STRATOS Market Esearch XLRI

8/8/2019 STRATOS Market Esearch XLRI

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Release 8.3

MARKET RESEARCH

MARKET RESEARCH PACKAGE FOR THE EUROPEAN CAR INDUSTRY

THE EUROPEAN CAR MARKET

The European motor industry is the world's largest car market, having exceeded the US market in total units

sold (excluding light trucks). It is also an extremely competitive arena. Some of the patterns to emerge fromthis market over the last few years are listed below.

1. Sales Figures1

2008 did not start well. The first 6 months saw a 2% fall in sales, August 2008 then experienced a 16%drop on the sales of August 2007 and a cumulative 4.3% fall for the first eight months. January 2009saw a 59% fall in car production in the UK and the Spanish market fell by 38% ; overall easily the worstsales figures for over a decade. Forecasts are gloomy but companies and countries are fighting back.Germany saw a 40% expansion in the market demand in January, in response to the governmentsscrapping incentive scheme. So too France (+8%) and Spain and to a lesser extent Italy (+0.2%). TheUKs programme started hesitantly in the second quarter of 2009. Results are not expected to be as

significant as in Germany and Italy.

In 2008 car sales in Europe, including the new EU member countries, fell by 8.8% to just over 14.7m(16m in 2007). This was a sudden fall in a market that previously saw an increase of nearly 5% between2005 and 2007 (15.25m in 2005).

The last strong rise in sales was in 1998 (14.3m), continuing into 1999, however, in 2000 sales fell by2.2% (14.7m), 2001 was a flat year with sales holding close to 2000 levels but at the expense of profitmargins. In 2002 sales fell by 3%, 2003 saw an increase of nearly 5% but this was a result of anexpanding marketplace, in reality there was another fall of 1% when comparing sales in the same EUmember countries. However, 2004 saw a genuine 2% increase in registrations, remained stable in2005, showed the substantial 4% rise in 2006 but the percentage increase dropped to 1% in 2007, and

then fell by over 8% in 2008. Profit margins were squeezed in the late 90's, recovered by 2000 but fellagain in 2001, they started to recover in 2004 but are now under severe pressure.

2. Pricing structures

Selling prices in Europe continue to be under pressure as manufacturers try to cope with over supplyand consumer expectation for pan-European price standardisation. Tax differences across Europe havealso been blamed. The battle in the UK between local distributors and direct imports from Europesubsided significantly once UK distributors lowered prices. However, this stabilization initially brought areturn to price increases, with average prices throughout Europe rising at a greater rate in 2005 than2004, with MPVs seeing the largest increases- in line with the fact that this was the only sectorsustaining growth at that time. With the high fuel prices of 2007/2008 and increased taxation on larger

cars, buyers are shifting towards more fuel efficient cars, dual fuel and even electric cars, which are ableto attract better margins. Against this is the general trend to lower prices to attract the reduced numberof buyers in the market.

3. Mergers, takeovers, joint ventures and strategic alliances

After a very difficult economic period, most companies were back in profit by 1998/9 but the pressure ofover supply created a series of mergers and takeovers, a move that had proved to be successful forPSA, the long standing partnership that was created in 1975 between Peugeot and Citroen.

1 Figures are approximate as they vary in different sources. In this document the majority are taken from the ACEA.


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The biggest ever merger took place in 1998 between Daimler Benz and Chrysler. It had mixed fortunesbut finally ended with the sale of Chrysler to a private equity group in 2007, for one fifth of the priceoriginally paid, following poor sales performance by Chrysler. Overall the company saw profits rise butonly because of the growth within Daimler Benz. Post-sale, the companies were known as the DaimlerGroup and Chrysler Holding LLC. Daimler still held 19.9% of Chrysler which, in October 2008, itdeclared to have zero value. Chrysler is now owned by Fiat; more details below.

Ford bought Volvo in 1999 and Land Rover from BMW in 2000, to add to the Jaguar and Aston Martinmarques they already owned. However, the struggle to maintain profitability resulted in the companyselling Aston Martin in March 2007 and then Jaguar and Land Rover to Tata Motors in 2008. It has alsobeen rumoured that BMW was interested in purchasing Volvo but the idea has been ruled out by theGerman manufacturer.

In a successful rescue bid, Renault took an initial 36.8% stake in the loss-making Nissan in 1999 andincreased this to 44.4% in 2001 after profits had soared, at this time Nissan also strengthened the tie byinvesting 15% in Renault. Ironically it is now Nissan that is helping Renault through a difficult period.Despite Renault's sale of its 17.88% stake in the Nissan Diesel Motor Co. Ltd, the relationship continuesto be strong and they have developed a new common navigation and communication system that isbeing used on the Nissan Pathfinder and the Renault Laguna. In 2006 discussions were held on apossible alliance between the two companies and GM but no agreement was reached.

In 2000 GM bought the rest of Saab Automotive (they already owned 50%). However, Saab continuedto struggle and with the economic downturn of 2008, went in to a tail spin. Saab filed for"reorganisation" in Sweden (equivalent to Chapter 11 bankruptcy) in February 2009, hoping for aGovernment rescue, which did not materialize. Saab is currently up for sale and bidders include thesupercar maker, Koenigsegg. In 2002 GM purchased the bankrupt Daewoo and rebadged many modelsas Chevrolet in some markets, with some success. GM and Fiat formed a partnership in 2000 but thiswas dissolved in 2005 when GM refused to purchase the remaining 50% of Fiat, an option that the latterwas allowed to enforce under the terms of the original agreement. GM argued that the clause had beeninvalidated by changes within the Italian company and after heavy dispute Fiat secured $2billion as aresult of the breakdown, which provided the capital needed to build a more profitable future. In 2008GM's position deteriorated dramatically, along with some other US car makers, notably Chrysler. At the

end of May 2009 GM sold off its European operations to the Canadian company Magna Internationaland filed for bankruptcy in the USA. Strangely this may give the company the best possible chance offuture survival, though the majority share will be owned by the US Government.

Fiat has rebounded (yet again) and in 2009 stepped in to rescue Chrysler from bankruptcy. It has takena large stake in the company, alongside US and Canadian government support and that of theautomobile unions of US and Canada. The US private equity fund Cerberus Capital Management, whobought Chrysler from Daimler lost out in a major way with the bankruptcy of Chrysler. Fiat bid for Opel,the German arm of GM, but lost out to Magna International, the Canadian auto parts maker.

