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Investment Conclusion

Auto sales received a strong boost in August from the government's Car Allowance Rebate System (CARS) scrappage incentive(otherwise known as "Cash for Clunkers"), which took the month's light vehicle SAAR (seasonally adjusted annual rate) to 14.1mm units.While it was the strongest selling rate since May 2008, the industry's August performance came in below our 15.8mm expectation, asmore of the "clunkers" sales than previously thought appear to have been booked in July, and as the automakers' large focus on theCARS program likely kept some "non-clunkers" buyers away from the dealerships.

Summary

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While the entire industry benefited from the boost in auto demand caused by the CARS program, the Japanese 3 captured an oversizedshare of the clunkers benefit, whereas the Domestic 3's share was well below trend. This was largely due to the domestic manufacturers'weak offering in the small to mid-car segments, which have benefited the most from the program. As a result, GM and Chrysler y-o-ycomps materially underperformed the industry 5% y-o-y adjusted sales increase, while Toyota and Honda's sales improvementsoutperformed the industry. We note that the y-o-y comparisons were distorted by the strong performance of GM and very weak sales of Ford in August 2008, due to GM's employee discount incentives last summer. Looking at sequential performance, Ford lost the mostmarket share of any big manufacturer, followed by Chrysler, with August share respectively at 290bps and 110bps below their trend of the previous three months. Conversely, GM's share loss was just 50bps, a respectable performance in light of the sharp mix shift towardsmall cars in August. This lost share was captured by the Japanese 3, which gained 130-150bps of market share each versus their trends.

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We estimate that excluding the impact from the CARS program, August auto sales ran at a 9.6mm SAAR, exactly in line with the 9.6mmaverage industry selling rate in 2009 before the program started. Indeed, out of the 14.1mm published SAAR, the 500k clunkers turned inexplain 5.6mm of the selling rate, although an average month would have seen about 100k clunkers (1.1mm rate) turned in, even withoutthe program (Figure 2). We believe that the underlying non-clunkers sales rate would have been higher, had the automakers not cut backmaterially on their incentives in the month, taking advantage of the government-sponsored vouchers. GM indeed indicated that averageincentive spending for the industry was down by $400 per vehicle vs. July.

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Looking ahead, we expect sales for the remainder of the year to fall well below August results, but believe momentum from the programas well as the stabilization in the economy and improvement in consumer confidence could boost sales above the 9.6 mil average seen in1H09. Specifically, we estimate that SAAR could be in the 10.0 mil area in September, and 10.5 mil units in 4Q09 (Figure 1). Wetherefore remain very comfortable with our full year 2009 SAAR of a around 10.5 mil units.

HIGHLIGHTS FROM AUGUST 2009 SALES

Ford

’s sales of its domestic brands were up 22% y-o-y on a DSR basis, well below our estimate of a 52.5% increase, despite a very easyyear-ago comparison when Ford’s share was just 12%. Nevertheless, the company’s retail sales, which increased by 26% in August, onceagain outperformed the industry, while Ford’s fleet sales rose by 6%.September 02, 2009

Autos & Auto Parts

Industry Overview

"Clunkers" Boost August Sales

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AmericasIndustrialsAutos & Auto Parts

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Ford’s passenger car sales were up 29% y-o-y, as the “Cash for Clunkers” program boosted demand for fuel efficient vehicles, but resultsfell below our +66% expectation. Ford truck sales performance in August was also below expectations, posting a 17% gain versus our +46% forecast. In particular, more fuel efficient CUVs posted a 32% yoy increase in sales, while full-size pickups sales rose by 16% yoy.

's August sales performance was below expectations, ending down 17% y-o-y versus our estimate of a 9% drop. GM’s fleet sales weredown 26% in August as GM likely focused its relatively low inventories toward retail sales. Indeed, boosted by the government’s CARSprogram, GM’s retail sales performance was down by a smaller 14% yoy.GM’s passenger car performance was a bit ahead of what we expected, posting roughly flat results in August vs. our estimate of a 4% fall.On the other hand, light truck sales underperformed, declining by 28% y-o-y vs. our -13% estimate, as GM’s full size pickup sales, which fell41% yoy, underperformed the overall segment decline of 31%.

