GACParis Tim Armstrong - IHS Markit · 2009-06-11 · – Brazil and Argentina – Middle East and...

Decoupling Emerging Markets:

Is There Anywhere to Hide from the Crisis?

Tim ArmstrongManaging Director

Global Automotive Forecast Operations

Copyright © 2009 IHS Global Insight. All Rights Reserved. GLOBAL AUTOMOTIVE SEMINAR

Outline

• Overview of emerging markets

• Focus on

– India

– Brazil and Argentina

– Middle East and Africa

– South Korea

– Thailand

– Malaysia

– Mexico

• Summary

Some Themes

• Future light vehicle demand and production in emerging markets

• The rise of small cars

• Production shifts in selected Asian markets


Emerging Markets Provide Stability

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

Th

ou

san

ds

Triad Rest of World

BRICs LV Sales All Emerging Markets

Light Vehicle Sales

Note: Triad comprises USA, Japan, & W.Europe


-14

-12

-10

-8

-6

-4

-2

0

2

-60 -50 -40 -30 -20 -10 0 10 20

Where Is the Decoupling?

China

Decoupled

Zone

Difference in % GDP growth 2009-2008

% Change in LV Sales in 2009

USA

Russia

India

Japan

Germany

Brazil

UkraineBubble size equals

sales volume in unitsIran

In 2009 LV sales will fall by 2.83 times the fall in GDP growth


Checklist for Auto Market Exposure to Crisis

• Economic

– Exposure to external trade

– Exchange rate shift (depreciation)

– Exposure of banks to credit crisis

– Size of government stimulus package

• Auto Specific

– Size and focus of automotive market stimulus

– Consumer price sensitivity

– Proportion of automotive credit financing

– Level of import penetration and tariff barriers

– Availability of close substitutes

– Reliance of industry on exports


Emerging Markets Exposure to Downturn

LargeLargeV. Large-31%IPISmallBrazil

SmallModerateModerate-15%NoneSmallPhilippines

ModerateModerateLarge-1%Excise TaxSmallTaiwan

ModerateModerateLarge-16%NoneSmallIndonesia

ModerateModerateLarge-5%ScrappingLargeMalaysia

V LargeModerateModerate-3%NoneModerateThailand

SmallModerateModerate-26%Green Car Fund

ModerateAustralia

V. LargeModerateV. Large-35%Excise TaxModerateKorea

V. LargeModerateV. Large+19%Eco Tax & Scrapping

V LargeJapan

ModerateLargeModerate-23%Excise taxModerateIndia

SmallSmallV. Large+7%Large tax incentives

MassiveChina

ModerateV. LargeV. Large-20%Import DutiesModerateRussia

Automotive Production

Adjustment

Credit

Crunch Exposure

External

Trade Exposure

XR Yr end ‘08 on ‘07

LCU vs US$

Auto Market

Stimulus

Govt. Economic Stimulus

Country


-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

SO

UT

H A

FR

ICA

CH

INA

IND

IA

IND

ON

ES

IA

MA

LA

YS

IA

SO

UT

H K

OR

EA

TA

IWA

N

TH

AIL

AN

D

BE

LA

RU

S

CZ

EC

H R

EP

UB

LIC

HU

NG

AR

Y

PO

LA

ND

RO

MA

NIA

RU

SS

IA

SL

OV

AK

IA

TU

RK

EY

UK

RA

INE

IRA

N

SA

UD

I AR

AB

IA

UA

E

ME

XIC

O

AR

GE

NT

INA

BR

AZ

ILSelected Emerging Markets:Change in LV Sales 2009–2011

2009

2011

AsiaAfrica E. Europe M. East S. America


Emerging Markets Light Vehicle Production Moves Down Sharply

-20%

-10%

0%

10%

20%

Q1

2007

Q2

2007

Q3

2007

Q4

2007

Q1

2008

Q2

2008

Q3

2008

Q4

2008

Q1

2009

Q2

2009

Q3

2009

Q4

2009

Q1

2010

Q2

2010

Q3

2010

Q4

2010

Emerging Markets

Quarterly Change in Production (vs Same Quarter of Previous Year)