Although mergers and takeovers of the big manufacturing companies has practically come to astandstill, the principal of companies working in alliance is playing an increasing part in car manufacture

as companies try to improve profit margins and develop new markets. The approach is two-fold; the firstone is where major manufacturers work together on named projects, sharing research and someproduction facilities (e.g. shared platforms), mainly still in Europe. The second is the formulation of jointventures with companies in Eastern Europe and the Far East which has benefits for all concerned : themajor manufacturers can use the existing production facilities and distribution networks in thesecountries, enabling them to break into emerging markets, and the local companies profit from theinvestment made in their companies. The downside for European workers is that in some cases leadingmanufacturers have moved production of a model from the domestic plant to one in Eastern Europewhere overheads are lower, resulting in redundancies in the "Western" European factories.

Examples of the two types of alliance are as follows.


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3.1 Shared Research and Production Facilities

Since the end of the GM/Fiat partnership, the latter has been busy looking for project alliances withother companies. A joint venture has been signed with Tata for research and development andmarketing, as well as future production and distribution of cars, and there are rumours of a possiblealliance with Mercedes-Benz/Daimler. The company has also signed an agreement with China'sChery Automobile to jointly manufacture engines and for assembly and distribution of the Fiat, AlfaRomeo and Chery brands.

Chrysler has also formed an alliance with Chery to develop, manufacture and distribute Chery-madesmall and sub-compact cars in North America, Europe and other major automotive markets underthe Chrysler group brands.

In mid-2005 PSA and BMW announced a plan to cooperate in the design and production of new smallfour-cylinder petrol engines that are to be used in both companies' cars and it has been reportedrecently that there is interest in inviting Mercedes to join this venture. BMW has announced that itwishes to cooperate more with Mercedes; the former already collaborates with Daimler on a number ofprojects, the latest being research in the field of hybrid drive.

There are currently positive talks being held between Volkswagen and Proton regarding a possible

strategic alliance but nothing has yet been settled.

4.2 Alliances for Production and Distribution of Cars in Eastern Europe and East Asia

India is one of the fastest growing markets in the world and all the major companies are looking forroutes into the marketplace. Audi has local assembly of the A6 in India, at the Skoda Auto Indiacompany and also plans to expand its dealership presence in the country; Daimler now manufacturesthe C-, E- and S-classes in the State of Maharashtra, India. BMW may choose a new car factory in Indiato boost output of the Mini; Ford plans to spend $500m expanding its operations in the country to beginproduction of a new small car within the next two years and construct an engine manufacturing plant by2010. Renault-Nissan invested in a new plant in June 2008 which should begin operations in 2010,producing vehicles for export and the local market. Fiat signed a deal with Tata that will provide the

opportunity to produce and distribute cars in India in the future and Peugeot invested in a feasibilitystudy for a possible re-entry into India.

In other countries, Toyota began building the Yaris in China in 2008 as part of a joint venture withGuangzhou Automobile Group that covers production and sales; PSA has signed a memorandum ofunderstanding with the Chinese company Hafei that is expected to result in a joint venture to buildcompact MPVs to compete on the Chinese domestic market and Nissan has threatened to moveproduction of 30,000 vehicles per annum from Spain to Thailand if wage disputes cannot be settled atthe Spanish plant.

Within Eastern Europe, Fiat began building two minicars at the Fiat plant in Poland in 2008. These arethe Fiat 500 and the new Ford Ka, for Ford Europe. Both cars are doing relatively well despite the

recession. Mitsubishi is considering building a plant in Russia, possibly in partnership with PSA.

5. The Internet

The internet is an extremely effective medium for car promotion with a steadily increasing level of sales.Although moving slowly, many industry observers still predict major changes in passenger car retailingbecause of the power and influence of the internet. Major companies continue to make changes in thestructure of dealerships in anticipation of further advances and the websites are becoming increasinglysophisticated, allowing potential customers to explore the marketplace from their own homes.

6. Export of American products to Europe

The US market has traditionally been more profitable than Europe. However, increasing penetration byJapanese companies setting up US-based factories ("transplants") has increased competition. USmanufacturers are now exporting to Europe. Chrysler has had success overseas with the 300 series.


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SALES DETAILS

In 2008 European sales for most of the major manufacturers fell dramatically, after a sustained period of growth.Toyota saw a 17.2% fall following the successful 11.6% rise in 2006 and 10.9% in 2007. Volkswagen fell by4.1% after improving performance in previous years (6.5% increase in 2006, 8.4% increase in 2007). BMW alsosuffered with reduction of 3.5% compared to 8.5% 3% in the previous year and 3% in 2006 (but not quite asgood as the 9.1% increase seen between 2004 and 2005). Ford performed poorly with a fall of 14.8% after anincrease of 8.3% in 2007 and 0.2% rise in 2006. Fiat fell by 5.6% after its remarkable turnaround with an 11.7%improvement in sales in 2007, building on the 17.9% increase achieved in 2006 after several years of droppingfigures. The Japanese companies did not perform well. Mazda was an exception with a 1.8% rise after a drop of6.2% in 2007. Suzuki fell by 13.1% after achieving the best percentage increase of the year at 31.7% in 2007.Honda fell by 15% after an impressive 22.5% growth the year before.

Other companies to fall included PSA (9.1%), which reversed the positive result achieved in 2007 when salesincreased for the first time since 2002 (5.5%). The fall was dramatically more than the 2.5% and 2.1%experienced in 2005 and 2006 respectively. Renault-Nissan also fell (4.2%) after good results in 2007 (7.6%increase) following a 3-year increasing slide (2.5% in 2004, 4.9% in 2005 and 10.6% in 2006). GM saw a 14.5%fall after a 9.8% rise in 2007, compensating for the previous year's drop of 1.5%. The joint figures of the Koreanmarques (Daewoo, Hyundai and Kia) fell by 11.7% after falling sales of 2.4% in 2005 and 1.6% in 2006, and anincrease of 5.6% in sales in 2007. DaimlerChrysler fell 4.6% which was an improvement after a fall of 10.3%. in

2007. As in the previous 3 years, VW was the top selling European car maker in 2008, followed by PSA. Fordfell to fourth place below Renault-Nissan in third place.

Unprecedented falls in sales can be attributed to the surge in fuel prices early in 2008 followed by the collapseof financial markets, due to major failures in the banking systems. Some companies fared better than others butin such a turbulent environment sales alone are not an easy measure. Honda for instance shut down itsfactories until June 2009 but retained much of their workforce, albeit on reduced pay, rather than sell cars atmassive discounts, while others maintained sales at painfully low prices. Government schemes to boost salesseemed to work in Germany and Italy where indigenous manufacturers dominated the market. The jury is stillout on the UK "Bangers for cash" scheme.

The fall was preceded by a period of strong growth with companies launching a large number of new models

with the aim of enticing consumers into purchasing new vehicles. This trend is likely to continue as economiescome out of recession and buyers change their requirements toward more fuel efficient vehicles.

