Automotive Outlook - Wild Apricot · © 2016 LMC Automotive Limited, ... Automotive Outlook: ......

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Automotive Outlook: From Plateau to ? – Where is the Industry Headed

Jeff Schuster - Senior Vice President, Global Forecasting September 13th, 2016

www.lmc-auto.com © 2016 LMC Automotive Limited, All Rights Reserved. 2

Outline

• Global Automotive Backdrop

• North America Demand Environment and Trends

• North American Production Outlook and Sourcing Trends

• Summary


Global Economy by Major Market

Real GDP Growth 2014 2015 2016 2017

USA 2.4% 2.4% 1.5% 2.3%

Argentina -2.6% 2.4% -0.8% 3.4%

Brazil 0.1% -3.9% -3.3% 0.1%

Japan -0.1% 0.6% 0.4% 0.4%

ASEAN 4.5% 4.5% 4.5% 4.6%

China 7.3% 6.9% 6.5% 6.2%

India 7.0% 7.2% 7.5% 7.2%

UK 3.1% 2.2% 1.8% 1.1%

Russia 0.7% -3.7% -0.8% 1.2%

Germany 1.6% 1.5% 1.8% 1.5%

World 2.8% 2.6% 2.2% 2.6%

Near-term weaker, rebound expected

Cautious improvement

Slightly better, but weak growth

Stable, but some risk

Downward pressure remains

Positive environment, risks skewing downward

Uncertainty high, endures slowdown

Edging out of recession

Shrugging off Brexit? More risk in 2017

Slightly weaker in 2016, sable in 2017

Source: Oxford Economics

Contraction expected in ’16, risks high


26.4

17.4

4.8

3.3

3.4

China

US

Japan

Germany

India

World 2016 forecast: 91.9 mn, up 2.4 mn units (+2.7%)

6% 6%

1%5%

9%6%

-8%

-13%

-2%

-11%

-21%

-13%

5% 3%4%

North America

Asia Pacific

C&E Europe Western Europe

South America

14 15 16F

4% 2% 3%

World

Global LV sales – Current Environment

2016 Top 5 Countries LV Sales (Mn)

14 15 16F

14 15 16F

14 15 16F

14 15 16F

14 15 16F

Source: LMC Automotive

89.5

91.993.2

96.4

84

88

92

96

100

2015 2016 2017 2018

Global LV Short-term


Global LV Production – Contribution to Growth

88.791.2 92.7

82

84

86

88

90

92

94

1.6

• Volume expected to be up 2.8% from 2015, 2017 expected to increase 2% with demand.

• Western Europe still up 3% this year but next year expected to increase only 1% with some Brexit uncertainty focused more in 2nd half of 2017 and into 2018. Bexit

• Russia and Brazil remain as volume decliners. Russia expected to be off by 110,000 units from 2015 and Brazil’s now down by nearly 300,000 units.

millions

0.5 0.5 0.3 0.0 -0.4



-6%

-4%

-2%

0%

2%

4%

6%

8%

VW

Toyo

ta

Ren

-Nis

Hyu

nd

ai/K

ia

GM

Ford

Ho

nd

a

FCA

PSA

Suzu

ki/M

aru

ti

Dai

mle

r

BM

W

SAIC

Global OEMs - Short-term Outlook

2016F Global LV Production Growth from 2015

• Global OEM leads mixed but up 3%. 3 groups dip into negative growth.

• VW diesel scandal risk - China growth and US prod. stability driving pace

• Toyota improves some as Japan is stable - RAV4 and C-HR in EE doing well.

• R-N growth with new product barrage - Lannia in China, Kwid in India

• • GM up with expansion in China (Cadillac)

• Ford slightly negative with weakness

across Europe and exposure in BR/AR

• Honda tops growth – Fit/Freed MPV in Japan and CR-V/Ridgeline in NA.

• FCA gains with Alfa expansion and Fiat Egea in EE, but falls in NA/SA

• Suzuki transition in Asia – ceases in Malaysia, down in Japan, growth in India

Note: GM does not include Wuling, Baojun, Jiefang



Will Global Growth be Sustained?

Source: LMC Automotive, Oxford Economics

-10%

-5%

0%

5%

10%

15%1

999

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

20

22

20

23

LV Sales

GDP

Year-on-year growth, World

Average historical growth rates LV Sales: 3.1%

GDP: 2.9%

2016: 92 mn

2023: 110 mn

Average 2015-2023 growth rates LV Sales: 2.7%

GDP: 2.7%


Outline




• Summary


16.5 17.4 17.4 17.4 17.5

1.91.9 1.9 2.0 2.01.11.3 1.6 1.6 1.6

0

5

10

15

20

25

2014 2015 2016 2017 2018

Mil

lio

ns

North America Light Vehicle Sales Outlook

+1.1% +0.4%


+6.2%

• Slowing growth picture solidifying with recent performance, but stable outlook in near-term is holding. Interest rates and political uncertainty are risks.