Chrysler

posted a 12% drop in sales in August, below our estimate of a 2% rise, as the company noted that low inventory reducedavailability of many vehicles.Chrysler’s passenger car sales fell 9% in August, below our above our -4% estimate. Similarly, Chrysler posted weaker than expected lighttrucks sales, which declined by 13% y-o-y, versus our estimate of a 3% rise.

INVENTORIES & PRODUCTION

Ford

finished August with just 243k units in inventory at Ford, Lincoln and Mercury (by Ford’s calculation method). Using August’s clunkersinflated sales rate, this represents 36 days of supply, well below the company’s 10-year average for August of 75 days. Ford left unchangedits recently raised 3Q09 production forecast of 495k vehicles (we estimate 170k cars, 325k trucks), which represents a 18% y-o-y increasevs. the 420k (185k cars, 235k trucks) produced in 3Q08. For 4Q, Ford estimates production of 570k units, or a 33% y-o-y increase.

said it ended the month with 380k units in inventory, down 340k y-o-y. We calculate this represents a 40 days of supply at the end of August, significantly below the company’s 85 day historical average level for the month. GM reiterated its 3Q production guidance of 535kvehicles (210 cars, 325k trucks), which represents a 42% decline y-o-y. In addition, GM initiated a 4Q forecast of 655k units (262k cars,393k trucks), down 20% versus last year.

Chrysler

ended August with 100k units in inventory, 280k units lower than the same period last year. As a result, Chrysler ended the monthwith just a 28-day supply, below the company’s historical average of 66 days for the month.

Figure 1: Monthly U.S. Light Vehicle SAAR 2006-2009E

9.7 11.2

15.916.516.616.116.316.417.116.317.616.416.616.216.416.616.116.216.215.815.516.0

16.116.216.215.910.310.410.812.513.512.613.814.214.415.015.415.4

9.2 10.5 10.5 10.5 10.0 14.19.8 9.7 9.6 9.1

89101112131415161718J F M A M J J A S O N D

S A A R ( i n m i l l i o n u n i t s )

2006 (16.6mm)2007 (16.1mm)2008 (13.2mm)2009E (10.4mm)

Source: Autodata, Barclays Capital estimates

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Figure 2: August Published SAAR vs. Underlying Sales Rate

Aug. SAAR 14.1mm- Aug Clunker sales (500k) - 5.6mm+ Typical monthly clunkers trade-ins (100k) + 1.1mm

Underlying SAAR9.6mm

Source: Autodata, Barclays Capital estimates

Figure 3: August 2009 U.S. Light Vehicle Sales

DSR DSRCar/Trk8/09A8/08A% DSR8/09AYTDMix8/09A8/08AChg 2009 2008ChgFY08FY07FY06

Cars

118,340

123,143 (0.2%) 4,552 (33.2%) 48.3% 16.3% 19.6% (3.3) 15.9% 17.8% (1.9) 18.3% 19.3% 20.5%Lt. Trucks

126,726

182,639 (27.9%) 4,874 (35.2%) 51.7% 23.7% 29.4% (5.7) 23.5% 25.7% (2.2) 26.2% 27.1% 27.8%Total

245,066

305,782 (16.8%) 9,426 (34.3%) 100% 19.4% 24.5% (5.0) 19.4% 21.6% (2.1) 22.2% 23.5% 24.3%Cars

65,654

52,677 29.4% 2,525 (19.3%) 37.3% 9.0% 8.4% 0.7 10.8% 10.0% 0.8 9.9% 10.0% 12.9%Lt. Trucks

110,346

97,771 17.2% 4,244 (24.9%) 62.7% 20.6% 15.7% 4.9 20.3% 19.2% 1.1 19.1% 19.0% 19.5%Total

176,000

150,448 21.5% 6,769 (22.9%) 100% 13.9% 12.0% 1.9 15.2% 14.4% 0.8 14.4% 14.8% 16.4%Cars

22,638

25,852 (9.1%) 871 (49.1%) 24.3% 3.1% 4.1% (1.0) 4.0% 5.9% (1.9) 5.9% 7.0% 6.4%Lt. Trucks

