supports our thesis that 

successful new products drive higher market shares. Table 3 summarizes our 

forecasts of these key metrics for MY10 to MY13 and subsequent estimates of 

market share shifts. 

Table 3: Forecast Replacement Rate, Showroom Age, Market Share (2010e-2013e) 

 Replacement Rate [1] Avg. Showroom Age O/(U) U.S. Market Share D[2]

Korean 27% (0.2) 3.5%

Ford 25% (0.2) 3.0%

Honda 24% (0.6) 3.0%

Toyota 17% (0.2) 1.0%

Nissan 17% (0.0) 0.5%

European 16% 0.5 0.0%

GM-Stub 13% 0.1 0.0%

GM 11% 0.8 -5.0% 

Chrysler 8% (0.0) -6.0%

Source: Banc of America Securities-Merrill Lynch 

[1] Volume weighted average age variance 

[2] Market share forecast is for calendar years 2009-2012 

The purpose of our Car Wars study is to 

quantify industry product trends and 

relate our findings to investment 

decisions. 

Replacement rate and relative showroom 

age are two of the main drivers of market

share gains or losses (Table 2 & 3). 

RC 
The US automotive product pipeline 

15 July 2009 

4 

Ten key findings 

Our measures of replacement rate and showroom age are the major driver 

of market share gains and losses. Historically, Detroit has replaced its line-up 

every seven years while the competition has done so every four to five 

years – we believe this is one of the main reasons that Ford, GM, and Chrysler 

have lost share. 

Product activity slowed, but is re-accelerating in MY11-MY13. This suggests 

that all-else equal the pricing environment should ease through MY10, but 

become more difficult in MY11 through MY13 unless demand also recovers. 

New product activity is focused on Car and Crossover segments. At the 

same time Light Truck (body-on-frame) intros are slowing. 

Gaps in relative performance are beginning to open again. We estimate that 

an increasing level of disparity in replacement rates will result in larger shifts in 

market share similar to those that have begun to emerge in 1H:09. 

GM’s market share losses are likely to be greater than targeted. We believe 

that GM’s 18%-19% market share target is optimistic and a more realistic range is 

15%-16%. GM’s replacement rate averages just 11% over the next four years, 

below its historical average of 14%, and well below the industry average of 18%. 

The positive reversal of Ford’s market share in 1H:09 should continue. We 

believe this will be driven by the relative strength of its product replacement rate 

of 25% over the next four years, above its historical average of 14% and well 

better than the industry average of 18%. 

We believe Chrysler is likely to be half its current size in a few years due to 

a lack of product. Chrysler severely lags the industry on a number of key 

metrics, which is an ominous sign for market share. In our view, this is a result of 

a lack of investment by previous owners and the dubious potential for Fiat 

products in the U.S. market. 

The lead Japanese OEMs have maintained for years is shrinking. Toyota 

and Nissan’s metrics are converging closer to the industry averages while Honda 

remains significantly better than average, which should in combination slow their 

trend of market share gains. 

Korean OEMs are picking up the pace after hitting a dry patch in MY08 & 

MY09. Therefore, we expect Hyundai and Kia to gain significant market share, 

about 3.5% over the next four years. 

Suppliers & Dealers success should be correlated to their exposure to 

OEMs with high replacement rates. We believe this bodes well for 

BorgWarner, a supplier, and the following dealers: PAG, Asbury, Sonic, and 

Group 1. It continues to be an ominous sign for many suppliers. 

 

1. Replacement rate and showroom age 

drive market share gains and losses. 

2. Product activity slowed, but should 

re-accelerate in MY11-MY13. 

3. Intros more focused on cars and CUVs

than ever before. 

4. Gaps in relative performance are 

beginning to open again 

5. GM’s market share losses are likely to

be greater than targeted. 

6. Ford’s market share gains in 1H:09 

should continue through the next 

four years. 

7. Chrysler is likely to be half its 

current size in a few years due to a 

lack of product. 

8. The lead Japanese OEMs have 

maintained for years is shrinking. 

9. Korean OEMs are accelerating 

product intros, which should drive 

significant market share gains. 

10. Suppliers & Dealers success should be

correlated to their exposure to OEMs 

with high replacement rates. 

RC 
The US automotive product pipeline 

15 July 2009 

5

Car Wars background 

The purpose of Car Wars 7

An independent view 7

Car Wars thesis 8

RC 
6 

RC 
The US automotive product pipeline 

15 July 2009 

7

The purpose of Car Wars 

Background and purpose 

Car Wars is a proprietary study we conduct every year to assess the relative 

strength of automakers’ product pipeline in the U.S. The study is based on 

numerous primary and secondary sources, including industry contacts, auto show 

visits, trade publications, enthusiast magazines, supply chain relationships, and 

our general knowledge of platform strategies, product cycle planning, and 

management behavior. 

The purpose is to quantify industry product trends and then relate findings to 

investment decisions. 

Key metrics 

The key metrics that we use include the following: 

 Replacement rate: One of the simplest and most important ways to measure 

the strength of an automaker’s product plan: the estimated percentage of its 

sales volume to be replaced with entirely new models or next generations of 

existing models. 

 Average showroom age: The number of years on the market, for the 

average model in an OEM’s showroom (measured on a stand-alone basis 

and relative to the industry). 

 New model volume mix: The mix of new models by market during the 

forecast period for each OEM. 

Our process of data collection is continuous, and we have developed a 

comprehensive database of U.S. product activity going back to 1987 – through 

two cycle peaks and now almost two troughs. Once a year, we summarize our 

findings in a report and on a color poster. This year’s study forecasts activity for 

the 2010-2013 model years. 

An independent view 

Relative performance is what counts 

Car Wars represents our independent view of automakers’ competitiveness, so 

it doesn’t necessarily agree with the views of the car companies. It is likely we 

are missing information on all OEMs. Therefore, despite differences of opinion 

on any one OEM’s pipeline forecast, we believe that we have an accurate view 

of its relative position in the market, and that’s what we believe matters when 

forecasting market share. 

All-new versus new and improved 

Readers may find that our data might differ from the pronouncements OEMs 

make occasionally about the number of products they plan to launch. This is 

because our definition of what a new product is may differ from that of 

automakers. (New product definitions even vary from company to company.) In 

Car Wars, we include only products we judge to be all-new or next generation 

vehicles – what the industry typically calls a “major.” We don’t include mid-cycle 

enhancements where only modest changes are made to the vehicle, typically 

called a “minor.” Furthermore, we forecast volume based on what we think the 

average annual volume will be for the product over its entire model life. We do not 

use company sales targets or peak volumes, which could distort results. 

Purpose of report: quantify industry 

product trends, market share shifts and 

then relate conclusions to investment 

decisions. 

Replacement rate, average showroom age

and new model volume mix are the key 

metrics we calculate to analyze the 

OEMs’ product pipeline. 

RC 
The US automotive product pipeline 

15 July 2009 

8 

Car Wars thesis 

Our thesis is that an OEM’s product replacement rate drives showroom age, 

which drives market share, which drives capacity utilization, which in turn drives 

profitability and stock and bond prices. Table 4 shows the average annual 

replacement rate, relative showroom age, and market share change of the largest 

OEMs between MY1999 and 2009. The table shows how the OEMs with the 

youngest showroom age relative to the industry have gained market share. 

Although other factors, including mix, pricing, execution, distribution, and brand 

power impact market share, we think this data strongly supports our thesis that 

successful new products drive higher market shares. 

Table 4: Historical Replacement Rate, Showroom Age, Market Share (1999-2009) 

Avg. Volume 

Replacement Rate [1]

Avg. Showroom Age O/(U) 

Industry Avg. 

U.S. Market 

Share Δ[2]

GM 13.9% 0.3 -9.4%

Chrysler 14.4% 0.2 -6.6%

Ford 15.5% 1.2 -8.7%

GM-Stub 16.0% (0.7) 0.2%

European 16.8% (0.3) 3.3%

Toyota 18.6% (0.7) 7.3%

Nissan 20.2% (1.0) 3.4%

Honda 19.2% (0.9) 4.7% 

Korean 21.9% (1.1) 5.6%

Source: Banc of America Securities-Merrill Lynch 

[1] Volume weighted average age variance 

[2] Market Share is Based on Calendar Years 1998-2008 

Based on the relative strength of this historical relationship, and taking mix and 

strategy into account, we have forecasted market share shifts for the major 

automakers in the U.S. market, which is summarized in Table 5. We will discus 

the implications of these shifts in the following sections. 

Table 5: Forecast Replacement Rate, Showroom Age, Market Share (2010e-2013e) 

Avg. Volume 

Replacement Rate [1]

Avg. Showroom Age O/(U) 

Industry Avg. 

Estimated U.S. 

Market Share D[2]

Korean 27.0% (0.2) 3.5%

Ford 24.8% (0.2) 3.0%

Honda 24.2% (0.6) 3.0%

Toyota 16.9% (0.2) 1.0%

Nissan 16.9% (0.0) 0.5%

European 15.8% 0.5 0.0%

GM-Stub 13.2% 0.1 0.0%

GM 11.2% 0.8 -5.0% 

Chrysler 8.3% (0.0) -6.0%

Source: Banc of America Securities-Merrill Lynch 

[1] Volume weighted average age variance 

[2] Market share forecast is for calendar years 2009-2012 

Replacement rate 

▼

Showroom age 

▼

Market share 

▼

Capacity utilization 

▼

Profitability 

▼

Share/bond price 

RC 
The US automotive product pipeline 

15 July 2009 

9

Investment implications 

Investment implications for Ford 11

Implications for GM 11

Implications for Chrysler 11

Investment implications for suppliers 12

Investment implications for dealers 12

RC 
10 

RC 
The US automotive product pipeline 

15 July 2009 

11

Investment implications for Ford 

We expect the positive market share momentum that Ford has built in 1H:09 to 

continue through the end of 2012 based on a relatively strong replacement rate 

and lower average showroom age. This should drive upside relative to current 

expectations. Specifically, we believe that based on strong market share gains 

that Ford may post better than break-even EPS in 2010 and possibly 

$1.00 in 2011. 

Table 6: Ford's replacement rate, showroom age, market share - 1999-2009 vs. 2010e-2013e 

Avg. Volume 

Replacement Rate 

Avg. Showroom Age O/(U) 

Industry Avg. 

U.S. Market 

Share Δ

1999 - 2009 15% 1.2 -8.7%

2010e - 2013e 25% (0.2) 3.0%

Source: Banc of America Securities-Merrill Lynch 

Implications for GM 

GM’s replacement rate and average showroom age point to a slight acceleration 

of market share losses. This puts the company’s market share target of 18%-

19% in jeopardy, which means that further restructuring actions could be 

necessary. We believe a more reasonable target would be 15%-16%. At a trend 

rate of US demand of 14mm units, the discrepancy of 3% market would equate to 

close to 500k fewer units for North America or about two fewer 

assembly facilities. 

