Eastern Automotive Summit October 19, 2006 The Global Automotive Outlook: Strategic Trends & Implications
Mar 26, 2015
Eastern Automotive SummitOctober 19, 2006
The Global Automotive Outlook:Strategic Trends & Implications
Presentation Outline
• The automotive outlook– North America– Global– Strategic and tactical issues
• Shifts: OEMs and segments– Winners and losers
• Contribution to growth• Key drivers, enablers and constraints
– Brand positioning and momentum– Energy– Strategic investment– The path to growth/recovery
• Other issues– Alliances– Delphi
• Summary, conclusions and implications
North American Automotive OutlookNorth American Automotive Outlook
Outlook Scorecard*Key NAFTA Drivers
2006-2007
• Business environment – Economic growth 2.5-3.0%/yr. overall
– Employment growth slow pickup; productivity growth
– Inflation increasing pressure – 2.7-3.1%
– Interest rates slow adjustments
– Energy improvement but risk remains
– Government regulations emphasis on fuel economy, emissions
• Automotive environment– Ownership & operating cost incentives slow
– Vehicle demand moderately high volume withouteconomic, energy, political crises
* Expected performance by factor assessed by color and time of evaluation: GREEN (good); YELLOW (moderate); RED (bad)
Source: AutomotiveCompass
Mid-term North American Auto Outlook: Light Vehicle Production Volume
Mid-term, 2010-12• 17.2-17.5 million planning volume range, reflecting ….
1. Healthy economic growth in the mid-term• Real GDP up 3.0-3.5%/yr
– Supporting employment and income growth
• Inflation advancing at 2.7-3.3%/yr
2. Growth in driving age population• Immigration driven• US and Canada driving age population growing at 1.0-1.5%/yr
3. Substitution effects: imports replaced by domestic production• Europe - Euro pressure• Asia - domestic content; credibility; political support; labor stability• North America gaining an export base - BMW, VW, Mercedes-Benz
Source: AutomotiveCompass
Oil Prices – 12 months tracking
Updated 10/11/06
• 2006-07 planning range $60-80/bbl• Risks: supply disruptions - hurricanes, war, terrorism
NAFTA Auto Outlook: ProductionLight Vehicle Production Volume in 000s, 2002-2010
2002 2003 2004 2005 2006 2010
2010 %Chg
vs. 2005
2010 %Chg
vs. 2002Industry OverviewCar 7,220 6,474 6,257 6,431 6,790 7,045 9.5 (2.4)Light Truck 9,216 9,454 9,543 9,374 8,785 10,155 8.3 10.2Total 16,436 15,928 15,800 15,806 15,575 17,200 8.8 4.6
Manufacturer SourceBig 3 12,264 11,517 11,054 10,358 9,876 10,718 3.5 (12.6)European NAM 555 538 443 518 627 717 38.5 29.3Japanese NAM 3,617 3,873 4,303 4,838 4,840 5,399 11.6 49.2Korean NAM 0 0 0 91 233 366 + +Total 16,436 15,928 15,800 15,806 15,575 17,200 8.8 4.6
Production OriginCanada 2,599 2,521 2,663 2,623 2,545 2,690 2.5 3.5Mexico 1,770 1,531 1,492 1,607 1,928 2,297 42.9 29.7United States 12,067 11,877 11,646 11,576 11,102 12,214 5.5 1.2Total 16,436 15,928 15,800 15,806 15,575 17,200 8.8 4.6
