Global outlook: Automotive April 2014

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Today’s presenters

Lauren Brayshaw Marketing executive Economist Intelligence Unit

Ana Nicholls Managing Editor, Industry Briefing Economist Intelligence Unit

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Contents

Explanation of global outlooks The global economy Overview of passenger car sales

Overview of commercial vehicle sales Regional outlooks Overview of production trends

Corporate strategy: selected vehicle-makers

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Explanation of our global outlooks

The Economist Intelligence Unit’s global outlooks: •

Form part of the our industry briefing service, available on www.eiu.com.

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Cover six industries: automotive, consumer goods, energy, financial services, healthcare and telecoms;

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Are compiled from our 60+ country forecasts and reports, aggregated into regions.

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Are designed to help companies plan ahead, by analysing growth drivers and potential risks in each region.

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Are published quarterly, updating our forecasts and tracking notable trends in each industry.

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For automotive, forecasts cover passenger car and commercial vehicle registrations, plus fuel usage and oil prices.

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Driven by factors such as GDP growth, population growth and regulatory trends, including buying incentives, pollution controls.

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The global economy Synchronised upturn in the major developed GDP growth, %, 2013-14 economies:  US recovery is deepening; broad-based Sub-Saharan Africa employment rising.  Europe is growing, though fitfully. Mid East/N Africa 2.5  Japan: Abenomics helping, but no panacea for underlying drags. Latin America

4 3.7 3.7

3.2

2.7

3.9 3.9

Emerging economies face some risks: Asia  Middle East/Africa offers best prospects. Transition  China, India, Brazil: slowdown is both economies cyclical and structural. Western Europe  Policy problems in Latin America.  Ukraine/Russia situation has unnerved North America markets but not affected forecast. Tighter financial conditions globally  Less liquidity from the Fed  Is there risk of an emerging markets crisis?

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Overview of passenger car sales Since 2009’s downturn, global car registrations have seen continual growth. Expect this to continue. • •

Car registrations rose by 4.8% in 2013 easing from 6.6% in 2012. We expect global sales to rise by 4.4% a year in 2014-18, leaving them 56% higher than in 2008.

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Growth in 2003-07, before the auto crisis, averaged 3.9%.

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Strongest market will be the Middle East/Africa, followed by Asia, Transition economies, then Latin America.

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The weakest with be Western Europe: overtaken by Asia in volume terms in 2006, although auto value (market demand) not until this year.

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Passenger car registrations, m units 90.0 World

80.0 70.0 60.0

50.0 Asia

40.0 30.0

N America

20.0

W Europe

10.0 0.0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 In order: Latin America, Transition economies, Middle East/Africa

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Overview of passenger car sales

Car stocks offer some indication of growth potential. •

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Global stock per 1,000 people will rise by around 3% a year. Asia will see fastest growth, but still very low. W Europe stocks will be flat: sales rising in line with population. North America still has ground to catch up since 2008 – and also in global terms. Stocks v GDP per head suggests some European countries also have room for growth. China, which was below the curve, is now on track. East European countries have too many cars, but many ageing.

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Passenger cars, stock per 1,000 population 600

2008

512 502 512

2013

500 445

2018

411432

400 319 280 249

300 202 176 149

200 100

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94 69

149171 133

0 W Europe N America

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Latin Transition America econs

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Overview of commercial vehicle sales: global

Commercial vehicle registrations, m units

After rollercoaster ride of 2009-10, CV market calmer since 2011.

18.0

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16.0

CV registrations expected to rise by 4.4% in 2014 after 3.3% in 2013. Similar growth to 2018.

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Market driven by Asia (58% of total) but share falling back.

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Transition economies will be fastest, followed by Latam, but largely rebound growth.

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World

14.0 12.0 Asia

10.0 8.0

Slowest market will be Western Europe, decelerating after recent surge.

6.0

Markets showing continuous strong growth include South Africa, Indonesia, and Mexico.

2.0

4.0

Latin America

0.0 2009

2010

2011

2012

2013

2014

2015

2016

2017

2018 In order: Western Europe North America, Transition economies

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Regional outlook: North America

Regional annual average growth expected to be 3.6% (cars) and 5.1% (CVs) in 2014-18. •

Registration growth forecast, annual average, 2014-18

US car registrations should stay strong in 2014, once icy weather is over.

8 US

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By 2015, car market is likely to run out of steam despite the economic recovery, especially if interest rates rise.

Canada

6 5

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Canadian market will see opposite trend, with registration growth accelerating.

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CV gains will come from: recovery in construction as property markets bottoms out; an easing of fuel prices; and pent-up demand as ageing lorries are scrapped.

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Fiscal tightening could threaten business investment and construction activity.

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Regional outlook: Western Europe

Regional annual average growth expected to be 2.7% (cars) and 3.9% (CVs) in 2014-18. Slowest region overall.

Registration growth forecast, annual average, 2014-18 8

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Most markets, particularly those that saw the steepest declines, are now firmly in positive territory, with the main exception being France.

Germany Italy

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UK France

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Spain

But 2013 car sales were still 1.5% lower than 2012, and extremely low by historic standards.

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CV surge partly prompted partly by Euro 6 emissions legislation.

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Rebound growth in euro-zone countries, but also growth on the back of recovery in incomes and investment.

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Rise in interest rates likely to affect countries where household debt is high, including the UK.

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Regional outlook: Asia

Regional annual average growth expected to be 5.1% (cars) and 3.4% (CVs) in 2014-18. No longer the fastest region.

Registration growth forecast, annual average, 2014-18 8

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Chinese car market should expand by 5.4% in 2014-18. Pollution controls double-edged. Chinese CVs slower in 2014-15, because still recovering from 2010 surge.