Customs Duties and Excise Taxes in India

10%n.a.n.a.n.a.n.a.Goods VehiclesCustoms Duties

10%n.a.n.a.n.a.CKDPassenger VehiclesCustoms Duties

c. 100%n.a.n.a.n.a.CBUPassenger VehiclesCustoms Duties

20% (16% on

CNG/LPG)n.a.n.a.n.a.n.a.Goods VehiclesExcise Tax

14% n.a.n.a.n.a.n.a.Hybrid VehiclesExcise Tax

20%+ 20,000 Indian rupees from

June 2008

>4000 mm>2.0l>2.0ln.a.Passenger Vehicles (Large Cars)

Excise Tax

20%+ 15,000 Indian rupees

from June 2008

>4000 mm>1.5l and <2.0l

>1.2l and <2.0l

n.a.Passenger Vehicles (Large Cars)

Excise Tax

8% (from December 2008)

< 4000 mm<1.5l<1.2ln.a.Passenger Vehicles (Small Cars)

Excise Tax

RateLengthDiesel

ccmPetrol

ccmFormCategoryType


India: Delays to Investment &

New Product Launches

Delays

• Renault pulls back on its line at Chennai – plans on hold

• Honda delays second plant from 2009 to October 2010

• Toyota delays second plant from early 2010 to late 2010 and will not build Corolla at new plant

• Nano new plant not expected before late 2010

• Daimler plant starts on one shift only

• GM says India “crucial” – new mini car and Cruze coming

• Some Hyundai i20 production moves to Europe after labour unrest

New Launches

• 2009

– Tata Nano

– Tata Indicruz

– Hyundai i20

– Maruti Ritz

– Honda Jazz

– GM Cruze

• 2010

– GM M-300 Beat

– Ford Small Car

– Honda Eco

– Maruti Mini SUV

– Nissan March

– Toyota Yaris & EFC


Low Cost Cars Will Contribute Less to Auto Demand – Nano et. Al.

• First rising raw materials prices

• Then roll-out timeline disrupted at Singur

• Small scale launch in March 23rd 2009

• European version coming to continental Europe and UK —eventually

• Can it sell in the U.S.?

• Now 40k at Pantnagar

• Sanand expected late 2010

• Break-even point 4-500,000 vehicles?

• Borrowing for target consumer groups has been undermined

• Tata constrained in its finances

– Nano project financed but JLR purchases requires refinancing of $2bn of the $3bn bridging loan

0

50

100

150

200

250

300

350

400

450

2005

2007

2009

2011

2013

Tho

usan

ds

Bajaj-Renault

Nano

800

0

1000

2000

3000

4000

5000

6000

7000

Nano S

TD

BS

2

Nano S

TD

BS

3

Nano C

X

Nano L

X

800

Alto

Price in $US

Production


India: Winners and Losers

0 200 400 600 800 1,000

MARUTI

TATA

HYUNDAI

M & M

HONDA

CHEVROLET

TOYOTA

SKODA

FORD

FIAT

PIAGGIO

RENAULT

Thousands

2009 vs 2014

0 200 400 600 800 1,000

MARUTI

HYUNDAI

TATA

M & M

HONDA

CHEVROLET

NISSAN

TOYOTA

FORD

SKODA

FIAT

MERCEDES-BENZ

BMW

VW

BAJAJ

RENAULT

Thousands

LV Sales LV Production

2009 vs 2014


Brazil Government Actions: Financing and IPI Reduction

Engine Size (cm³) IPI Before Measure Present Reduced IPI

Up to 1.000 Car 7% 0

1.000 to 2.000 Gasoline Car

13% 6,5%

1.000 to 2.000 Flex Car 11% 5,5%

Over 2.000 Gasoline 25% 25%

Over 2.000 Flex 18% 18%

Up to 1.000 Pick-up 8% 1%

1.000 to 2.000 Pick-up 8% 4%

• R $10 billion released for financing by Banco Central via Banco do Brasil, Caixa Economica Federal and Nossa Caixa

• The IPI reduction (table below) was implemented on December 11, 2008 and will carry on until June 30, 2009


1.0

1.5

2.0

2.5

3.0

3.5

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

1.0

1.5

2.0

2.5

3.0

3.5

SAAR (Smooth) SAAR (Trend) SAAR

Recovery in SAAR triggered by IPI reduction

Recovery in SAAR triggered by IPI reduction

Gradual phase-in of IPI begins sometime in 2009 H2 or 2010 H1

Gradual phase-in of IPI begins sometime in 2009 H2 or 2010 H1

Million Units

Annualized Monthly Sales: Baseline


2.0

2.2

2.4

2.6

2.8

3.0

3.2

3.4

2007 2009 2011 2013

Million Units

Brazil LV Sales

Brazil and Argentina: Market Outlook

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

2007 2009 2011 2013

Argentina LV Sales

Million Units


Middle East Overview

• Six year boom has come to an end

• Marked slowdown in global growth will harm trade, tourism, and investment throughout the region