Table 7: GM's replacement rate, showroom age, market share - 1999-2009 vs. 2010e-2013e 

Avg. Volume 

Replacement Rate 

Avg. Showroom Age O/(U) 

Industry Avg. 

U.S. Market 

Share Δ

1999 - 2009 14% 0.3 -9.4%

2010e - 2013e 11% 0.8 -5.0%

Source: Banc of America Securities-Merrill Lynch 

Implications for Chrysler 

Chrysler’s product pipeline is dubious and likely to drive significant market share 

losses. We anticipate that Chrysler will be roughly half its current size in a few 

years creating room for other automakers to gain market share. 

Table 8: Chrysler's replacement rate, showroom age, market share - 1999-2009 vs. 2010e-2013e

Avg. Volume 

Replacement Rate 

Avg. Showroom Age O/(U) 

Industry Avg. 

U.S. Market 

Share Δ

1999 - 2009 14% 0.2 -6.6%

2010e - 2013e 8% (0.0) -6.0%

Source: Banc of America Securities-Merrill Lynch 

We expect the positive market share 

momentum that Ford has built in 1H:09 to

continue through the end of 2012 based 

on a relatively strong replacement rate 

and lower average showroom age. This 

should drive upside relative to current 

expectations. 

GM’s replacement rate and average 

showroom age point to a slight 

acceleration of market share losses. This 

puts the market share target of 18%-19% 

at jeopardy, which means that further 

restructuring actions may be necessary. 

We believe a more reasonable target 

would be 15%-16%. 

Chrysler’s product pipeline is dubious and 

likely to drive significant market share 

losses. We anticipate that Chrysler will 

be roughly half its current size in a few 

years. 

RC 
The US automotive product pipeline 

15 July 2009 

12 

Investment implications for suppliers 

Proprietary technology trumps all for suppliers in our view, though exposure to 

profitable and growing OEMs is extremely important for their growth, profitability, 

and returns. Therefore, assuming all else equal, suppliers most exposed to OEMs 

with the highest replacement rates and lowest average age are best off. At the 

highest level this is a positive sign for BorgWarner and a tough sign for many NA 

focused suppliers (Chart 3). 

Chart 3: Supplier Exposure to OEMs – 2008 

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

AXLLEA

MGATRW

JCI

GNTX

BWA

ARM

Big Three

GM

F

Chry sler

VW

BMW

Toy ota

Honda

Nissan

Hy undai

Other

Source: Company Filings 

Investment implications for dealers 

Similar to suppliers and assuming all else equal, dealers that are most exposed to 

the OEMs with the highest replacement rates and lowest average age are best 

off, in our view. This should translate into better new car sales and earnings 

growth in the short term and importantly feed into the recurring parts and service 

profit stream in the long term as units in operation grow. The following chart 

summarizes the public groups' new vehicle exposure by brand. 

Chart 4: Dealer 2008 new vehicle sales by brand 

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

LAD AN SAH GPI ABG PAG

Big Three

GM

F

Chry sler

VW

Mercedes

BMW

Toy ota

Honda

Nissan

Other

Source: Company Filings 

Proprietary technology trumps all for 

suppliers in our view, though exposure to 

profitable and growing OEMs is extremely 

important for their growth, profitability, 

and returns. 

Similar to suppliers and assuming all else 

equal, dealers that are most exposed to 

the OEMs with the highest replacement 

rates and lowest average age are best 

off. 

RC 
The US automotive product pipeline 

15 July 2009 

13

Industry & manufacturer trends 

Industry trends 

New model launches 15

Replacement rate 16

Average showroom age 16

New models by segment 17

Manufacturer trends 

Average showroom age 18

Relative freshness of product lines 18

Cumulative replacement rates 19

RC 
14 

RC 
The US automotive product pipeline 

15 July 2009 

15

Industry trends 

This section details product trends for the U.S. auto market. The size, 

homogeneity, relatively rich mix, and ultimately the profitability of the U.S. market 

continue to attract new investments from overseas automakers. However, what 

has been an accelerating boom of new model launches in recent years will likely 

slow slightly as the industry works its way through a rationalization phase we refer 

to as the “Big Bang”. 

New model launch activity slows ever so slightly 

As shown in Chart 5, we expect OEMs to launch 166 new models during our 

forecast period (2010-2013), or an average of 42 per year. This rate is about 12% 

above the average number of models launched per year between 1989 and 2009, 

underscoring how intensely competitive the industry still is. 

Chart 5: New model launches 2010e-2013e 

35

31 34

26

35 38 36

21

48

21

39

35 38 41 39

32

41 41 40 43

55

43

32 34

49

42 41

-

10

20

30

40

50

60

19871988198919901991199219931994199519961997199819992000200120022003200420052006200720082009

2010E2011E2012E2013E

Av erage = 37, 1989-2009

Source: Banc of America Securities-Merrill Lynch 

There are many factors contributing to the acceleration in product, including 

OEMs’ rush to enter new vehicles segments (CUVs, hybrids, ultra-luxury, youth, 

etc.), an aggressive push by some OEMs to expand product line-ups (for 

example, the Korean OEMs), as well as the relative richness and size of the U.S. 

vehicle market. Stricter CAFE standards and higher gasoline prices are also 

raising the profile of the CUV and car segments, which represent an increasing 

share of new product launches (Chart 6). 

Chart 6: 2010e-2013e new vehicle launch mix vs. 2000-2009 

32%

13%

17%

22%

9%

10%

18%

26%

23% 29%

0%

20%

40%

60%

80%

100%

00-09 10-13

Mid/Large

Car

Small Car

Lux ury &

Sporty Car

Crossov er

Lt. Truck

Source: Banc of America Securities-Merrill Lynch 

New model launches hit a relative lull in 

MY09 which we expect to continue in 

MY10, but pick up significantly in MY11 

through the end of our forecast period in 

MY13. 

RC 
The US automotive product pipeline 

15 July 2009 

16

Replacement rate eases in MY10 and then accelerates

The replacement rate mirrors the trend in new model launches to a large degree. 

On average, between 1992 and 2009, the industry replaced about 13% of its 

volume each year with new models. At this rate, the industry turns over its entire 

model line about every 7.7 years. Over the next four years, we expect the annual 

replacement rate will remain higher at close to 18%, which means that the 

industry will turn over in less than 6 years. MY09 was particularly important for 

trucks, at about 40% of new volume, driven by Ford’s new F-150 and a new 

Dodge Ram. However, new volume mix is moving significantly away from trucks 

towards cars and CUVs that we estimate will account for an unprecedented 87% 

of new volume launched from MY10 to MY13. 

In our opinion, the continued strong pace of product activity can be linked to the 

intensely competitive industry environment. As with all industries, auto companies 

can compete through cost leadership, superior product, or product differentiation. 

For most OEMs, the first strategy has been unachievable, and with the 

reorganized and restructured Detroit Three it is even tougher to differentiate on 

cost. On the second strategy, there has been extreme convergence in quality as 

all automakers have improved to a relatively common level. That leaves almost 

all trying to compete by differentiating their product. This has resulted in the 

continued strong pace of new models introductions. 

Chart 7: Replacement rate 

17%

12%

8%

17%

10%

18%

13%

15%14%

10%

14%

10%

20%

19%

12%

15%

12%

18%

21%

10%10%

11%

0%

5%

10%

15%

20%

25%

199219931994199519961997199819992000200120022003200420052006200720082009

2010E2011E2012E2013E

Replacement Rate

Av erage 1992 - 2009 = 13%

Source: Banc of America Securities-Merrill Lynch 

Average showroom age likely remains low 

The age of vehicles on sale in showrooms across the U.S. (Chart 16) has been 

on a steady decline since the early 1990s, as automakers replace their products 

more frequently. We attribute this trend to intensifying competition – in part from 

new entrants – and product line expansion by car companies that have 

introduced numerous new nameplates. We expect that the industry’s average 

showroom age will trend lower averaging about 2.6 years for MY10 – MY13, a 

noticeable tick down from an average age of 2.8 years for the last decade. 

Industry replacement rate over the 

forecast period will remain well above 

the 13% historical average, spiking to an 

average of 20% for MY11 through MY13. 

RC 
The US automotive product pipeline 

15 July 2009 

17

Chart 8: Average showroom age [1] 

3.5

4.1

3.5

3.1

3.3

3.7

3.4 3.4

2.7 2.7 2.6 2.7 2.8 2.7 2.8 2.7

2.9 3.1 3.1

2.4 2.4

2.6 2.6 2.7

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

19901991199219931994199519961997199819992000200120022003200420052006200720082009

2010E2011E2012E2013E

Source: Banc of America Securities-Merrill Lynch 

[1] Average is volume weighted, in past reports this has been a simple average, the results vary only slightly 

Intensified competition and the resulting new products are, of course, fabulous for 

consumers, who will enjoy the choice of new cars and trucks. All of this new 

product, however, comes at a high cost to the OEMs, which will need to become 

increasingly efficient with R&D and capital spending. 

New model segment shift continues towards CUVs and Cars 

Chart 9 shows the U.S. market’s evolving market shift, based on the number of 

new models, not volumes, from traditional small, midsize, and large cars to light 

trucks, luxury cars, and crossovers. 

Since the MY1997 launch of the Toyota RAV4 and the Honda CRV, crossovers 

have been the next big thing – and they still are. Forty-eight of the 166 new 

models we forecast for 2010-2013, or 29% will be crossovers. The segment has 

been dominated by Japanese OEMs, but the Detroit Three are making a big push 

with Ford introducing 10, GM 5, and Chrysler 2 new crossover models in the next 

four model years. 

Chart 9: New models by segment 

Light Truck

Crossov er

Lux ury & Sporty 

Car

Small Car

Mid/Large Car

0%

20%

40%

60%

80%

100%

19871988198919901991199219931994199519961997199819992000200120022003200420052006200720082009

2010E2011E2012E2013E

Source: Banc of America Securities-Merrill Lynch, not volume weighted 

In addition to the continuation of the crossover boom, which is the largest in any 

single category, Small and Mid/Large car launches are picking up significantly 

accounting for 60 launches over the next four years, or about 36% over the next 

four years. At the same time there is an almost 60% decline in body-on-frame 

truck introductions over the next four years versus the last decade. 

Excess supply, competitive pressure, new 

entrants, etc. will continue to drive down

product cycle times. 

New model emphasis is still on 

crossovers. However, Small and 

Mid/Large car launches are picking up 

significantly accounting for 60 launches 

over the next four years, or about 36% 

over the next four years. 

RC 
The US automotive product pipeline 

15 July 2009 

18

Manufacturer trends 

Average showroom age still converging around 2.6 years 

Average showroom age is one way to quantify how intensely competitive the 

U.S. market has become in the last two decades (see Chart 10). For some time, 

there has been a convergence in the average showroom age. In the late 1980s 

through the late 1990s, there were large gaps in competitiveness where the 

domestic companies and Europeans had product that was five to six years old 

while the Japanese OEMs had products that averaged about two years old. 

