Economic Development Association of Alabama

2015 Summer Conference AgendaJune 21, 2015

Changing Geography of the Automotive Industry(& the Mexican Challenge)

Dennis CuneoFisher & Phillips LLP

Automotive Credentials• Former SVP Toyota

• Automotive-related Boards• AK Steel• BorgWarner• SSOE• Center for Automotive Research• UIEvolution (Advisory Board)

• Site selection/ Start-up: >20 vehicle facilities: assembly plants, parts plants, HQ, and R&D centers

• Advisor to several states and communities on attracting automotive projects

3 Decades of Change

1982: 5 companies (4 American/ 1 foreign) assembled vehicles in 20 states (including 6 Southern States) Today: 13 companies (2 American/ 11 foreign) assemble vehicles in 14 states (including 7 Southern States)

Foreign AutomakerInvestment

1982 – 2008: Southern Automotive Juggernaut

Toyota

Toyota

D3 consolidated in Great Lakes/ Upper Midwest

1982-2008: Emergence of Auto Alley

Foreign AutomakersBuilt Mostly in South

MercedesVolvo

AL: Southern Anchor Of Auto Alley

Since 2003: Significant Investment Outside Auto Alley

MercedesVolvoToyota

Toyota

Tesla

GM

GMGM

Ford

Tesla Gigafactory• $5 billion investment• 6500 jobs• Average wage: $26/ hour

Since 2003: Significant Investment Outside Auto Alley

MercedesVolvoToyota

Toyota

Tesla

GM

GMGM

Ford

Center of Automotive Production

20002010201520212026

© 2014 IHS

Source: IHS, Presentation to Management Briefing Seminar, Traverse City, Center for Automotive Research, Aug. 2014

“Center” of Auto Production is Moving Southwest

Mexico: The New Automotive Juggernaut

FordAnnounced in 2015

3800 jobs; $2.5 billion investment

Automotive Investment:U.S. vs. Mexico

Source: Center for Automotive Research

Assembly Plant Announcements Since 2009

US

MX

Each $500M

Toyota: $1BAudi: $1.3BHyundai-Kia: $1BMercedes: $1.4BHonda: $800MBMW: $1.BNissan: $2BMazda: $500M

Automaker Investment Announcements, Jan 2010-May 2015

Canada$5.4 billion

United States$53.4 billion

Mexico$24.2 billion

Total North

America$83.0 billion

Source: CAR Research, Book of Deals

Southern States Not Keeping Pace

Other U.S.$13.2 billion

Mexico$24.2 billion

Great Lakes$ 28.2 billion

South$12.0 billion

Note: U.S. Great Lakes includes: IL, IN, KY, MI, MO, and OH while South includes: AL, FL, GA, MS, SC, TN, and TX

Source: CAR Research, Book of Deals

Mexican Automotive Wages: 1/8 to 1/5 of U.S. Wages

Average Hourly Wages for Production and Non-Supervisory Workers in Motor Vehicle and Parts, 2007-2014

Sources: U.S. Department of Labor, Bureau of Labor Statistics;Mexico National Institute of Statistics and Geography (INEGI: Instituto Nacional de Estadística y Geografía)

The Real Mexican Advantage

Hourly Labor Cost on a Subcompact Car $674 a car

FTA advantage on a Q5 Export to Europe $4,500+ per vehicle

Mexican Capacity, Production, and 2015-2018 Production

ForecastMexican Production and Forecast Mexican Production Capacity

6.0

5.0

4.0

3.0

2.0

1.0

0.0 2007 2008 2009 2010 2011 2012 2013 2014 20152016

Sources: LMC, AMIA, INEGI, Ward's Automotive, U.S. Federal Reserve Board, Statistics Canada, and CAR Estimates

2017 2018

Mill

ions

Source of Mexico’s Growth

- Detroit 3 moving capacity to MX from U.S./ Canada

- Japanese/German OEMS moving capacity to MX from home locations not from U.S./Canada

-But new MX capacity is lost opportunity for South

1. Alabama2. Kentucky3. Louisiana4. Mississippi5. South Carolina6. Tennessee- - - - - - - - - - - - - - - - - - - - - - - • Duke Energy• CU-ICAR• University of Alabama• AAMA• MAMA• SCMA• TAMA• GAMA

-

Southern Automotive Research Alliance (SARA)

How Can the South Meet MX Challenge?Preliminary Report 10/14 SAC

But No Progress Moving Forward

Image source: Automotive News

Auto Industry In New Disruptive Phase• Fuel Economy regulations: 54.5 mpg

by 2015• New technology• New Entrants

Fuel Economy Standards: 54.5 MPG by 2025

• Light-weighting: New materials: AHSS; Aluminum; Composites

• Powertrain technology: ICE improvements; Electrification

Average vehicle: 50 microprocessors 100 million lines of software.Luxury Vehicles: Software/ Electronics: 40% vehicle content

Pace of New Technology is Accelerating

Source: Center for Automotive Research

Mechanical-base Software-baseTransportation-focus Technology-focus

Autonomous Technology“Fully autonomous vehicles are a real possibility. Probably, in the next five years, you’ll seesomebody introduce autonomous vehicles.”Mark Fields, Ford CEO, Remarks @ Consumer Electronics Show 1-5-15

Google Self-driving Car

Mercedes F 015

SLATE

McKinsey Report on Autonomous Vehicles

• 90% reduction in accidents

• Save $190B in damages & health care costs

• Fewer repair shops; first responders; emergency rooms

• No more impaired driving

• Won’t need a drivers license

• Improved highway flow and capacity

• 25% less parking space – 5.7B square meters

• Change in car ownership patterns

• Improved productivity during commute

New Entrants

• 10 year old company• $33 billion market cap* (GM $50 billion*) (Honda $57 billion**)

*7/14/15 **12 months ending 3-31-15

And what does Apple, with $194B in cash, have planned?

Questions/ Comments