Rocky Road for Automotive

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Rocky Road for Automotive?
Governors Conference 2008 Nashville, TN Septe
mber 15, 2007
Ed McCallum, Senior Principal
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Presentation Overview

• Introduction to McCallum Sweeney
• Economy in General
• Specific Automotive Situation
• Opportunities
• Conclusions
• Q A

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McCallum Sweeney ConsultingIntroduction
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Introduction

• MSC specializes in site selection and incentive
  negotiation services
  
• MSC was established in July 2000 by Ed McCallum
  and Mark Sweeney
  
• MSC brings more than 50 years of combined
  location consulting experience to our clients
  worldwide
  
• MSC brings the most comprehensive use of
  Geographic Information Systems technology to bear
  on our projects
  
• MSC is committed to providing our clients with
  uncompromised service, conducting site selection
  and incentive negotiations with the highest
  standards of integrity

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Site Selection Experience
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MSC Project Announcements

• 5.0 billion investment
• 15,000 jobs

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McCallum Sweeney ConsultingEconomy In General
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Facts about US Economy

• The largest and still the most important market
  in the world
  
• 2007 GDP is believed to be 13.84 trillion.
  (three times the size of the next largest
  economy, Japan, which has a GDP of 4.4
  trillion.
• US dominance has been eroded by a combination of
  EU1 and BRIC2 countries
  
• Recent failure in the US housing credit markets
  have resulted in a slowdown.
  
• 2007 GDP growth was estimated at 2.2 but in 2008
  it is projected to be just 0.9, down from the
  10-year average of 2.8
  
• Financial markets are in a correction mode

1. European Union combined GDP of about 13.0
trillion 2. Brazil, Russia, India and China with
China expected to outpace the US withing 20 years
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Facts about US Economy

• National debt at the start of 2008 stood at 9.2
  trillion.
  
• This is 67 of GDP and equates to 79,000 for
  each American taxpayer, (a number just over 117
  million people.)
  
• American consumers are also increasingly
  dependent on debt and have been re-mortgaging
  their houses to higher loan amounts, and using
  the extra cash to fund high street purchases.
• This debt figure is the largest in the world in
  absolute terms
  
• As a percentage of GDP it is less than Japan and
  similar to several European countries. Most of
  the debt is funded by central banks and sovereign
  wealth funds from Asia, Europe and the Middle
  East.

1. European Union combined GDP of about 13.0
trillion 2. Brazil, Russia, India and China with
China expected to outpace the US withing 20 years
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Facts about US Economy

• 2/3rds of economy is driven by Consumer Spending
• 78.5 consists of services
• 20.5 is industry
• 1.0 is agriculture

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Source University of Central Florida, Institute
for Economic Competitiveness, College of Business
Administration US Forecast August 2008,
http//www.bus.ucf.edu/hitec/Pages/Forecasts/U.S.
20Forecasts/UCF-US-Forecast-August2008V2.pdf
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Source University of Central Florida, Institute
for Economic Competitiveness, College of Business
Administration US Forecast August 2008,
http//www.bus.ucf.edu/hitec/Pages/Forecasts/U.S.
20Forecasts/UCF-US-Forecast-August2008V2.pdf
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Source University of Central Florida, Institute
for Economic Competitiveness, College of Business
Administration US Forecast August 2008,
http//www.bus.ucf.edu/hitec/Pages/Forecasts/U.S.
20Forecasts/UCF-US-Forecast-August2008V2.pdf
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Source University of Central Florida, Institute
for Economic Competitiveness, College of Business
Administration US Forecast August 2008,
http//www.bus.ucf.edu/hitec/Pages/Forecasts/U.S.
20Forecasts/UCF-US-Forecast-August2008V2.pdf
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Source University of Central Florida, Institute
for Economic Competitiveness, College of Business
Administration US Forecast August 2008,
http//www.bus.ucf.edu/hitec/Pages/Forecasts/U.S.
20Forecasts/UCF-US-Forecast-August2008V2.pdf
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Source University of Central Florida, Institute
for Economic Competitiveness, College of Business
Administration US Forecast August 2008,
http//www.bus.ucf.edu/hitec/Pages/Forecasts/U.S.
20Forecasts/UCF-US-Forecast-August2008V2.pdf
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Source University of Central Florida, Institute
for Economic Competitiveness, College of Business
Administration US Forecast August 2008,
http//www.bus.ucf.edu/hitec/Pages/Forecasts/U.S.
20Forecasts/UCF-US-Forecast-August2008V2.pdf
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General Overview

• 1-2 year slowdown
• Election resolution may spur momentary short
  lived recovery
  
• Stability in oil markets may speed up recovery
• Capital spending has not kept pace since 2001
  it has to
  
• Mfg. jobs will continue to decline(?)