Since the late 1980s, the domestic and European OEMs have become much 

more competitive. Their average showroom age is now about 2.6 years, while 

the Japanese product cycles have stabilized between 2 and 2.5 years. We 

believe that the Japanese OEMs came to realize that it wasn’t worth replacing 

some of their low-margin smaller cars so frequently to drive average age below 

2 years. In addition, as the Japanese have developed more full line product 

offerings it is difficult to maintain an abnormally low average age. 

However, at the end of the next four model years there will be some divergence 

as GM’s all important GMT900 product ages (this should improve shortly after 

MY13) and Chrysler’s portfolio just flat out ages while Toyota, Honda, Nissan, 

and Hyundai keep their product fresh at around 2 years and Ford is not far 

behind at 2.4 years. It should be noted that Ford’s average age improves 

dramatically as we anticipate the end of a few extremely old products such at 

the Econoline vans, Crown Victoria, and Grand Marquis. 

Chart 10: Average showroom age by OEM 

-

1

2

3

4

5

6

7

1988198919901991199219931994199519961997199819992000200120022003200420052006200720082009

2010E2011E2012E2013E

Years

General Motors Ford

Chry sler Industry

European Japanese

Korean

Source: Banc of America Securities-Merrill Lynch 

Relative freshness of product lines remains low 

As competition further intensifies, even small differences in showroom age can 

impact OEMs’ performance. Chart 11 shows the relative freshness of product 

lines by manufacturer over the next four model years. The companies are 

relatively closely clustered except for GM (average showroom age 3.3 years) . 

GM’s average showroom age is notably above average weighted up by the aging 

GMT900 product line up. We expect Ford’s average showroom age to drop 

drastically to an average of just 2.4 years for MY10-MY13 as it cancels older 

products such as the Econoline and introduces new replacement product such as 

the Transit. 

 

We expect Ford’s average showroom age 

to drop drastically to an average of just 

2.4 years for MY10-MY13 as it cancels 

older products such as the Econoline and 

introduces new replacement product such

as the Transit. 

RC 
The US automotive product pipeline 

15 July 2009 

19

Chart 11: Relative freshness of product line by manufacturer 2010e-2013e 

3.3

3.1

2.6 2.6 2.6 2.4 2.4 2.4

2.0

1.0

1.5

2.0

2.5

3.0

3.5

4.0

GM

European

Industry Average

Chrysler

NissanToyotaKorean

Ford

Honda

Source: Banc of America Securities-Merrill Lynch 

Cumulative replacement rates appear to drive market share 

Comparing cumulative replacement rates is one of the simplest and most 

effective ways in which we measure the strength of product plan. The 

replacement rate is the estimated percentage of sales volume to be replaced with 

entirely new models or next generation of existing models during the period. 

Over the next four years, the industry will replace 72% of its volume, with the 

disparity among the major manufacturers widening again. We believe that the 

increasing deltas in replacement rates between OEMs will result in larger shifts in 

market share similar to those that have begun to emerge in 1H:09. 

Chart 12: Cumulative replacement rates, % of 2008 CY volume replaced in MY 2010e-2013e 

33%

45%

53%

63%

67%

68%

72%

97%

99%

108%

0% 20% 40% 60% 80% 100% 120%

Chry sler

GM

GM-Stub

Europea

Nissan

Toy ota

Industry

Honda

Ford

Korean

Source: Banc of America Securities-Merrill Lynch 

Ford will likely have one of the fresher 

lineups as it cancels older product such as

the Econoline and begins to leverage its 

global product to drive a lower average 

age. GM’s product ages largely because 

of the aging of the GMT900 vehicles, but 

this should improve upon the new models 

sometime beyond MY13. 

We estimate that an increasing level of 

disparity in replacement rates will result 

in larger shifts in market share similar to 

those that have begun to emerge in 

1H:09. 

Chrysler is the extreme outlier on the 

low-end due to the lack of investment of 

its last two owners and the dubious 

potential for Fiat products in the U.S. 

market. 

RC 
The US automotive product pipeline 

15 July 2009 

20 

This page intentionally left blank. 

RC 
The US automotive product pipeline 

15 July 2009 

21

Company analysis 

General Motors Corp 23

Ford Motor Co 25

Chrysler 27

Japanese OEMs 29

European OEMs 32

Korean OEMs 34

RC 
22

RC 
The US automotive product pipeline 

15 July 2009 

23

General Motors Corporation 

Conclusion: GM’s market share losses are likely to be greater than 

expected and more severe in CY2009 and CY2010 while easing in later 

years. We believe that GM’s 18%-19% market share target is optimistic and 

a more realistic range is 15%-16%. 

Chart 13: GM replacement rate vs. industry 

20%

6% 6%

26%

0%

20%

3%

26%

20%

1%

13%

6%

10%

16%15%

32%

11%

5% 9%12%12%12%

0%

10%

20%

30%

40%

50%

60%

70%

1992

1993

199419951996

1997199819992000

200120022003

2004

200520062007

20082009

2010E

2011E2012E

2013E

GM

GM 92-09 Av g.

Industry

Replacement Rate

Source: Banc of America Securities-Merrill Lynch 

Chart 14: New model volume mix 

13% 4%

22%

17%

10%

16%

26%

24%

29% 38%

0%

20%

40%

60%

80%

100%

Industry General Motors

Mid/Large Car

Small Car

Lux ury & Sporty Car

Crossov er

Lt. Truck

Source: Banc of America Securities-Merrill Lynch 

Chart 15: Average showroom age (years) 

3.8

4.7

3.9

2.82.6

3.3 3.8 4.0

3.0

2.7 2.22.2

3.5

2.9

3.3

2.9

4.0

3.9

4.7

5.4

4.9

4.2

5.2

4.4

3.6

(2)

(1)

-

1

2

3

4

5

6

1988198919901991199219931994199519961997199819992000200120022003200420052006200720082009

2010E2011E2012E2013E

Younger

Relativ e to Industry :

Older

Av erage Show room Age (Years)

Source: Banc of America Securities-Merrill Lynch 

GM’s replacement rate averages 11% over 

the next four years, below its historical 

average of 13% and well below the 

industry average of 18%. 

GM’s mix is positively skewed toward 

Mid/Large Cars over the forecast horizon.

CUVs and Small Cars are a focus for GM, 

but it appears to be under introducing 

relative to the industry and more 

specifically the competition. 

Relative showroom age improved 

dramatically with the intro of the GMT900

product line-up driving an average age of 

about 2.2 years in MY08&09, but as those 

trucks are aging so is GM’s average age. 

RC 
The US automotive product pipeline 

15 July 2009 

24

Table 9: General Motors U.S. product pipeline 2010e-2013e 

2010e 2011e 2012e 2013e 

Chevrolet Equinox - Small CUV Chevrolet Orlando - Minivan Cadillac BTS - Sedan & Coupe GMC Acadia - Mid CUV 

GMC Terrain - Small CUV Cadillac DTS - Sedan Chevrolet Impala - Sedan Buick Enclave - Midsize CUV 

Cadillac SRX - Luxury CUV Chevrolet Aveo - Sedan & Hatchback Buick Lucerne - Sedan Chevrolet Malibu - Sedan 

Chevrolet Camaro - Coupe & Convertible Chevrolet Cruze - Coupe & Sedan Chevrolet Spark - Hatchback Chevrolet Corvette - Coupe & Convertible 

Buick La Crosse - Sedan Chevrolet Volt - Hatchback (plug in) Cadillac CTS - Sedan & Coupe 

% of volume replaced : 9% % of volume replaced : 12% % of volume replaced : 12% % of volume replaced : 12% 

Source: Banc of America Securities-Merrill Lynch 

Table 10: GM-Stub U.S. product pipeline 2010e-2013e 

2010e 2011e 2012e 2013e 

Saab 9-4X - Mid Lux CUV Saab 9-3 - Sedan, Wagon & Convertible Saturn Outlook - Mid CUV Saturn Aura - Sedan 

Saab 9-5 - Sedan & Wagon 

% of volume replaced : 11% % of volume replaced : 6% % of volume replaced : 11% % of volume replaced : 25% 

Source: Banc of America Securities-Merrill Lynch 

Chart 16: 2010 Cadillac SRX 

Source: GM Corp 

Chart 17: 2010 Buick LaCrosse 

Source: GM Corp 

Chart 18: 2011 Chevy Cruze 

Source: GM Corp 

Chart 19: 2010 GMC Terrain 

Source: GM Corp 

RC 
The US automotive product pipeline 

15 July 2009 

25

Ford Motor Company 

Conclusion: Ford’s market share gains in 1H:09 should continue due to the 

relative strength of its product replacement rate over the next four years. 

This appears to be a result of planning as well as the fortuitous stress at its 

two main competitors. 

Chart 20: Replacement rate 

27%

15%

3%

12%12%

27%

11%11%

21%

5%

12%

7%

18%

10% 8% 9%

23%

48%

15%

30%29%25%

0%

10%

20%

30%

40%

50%

60%

70%

1992199319941995199619971998

199920002001

2002200320042005

200620072008

2009

2010E2011E2012E2013E

Ford

Ford 92-09 Av g.

Industry

Replacement Rate

Source: Banc of America Securities-Merrill Lynch 

Chart 21: New model volume mix 

13% 19%

22%

32% 10%

26% 8%

21%

29% 20%

0%

20%

40%

60%

80%

100%

Industry Ford

Mid/Large Car

Small Car

Lux ury & Sporty Car

Crossov er

Lt. Truck

Source: Banc of America Securities-Merrill Lynch 

Chart 22: Average showroom age (years) 

3.2 3.84.2

5.0

4.3

2.9

4.2

2.1

2.9

4.3

3.6 4.1 4.4

6.5

3.9

2.02.4 2.2

2.8

5.0

3.9

2.9 3.43.7

2.4

3.2

(2)

(1)

-

1

2

3

4

5

6

7

198819891990199119921993199419951996199719981999200020012002200320042005200620072008

2009E2010E2011E2012E2013E

Younger

Relativ e to Industry :

Older

Av erage Show room Age (Years)

Source: Banc of America Securities-Merrill Lynch 

Ford’s replacement rate for MY 2010 to 

2013 is 25%, above its historical average 

of 15% and well better than the industry 

average of 18%. Therefore its positive 

momentum should continue driving an 

increase in market share of about 3% to 

close to 18%. 

Ford appears to remain slightly overweight truck introductions, but is also 

overweight Crossovers. Notably, Ford lags

in passenger car introductions over the 

next four years despite the 2010 Taurus 

and 2011 Fiesta and Focus. 

Ford’s average showroom age should drop

dramatically through MY13 as it cancels a 

few older models such as the Econoline 

that will likely be replaced with all new 

product. 