• Oil bubble has burst reducing earnings sharply

• Declining external demand for non-oil exports

• Credit crunch has hit

• Construction and real estate markets are in free fall especially in Dubai

• Stock prices have collapsed

• Expatriates are returning home

• Automobile demand are down

• The recovery in 2010 is likely to be modest because the rebound in the world economy will develop only gradually

0

20

40

60

80

100

120

1996 1999 2002 2005 2008 2011 2014 2017 2020

wti March 2008 Wti March 2009

WTI US$ per barrel (Annual Averages)

(West Texas Intermediate price,dollars per barrel)


Middle East and Africa

600

800

1000

1200

1400

1600

2005 2007 2009 2011 2013

0

50

100

150

200

250

2005 2007 2009 2011 2013

GCC 6 LV Sales

0

200

400

600

800

1000

2005 2007 2009 2011 2013

850

900

950

1000

1050

1100

1150

2005 2007 2009 2011 2013

Israel LV Sales

Iran LV Sales

South Africa LV Sales


Korea Market Outlook

-40%

-30%

-20%

-10%

0%

10%

20%

Q1

20

07

Q3

20

07

Q1

20

08

Q3

20

08

Q1

20

09

Q3

20

09

Q1

20

10

Q3

20

10

Korea

Quarterly Change in Production(vs Same Quarter of Previous Year)• Consumption tax cut by 70% from May

1st - December 31st if replacing a car registered before January 1st 2000

0.8

0.9

1.0

1.1

1.2

1.3

1.4

2007 2009 2011 2013

• Vehicle exports fell 30.2% in Q1 2009 to 480k

– Hyundai has reduced output by 30% in Q1 2009

– Kia has reduced output by 27% in Q1 2009 – new Forte and Soul are key models

• Exports projected to be down 14% in Q2 y-o-yLV Sales (millions)


-200 0 200 400 600 800 1,000 1,200 1,400

HYUNDAI

KIA

DAEWOO

SAMSUNG

SSANGYONG

Thousands

South Korea: Winners and Losers

0 200 400 600 800

HYUNDAI

KIA

DAEWOO

SAMSUNG

SSANGYONG

Thousands

2009 vs 2014

Korean LV Sales by Brand LV Production by Brand

2009 vs 2014


Investment Moves Away from South Korea

0% 50% 100%

2004

2009

2014

KOR IND USA CHN RUS CZE TUR OTHER

0% 50% 100%

2004

2009

2014

KOR CHN SVK IRN RUS USA CZE OTHER

Hyundai Brand LV Production by Country Kia Brand LV Production by Country

Hyundai Shifts production to:India: i10, i20

USA: Sonata, Santa Fe, VeraCruzCzech Republic: i30

Kia Shifts production to:Slovakia: Ceed, Sportage

Expands in China:Soul, Forte, Rio, Sportage, QB


Thailand Overview

• Vehicle sales in Thailand fell by 2.5% to around 615,200 units in 2008

• Political unrest has dented investment confidence

• Decomposition of demand shifted very significantly out of pick-ups and into small cars

• Sales dropped by 30% in first two months of 2009

– Down by 37.8% in March, passenger cars sales down 23.4%

• Vehicle exports fell 39% in March 2009

• The government refused to provide large scale direct support to the industry

– Honda, Nissan, Mazda may ask for crisis loans

0

100

200

300

400

500

600

700

800

2007 2009 2011 2013

LV Sales ('000s)


Small Cars Will Win Market Share in Thailand

0 100 200 300 400 500 600

TOYOTA

HONDA

MITSUBISHI

ISUZU

NISSAN

FORD

MAZDA

CHEVROLET

TATA

SUZUKI

Thousands

2009 vs 2014

LV Sales by Brand

The Thai industry shifts from pickups to small cars

• Investment dates for Eco-car projects have been pushed back and local content and volume requirements are being contested

• No Eco-car project has yet been formally cancelled

• Projected SOP– Honda late 2010– Mitsubishi late 2011– Toyota late 2011 or 2012– Tata 2012– Nissan early 2011– Suzuki early 2011


