China, India, Russia, Ukraine and Brazil Is There ...EwaRoot Senior Market Analyst Eastern Europe China, India, Russia, Ukraine and Brazil Is There Sufficient Further Growth Potential

Ewa RootSenior Market Analyst

Eastern Europe

China, India, Russia, Ukraine and Brazil

Is There Sufficient Further Growth Potential to Offset Weakness of Mature Markets?

Copyright © 2008 Global Insight, Inc. GLOBAL AUTOMOTIVE CONFERENCE

Ukraine — Main Facts

• General Information– Second largest European

country by area (after the European part of Russia)

– Population: 46.5 million

– Capital: Kiev (3 million population)

– Independence from former Soviet Union in 1991

– Currency: hryvnia since September 1996

• Taxes– Income Tax 15%

– VAT 20%

– Corporate Tax 25%

– Import duties (cars) 10%


Economic Background — GDP Growth

- 4 %

- 2 %

0 %

2 %

4 %

6 %

8 %

10 %

12 %

14 %

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

• The Ukrainian economy is still caught between political instability, dysfunctional market structures and the influence of Gazprom’s gas-price hikes


-5%

0%

5%

10%

15%

20%

25%

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Private Consumption (LHS) Retail Sales (RHS)

Economic Background — Retail Sales

Retail sales will struggle to hold on to current pace of expansion


Economic Background — Inflation

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Consumer Price Wholesale Price Income Growth

The inflation surge continues in 2008


Automotive Market Facts

• In 2007, Ukraine was the second biggest market in Eastern Europe (after Russia) and the seventh biggest market in Europe

• 70% of newly registered cars are locally produced/assembled

• Only 1% of first time registrations are used car imports

• 75% of Ukrainian car parc is older than 8 years

• Car density is one of the lowest in Europe: 123 cars per 1,000 population in 2007

0 200 400 600

SVN

CZE

POL

BLR

ROM

RUS

KAZ

UKR

Car Density in Eastern Europe (2007)

• Most of the Ukrainian road system has not been upgraded since the Soviet era, and is now outdated.

Kiev suffers from heavy traffic jams

Jan-2006 Jul-2009 Jul-2011 Jan-2015

EURO II EURO III EURO IV EURO V

Emission Standards


What Has Been Driving Market Growth?

0

100

200

300

400

500

600

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

New Car Sales Used Car Sales‘000 units


Key Factors Affecting the Ukrainian Car Market

Price CompetitionPrice cut as a result of lower import duties

Price CompetitionPrice cut as a result of lower import duties

New Model Launches • Expansion of dealer networks

New Model Launches • Expansion of dealer networks

Passenger Car Market to Slow

Down in 2008 with Growth Rate of 24%

Passenger Car Market to Slow

Down in 2008 with Growth Rate of 24%

Oil PriceAugust 2008—the Ukrainian Parliament recommended a 12–15% reduction in price for car fuels

Oil PriceAugust 2008—the Ukrainian Parliament recommended a 12–15% reduction in price for car fuels

Macro EconomicGDP expected to grow by 6.4% in 08Inflation: 21% end of 2008Domestic consumption slows down as inflation dents into real incomes

Macro EconomicGDP expected to grow by 6.4% in 08Inflation: 21% end of 2008Domestic consumption slows down as inflation dents into real incomes

Policy and Regulatory• WTO: lower import duties• High registration tax for used imports • Tax privileges for local OEMs cancelled

Policy and Regulatory• WTO: lower import duties• High registration tax for used imports • Tax privileges for local OEMs cancelled

Other Factors• Political instability• Gas price row

Other Factors• Political instability• Gas price row

Other Factors• Low used car imports• Low car density

Other Factors• Low used car imports• Low car density


Ban on Used Car Imports Older than 8 Years and Subsequent Tax Increases Led to Sharp Fall in Imports of Second Hand Cars

0%

10%

20%

30%

40%

50%

60%

70%

80%

2000 2001 2002 2003 2004 2005 2006 2007 Jan -

July

2008

Car Market Structure in January – July 2008

Used car re-sale(42.1%)

Used car Imports(0.4%)

New cars(57.5%)

Used Car Re-sale

New Cars

Used Car Imports


Grey Imports Are Still a Big Problem in Ukraine

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Acura

Audi

BMW

Honda

Infiniti

Land Rover

Lexus

Mazda

MB

Mitsubishi

Nissan

Porsche

Subaru

Suzuki

Toyota

Volvo

Share of Grey Imports in the Ukrainian Car Market (2007)


Ukrainian Consumers Remain Price Sensitive, but the Share of Expensive Cars Is Growing Fast