RC 
The US automotive product pipeline 

15 July 2009 

26

Table 11: Ford U.S. product pipeline 2010e-2013e 

2010e 2011e 2012e 2013e 

Lincoln MKT - Lux CUV Ford Explorer - Large CUV Ford Escape - Mid CUV Ford Edge - Mid CUV 

Volvo XC60 - Small CUV Lincoln Aviator - Large CUV Ford C-Max - Small CUV Lincoln MKX - Mid Lux CUV 

Ford Transit Connnect - Van Volvo S60/V70 - Sedan & Wagon Mercury Mariner - Small CUV Ford Mustang - Coupe & Convertible 

Ford Taurus - Sedan Ford Focus - Hatchback, Sedan & Wagon Volvo XC90 - Mid CUV Lincoln MKZ - Sedan 

 Ford Fiesta - Sedan & Hatchback Ford F-100 - Small Pickup Ford Fusion - Sedan 

 Mercury Fiesta Based - Sedan & Hatchback Ford Expedition - Large SUV Mercury Milan - Sedan 

 Ford Transit - Van 

 Lincoln Navigator - Large SUV 

% of volume replaced : 15% % of volume replaced : 30% % of volume replaced : 29% % of volume replaced : 25% 

Source: Banc of America Securities-Merrill Lynch 

Chart 23: 2010 Ford Taurus 

Source: Ford Motor Co 

Chart 24: 2011 Ford Explorer 

Source: Ford Motor Co 

Chart 25: 2011 Ford Fiesta 

Source: Motor Trend 

Chart 26: 2012 Ford Escape – likely to be based on Kuga, shown 

Source: Motor Trend 

RC 
The US automotive product pipeline 

15 July 2009 

27

Chrysler 

Conclusion: Chrysler’s product pipeline severely lags the industry on a 

number of key metrics, which is an ominous sign for its market share. This 

is a result of a lack of investment by Chrysler’s last two owners and the 

dubious potential for Fiat products in the U.S. market. 

Chart 27: Replacement rate 

0%

23%

16%19%

26%

14%13%

33%

27%

15%

7%

20%

27%27%

5% 9%

3%

16%

8%

1%

5%

10%

0%

10%

20%

30%

40%

50%

60%

70%

19921993199419951996199719981999200020012002200320042005

200620072008

2009

2010E2011E2012E2013E

Chry sler

Chry sler 92-09 Av g.

Industry

Replacement Rate

Source: Banc of America Securities-Merrill Lynch 

Chart 28: New model volume mix 

13% 16%

22% 16%

10%

26%

29%

48%

21%

0%

20%

40%

60%

80%

100%

Industry Chry sler

Mid/Large Car

Small Car

Lux ury & Sporty Car

Crossov er

Lt. Truck

Source: Banc of America Securities-Merrill Lynch 

Chart 29: Average showroom age (years) 

3.0 2.8

4.2

2.5

1.7

2.4

3.6

2.9 2.6

1.9

4.1

2.8 2.6

2.0

2.5

3.43.7 3.4 3.0

2.9 2.9 2.9 2.5

4.1 4.1 4.2

(2)

(1)

-

1

2

3

4

5

6

7

198819891990199119921993199419951996199719981999200020012002200320042005200620072008

2009E2010E2011E2012E2013E

Younger

Relativ e to Industry :

Older

Av erage Show room Age (Years)

Source: Banc of America Securities-Merrill Lynch 

Chrysler’s average replacement rate of 

just 8% over the next four model years is 

well below its historical 16% and the 

industry average of 18%. The extreme 

underperformance leads us to believe 

that Chrysler will be about half of its 

current size within the next few years. 

Chrysler’s mix is skewed towards the 

Mid/Large Car and Truck segments. The 

company lags in CUVs and Small Car 

intros, which in combination with the 

truck concentration should lead to an 

extreme decline in market share. 

Chrysler’s average showroom age drops 

well below the industry average in MY09 

through MY12 driven by several relatively 

young products like the Ram pickup and 

minivans, but that fades quickly in MY13. 

RC 
The US automotive product pipeline 

15 July 2009 

28

Table 12: Chrysler U.S. product pipeline 2010e-2013e 

2010e 2011e 2012e 2013e 

Dodge Charger - Sedan Jeep Grand Cherokee - Mid SUV Jeep (Fiat) Panda - Small CUV Jeep Patriot - Small CUV 

 Chrysler 300 - Sedan Chrysler (Fiat) 500 - Hatchback Chrysler Sebring - Sedan, Coupe & Convertible 

 Dodge Avenger - Sedan 

 Chrysler (Fiat) Grande Punto - Hatchback 

% of volume replaced : 5% % of volume replaced : 9% % of volume replaced : 3% % of volume replaced : 16% 

Source: Banc of America Securities-Merrill Lynch 

Chart 30: 2011 Jeep Grand Cherokee 

Source: Chrysler Media 

Chart 31: 2010 Dodge Charger 

Source: Chrysler Media 

Chart 32: 2012 Jeep Small CUV – likely to be based on Fiat Panda, shown 

Source: Edmunds 

Chart 33: 2012 Chrysler Hatchback – likely to be based on Fiat 500, shown 

Source: Edmunds 

RC 
The US automotive product pipeline 

15 July 2009 

29

Japanese OEMs 

Conclusion: The lead Japanese OEMs have maintained for years is shrinking. 

Toyota and Nissan’s metrics are converging closer to the industry averages 

while Honda remains significantly better than average (Charts 34-36 & 62-67), 

which should in combination slow their trend of market share gains. 

Chart 34: Replacement rate 

23%21%16%

24%

15%

24%

34%

13%17%15%

24%

30%

19%

14%12%

29%

17%19%15%

22%

29%

17%

0%

10%

20%

30%

40%

50%

60%

70%

199219931994199519961997199819992000200120022003200420052006200720082009

2010E

2011E2012E

2013E

Total Japanese

Total Japanese 92-09 Av g.

Industry

Source: Banc of America Securities-Merrill Lynch 

Chart 35: New model volume mix 

13% 16%

22% 17%

10% 8%

26% 27%

29% 32%

0%

20%

40%

60%

80%

100%

Industry Japanese

Mid/Large Car

Small Car

Lux ury & Sporty Car

Crossov er

Lt. Truck

Source: Banc of America Securities-Merrill Lynch 

Chart 36: Average showroom age (years) 

1.8 1.9 2.1 2.2 1.7 2.1 2.1 2.52.1

1.2

2.3 2.3 2.0 1.9 2.0 1.8

1.3

2.3 2.1

2.6 1.9 2.0 1.7

1.2 1.5

(3)

(2)

(1)

-

1

2

3

4

5

6

7

198819891990199119921993199419951996199719981999200020012002200320042005200620072008

2009E2010E2011E2012E2013E

Younger

Relativ e to Industry :

Older

Av erage Show room Age (Years)

Source: Banc of America Securities-Merrill Lynch 

The lead is shrinking - the Japanese OEMs 

have a strong stable of products 

launching over the next four years, with a

replacement rate averaging 21%. In 

aggregate the replacement rate over the 

next four model years is just 1% above 

their historical average and 3% above the 

industry average. 

Model introduction mix is close to the 

industry mix, with a slight over emphasis 

on Mid/Large Cars and Light Trucks and 

under on Crossovers. 

Showroom age remains below average 

through MY13, but creeps close to the 

industry average in MY10 – MY11 for the 

first time ever. This is not just a function

of increased competition, but also a 

function of Toyota, Honda, and Nissan’s 

broader product lineup. 

RC 
The US automotive product pipeline 

15 July 2009 

30

Table 13: Toyota OEM product pipeline 2010e-2013e 

2010e 2011e 2012e 2013e 

Lexus RX - Mid CUV Toyota RAV4 - Small CUV Toyota 4Runner - Mid SUV Toyota Tacoma - Small Pickup 

Lexus HS - Sedan Lexus LF-X - Small CUV Lexus ES - Sedan Lexus LS - Sedan 

Toyota Prius - Hatchback Toyota Sienna - Minivan Lexus GS - Sedan Toyota Scion xB - Hatchback 

 Lexus GX - Mid SUV Toyota Camry - Sedan Toyota Scion xD - Hatchback 

 Lexus IS - Coupe, Sedan & Convertible Toyota Yaris - Hatchback & Sedan 

 Lexus LF-A - Lux Coupe 

 Toyota Avalon - Sedan 

 Toyota Scion tC - Coupe 

 Toyota iQ - Hatchback 

% of volume replaced : 11% % of volume replaced : 19% % of volume replaced : 27% % of volume replaced : 10% 

Source: Banc of America Securities-Merrill Lynch 

Table 14: Honda OEM product pipeline 2010e-2013e 

2010e 2011e 2012e 2013e 

Honda Accord Cross - Mid CUV Honda Element - Small CUV Honda CRV - Small CUV Acura RDX - Small CUV 

Acura ZDX - Mid CUV Honda Odyssey - Minivan Honda Ridgeline - SUP Honda Accord - Coupe & Sedan 

Honda CRZ - Hatchback Acura RL - Sedan Acura MDX - Mid CUV 

Honda Insight - Hatchback Honda Civic - Hatchback, Coupe & Sedan Honda Fit - Hatchback 

% of volume replaced : 15% % of volume replaced : 34% % of volume replaced : 21% % of volume replaced : 25% 

Source: Banc of America Securities-Merrill Lynch 

Table 15: Nissan OEM product pipeline 2010e-2013e 

2010e 2011e 2012e 2013e 

Nissan 350Z - Coupe & Convertible Nissan Titan - Pickup Nissan Frontier - Small Pickup Infiniti EX - Small CUV 

Nissan Cube - Hatchback Nissan Xterra - Mid SUV Nissan Pathfinder - Mid SUV Infiniti G35 - Coupe & Sedan 

 Infiniti M - Sedan Nissan Sentra - Sedan 

 Nissan Altima - Sedan & Coupe 

 Nissan Versa - Hatchback 

% of volume replaced : 2% % of volume replaced : 7% % of volume replaced : 42% % of volume replaced : 16% 

Source: Banc of America Securities-Merrill Lynch 

Table 16: Other Japanese OEM product pipeline 2010e-2013e 

2010e 2011e 2012e 2013e 

Subaru Legacy - Sedan & Wagon Subaru B9 Tribeca - Mid CUV Mitsubishi Endeavor - Mid CUV Mazda CX-7 - Midsize CUV 

Subaru Outback - Sedan & Wagon Mitsubishi Galant - Sedan Mazda RX-8 - Coupe Subaru Impreza - Coupe, Sedan & Wagon 

Mazda2 - Hatchback Suzuki Swift - Hatchback Mazda5 - Wagon 

Mazda3 - Sedan & Hatchback 

Suzuki Equator - Pickup 

Source: Banc of America Securities-Merrill Lynch 

RC 
The US automotive product pipeline 

15 July 2009 

31

Chart 37: 2010 Lexus RX 

Source: Toyota Motor Co 

Chart 38: 2010 Lexus HS 

Source: Toyota Motor Co 

Chart 39: 2011 Toyota Sienna 

Source: Edmunds 

Chart 40: 2010 Honda Accord Cross 

Source: Edmunds 

Chart 41: 2010 Acura ZDX 

Source: Honda Media 

Chart 42: 2010 Nissan Cube 

Source: Nissan 

Chart 43: 2010 Honda CRZ 

Source: Edmunds 

Chart 44: 2010 Subaru Outback 

Source: Edmunds 

RC 
The US automotive product pipeline 

15 July 2009 

32

European OEMs 

Conclusion: European OEMs’ replacement rates are below the industry 

average and their historical rate, and average age remains relatively stable 

below the industry average. We don’t expect any meaningful shift in market 

share over the next four years, but there could be slight erosion. 