Source: AutomotiveCompass
NAFTA Auto Outlook: ProductionLight Vehicle Production Share (%), 2002-2010
2002 2003 2004 2005 2006 2010
2010 Chg vs.
2005
2010 %Share vs. 2002
Industry OverviewCar 43.9% 40.6% 39.6% 40.7% 43.6% 41.0% 0.3 (3.0)Light Truck 56.1% 59.4% 60.4% 59.3% 56.4% 59.0% (0.3) 3.0Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 0.0 0.0
Manufacturer SourceBig 3 74.6% 72.3% 70.0% 65.5% 63.4% 62.3% (3.2) (12.3)European NAM 3.4% 3.4% 2.8% 3.3% 4.0% 4.2% 0.9 0.8Japanese NAM 22.0% 24.3% 27.2% 30.6% 31.1% 31.4% 0.8 9.4Korean NAM 0.0% 0.0% 0.0% 0.6% 1.5% 2.1% 1.6 2.1Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 0.0 0.0
Production OriginCanada 15.8% 15.8% 16.9% 16.6% 16.3% 15.6% (1.0) (0.2)Mexico 10.8% 9.6% 9.4% 10.2% 12.4% 13.4% 3.2 2.6United States 73.4% 74.6% 73.7% 73.2% 71.3% 71.0% (2.2) (2.4)Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 0.0 0.0
Source: AutomotiveCompass
Segment Definitions: Cars and Light Trucks
Cargo vehicle over 6,000lbs GVWRLVN
Usually car-based and FWD vanMVN
Primarily American, SUV over 6,000lbs GVWRLSV
Truck-based SUV under 6,000lbs GVWRMSV
Usually car-based (FWD-based) SUVSSV
Primarily American, pickup over 6,000lbs GVWRLPU
Truck-based pickup under 6,000lbs GVWRMPU
Sporty vehicle not meeting "F" category definitionS
Exotic and ultra-luxury cars, regardless of size. Chiefly a pricing categoryF
"Near luxury" or "large car"E
"Executive car," known as "mid-sized" in the U.S.D
Typical "compact" vehicles, principally family cars in Europe and AsiaC
"Supermini" classification, regarded as "minicompacts" in the USB
DescriptionSegment
Source: AutomotiveCompass
Segment Shift: Cars
0% 5% 10% 15% 20%
S
F
E
D
C
B
2005
2010
Source: AutomotiveCompass
North American Market Share by Product Segment
Segment Shift: Light Trucks
0% 5% 10% 15% 20%
LSV
MSV
SSV
MCU
SCU
LPU
MPU
LVN
MVN
2005
2010
North American Market Share by Product Segment
Source: AutomotiveCompass
Segment Shift: Big Pickups & Small Cars
12%
13%
14%
15%
16%
17%
18%
19%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
C-Segment Car Full-Sized Pickup• Pickups stabilize
– Functionality and competitiveness
– Added PU capacity & products will drive a content and price war
• Small cars grow– Energy pressure and
competitiveness– Strong entries battle it
out with content and price … European-type market development
North American Market Share
Source: AutomotiveCompass
Segment Shift: SUVs vs Crossovers
0%
2%
4%
6%
8%
10%
12%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
MSV SCU MCU
North American Market Share by Product Segment
Source: AutomotiveCompass
Market Share shift in 2001-2012: Big 3 Domestics
14%
16%
18%
20%
22%
24%
26%
28%
30%
32%
34%
36%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Ford Motor General Motors DaimlerChrysler
North American Market Share by OEM Brands
Source: AutomotiveCompass
Market Share shift in 2001-2012: Big 3 Transplants
0%
2%
4%
6%
8%
10%
12%
14%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Honda Renault/Nissan Toyota
North American Market Share by OEM Brands
Source: AutomotiveCompass
GM Overview
• The sleeping giant is awake– Period of denial over?– Gaining momentum– Needs sustained positive results to maintain credibility and control– Stock price up sharply… up almost 75% since April 2006
• Gaining traction– New products
• 2 strong products in the global top ten (GMT900, Delta2)• Other strong platforms: Epsilon2, Theta, Lambda, Zeta• Strongest product line-up in decades emerging
– Improving cost structure– Delphi situation improving
• Risks– Cash squeeze– Proxy fight for control– Union cooperation– Delphi– Execution - sustained speed and agility
GM Stock Price
Up almost 75%since April!