• 2017/2018 growth halts across the board with all three countries growth expected under 0.5%.

+0.3%


14.2mn

13.6mn

2014 2015 1.

Disposable

Income

2.

Unemp. Stock

Market

4. 3.

Housing

Market

5.

Fuel

Prices

6.

Credit/

Terms

10.

Product

Activity

7.

Vehicle

Equity

2016F

Vo

lum

e

Vehicle

Price

8. 9.

Incentive

Actions

Total Sales 16.5mn

14.0mn

13.8mn

Risk

-1.8%

YoY

17.4mn

Total Sales

Macro Factors Consumer Internals & OEM Drivers

US LV Sales Driven by Multitude of Factors

Source: LMC Automotive, Oxford Economics, JDP PIN, Industry Sources

Total Sales 17.4mn

Growth in Fleet/Contraction in Retail – Fleet at 20%, up from 18% in 2015

• Sales pace at beginning of year started off ahead of expectations but have leveled off. YTD August is clinging to a Y-on-Y gain of 0.7%, with the SAAR averaging just under 17.3mn

• H2 poses challenge to meet or exceed 2015, given current slowing trend and 17.9mn average in H2 2015 – now expect H2 2016 to be solid but track at 17.5mn average, a risk as the July/August pace is 17.4mn.


Fleet sales + “Fleetail” Has Masked Demand Slowing

Retail has outpaced non-retail only 4x since 2015

Source: JDP PIN, LMC Automotive


17.4 17.4

17.517.7

17.9

15.4

17.9

14

15

16

17

18

19

20

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

20

22

20

23

• Baseline US LV topline is expected to grow at a CAGR of just 0.4% from 2015-2023 with slow (2%) economic growth supporting long run in autos! Risks to baseline include lease maturities (used car substitute) and tighter credit.

• Negative bias with recession scenario - mild with short duration as volume falls to 15.4mn in 2019, a 12% drop from baseline. Recovery may be hampered by lower density growth, car sharing and regulations impact.

• Outperform scenario – Near-term up from VW buyback and lease maturities followed by technology driven increase as market transitions. CAGR sill only 0.8%.


US Demand Still Expected Grow?


16.517.4 17.4 17.4 17.5 17.5 17.6

US Product Activity Remains High

• Fragmentation and competition increases exponentially going forward – along with SUVs, dedicated HEVs, EVs are a priority.

• 92 new entries from 2016 forward, with 186 redesigns planned.

2014 2015 2016 2017 2018 2019 2020

New Entry 18 14 19 15 22 23 13

Redesign 32 28 27 38 35 45 41

Facelift 27 30 46 37 29 35 49

Drop 8 8 28 12 5 6 4


US - Flat Demand!


0

20

40

60

80

100

120

140

Price of Oil to 2025

• Regulation coming tougher on cars to hit milestones

• Expected price of oil will not drive push toward compact car Evs

• SUVs continue to grow – but will likely need stronger EV penetration

• Pickups have place in future, share expected to hold at 15%

Collision Course?

Consumers want SUVs! Hybrid/EV Sales are Down!

29%

36% 38% 40%+

YTDAug10

YTDAug15

YTDAug16

2020F

US Sales – SUV share

0

100

200

300

400

500

Tho

usa

nd

s YTD Aug – Hybrid/EV Sales

YTD Aug16 -4%



17

13

18

14

19

15

22 23

13

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

0

5

10

15

20

25

2012 2013 2014 2015 2016 2017 2018 2019 2020

Nu

mb

er

of

New

En

trie

s

New SUV Entries SUV Mix of Majors/Minors

More SUVs are Coming!

24.9% 7.7%

38.9% 50.0% 31.6%

60.0% 50.0%

73.9%

30.8%

150 New Entries/Majors/Minors!



Electrification by Regulation

0%

2%

4%

6%

8%

10%

12%

14%

0

0.5

1

1.5

2

2.5

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Mill

ion

s

PHEV

EREV

MHEV

FHEV

FCEV

BEV

Share of TLV

• The full range of electrification is expected to accelerate from 2016, despite fuel prices.

• Significant expansion of the number of product offerings combined with improvements in technology as the industry grapples with regulation will drive share to more than 12% when including mild hybrids.

• We expect full hybrid to remain dominate but share of electrification expected to fall from 70% in 2016 to <50% by 2023 as BEV, PHEV and Mild growth accelerates.



Outline




• Summary


Short-Term NA Production Outlook

• 2016 – Launch activity remains strong with 16 new production entries or in first full year. Volume reduced slightly in 2016 (25k) on flattening demand.

• NA up 3.0% or 200k in 2H16, but build plans not aligned with our expectation for reduced demand suggesting volume risk in 4Q.

• 2017 outlook remains solid but lower growth rate of 1.1%. As demand is on watch so will be production but most risk is beyond 2017.

