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Global Automotive Outlook:Uncertain Demand and the
Consequences for Production
Pete Kelly
Senior Director, Europe
25 November 2004
40
45
50
55
60
65
70
75
80
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Strong Global Sales Outlook
Global Light Vehicle Sales (Mn units)
5.0b
55M
+ 14.0 mn Vehicles+ 23%
Forecast
61M
Annual Change in Sales
+ 2.1 mn Average/Year + 3.2% Average/Year
75M
+ 6.4 mn Vehicles+ 12%
Est.
Sources of Global Growth
Global Light Vehicle Sales (Mn units)
Projected Incremental Growth In Sales Between 04 and 09
Vehicles % Change
61M
75 M
14.0 M
2004Est.
2009Forecast
Developing (Emerging) Nations + 9.6M + 51%
China 5.1 105 Brazil 0.6 38 Russia 0.5 40 India 0.5 42
ASEAN 0.7 42 Other Developing Nations 2.2 28
Developed Nations: + 4.5M + 10%
USA 0.7 4 Western Europe 2.0 12 Japan 0.6 11 South Korea 0.8 72
Australia 0.2 19 Other Developed Nations 0.2 11Total Incremental Growth + 14.0 M + 23%
0
1
2
3
4
5
6
'81 '85 '89 '93 '97 '01 '05 '09
-6
-4
-2
0
2
4
6
8
Global GDP Global Sales
Global GDP and Sales GrowthP
erc
en
t
Pe
rce
nt
Sales GrowthGDP Growth
Threshold of Recession
0
1
2
3
4
5
6
'81 '85 '89 '93 '97 '01 '05 '09
-6
-4
-2
0
2
4
6
8
Global GDP Global Sales X China
Global GDP and Sales GrowthP
erc
en
t
Pe
rce
nt
Sales GrowthGDP Growth
Threshold of Recession
Global Growth by Region: 2004 to 2008
0%
1%
2%
3%
4%
5%
6%
7%
8%
Emerging AsiaMature Economies Emerging Europe Latin America
The Direction in Europe …
• Slowly improving economic backdrop• Mild consumer recovery next year• Risks not balanced – oil, assets, exchange
rate• Accession countries contribution to overall
economy small• But faster growth will increase share
What Has Been Happening to Residential Property Prices?
50
70
90
110
130
150
170
190
210
230
250
Eurozone UKFrance SpainItaly Germany
• UK and Spain • France and Italy
• Germany
House Price Indices (1992Q1=100)
Source: BIS, from National Agencies
Long-term View of West European Car Market
9
10
11
12
13
14
15
16
17
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Mn units
SAAR Moving Ave. Forecast Annual
Incentives – the Supply-side Stimulus
• Early 2003 saw a sharp slide in the sales across Western Europe as consumer confidence fell (recession + war)
• Manufacturers reacted with pricing incentives – a large fall in sales was averted
Choice
Lower market volumes
Lower capacity utilisation
Layoffs, plant idling
Lower margins
Incentives
Lower margins
Avoidance of layoffs
Readiness for upswing
Consumer Choice is Accelerating
Models on Sale (Demand > 1,000)
200
250
300
350
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
Mod
els
on S
ale
Model Glut: 17 /
year!
Trend 7.2 per year
Car Sales – Eastern Europe
..51.
1.52.
2.53.
3.54.
4.5
1995 2000 2004 2009
Mn unitsUkraine
Turkey
Slovenia
Slovakia
Russia
Romania
Poland
Hungary
Czech Republic
Croatia
Bulgaria
Implications for Assembly
• European Production – Sluggish demand in West– Stronger situation in Central & Eastern Europe– Stock overhang from 2003– What are the prospects of build through the horizon ?
• Capacity Utilisation– Utilisation has improved over the last 2 years, but further
steps in this direction are still required– Is enough being done ?
Some Industry Issues Recently Highlighted
• Excess Capacity– GM ‘Project Olympia’ removed 350K 2001-4. Lines removed in
Antwerp, Bochum & Russelsheim. Luton car plant (UK) closed.– Fiat closed Termini Imerese … but then re-opened it !– Ford closed Dagenham (UK), with Browns Lane (UK) to follow.
• Flexible plants– Often dual marque, dual model or dual platform.– 3 shift working.– Flexible working arrangements – banked hours.
• Optimal Plant size– GM views Russelsheim as optimal (270K), similar to Toyota &
Honda’s plants (but not Nissan). Ford, Renault & PSA seem to suggest 400K or more.