0

20000

40000

60000

80000

100000

120000

140000

160000

Up

€4000

€4000-

6500

€6500-

10000

€10000-

15000

€15000-

22000

€22000-

35000

Over

€EURO

35000

New Passenger Car Sales by Price Range

0.40%

10.90%

38.10%

6.80%

10.60%

3.30%

28.60%

1.20%

0%

5%

10%

15%

20%

25%

30%

35%

40%

A B C D E MPV SUV SPORT

2006 2005

2006: Car Market by Financial

Capacity Share

Ukrainian consumers spend most of their money on C and SUV segment vehicles

2008 WTO entryLower import

duties

Lower car prices

15.05.2008 23.05.2008

Peugeot 308 26,600 24,200

Skoda Octavia tour 19,500 18,700

Citroen C2 16,500 16,000

Daewoo Lanos 10,300 9,900

Mazda 3 24,600 23,900

Price in US dollar


The Importance of Non CIS Brands Is Growing

MITSUBISHI,

5.50%

HYUNDAI, 4.20%

KIA, 3.00%

OPEL, 2.50%

TOYOTA, 4.40%

LADA, 23.60%

SKODA, 4.10%

CHERY, 3.40%

DAEWOO, 13.90%

NISSAN, 2.40%

CHEVROLET,

8.40%ZAZ, 5.90%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000

2001

2002

2003

2004

2005

2006

2007

2008

CIS Brands Other Brands

Market Share in 2007

• Fast rising consumer power and

credit availability

• Dealership network of foreign

brands is expanding rapidly

• Dynamic growth in local SKD

assembly of foreign brands

• Low access to used imports

• Low car density


Chinese OEMs Compete with Low Priced CIS Brands

0

20000

40000

60000

80000

100000

120000

140000

2007 2008 2009 2010 2011 2012 2013 2014 2015

Chinese Production Chinese Sales • Chinese brands will try to fill the

gap in low price segments, as both

Lada and ZAZ gradually withdraw

their budget models from the

market

• Ukraine is a target for Chinese

OEMs as the country has looser

emission and safety standards

than the rest of Europe

• Ukraine will not adopt Euro III until

2009 and Euro IV until 2011

• Chinese brands sold 27,000 cars

in Ukraine in 2007

OEM Models Local Assembler Location 2008 Fcst

Changan Benben KrASZ Kremenchug 1,300

Chery A-5, Amulet, B-11, QQ, Tiggo AvtoZAZ Zaporozhye 33,900

Geely CK-1, King Kong, FC-1 KrASZ Kremenchug 15,800

Great Wall Hover, Safe, Wingle KrASZ Kremenchug 2,150

Landwind X6 KrASZ Kremenchug 1,330

Local SKD Assembly of Chinese Brands


0

50,000

100,000

150,000

200,000

250,000

A B C D E MPV SUV

2000 2001 2002 2003 2004 2005 2006 2007 2008

Ukraine — Car Segment Development

Daewoo Matiz Hyundai Matrix

Lada SamaraDaewoo Lanos

BMW 5 series

Toyota Camry

Lada Niva


Ukraine — Car Segment Outlook

0

200

400

600

800

1000

1200

2007

2008

2009

2010

2011

2012

2013

2014

2015

Thousands

A B C D E MPV SUV

23.223.414.4SUV

2.82.92.4MPV

1.31.31.2E

7.37.17.3D

33.835.433.4C

29.027.440.3B

2.52.40.9A

201520122007

Segment Market Shares (%)Segment Volumes


Ukrainian Car Manufacturers — Around 70% of Local Production Is SKD Based

Zaporozhye

Illichivsk

Cherkassy Kremenchug

Uzhgorod

EUROCAR

BOGDANKRASZ

AVTOZAZ

Lutsk


Ukrainian Car Production — Current Status and Prospects for the Future

0

100

200

300

400

500

600

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Thousands

ZAZ Tavrija

Daewoo Lanos Chevrolet Aveo

Lada Priora

Lada Samara

Luaz-1301

0

100000

200000

300000

400000

2007 2012

AvtoZAZ Bogdan Eurocar KrASZ

Capacity Growth

Hyundai

Accent

Skoda

Octavia

Geely MK


Summary

0

100

200

300

400

500

600

700

800

2007

2008

2009

2010

2011

2012

2013

2014

2015

Thousands

• Ukraine’s economy is heading for a slowdown following the global

financial crisis

• Political Instability

• High inflation squeezes consumer purchasing power

• Russian gas price hikes

New Car Sales Forecast

• WTO membership - potential to boost

long term growth prospects

• Business investment will recover

• Growing wages will support private

consumption

• Low car density

• Old car parc – replacement demand will boost the market

Thank You!

Ewa RootSenior Market Analyst

Eastern Europe

[email protected]

Presentations are available for download at:www.globalinsight.com/events/GAC2008Paris

Documents

China, India, Russia, Ukraine and Brazil Is There ...EwaRoot Senior Market Analyst Eastern Europe China, India, Russia, Ukraine and Brazil Is There Sufficient Further Growth Potential