Russia – Europe's Most Attractive Future Market? · Russia – Europe's Most Attractive Future...
Transcript of Russia – Europe's Most Attractive Future Market? · Russia – Europe's Most Attractive Future...
Copyright © 2007 Global Insight, Inc.2007 GLOBAL AUTOMOTIVE CONFERENCE 2
Presentation Outline
• Macro Outlook
• Forecasting Total Industry Volume
– When does the growth stop?
• Investment Incentives, WTO, and Production
• Spending Power and Credit
• Focus on ‘low-cost cars’ in Russia
– How price sensitive are buyers?
– Consumer spending power—how much are people really spending on cars?
– How big is the “low-cost car” market size?
– The rise in the number of low-cost car products
– What impact will the Chinese have on the market?
Copyright © 2007 Global Insight, Inc.2007 GLOBAL AUTOMOTIVE CONFERENCE 3
Russia Is the Best Performing Market in the World…Almost
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CHINA
RUSSIA
BRAZIL
INDIA
ITALY
IRAN
ARGENTINA
CANADA
UKRAINE
KOREA
INDONESIA
SPAIN
TURKEY
GERMANY
JAPAN
USA
ThousandsIncremental Change in Vehicle Demand
Change in LV Sales 2005-06
and 2006-07 ranked by 2007
20062007
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The Russian Market Is in a Boom – Now in Maximum Growth Phase – All Drivers Firing
XPopulation dynamics
XProduct activityXAutomobile pricesXBrand competitionXDealer development
XCredit and finance markets
XConsumer spendingXMotorisation rateXEmissions levels
XWTOXInvestment incentives
XInvestment RiskXTariff barriers
XExchange RateXCommodity prices
-ve+veMarket driver
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Sales of New Foreign Brand Cars
January-August 2007Foreign brand (non-Russian)sales growth
66%
Copyright © 2007 Global Insight, Inc.2007 GLOBAL AUTOMOTIVE CONFERENCE 5
Russia: From Crisis To Boom – Key Indicators
32.636.858.4Total External Debt (as % of GDP)
394.8237.1111.7Average Wage (US$)
7.52.12.3Fiscal Balance (% of GDP)
303.7124.540.3Forex Reserves (US$ bn)
304.5183.5105.3Total Exports (bop US$ bn)
27.228.828.8RBL/US$ exchange rate (avg.)
9.721.638.1CPI (annual average in %)
6,9254,1242,068Per Capita GDP (market rates in US$)
6.77.21.6GDP Growth (annual in %)
20062004Avg.
1996-2000
Copyright © 2007 Global Insight, Inc.2007 GLOBAL AUTOMOTIVE CONFERENCE 6
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GDP Consumption Investment
(Annual growth in percent)
• 2006 growth bettered 2005 performance at 6.7%. Pace to moderate in 2007 to 6.5% as sliding net exports drag on growth. Domestic demand continues to surge
• Enterprise profits up strongly, sustaining capital spending boom; rapidly rising real incomes boosting private consumption
• Aggregate demand has a very substantial import component; Imports outpace exports which face capacity constraints, moderating prices, and a strengthening ruble
Domestic Demand Drives Growth, Aided by High Energy Prices
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Higher Base Oil Price Forecast
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• Oil is $15 higher long term than last forecast or around 25%
• Stronger economic outlook
• Greater capacity for government fiscal support and wealth diversification
• Pump prices low in Russia with low taxation rates—little impact at the pump
• No significant negative shift in segmentation—income effects could move segmentation upwards
Brent, US$ per barrel
Copyright © 2007 Global Insight, Inc.2007 GLOBAL AUTOMOTIVE CONFERENCE 8
Per capita income
Incom
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The Emphasis in Long-term Emerging Markets Forecasting
Relies More Heavily on “S” Shaped Diffusion Curve
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elasticity of vehicle ownership