Pan-Europe Light Vehicle Excess Capacity
0
1
2
3
4
5
6
7
2003 2007
Mn units
77%
84%
Utilization
European Passenger Car Stock Movements
-200 -150 -100 -50 0 50 100 150 200
2003
2004
2005
000’sStock AccumulationDe-Stocking
European Car Production: 2004 versus 2003
0 100 200 300 400 500 600
West
East
Europe
000’s
Europe = 18.0 mn WE = 14.9 mn EE = 3.1 mn
European Car Production: 2005 versus 2004
0 50 100 150 200 250 300 350 400
West
East
Europe
000’s
Europe = 18.2 mn WE = 14.8 mn EE = 3.4 mn
LV Production in Europe (Mn units)
15
16
17
18
19
20
21
22
1.7
1.8
1.9
2
2.1
2.2
2.3
2.4
2.5
2.6
2.7Car LCV
Total LV 19.531 19.461 19.243 19.446 20.104 20.375 20.953 21.687 22.397 22.966
Car 17.563 17.541 17.382 17.469 17.996 18.201 18.735 19.327 19.921 20.406
LCV 1.969 1.919 1.862 1.977 2.108 2.106 2.21 2.359 2.476 2.56
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
(R-H Scale)
US: GDP and Sales Growth Rates Forecast:
2004 2005
GDP 4.3 3.6
Sales 16.7 16.9
Sales Growth GDP Growth
-30%
-20%
-10%
0%
10%
20%
30%
40%
-4%
-2%
0%
2%
4%
6%
8%
10%Sales Y/Y GDP Y/Y
US: Market Leading Indicators
Ability to Buy Oct ‘04
Real Disposable Income Yellow
Interest Rate Spread Green
Household Debt Payments Yellow
CompositeGreen
Willingness to Buy Oct ‘04
Consumer Attitudes Yellow
Unemployment Claims Green
Stock Market Yellow
Composite Green
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
US: Consumer Rebates (Market-wide Average)(Includes rebates and present value of subvented interest)
2000 2001 2002 2003 2004
Trend shapes consumer expectations!
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
US: Consumer Rebates (Market-wide Average)(Includes rebates and present value of subvented interest)
2000 2001 2002 2003 2004
Have incentives finally plateaued?
US: Rebates And Sales: Gap Above Or Below Trend(Actual less 5-month-centered moving average)
-$200
-$150
-$100
-$50
$0
$50
$100
$150
$200
Jun-00 Dec-00 Jun-01 Dec-01 Jun-02 Dec-02 Jun-03 Dec-03 Jun-04
-2
-1
0
1
2
3
4
5Total Incentive Sales, mn of units
R2 = 49%
Incentive Gap Sales Gap
9/11
North American Light Vehicle Assembly
17.2
15.5
16.4
15.9 15.9
16.516.7
17.217.4 17.6
14
15
16
17
18
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Total LV
Brazil Sales and Production
0
500
1,000
1,500
2,000
2,500
3,000
Sales Production
000 Units Sales 1.45 mnProduction 1.91 mn
Sales 2.03 mnProduction 2.44 mn
Sales rebounding, but production is really taking off … exports
Argentina Sales and Production
0
100
200
300
400
500
Sales Production
000 Units Sales 301K Production 239K
Sales 413K Production 340K
Investments in Brazil’s Auto Industry
1.31.8
2.4 2.51.9 1.7 1.8
1 0.7
0.9
1.2
1.3 1.81.6
1 1.1 0.8
0.30.52.2
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Vehicles Parts
After the excitement of the late 1990’s, investment has eased
Source: Anfavea, Sindepecas
Bn US$
Number Of Models Sold In BrazilOnly the Europeans have bolstered their line-up
3234
39
44
3033
48
32
37
32
40
50
0
10
20
30
40
50
60
North American Asian European
1996 2000 2004 2008
Extended Platform Use in South America
• Fiat– Idea on 178 Brazil, rather than new B-Segment used in Europe– Uno - minor facelift for 2004MY, but will live on until 2011
• Ford– Courier will not be updated until as late as 2007/2008– Fiesta B256/257 extended. Europe next-gen in mid-2007
• GM– Gamma 4400 vs. possibly Gamma 4300 Plus
• Corsa may be replaced by Daewoo product – Kalos/Optra– J-Body2 Vectra through 2006, Europe updated in 2002
• Volkswagen– Kombi and Santana may live on forever?!?!– Gol on 10 year life cycle, next-generation in 2006
Many manufacturers are extending the life of old platforms or modifying existing platforms
5
10
15
20
25
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Stronger Asia Sales Outlook
Asia Light Vehicle Sales (Millions)
10M
+ 8.1mn Vehicles+ 52%
Forecast
15.6M
Annual Change in Sales
+ 1.3mn Average/Year + 9% Average/Year
23.7M
+ 5.6mn Vehicles+ 56%
Est.