Oct `04 Feb ‘05 Jun ‘05 Oct ‘05 Feb ‘06 Jun ‘06
40
30
20
Oct ‘06
Delphi Update
• Delphi & GM near a pact to avoid strike– GM to subsidize Delphi wages
– GM to guarantee business to Delphi
– Supply disruptions likely to be avoided
• Risks– Creditors fear their claims will be swamped by those from GM
– Terms for capital infusion from investors
– Struggle for control: strategic investors vs. financial investors
Threats of Private Capital
• Financial investors have much to gain– Where business are drastically reorganized (pensions, health care,
underperforming assets) AND someone else pays the bill• BUT, some of the driving factors in other industries (for example, steel) are
not present in the auto industry
– Tactical advantage?• Capturing low-cost control of re-emerging businesses may have a relatively
quick payback for financial investors
• Strategic investors vs. financial investors– Potential difficulty for OEMs, and ultimately for suppliers, concerned
about stability and long-term investing in the business– Funding of strategic investment (= long-term commitment)
• New products (to sell more cars) vs. new processes (to increase productivity, quality and lower cost)
– At odds with goals and needs of financial investors (= short-term gains)– Holding OEMs hostage?
Global Automotive OutlookGlobal Automotive Outlook
Global Overview
• The global automotive outlook– Global automotive production expected to grow by almost 20% to
approx. 72 million light vehicles in 2010
– Toyota emerges as the largest OEM, passing GM in 2008• Product, manufacturing, cost, branding strengths• Increased global competition
– Some traditional OEMs are trailing … losing share• Product, manufacturing, cost weaknesses• But some level of recovery is expected
– Asia (China, S.Korea, Thailand, India) and Eastern Europe will account for 75% of the growth in automotive production
– Excess capacity remains a serious concern (Asia, Western Europe)
GM 7.93 8.82 13.06% 12.32% -0.74
TOYOTA 7.79 9.18 12.83% 12.82% 0.00
FORD 6.63 7.52 10.92% 10.50% -0.41
REN/NISS 5.89 7.00 9.70% 9.78% 0.08
VW 5.18 6.45 8.53% 9.01% 0.48
DCX 4.18 5.07 6.88% 7.08% 0.20
HYUNDAI 3.76 4.61 6.19% 6.44% 0.25
PSA 3.66 3.95 6.03% 5.52% -0.51
HONDA 3.27 3.75 5.38% 5.24% -0.15
FIAT 1.96 2.19 3.23% 3.06% -0.17
BMW 1.33 1.54 2.19% 2.15% -0.04
OTHER 9.15 11.51 15.07% 16.08% 1.01
TOTAL 60.73 71.59 100.00% 100.00% 0.00
(millions of units)Production
Light Vehicle
20102005
Light Vehicle Market Share
(%) (% Pt. Chg)Vehicle
Manufacturer 201020052010 O/U
2005
Market Share Change
Winners & Losers: 2005-2010
Mid-termScorecard
Results
Source: AutomotiveCompass
0.0 0.5 1.0 1.5 2.0 2.5 3.0
Renault/ Nissan [B/ X57: Nissan Micra, Renault Clio]
Toyota [MC/ 300N: Camry, Highlander, Lexus RX330]
Volkswagen [PQ36/ PQ35: Golf, J etta, Skoda Octavia]
Ford [C1/ C170: Focus, C-Max, Volvo S40]
Volkswagen [PQ25/ PQ24: Fox, Skoda Fabio, Audi A2]
General Motors [Delta2/ Delta: Chevrolet Cobalt, Opel/ VauxhallAstra]
PSA [PF2: Peugeot 307, Citroen C4]
General Motors [GMT900/ GMT800: Chevrolet Silverado, ChevroletTahoe]
Renault/ Nissan [C/ MS/ X64: Nissan Sentra, Renault Megane]
Hyundai [J 4/ J 3: Hyundai Elantra, Kia Cerato]
Production in Millions
2005
2010
Top 10 Global Platforms 2005-2010
