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Decoupling Emerging Markets:
Is There Anywhere to Hide from the Crisis?
Tim ArmstrongManaging Director
Global Automotive Forecast Operations
Copyright © 2009 IHS Global Insight. All Rights Reserved. GLOBAL AUTOMOTIVE SEMINAR
Outline
• Overview of emerging markets
• Focus on
– India
– Brazil and Argentina
– Middle East and Africa
– South Korea
– Thailand
– Malaysia
– Mexico
• Summary
Some Themes
• Future light vehicle demand and production in emerging markets
• The rise of small cars
• Production shifts in selected Asian markets
Copyright © 2009 IHS Global Insight. All Rights Reserved. GLOBAL AUTOMOTIVE SEMINAR
Emerging Markets Provide Stability
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
20
00
20
02
20
04
20
06
20
08
20
10
20
12
20
14
Th
ou
san
ds
Triad Rest of World
BRICs LV Sales All Emerging Markets
Light Vehicle Sales
Note: Triad comprises USA, Japan, & W.Europe
Copyright © 2009 IHS Global Insight. All Rights Reserved. GLOBAL AUTOMOTIVE SEMINAR
-14
-12
-10
-8
-6
-4
-2
0
2
-60 -50 -40 -30 -20 -10 0 10 20
Where Is the Decoupling?
China
Decoupled
Zone
Difference in % GDP growth 2009-2008
% Change in LV Sales in 2009
USA
Russia
India
Japan
Germany
Brazil
UkraineBubble size equals
sales volume in unitsIran
In 2009 LV sales will fall by 2.83 times the fall in GDP growth
Copyright © 2009 IHS Global Insight. All Rights Reserved. GLOBAL AUTOMOTIVE SEMINAR
Checklist for Auto Market Exposure to Crisis
• Economic
– Exposure to external trade
– Exchange rate shift (depreciation)
– Exposure of banks to credit crisis
– Size of government stimulus package
• Auto Specific
– Size and focus of automotive market stimulus
– Consumer price sensitivity
– Proportion of automotive credit financing
– Level of import penetration and tariff barriers
– Availability of close substitutes
– Reliance of industry on exports
Copyright © 2009 IHS Global Insight. All Rights Reserved. GLOBAL AUTOMOTIVE SEMINAR
Emerging Markets Exposure to Downturn
LargeLargeV. Large-31%IPISmallBrazil
SmallModerateModerate-15%NoneSmallPhilippines
ModerateModerateLarge-1%Excise TaxSmallTaiwan
ModerateModerateLarge-16%NoneSmallIndonesia
ModerateModerateLarge-5%ScrappingLargeMalaysia
V LargeModerateModerate-3%NoneModerateThailand
SmallModerateModerate-26%Green Car Fund
ModerateAustralia
V. LargeModerateV. Large-35%Excise TaxModerateKorea
V. LargeModerateV. Large+19%Eco Tax & Scrapping
V LargeJapan
ModerateLargeModerate-23%Excise taxModerateIndia
SmallSmallV. Large+7%Large tax incentives
MassiveChina
ModerateV. LargeV. Large-20%Import DutiesModerateRussia
Automotive Production
Adjustment
Credit
Crunch Exposure
External
Trade Exposure
XR Yr end ‘08 on ‘07
LCU vs US$
Auto Market
Stimulus
Govt. Economic Stimulus
Country
