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SOCIETY OF MOTOR MANUFACTURERS AND TRADERS LIMITED SMMT, the ‘S’ symbol and the ‘Driving the motor

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SMMT’s Production Outlook and Economic Forecast

28 January 2015

Ian Henry, Director, AutoAnalysis

Aleksandra Taskovic, Business Economist, SMMT

Robert Morbin, Member Relations Manager, SMMT

SOCIETY OF MOTOR MANUFACTURERS AND TRADERS LIMITED PAGE 2

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UK Economy Update

Aleksandra Taskovic, Business Economist, SMMT


UK Economy – reflecting on 2014

• Economy in 2014 much better positioned on recovery trend

• But, problems in Eurozone and expected austerity

measures

• Autumn Statement – boost to UK investments, exports and

skills

• Car buyer confidence was strong throughout 2014


UK Economy – 2015 forecasts

• Recent strong growth momentum – low inflation, interest

rates and oil prices – positive impact on household

purchasing power and consumer confidence

• Immediate growth prospects now boosted by oil, but uneven

distribution of benefits

• Strong business confidence – continuation in 2015 depends

on political factors

• Unemployment rate remains low and is forecast to continue

to decline


Forecasting pack - prospects for the UK in 2015 (1)

house prices - %

percentage change year before

Source: HM Treasury

HM Treasury Monthly Poll of independent forecasts for 2015 - averages of key variables comparison of survey conducted at July 2014 and January 2015

Real GDP Consumer Manufacturing House Prices (Q4)


Forecasting pack - prospects for the UK in 2015 (2)

Oil $pbl

percent change year before / base rate

Source: HM Treasury

HM Treasury Monthly Poll of independent forecasts for 2015 - averages of key variables comparison of survey conducted at July 2014 and January 2015

CPI (Q4) RPI (Q4) base repo rate (Q4) OIL $pbl


UK Economy – challenges ahead

• Weaker demand in key export markets

• UK’s persistent current account deficit

• Low, yet unstable oil and commodity prices

• Persistent volatility in global foreign exchange markets

• Expected austerity policies


UK vehicle markets – all recovered; stable for now

• New car, van truck and bus markets better positioned too

• Recent growth trends vary, yet demand levels are all up

• Current growth potential keyed-in to domestic confidence

• Probably resilient, albeit differences of emphasis by vehicle-buyer-market types and marketing needs

• Yet significant and serial restructuring tensions in the mix:

1) challenges of cyclical peaks, leasing and funding streams

2) connected structural - technology - environmental agendas

3) OEM’s competition, collaboration and competitiveness


UK new car TIV trends to 2015

1900

2000

2100

2200

2300

2400

2500

2600

1900

2000

2100

2200

2300

2400

2500

2600

Th

ou

san

ds

rolling 4 quarter yearly totals to quarters shown; actual data to Q4 2014

High - Projection

SMMT - Actual

SMMT - Forecast

Low - Projection

SMMT Forecast (Oct 2014)


UK light commercials TIV trends to 2015

230

250

270

290

310

330

350

370

230

250

270

290

310

330

350

370

Th

ou

san

ds

4 quarter rolling years to quarters shown; actual data to Q4 2014

High - Projection

SMMT - Actual

SMMT - Forecast

Low - Projection

SMMT Forecast ( at Oct 2014)


In the mix (1) – cars and brands 2007 - 2014

-80,000 -60,000 -40,000 -20,000 0 20,000 40,000 60,000 80,000

Nissan

Audi

Hyundai

Kia

Mercedes-Benz

Skoda

BMW

Dacia

Seat

Volkswagen

Volvo

Land Rover

Fiat

Mini

Daihatsu

Chrysler Jeep

Mazda

Citroen

Chevrolet

Ford

Saab

Toyota

Peugeot

Honda

Renault

Vauxhall

volume changes of 5,000 and more units and minus 5,000 and more units on 2007 annual volumes

UK car registrations by marque: change in volumes 2007 to 2014

these 25 marques = 94% of all 2014 registrations

2 exits = Saab and to be Chevrolet

2014 - 2007


In the mix (2) – cars and segments 1999 - 2014

27.02% 32.70%

37.20% 35.79%

4.50%

6.99%

6.64% 11.72%

2.35%

4.91%

4.75%

6.76% 32.02%

28.40%

26.61%

26.07%

23.35%

17.90% 14.21%

9.21%

8.95% 7.68% 7.17% 6.92%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1999 2004 2009 2014

