china, india,russia, ukraine and brazil: is there sufficient · pdf filechina, india,russia,...

China, India, Russia, Ukraine and Brazil:

Is There Sufficient Further Growth Potential to Offset

Weakness of Mature Markets ?

Tim ArmstrongDirector

Asia, Middle East & Africa

Copyright © 2008 Global Insight, Inc. GLOBAL AUTOMOTIVE CONFERENCE

Will the BRICs Save World Growth ?

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

Th

ou

sa

nd

s

TRIAD

REST OF WORLD

Of which: BRICS+UKRAINE

Global Light Vehicle Sales

BRICS & Ukraine make up 26% of global sales in 2008

Note: Triad comprises USA, Japan & W.Europe


China and India —Where to Now?


China — Key Factors Affecting Passenger Car Market

Price CompetitionPrice cut continues regardless of rising cost

Price CompetitionPrice cut continues regardless of rising cost

New Model Launches •Local brands delay new model launches•More new models in the Q4 to avoid the Olympic impact

New Model Launches •Local brands delay new model launches•More new models in the Q4 to avoid the Olympic impact

Passenger Car Market to Slow

Down In 2008 with Growth Rate of

8.1%

Passenger Car Market to Slow

Down In 2008 with Growth Rate of

8.1%

Oil PriceGasoline and Diesel retail prices increased by 16% in June 2008

Oil PriceGasoline and Diesel retail prices increased by 16% in June 2008

Macro EconomicGDP expected to grow by 9.8% in 2008 & 8.4% in 2009Export growth slow downDomestic consumption is picking up and government is likely to boost investment to prevent recession

Macro EconomicGDP expected to grow by 9.8% in 2008 & 8.4% in 2009Export growth slow downDomestic consumption is picking up and government is likely to boost investment to prevent recession

Policy & Regulatory•Consumption tax to penalize large engine displacement vehicles•Fuel tax in the future could have further negative impact

Policy & Regulatory•Consumption tax to penalize large engine displacement vehicles•Fuel tax in the future could have further negative impact

Other Factors•Snow disaster, earth quake•Olympic games

Other Factors•Snow disaster, earth quake•Olympic games

Other Factors•Property and stock market correction

Other Factors•Property and stock market correction


China SAAR Sales Get Worrying

Cars MPVs, SUVs

HCVs

LCVs

0

1000000

2000000

3000000

4000000

5000000

6000000

7000000

8000000

Jan-0

1

Jul-0

1

Jan-0

2

Jul-0

2

Jan-0

3

Jul-0

3

Jan-0

4

Jul-0

4

Jan-0

5

Jul-0

5

Jan-0

6

Jul-0

6

Jan-0

7

Jul-0

7

Jan-0

8

Jul-0

8Seaso

nall

y A

dju

ste

d A

nn

ual

Ru

nn

ing

Rate

Sale

s

(SA

AR

) (u

nit

s)

0

500000

1000000

1500000

2000000

2500000

3000000

3500000

Jan-0

1

Jul-0

1

Jan-0

2

Jul-0

2

Jan-0

3

Jul-0

3

Jan-0

4

Jul-0

4

Jan-0

5

Jul-0

5

Jan-0

6

Jul-0

6

Jan-0

7

Jul-0

7

Jan-0

8

Jul-0

8

Seaso

nally A

dju

ste

d A

nn

ual R

un

nin

g R

ate

Sale

s

(SA

AR

) (u

nit

s)

0

200000

400000

600000

800000

1000000

1200000

1400000

Ja

n-0

1

Ju

l-01

Ja

n-0

2

Ju

l-02

Ja

n-0

3

Ju

l-03

Ja

n-0

4

Ju

l-04

Ja

n-0

5

Ju

l-05

Ja

n-0

6

Ju

l-06

Ja

n-0

7

Ju

l-07

Ja

n-0

8

Ju

l-08

Se

aso

nall

y A

dju

ste

d A

nn

ua

l R

un

nin

g R

ate

Sale

s

(SA

AR

) (u

nit

s)


Key Factors Affecting China’s Demand and Production

Positives

• Pent up demand post Olympics

• Limited exposure to credit based purchases

• Model launches in Q4 2008 & 2009

• New product momentum

• Movement of automobile demand away from coastal provinces

• Government ability to stimulate consumption growth

• Institutional demand can be manipulated

• Car prices can still come down

• Government supports Chinese OEM production investment

Negatives

• High oil has seen increases in fuel prices

• Stock market bubble has burst

• Recession in US and Europe could seriously damage China’s export trade—knock on effect on autos

