© 2015 IHS

Presentation

ihs.com

IHS AUTOMOTIVE

Outlook for GCC Automotive Demand

September 2015

Pierluigi Bellini Director

MEA Light Vehicle Sales Forecasts

IHS AUTOMOTIVE driven by POLK

© 2014 IHS

Middle East and Africa markets coverage by IHS Automotive

• GCC

• Iran

• Israel

• Egypt

2 © 2014 IHS

Additionally, starting in August 2015

a new service covers the following 9

Sub-Saharan countries:

IHS Automotive coverage of Middle East

and Africa includes the following 13

countries representing 90% - or about 4.4

millions light vehicles – of region sales in

2014:

• Algeria

• Tunisia

• Morocco

• South Africa

• Kenya

• Malawi

• Senegal

• Nigeria

• Angola

• Ghana

• Ivory Coast

• Tanzania

• Uganda

© 2015 IHS 3

A gradual acceleration in the global economy. The global

economy’s growth remains subpar in 2015

Real GDP and industrial production

• World real GDP growth will pick up from 2.6% in 2015 to 3.0% in 2016.

• The plunge in materials prices is restraining growth in the commodity-exporting countries of the Americas, Africa, and Asia-

Pacific.

• Solid gains in consumer and housing markets will support US growth, but an inventory correction will slow industrial

production.

• Growth in the Eurozone and Japan will improve slightly, aided by monetary stimulus, currency depreciation, and pent-up

demand.

• China’s economic growth is slowed by imbalances in credit, equity, housing, and industrial markets.

• Prospects for emerging markets depend on structural reforms that raise productivity and allocate capital more efficiently

© 2015 IHS 4

The dollar’s real exchange value is appreciating,

reaching a 13-year high against major currencies

Quarterly averages

Real trade-weighted dollar index

Japanese yen/US dollar

Euro/US dollar

Chinese renminbi/US dollar

Source: IHS © 2015 IHS Source: IHS © 2015 IHS

Source: IHS © 2015 IHS Source: IHS © 2015 IHS

© 2015 IHS

Oversupply has pushed oil prices lower

0

25

50

75

100

125

150

2007M1 2008M1 2009M1 2010M1 2011M1 2012M1 2013M1 2014M1 2015M1

Do

lla

rs/b

arr

el

Source: IHS Energy

5

• Several forces have put downward pressure on oil prices—excess supply, high inventories, China’s economic

slowdown, and anticipation of an increase in Iranian exports.

• Low oil prices will not change OPEC’s policy of unconstrained oil output; Saudi Arabia is unlikely to cut

production.

• Once sanctions are lifted, Iran’s return to the global market will be gradual, adding up to 600,000 b/d within 12

months.

• Sustained West Texas Intermediate prices of USD45/barrel or less are needed for a decline in US production

to erode the global oil surplus.

• Oversupply will give way to rough market balance in late 2016.

Price of Dated Brent crude oil

Latest data point

August 2015

© 2015 IHS

-2

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12

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Bahrain Kuwait Oman Qatar Saudi

Arabia

UAE Iran

An

nu

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rce

nt

ch

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ge

2003-12 2013 2014 2015 2016 2017-21

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Real GDP growth in the Middle East Real GDP

• The drop in oil prices, regional political instability, and war with the Islamic State are restraining economic

growth.

• Lower oil prices are hurting Iran, Kuwait, Iraq, Saudi Arabia, the United Arab Emirates (UAE), and Libya, but

helping Jordan, Lebanon, Morocco, and Tunisia.

• Whereas Saudi Arabia, Kuwait, and the UAE have strong reserves, the finances of Iran, Libya, and Algeria are

strained.

• The nuclear agreement and likely lifting of sanctions in 2016 will boost Iran’s oil exports and economic growth.

• Egypt’s economy is recovering, but political and security risks remain.

• Addressing job growth, economic diversification, and competitiveness will be critical to regional stability in the

long run.

© 2015 IHS

GDP trend

GCC, real GDP trend, annual in %, 2000 - 2022

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1

2

3

4

5

6

7

8

9

10

`03 `04 `05 `06 `07 `08 `09 `10 `11 `12 `13 `14 `15 `16 `17 `18 `19 `20 `21 `22

• After falling in 2015 to below 4%, growth will gradually recover to average 4.4%, before starting to

consolidate next decade.