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There are Similarities in S-Curve Development Across Emerging Markets - Stages of Industry Growth
• Pre take-off: Incomes under c. $3000–$5000
– Low incomes, closed financial markets, poor road conditions, low local model quality, public transport system, imports restricted, structural under-supply resolved by waiting lists
• Take off: commonly around income of $6000 pa
– Restructuring well underway, incomes rise, access to credit, open to imports, tariff barriers decline, interest rates fall and exchange rates stabilize, investment in road infrastructure, product mix
• Maturity: can be around $13,000–30,000 pa
– Market reaching long-term equilibrium as determined by geographical, political, social factors
• Income Distribution Analysis: Stability Ratio Method e.g. Car sales per household with >$20,000 income, current or ppp adjusted
– This requires forecasts of number of households by income bands for all emerging markets over the forecast horizon
(Source: Global Insight, Consumer Markets Forecast databases)
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Income Take-off Started in 2003 (Number of Households by $US Nominal Income Bracket)
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H'holds w / Income $150K and over
H'holds w / Income $100 to 150K
H'holds w / Income $90 to 100K
H'holds w / Income $80 to 90KH'holds w / Income $70 to 80K
H'holds w / Income $60 to 70K
H'holds w / Income $50 to 60K
H'holds w / Income $40 to 50K
H'holds w / Income $30 to 40K
H'holds w / Income $20 to 30KH'holds w / Income $15 to 20K
H'holds w / Income $10 to 15K
H'holds w / Income $0- to $10k
Millions of Households
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Ratio of Car Sales to Number of Households
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Russia
UK
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SPAIN
Ratio of Total Car Sales to Households with $20K Income or More
(e.g. 10% of all households with >20k income buy a new car each year )
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Russia Is Fast Becoming the Most Attractive Market in Europe – Light Vehicle Sales
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Russian Car Sales by Type – Local Production by Foreign Brands Displaces Russian Makes
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Foreign brands made in Russia
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European Brands Are Under-represented in Russia –Proportion of Total European Group Sales Made in Russia 2006 and 2012
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Decree 135 (since 1998) or similar
• Failed to attract widespread investment
• Too hard to achieve localisation levels
Decree 166 Was the Turning Point in Investment Legislation
Decree 166 (since 2005)
• Everybody joins or switches to Decree 166 by 2006
• But applications closed on 15 September 2007
• Not applicable to suppliers
New entrants/adopters
Switchers
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Moscow
Izhevsk
Togliatti
Nab. Chelny
Elabuga
Kaluga
St. Petersburg
Kaliningrad
Taganrog
OEMs Are Rushing to Invest in Russia—in Special Economic Zones
Novouralsk
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WTO Transition period
7 years
WTO Membership Will Lead to Tariff Reductions …in the Long Run
Tariff level for CBUs %WTO
Entry ?
Tariff reduction options
CBU Tariffs after WTO Percentages
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RENAULTPEUGEOTNISSANMITSUBISHILDVKIAHYUNDAIHUMMERHEBEI ZHONGXINGGREAT WALLGEELYFORD
FIATCITROENCHEVROLETCHERYCADILLACBMW
Many Western OEMs Rush to Get Production Foothold in Russia – Car Production by Brand
Copyright © 2007 Global Insight, Inc.2007 GLOBAL AUTOMOTIVE CONFERENCE 19
By 2012, Russia Will Be Ranked 4th, Ahead of U.K.