Chart 45: Replacement rate 

27%

43%

21%

12%

27%

10% 8%

13%17%

28%

14%

8%

27%

6%

25%

44%

16%

16%

11% 7% 2%

16%

0%

10%

20%

30%

40%

50%

60%

70%

19921993

19941995

19961997

1998

19992000

20012002

2003

20042005

20062007

20082009

2010E

2011E2012E

2013E

European

European 92-09 Av g.

Industry

Replacement Rate

Source: Banc of America Securities-Merrill Lynch 

Chart 46: New model volume mix 

13% 5%

23%

21%

10%

43%

24%

26% 30%

0%

20%

40%

60%

80%

100%

Industry European

Mid/Large Car

Small Car

Lux ury & Sporty Car

Crossov er

Lt. Truck

Source: Banc of America Securities-Merrill Lynch 

Chart 47: Average showroom age (years) 

5.3

4.4

5.6

2.5 2.4 2.11.9 1.9

1.3

2.0 2.4 2.6 2.4 2.6

3.4

2.6 2.8

2.0

2.9 3.2 3.33.1

3.6

6.2

5.4

(2)

(1)

-

1

2

3

4

5

6

7

198819891990199119921993199419951996199719981999200020012002200320042005200620072008

2009E2010E2011E2012E2013E

Younger

Relativ e to Industry :

Older

Av erage Show room Age (Years)

Source: Banc of America Securities-Merrill Lynch 

European OEM average replacement rates

are about 16%, below the industry 

average of 18% and their historical 

average also of 18% over the next four 

model years. This may result in small 

market share erosion over the next four 

years. 

With the brands of BMW, Audi, Porsche, 

and Mercedes it is no surprise that the 

Europeans are overweight Luxury cars. 

However, it is worth noting that like most 

other makers, the Europeans are over 

introducing more Small Cars, by our 

estimation. 

European OEMs have an average 

showroom age of about 3.1 years over the

next four model years which is about half 

a year older than the industry average. 

RC 
The US automotive product pipeline 

15 July 2009 

33

Table 17: European OEM product pipeline 2010e-2013e 

2010e 2011e 2012e 2013e 

Audi Q5 - Mid CUV VW Touareg - Mid CUV Mercedes R-Class - MPV Audi Q7 - Mid CUV 

Mercedes GLK-Class - Small SUV Audi Q3 - Small CUV Land Rover LRX - Small SUV Mercedes M-Class - Mid CUV 

Audi A7 - Sedan BMW X1 - Small CUV Mercedes CLS-Class - Sedan Range Rover - Large SUV 

Mercedes E-Class - Sedan & Wagon BMW X3 - Small CUV BMW 6 Series - Coupe & Convertible VW Scirocco - Hatchback 

BMW Z4 - Coupe & Convertible Porsche Cayenne - Mid CUV VW Polo - Hatchback BMW 3 Series - Coupe, Sedan & Convertible 

Porsche Panamera - Sedan Audi A6 - Sedan & Wagon Audi A3 - Hatchback Porsche Boxster - Convertible 

 Audi A8 - Sedan Porsche Cayman - Coupe 

 BMW 5 Series - Sedan & Wagon VW Passat - Sedan 

 Jaguar XJ - Sedan VW Rabbit - Hatchback 

 Porsche 911 - Coupe & Convertibe 

 VW Jetta - Sedan 

% of volume replaced : 9% % of volume replaced : 24% % of volume replaced : 6% % of volume replaced : 24% 

Source: Banc of America Securities-Merrill Lynch 

Chart 48: 2010 Audi Q5 

Source: Motor Trend 

Chart 49: 2010 Mercedes E-Class 

Source: Edmunds 

Chart 50: 2010 Porsche Panamera 

Source: Porsche Media 

Chart 51: 2011 BMW X1 

Source: BMW 

RC 
The US automotive product pipeline 

15 July 2009 

34

Korean OEMs 

Conclusion: Korean OEMs are picking up the pace after hitting a dry patch 

in MY08 & MY09. Therefore, we expect Hyundai and Kia to gain significant 

market share. Although the pattern of Hyundai and Kia’s product intros has 

been volatile some stability is emerging. 

Chart 52: Replacement rate 

35%

0%

57%

0%

46%

37%33%

38%

53%

9%13%13%

6%

41%

24%

6%

47%

16%

34%

6% 15% 16%

0%

10%

20%

30%

40%

50%

60%

70%

1992

199319941995

1996199719981999

200020012002

200320042005

2006

200720082009

2010E2011E2012E

2013E

Korean

Korean 92-09 Av g.

Industry

Replacement Rate

Source: Banc of America Securites-Merrill Lynch 

Chart 53: New model volume mix 

13%

23%

32%

10%

3%

24%

37%

30% 29%

0%

20%

40%

60%

80%

100%

Industry Korean

Mid/Large Car

Small Car

Lux ury & Sporty Car

Crossov er

Lt. Truck

Source: Banc of America Securities-Merrill Lynch 

Chart 54: Average showroom age (years) 

1.0

2.93.2

0.3

1.01.4 1.0 1.7

0.8 0.7

2.6 3.2

1.7 1.5

2.3 2.02.1 1.9 2.0 1.6

1.0

1.4 1.5 1.5 1.9

(5)

(4)

(3)

(2)

(1)

-

1

2

3

4

5

6

7

198819891990199119921993199419951996199719981999200020012002200320042005200620072008

2009E2010E2011E2012E2013E

Relativ e to Industry :

Older

 Av erage Show room Age (Years)

Younger

Source: Banc of America Securities-Merrill Lynch 

The average replacement rate of 27% 

over the next four model years is well 

ahead of the industry average of 18% 

their historical average of 24%. This 

should drive significant market share 

gains. 

The mix of introductions for Korean OEMs 

is heavily overweight Small Cars and CUVs

which also bodes well for market share. 

Average showroom age trends peeks 

above the industry average in MY11, but 

otherwise remains below average, which 

should also help drive market share gains.

RC 
The US automotive product pipeline 

15 July 2009 

35

Table 18: Korean OEMs U.S. product pipeline 2010e-2013e 

2010e 2011e 2012e 2013e 

Kia Forte - Sedan & Coupe Hyundai Tucson - Small CUV Hyundai Azera - Sedan Hyundai Santa Fe - Midsize CUV 

Kia Soul - Hatchback Kia Sorento - Small CUV Kia Amanti - Sedan Hyundai Veracruz - Large CUV 

 Kia Sportage - Small CUV Hyundai Accent - Hatchback & Sedan Kia Rondo - Small CUV 

 Hyundai Equus - Sedan Kia Rio - Hatchback & Sedan Hyundai Elantra - Sedan 

 Hyundai Sonata - Sedan 

 Kia Optima - Sedan 

% of volume replaced : 15% % of volume replaced : 44% % of volume replaced : 16% % of volume replaced : 34% 

Source: Banc of America Securities-Merrill Lynch 

Chart 55: 2010 Kia Forte 

Source: Edmunds 

Chart 56: 2010 Kia Soul 

Source: Kia Motors 

Chart 57: 2011 Hyundai Equus 

Source: Car and Driver 

Chart 58: 2011 Hyundai Sonata 

Source: Hyundai 

RC 
The US automotive product pipeline 

15 July 2009 

36

This page intentionally left blank. 

RC 
The US automotive product pipeline 

15 July 2009 

37

Conclusions 

RC 
38 

RC 
The US automotive product pipeline 

15 July 2009 

39

Conclusions 

We believe our measures of replacement rate and showroom age are the 

major driver of market share gains and losses. Historically, Detroit has 

replaced its line-up every seven years while the competition has done so every 

four to five years – one of the main reasons that Ford, GM, and Chrysler have lost 

share, in our view. 

Product activity slowed, but is re-accelerating in MY11-MY13. This suggests 

that all-else equal the pricing environment should ease through MY10, but 

become more difficult in MY11 through MY13 unless demand also recovers. 

New product activity is focused on Car and Crossover segments. At the 

same time Light Truck (body-on-frame) intros are slowing. 

Gaps in relative performance are beginning to open again. We estimate that 

an increasing level of disparity in replacement rates will result in larger shifts in 

market share similar to those that have begun to emerge in 1H:09. 

GM’s market share losses are likely to be greater than targeted. We believe 

that GM’s 18%-19% market share target is optimistic and a more realistic range is 

15%-16%. GM’s replacement rate averages just 11% over the next four years, 

below its historical average of 14%, and well below the industry average of 18%. 

The positive reversal of Ford’s market share in 1H:09 should continue. We 

believe this will be driven by the relative strength of its product replacement rate 

of 25% over the next four years, above its historical average of 14% and well 

better than the industry average of 18%. 

We believe Chrysler is likely to be half its current size in a few years due to 

a lack of product. Chrysler severely lags the industry on a number of key 

metrics, which is an ominous sign for market share. This is a result of a lack of 

investment by previous owners and the dubious potential for Fiat products in the 

U.S. market. 

The lead Japanese OEMs have maintained for years is shrinking. Toyota 

and Nissan’s metrics are converging closer to the industry averages while Honda 

remains significantly better than average, which should in combination slow their 

trend of market share gains. 

Korean OEMs are picking up the pace after hitting a dry patch in MY08 & 

MY09. Therefore, we expect Hyundai and Kia to gain significant market share, 

about 3.5% over the next four years. 

Suppliers & Dealers success should be correlated to their exposure to 

OEMs with high replacement rates. We believe this bodes well for 

BorgWarner, a supplier, and the following dealers: PAG, Asbury, Sonic, and 

Group 1. It continues to be an ominous sign for many suppliers. 

1. Replacement rate and showroom age 

drive market share gains and losses. 

2. Product activity slowed, but should 

re-accelerate in MY11-MY13. 

3. Intros more focused on cars and CUVs

than ever before. 

4. Gaps in relative performance are 

beginning to open again 

5. GM’s market share losses are likely to

be greater than targeted. 

6. Ford’s market share gains in 1H:09 

should continue through the next 

four years. 

7. Chrysler is likely to be half its 

current size in a few years due to a 

lack of product. 

8. The lead Japanese OEMs have 

maintained for years is shrinking. 

9. Korean OEMs are accelerating 

product intros, which should drive 

significant market share gains. 

10. Suppliers & Dealers success should be

correlated to their exposure to OEMs 

with high replacement rates. 

RC 
The US automotive product pipeline 

15 July 2009 

40

This page intentionally left blank. 