Capacity, Production, Sales Projections - China
0
2
4
6
8
10
12
14
16
2002 2003 2004 2005 2006 2007 2008 2009
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Total Capacity Production Sales Utilization %
Mn units
-5%
-3%
-1%
1%
3%
5%
7%
0% 1% 2% 3% 4%
GDP
Sal
es
Sales and GDP Growth: Mature Markets(from 03/04 to 05/06)
U.S.Japan
UK
Canada
FranceItaly
Germany
-20%
-10%
0%
10%
20%
30%
3% 4% 5% 6% 7% 8% 9% 10%
GDP
Sa
les
Sales and GDP Growth: Asian Giants(from 03/04 to 05/06)
China
India
Korea
Taiwan
0%
5%
10%
15%
20%
25%
30%
4% 5% 6% 7%
GDP
Sa
les
Sales and GDP Growth: ASEAN Region(from ’03/’04 to ’05/’06)
Malaysia
Thailand
Philippines
Indonesia
Light Vehicle Assembly in Asia …
Mn units 2003 2004 2005 2006 2007 2008 2009ASIA 20.5 22.7 24.6 26.6 28.2 29.7 31.0
8.1% 10.6% 8.5% 7.8% 6.2% 5.3% 4.5%
JAPAN 10.0 10.1 10.2 10.4 10.6 10.7 10.8-0.5% 1.0% 1.1% 1.9% 1.4% 0.7% 1.2%
CHINA 4.0 5.0 6.0 7.0 8.0 9.1 10.035.9% 25.3% 19.2% 17.1% 15.1% 13.8% 9.8%
KOREA 3.1 3.5 3.8 4.2 4.4 4.5 4.61.0% 12.9% 8.9% 9.4% 4.1% 3.5% 2.7%
INDIA 1.0 1.3 1.4 1.5 1.6 1.7 1.725.6% 28.0% 11.7% 5.8% 5.2% 4.3% 1.6%
ASEAN 1.6 1.9 2.2 2.5 2.6 2.7 2.814.3% 17.2% 19.8% 10.1% 6.3% 2.9% 4.7%
Summary – Global Production of Light Vehicles
2005 to see slower growth than 2004 Further easing over the horizon European growth concentrated in East
Developing markets adding large volumes
Mn units 2002 2003 2004 2005 2006 2007 2008 2009WORLD 57.5 59.0 62.4 65.7 68.7 71.9 74.4 76.5
4.6% 2.6% 5.7% 5.3% 4.6% 4.6% 3.5% 2.8%
ASIA 19.0 20.5 22.7 24.6 26.6 28.2 29.7 31.011.0% 8.1% 10.6% 8.5% 7.8% 6.2% 5.3% 4.5%
EUROPE 19.3 19.5 20.2 20.6 21.1 21.9 22.6 23.1-1.1% 1.0% 3.5% 2.0% 2.9% 3.6% 3.0% 2.3%
NORTH AMERICA 16.4 15.9 15.9 16.5 16.7 17.2 17.4 17.65.6% -3.0% 0.0% 3.8% 1.5% 3.2% 1.1% 0.7%
SOUTH AMERICA 1.9 1.9 2.4 2.5 2.8 2.9 3.0 3.1-37.8% -0.1% 24.0% 7.7% 8.1% 3.6% 4.0% 3.6%
OTHER 1.0 1.3 1.3 1.5 1.6 1.7 1.7 1.817.1% 25.3% 4.8% 13.6% 4.7% 7.1% 3.0% 1.8%
An Emerging Competitive Threat in World Markets …
Hyundai Market Share
0%
2%
4%
6%
8%
10%
12%
2003 2006 2009
0%
1%
2%
3%
4%
5%
6%
7%
WESTERN EUROPE
EASTERN EUROPE
SOUTH AMERICA
NORTH AMERICA
ASIA
WORLD
World: R-H Scale
Concluding Remarks
While the global economy may slow, “recessionary” conditions are not expected over the next few years
As such, economic conditions for light vehicle sales should be positive, with emerging markets (notably China and India) leading sales growth
Risks to the global economic expansion tend to be on the downside, ranging from non-economic (terrorism) to economic (retrenchment by US consumers)
With global sales outpacing their economic drivers, risks to the global automotive market may also be concentrated on the downside