seg

men

t's p

erc

en

tag

e s

hare

of

tota

l n

ew

car

reg

istr

ati

on

s

UK new cars - shifts in segments 1999 to 2014

Exc/Lux/SpeSport

Upper Medium

Lower Medium

Multi Purpose

Dual Purpose

Super Mini

Mini


In the mix (3) – cars and alternatives 2007 - 2014

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

55,000

calendar years

UK Alternatively fuelled cars - number of new registrations

Petrol/electric Diesel/electric Pure Electric

Petrol/alcohol Petrol/gas Other


Alternatives in the CV mix – how green is my CV

0

100

200

300

400

500

600

700

200000

225000

250000

275000

300000

325000

350000

375000

2010 2011 2012 2013 2014

Calendar years

UK CV registrations - LCVs and Trucks: conventional and alternative-fuelled

Diesel and petrol

all AFV types - pure electric/hybrids/CNG


Key agenda items for vehicle markets 2015

and beyond

• Technology and innovation in supply

• OEM vehicle marketing and lease-funding strategies

• Roads, public transport policies and role of vehicles

• Cities , traffic congestion and air quality

• Population growth, urban (re)development and vehicle use

• Government Grant Aid for suppliers & vehicle owner-users


In sum: sound prospects for firm UK

domestic demand

• Constraints on demand have eased; uncertainties raised again,

but monetary policy ultra supportive and for longer

• Confidence and credit impulse remains firm; base rate rises

parked; jobs growth to continue; real wage growth up

• Twin deficits and other restructuring challenges remain

• UK vehicle markets recovered, stable volumes, but vulnerable to

confidence effects and markets restructuring

• Changing patterns of car use and leasing to continue



European Car and Light Commercial Vehicle

Production Outlook

Ian Henry, AutoAnalysis


Europe in 2014

Recovery continued through 2014, pent-up demand returned, boosted by several new model launches

More than 12 months’ year-on-year rises in EU registrations. 2014 the first year since 2007 to show annual rise

Medium term production outlook in Europe is broadly positive

2014 European production est., ex. Russia, c18.24m vs. 17.47m in 2013

Production growth in: Czech Rep., Germany, Hungary, Spain, Slovenia and Turkey

PSA cut jobs in France; PSA & Renault shifted small car production eastwards, although Renault will maintain domestic production with increased van production, including for other brands.

Ford also cutting jobs in Romania, but opened a new plant in Turkey; switched production from Belgium to Spain


The UK in 2014

Positive sales story continued in 2014 - strong retail demand and consumer confidence, despite economic uncertainty; UK market up 9.3% to nearly 2.5m, a 10-year high

2014 production c1.58m cars and LCVs, almost unchanged on 2013

JLR up >30,000 to nearly 464,000. GM and Mini up slightly, but Japanese VMs fell

Model cycles effects responsible for downturn at Nissan and slow ramp-up at Mini

Positive news at JLR – announcements re Jaguar XE and Land Rover Discovery Sport production. More good news in 2015 with F-PACE

New models at JLR, Vauxhall and Nissan, plus full year production of new Mini and Qashqai should push UK output over 1.6m in 2015

2014 also saw very positive news re supply chain, with multiple announcements of new contracts and investments


Production Outlook: Beyond 2014

Incl. Russia, production Europe should reach c21.4m in 2016 and c23.4m by 2019, slightly below previous view

Germany will remain powerhouse of European production, with production approaching 6mn upa. Ford Germany has retained Fiesta production (had been threat some would go to Romania). More Audi Q and Mercedes models to be made in Germany …

UK car production now exceeds France (France produces many more vans than UK) – this will continue

The role of VMs’ factories in Spain – and recent significant investment – means Spain will remain the second-ranked European producing country in the medium term.