NOTE: For comparison purposes the previous generation platform information is also provided
Source: AutomotiveCompass
GM
Toyota
Ford
Renault/Nissan
VW
DCX
Hyundai
PSA
Honda
Fiat BMW
-1%
0%
1%
-3% -2% -1% 0% 1% 2% 3%
HISTORY: 1995-2005
FO
RE
CA
ST
: 20
05-2
011
Improving
SlippingTrailing
Leading
Top 11 OEMs represent almost 90% of the global market
Global Market Clusters: OEMsChange in Market Share (% pts.), History and Forecast
Source: AutomotiveCompass
Global Production by Region: 2002Global Light Vehicle Production (units, % of total)
17,885,12332%3,158,536
6%
15,708,45828%
16,432,72529%
2,087,2384%
836,7281%
Asia-Pacific East Europe West Europe
North America South America Middle East/Africa
Global Volume: 56.1 mil
Global Production by Region: 2010Global Light Vehicle Production (units, % of total)
27,084,00037%
6,407,0009%
16,254,00022%
17,202,00024%
3,403,0005%
2,049,0003%
Asia-Pacific East Europe West Europe
North America South America Middle East/Africa
Global Volume: 72.4 mil
Global Production by Region: 2002 - 2010Units as % of total growth over 2002 Global Production
9,191,08657%
3,244,19920% 1,217,188
7%
1,312,3538%
540,1653%
763,9985%
Asia-Pacific East Europe West Europe
North America South America Middle East/Africa
Global Volume Growth: 16.3 mil
Light Vehicle Production by Country
2000
1. US
2. Japan
3. Germany
4. France
5. Spain
6. South Korea
7. Canada
8. China
9. Mexico
10. UK
11.2 M
10.1 M
5.5 M
3.4 M
3.0 M
2.9 M
2.5 M
2.0 M
1.8 M
1.8 M
Ranking of light vehicle production volume by country
2005
1. US
2. Japan
3. German
4. China
5. France
6. South Korea
7. Canada
8. Spain
9. Brazil
10. UK
12.0 M
9.5 M
5.2 M
4.8 M
3.6 M
3.4 M
2.7 M
2.6 M
2.3 M
1.7 M
2010
1. US
2. Japan
3. China
4. Germany
5. South Korea
6. France
7. Brazil
8. Canada
9. India
10. Spain
12.2 M
8.6 M
8.5 M
5.9 M
3.6 M
3.5 M
2.8 M
2.7 M
2.6 M
2.6 M
Source: AutomotiveCompass
Key Global Issues
• Growing global excess capacity– As major Asian OEMs substitute home market production with local
production in North America and Europe– China – supply growing faster then demand; export concerns in an
increasingly hostile trading environment; investment slowdown likely
• Alliances… Do they help or distract?– Renault-Nissan (+)– GM – Fiat, Isuzu, Suzuki, Subaru, AutoVaz, SAIC (+), Toyota (+)– Ford – Mazda (+), Volvo (+), Land Rover, Jaguar, Aston Martin– DCX – Mitsubishi, Hyundai– Toyota – PSA (+), GM (+)
• Investment substitution– Growing evidence that scarce investment funding is shifting from Asia to
Eastern Europe• Asia – higher then expect costs, growing excess capacity, declining margins• Eastern Europe – market access (Russia), low-cost production
GM - Renault Nissan Alliance – Chronology
• May 4, 2005: Kerkorian seeks to boost his GM stake to 9 percent.• Nov. 21, 2005: GM lays out plan to cut 30,000 jobs, reduce capacity by 1 million
vehicles and close 12 plants in North America to restore profits.• Jan. 10, 2006: In a speech in Detroit, longtime Kerkorian adviser Jerry York calls on
GM to cut brands, dividends and executive pay.• Feb. 6: York named to GM board.• June 30: Kerkorian calls for GM board to immediately study a three-way alliance with
Renault and Nissan. GM board calls an emergency meeting to discuss Kerkorian's actions. Directors agree to study the situation.