The Japanese and Koreans continue to increase their investment in Europe as they strive to continue improvingmarket share. The Chinese manufacturer Chery Automobile began exporting cars to Eastern Europe in 2007,with the aim of having a European plant within five years and Tata is preparing to launch new models in Europe,strengthened by their ownership of Jaguar/Land Rover.

PROFIT MARGINS

Despite growth in sales for the majority, during the first five years of the decade nearly all companies havesuffered from decreasing profits. 2005 began a turnaround for a few companies that continued into 2006 and

2007 and crashed heavily in 2008/2009.

The remarkable turnaround at Fiat continues, almost despite the economic crisis. Its automobile division whichmade a loss of EUR281m in 2005 achieved a EUR291m profit in 2006. This continued into 2007 when the profitrose to EUR803. Growth slowed considerably in 2008 with the recession but not as badly as with mostcompanies. Its recent acquisition of Chrysler will be a challenge. Fiats results prove that effective leadershipand good organisation can have a dramatic effect.

A surge in popularity of models also gave BMW its most successful year ever in 2006, with profits rising by 28%,providing relief after the company suffered from falling profits in 2005. Despite a downturn in 2007 when somemarket share was lost to Mercedes-Benz the company still managed to increase profit to EUR3.1bn (EUR2.9bnin 2006). However, 2008 saw an incredible 89% fall in profits, although part of the low profits was a result of

several exceptional items recorded in quarter 4 and the company has already started to change strategies.


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2007 was a record year for Volkswagen, improved productivity and rising demand in Asia and Eastern Europeboosted operating profits by 40% to EUR6.15bn. Cost cutting and capital gains in earlier years also contributedto the large profits. Against the backdrop of serious decline in the industry, success continued in 2008 as 2007'sresults were surpassed with a 3% increase in operating profits to EUR6.3bn, a 15% increase in net profit and a4.5% rise in sales. Within the group the luxury brand of Audi posted record sales and profits with a 4.1%increase in sales and a 1.7% improvement in profits. Skoda and Bentley both reported losses and Seat lostEUR78m following its revival in 2007 when it turned a profit of EUR8m, following losses of nearly EUR5 millionin 2006. VW's profits came from strong sales in the first three quarters of 2008. The dramatic drop-off inrevenue at the end of the year is expected to set the trend for 2009, confirmed by a predicted operating loss ofEUR279m in the first quarter. However, Directors are confident that the company's market share will continue toincrease and their target is to do better than the overall market while the crisis continues.

Porsche more than doubled its annual profit In the 2006/2007 fiscal year from EUR2.11bn to EUR5.85bn, strongdemand for sports cars in Europe and Asia boosting its fortunes. In 2008/2009 Porsche earned more profitsthan revenues in the first half of its financial year, thanks to controversial dealings in Volkswagen options thatleft many hedge funds nursing heavy losses. The luxury sports car-maker reported that it enjoyed a EUR6.8bn(6.3bn) windfall from its share options in VW, whose value soared late 2008 after it emerged that Porschecontrolled most of the company. But Porsche also gave its first signal that the global recession has caught upwith it by warning that sales would drop in 2009, as high-rolling consumers opt for less conspicuous products.First-half sales revenues were down 13% to EUR3bn as pre-tax profits quadrupled to EUR7.3bn.

Toyota posted record pre-tax profits in 2007 but forecast a 50% fall for 2008/2009, the first in nine years. Thedownturn has been blamed on the recession, a stronger yen, slow sales in the US, rising costs and a sufferingcredit market. Cost cutting success resulted in Renault boosting its operating margin by 27.4% in 2007 andPSA's margin increased from 2% to 2.9% with income being boosted by the introduction of new models.However 2008/2009 figures are expected to be very poor, despite a recovering market in France due to theGovernment scrappage scheme.

Daimler reaped the benefit of selling Chrysler by achieving a rise of 74% in EBIT (earnings before interest andtax), however, the net profit rose by just 5% and revenue was actually flat. Quarter 1 2009 sales (year on year)were 34% down on the previous period. Ford reduced losses and showed a profit for the first time in two yearsin 2007 but have reverted to losses in 2008/2009.

A number of factors were instrumental in causing the initial drop in profits, namely, continuous over-capacity ofup to 30%, rising raw material costs (particularly steel), severe price competitiveness, the introduction ofexpensive promotional offers in an attempt to attract more customers, the negative impact of a strong Euro andthe cost of Euro IV emissions compliance. These problems are likely to continue and manufacturers will have tokeep tight control if they are to achieve any increase in profitability or even to maintain the status quo.

Some of the measures taken by manufacturers to reduce losses/improve profits have included reducingproduction, closing plants, both permanently and temporarily, squeezing suppliers, job cuts and the search fornew sources of revenue through downstream activities such as finance divisions. Production has been loweredby many of the major companies to reduce a stock problem and in some cases to avoid redundancies byintroducing shorter working weeks. Some major players, namely Ford, VW and GM have asked employees to

accept long-term wage freezes and in GM's case to impose longer working hours. VW was forced to put amajor redundancy programme into effect, Nissan made redundancies in Spain, BMW has threatened job cutsand Ford sold Jaguar and Land Rover. These measures are likely to continue until a balance of supply anddemand is restored.INDIVIDUAL MARKET SIZES

The most significant event with regard to market size is that that the Russian new car market broke through the2m unit barrier for the first time in 2007, with 2.35m new cars registered it became the fourth largest market inEurope. Mid 2008 the Russian car market was actually poised to replace Germany as the largest single marketin Europe, however, the recession hit very hard and in October sales fell dramatically and finally Germanyretained its dominant position with Russia climbing to a position of second biggest market with 2.7m sales. Italymarginally squeezed into third place with sales of 21.6m just above the UK in fourth position with a total of

21.3m, followed by France with 20.5m sales and then Spain with the much lower sales figure of 11.6m.

Germany has consistently had the largest market over the years but the 3.09m sales achieved in 2008 waslower than the 3.15m unit sales of 2007, representing a 1.8% decrease, and in turn this was a drop of 9.2% onthe 3.47m achieved in 2006, following the year on year increase that had been achieved since 2003.


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In 2008 most countries sales fell, even in those countries that saw an increase in 2007. The largest fall was inIceland where figures fell by 43% (6.9% fall in 2007); Spain fell by 28% (1.2% drop in 2007); Ireland by 18.6%(4.4% increase in 2007); Sweden by 17% (increased by 8.5% in 2007); Norway by 14.4% (increased by 18.3%in 2007); Italy by 13.3% (rise of 7.2% in 2007); the UK by 11.3% (2.5% increase in 2007); Greece by 4.5%,counteracting the 4.5% increase in 2007; Switzerland by 2.9% (5.7% rise in 2007); Austria by 1.5% (3.4% dropin 2007) and the Netherlands by 1.1% (4.5% increase in 2007). The French market fell by only 0.7% after a3.2% rise in sales in 2007 that counteracted the 2006 decrease of 3.3%.