Copyright © 2009 IHS Global Insight. All Rights Reserved. GLOBAL AUTOMOTIVE SEMINAR
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
SO
UT
H A
FR
ICA
CH
INA
IND
IA
IND
ON
ES
IA
MA
LA
YS
IA
SO
UT
H K
OR
EA
TA
IWA
N
TH
AIL
AN
D
BE
LA
RU
S
CZ
EC
H R
EP
UB
LIC
HU
NG
AR
Y
PO
LA
ND
RO
MA
NIA
RU
SS
IA
SL
OV
AK
IA
TU
RK
EY
UK
RA
INE
IRA
N
SA
UD
I AR
AB
IA
UA
E
ME
XIC
O
AR
GE
NT
INA
BR
AZ
ILSelected Emerging Markets:Change in LV Sales 2009–2011
2009
2011
AsiaAfrica E. Europe M. East S. America
Copyright © 2009 IHS Global Insight. All Rights Reserved. GLOBAL AUTOMOTIVE SEMINAR
Emerging Markets Light Vehicle Production Moves Down Sharply
-20%
-10%
0%
10%
20%
Q1
2007
Q2
2007
Q3
2007
Q4
2007
Q1
2008
Q2
2008
Q3
2008
Q4
2008
Q1
2009
Q2
2009
Q3
2009
Q4
2009
Q1
2010
Q2
2010
Q3
2010
Q4
2010
Emerging Markets
Quarterly Change in Production (vs Same Quarter of Previous Year)
Copyright © 2009 IHS Global Insight. All Rights Reserved. GLOBAL AUTOMOTIVE SEMINAR
Customs Duties and Excise Taxes in India
10%n.a.n.a.n.a.n.a.Goods VehiclesCustoms Duties
10%n.a.n.a.n.a.CKDPassenger VehiclesCustoms Duties
c. 100%n.a.n.a.n.a.CBUPassenger VehiclesCustoms Duties
20% (16% on
CNG/LPG)n.a.n.a.n.a.n.a.Goods VehiclesExcise Tax
14% n.a.n.a.n.a.n.a.Hybrid VehiclesExcise Tax
20%+ 20,000 Indian rupees from
June 2008
>4000 mm>2.0l>2.0ln.a.Passenger Vehicles (Large Cars)
Excise Tax
20%+ 15,000 Indian rupees
from June 2008
>4000 mm>1.5l and <2.0l
>1.2l and <2.0l
n.a.Passenger Vehicles (Large Cars)
Excise Tax
8% (from December 2008)
< 4000 mm<1.5l<1.2ln.a.Passenger Vehicles (Small Cars)
Excise Tax
RateLengthDiesel
ccmPetrol
ccmFormCategoryType
Copyright © 2009 IHS Global Insight. All Rights Reserved. GLOBAL AUTOMOTIVE SEMINAR
India: Delays to Investment &
New Product Launches
Delays
• Renault pulls back on its line at Chennai – plans on hold
• Honda delays second plant from 2009 to October 2010
• Toyota delays second plant from early 2010 to late 2010 and will not build Corolla at new plant
• Nano new plant not expected before late 2010
• Daimler plant starts on one shift only
• GM says India “crucial” – new mini car and Cruze coming
• Some Hyundai i20 production moves to Europe after labour unrest
New Launches
• 2009
– Tata Nano
– Tata Indicruz
– Hyundai i20
– Maruti Ritz
– Honda Jazz
– GM Cruze
• 2010
– GM M-300 Beat
– Ford Small Car
– Honda Eco
– Maruti Mini SUV
– Nissan March
– Toyota Yaris & EFC
Copyright © 2009 IHS Global Insight. All Rights Reserved. GLOBAL AUTOMOTIVE SEMINAR
Low Cost Cars Will Contribute Less to Auto Demand – Nano et. Al.
• First rising raw materials prices
• Then roll-out timeline disrupted at Singur
• Small scale launch in March 23rd 2009
• European version coming to continental Europe and UK —eventually
• Can it sell in the U.S.?
• Now 40k at Pantnagar
• Sanand expected late 2010
• Break-even point 4-500,000 vehicles?