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McCallum Sweeney ConsultingSpecific Automotive
Situation
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Motor vehicle production (1000 units)
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Total motor vehicle production (1000 units)
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Total motor vehicle production (1000 units)
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New US Plant Announcements
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Closing or Idle US Plants
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Significant Factors That May Affect the Future of
Plant Location Analysis

• Right-to-Work Status
• Hondas new plant near Greensburg, Indiana
• Toyotas recently established joint-venture
  arrangement with Subaru in Lafayette, Indiana
  
• Both companies are very sophisticated in
  government and public relations
  
• Indiana (and other states) had several
  initiatives in the last decade to introduce
  legislation in favor of right-to-work laws
  
• Non-right-to-work states competing for new
  future plant start-ups is open to debate
  

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Significant Factors That May Affect the Future of
Plant Location Analysis

• New Technology
• Consumers bought 254,545 hybrids last year and
  the prospect for increased sales is expected to
  continue
  
• Competitive advantage lies with those locations
  where research and development occurs
  
• Tesla Motors new plant announcement in NM it
  changed and went to California
  
• Question for ED professionals - Try to compete
  by investing in the future for research and
  development activities, or to wait and recruit
  proven post-prototype successes?

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Significant Factors That May Affect the Future of
Plant Location Analysis

• Market-Driven Decision Toyota, San Antonio
• OEM site selection previously driven by
  operational factors that were focused on
  minimizing costs and increasing operational
  efficiencies
• Toyota is first OEM to claim their decision was
  market driven
  
• Growing middle class in Mexico (?-big unknown)
• OEMs site selection decisions are no longer
  driven exclusively by labor and logistics costs

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Significant Factors That May Affect the Future of
Plant Location Analysis

• Alliances/Contract Manufacturing for Multiple
  Platforms
  
• Several luxury and sport model vehicles are in
  demand in North America but not enough to justify
  a new plant
  
• Ultra economy cars (Kia showed it can be done)
• Several European companies have explored both
  joint venture arrangements with competitors as
  well as contract manufacturing on multiple
  platforms with a third-party manufacturer Magna
  Steyr example

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McCallum Sweeney ConsultingOpportunities
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Importance of the Automotive Industry to the
United States

• 237 million registered passenger vehicles in the
  U.S. in 2004
  
• 7.1 million automobile-related jobs in the U.S.
• More vehicles in the U.S. than licensed drivers
• Sales of vehicles in the U.S. account for 26.5
  percent of the global market
  
• 17.7 percent of the worlds autos are produced on
  U.S. soil
  
• The United States automotive industry is vital
  to its economic health

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Importance of the Automotive Industry to the
United States

• Average motor vehicle manufacturer produced
  292,000 worth of product in 2001
  
• Average employee in the U.S. produced only
  73,000
  
• Average salary in motor vehicle and equipment
  manufacturing 69,500
  
• Average manufacturer 53,100
• Valuable employees results in high compensation
  and significant economic impact

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Future Developments Affecting Auto

• Oil resources will expand until 2010. Then, oil
  may become a progressively more expensive
  commodity without alternative energy solutions.
  
• Fuel cells could offer high-mileage cars without
  emissions. But, the technology is expensive and
  will require significant breakthroughs to attract
  mainstream use.
• The amount and complexity of automotive
  electronics will continue to rapidly increase.
  Future systems will include automated driving
  software, super-smart airbags, inflatable
  seatbelts, crash avoidance, low cost GPS, voice
  recognition, digital music and new display
  technologies. (Much of semiconductor growth is
  due to automotive innovations not computers)

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Concepts to Consider

• Rapid development in new supplier types
  particularly with plug and play types of auto
  customization/upgrades
  
• Common platforms will be more prevalent growth
  in power train systems in competing technologies
  
• Econ. Dev. Opportunities will be fewer, not
  because of numbers but because of Need for
  Speed
  
• Cross industry market driven locations will be
  common
  
• Mega-sites could transform into mega-supplier
  parks.

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McCallum Sweeney ConsultingQuestion Answer
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MSC Contact Information

• Address McCallum Sweeney Consulting, Inc.
• 200 North Main Street
• Suite 303
• Greenville, SC 29601
• Phone Phone [phone]
• Fax [phone]
•  
• Principal Ed McCallum
• Mobile [phone]
• E-Mail emccallum_at_mccallumsweeney.com
•  
• Web Page http//www.mccallumsweeney.com