17.45 m

0.28 mDrops

0.34m

New Entries

0.44m

AdditionalGrowth

17.95m18.16

14.0

15.0

16.0

17.0

18.0

19.0

2015 2016 2017

Mil

lio

ns



Inventory is In Check

0

10

20

30

40

50

60

70

80

90

2.9

3.0

3.1

3.2

3.3

3.4

3.5

3.6

3.7

3.8

3.9

4.0

Aug-14 Nov-14 Feb-15 May-15 Aug-15 Nov-15 Feb-16 May-16 Aug-16

Day

s’ S

up

ply

Inve

nto

ry (

mill

ion

s)

• Inventory very stable and in good shape through August at a 61-day supply – suggesting industry has not started an overbuild as demand flattens out though there are some trouble spots in certain vehicle types

• Interplay between inventory levels and incentives will be key indicator!



• Volume growth slows through ‘17 – investment help offset slowing US demand

• Hyundai/Kia localizing at Monterrey plant drives growth, Montgomery adds Santa Fe

• Daimler in ‘16 benefits from full year of GLE Coupe and Metris van; ‘17 pullback with aging GLE/GLS, R-Class exit

• GM ‘16 gains on strong SUV and Pickup volume and new CT6/Bolt; ‘17 falls on lower Car and Large PU/SUV output

• Ford F-150, new Midsize SUV’s drive growth ‘16; ‘17 slight growth with new Continental

• VW for ‘16 under pressure, offset by new Audi capacity; ‘17 adds needed SUVs

• FCA ‘16 off with Toluca and Sterling Heights downtime; ‘17 falls on sourcing shifts/changeovers

• Toyota decline in ‘17 on Camry changeover, Venza and GCC Sequoia end

• Subaru continues expansion with Legacy/Outback growth and adds Impreza

NA Short-Term Production by OEM Group



NA Production and Capacity Long-term Trend

• Localization and exports production expansion strongest through 2019. Utilization settling in above 85% but some risks with new capacity remain.

• Demand flattening impacts production levels in longer-term but to lesser extent due to resourcing trends. Stability with sales expectations does help to maintain volume levels, risk grows post 2017/18.

Mill

ion

s

Uti

lizat

ion

%

16.2 17.0 17.5 18.0 18.2 18.3 18.9 19.0 19.1 19.2 19.2

1.31.3 1.3 1.4 2.0 2.8 3.0 3.3 3.2 3.1 3.1

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

0.0

5.0

10.0

15.0

20.0

25.0

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Production Excess Capacity Utilization



NA Production by OEM Grouping

Detroit 3

2015-2020

CAGR: 0.1%

New Entries/Redesigns: 83

Asian OEMs

2015-2020

CAGR: 1.8%


European OEMs

2015-2020

CAGR: 5.5%


Pro

du

ctio

n (

mill

ion

s o

f u

nit

s)

Cap

acit

y U

tiliz

atio

n %

75%

80%

85%

90%

95%

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2015 2016 2017 2018 2019 2020

Production Excess CapacityCap Util %

85%

90%

95%

100%

105%

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

2015 2016 2017 2018 2019 2020

60%

65%

70%

75%

80%

85%

90%

95%

0

0.5

1

1.5

2

2.5

2015 2016 2017 2018 2019 2020

Includes Volvo



• 2016 onward: 60% of new capacity to Mexico

• FTA’s, low costs and incentives boost Mexico but also push with B- and C-segment growth and shift

• US aided initially by weaker dollar, now currency hedge

• Costs hurt Canada, ~400k volume loss from ‘15

North America Sourcing Trends – Share

85%

68%

13%

13%3%

19%

64%

10%

26%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1985 1990 1995 2000 2005 2010 2015 2020

USA Canada Mexico

NAFTA



North American Production Body Type Mix

• Car share falls slightly as another shift to trucks continues to progress. Shift of small car to Mexico drives volume to increase to 4 million units by 2017.

• Consumer demand for SUVs drives significant expansion with volume reaching 40% of total NA production. US continues to dominate but expansion in Mexico leads to significant growth (140%).

• Demand for Premium has been underperforming but strong capacity investment in Mexico, will drive production growth - Audi/BMW/MB-Infiniti investment.

47 55 38 39 34 42 7 3 23 29 9 7 10 14 4 2 3 9

# of models # of models # of models

Source: LMC Automotive Source: LMC Automotive


Outline




• Summary


Summary

• Globally, the auto market is stable at topline with marginal growth, but with risks in both emerging and mature markets.

• Brexit, Emerging market economic stability and US/WE/Japan leveling off dominate risks.

• US demand growth appears to be coming to a halt, with some risk in the second half of 2016. No evidence of major contraction coming, but long-term growth expected to average less than 0.5%.

• North American production outpaces demand, investment still pouring in with volume into the 19 mn unit range. Launch activity is strong, though some risk with new plants being underutilized if demand slows further.

• Number of entries increase, adding opportunity but also complexity and risk, with SUV production leading growth.


Thank You

[email protected]

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