Market Conditions October 2004

Typical of this time of year, the used vehicle market is experiencing a fairly high percentage of its yearly depreciation in a relatively short period of time. The months of October and November tend to be the low point of the market most years, and this year doesn't seem to be any different. The decline may be retarded somewhat by a general lack of inventory in most market segments, but we are experiencing some strong downward pressure nevertheless. Leading the decline because it is the one segment of the market that has a surplus of inventory is the light truck market, led by SUVs but including pickups and vans. Simply put, there are just too many trucks out there for the market to absorb and the only selling point unless you have a very unusual unit (a diesel, unusually low mileage, or unusually short supply) is a low price. As long as there continues to be an abundance of these vehicles coming into the market, we expect prices to continue to decline even though we are entering 4-wheel drive season. We also expect other market segments to continue to decline, but not as precipitously as the trucks. We have already experienced significant declines within the luxury segment of the market. BMW, Mercedes, Lexus, and Jaguar have all declined significantly, led, of course, by the coupes and convertibles. Late models in particular have suffered as a result of programs aimed at cleaning out the 2004 models. Even the Japanese mid-range vehicles have seen unusually strong declines, both as a result of incentives on '04s and a general abundance of vehicles available. They sold and leased so many of them that supply is overwhelming demand on these always-popular car lines. It is a very selective market, and we think it will continue to be so for the next two months at least. We are not there yet, but we are fast approaching that time of year when everyone wants to buy everything for under "book".

Dan Galves