SPAIN
11.3%
GERMANY
27.4%
FRANCE
14.5%
Others
19.9%
TURKEY
4,7%ITALY
6.1%
UNITED
KINGDOM
7.4%RUSSIA
8.6%
POLAND
3.2%
Rest of
Europe
5.2%
SWEDEN
1.6%BELGIUM
2.3%
SLOVAKIA3.3% CZECH REPUBLIC
4%
=
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LV Production in Europe:24.2 Million Units
=
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CDV
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E1E2
MPV-C
MPV-DSUV-B
SUV-CSUV-DSUV-E
Thousands
Russia Car Production by Segment 2007 and 2012
Toyota Small CarLogan, Nissan 1 litre
Focus, Linea, Spectra, Accent
Jetta & OctaviaDoblo
Mondeo, Sonata, Epica
Camry, 3 Series
5- Series, Teana
Rezzo
Rodius, CowrySX4
Chevy Niva, Captiva, Sportage, Tiggo
Rexton, Sorento, Santa Fe, Kyron
Escalade, H2
Copyright © 2007 Global Insight, Inc.2007 GLOBAL AUTOMOTIVE CONFERENCE 22
Dollar Wages and Retail Sales Surge Since 2000
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$US Wages (Annual percent change)
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Credit Is Expanding Fast
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Copyright © 2007 Global Insight, Inc.2007 GLOBAL AUTOMOTIVE CONFERENCE 24
Features of Credit in Russia
• Credit is dominated by banks rather than specialised consumer lending institutions
– Banks have developed direct ties with importers, dealers, and insurance companies
• Most car loan business occurs around Moscow and St Petersburg
– Strong potential to unlock credit in the regions
• Most loans are still denominated in hard currency
– This will shift towards rouble denominated credit as the importance of the regions increases
• Terms are getting easier
– The minimum acceptable salary was reduced in November 2006 to 100,000 roubles
– 70% of households could potentially qualify
– Average loan value rose from $10k in 2005 to $12.4k in 2006
• Foreign OEMs are moving to set up their own financing arms
– GM, Ford, Toyota, Nissan, Renault, BMW, and Mercedes Benz are all looking into setting up their own finance networks
– Mercedes-Benz and BMW will set up their own banking by late 2007 and early 2008 respectively
• Corporate and fleet sales are growing
– Influx of foreign companies who prefer foreign brands
– Ford sold 25% of its cars to corporate buyers in 2005
• Risks of a credit crisis are building
– Fast lending and lack of credit history
– Risk controls are still to be put in place
– Exchange rate risk probably not factored in by consumers
– A credit crunch already occurred during the Russian mini banking crisis in the summer of 2004
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Svedlovsok Oblast
Krasnoyarsk Krai
Irkutsk Oblast
Novosibirsk Oblast
Rostov Oblast
Cheliabink Oblast
Kemrovsky Oblast
Kanti-Mansi AO
Copyright © 2007 Global Insight, Inc.2007 GLOBAL AUTOMOTIVE CONFERENCE 26
Low-Cost Cars in Russia:Is the Market Evolving Too Fast?
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Car Sales by Segment in 2007
Proportion of Car Sales Below Each $US Price Level 2007
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Only E and SUV are price inelasticD is still quite price elasticA segment most price elasticB & C in same price space
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Consumer Purchasing Power Has Grown Very Fast in Russia
Russia Car Sales in $US Ranked by Price in 2002, 2005, 2007
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The Proportion of Low Price Cars Is Falling
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Proportion of Sales
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Car Sales Volume 000s
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Low-Cost Cars: Prices and Sales 2007
324411000ALOBOHARBIN HAFEI
7215410960C1PRIORALADA
PICANTO
AVEO
LOGAN
NIVA
2110
LANOS
NEXIA
AMULET
KALINA
SPARK
VOLGA 3110
SAMARA
SWEET
MATIZ
RIVA
OKA
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Segment
579010820KIA
1953310730CHEVROLET
6763910110RENAULT
2786510080LADA
789959620LADA
573349490CHEVROLET
496989460DAEWOO
210619390CHERY
784419120LADA
73378990CHEVROLET
353008570GAZ
1574128100LADA
14717850CHERY
429007620DAEWOO
1854776000LADA
47465240LADA
VolumePrice $USBrand
Foreign brands represent 10 out of 18 models sold at $11,000 or underThey represent 30% of the 916,000 unit sales volume Only five brands present Daewoo/Chevrolet, Kia, Renault, Chery, H Hafei
Copyright © 2007 Global Insight, Inc.2007 GLOBAL AUTOMOTIVE CONFERENCE 31
World Car Market Space Is Becoming Crowded
GM Matiz/Spark
Chevrolet Aveo & Lanos
Daewoo Nexia
New Ladas
Renault Logan