• Export markets offer limited support for production


0

5

10

15

20

25

Consumer

Demand

ST Interest

rates

Inflation

WPI

Ind. Prod Real GDP Real

Export

Growth

2006 2007 2008 2009 2010

Global Slowdown Hits China

% growth


Wealth Destruction — The Stock Market Bubble Has Burst

Shanghai 180 index


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

East

Gu

an

gd

on

g

Sh

an

gh

ai

Tia

njin

i

Zh

ejia

ng

Jia

ng

sh

u

Fu

jian

Be

ijing

Ha

ina

n

Sh

an

do

ng

He

be

i

An

hu

i

Sh

an

xi

Jia

ng

xi

Hu

be

i

Hu

na

n

He

na

n

Nin

xia

ng

Xin

jian

g

Ch

on

gq

ing

Qin

ha

i

Yu

na

n

Sh

aa

nx

i

Sic

hu

an

i

Gu

an

gx

i

Tib

et

Ga

ns

hu

Gu

izh

ou

Inn

er M

on

go

lia

He

ilon

gjia

ng

Lia

on

ing

Jilin

Central

West

Northeast

East Coast Provinces Are Most Reliant on External Trade

Percentage of Total Export in GDP (2006)


Sales in Eastern Provinces Are Already Slowing Down

Heilongjiang

Hunan

NingxiaShanxi

Shaanxi)

Xinjiang

Gansu

Jilin

Liaoning

Taiwan

Tibet

Sichuan

YunnanGuangxi Guangdong

Fujian

Shandong

Hubei

Jiangxi

Hainan

Inner Mongolia

Qinghai

Hebei

Henan

Anhui

Zhejiang

Jiangsu

Guizhou

Tianjin

Shanghai

Beijing

0

10

20

30

40

50

60

National

Jia

ngxi

Hunan

Henan

Hubei

Shanxi

Anhui

Zhejia

ng

Guangdong

Jia

ngshu

Shandong

Shanghai

Economic growth shows regional discrepancy:In the first 7 months of 2008, industrial production growth slow down in east provinces (Beijing,Shanghai, Zhejiang and Guangdong etc)Growth in central provinces are more impressive

Industry Production Growth Rate by Province(1-7, 2008)

Above Average National Average 16.1%

Below Average

Demand in south-eastern provinces is now slow down, and the growth in car sales is being sustained mainly by the development of motorisation in central provinces.

Passenger Car Sales Growth Rate (1-5, 2008)

National Average 14.3%

(Percent)


Product Model Launch Momentum Increases

24

6

15

31

30

10

1

77

CHINA JAPAN EUROPE US KOREA

Number of Completely New Model Launches by Country of Origin

2007: 46 models2008: 49 models2009: 55 models

2008 2009


Car Price Decline Trend by Segment … C-SegmentCompact Cars Experiencing Biggest Falls

Price Declines: Jan 2004~ July 2008• Segment A: 19.6%• Segment B: 26.8%• Segment C: 34%• Segment D: 27.9%• Segment E/F: 14.3%

Outlook:• Local companies putting further pressureon prices

•Weak brands and older models mostvulnerable

• Contemporary models, stronger brands and luxury segments less vulnerable

65

69

73

77

81

85

89

93

97

101

Jan-0

4M

ar-0

4M

ay-0

4Ju

l-04

Sep-0

4N

ov-04

Jan-0

5M

ar-0

5M

ay-0

5Ju

l-05

Sep-0

5N

ov-05

Jan-0

6M

ar-0

6M

ay-0

6Ju

l-06

Sep-0

6N

ov-06

Jan-0

7M

ar-0

7M

ay-0

7Ju

l-07

Sep-0

7N

ov-07

Jan-0

8M

ar-0

8M

ay-0

8Ju

l-08

Luxury Standard Compact Small Micro


14.1%

26.3%

32.4%

9.6%

29.9%

33.7%

7.8%

28.6%26.3%

14.9%

0%

5%

10%

15%

20%

25%

30%

35%

40%

CH U.S EU JP KR

Market Share Adjustments Continue …Japanese Carmakers the Main Beneficiaries of the Current Hike in Fuel Prices

Jan-July 2007 Jan-July 2008


China Light Vehicles Sales Forecast

4000

5000

6000

7000

8000

9000

10000

11000

12000

20

07

20

08

20

09

20

10

Th

ou

sa

nd

s

August/September

2008 forecast

October 2008

forecast


Government Support for Chinese OEMs

• China’s 11th Five-Year Plan (2006-2010) emphasizes the need to foster independent R&D capabilities