• July 7: GM board agrees to have company management team, led by Rick Wagoner, open talks with Renault-Nissan.
• Sept. 27: Carlos Ghosn, CEO of Renault and Nissan, meets with Wagoner in Paris as a deal appears increasingly unlikely.
• Sept. 28: Kerkorian tells GM he wants to buy up to 12 million more shares, increasing his stake in the company to about 12 percent. He again calls for GM board to examine the deal, including hiring independent adviser.
• Oct. 3: GM board convenes regularly scheduled meeting and discusses widely different analyses of the benefits of a tie-up. While Renault-Nissan has estimated the eventual potential annual savings to GM at $10 billion, GM puts the savings closer to $3 billion a year.
• Oct. 4: Companies announce that they've ended talks because they could not reach an agreement on the value generated by the proposed alliance.
Conclusions & ImplicationsConclusions & Implications
North American Trends
• North American automotive outlook– Recession likely to be avoided for 2007
– Moderately strong mid-term• Economic growth, driving age population growth, import substitution• Automotive industry risks: energy, cost of regulations, ability to withstand
shocks, profitability needed to fund investment growth and replacement, the Asia factor
– Price and content war in full-size pickups likely for 2008-09• Domestics dig-in as NAMs add capacity/products and attempt to extend
momentum – Toyota, Nissan and possibly Hyundai
– Cross-overs and small cars will gain volume and share
– NAMs expected to gain over 3 share points (550,000 units) at the expense of the traditional domestics
– Mexico will gain approx. 3 share points
Global Trends
• Global automotive outlook– Global automotive production expected to grow by almost 20% to
approx. 72 million light vehicles in 2010
– Toyota emerges as the largest OEM, passing GM in 2008• Product, manufacturing, cost, branding strengths• Increased global competition
– Some traditional OEMs are trailing … losing share• Product, manufacturing, cost weaknesses• But some level of recovery is expected
– Asia (China, S.Korea, Thailand, India) and Eastern Europe will account for 75% of the growth in automotive production
– Excess capacity remains a serious concern (Asia, Western Europe)
Pervasive Global Change
• Kondratiev (1920s) predicted the fall of communism because it could not generate the investment to drive invention, while capitalism rewarded invention– 11/9/89, the Berlin Wall came down
• Spiraling fuel prices– Escalating fuel prices from very low cost to an expensive, essential
commodity in 50 years
• The growth of Asian auto OEMs– Gaining 25+ share points (globally) in 50 years, from nothing to
dominance
Business Models in Conflict
• The traditionalists (Mass Production)– Resistant to change … reactive, slow, legacy restrictions, decisions
short-term oriented, less focus on innovation, business as usual.
• The change specialists (Lean System)– Proactive, agile … anticipate and thrive on change
… long-term planning point-of-view … understand that growth favours the prepared … crisis-driven and enabled: energy, financial, brand image
The Lean Model – Critical Elements
• The Lean Model has 5 essential elements:
1. A Product Development Process
2. A Supplier Management Process
3. A Customer Management Process
4. An Overarching Enterprise Management Process
5. A Production Process From Order to Fulfillment
Special Issues: Opportunities/Threats
• An energy crisis favours agile OEMs with advanced powertrain technology– Toyota, Honda, Nissan– DCX (diesel)
• Hyper-competition favours low-cost OEMs– Asia– Eastern Europe
• Financial crisis favours deep pockets to fund technology and innovation– Toyota
Conclusions and Implications
• Building a successful future – for shareholders and the workforce – depends on building and sustaining a competitive advantage– Adopting the “change specialist” business model– New and better products– New and better processes– Collaborative relationships (partnerships)– Customer-facing interaction– An innovative point of view– Turning threats into opportunities
Eastern Automotive SummitOctober 19, 2006
The Global Automotive Outlook:Strategic Trends & Implications