Exceptions where sales actually increased were in Finland, where a rise of 11.4% followed a fall of 14% in 2007;Portugal (5.7% increase to consolidate the 3.7% increase of 2007 and totally offsetting the 5.7% drop in 2006);Belgium (2.1% increase following a decrease of 0.3% in 2007) and Luxembourg (2% rise building on the 1%increase achieved in 2007).

The other area of significant growth over recent years has been the Asian car manufacturers, culminating inToyota's achievement of becoming the top global car maker in terms of sales in 2006, ending GM's run of81 years in this position. In 2008 Japanese brands took 14.3% of the European market share (14.6% in 2007,14.2% in 2006 and 13.5% in 2005), selling 2.1m units. Korean car manufacturers have also had an increasinglyimportant impact on the marketplace since 1998 although levels have stabilized over the past three years.There have been complaints from some US and European manufacturers that the success is due to the

Japanese and Koreans keeping their currencies artificially low and are asking for government intervention.However, this is unlikely to be forthcoming given that, unlike their European and American counterparts,Japanese, Korean and more recently Chinese companies are currently investing heavily in Europe, providinglocally produced vehicles and valuable sources of employment.

Eastern European registrations increased steadily in the mid nineties but then dropped quite dramaticallybetween 1998 and 2003. However, the ten traditionally Eastern European states that joined the EU in 2004offer a potential new customer base of 76m people and sales have since increased over time. 2008 figures forthe region totalled 1.18m units, down from 1.21m units in 2007 which was up from 1.06m units in 2006 and from900,000 in 2003. Added to this there is the phenomenal success seen in Russia. The marketplace outside ofRussia is still relatively small but the competitiveness of the European market makes the area a key target for allcar manufacturing companies as it has a much larger potential for growth, with most countries seeing large

percentage increases each year. This fact, coupled with the low cost base of the area, is resulting in manymanufacturers moving their production facilities to the region.

Although Eastern Europe is a seen as a key area of growth by the main car producers, there are some that seeChina and India as being worthy of substantially more effort as the potential markets are considerably bigger.

MARKET SECTORS

Market sectors are broken down into four main categories : City, Medium, Large and Luxury.

The growth in the city class did appear to be slowing until recently and prices did fall, in contrast to the generaltrend of increasing prices. However, with increasing fuel and taxation costs, sales of city cars are increasing

again, with some of the middle sector age groups replacing large and medium-sized models with smaller ones,particularly as many of the new models produced are larger than their older model equivalents, e.g. the Clio,Corsa and Peugeot 207 have considerably more room inside than the previous models. Fiat has taken thisconcept one step further with the launch of an SUV version of the Panda, priced very competitively, it will beinteresting to follow sales levels, if successful other manufacturers may follow with similar designs. Anothernotable trend has been the recent growth of vehicles of vehicles with engine sizes under 1 litre, and electricvehicles.


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In terms of popularity, five of the top ten best selling models in Europe in 2008 were from the city car categoryand four were from the medium sector. The restyled VW Golf regained its first position and was the only modelto increase in sales in 2008. The city sector Renault Clio and Ford Fiesta/Fusion both rose in position in the 'topten', demoting the medium-sized Opel/Vauxhall Astra to seventh place. One explanation for the decline in salesof the latter is that GM cut its production in favour of the Corsa when it was relaunched, a move which initiallyproved successful as sales of the Corsa increased by 41.7% in 2007; however, as the new model settled intothe marketplace the surge in sales slowed and there was a drop of 10.4% in 2008, although it maintained itsplace as fourth most popular car in Europe. As in the last few years, the only large car to feature in the tablewas the VW Passat. See the following page for more details of the 'top ten' and their sales figures.

Financial pressures amongst buyers, and market sentiment, are likely to result in a further shift in purchasingpattern, with people moving from large cars to the medium, or city sector.

The large car market continues to struggle, with the diesel and business sector the only areas to be maintainingsales, albeit with falling margins. The VW Passat remained in top ten best selling list but sales dropped 9.4%between 2006 and 2007, and a further 15.5% in 2008, surely a sign of things to come given the economicclimate. The SUV and MPV models still dominate the large car sector as sales and consequently production ofthe traditional saloons such as the Renault Laguna, Ford Mondeo and Peugeot 407 drop rapidly. However,companies are investing a considerable amount in re-launching cars in this sector to increase their appeal:Renault has redesigned the Laguna, Ford launched a new Mondeo and VW/Audi produced a new TT,

Mercedes has boosted sales with the new-look C-Class and the relative success of the Volvo V50, driven byclever marketing, has made a significant contribution

BMW continued its 2007 achievement of outselling Mercedes-Benz in terms of sales in 2006, but much of thissuccess was due to sales of the 3-series (medium sector) and the mini (city sector). Mercedes did close thegap with the success of the new S-class launched in September 2005 and improved the situation further withrecord sales in 2007, undoubtedly helped by the launch of the new C-Class in September 2006. VW did not seesuccess with the relaunched Phaeton luxury sedan.

It is notable that the price gap between the prestige and volume car makers has narrowed over the last10 years, widening its pool of potential customers and resulting in the market share of the volumemanufacturers, e.g. Ford, Renault, Vauxhall, reducing by 12% and that of the prestige marques, BMW,

Mercedes, Audi, increasing by 9%. The decline in the sale of luxury and premium large vehicles is likely to be aresult of rising fuel and taxation prices, the general economic climate and on a more positive note the fact thatthe smaller cars are now being built to a standard that was previously only available in more expensive models.

For the purpose of this market segmentation the definitions of the car groupings, based primarily on dimensionsand average price, are as follows (all price ranges are approximate and can overlap).

City : supermini, minis and small; prices up to 14,500, e.g. Ford Fiesta, Nissan Micra, Peugeot 107.

Medium : price range 12,000 to 21,000, e.g. Vauxhall Astra, Renault Scenic, VW Golf, Mercedes B-Class.

Large : upper medium + multi-purpose vehicles; price range 15,000 to 45,000, e.g. Ford Mondeo, Alfa

Romeo 159, Land Rover Discovery, Jaguar X-Series, BMW 5-Series, Porsche Boxster.

Luxury : luxury saloons + specialist sports cars + dual-purpose vehicles (e.g. 4WD); price range 40,000 to100,000+, e.g. BMW 6 & 7-Series and X5, X6, Jaguar XJ and XF series, the perennial Range Rover, MercedesS-Class, Porsche 911 etc.