70,584

84,383 (13.1%) 2,715 (34.7%) 75.7% 13.2% 13.6% (0.4) 15.2% 16.5% (1.3) 16.3% 18.0% 18.7%Total

93,222

110,235 (12.2%) 3,585 (38.7%) 100% 7.4% 8.8% (1.4) 9.2% 11.0% (1.7) 11.0% 12.9% 12.9%Cars 206,632 201,672 6.4% 7,947 (31.8%) 40.2% 28.4% 32.1% (3.6) 30.8% 33.7% (2.9) 34.0% 36.3% 39.8%Lt. Trucks 307,656 364,793 (12.4%) 11,833 (31.9%) 59.8% 57.5% 58.8% (1.3) 58.9% 61.3% (2.4) 61.7% 64.2% 66.0%Total 514,288 566,465 (5.7%) 19,780 (31.8%) 100% 40.8% 45.3% (4.6) 43.9% 47.0% (3.0) 47.5% 51.1% 53.6%Cars

155,139

129,622 24.3% 5,967 (26.8%) 68.9% 21.3% 20.6% 0.7 19.6% 20.0% (0.4) 20.0% 20.0% 18.8%Lt. Trucks

69,949

81,911 (11.3%) 2,690 (30.8%) 31.1% 13.1% 13.2% (0.1) 13.1% 13.4% (0.3) 13.3% 12.9% 12.3%Total

225,088

211,533 10.5% 8,657 (28.3%) 100% 17.8% 16.9% 0.9 16.6% 16.8% (0.3) 16.7% 16.2% 15.4%Cars

106,972

86,827 27.9% 4,114 (24.6%) 66.3% 14.7% 13.8% 0.9 13.4% 13.2% 0.1 12.9% 11.7% 10.9%Lt. Trucks

54,467

60,028 (5.8%) 2,095 (25.3%) 33.7% 10.2% 9.7% 0.5 9.2% 8.7% 0.5 8.5% 7.8% 7.6%Total

161,439

146,855 14.2% 6,209 (24.8%) 100% 12.8% 11.8% 1.0 11.4% 11.1% 0.4 10.8% 9.6% 9.1%Cars

78,166

56,476 43.7% 3,006 (20.1%) 74.2% 10.8% 9.0% 1.8 9.4% 8.8% 0.6 8.7% 8.4% 7.1%Lt. Trucks

27,146

52,017 (45.8%) 1,044 (38.1%) 25.8% 5.1% 8.4% (3.3) 5.2% 5.9% (0.8) 5.5% 5.0% 5.3%Total

105,312

108,493 0.8% 4,050 (27.0%) 100% 8.3% 8.7% (0.3) 7.4% 7.4% 0.0 7.2% 6.6% 6.2%Cars

180,025

154,350 21.1% 6,924 (17.6%) 70.4% 24.8% 24.5% 0.2 26.8% 24.2% 2.5 24.6% 23.7% 23.4%Lt. Trucks

75,825

62,097 26.8% 2,916 (8.9%) 29.6% 14.2% 10.0% 4.2 13.7% 10.7% 3.0 11.0% 10.1% 8.8%Total

255,850

216,447 22.8% 9,840 (15.1%) 100% 20.3% 17.3% 3.0 20.7% 17.7% 2.9 18.0% 16.4% 15.7%

8/09A8/08A

Ytd SAAR Avg

Cars

726,934

628,947 20.0% 8,046 6,776 57.6% 5,417 7,328 (26.1%) 51.2% 46.9% 47.0%Lt. Trucks

535,043

620,846 (10.5%) 6,046 6,786 42.4% 4,912 6,993 (29.8%) 48.8% 53.1% 53.0%Total

1,261,977

1,249,793 4.9% 14,092 13,562 100% 10,329 14,321 (27.9%) 100.0% 100.0% 100.0%

% :

3.9%

Selling Days

26 27

DSR = Daily Selling Rate. Analyzing changes in DSR eliminates distortions due to different number of selling days. YTD data includes our estimate of current month sales and market shares.

TotalIndustry

ToyotaHondaNissanOther GMFordChrysler

Total BigThree

S A A R