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Japan China

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India 5

India held back by high interest rates, volatile petrol prices and pollution restrictions but should accelerate into 2015. Average growth of 8.4% in 2014-18. Indonesia will see car sales rise by 12.2% a year, bringing it up to S Korea’s level. But scaling back fuel subsidies and may scale back low-cost green car programme.

Australia Indonesia

4 3 2 1 0 CVs

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Cars

Biggest drag is Japan. Currently surging ahead of consumption tax, but likely to slow very sharply.

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Regional outlook: Latin America

Regional annual average growth expected to be 4.5% (cars) and 6.6% (CVs) in 2014-18. •

Registration growth forecast, annual average, 2014-18

The big story is not Brazil, but Mexico, where the economy is supported by US export demand. Low car stocks leave substantial room for growth.

12.0 Argentina 10.0 Brazil Chile

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Brazil's economy has been suffering from a lack of investment. Tax breaks on cars being phased out in 2014, but sale should pick up from 2015. Strong investment in road transport. In Argentina, sales have been rebounding after a fiscal boost in 2013 but may slacken off.

8.0 Colombia Mexico 6.0

4.0

2.0

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In Colombia, economic recovery and investment in infrastructure will combine with a need to replace ageing vehicles.

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Regional outlook: Transition economies

Regional annual average growth expected to be 5.0% (cars) and 6.8% (CVs) in 2014-18. •

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Registration growth forecast, annual average, 2014-18

Huge rebound growth, except in Russia. Czech/Ukraine CV markets just 65% of 2008 levels. Less true for cars – arguably too many. Russia had strong rebound in 2010-12 on back of scrappage schemes. Income growth likely to be steady rather than spectacular, but room for CV replacement. Polish sales will not regain 2008 levels until 2015, and even then will remain far below their peak in the late 1990s. Risk from Ukraine/Russia stand-off, particularly in terms of trade. Already trade tensions with WTO over scrappage fees.

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16.0

Russia Poland

14.0

Ukraine 12.0

Czech Rep

10.0 8.0 6.0 4.0 2.0 0.0

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Regional outlook: Middle East/Africa

Regional annual average growth expected to be 8.7% (cars) in 2014-18. No CV forecast. •

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Registration growth forecast, annual average, 2014-18

Saudi credit conditions loosening, but demand may be held back by exit of expatriates and the launch of the Riyadh Metro. South Africa held back by weak job creation and rising fuel costs. Faster GDP growth from 2014 onwards will boost disposable incomes.

16.0 Saudi Arabia S Africa

14.0

Israel 12.0

Egypt Nigeria

10.0 8.0

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Egypt undermined by violence – several car companies halted production. Affects consumer confidence, but car sales supported by low interest rates, scrappage scheme and lowering tariff barriers. Political risks apparent throughout the region, and forecasts subject to change.

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6.0 4.0 2.0 0.0

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Production shifts

Charts show the shift in car production from developed markets to developing.

Passenger car production, 2002 N America

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In 2012 Asia accounted for a higher share of production (56%) than of sales (42%).

W Europe Transition econs Asia Lat America Mid East/Africa

Gap is in North America, which accounted for 24% of sales, but only 8% of production. Passenger car production, 2012

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Exports strengthening from Japan, but also pressures to export from China as sales slow and overcapacity rise.

N America W Europe Transition econs

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Profitability of carmakers depends on global spread, given uneven sales growth.

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Asia Lat America Mid East/Africa

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Corporate strategy: Toyota (9.98m) 2013 results •

Toyota kept its position as the world’s largest volume producer in 2013.

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Net revenues up 18% year-on-year to ¥19.1trn (US$188m) in the nine months to Dec 2013, while net profits more than doubled to ¥1.5trn.

Strategic plans •

Likely to be the first carmaker to top 10m vehicle sales in year to March 2014.

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Plans to boost share of emerging markets in its sales mix from around 42% last year to around 50%.

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Investing in overseas expansion: cash pile of nearly US$40bn gives it plenty of leeway.

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Japan still grabbed over half of Toyota's ¥709bn in capital expenditure in the year to end-March 2013, with the rest of Asia taking another quarter. US and Europe down.

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Pretty much owns ASEAN markets, which are opening up further in 2015. But facing stronger competition.

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Corporate strategy: General Motors (9.71m) 2013 results •

Net profit for the year fell by 14.5% on 2012, to US$5.3bn, but net revenue up by 2%.

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Unit sales rose by 4.5%, to 9.71m units, but slightly behind Volkswagen’s 9.73m.

Strategic plans •

Mary Barra took over from Dan Akerson in January, but faces early challenge with recalls.

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Still investing for growth. In late December it announced that it would be investing US$1.3bn in five new US plants.

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Four new plants are also planned in China over the next three years, with a view to expanding production capacity to 5m units per year.

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Europe poses the more immediate threat: consistently loss-making and undergoing another restructuring. Withdrawn Opel from China and Chevrolet from Europe.

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Corporate strategy: Ford (6.25m) 2013 results •

Best-ever operating profits, but still losing money in Europe;

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Launched 11 vehicles globally;

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Most ratings now back up to investment grade.

Strategic plans •

Continuing with One Ford plan, but Mulally exit looming;

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Expects 2014 revenue equal, but profits lower (down in US but up in Europe).

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Expanding capacity in US and particularly Asia-Pacific Africa; cutting by 18% in Europe;

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Has opened four plants in Asia-Pacific Africa in past two years; plans six more by mid-decade. Market share low.

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Accelerating product launches – 23 globally in 2014, including all-new Mustang, F-150, Lincoln MKC.

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Cutting supply base, from 3,300 in 2004 to target of 750. Nine core global platforms.

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