The following table quantifies the results of a market study made in 2008 on the division of car sales in Europe.Car categories are shown on the horizontal axis and buyers' ages on the vertical axis. Values are given aspercentages (error level +/- 20%).


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% of Total Market (total market : 14.25 million)

City Medium Large Luxury

Under 25 11.25 6.50 1.90 0.22

25 to 40 9.55 13.00 5.95 1.48

41 to 55 7.55 11.00 5.75 1.58

Over 55 7.75 9.50 5.50 1.52

Total (%) 36.10 40.00 19.10 4.80

TOP TEN BEST SELLING CARS IN EUROPE 2008

Variation on Year from2007Model 2008 Sales

Sales position

2008 UK Price Range()*

1. Volkswagen Golf 458,253 +5.3% 2 9,895 - 15,675

2. Peugeot 207 406,163 -7.2% 1 12,245 - 25,3453. Ford Focus 364,638 -10.3% 3 11,945 - 20,270

4. Opel/Vauxhall Corsa 360,274 -10.4% 4 7,595 - 18,320

5. Renault Clio 335,548 -12.2% 6 12,900 - 19,750

6. Ford Fiesta 327,314 -8.0% 8 7,495 - 14,995

7. Vauxhall/Opel Astra 320,856 -20.2% 5 7,485 - 13,450

8. Volkswagen Polo 275,921 Not in Top Ten in 2007 8,595 - 13,795

9. Volkswagen Passat 253,853 -15.5% 9 15,825 - 26,365

10. BMW Series 3 251,140 -15.0% 10 21,000 - 38,350

* Figures are rounded. The higher end prices are usually for sports versions and, where applicable, convertibles.

NEW REGISTRATION OF PASSENGER CARSIN THE TOP TEN MARKETS IN EUROPE (,000s)

2002 2003 2004 2005 2006 2007 2008

Germany 3253 3236 3267 3319 3468 3148 3090

Italy 2271 2251 2264 2237 2326 2493 2162

UK 2564 2579 2567 2440 2345 2404 2132

France 2145 2009 2014 2068 2001 2065 2050

Spain 1332 1383 1517 1529 1635 1615 1161

Belgium 468 502 485 480 526 525 536

Netherlands 511 489 484 465 484 506 500

Austria 275 301 311 308 309 298 294

Switzerland 296 270 269 265 270 285 276

Sweden 255 261 264 274 283 307 254


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MARKET STATISTICS

The European market share (2001-2007) for each of the top 14 car manufacturers is given below.

9

11

13

15

17

19

21

2002 2003 2004 2005 2006 2007 2008

%M

arketShare VW

General Motors

Peugeot/Citroen

0

12

3

4

5

6

7

2002 2003 2004 2005 2006 2007 2008

%M

arketShare

BMW

Daimler (figures for 02-07include Chrysler)

Toyota

5

6

7

89

10

11

12

13

14

2002 2003 2004 2005 2006 2007 2008

%M

a

rketShare

Fiat

Ford (figures 02-07 include

Jaguar, Land Rover & Volvo.08comprise Ford & Volvo only)

Renault-Nissan

0

0.5

1

1.5

2

2.5

3

3.5

4

2002 2003 2004 2005 2006 2007 2008

%M

arket

Share

Honda

Mazda

Mitsubishi

Korean


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COMMENTARY

The European marketplace has changed rapidly over the last decade.

The Volkswagen Group, owner of the Seat, Skoda, Audi, Volkswagen, Bentley, Bugatti and Lamborghini brands,consistently maintained the largest market share throughout the 1990s. Sales are given in the chart over leaf.VAG now holds the largest percentage of the market share in Europe at just under 21%. Despite its continuousnumber one position, and partly because of its dash for growth, VAG's profitability has come under pressure,

influenced by its high cost base, currency fluctuations and the fall in the Eastern European market. Its broadmarket coverage, including the USA, Asia and South America, and ability to launch impressive new models, hasenabled profitability to be maintained for the moment, although management are stating that the company willnot be able to survive long-term without job losses and changes in pay structures and working conditions. Therecent expansion of the Porsche share in VAG signals imminent changes, possibly in both organizations.

In 1996 the Italian market recovered with the re-introduction of Government incentive schemes which resulted ina 20%+ rise in new car sales. This was followed by another increase to 39% in 1997, but then a small fall in1998 of 1.6% as the schemes were withdrawn. In 1998 Fiat fell from the position of the third largest carcompany in Europe in terms of sales to fourth behind PSA (Peugeot-Citroen) and to sixth between 1999 and2005. A confident Fiat is now in 6th place, behind GM and Ford, but this is likely to change with their recentacquisition of Chrysler.

Fiat's higher sales in the mid 90's was aided by Government incentives and therefore must be viewed in context.Such schemes can distort markets with high sales being followed by sharp falls. There was a similar occurrencein France when the Government terminated the incentive programme early in 1996. In 2003 Fiat announced12,000 planned job losses and has seen a 50% drop in market sales since the end of the 1980's. 2004 was thecrisis point for the company, ending with the termination of the partnership with GM. However, a turnaroundplan, involving a new management team put into action in 2003 and the forging of new partnerships in 2004 and2005 has been successful, with profits being shown for the first time in five years towards the end of 2005.Profitability continued through to 2008 and is even predicted for 2009, against world wide trends.

Mergers and strategic alliances have been seen by some manufacturers as the best way forward to ensureprofitability. The BMW chief executive has expressed the belief that such links only provide short-term benefits

but the President of hugely successful Toyota has shown interest in forming an alliance with troubledautomakers. The evidence for both arguments is mixed (see pages 1 and 2 for details).

Increasing competition from the European-based operations of the major Japanese manufacturers continues tochange the European market. The Japanese have taken 25% of the US market, and Nissan, Toyota and Hondaare competing free of EC imposed quotas within Europe with their European built models. Against this trend thestrong appreciation of the Japanese currency in early 1990's caused a decline in their market share to 10.9%,the lowest level for five years. A sharp turnaround has been seen now that the currency rise has been reversed.On the basis of Japanese production in the UK, it is expected that the country will return to being a net exporterof cars within the next five years, a status lost in the mid-70's.

Productivity and quality, the key words of the mid-80's, have reduced in significance, only because of

convergence by most manufacturers on the high standards set by the Japanese; in 2005 the EU car industrypledged to put technology and quality before profit. In recent times foreign companies have invested 10 timesmore per worker in modern machinery than their European counterparts and as a result most Europeanproducers still lag behind the 90+ cars per worker per year Japanese benchmark. However, they are gettingcloser (70-80% of the Japanese figures). Nissan's Sunderland UK plant has been the most productive plant inEurope for seven consecutive years, producing an average of 90 cars per hour (approximately99 cars/worker/year), Renault's Valladolid plant in Spain is not far behind with 89 cars/worker/year.