• Addressing issues such as job creation and competitiveness as well as economic diversification

away from oil will be critical to GCC stability and growth during the medium-to-long term

In 2015, GCC GDP lowest in 13 years (except 2009)

© 2015 IHS

In GCC not only economic growth, but also light vehicles

sales are correlated to oil prices, if with decreasing returns

0

25

50

75

100

125

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Brent oil price

Source: IHS Energy

8

0

250

500

750

1,000

1,250

1,500

1,750

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

GCC LVs sales

Source: IHS Automotive

2002-2008

CAGR 17%

2009-2014

CAGR 8%

© 2014 IHS 9

GCC demand trend • In 2014, demand for light vehicles in the GCC rose

fast in first half, but pace somewhat slowed down in

second half, with full year growth of 7%, that took the

cumulative growth from 2011 to 37% driven by high oil

prices. It rose by about 1% in the first seven

months of 2015

• In 2015 and 2016, we expect demand will grow 1

and 1.4%. In the longer term, demand for light

vehicles will resume faster growth on a positive

economic outlook. Light-vehicle sales should reach

1.85 million units in 2021. This is the result of not only

economic growth, but also structural factors such as

demographics, current-account surpluses, and still-

high prices for oil

• However more fiscal prudence by governments,

limited trickle down effect, and still-high

unemployment among nationals inhibit faster

growth together with increasing traffic congestion in

some cities

• Short-to-medium-term forecast carries both

downside and upside risks of a sharper/longer-

than-expected fall or recovery in oil prices. Based

on our Brent oil-price assumption of below

USD70/barrel until the third quarter of 2016, several

regional economies and their respective automotive

markets would be hurt

Light vehicles sales

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

Th

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san

ds

GCC Iran

© 2014 IHS

Saudi Arabia and UAE are largest GCC markets with

more than 70% of total sales

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577.328 696.891

791.581 806.769 870.109 934.793

326.205

285.349

371.241 371.96 381.419

411.873

135.802 139.753

155.166 153.716 167.47

177.14

134.886

138.613

141.437 137.689

144.5

157.052

79.365

78.903

92.173 92.685

95.395

105.323

47.489

43.822

59.748 56.540

58.988

64.347

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2008 2012 2014 2015 2018 2021

Th

ou

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Saudi Arabia UAE Kuwait Oman Qatar Bahrain

GCC light vehicles demand by country

© 2014 IHS 11

Asian brands keep dominating the GCC market Market Shares

3%

3%

3%

5%

7%

7%

8%

10%

33%

Ford

Isuzu

GMC

Honda

Hyundai

Chevrolet

Mitsubishi

Nissan

Toyota

2007

2%

3%

4%

5%

5%

5%

10%

11%

34%

Isuzu

GMC

Ford

Mitsubishi

Chevrolet

Kia

Hyundai

Nissan

Toyota

2010

2%

3%

3%

4%

5%

5%

8%

13%

37%

GMC

Honda

Mitsubishi

Chevrolet

Kia

Ford

Nissan

Hyundai

Toyota

2013

• Top 9 brands constantly represent 80% of the market

• Asians keep dominating GCC

• Toyota remains firm leader with its extensive dealer

network

• Hyundai-Kia are on the rise

• Nissan lost market share (mostly in Saudi), but seems

to have bottomed out

• Ford is gradually improving replacing other American

Chevrolet in 4th spot

• European brands remain small players

• Lexus is first among premium (12th in overall ranking)

• Chinese OEMs are still quite marginal, if improving

penetration

• All this confirms strong competition and need for

long term commitment to local markets by new and

existing players in terms of

• portfolio of high quality products

• dealer network providing not only sales representation, but

also all-important after-sales service

• high and stable residual values

© 2014 IHS 12

GCC market segmentation development • Vehicle segmentation in the GCC is influenced by a

range of factors, including geophysical

characteristics, powertrain developments,

household size, cultural and temperature

characteristics, etc.

• Rapid population growth has resulted in important

shifts in car-buying patterns. The main

demographic economic unit is constructed around a

large family explaining high shares of mid- and full-

size cars (with small and compact on the rise)

• The typical household has two cars—one for family

use and one for the head of the family. However, the

younger members of the family recently entered the

car ownership arena, resulting in an extension in

household ownership from two cars to three cars

• Terrain affects decision on bodytype being one of the

most important reasons for buying an SUV or a pickup

with the latter dominating the LCV/professional

segments in the market. Indeed, pickups - which are

still mostly seen as workhorses - are more useful and

accessible than enclosed vans, which tend to have a

less powerful powertrain

• Cultural and utility factors continue to have an impact

when making a body-style decision, which is largely

skewered in favor of the sedan

GCC light vehicles sales by segment

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1200

1400

1600

1800

2000

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A - Mini B - Small C - Compact D - Mid-Size

E - Full-Size F - Luxury LCV

© 2014 IHS 13

GCC Consumers

• A combination of demographics and affluence levels is

driving the demand for both premium AND entry-level

vehicles.