RC 
The US automotive product pipeline 

15 July 2009 

41

Appendix 

RC 
42 

RC 
The US automotive product pipeline 

15 July 2009 

43

Appendix 

Chart 59: New model volume mix industry summary, 2010e-2013e model year 

13% 4%

19% 16%

22%

17%

32%

16%

21%

17%

33%

10%

16%

8%

43%

8% 1%

26%

24%

21%

27%

27% 38%

29% 38%

20%

48%

32%

4% 16%

21%

27%

0%

20%

40%

60%

80%

100%

Industry GM Ford Chry sler European Japanese Korean

Mid/Large

Car

Small Car

Lux ury &

Sporty Car

Crossov er

Lt. Truck

Source: Banc of America Securities-Merrill Lynch 

Chart 60: Total number of models offered in the U.S. market 

169174175182181178185188170186166166166170185199192202205210206224236242221230227

35 31 34 26 35 38 36 21 48 21 39 35 38 41

39 32 41 41 40 43 55 43 32 34

49 42 41

100

120

140

160

180

200

220

240

260

280

300

320

340

19871988198919901991199219931994199519961997199819992000200120022003200420052006200720082009

2010E2011E2012E2013E

Ex isting Models New Models

Source: Banc of America Securities-Merrill Lynch 

Chart 61: Average showroom age by product segment 

-

1

2

3

4

5

6

7

198819891990199119921993199419951996199719981999200020012002200320042005200620072008

2009E2010E2011E2012E2013E

Years

Crossov er Small Car Mid/Large Car

Lux ury & Sporty Car Light Truck Industry

Source: Banc of America Securities-Merrill Lynch 

GM has the lowest level of truck 

introductions while Ford, Chrysler and the

Japanese automakers have the highest. 

Surprisingly Small Car intros generally lag 

Mid/Large Cars and CUVs. 

Total number of models launched in the 

U.S. is on a steady climb, but levels off in

MY10-MY13. 

Even among segments there is a general 

convergence around an average 

showroom age between two and three 

years. However, the Small Car segment 

continues to get fresher while Light 

Trucks are aging. 

RC 
The US automotive product pipeline 

15 July 2009 

44 

Chart 62: Toyota replacement rate 

37%

24% 26%

43%

29%

36%

26%22%

14%

31%

25%

11%

19%

27%

10% 10% 12% 9%

15%

5%

11%

2%

0%

10%

20%

30%

40%

50%

60%

70%

199219931994199519961997199819992000200120022003200420052006200720082009

2010E2011E2012E2013E

Toy ota

Toy ota 92-09 Av g.

Industry Replacement Rate

Source: Banc of America Securities-Merrill Lynch 

Chart 63: Toyota’s absolute and relative average showroom age 

1.8 1.60.9 1.1 1.11.6 1.5

2.6 1.9 2.3

1.3 1.1 1.82.1 2.8 1.91.9 2.0 1.92.5 2.32.4 2.3 2.62.52.1

(4)

(3)

(2)

(1)

-

1

2

3

4

5

6

7

198819891990199119921993199419951996199719981999200020012002200320042005200620072008

2009E2010E2011E2012E2013E

Younger

Relativ e to Industry :

Older

Av erage Show room Age

Source: Banc of America Securities-Merrill Lynch 

Chart 64: Honda replacement rate 

37%

57%

41% 42%

17%

30%

42%

8%

25% 26%

34%

21%25%

15%15%

22%

14% 12%

1%

14%

2% 3%

0%

10%

20%

30%

40%

50%

60%

70%

199219931994199519961997199819992000200120022003200420052006200720082009

2010E2011E2012E2013E

Honda

Honda 92-09 Av g.

Industry Replacement Rate

Source: Banc of America Securities-Merrill Lynch 

Chart 65: Honda’s absolute and relative average showroom age 

0.7 0.30.6 1.1 1.71.4 2.0

0.8

1.8 1.11.8 1.1 1.6

2.5 1.9 2.0

1.3

2.0 2.22.0 2.31.7 1.7 2.51.91.9

(4)

(3)

(2)

(1)

-

1

2

3

4

5

6

7

198819891990199119921993199419951996199719981999200020012002200320042005200620072008

2009E2010E2011E2012E2013E

Younger

Relativ e to Industry :

Av erage Show room

Source: Banc of America Securities-Merrill Lynch 

Chart 66: Nissan replacement rate 

36%

13%

31%27%22%

18%

42%

16%

7%

16%

41% 43%

31% 33%

2%

16%

0% 2% 7% 0% 0% 4%

0%

10%

20%

30%

40%

50%

60%

70%

199219931994199519961997199819992000200120022003

2004

20052006

2007

20082009

2010E2011E2012E

2013E

Nissan

Nissan 92-09 Av g.

Industry

Replacement Rate

Source: Banc of America Securities-Merrill Lynch 

Chart 67: Nissan’s absolute and relative average showroom age 

1.1 1.52.0

2.9 2.42.2 2.5

3.9

3.0

3.9

2.2 1.3 1.71.2 1.4 1.61.6 1.9 2.02.7 1.81.9 2.1

2.93.4

1.9

(3)

(2)

(1)

-

1

2

3

4

5

6

7

198819891990199119921993199419951996199719981999200020012002200320042005200620072008

2009E2010E2011E2012E2013E

Younger Relativ e to Industry :

Older

Av erage Show room Age (Years)

Source: Banc of America Securities-Merrill Lynch 

RC 
The US automotive product pipeline 

15 July 2009 

45

Price objective basis & risk 

Asbury Auto (ABG, $10.20, C-1-9) 

Our price objective of $13 is based on 12.5X our 2010 EPS estimate. We believe 

that the ABG brand mix should be relatively supportive and the quality of the 

business warrants a multiple at the higher end of the dealer range. 

Downside risks to our price objective are 1) A cyclical downturn below our 

forecasts for US SAAR would put significant pressure on new vehicle sales 2) 

increased weakness in the Florida market to which ABG is exposed 3) the 

possibility of higher interest rates 4) OEMs wariness toward public groups 5) 

consumer dissatisfaction with auto retailing and 6) the potential for franchise law 

changes 7) potential covenant breach. 

Upside risks to our price objective are 1) a general recovery in the economy 2) a 

significant recovery in US sales 3) a recovery in the Florida market to which ABG 

is exposed 4) the possibility of lower interest rates. 

BorgWarner (BWA, $30.51, C-2-9) 

We believe global macro pressure will challenge even the best run suppliers in 

our coverage universe, and therefore view average 5yr multiples as being 

warranted for BWA. This would indicate a stock at about $35 (EV/EBITDA 

approximately 9.0X). We believe BWA's relative operating and balance sheet 

strength will allow investors to look past 2009 to the company's 2010 EPS. 

Downside risks to our objective 1) an extreme drop in gas prices coupled with 

relaxed fuel efficiency regulation 2) increased competition in the turbo industry 3) 

a continued downdraft in volumes 4) an even more than expected severe 

increase in raw material costs. 

Upside risks to our objective 1) an extreme increase in gas prices 2) greater than 

expected penetration of turbo charged GDI engines in the US and Europe 3) a 

significant recovery in volumes in the US and Europe 4) a significant decline in 

raw material costs. 

Ford Motor (F, $5.84, C-1-9) 

Our $8.75 PO is based on an EV/EBITDA multiple of 5X using an average of our 

2010 and 2011 estimates, which is consistent with the company's 5-yr historical 

average. Downside risks to our PO: 1) restructuring plan disappoints materially 2) 

the U.S. market was to fall lower than ests 3) input costs rise meaningfully 4) 

disruption in the supply base 5) significant increase in gas prices pressure 

demand 6) new vehicle pricing deteriorates 7) market share losses pressure 

results 8) unwillingness of the dealer body to shoulder inventory risk 9) suppliers 

gain significant pricing power 10) F is unable to receive the same terms from the 

UAW that may be negotiated by GM/Chrysler in bankruptcy court 11) further 

stress in capital markets makes borrowing prohibitive for F 12) trough in sales 

materializes later than we think, rendering our call early 13) key member of mgmt 

are unable to continue working at Ford 14) the dealership network is impaired and 

unable to sell F vehicles 15) significant share dilution if F funds its VEBA 

obligation with stock 16) US gov fails to support suppliers in the event of a 

GM/Chrysler bankruptcy 17) failure to execute could lead to bankruptcy. Upside 

risks to our PO: 1) restructuring plan performs better than expected 2) U.S. auto 

sales recover meaningfully 3) input costs drop meaningfully 4) the potential for 

further government stimulus 5) a rapid recovery in the global economy 6) large 

market share gains from competitors 7) a much better UAW contract. 

RC 
The US automotive product pipeline 

15 July 2009 

46 

Group 1 Auto (GPI, $25.49, C-1-9) 

Our price objective of $29.00 is based on a multiple of 12.5X our 2010 EPS 

estimate, which is at the high end of the historical range for GPI. Over time we 

believe the stock will trade to the higher end of its historical range as 

management focuses on cost savings and growth by acquisition to drive 15% 

earnings growth in the long run. Downside Risks to our price objective 1) the loss 

of Hesterberg and/or Rickel, 2) the possibility that GPI is unable to achieve the 

earnings growth we forecast, 3) the possibility of higher interest rates, 4) OEMs 

wariness toward public groups, 5) consumer dissatisfaction with auto retailing, 

and, 6) the potential for franchise law changes. Upside Risks to our price 

objective 1) stronger than anticipated earnings growth 2) further declines in 

interest rates, and 3) favovrable franchise law changes. 

Penske Auto Group (PAG, $16.14, C-1-9) 

Our price objective of $19 is based on 15X our 2010 EPS estimate, at the high 

end of the average for the stock over the last 5 years. We believe that multiple 

upside is warranted given the strength of PAG's model and luxury brand mix. 

Downside Risks to our price objective, 1) the loss of Roger Penske's leadership, 

2) the possibility that PAG is unable to achieve the earnings growth we forecast, 

3) the possibility of higher interest rates, 4) OEMs wariness toward public groups 

5) consumer dissatisfaction with auto retailing, and 6) the potential for franchise 

law changes. Upside Risks to our price objective, 1) stronger than anticipated 

earnings growth, 2) lower interest rates, and 3) the potential for favorable 

franchise law changes. 

Sonic Automotive (SAH, $9.21, C-1-9) 

Our price objective of $11.50 is based on 10x our 2010e EPS, around the 

historical average and below the 2010e dealer average P/E. Downside Risks to 

our price objective 1) a cyclical downturn below our forecasts for US SAAR would 

put significant pressure on new vehicle sales, 2) possibility that SAH is unable to 

achieve the earnings growth we forecast, 3) the possibility of higher interest rates, 

4) OEMs wariness toward public groups, 5) consumer dissatisfaction with auto 

retailing, 6) the potential for franchise law changes, and 7) potential covenant 

breach. Upside Risks to our price objective 1) a cyclical upturn in the US SAAR 

which would boost new vehicle sales, 2) better than anticipated earnings growth 

3) the possibility of lower interest rates, 

Analyst Certification 

I, John Murphy, CFA, hereby certify that the views expressed in this research 

report accurately reflect my personal views about the subject securities and 

issuers. I also certify that no part of my compensation was, is, or will be, directly 

or indirectly, related to the specific recommendations or view expressed in this 

research report. 

