Automotive

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Automotive Transportation Global Automotive
Industry Vehicle Production and Business
Outlook Vigneshwaran Chandran Team
Leader Business Strategy and Innovation Group
Automotive Practice
12th February 2008
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U.S. Stimulus Packages and Policy Initiatives
Plan Details
Policy Measures
Impact on Economy

• GDP increase by 1.2
• to 3.5 by 2010
• 1.2 million to 3.6 million
• jobs created

• Size of Package
• 819 billion (House)
• 885 billion (Senate)

• Investment in infrastructure, education, health
  and
• energy
• Business Investment Initiatives
• Temporary relief such as food stamps and
• unemployment insurance
• Fiscal relief to education and healthcare sectors

• Use of Funds
• Direct Government
• Spending -604 billion
• spending on new
• projects
• State Fiscal Relief
• and Tax Cuts
• -212 billion in
• tax cuts

Source American Recovery and Reinvestment Plan,
January 2009
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European Stimulus Packages and Policy Initiatives
Country
Description of Policy Initiatives
Germany

• Package I package of measures worth 31 billion
  euros, aimed at generating 50 billion euros
• of investment and new contracts over two years
  
• Package II50 billion euro (66 billion) second
  stimulus package, combining investment
• spending and tax cuts. It included investment
  in infrastructure projects and education,
• incentives for new car purchases

United Kingdom

• November Package 20 billion pound (29.91
  billion) fiscal package announced.
• Tax cuts and 3 billion pounds of capital
  spending, amounting to about
• 1 percent of GDP.

• 26 billion euro stimulus package, equivalent to
  1.3 percent of gross domestic product.

France

• 80 billion euros to support companies and
  families hit by the crisis.

Italy

• 38 billion Euro stimulus package (6 billion
  euros in tax cuts and 4 billion euros of
  liquidity to
• credit-strapped companies and households).
  Government spending of 11 billion euros on
• public works to create 0.3 million jobs. Auto
  Sector to get 800 million euros

Spain
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Automotive stimulus packages of governments
approaches 4050 billion in key global markets
Government Measures To Stimulate the Automotive
Industry
Boost Sales / Increase Demand
Sustain Production of OEMs
Country
Cost of Bailout
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Recessions in the Automotive Industry usually
last for 2 years 2010 is expected to be the
turnaround year!!!
Global Automotive Passenger Cars Production
History 1950 2008
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3
2
1
Collapse of the housing market in the US, leads
to bank collapses in the US and Europe. Credit
availability is sharply curtailed and consumer
confidence falls to a low.
Units (Million)
Source American Automobile Manufacturers
Association, DRI-WEFA, and Global Insight Frost
Sullivan Analysis

• 1973 Oil Crisis driven by OPEC embargo on oil
  exports to west, leads to global economic slowdown

• 1973 oil crisis and 1979 energy crisis leads to
  high inflation and economic stagnation
  (stagflation)

• The 1987 stock market crash, followed by the 1990
  Gulf war and a resulting rise in Oil prices
  affected global industrial production

• Dot-com bubble bursts driving the economy down
• September 11 attacks on the US further causes an
  economic contraction

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The global automotive market is expected to
contract at a CAGR of -2 between 2007 and 2010
CAGR 2.7
63.8 million
58.8 million
Turkey
Units (Million)
2010
2007
Note CAGR calculated for 2007 to 2013 All
figures are rounded the base year is 2007.
Source Frost Sullivan
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Small, affordable and clean cars are mega trend
in the auto industry in the next 5 years
Global Sales Volumes of Light Vehicles by
Vehicle Segment, 2008

• Basic and small cars have a strong sales trend in
  Europe and Asia at present making one fourth of
  the market size
• USA to witness a strong growth of Small cars and
  super-minis in 2009 and 10
• Pickup sales expected to reach close to 1m units,
  while SUVs are expected to sell 1.3m units in
  Asia by 2010
• Asia and Europe are big markets for commercial
  Vans, while Japan has Vans in the passenger
  segment too

(India, China, Thailand, Malaysia, Indonesia,
Korea)
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U.S. auto sales to start improving in the second
half of 2009, with significant recovery in 2010
USA Auto Sales by Vehicle Segment, 2008
USA Auto Sales mix of Alternate Powertrain, 2008

• 46 of vehicle sales in the US constituted SUVs
  and Pickups in 2007 Will fall to less than 39
  by 2010
• Small cars are gaining more market share with an
  increase from 12 in 2007 to about 15 in 2010
• The US super-mini segment is a growth area with a
  CAGR of 10 (2007-10), driven by fuel prices
  (2007 and early 2008) and emission and recession
  concerns