• Luxury vehicle demand is primarily driven by GCC affluence

levels, while SUV sales are witnessing solid growth due to

the region’s large family sizes and more rugged terrain.

Affluent GCC buyers also love customizing vehicles, a trend

which is expected to continue in the future.

• While the youth-generation and expat community

appears to drive demand for smaller, fuel-efficient

vehicles. Of course the population growth and growing

middle class also contributes to the non-premium segments.

• For the mid-longer term the youth-generation has the

potential to reshape the vehicle sector as these digital

natives instinctively turn to mobile technologies and social

media to organize their lives. Source: The Chalhoub Group

90%

Social Media Over 90% of affluent GCC

internet users have

regular access to social

networking sites

71%

Trust Biggest influencers in a

Gulf consumer’s life are

siblings/friends, closely

followed by spouse

74%

Indulgence Study suggest that 74% of

GCC nationals ‘buy if they

like’ even if not planned

© 2015 IHS

Global geopolitical risk is higher…

14

IHS global political risk ratings, third quarter 2015

© 2015 IHS

Note: IHS GRS political risk scores are calculated as the equally weighted average of the risk categories that most affect the political environment—government instability, policy instability, and state failure.

Source: IHS Economics GRS

© 2014 IHS 15

Structural factors will continue supporting light vehicles

demand

• With a total population of 49 millions people in 2013

GCC will see it rise to 60 in 2023, with a CAGR of

1.7%, lower than in recent past, but higher than

world average

• Saudi Arabia is largest (with 29 millions people in

2013 and 36 in 2023) followed at a distance by

UAE (9.3m and 10m) and further Oman (3.6m and

5m), Kuwait (3.4m and 4.5m), Qatar (2.2m and

2.6m), and Bahrain (1.3m and 1.5m)

• In 2013, the total size of the GCC economy was

1,347 billions of 2010 U.S. dollars – or about the

size of Spain –. Saudi Arabia is the largest, low

income economy with relatively large income

disparity. UAE is the second and the most dynamic

and diversified economy. They are followed by

Qatar (the highest income), Kuwait, Oman, and

Bahrain

• In all countries economic growth is much

dependent on revenues from oil & gas

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Bahrain Kuwait Oman Qatar SaudiArabia

UAE

GCC, population, millions of persons

2003

2008

2013

2018

20230

20000

40000

60000

80000

100000

120000

Bahrain Kuwait Oman Qatar SaudiArabia

UAE

GCC, real per capita GDP, 2010 U.S. dollars

2003

2008

2013

2018

2023

© 2015 IHS

And crude oil prices will gradually recover … but new cycle will be shorter and real prices will not return to previous

peak

Source: IHS Energy

Price of Dated Brent crude oil

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© 2014 IHS

A new mobility debate?

Congestion

• Local desire to address mobility issues such as congestion; however the authorities

recognize that the lack of more efficient public transportation (i.e. a suitable alternative)

means only limited steps can be taken.

• While the current public transport system in Dubai is rapidly evolving (especially with the

World Expo 2020 in mind) the population still considers personal transport an

absolute must.

Parking/Smart payments

• Downtown historic Jeddah is implementing a smart-payment parking system to help

reduce traffic violations and ease congestion, as well as creating more space for

pedestrians and shoppers.

• Dubai has also revealed that they are considering introduction of smart or electronic

number plates. Among the future features of the smart plate could be vehicle speed

control according to the limit on a particular road. But initially the focus is likely to be on

automated payment for parking and/or toll roads.

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© 2014 IHS

A new mobility debate?

Road Usage/Congestion charging

• Successful projects in large European cities have proven that congestion charging is a

possible solution to encourage more travelers to use public transport and reduce

congestion. Consequently some Arab states have initiated debates on the feasibility

of congestion or road usage charging.

• This is understood to be under consideration in: UAE, Qatar, Syria.

• Examples of road usage charging include the King Fahd Causeway connecting Saudi Arabia and

Bahrain, and the Dubai Salik highway.

• However such solutions require electronic payment systems; hence the current interest in

smart payment systems (initially for parking purposes).

• Dubai already has indicated that smart payment systems will become an element of

future policy with a defined roadmap of infrastructure investment, traffic management

centers and real-time traffic and travel information. Dubai appears to have taken regional

leadership in the use of road usage/congestion charging.

• While Abu Dhabi's Department of Transport has completed a feasibility study regarding

congestion charging for the city of Abu Dhabi. Hence we feel that the likelihood of further

use of road pricing schemes is high in the region in future.