Prices are being kept in control partly at the cost of employment. In some instances workers are having toaccept lower wages or decreased benefits in an attempt to keep factories open and jobs safe as more and morecompanies move production to Eastern Europe, China and India where wages are low and, in the case of thelatter two, the car industry is growing rapidly.


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Europe continues to be the most competitive and challenging automobile marketplace, boosted by factors suchas surplus US capacity, demand and capacity in Eastern Europe, the Japanese, Korean and possibly theChinese push. The economic recession of 2008/2009 may actually improve the future prospects by taking outsome excess capacity. The challenge to this industry is the need to reduce the environmental impact of themotor car, to levels acceptable to society, in the face of significant overcapacity, but with some growing marketsin Eastern Europe. If this battle is lost the Industry may well be facing terminal decline.

THE SPECIALIST MARKET

Overview

Worldwide sales of luxury vehicles fell 20% in 2008. During the recession of the early 80's, when the volumeproducers were suffering heavy financial losses, the specialist producers remained profitable. By 1987 BMW,Porsche, Mercedes Benz, Rolls Royce, Jaguar, Saab and Volvo were all making a profit. However, the situationchanged rapidly in the late 80's and early 1990's when the US market weakened, Japanese competitionintensified and recession returned. Despite the economic situation, BMW continued to increase sales volumewithin Europe as a whole and in 1992 overtook Mercedes, a position subsequently lost with the DaimlerChryslermerger. With its abandonment of the Rover Group but retention of the Mini, BMW increased sales andprofitability dramatically in 2001, a trend that continued until 2005 when the company experienced increasedsales but a drop in profits; this trend continued in 2006 but reversed slightly in 2007 then reverted again in 2008.

Mercedes targeted growth with the Chrysler merger and has continued this push even after the disposal ofChrysler. Volkswagen strengthened its position in the luxury market with the purchase of Lamborghini, RollsRoyce and Bugatti. Porsche made record sales and profits in 2006 and 2007, driven by strong sales of theredesigned Boxster, Cayman S coupe and 911 models. Its move into the SUV market with the Cayenne wasseen as a stimulus for future growth. Sales of the Cayenne began well in 2004/05 but they slipped in 2006, thenreturned strongly in 2007 (up 50% in some markets). Although customers are beginning to turn away from large4x4s, it was Porsches belief that the niche luxury sector would not be affected but this was not the case. Firstthe high fuel prices in 2008 dented sales and then the economic recession continued the stall, despite revisedCayenne models. Fiat strengthened Ferrari's appeal to investors by separating the marque from the loss-making Maserati and placing it in the Fiat Group as opposed to Fiat Auto.

The major features of the specialist marketplace over the last few years have been : 1) high fuel prices and the

recession of 2008/2009 denting specialist car sales; 2) the growth of alternative market sectors; and 3) thecontinual demand for sports cars.

1. High fuel prices and the recession of 2008/2009

The specialist sector has long been relatively resistant to economic downturns. But the surge in fuel prices in2008; quadrupling in some markets, took the industry by surprise and certainly made the buyers think hardabout fuel economy. This was quickly followed by the economic downturn which took out a lot of the newmonied buyers. In addition it became socially undesirable to be driving extravagant cars as unemployment roseand many people were losing homes, pensions and savings. Hollywood took to electric cars and politiciansfound a new excuse to tax larger cars. The impact is still being felt and it may be some time before to full impactis seen.

2. Alternative Market Sectors

The alternative markets comprise, Multi Purpose Vehicles (MPVs), the traditional 4x4 off roaders and the SportsUtility Vehicles (SUVs), all of which have proved to be lucrative from the 1990's through into the early years ofthe 21st century. The trend now is towards smaller MPVs and SUVs rather than abandonment of the class.

The new categories of low emissions vehicles, hybrids and electric cars are fast growing sales in the UKdoubled in 2007,and more than doubled again in 2008 according to Honda. Toyota announced that 28% ofLexus sales were the hybrid powered Prius. These are covered in more detail below under "New Technologies".

The Multi-Purpose Vehicle (MPV/Minivan) Market

The MPV market can be divided into three categories, the mini sector, e.g. the Nissan Note, Vauxhall MerivaFiat Sedici and Ford Fusion; the compact/midi sector, e.g. the Citroen Xsara / Picasso, Renault Scenic, Ford C-Max, Mercedes B-Class and the large sector, e.g. Ford S-Max, Renault Espace, Toyota Verso and VW Sharan.


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Overall, this market grew substantially from 1995 onwards, and by 2000 sales exceeded 600,000 units. Themarket continues to grow with a 22.8% increase in sales in 2004 compared to 2003 in the overall Europeanmarket and in the UK a 16.5% increase in 2007 over 2006. The market fell in 2008, as the recession hit.

The Renault Scenic has been the best selling model in the midi MPV class since its launch in 1997, well aheadof its nearest rivals the Vauxhall/Opel Zafira, Volkswagen Touran and the Citroen Picasso. However, the C4 andXsara Picasso from Peugeot Citroen finally eclipsed the Scenic in 2007, with overall sales of 320,000 units. Thesuccess of the sector has been at the expense of the traditional medium category models, although the latter didshow growth in 2004-2006 thanks to the launch of new models.

Sales of full size MPVs are slowing with a 10% decline in sales in 2004 compared to 2003. The growth of themini MPV looks set to continue, the only danger being that with more major manufacturers targeting this areathere could be over supply in the future. The Peugeot 307/308 and Honda's Jazz and Civic, smaller and farmore car-like than even the mini MPV, are also potential threats and the popularity of the sector has resulted inhigher than average prices rises, which could also slow down sales.

4x4 Off Roaders (Leisure/Luxury Market)

The original Range Rover from Land Rover (now owned by Ford but soon to move to new ownership underTata) can be said to have virtually created the off road market in Europe, which now exceeds 400,000 units per

year, up from under 60,000 units in 1979. Range Rover has since moved into the realm of the luxury car,competing with the likes of BMW, Jaguar and Mercedes. Competition resulted in a fall in Land Rover's sales inthe early 2000s but made a strong recovery in 2005-2007, courtesy of the launch of the new Range Rover Sportand the Discovery III, the latter being a cross between the leisure 4x4 and an SUV. Land Rover, celebrated its60th birthday in 2008 year, saw worldwide sales in 2007 exceed 200,000 units for the first time ever, with UKsales exceeding 50,000 units, also for the first time.