RC 
The US automotive product pipeline 

15 July 2009 

47

US-Automotives Coverage Cluster 

Investment rating Company ML ticker Bloomberg symbol Analyst 

BUY 

 Asbury Auto ABG ABG US John Murphy, CFA 

 Ford Motor F F US John Murphy, CFA 

 Goodyear GT GT US John Murphy, CFA 

 Group 1 Auto GPI GPI US John Murphy, CFA 

 Magna Intl MGA MGA US John Murphy, CFA 

 Penske Auto Group PAG PAG US John Murphy, CFA 

 Sonic Automotive SAH SAH US John Murphy, CFA 

NEUTRAL 

 BorgWarner BWA BWA US John Murphy, CFA 

 Cooper Tire CTB CTB US John Murphy, CFA 

 Genuine Parts GPC GPC US John Murphy, CFA 

 Johnson Controls JCI JCI US John Murphy, CFA 

 TRW Automotive TRW TRW US John Murphy, CFA 

UNDERPERFORM 

 American Axle AXL AXL US John Murphy, CFA 

 ArvinMeritor ARM ARM US John Murphy, CFA 

 AutoNation, Inc. AN AN US John Murphy, CFA 

 Gentex GNTX GNTX US John Murphy, CFA 

 Lithia Motors A LAD LAD US John Murphy, CFA 

RC 
The US automotive product pipeline 

15 July 2009 

48 

Important Disclosures 

Investment Rating Distribution: Autos Group (as of 01 Jun 2009) 

Coverage Universe Count Percent Inv. Banking Relationships* Count Percent

Buy 33 44.00% Buy 14 48.28%

Neutral 13 17.33% Neutral 5 55.56%

Sell 29 38.67% Sell 15 60.00%

Investment Rating Distribution: Distributors Group (as of 01 Jun 2009) 

Coverage Universe Count Percent Inv. Banking Relationships* Count Percent

Buy 7 70.00% Buy 3 42.86%

Neutral 0 0.00% Neutral 0 0.00%

Sell 3 30.00% Sell 1 33.33%

Investment Rating Distribution: Global Group (as of 01 Jun 2009) 

Coverage Universe Count Percent Inv. Banking Relationships* Count Percent

Buy 1303 40.83% Buy 602 51.10%

Neutral 807 25.29% Neutral 362 51.49%

Sell 1081 33.88% Sell 394 39.96%

* Companies in respect of which MLPF&S or an affiliate has received compensation for investment banking services within the past 12 months. For purposes of this distribution, a stock 

rated Underperform is included as a Sell.

FUNDAMENTAL EQUITY OPINION KEY: Opinions include a Volatility Risk Rating, an Investment Rating and an Income Rating. VOLATILITY RISK 

RATINGS, indicators of potential price fluctuation, are: A - Low, B - Medium and C - High. INVESTMENT RATINGS reflect the analyst’s assessment of a 

stock’s: (i) absolute total return potential and (ii) attractiveness for investment relative to other stocks within its Coverage Cluster (defined below). There 

are three investment ratings: 1 - Buy stocks are expected to have a total return of at least 10% and are the most attractive stocks in the coverage cluster; 

2 - Neutral stocks are expected to remain flat or increase in value and are less attractive than Buy rated stocks and 3 - Underperform stocks are the least 

attractive stocks in a coverage cluster. Analysts assign investment ratings considering, among other things, the 0-12 month total return expectation for a 

stock and the firm’s guidelines for ratings dispersions (shown in the table below). The current price objective for a stock should be referenced to better 

understand the total return expectation at any given time. The price objective reflects the analyst’s view of the potential price appreciation (depreciation). 

Investment rating Total return expectation (within 12-month period of date of initial rating) Ratings dispersion guidelines for coverage cluster* 

Buy ≥ 10% ≤ 70% 

Neutral ≥ 0% ≤ 30% 

Underperform N/A ≥ 20% 

* Ratings dispersions may vary from time to time where BAS-ML Research believes it better reflects the investment prospects of stocks in a Coverage Cluster. 

INCOME RATINGS, indicators of potential cash dividends, are: 7 - same/higher (dividend considered to be secure), 8 - same/lower (dividend not considered 

to be secure) and 9 - pays no cash dividend. Coverage Cluster is comprised of stocks covered by a single analyst or two or more analysts sharing a common 

industry, sector, region or other classification(s). A stock’s coverage cluster is included in the most recent BAS-ML Comment referencing the stock. 

Price charts for the securities referenced in this research report are available at http://www.ml.com/research/pricecharts.asp, or call 1-888-ML-CHART to have 

them mailed. 

MLPF&S or one of its affiliates acts as a market maker for the equity securities recommended in the report: Asbury Auto Grp, BorgWarner, Ford Motor, Group 1 

Automoti, Penske Auto Group, Sonic Automotive. 

MLPF&S or an affiliate was a manager of a public offering of securities of this company within the last 12 months: BorgWarner, Ford Motor. 

The company is or was, within the last 12 months, an investment banking client of MLPF&S and/or one or more of its affiliates: Asbury Auto Grp, BorgWarner, 

Ford Motor, Group 1 Automoti, Penske Auto Group, Sonic Automotive. 

MLPF&S or an affiliate has received compensation from the company for non-investment banking services or products within the past 12 months: Ford Motor, 

Group 1 Automoti. 

The company is or was, within the last 12 months, a non-securities business client of MLPF&S and/or one or more of its affiliates: Asbury Auto Grp, BorgWarner, 

Ford Motor, Group 1 Automoti, Penske Auto Group, Sonic Automotive. 

MLPF&S or an affiliate has received compensation for investment banking services from this company within the past 12 months: Asbury Auto Grp, BorgWarner, 

Ford Motor, Group 1 Automoti, Penske Auto Group, Sonic Automotive. 

MLPF&S or an affiliate expects to receive or intends to seek compensation for investment banking services from this company or an affiliate of the company 

within the next three months: Asbury Auto Grp, BorgWarner, Ford Motor, Group 1 Automoti, Penske Auto Group, Sonic Automotive. 

MLPF&S together with its affiliates beneficially owns one percent or more of the common stock of this company. If this report was issued on or after the 10th day 

of the month, it reflects the ownership position on the last day of the previous month. Reports issued before the 10th day of a month reflect the ownership position at 

the end of the second month preceding the date of the report: BorgWarner, Ford Motor, Group 1 Automoti, Sonic Automotive. 

MLPF&S or one of its affiliates is willing to sell to, or buy from, clients the common equity of the company on a principal basis: Asbury Auto Grp, BorgWarner, 

Ford Motor, Group 1 Automoti, Penske Auto Group, Sonic Automotive. 

The company is or was, within the last 12 months, a securities business client (non-investment banking) of MLPF&S and/or one or more of its affiliates: Asbury 

Auto Grp, BorgWarner, Ford Motor, Group 1 Automoti, Penske Auto Group, Sonic Automotive. 

The analyst(s) responsible for covering the securities in this report receive compensation based upon, among other factors, the overall profitability of Merrill 

Lynch, including profits derived from investment banking revenues. 

RC 
The US automotive product pipeline 

15 July 2009 

49

Other Important Disclosures 

MLPF&S or one of its affiliates has a significant financial interest in the fixed income instruments of the issuer. If this report was issued on or after the 10th day of 

a month, it reflects a significant financial interest on the last day of the previous month. Reports issued before the 10th day of a month reflect a significant financial 

interest at the end of the second month preceding the date of the report: Ford Motor, Group 1 Automoti, Penske Auto Group. 

Merrill Lynch Research policies relating to conflicts of interest are described at http://www.ml.com/media/43347.pdf.

"Merrill Lynch" includes Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") and its affiliates, including BofA (defined below). "BofA" 

refers to Banc of America Securities LLC ("BAS"), Banc of America Securities Limited ("BASL"), Banc of America Investment Services, Inc ("BAI") and 

their affiliates. Investors should contact their Merrill Lynch or BofA representative if they have questions concerning this report.

Information relating to Non-US affiliates of Merrill Lynch and Distribution of Affiliate Research Reports:

MLPF&S, BAS, BAI, and BASL distribute, or may in the future distribute, research reports of the following non-US affiliates in the US (short name: legal name): 

Merrill Lynch (France): Merrill Lynch Capital Markets (France) SAS; Merrill Lynch (Frankfurt): Merrill Lynch International Bank Ltd, Frankfurt Branch; Merrill Lynch 

(South Africa): Merrill Lynch South Africa (Pty) Ltd; Merrill Lynch (Milan): Merrill Lynch International Bank Limited; MLPF&S (UK): Merrill Lynch, Pierce, Fenner & 

Smith Limited; Merrill Lynch (Australia): Merrill Lynch Equities (Australia) Limited; Merrill Lynch (Hong Kong): Merrill Lynch (Asia Pacific) Limited; Merrill Lynch 

(Singapore): Merrill Lynch (Singapore) Pte Ltd; Merrill Lynch (Canada): Merrill Lynch Canada Inc; Merrill Lynch (Mexico): Merrill Lynch Mexico, SA de CV, Casa de 

Bolsa; Merrill Lynch (Argentina): Merrill Lynch Argentina SA; Merrill Lynch (Japan): Merrill Lynch Japan Securities Co, Ltd; Merrill Lynch (Seoul): Merrill Lynch 

International Incorporated (Seoul Branch); Merrill Lynch (Taiwan): Merrill Lynch Securities (Taiwan) Ltd.; DSP Merrill Lynch (India): DSP Merrill Lynch Limited; PT 

Merrill Lynch (Indonesia): PT Merrill Lynch Indonesia; Merrill Lynch (KL) Sdn. Bhd.: Merrill Lynch (Malaysia); Merrill Lynch (Israel): Merrill Lynch Israel Limited; Merrill 

Lynch (Russia): Merrill Lynch CIS Limited, Moscow; Merrill Lynch (Turkey): Merrill Lynch Yatirim Bankasi A.S.; Merrill Lynch (Dubai): Merrill Lynch International Bank 

Ltd, Dubai Branch; MLPF&S (Zürich rep. office): MLPF&S Incorporated Zürich representative office. 