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Developed Markets in Red Russia and CEE are
expected to clock positive growth in 2010 West
EU down until mid 10
European Auto Sales, 2008
European Auto Sales, 2008
-19.5
-11.8
-2.1
Million Units
Million Units
-2.3
4.8
-3.4
Eastern Europe excludes Russia volumes
Austria, Belgium, Denmark, Finland, Greece,
Ireland, Luxembourg, Netherlands, Norway,
Portugal, Sweden, Switzerland

• Russia and Turkey are the only considerable
  growth markets in 2010 with positive growth
  trends, although they are also expected to
  witness weakness in 2009
• Russia is expected to become the largest market
  in Europe on par with Germany by 2010
• All key 5 western European markets are expected
  to witness negative growth with 2010 expected to
  be the year of recovery with improving economic
  conditions

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What will catalyze the turnaround? BRIC and
emerging economies will lead the recovery through
2010
Q2/Q3 2010
Q3/Q4 2009

• Improvement in credit availability and increase
  in consumer confidence index
• Customer demand bounce-back based upon stimulus
  scrapping bonus and incentive for buying
  fuel-efficient cars

• US demand for vehicles is highly cyclical and
  currently down on credit worries
• Although there is a supply side govt. stimulus,
  demand is still low
• Cumulative deferred demand (CDD), government
  stimulus global recovery to drive growth

Q4 2009
Mid 2010

• Government measures include subsidizing new car
  purchases and, increase procurement of new cars
  for governmental needs and provide financial
  support to Russian OEMs
• Banking and financial system is expected to
  recover by Q4 with government backup, bringing
  liquidity and credit back in the market

• The Brazil and Colombian markets have been
  impacted by the credit crunch, with more than 70
  of vehicles being credit financed
• Recovery from the slowdown is subject to
  improvement in Credit situation and vehicle
  financing by 2010

Q2/Q3 2009
Q4 09 /Q110

• Indian market still showing positive growth on
  the back of economic boom driven by services
  industry
• Manufacturing slowdown in 2009, is expected to
  recover with recover of the US and rising
  consumer confidence
• Growth will also be driven by new low-cost car
  model launches in 2009/10

• RMB appreciation, rise in raw material prices,
  low demand in export markets and low credit
  availability have affected China's auto export
  market
• Government stimulus, revival of the export market
  and local consumption will revive Auto growth

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Flexibility in Capacity and Inter Brand JVs
Will Help OEMs Survive the Industry Downturn
Example of Toyotas new Takaoka Plant Able to
Build 8 High-Volume Models as against 3 on the
Original Assembly Line
Current Plant

• Cost-cutting to generate more than 2.5 billion
• Lead time to add new model halved
• Sensors that monitor quality during each process

Stamping presses that use servo-motors rather
than hydraulics, combined with high-speed
delivery robots.
Future Plant
Welding Parts Shops
Press Shop
A "set parts system" that delivers a basket of
parts to each vehicle.
A welding system that slashes the cost of jigs
and other tooling.
Body Shop
Paint Shop 1
Ditch huge expensive machinery
Assembly Shop 1/2
A paint process that eliminates the need to let
the base coat dry.
Paint Shop 2

• 2009 Capacity 500,000

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Developing economies to drive future growth in
global vehicle production By 2016/17 60 of
global production to come from Asia, Eastern
Europe and South America
World Automotive Market Light Vehicle
Production, 2007-2015
95 Million Vehicles
18.1
70.3 Million Vehicles
7.0
22.9
41.1
17.6
5.1
Others 2.5
Thailand 2.2
Korea 3.8
1.7
21.4
10.7
27.4
Japan 11.1
1.6
8.5
Others 10.5
Million Units
India 4.4
16.7
UK 2.0
Others 5.1
U.K. 2.0
43.3
Spain 2.6
39.5
Germany 6.3
China 17.1
Others 3.2
6.7
USA 11.6
France 3.3
1.2
1.6
Brazil 5.4
1.1
0.3
Russia 3.1
Note Vehicle Production in Million Units
The above vehicle production forecast is for
passenger cars and light commercial vehicles
(Executive, Large, Lower Midsize, Luxury, MPV,
Pickup / Truck, Small, Sports, SUV, Upper Midsize
and Van
Note Africa - Morocco, South Africa Asia -
Australia, China, India, Indonesia, Japan, Korea,
Malaysia, Philippines, Taiwan, Thailand Eastern
Europe Azerbaijan, Belarus, Bosnia, Czech
Republic, Hungary, Kazakhstan, Poland, Romania,
Russia, Serbia, Slovakia, Slovenia, Turkey,
Ukraine, Uzbekistan Middle East - Iran North
America - Canada, Mexico, USA South America -
Argentina, Brazil, Chile, Colombia, Ecuador,
Uruguay, Venezuela Western Europe - Austria,
Belgium, Finland, France, Germany, Italy,
Netherlands, Norway, Portugal, Spain, Sweden, UK
Source JD Powers / Frost Sullivan
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