• Borrowing for target consumer groups has been undermined
• Tata constrained in its finances
– Nano project financed but JLR purchases requires refinancing of $2bn of the $3bn bridging loan
0
50
100
150
200
250
300
350
400
450
2005
2007
2009
2011
2013
Tho
usan
ds
Bajaj-Renault
Nano
800
0
1000
2000
3000
4000
5000
6000
7000
Nano S
TD
BS
2
Nano S
TD
BS
3
Nano C
X
Nano L
X
800
Alto
Price in $US
Production
Copyright © 2009 IHS Global Insight. All Rights Reserved. GLOBAL AUTOMOTIVE SEMINAR
India: Winners and Losers
0 200 400 600 800 1,000
MARUTI
TATA
HYUNDAI
M & M
HONDA
CHEVROLET
TOYOTA
SKODA
FORD
FIAT
PIAGGIO
RENAULT
Thousands
2009 vs 2014
0 200 400 600 800 1,000
MARUTI
HYUNDAI
TATA
M & M
HONDA
CHEVROLET
NISSAN
TOYOTA
FORD
SKODA
FIAT
MERCEDES-BENZ
BMW
VW
BAJAJ
RENAULT
Thousands
LV Sales LV Production
2009 vs 2014
Copyright © 2009 IHS Global Insight. All Rights Reserved. GLOBAL AUTOMOTIVE SEMINAR
Brazil Government Actions: Financing and IPI Reduction
Engine Size (cm³) IPI Before Measure Present Reduced IPI
Up to 1.000 Car 7% 0
1.000 to 2.000 Gasoline Car
13% 6,5%
1.000 to 2.000 Flex Car 11% 5,5%
Over 2.000 Gasoline 25% 25%
Over 2.000 Flex 18% 18%
Up to 1.000 Pick-up 8% 1%
1.000 to 2.000 Pick-up 8% 4%
• R $10 billion released for financing by Banco Central via Banco do Brasil, Caixa Economica Federal and Nossa Caixa
• The IPI reduction (table below) was implemented on December 11, 2008 and will carry on until June 30, 2009
Copyright © 2009 IHS Global Insight. All Rights Reserved. GLOBAL AUTOMOTIVE SEMINAR
1.0
1.5
2.0
2.5
3.0
3.5
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
1.0
1.5
2.0
2.5
3.0
3.5
SAAR (Smooth) SAAR (Trend) SAAR
Recovery in SAAR triggered by IPI reduction
Recovery in SAAR triggered by IPI reduction
Gradual phase-in of IPI begins sometime in 2009 H2 or 2010 H1
Gradual phase-in of IPI begins sometime in 2009 H2 or 2010 H1
Million Units
Annualized Monthly Sales: Baseline
Copyright © 2009 IHS Global Insight. All Rights Reserved. GLOBAL AUTOMOTIVE SEMINAR
2.0
2.2
2.4
2.6
2.8
3.0
3.2
3.4
2007 2009 2011 2013
Million Units
Brazil LV Sales
Brazil and Argentina: Market Outlook
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
2007 2009 2011 2013
Argentina LV Sales
Million Units
Copyright © 2009 IHS Global Insight. All Rights Reserved. GLOBAL AUTOMOTIVE SEMINAR
Middle East Overview
• Six year boom has come to an end
• Marked slowdown in global growth will harm trade, tourism, and investment throughout the region
• Oil bubble has burst reducing earnings sharply
• Declining external demand for non-oil exports
• Credit crunch has hit
• Construction and real estate markets are in free fall especially in Dubai
• Stock prices have collapsed
• Expatriates are returning home
• Automobile demand are down
• The recovery in 2010 is likely to be modest because the rebound in the world economy will develop only gradually
0
20
40
60
80
100
120
1996 1999 2002 2005 2008 2011 2014 2017 2020
wti March 2008 Wti March 2009
WTI US$ per barrel (Annual Averages)
(West Texas Intermediate price,dollars per barrel)
Copyright © 2009 IHS Global Insight. All Rights Reserved. GLOBAL AUTOMOTIVE SEMINAR
Middle East and Africa
600
800
1000
1200
1400
1600
2005 2007 2009 2011 2013
0
50
100
150
200
250
2005 2007 2009 2011 2013
GCC 6 LV Sales
0
200
400
600
800
1000
2005 2007 2009 2011 2013
850
900
950
1000
1050
1100
1150
2005 2007 2009 2011 2013
Israel LV Sales
Iran LV Sales
South Africa LV Sales
Copyright © 2009 IHS Global Insight. All Rights Reserved. GLOBAL AUTOMOTIVE SEMINAR
Korea Market Outlook