• Government support for Chinese auto OEMs includes:

– Government Loans: e.g. China State Development Bank lent Chery 8.2 Billion RMB in 2005-2007 to help it develop its R&D capability

– Tax Credit: 150% of annual R&D cost can be deducted from EBIT as tax credit

– Setting Up National Lab: e.g. a National Lab for developing energy-efficient and environmentally friendly technology was set up by Chery with government funding in 2007

– Setting Up Export Base: Government offers subsidy for auto manufacturers located in auto export base

– Export Tax Reimbursement: Government offers 9% tax reimbursement rate for auto export

– Export Buyer Credit: China Import and Export Bank offer Buyer Credit for auto export


Passage to the West — Rocky Road

Exports to the West Can Be Expected Only After 2013

Emission

EU: EURO V (2009)/EURO V+(2011)

U.S: Tier II/California (ZEV)

Safety Warranty

EURONCAP/NHTSA

/IIHS

Anti-Corrosion WarrantyPowertrain Warranty

Emission Warranty

No Chinese vehicle ever received EURO

NCAP 3 Star

Chinese OEMs

No EURO IV Engine Available

No Anti-Corrosion

Warranty

No Powertrain Warranty

No Emission Warranty

After Sales Service

Dealer Management System

Brand Building

Plus


Chinese OEM Exports Will Rely on “Soft” Markets

222

401

472

603

524

172

324

0

100

200

300

400

500

600

700

2007

2008

2009

2010

2011

2012

2013

Export

(,000 Units)

In 2009-2011, Chinese OEMs will launch around 102 new models, most of which can be exported to countries/regions such as Russia, Ukraine, South America and Middle East


2.2 2.53.1

4.3

5.45.9

6.57.3

8.08.6

9.2

1.72.0

2.1

2.4

2.7

2.9

3.2

3.4

3.7

4.0

4.2

0.5

0.6

0.5

0.6

0.8

1.0

1.0

0.9

1.0

1.1

1.1

28.1%

15.8%

12.5%

26.8%

22.1%

9.8%9.5% 8.5%

7.6%

5.7%

9.3%

-

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

0%

5%

10%

15%

20%

25%

30%

CAR LCV HCV Growth Rate %

Million Vehicles Growth Rate

Vehicle Production Forecast in China — October 2008 Forecast

CAGR:18.1% CAGR:8.1%


India — Key Factors Affecting Passenger Car Market

Price CompetitionPrice cuts difficult in small car market

Price CompetitionPrice cuts difficult in small car market

New Model Launches •Tata Nano launch subject to delay• Maruti Splash, A-Star•Tata Indica Vista

New Model Launches •Tata Nano launch subject to delay• Maruti Splash, A-Star•Tata Indica Vista

LV Market to Slow Down in 2008 to

4.3%

LV Market to Slow Down in 2008 to

4.3%

Oil PriceFuel subsidies reducedFuel prices rise 11% petrol, 9% diesel in June 2008

Oil PriceFuel subsidies reducedFuel prices rise 11% petrol, 9% diesel in June 2008

Macro EconomicGDP expected to grow by 7.2% in 2008Sharp slowdown in consumer spending to 5.7% growth

Macro EconomicGDP expected to grow by 7.2% in 2008Sharp slowdown in consumer spending to 5.7% growth

Policy & Regulatory•WTO & Tariffs•Excise taxes change — fall on small cars, rise on large cars

Policy & Regulatory•WTO & Tariffs•Excise taxes change — fall on small cars, rise on large cars

Other Factors•Super inflation in commodities prices

Other Factors•Super inflation in commodities prices

Other Factors•Stock market correction

Other Factors•Stock market correction


SAAR Analysis Shows Slow-down in Indian Vehicle Demand

800000

1000000

1200000

1400000

1600000

1800000

2000000

2200000

2400000

Jan

-03

Ma

y-0

3

Sep

-03

Jan

-04

Ma

y-0

4

Sep

-04

Jan

-05

Ma

y-0

5

Sep

-05

Jan

-06

Ma

y-0

6

Sep

-06

Jan

-07

Ma

y-0

7

Sep

-07

Jan

-08

Ma

y-0

8

Seas

on

all

y A

dju

ste

d A

nn

ua

l R

un

nin

g R

ate

Sa

les

(SA

AR

) (u

nit

s)