Toyota small car
Nissan 1 litre
VW Polo-based car/Concept Up
Mitsubishi Low-cost Asia car
Tata 1 Lakh car (India)
Renault Ultra-low-cost car (India)
Hyundai Indian car
GM Daewoo low-cost car
Fiat Linea (higher price)
Low-Cost CarsLow-Cost Car Competitors
Chery Sweet/QQ
Chery Amulet
Other Chinese
Copyright © 2007 Global Insight, Inc.2007 GLOBAL AUTOMOTIVE CONFERENCE 32
• One bodystyle available: sedan
• Three trim levels
• Two petrol powertrains – Euro 2 emissions standards
• Prices stretch well above base model
• 1.4 Authentique $10,200
• 1.4 Expression $10,900
• 1.6 Expression $11,800
• 1.6 Privilege $12,700
• 1.6 Prestige $13,700
The Logan in Russia
• Renault brought production at its AvtoFramos plant to full capacity during 2006, when a third shift was added. Production rose to 48,545 units in 2006
• In 2007, output will be extended to 80,000 units. In February, it announced a further investment of US$150 million to expand the facility to 160,000 units. This will take place by the middle of 2009
• In addition, a second model based on the Logan platform is likely to be launched
• Local content levels are being increased. In 2006, local content stood at 30%. In 2008, local content will increase to 40% and to 50% by 2009 by expanding the number of local suppliers from 18 to 30
• Renault will add 30 dealers to its network during 2008 and 2009. In 2007, it had 71 dealers operating 91 outlets
Copyright © 2007 Global Insight, Inc.2007 GLOBAL AUTOMOTIVE CONFERENCE 33
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Here Come the Chinese—Chinese Brand Car Sales in Russia
Positive Drivers
• Price competitive
• Quality rivals or beats Russian brands
• Explicit export mandate from Chinese government
• Meet Russian Euro 2 emissions levels
• Fewer safety requirements in Russia
Negative Factors
• Russian government reluctant to grant industrial assembly status under Decree 166
• Piecemeal dealer networks with dealers representing several brands
• Incomes rising rapidly and low-cost cars coming from Western OEMS
• Lack of brand and residual value could be issue in future
Copyright © 2007 Global Insight, Inc.2007 GLOBAL AUTOMOTIVE CONFERENCE 34
Chery
• Currently producing at Avtotor in Kalinningrad
– 18,600 units made in H1 2007
– Amulet (A15/Flagcloud)
– Tiggo
– Fora (A21)
– QQ and Kima A1 cars coming by end of 2007
• Expansion plans include large scale production with Avtotor
Amulet (Cowin/ A15)$9,390
Tiggo 3$16,950
Sweet (QQ3)$7850
Oriental Son (Eastar B11)
$21,700
Kimo A1
Fora (A5)$14,390
Copyright © 2007 Global Insight, Inc.2007 GLOBAL AUTOMOTIVE CONFERENCE 35
Geely, ZX, Great Wall, Byd
Great Wall Hover CK1$21,200
Great Wall FloridComing
Geely Otaka$11,000
ZX Landmark$21,250
BYD F3$11,700Great Wall Peri
Coming
Copyright © 2007 Global Insight, Inc.2007 GLOBAL AUTOMOTIVE CONFERENCE 36
Low-Cost (BRICs) Cars in Russia - Summary
• Smaller market segments are still very price sensitive in Russia– There is still a substantial demand for low-ish cost cars– Low-cost cars will still sell well—but this segment is no longer the potential
bonanza it once was
• Limited overlap in BRICs segmentations—Russia is closer to China and moving away from India/Brazil
– Little scope for Ultra-Low-Cost cars in Russia
• Spending power is increasing fast– Low base price is becoming less important– Don’t sacrifice functionality or size for a low price
• Tastes moving up scale from Russian, to Chinese, to “Western”– No longer relevant to target Russian brands
• The product space is already getting crowded—Just “low cost” is not enough
– “Me too” models may fail to attract consumers– Differentiate between competitors and within own model– Stretch equipment levels above base model– Several powertrains and manual/automatic– Bodystyle variants will become important
Copyright © 2007 Global Insight, Inc.2007 GLOBAL AUTOMOTIVE CONFERENCE 37
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LADA CHEVROLET FORD TOYOTANISSAN HYUNDAI RENAULT DAEWOOMITSUBISHI KIA OPEL
Car Sales Volumes by BrandThose Offering Low-Cost Cars Will Do Better
Copyright © 2007 Global Insight, Inc.2007 GLOBAL AUTOMOTIVE CONFERENCE 38
Summary
• Russia is in maximum growth phase now
• Sales “should” stabilise around 3.5 million units
• Investment and wage growth have driven demand
• OEMs not producing in Russia will lose market share
• Europeans will remain under-represented
• Credit expansion has lots more potential—but with risks
• ‘Low-cost cars’ are still attractive, but will not unlock another explosion in market growth