-40%
-30%
-20%
-10%
0%
10%
20%
Q1
20
07
Q3
20
07
Q1
20
08
Q3
20
08
Q1
20
09
Q3
20
09
Q1
20
10
Q3
20
10
Korea
Quarterly Change in Production(vs Same Quarter of Previous Year)• Consumption tax cut by 70% from May
1st - December 31st if replacing a car registered before January 1st 2000
0.8
0.9
1.0
1.1
1.2
1.3
1.4
2007 2009 2011 2013
• Vehicle exports fell 30.2% in Q1 2009 to 480k
– Hyundai has reduced output by 30% in Q1 2009
– Kia has reduced output by 27% in Q1 2009 – new Forte and Soul are key models
• Exports projected to be down 14% in Q2 y-o-yLV Sales (millions)
Copyright © 2009 IHS Global Insight. All Rights Reserved. GLOBAL AUTOMOTIVE SEMINAR
-200 0 200 400 600 800 1,000 1,200 1,400
HYUNDAI
KIA
DAEWOO
SAMSUNG
SSANGYONG
Thousands
South Korea: Winners and Losers
0 200 400 600 800
HYUNDAI
KIA
DAEWOO
SAMSUNG
SSANGYONG
Thousands
2009 vs 2014
Korean LV Sales by Brand LV Production by Brand
2009 vs 2014
Copyright © 2009 IHS Global Insight. All Rights Reserved. GLOBAL AUTOMOTIVE SEMINAR
Investment Moves Away from South Korea
0% 50% 100%
2004
2009
2014
KOR IND USA CHN RUS CZE TUR OTHER
0% 50% 100%
2004
2009
2014
KOR CHN SVK IRN RUS USA CZE OTHER
Hyundai Brand LV Production by Country Kia Brand LV Production by Country
Hyundai Shifts production to:India: i10, i20
USA: Sonata, Santa Fe, VeraCruzCzech Republic: i30
Kia Shifts production to:Slovakia: Ceed, Sportage
Expands in China:Soul, Forte, Rio, Sportage, QB
Copyright © 2009 IHS Global Insight. All Rights Reserved. GLOBAL AUTOMOTIVE SEMINAR
Thailand Overview
• Vehicle sales in Thailand fell by 2.5% to around 615,200 units in 2008
• Political unrest has dented investment confidence
• Decomposition of demand shifted very significantly out of pick-ups and into small cars
• Sales dropped by 30% in first two months of 2009
– Down by 37.8% in March, passenger cars sales down 23.4%
• Vehicle exports fell 39% in March 2009
• The government refused to provide large scale direct support to the industry
– Honda, Nissan, Mazda may ask for crisis loans
0
100
200
300
400
500
600
700
800
2007 2009 2011 2013
LV Sales ('000s)
Copyright © 2009 IHS Global Insight. All Rights Reserved. GLOBAL AUTOMOTIVE SEMINAR
Small Cars Will Win Market Share in Thailand
0 100 200 300 400 500 600
TOYOTA
HONDA
MITSUBISHI
ISUZU
NISSAN
FORD
MAZDA
CHEVROLET
TATA
SUZUKI
Thousands
2009 vs 2014
LV Sales by Brand
The Thai industry shifts from pickups to small cars
• Investment dates for Eco-car projects have been pushed back and local content and volume requirements are being contested
• No Eco-car project has yet been formally cancelled
• Projected SOP– Honda late 2010– Mitsubishi late 2011– Toyota late 2011 or 2012– Tata 2012– Nissan early 2011– Suzuki early 2011
Copyright © 2009 IHS Global Insight. All Rights Reserved. GLOBAL AUTOMOTIVE SEMINAR
Thailand Shifts Away from Pickups
0 100 200 300 400 500 600
TOYOTA
HONDA
MITSUBISHI
ISUZU
NISSAN
FORD
MAZDA
CHEVROLET
TATA
SUZUKI
Thousands
Car
LCV
2009 2014
LV Production by Brand 2014
0
200
400
600
800
1000
1200
1400
1600
1800
2000
2007
2008
2009
2010
2011
2012
2013
2014
Th
ou
san
ds
SUV
PICKUP
OTHERLCV
OTHERCAR
SMALLCAR(A+B)
LV Production by Type
Copyright © 2009 IHS Global Insight. All Rights Reserved. GLOBAL AUTOMOTIVE SEMINAR
Malaysia Overview
• Malaysia total vehicle sales recovered by 12.6% to 548,889 units in 2008– Introduction of new, well-
performing models (esp. Proton Saga and Persona)
• For January-March 2009 period vehicle sales fell 9.2% to 118,681 units
• The LCV market boosted by upcoming launches of the Proton Exora and Perodua MPVs