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© 2014 IHS

Alternative fuels/powertrains

• The first signs are apparent that several Middle East markets are starting to gain

awareness about environmental issues, but not necessarily driven by the

transportation sector.

• Dubai Electricity & Water Authority is going ahead with plans for a 100-megawatt solar

power plant in Dubai. The project is part of the Mohammed bin Rashid Al Maktoum solar

park, which the Government wants to see grow to a capacity output of 1,000 megawatts

by 2030. All part of a plan for the region to become a global hub for renewable

energy and clean technologies.

• However so far the emergence of a limited number of ‘green’ vehicles in the region

appear purely to demonstrate environmentally-friendly credentials.

• Hybrid vehicles seem to be the first step towards ‘green’ vehicles. Although hybrid

popularity remains low, with some pockets of interest (like in Jordan). Jordan has seen

decent demand for the Toyota Prius whose popularity is due to tax incentives and rising

fuel prices in the Kingdom.

• Although overall the ‘green’ vehicle awareness in the region is limited, and even when

there is awareness most people would question why they have to invest in a hybrid

vehicle when it doesn't really make a big difference in terms of fuel savings.

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© 2014 IHS

Support for electric mobility?

• First signs of a possible EV push by 2016?

• Dubai’s Supreme Council of Energy has indicated that they

are in the final planning stages to build a network of EV

charging stations at locations such as hotels and

shopping malls.

• As part of this plan the Dubai Electricity & Water Authority

intends to test 100 EV vehicles in its own fleet over the

next two years.

• It is excepted that initially most of Dubai’s EV vehicles will

be fleet-owned.

• Several UAE federal institutions have started adopting hybrid or

electric cars.

• Dubai police have started using a Renault Twizy EV and have

hinted at expanding future EV usage.

• Overall EV interest has been detected in Qatar, UAE.

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© 2014 IHS 21

The Saudi CAFÉ • The Kingdom of Saudi Arabia (KSA), through the Saudi Standards, Metrology and

Quality Organization (SASO), announced new light-duty vehicle (LDV) fuel economy

standards on Monday, November 17, 2014. The proposed standards apply to all new and

used passenger vehicles and light trucks, whether imported from outside or

manufactured in Saudi Arabia. They will be effective as of January 1, 2016, and will be

fully phased in by December 31, 2020. A review of the targets will be carried by

December 2018, at which time targets for 2021–2025 will be set.

• The standards for new vehicles are patterned after the U.S. Corporate Average Fuel

Economy (CAFE) standard structure, including test cycle and flexibility mechanisms.

Flexibility mechanisms include off-cycle credits, air-conditioning efficiency credits, and

phase-in flexibilities. To benefit from these credits, manufacturers must register in a

SASO administered data sharing program, and submit vehicles sales plans and actual

sales reports on a regular basis.

• Imported used vehicles are treated differently. Each used vehicle must comply with a

minimum fuel economy standard, set separately for cars and light trucks. The standards

are independent of vehicle attributes such as weight or size, sales-weighting and other

flexibilities are not allowed, and the standards do not change over time.

• A Fuel Economy Committee, made up of representatives of Saudi Energy Efficiency

Center (SEEC), SASO, the Ministry of Transport (MoT), the General Department of

Traffic, and the Gulf Cooperation Council Standards Organization (GSO) will assess the

impact of the fuel economy standard, propose any necessary modifications to the

program, and resolve any disputes.

© 2014 IHS

Summary

• After dropping in 2009 as a result of the global credit crisis and ensuing fall in oil prices,

light vehicles demand in the GCC recovered – with a notable cumulative rise of 37% in

2011-14 as Brent was in the USD100-120/barrel range –

• We expect its growth rate to slowdown in 2015-16 on Brent below USD70/barrel. It rose

by 1.6% in the first seven months of 2015, but both downside and upside risks exist for

short-to-medium-term light vehicles sales forecasts of sharper/longer-than-expected fall

or recovery in oil prices in context of rising global and regional geopolitical risks

• Faster growth will resume in the longer term supported by structural factors such as

demographics, current-account surpluses, and still-high prices for oil. On the other side,

however, more fiscal prudence by governments, limited trickle down effect, and still-high

unemployment among nationals inhibit faster growth together with increasing traffic

congestion in some cities

• Sedans, SUVs, and pickups will continue to hold high market shares with some possible

downsizing (starting in Saudi Arabia and extending to the other GCC countries)

• It remains to be seen how much and what the new, younger generations will buy. In the

longer term, all classes of vehicles have nice growth potential (luxury, premium, mid, and

entry-level).

• Alternative mobility models and fuels are still at very early stages of adoption given low

fuels pump prices and the need to improve public transportation

22