The M-Class has continued to be successful for Mercedes and for BMW the X-5, and now the super luxury X6.They have established excellent sales by virtue of both strong off and on road performance. Other competitorsin the class include Toyota's ever popular Land Cruiser, Nissans X-Trail and stylish Mureno, Volkswagen'sTouareg, the Volvo XC70 and 90 and the Land Rover Discovery.

Porsches Cayenne sales slowed in 2006 but resumed selling well with 2007 world sales nearly 50% up on2006, thanks in part to the introduction of a new model. A Cayenne electric hybrid has also been showcased.The Volkswagen Touareg, which shares its chassis with the Cayenne, has also been selling well in the UK,helped by very targeted advertising. The new, stylish Audi Q7 also looks good. These sectors were all hard hitin 2008/2009.

The off-road market had been predicted to fall for several years but contrary to this sales grew steadily,increasing by nearly 65% over the 6 years to 2007. The marketplace finds these products desirable despiteconcerns about size, weight, fuel economy and emissions (which though higher than comparable modernsaloon cars are still much lower than the older cars). Range Rovers new fuel efficient turbo diesel V8demonstrates the manufacturer's response to market demands and stylish new designs from Audi, BMW with itsX-6, and new Volvos point to continued life in this sector. The fuel price increase of 2008 and subsequent

economic recession has had a strongly negative impact and early indications are that this market is suffering.

Sport Utility Vehicles (SUVs)

The off-road market has come under threat from the introduction of the new generation of SUVs, which descendfrom passenger cars and have lightweight unibody frames and modern suspensions, they enjoy the high seatand four-wheel drive of the off roader combined with passenger car handling and comfort. The advantages ofthe lightweight SUVs over the traditional off roaders are nimbler handling, a peppy performance, quieter, morefuel efficient and, moreover, cheaper, posing a serious threat to the dinosaurs of the 4x4 market.

Land Rover responded to the new SUV market by introducing the smaller Freelander 4x4,which now competesvery favourably with the Honda CR-V and Toyota's RAV, all priced between 16,000 and 26,000 in UK. The

launch of the Freelander 2 in 2006 strengthened Land Rover's position in this sector, despite competition fromthe luxury GL-Class SUV from Mercedes. Already successful in the US, the strong selling smaller BMW X-3,could be a competitor, although with a price range of 25,000 to 35,500 the latter will be a competitor for theDiscovery and the Mitsubishi Shogun rather than the SUV market. Fiats smaller 4x4 could also threaten.


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Sales figures show that there is definitely a market for both the large 4x4 models and the smaller and cheaperSUVs but the trend seems to be moving in favour of the latter. It is possible that SUVs will account for up to halfof Europe's prestige car sales in the near future as companies improve model specifications, offering higher-than-ever levels of high-tech, safety and 'infotainment' equipment, better fuel economy and even electricversions.

3. Sports Cars

Roadsters

Over the last ten years the convertible market has grown from 17,706 to 98,316 units. In 2001 new convertiblestook 2.4% of the UK new car market and by 2006 the share had climbed to 5.3%.

Mazdas MX-5 initially led the growth in the market with the brilliant combination of MGB and Lotus Elan.European sales of the MX-5 slumped from 12,500 in 1991 to 4,900 in 1994 but the launch of a new model in1998 revived Mazda's popularity and the launch of yet another new model in 2005 assured continued salesgrowth in 2006 and 2007. Other impressive performers include the MGF (1995-2005), Lotus Elise, BMW Z3followed by the Z4, Alfa Romeo's Spider, Mercedes SLK, the Audi TT roadster, Porsche's Boxster and thepromised new sub 40k roadst6er from Jaguar. The MGF was bought by Nanjing and returned to the UK in2008, but only in small volumes.

The new coup convertibles (CCs), with their electrically folding metal roof, have driven the 2005-2007 surge inpopularity of the sports car and have helped spread sales more evenly throughout the year. The concept startedwith the Peugeot 206 and 307, now the 208 and 308. Mercedes followed suit with the SLK Class Roadster asdid Renault with the Mgane CC, Lexus with the SC and Vauxhall/Opel with the Tigra. It is likely that othervolume manufacturers will soon follow.

Approximately one quarter of the convertibles sold throughout Europe are purchased in the UK - despite theclimate! Only in Germany are sales figures greater but the percentage growth in the UK is far higher, 114%since 1999 compared to 32% in Germany. It is interesting that there is a notable increase in the number ofwomen over 60 buying expensive convertibles!

Sports Coups

European sports coups saw a 32% increase in sales in the mid 1990s, bringing the sector up to 37,426. TheVauxhall Tigra had a particularly impressive dbut performance with sales of 6,787, ahead of the Ford Probe(6,576) and Vauxhall Calibra (4,920) but behind the then sector leader, the BMW 3-Series coup (9,751). Sincethen the market has continued to grow. The Audi TT and Mazda RX8 have sold well. The new 2007 Audi TTand the stunning Audi R-8 look continued this trend. New entries introduced in 2004 included the Nissan 350Z,the Chrysler Crossfire (discontinued Nov 2007), the BMW Z4 coup, the revised BMW 3-Series coupe and thePorsche Cayman in 2006. VW has delivered a stunning new Corrado in 2008, which is selling well despite therecession. The upper end of the market is dominated by the BMW's M5 and M6-Series and the Mercedes SLKcoupe with the Audi R-8 and new Jaguar XKR trying to upset the status quo. Over 80,000 SLKs were built in2004. The legendary Porsche 911 leads the sector in dynamic performance but sells in much smaller numbers,

as does the new Jaguar XKR which provides stunning looks with effortless performance.

Variations on the coup but targeted at the same market have been the hugely successful Subaru Impreza andMitsubishi Evo. These offer coup style with blistering performance, 4-door convenience and 4-wheel drivestability. They are often bought to participate in "track days" and sell at much lower prices than thePorsche/Mercedes/Jaguar. It was predicted in 2007 that, overall, sports car sales in Europe will continue togrow over the next few years, however the recession of 2008/2009 brought an end to this and a fall ofapproximately 20% is likely over this period.

DIESEL CAR SALES IN EUROPE

As the advantages of diesel over petrol, petrol-electric hybrid and LPG increased with improved technology, so

the market share of diesels grew from 22% in 1996 to 32% in 2000, 43% in 2003, 47% in 2004 and 49% in2005. It is predicted that this trend will continue with the percentage sale of petrol fuelled cars falling to 37.1% by2015. There are a number of reasons for the growing popularity of diesel-fuelled cars:


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They are superior to petrol-consuming models in terms of fuel efficiency, an advantage that wasconsolidated by the introduction of direct-injection car diesel engines and turbocharging and then takenforward by Common Rail technology when invented by Fiat in 1997.