• Vehicle scrapping subsidy of RM 5000 ($US 1400) available if you trade in a car 10 years old and buy a new Proton or Perodua Vehicle
• Also RM 200m ($US 57m) boost to industry through Automotive Development Fund
300
350
400
450
500
550
600
650
2007 2009 2011 2013
LV Sales (‘000s)
Copyright © 2009 IHS Global Insight. All Rights Reserved. GLOBAL AUTOMOTIVE SEMINAR
-50 0 50 100 150 200
PROTON
PERODUA
HONDA
NISSAN
TOYOTA
KIA
HYUNDAI
ISUZU
DAIHATSU
SUZUKI
MERCEDES-BENZ
Thousands
Malaysia Misses Out On Investment
0 50 100 150 200
PERODUA
PROTON
TOYOTA
HONDA
NISSAN
KIA
SUZUKI
HYUNDAI
TATA
MITSUBISHI
ISUZU
MERCEDES-BENZ
BMW
Thousands
2009 vs 2014
LV Sales by Brand LV Production by Brand
Proton and Perodua will lose market share
as competition rises
Malaysia misses out onlong term investment
to Thailand
2009 vs 2014
Copyright © 2009 IHS Global Insight. All Rights Reserved. GLOBAL AUTOMOTIVE SEMINAR
22
24
26
28
30
32
34
36
38
2006 2007 2008 2009 2010 2011 2012 2013 2014
Millions
All Asia LV Production: Scenario Ranges
Upside Scenario (15%)
Downside Scenario (22%)
Risk Weighted Average
Base (63%)
Copyright © 2009 IHS Global Insight. All Rights Reserved. GLOBAL AUTOMOTIVE SEMINAR
*Annual average, **Billions of U.S. dollars
-20
-15
-10
-5
0
2000 2002 2004 2006 2008 2010 20128
10
12
14
16
2000 2002 2004 2006 2008 2010 2012
-6
-3
0
3
6
9
2000 2002 2004 2006 2008 2010 2012
Real GDP Growth (%) Consumer Price Inflation (%)
Exchange Rate per US$* Current Account Balance**
0
2
4
6
8
10
2000 2002 2004 2006 2008 2010 2012
Mexican Outlook Summary
Copyright © 2009 IHS Global Insight. All Rights Reserved. GLOBAL AUTOMOTIVE SEMINAR
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1.3
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1.3
SAAR (Smooth) SAAR (Trend) SAAR
Market grew thanks to credit, employment, and remittances
Market grew thanks to credit, employment, and remittances
Used car imports2007 – 1.3m units
Used car imports2007 – 1.3m units
Million Units
Annualized Monthly Sales: Baseline
Global Crisis and Proximity to US cause massive downturn
Global Crisis and Proximity to US cause massive downturn
Copyright © 2009 IHS Global Insight. All Rights Reserved. GLOBAL AUTOMOTIVE SEMINAR
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
2001 2003 2005 2007 2009 2011 2013
Million Units
No easy recovery ahead; U.S. recession hurts; currency is weak; NAFTA now allows duty-free imports of used vehicles sourced from U.S. and CAN
Mexico Market Outlook
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
2006 2008 2010 2012 2014
LV Sales LV Production
Production will grow 30% faster than in the US
60% of increase is B and C1 cars
Copyright © 2009 IHS Global Insight. All Rights Reserved. GLOBAL AUTOMOTIVE SEMINAR
Summary Insights
• There is no decoupling outside China
• Asia’s importance has increased
• Some emerging markets are a “stabilising force”
– Government support is helping to mitigate the economic effects
• India and China provide most support to world growth
• Export markets are hit hardest on production
– Japan, Korea and Thailand production
• The downturn lasts to 2011 and growth rates have been reduced
• Increased protectionism reduces long term growth
• Wealth destruction and support for green investment favours small cars which increases the need for economies of scale and undermines industry profitability
• Investment projects are delayed but there is still strong pressure to move production to low cost regions
– Japan and Korea lose out to India and Thailand