This research report has been approved for publication in the United Kingdom by Merrill Lynch, Pierce, Fenner & Smith Limited and BASL, which are authorized 

and regulated by the Financial Services Authority; has been considered and distributed in Japan by Merrill Lynch Japan Securities Co, Ltd and Banc of America 

Securities - Japan, Inc., registered securities dealers under the Financial Instruments and Exchange Law in Japan; is distributed in Hong Kong by Merrill Lynch (Asia 

Pacific) Limited and Banc of America Securities Asia Limited, which are regulated by the Hong Kong SFC and the Hong Kong Monetary Authority; is issued and 

distributed in Taiwan by Merrill Lynch Securities (Taiwan) Ltd.; is issued and distributed in Malaysia by Merrill Lynch (KL) Sdn. Bhd., a licensed investment adviser 

regulated by the Malaysian Securities Commission; is issued and distributed in India by DSP Merrill Lynch Limited; and is issued and distributed in Singapore by 

Merrill Lynch International Bank Limited (Merchant Bank), Merrill Lynch (Singapore) Pte Ltd (Company Registration No.'s F 06872E and 198602883D respectively) 

and Bank of America Singapore Limited (Merchant Bank). Merrill Lynch International Bank Limited (Merchant Bank), Merrill Lynch (Singapore) Pte Ltd and Bank of 

America Singapore Limited (Merchant Bank) are regulated by the Monetary Authority of Singapore. Merrill Lynch Equities (Australia) Limited (ABN 65 006 276 795), 

AFS License 235132 provides this report in Australia in accordance with section 911B of the Corporations Act 2001 and neither it nor any of its affiliates involved in 

preparing this research report is an Authorised Deposit-Taking Institution under the Banking Act 1959 nor regulated by the Australian Prudential Regulation 

Authority. No approval is required for publication or distribution of this report in Brazil. 

Merrill Lynch (Frankfurt) distributes this report in Germany. Merrill Lynch (Frankfurt) is regulated by BaFin. 

This research report has been prepared and issued by MLPF&S and/or one or more of its non-US affiliates. MLPF&S is the distributor of this research report in 

the US and accepts full responsibility for research reports of its non-US affiliates distributed to MLPF&S clients in the US. Any US person (other than BAS, BAI and 

their respective clients) receiving this research report and wishing to effect any transaction in any security discussed in the report should do so through MLPF&S and 

not such foreign affiliates. 

BAS distributes this research report to its clients and to its affiliate BAI and accepts responsibility for the distribution of this report in the US to BAS clients, but 

not to the clients of BAI. BAI is a registered broker-dealer, member of FINRA and SIPC, and is a non-bank subsidiary of Bank of America, N.A. BAI accepts 

responsibility for the distribution of this report in the US to BAI clients. Transactions by US persons that are BAS or BAI clients in any security discussed herein must 

be carried out through BAS and BAI, respectively. 

RC 
The US automotive product pipeline 

15 July 2009 

50 

General Investment Related Disclosures:

This research report provides general information only. Neither the information nor any opinion expressed constitutes an offer or an invitation to make an offer, 

to buy or sell any securities or other financial instrument or any derivative related to such securities or instruments (e.g., options, futures, warrants, and contracts for 

differences). This report is not intended to provide personal investment advice and it does not take into account the specific investment objectives, financial situation 

and the particular needs of any specific person. Investors should seek financial advice regarding the appropriateness of investing in financial instruments and 

implementing investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. 

Any decision to purchase or subscribe for securities in any offering must be based solely on existing public information on such security or the information in the 

prospectus or other offering document issued in connection with such offering, and not on this report. 

Securities and other financial instruments discussed in this report, or recommended, offered or sold by Merrill Lynch, are not insured by the Federal Deposit 

Insurance Corporation and are not deposits or other obligations of any insured depository institution (including, Bank of America, N.A.). Investments in general and, 

derivatives, in particular, involve numerous risks, including, among others, market risk, counterparty default risk and liquidity risk. No security, financial instrument or 

derivative is suitable for all investors. In some cases, securities and other financial instruments may be difficult to value or sell and reliable information about the 

value or risks related to the security or financial instrument may be difficult to obtain. Investors should note that income from such securities and other financial 

instruments, if any, may fluctuate and that price or value of such securities and instruments may rise or fall and, in some cases, investors may lose their entire 

principal investment. Past performance is not necessarily a guide to future performance. Levels and basis for taxation may change. 

This report may contain a short-term trading idea or recommendation, which highlights a specific near-term catalyst or event impacting the company or the 

market that is anticipated to have a short-term price impact on the equity securities of the company. Short-term trading ideas and recommendations are different 

from and do not affect a stock's fundamental equity rating, which reflects both a longer term total return expectation and attractiveness for investment relative to 

other stocks within its Coverage Cluster. Short-term trading ideas and recommendations may be more or less positive than a stock's fundamental equity rating. 

Foreign currency rates of exchange may adversely affect the value, price or income of any security or financial instrument mentioned in this report. Investors in 

such securities and instruments, including ADRs, effectively assume currency risk. 

UK Readers: The protections provided by the U.K. regulatory regime, including the Financial Services Scheme, do not apply in general to business coordinated 

by Merrill Lynch entities located outside of the United Kingdom. These disclosures should be read in conjunction with the BASL general policy statement on the 

handling of research conflicts, which is available upon request. 

Officers of MLPF&S or one or more of its affiliates (other than research analysts) may have a financial interest in securities of the issuer(s) or in related 

investments. 

Merrill Lynch is a regular issuer of traded financial instruments linked to securities that may have been recommended in this report. Merrill Lynch may, at any 

time, hold a trading position (long or short) in the securities and financial instruments discussed in this report. 

Merrill Lynch, through business units other than BAS-ML Research, may have issued and may in the future issue trading ideas or recommendations that are 

inconsistent with, and reach different conclusions from, the information presented in this report. Such ideas or recommendations reflect the different time frames, 

assumptions, views and analytical methods of the persons who prepared them, and Merrill Lynch is under no obligation to ensure that such other trading ideas or 

recommendations are brought to the attention of any recipient of this report. 

Copyright and General Information regarding Research Reports:

Copyright 2009 Merrill Lynch, Pierce, Fenner & Smith Incorporated. All rights reserved. iQmethod, iQmethod 2.0, iQprofile, iQtoolkit, iQworks are service marks 

of Merrill Lynch & Co., Inc. iQanalytics®, iQcustom®, iQdatabase® are registered service marks of Merrill Lynch & Co., Inc. This research report is prepared for the 

use of Merrill Lynch clients and may not be redistributed, retransmitted or disclosed, in whole or in part, or in any form or manner, without the express written consent 

of Merrill Lynch. Merrill Lynch research reports are distributed simultaneously to internal and client websites and other portals by Merrill Lynch and are not publiclyavailable materials. Any unauthorized use or disclosure is prohibited. Receipt and review of this research report constitutes your agreement not to redistribute, 

retransmit, or disclose to others the contents, opinions, conclusion, or information contained in this report (including any investment recommendations, estimates or 

price targets) without first obtaining expressed permission from an authorized officer of Merrill Lynch. 

Materials prepared by Merrill Lynch research personnel are based on public information. Facts and views presented in this material have not been reviewed by, 

and may not reflect information known to, professionals in other business areas of Merrill Lynch, including investment banking personnel. To the extent this report 

discusses any legal proceeding or issues, it has not been prepared as nor is it intended to express any legal conclusion, opinion or advice. Investors should consult 

their own legal advisers as to issues of law relating to the subject matter of this report. Merrill Lynch research personnel's knowledge of legal proceedings in which 

any Merrill Lynch entity and/or its directors, officers and employees may be plaintiffs, defendants, co-defendants or co-plaintiffs with or involving companies 

mentioned in this report is based on public information. Facts and views presented in this material that relate to any such proceedings have not been reviewed by, 

discussed with, and may not reflect information known to, professionals in other business areas of Merrill Lynch in connection with the legal proceedings or matters 

relevant to such proceedings. 

This report has been prepared independently of any issuer of securities mentioned herein and not in connection with any proposed offering of securities or as 

agent of any issuer of any securities. None of MLPF&S, any of its affiliates or their research analysts has any authority whatsoever to make any representation or 

warranty on behalf of the issuer(s). Merrill Lynch policy prohibits research personnel from disclosing a recommendation, investment rating, or investment thesis for 

review by an issuer prior to the publication of a research report containing such rating, recommendation or investment thesis. 

Any information relating to the tax status of financial instruments discussed herein is not intended to provide tax advice or to be used by anyone to provide tax 

advice. Investors are urged to seek tax advice based on their particular circumstances from an independent tax professional. 

The information herein (other than disclosure information relating to Merrill Lynch and its affiliates) was obtained from various sources and we do not guarantee 

its accuracy. This report may contain links to third-party websites. Merrill Lynch is not responsible for the content of any third-party website or any linked content 

contained in a third-party website. Content contained on such third-party websites is not part of this report and is not incorporated by reference into this report. The 

inclusion of a link in this report does not imply any endorsement by or any affiliation with Merrill Lynch. Access to any third-party website is at your own risk, and you 

should always review the terms and privacy policies at third-party websites before submitting any personal information to them. Merrill Lynch is not responsible for 

such terms and privacy policies and expressly disclaims any liability for them. 

Subject to the quiet period applicable under laws of the various jurisdictions in which we distribute research reports and other legal and Merrill Lynch policyrelated restrictions on the publication of research reports, fundamental equity reports are produced on a regular basis as necessary to keep the investment 

recommendation current. 

Certain outstanding reports may contain discussions and/or investment opinions relating to securities, financial instruments and/or issuers that are no longer 

current. Always refer to the most recent research report relating to a company or issuer prior to making an investment decision. 

In some cases, a company or issuer may be classified as Restricted or may be Under Review or Extended Review. In each case, investors should consider any 

investment opinion relating to such company or issuer (or its security and/or financial instruments) to be suspended or withdrawn and should not rely on the analyses 

and investment opinion(s) pertaining to such issuer (or its securities and/or financial instruments) nor should the analyses or opinion(s) be considered a solicitation of 

any kind. Sales persons and financial advisors affiliated with BAS, BAI, MLPF&S or any of their affiliates may not solicit purchases of securities or financial 

instruments that are Restricted or Under Review and may only solicit securities under Extended Review in accordance with firm policies. 

Neither Merrill Lynch nor any officer or employee of Merrill Lynch accepts any liability whatsoever for any direct, indirect or consequential damages or losses 

arising from any use of this report or its contents. 

RC 
The US automotive product pipeline 

15 July 2009 

51

Team Page 

John Murphy, CFA +1 212 449 7045 

Research Analyst 

MLPF&S 

john_murphy@ml.com 

John Lovallo II, CFA +1 212 449 6166 

Research Analyst 

MLPF&S 

john_lovalloii@ml.com 

Elizabeth Lane +1 212 449 6091 

Research Analyst 

MLPF&S 

elizabeth_lane@ml.com 

Harald Hendrikse >> +44 20 7996 4890 

Research Analyst 

MLPF&S (UK) 

harald_hendrikse@ml.com 

Thomas Besson >> +33 1 53 65 59 47 

Research Analyst 

Merrill Lynch (France) 

thomas_besson@ml.com 

Koichi Sugimoto >> +81 3 6225 6909 

Research Analyst 

Merrill Lynch (Japan) 

koichi_sugimoto@ml.com 

Daniel Kim, CFA >> +852 2536 3443 

Research Analyst 

Merrill Lynch (Hong Kong) 

daniel_kim@ml.com 

>> Employed by a non-US affiliate of MLPF&S and is not registered/qualified as a research analyst under the 

FINRA rules. 

Refer to "Other Important Disclosures" for information on certain Merrill Lynch entities that take responsibility for 

this report in particular jurisdictions. 

RC