A diesel engine is 25% more efficient than an equivalent petrol engine, this directly translates intoreductions in carbon dioxide emissions, a very important factor as increasing global legislation demandslower vehicle and greenhouse gas emissions.

The world's liquid fossil fuel resources are diminishing; recent price rises act as a reminder.

Indirectly, improved efficiency means that fewer shiploads of petroleum need to be transported, resultingin less transportation linked pollution.

Politically, European governments see an advantage in encouraging development of diesel enginesbecause it keeps their car makers ahead of the US and Japanese competition - both nations are anti-diesel, in America people care little about saving fuel and in Japan they push for petrol-electric hybridsas most of their travelling is short-distance, in congested cities, and not least of all Toyota and Hondahave both invested in developing hybrid technology. However, both Toyota and Honda are launchingnew diesel models into Europe and the USA, suggesting recognition that this is the way forward, and theUS Environment Protection Agency has developed a diesel engine that will meet near zero emission

standards as the country moves to becoming a net oil importer and sees the need to encourage the useof diesel instead of petrol.

As a result, all manufacturers are stepping up diesel engine development and offering it as an alternative formore and more models. The biggest block is the limited availability of diesel fuel stations in the USA.

So far the largest growth area for diesels has been the executive car sector, with diesels accounting for half theexecutive cars sold in some countries, and nearly 20% of the total UK market. However, as petrol costs rise, theleading manufacturers can see potential in targeting the younger generation and are increasing the availabilityof diesel engines for smaller cars.

Emerging competition for both diesel and petrol/gasoline fuels is in the form of renewables, ethanol or plant oil

based fuels. These can be blended with both diesel and petrol/gasoline but there are concerns over the overallenvironmental impact of these materials.

AUTOMATION

The use of robots in manufacturing industry has continued to grow steadily, driven more by the quality benefitsthan the original idea of manpower replacement for dirty and repetitive work. The following table gives abreakdown of the total number of installed industrial robots in the major industrial nations approximately 40% ofwhich are presently involved in automobile production.

NO. OF INSTALLED INDUSTRIAL ROBOTS IN MAJOR INDUSTRIAL NATIONS

1982 1985 1988 2002

21,000 93,000 176,000 220,000

6,000 20,000 32,600 42,000

2,300 8,800 17,700 21,700

450 4,000 8,300 12,600

790 4,150 8,026 9,000

713 3,208 5,034 7,000


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First manufactured by Unimation in 1962 and based on an invention by George Devol, the use of industrialrobots initially spread quite slowly. The Stanford arm, invented in 1969, expanded use in automotive with thePUMA name being the best known unit of this genre. The Japanese took a strong interest in the late 70s andnow over two thirds of the world's industrial robots are made and used in Japan; where robotic applicationscontinue to expand in the manufacturing industries. This technology has spread in South East Asia and Koreain particular has a fast expanding robotics use. In the USA the growth rate has slowed and industrialists arelooking for significant improvements in the technological skills of robots. This is emerging, with new machinesnow capable of carrying out complex surgical procedures.

Advances in robot assembly lines continue to be evolutionary than revolutionary as smaller, nimbler robotsprovide the flexibility required for a truly successful assembly line, the aluminium Audi A8 saloon car assemblyline being a case in point. It is estimated that it takes between two and three years to recoup the cost ofinstalling automation. The best results come from an integrated use of robots alongside humans, with robotsworking on the monotonous, strenuous and dangerous tasks, as well as some of the more intricate work onelectronic components. The number of robots in the industry will continue to grow, perhaps most significantly inthe car makers suppliers who manufacture ever more complex component systems.

NEW TECHNOLOGY : ALTERNATIVE FUELS AND ELECTRIC CARS

Prompted by concern about atmospheric pollution, global warming and a decrease in fuel sources,

manufacturers have been researching alternative power systems for some time. A KPMG survey predicted thatfor 84% of consumers, fuel efficiency will be a key factor in the next 5 years.

Alternative fuels, such as compressed natural gas, while lowering emission levels significantly give rise tovehicles that are more expensive than equivalent petrol powered counterparts, less powerful and have a muchshorter range than petrol or diesel powered vehicles. The fuel is cheaper but the cost of building a commercialrefuelling unit is almost twice that of a petrol refuelling unit due to high equipment costs. Liquid alternatives topetrol such as methanol and ethanol can be supplied using equipment similar to a petrol pump but have otherdrawbacks. Methanol, while having very low emissions, is corrosive, conducts electricity and very dangerous inaccidents. Ethanol, also with low emissions, suffers as there is still a limited infrastructure to make or deliver itto the motorist and there are increasing concerns about its overall environmental impact, particularly on foodprices.

Liquefied petroleum gas is the only readily available alternative fuel at the moment, with one million cars runningon it worldwide. It is cheaper than petrol and has a relatively high energy content but only gives slightly loweredemissions and is seen as a compromise rather than a solution. Most cars can be converted to run on LPG, itsmain benefit is fuel efficiency and therefore is mostly used for vehicles with a high petrol consumption. In theUS, the number of vehicles on the road in 2005 that ran on alternative fuels, was just over 8.3 million. A further700,000 were sold in the first half of 2006 but the proportion of alternative fuel cars in the US is still under 4% ofover 230 million cars on the road.

Electric cars are politically backed in many European countries and the US. A breakthrough in batterytechnology, possibly in the form of Lithium Titanate, will encourage many more manufacturers to put electric carsinto major production. At the end of 2005, the Norwegian company Think Nordic launched a new concept, a

plastic-bodied electric vehicle called Think -primarily for use in cities. The concept has gone down well andexpansion into several European cities is ongoing, along with plans for manufacture in the US. It is the firstelectric car to seat four people and have a reasonable amount of baggage space. It has a top speed of 30 mph(50 km/hr) and a range of 60 miles (100 km). The company aims to sell approximately 5,000 units annually.Another product, Tesla Inc. of the USA, have launched an electric car at the top end of the luxury sports carmarket. Based on a Lotus Elise chassis and selling at $100,000 it has done well, particularly with Hollywoodsgreen celebrities.

Another interesting concept for the US is Phoenix Motorcars SUT, available from mid-2010. This batterypowered pick-up or SUV, has a range of over 100 miles, a top speed of +100 mph, and can reach 60 mph inless than 10 seconds. The real breakthrough though is that it takes less than 10 minutes to charge compared tothe usual 2+ hours. These developments are largely due to the new lithium titanite battery developed and sold

to Phoenix Motors by Altairnano. GM is also planning to release their Volt battery car, once they return tofinancial health. Finally an entrepreneurial plan to replace battery packs in just a few minutes, using a roboticassembly, could do a great deal to increase sales of appropriately designed battery powered cars.

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