Spanish production to exceed 2.4mn upa consistently from 2016

Further production growth in Turkey, Hungary, Czech and Slovakia


Production Outlook: Europe excl. Russia

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Others

Geely Volvo

Volkswagen Group

Toyota

Tata JLR

Suzuki

Renault-Nissan-Dacia

PSA

Mitsubishi

Hyundai-Kia

Honda

GM

Ford

Fiat

Daimler

BMW


Production Outlook: Europe excl. Russia

6.8% 7.5% 7.9% 8.1% 8.0% 8.3% 8.4% 8.2% 8.4% 8.5%

7.4% 7.2% 8.0% 8.6% 8.4% 8.6% 8.1% 7.5% 7.2% 7.5%

9.4% 8.4% 7.5% 7.2% 6.7% 7.0% 7.8% 8.4% 8.6% 8.9%

9.4%7.9% 7.2% 7.4% 7.2% 7.1% 6.8% 6.6% 6.5% 6.5%

7.2%6.5% 5.4% 5.0% 4.9% 4.7% 5.1% 5.4% 5.2% 5.1%

2.8%3.2% 4.0% 3.9% 4.5% 4.6% 4.3% 4.1% 4.3% 4.5%

12.9%

12.3% 10.9% 10.7% 10.1% 9.4% 9.0% 9.3% 9.6% 9.4%

13.2%

13.2%13.4% 13.5%

13.6% 14.6% 15.0% 15.0% 14.3% 13.9%

1.4%

1.6% 2.1% 2.5% 2.5% 2.6% 2.7% 2.9% 3.4% 3.7%

2.6%

2.5% 2.7% 3.1% 3.2% 3.1% 3.1% 3.2% 3.1% 3.0%

23.6%25.5% 26.2% 25.9% 26.8% 25.9% 25.5% 24.8% 24.7% 24.4%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Others

Geely Volvo

Volkswagen Group

Toyota

Tata JLR

Suzuki

Renault-Nissan-Dacia

PSA

Mitsubishi

Hyundai-Kia

Honda

GM

Ford

Fiat

Daimler

BMW


Primacy of German production is clear

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Un

its

Years

Production Volumes 2007-2019: Major Countries, excl.

Russia

Czech Rep

France

Germany

Italy

Spain

Turkey

UK


Relative position of major producing countries, excl. Germany

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Un

its

Years

Production Outlook Major Countries, excl. Germany and Russia

Czech Rep

France

Italy

Spain

Turkey

UK


UK and France battle for 3rd place behind

Germany and Spain

Germany’s leadership position clear, consistently close to 6m upa.

Spain is and will remain 2nd largest producing country.

Spanish production growth reflects breadth of VM investment and long-term commitment by most major VMs:

Ford, GM, PSA, Renault-Nissan and VW have all increased investment in Spain in last 2 years.

Ambitious national objective to reach 3mn vehicles pa, inc CVs

UK and France compete for 3rd place in production rankings:

UK car production will exceed France in long term

French car production is falling while LCV production will rise strongly in medium term including contract manufacturing for non-French brands.

Key factors: new model timings from JLR & Nissan, plus degree to which Renault and PSA plants meet production targets set in labour agreements.


Production continues to head east …

Renault has switched most Clio production to Turkey, PSA most of 208 to Slovakia, with C3 to follow

Mercedes and Audi increasing production in Hungary

Fiat will make Punto replacement in Poland

Toyota added new SUV/crossover to Turkey rather than UK

Ford opened new small van plant in Turkey

Rise of Turkey to c1.4m+ upa reflects expansion at Tofas and concentration of Ford van production in Turkey.

Czech Republic production remains >1.4m

Slovakia will exceed 1m

But Romanian production appears to have peaked – Ford B-Max production falling and most Dacia Sandero production switched to Morocco


Economic and political uncertainty means things may well turn out differently …

15,000,000

16,000,000

17,000,000

18,000,000

19,000,000

20,000,000

21,000,000

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Un

its

Years

European Production Excl. Russia - Base Outlook and 4 less attractive scenarios

Base w/o Russia

Scen 3 w/o Russia

Scen 4 w/o Russia

Scen 5 w/o Russia

Scen 6 w/o Russia

• It does not take much for production to dip significantly

• A 10% fall in 2015 and a further 5% in 2016 (scenario 6), with a slow recovery would

place severe strain on the industry's current structure


Will the UK hit the 2m units a year?

Potential remains for this to be achieved …

But slowdown at Honda and allocation of third model to Toyota Turkey rather than UK are cause for concern

UK needs Nissan to maintain current production and …

Mini to achieve full utilisation at Oxford

Astra to be a success

And JLR to continuing growing, increasing UK production ahead of international expansion

If this happens, and economic collapse is averted, then the 2m target remains achievable and realistic – with substantial opportunities for suppliers …


Implications and opportunities for UK-based suppliers

Rising UK production should mean significant potential for UK suppliers to win new business.

Recent BIS report highlights a further UK£2bn worth of annual sourcing opportunities

Discovery Sport SOP in October accompanied by award of £3.5bn of business to 55 UK suppliers over life of contract

Similar awards expected to be announced 2015 for Jaguar XE and F-PACE

Expansion of engine production by Ford offers major potential for suppliers

Significant recent investment by major tier 1s on back of this and export business: Calsonic, Gestamp, Lear, TRW, Tenneco, Getrag, Borg Warner and Cosworth have all recently announced UK investments or expansion

New supplier park at Sunderland

Automotive Investment Organisation secured c80 automotive projects in first year of operation, creating or securing >5,000 jobs – many more to follow.

PAGE 31 SOCIETY OF MOTOR MANUFACTURERS AND TRADERS LIMITED

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