All Vehicles

600,000

700,000

800,000

900,000

1,000,000

1,100,000

1,200,000

1,300,000

1,400,000

Ja

n-0

4

Ap

r-04

Ju

l-04

Oct-0

4

Ja

n-0

5

Ap

r-05

Ju

l-05

Oct-0

5

Ja

n-0

6

Ap

r-06

Ju

l-06

Oct-0

6

Ja

n-0

7

Ap

r-07

Ju

l-07

Oct-0

7

Ja

n-0

8

Ap

r-08

Ju

l-08

Se

as

on

ally

Ad

jus

ted

An

nu

al R

un

nin

g R

ate

Sa

les

(S

AA

R)

(un

its

)

Passenger cars (Excl. MPV,SUV)

Total vehicle sales growth 1-8/2008 = 7.7%

Total passenger car sales 1-8/2008 = 6.8%


Key Factors Affecting India’s Demand and Production

Positives

• Economic growth slows but remains high by world standards

• Indian economy not excessively exposed to trade slump

• Nano launch will (eventually) support sales

• Still a target for world investment plans

• Increasing economies of scale of production

Negatives

• High oil has seen increases in fuel prices

• Inflation has led to tighter monetary policy

• High proportion of vehicles need finance

• Stock market bubble has burst

• Slowdown means reduced export potential to Europe

• Nano project derailed

• Limited scope for vehicle price reductions


0

5

10

15

20

Consumer

Demand

Real ST

Interest

rates

Inflation

WPI

Ind. Prod Real GDP Real

Export

Growth

2006 2007 2008 2009 2010

Global Slowdown Hits India

% growth


No Escape for Indian Equity Markets — S&P CNX 500 Index


Fuel Price Subsidies Are Rolled Back

• During high oil spike in Q2 state owned oil companies were losing $100m a day

• Petrol was being sold at Rs 16 loss per litre & Diesel at Rs23/litre

• Government increased fuel prices in June by

– Petrol 11%

– Diesel 9%

– Cooking fuel 17%

• Fuel prices are now

– Delhi Petrol Rs51(euro 0.75), Diesel Rs35 (euro 0.5)

• April to July 2008 saw an 18% increase in diesel consumption (power industry)

• After fuel price rise Indian Oil, Baharat Petroleum, Hindustan petroleum lose Rs 16 per litre on diesel


Finance Becomes Harder to Obtain

• 75% of vehicle sales are using finance

• Interest rates have risen – but cuts now on the agenda

• Banks have reduced credit availability to buyers and dealers

• Finance companies are rolling back from parts of inland, north-east and central India to concentrate on lower risk, larger metro cities

• Ultra-low cost car buyers are seen as high risk and buyers could struggle to obtain finance

• Focus has switched to premium end of the automobile market


Government Is Willing to Change Policy, Up to a Point —Excise Taxes in India

c. 10%n.an.an.aCKDCar CKD importsCustoms

Duties

c. 100%n.an.an.aCBUCar CBU importsCustoms

Duties

24%

* + Rs 15-

20,000 from

June 2008

>4000

mm

>1.5l>1.2ln.aLarge carsExcise Tax

12% from

March 2008

< 4000

mm

<1.5l<1.2ln.aSmall carsExcise Tax

RateLengthDiesel

ccm

Petrol

ccm

FormCategoryType

Imports account for only 1% of new car , MPV, SUV sales in 2008

Over 60% of sales are in “Small Car” segment


Limited Scope for Price Reductions to Stimulate Demand Price in $US on Road, Ex. Delhi, September 2008 @ 47Rs/$

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

50000

MA

RU

TI A

LT

O

MA

RU

TI W

AG

ON

R

HY

UN

DA

I I10

HY

UN

DA

I SA

NT

RO

MA

RU

TI N

EW

SW

IFT

MA

RU

TI O

MN

IVA

N

TA

TA

NE

W IN

DIC

A

MA

RU

TI Z

EN

ES

TIL

O

M &

M B

OL

ER

O

MA

RU

TI 8

00

TO

YO

TA

INN

OV

A

TA

TA

IND

IGO

TA

TA

IND

ICA

M &

M S

CO

RP

IO

HO

ND

A N

EW

CIT

Y

HY

UN

DA

I VE

RN

A

MA

RU

TI S

X4

SE

DA

N

TA

TA

SA

FA

RI

RE

NA

UL

T L

OG

AN

MA

RU

TI D

ZIR

E

FO

RD

FIE

ST

A

CH

EV

RO

LE

T S

PA

RK

CH

EV

RO

LE

T T

AV

ER

A

HY

UN

DA

I GE

TZ

HO

ND

A C

IVIC

CH

EV

RO

LE

T A

VE

O U

-VA

TA

TA

SU

MO

GR

AN

DE

TA

TA

NA

NO

50% of Car MPV SUV sales



Blue =SUV,MPV


Tata Nano Exits West Bengal to Safety of Gujurat

• West Bengal is a Communist state with a history of violent political protests, poor labour relations and little automotive sector