Thailand Shifts Away from Pickups

0 100 200 300 400 500 600

TOYOTA

HONDA

MITSUBISHI

ISUZU

NISSAN

FORD

MAZDA

CHEVROLET

TATA

SUZUKI

Thousands

Car

LCV

2009 2014

LV Production by Brand 2014

0

200

400

600

800

1000

1200

1400

1600

1800

2000

2007

2008

2009

2010

2011

2012

2013

2014

Th

ou

san

ds

SUV

PICKUP

OTHERLCV

OTHERCAR

SMALLCAR(A+B)

LV Production by Type


Malaysia Overview

• Malaysia total vehicle sales recovered by 12.6% to 548,889 units in 2008– Introduction of new, well-

performing models (esp. Proton Saga and Persona)

• For January-March 2009 period vehicle sales fell 9.2% to 118,681 units

• The LCV market boosted by upcoming launches of the Proton Exora and Perodua MPVs

• Vehicle scrapping subsidy of RM 5000 ($US 1400) available if you trade in a car 10 years old and buy a new Proton or Perodua Vehicle

• Also RM 200m ($US 57m) boost to industry through Automotive Development Fund

300

350

400

450

500

550

600

650

2007 2009 2011 2013

LV Sales (‘000s)


-50 0 50 100 150 200

PROTON

PERODUA

HONDA

NISSAN

TOYOTA

KIA

HYUNDAI

ISUZU

DAIHATSU

SUZUKI

MERCEDES-BENZ

Thousands

Malaysia Misses Out On Investment

0 50 100 150 200

PERODUA

PROTON

TOYOTA

HONDA

NISSAN

KIA

SUZUKI

HYUNDAI

TATA

MITSUBISHI

ISUZU

MERCEDES-BENZ

BMW

Thousands

2009 vs 2014

LV Sales by Brand LV Production by Brand

Proton and Perodua will lose market share

as competition rises

Malaysia misses out onlong term investment

to Thailand

2009 vs 2014


22

24

26

28

30

32

34

36

38

2006 2007 2008 2009 2010 2011 2012 2013 2014

Millions

All Asia LV Production: Scenario Ranges

Upside Scenario (15%)

Downside Scenario (22%)

Risk Weighted Average

Base (63%)


*Annual average, **Billions of U.S. dollars

-20

-15

-10

-5

0

2000 2002 2004 2006 2008 2010 20128

10

12

14

16

2000 2002 2004 2006 2008 2010 2012

-6

-3

0

3

6

9

2000 2002 2004 2006 2008 2010 2012

Real GDP Growth (%) Consumer Price Inflation (%)

Exchange Rate per US$* Current Account Balance**

0

2

4

6

8

10

2000 2002 2004 2006 2008 2010 2012

Mexican Outlook Summary


0.5

0.6

0.7

0.8

0.9

1.0

1.1

1.2

1.3

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0.5

0.6

0.7

0.8

0.9

1.0

1.1

1.2

1.3

SAAR (Smooth) SAAR (Trend) SAAR

Market grew thanks to credit, employment, and remittances

Market grew thanks to credit, employment, and remittances

Used car imports2007 – 1.3m units

Used car imports2007 – 1.3m units

Million Units

Annualized Monthly Sales: Baseline

Global Crisis and Proximity to US cause massive downturn

Global Crisis and Proximity to US cause massive downturn


0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

2001 2003 2005 2007 2009 2011 2013

Million Units

No easy recovery ahead; U.S. recession hurts; currency is weak; NAFTA now allows duty-free imports of used vehicles sourced from U.S. and CAN

Mexico Market Outlook

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2006 2008 2010 2012 2014

LV Sales LV Production

Production will grow 30% faster than in the US

60% of increase is B and C1 cars


Summary Insights

• There is no decoupling outside China

• Asia’s importance has increased

• Some emerging markets are a “stabilising force”

– Government support is helping to mitigate the economic effects

• India and China provide most support to world growth

• Export markets are hit hardest on production

– Japan, Korea and Thailand production

• The downturn lasts to 2011 and growth rates have been reduced

• Increased protectionism reduces long term growth

• Wealth destruction and support for green investment favours small cars which increases the need for economies of scale and undermines industry profitability

• Investment projects are delayed but there is still strong pressure to move production to low cost regions

– Japan and Korea lose out to India and Thailand

Thank You!

Tim ArmstrongManaging Director

Global Automotive Forecast [email protected]

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GACParis Tim Armstrong - IHS Markit · 2009-06-11 · – Brazil and Argentina – Middle East and...

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