SMMT Webinar...Disappointing outcome for 2011, but a reality check (2) 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5...

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

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SMMT Webinar

Vehicle Production Outlook and Economic Forecast

8 December 2011

SOCIETY OF MOTOR MANUFACTURERS AND TRADERS LIMITED PAGE 2

Paul Everitt

Chief executive

SMMT


• During presentations (14.30am – 15:00) everyone will

be muted so that only the presenters will be heard.

• There will be a Q&A session straight after

presentations (approx 15:00).

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call 0207 344 1611



Trends and the Outlook – UK economy and markets

Robert Baker, Chief Economist, SMMT

8th December 2011


Disappointing outcome for 2011, but a reality check (1)

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Monthly Poll independent forecasts of growth in key UK economic indicators in 2011

Real GDP Consumer Manufacturing


Disappointing outcome for 2011, but a reality check (2)

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Monthly Poll of forecasts of base interest rate & growth in Consumer Prices in 2011

CPI (Q4) RPI (Q4) base repo rate (Q4)


More constraints and challenges expected to restrain growth for 2012 too (1)

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Monthly Poll of forecasts of growth in key UK economic indicators in 2012

Real GDP Consumer Manufacturing


More constraints and challenges expected to restrain growth for 2012 too, but high inflation likely to abate (2)

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Monthly Poll of forecasts of base interest rate & growth in Consumer Prices in 2012

CPI (Q4) RPI (Q4) base repo rate (Q4)


The unfinished recession – major economic changes; big uncertainties certain

UK real GDP volumes 1996 – 2015: Forecasts OE 2011 – 2015 (Nov 11)

real G

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UK GDP growth - 1996-2010: 2011F-2015F Forecasts from Oxford Economics (Nov11)

real GDP market prices

Oxford Economics - Nov 11

Growth trend 1997-2006: 3.2%pa




reticent recovery – growth erratic, sags, stalls may go in the red 2011Q4 - 2012Q2

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UK GDP growth quarterly - cash & real - 2005 to 2010: 2010 to 2015F Forecasts Oxford Econ (Oct 11) and from OBR Mar Budget 23/03/11

OBR Budget 2011(23/03): Cash GDP - Annual Ave.

OBR Budget 23/03/11: Real GDP - Annual Ave.

UK GDP, cash value at market prices

real GDP market prices

OE Fore - Oct 2011 (real)

OE Fore - Oct 2011 (cash)


Untypical recession; so too into recovery and on to sustainable growth

UK GDP growth a slow burner; high inflation expected to abate, could return

• quarterly GDP volume down 7.1% 2008Q2 to 2009Q2

• by 2011Q3 quarterly GDP volume up 3.3% on 2009Q2

• 2013Q4 for real GDP to be at 2008Q1 level, when UK

first went into recession – 18 quarters from Q3 2009

• inflation rates volatile, still high; a constrictive drag on

household & business spending, but a passing phase


On quarterly GDP growth then; now; to 2012; on to 2014

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UK real GDP growth - Q2 2009 to Q3 2011 and Forecasts Q4 2011 to Q4 2014

Actual OE Nov 11

OBR Nov11 OBR Mar11

Bank of E Nov 11 mean trend - Q11997-Q42006


Major adjustments for UK and global economy – flexible; will take time

Enabling support of UK monetary policy is unique

• £ devaluation (25%); base rate 0.5% (to 2014) QE

£275bn (20% GDP and rising); Credit Easing too

• Strong countervailing forces of public sector austerity

& UK’s myriad of modest pro-growth enabling policies

• Euro Zone’s debt and integrity issues sets the financial

volatility agenda – a drag on confidence, credit & trade

• UK recovery will take hold; it may not feel like recovery


Total UK new vehicle sales volumes stabilised, but very varied trends in the mix; more volatility and possible weakness ahead again

-50.0%

-25.0%

0.0%

25.0%

50.0%

75.0%

100.0%

125.0%

150.0%

Dec 2006 to date

UK car sales private & fleet buyers: month and rolling 3 months; changes on same periods year before

FLEET Month: percentage change year before

FLEET rolling 3 months (quarter): percentage change year before

PRIVATE Month: percentage change year before

PRIVATE rolling 3 months (quarter): percentage change year before


UK total new car registrations and confidence – where next near term and 2012?

private sales stable at 0.82mn and initially thought may grow in 2012; but….