• Tata investment in Singur $350m

• WB government appropriated land for Singur site under archaic law and paying low compensation—997 acres acquired: 600 for Nano + 397 for supplier park

• Protests launched at critical time for Nano by Trinamool Congress party

• Work on Singur was halted in August 2008 over demands for the return of the 397 acre supplier park land

• Nano launched as planned

• Made in existing plants at much lower volumes

• New plant to be located at Gujurat

• Volumes of 250k, expandable to 300k

• Move means further blow to pricing potential of Nano


0

200

400

600

800

1000

1200

1400

1600

1800

Ja

n-9

8

Ma

y-

Se

p-

Ja

n-9

9

Ma

y-

Se

p-

Ja

n-0

0

Ma

y-

Se

p-

Ja

n-0

1

Ma

y-

Se

p-

Ja

n-0

2

Ma

y-

Se

p-

Ja

n-0

3

Ma

y-

Se

p-

Ja

n-0

4

Ma

y-

Se

p-

Ja

n-0

5

Ma

y-

Se

p-

Ja

n-0

6

Ma

y-

Se

p-

Ja

n-0

7

Ma

y-

Se

p-

Ja

n-0

8

0

5000

10000

15000

20000

25000

30000

European Car in Euro's US Car in $ Nano in $ Nano in Rupees (RHS)

Pure Raw Material Cost in a Car

(Excludes Fuel, Processing and Transportation costs)

Steel

Aluminium

Plastic Resins

Rubber

Glass

Iron

Series based on Global Insight’s Cost Analysis Service

APRIL 08

Based on Nano curb weight of 600kg compared with

representative European car of 1,300 kgs


23%RM costs in 2008 as a % of total pre tax car price

(1 lakh)

9.5%Increase in post tax on road car price if RM costs passed on

70.6%% Increase in RM costs 2003–2008

23,088Raw materials cost

April 2008

13,530Raw materials cost

January 2003

RupeesPer Vehicle - Nano

Implications of Current Raw Material Cost Increases —Assuming Full Cost Increases Are Passed On


New Products Launched Will Stimulate Demand and Improve Economies of Scale

0

200

400

600

800

1000

1200

1400

2008

2009

2010

Thousand u

nits

TOYOTA

RENAULT

FORD

BMW

AUDI

MERCEDES-BENZ

MITSUBISHI

VW

SKODA

NISSAN

MAHINDRA &MAHINDRAFIAT

CHEVROLET

HONDA

HYUNDAI

MARUTI

TATA

Production volume from new models launched in 2008, 2009 & 2010

Nano

Indica Vista

A-Star

i 20

New Micra et alIndicruz

Maruti Splash

Renault Sandero

Toyota EFC

Mahindra Model W SUV


Export Plans Are Ambitious but Will Be Undermined by Lower Demand from Europe

0

100000

200000

300000

400000

500000

600000

700000

800000

900000

1000000

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

Total Car Exports and Main OEM Export Investments September Forecast

100kSub Micra et.al.Nissan

115kMarch/MicraNissan

180kA-StarMaruti

200ki20Hyundai

250ki10Hyundai

Peak Prod. Volume by 2013

ModelMake


Auto Sales Growth Will be Moderate in 2009

• India economic growth slows but will still be strong by developed world standards

• Higher interest rates, inflation, and lower fuel subsidies and credit crunch combine to restrict finance and ability to buy a car

• Nano forecast revised down significantly—will only see big build up in volumes from 2010

• Large investment in production will keep costs down and stimulate demand in a weaker environment—but lower export potential undermines production

Light Vehicle Sales

0

500000

1000000

1500000

2000000

2500000

3000000

20

07

20

08

20

09

20

10

August/September 2008forecast

Octoberforecast 2008


Total Asia Light Vehicle Sales and Production Forecasts

19000

21000

23000

25000

27000

29000

31000

33000

35000

37000

39000

2007

2008

2009

2010

2011

2012

2013

Th

ou

sa

nd

s

October

production

forecast

August

September

production

forecastOctober

sales

forecast

August

September

sales

Thank You!

Tim Armstrong

Director

Asia, Middle East & Africa

[email protected]

Presentations are available for download at:www.globalinsight.com/events/GAC2008Paris

china, india,russia, ukraine and brazil: is there sufficient · pdf filechina, india,russia,...

Documents