• CBI DTS results since July track weaker activity and

sales trends; outlook is for falling retail sales ahead

• Consumer confidence low and going lower; surveys of

business confidence (recent EEF) also very downbeat

• UK growth stalls; outlook very uncertain, at best very

sluggish in 2012 even with EZ instability eased

• B2B and fleet markets have grown and may be stable,

but how much support for how long and of what kind?

• Diversity and variability of trends in the headline sales

total and in the mix reflects the nature of this recovery


Some clues on TIV sustainability above 1.9mn from sales types? (1)

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UK car registration volumes - sales type shares of totals

Fleet other

All Business

Private retail

Demonstrator & Daily Rental

Private captive & others

Fleet Motability

Lease/ContractHire


Sustainable support from Motability, Captives and Leasing into 2012? (2)

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2007 =

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UK car registration volumes - sales types totals index values ( 2002-2007=100)

Private captive & others Lease/ContractHire Fleet Motability All Cars


Firm, durable recovery needs broadly-based ability and confidence to buy (3)

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UK car registration volumes - sales types totals index values ( 2002-2007=100)

All Business Fleet other Demonstrator & Daily Rental Private retail All Cars


The Forecast view from SMMT at September 2011

2012 TIV 1.964mn; B2B stable and B2C rising slightly at last?

Probable that 2011 will finish at 1.94; positive variance of 25K, if current trends hold

UK car registrations and the 2009/10 Scrappage Incentive Scheme - registrations in millions

All Cars excluding SIS Par 1996-2008


the link to output and production – investment, trade and competiveness

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pro

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UK Car and CV output volume annual trends - actual 1997 to 2010; forecasts to 2015

Car Total Car Export CV Total

Forecasts: Autoanalysis/SMMT at 10/11


UK auto’s stream of good news in 2011 – a set back or time-out on rebalancing?

vehicle output at 1.7mn in 2012, 1.9mn by 2015 and stable at 1.9 to 2.0mn to 2019 Over to Ian…………………………………..

• Probably sound prospects for motors, manufacturing,

engineering and exporting longer term…………….

• tempered by the sector’s restructuring experiences of

the past, role of FDI, skill base, future of the euro zone

and trade or plant flows to developing markets

Indices 2008=100 2007 2008 2009 2010 2011P 2012P 2015P

GDP 101.1 100.0 95.6 97.3 98.1 99.2 107.4

Manufacturing 102.7 100.0 90.4 93.7 96.1 97.0 105.0

Engineering 102.8 100.0 87.3 95.9 99.5 101.5 110.0

Motor Vehicles 105.0 100.0 70.8 84.4 85.0 97.6 106.0

Table: trends & projections of UK output volumes – indices 2008 = 100



European Car and Light Commercial Vehicle

Production Outlook - SMMT webinar

Ian Henry, AutoAnalysis

8 December, 2011


European automotive manufacturing is something

of a conundrum …

• Economic and financial crises abound

• Recession looms, policy makers lack decisiveness

• But VMs continue to invest and expand:

• Are they wisely planning for the long term?

• Or wandering blindly into the abyss?

• EU production to 10/11 up 5.6%, although Oct. 2011 was

actually down slightly over Oct. 2010

• Year-to-date risers include:

• BMW +16%, Hyundai-Kia + 23%, Nissan +17%, Land Rover +

23%, Audi +19%, Skoda + 18%, VW +13% and Volvo +26%

• But fallers include:

• Fiat grp -17%, Ford -8% and Jaguar – 24%


Production Outlook overview

• 2010 = 18.2mn cars & LCVs made in Europe

• We now expect 2011 to reach 19.16mn units:

– Demand driven by German premium brands, Hyundai-Kia, Nissan and strength of LCV market

– UK heading to 1.95mn upa by 2016, possibly over 2mn thereafter, depending on success of new models at JLR and Nissan

– UK exports strong (c85% in October), plus rising exports from Europe as a whole

– Robust demand from China, Russia, Brazil and other emerging markets yet to show signs of slowing

• 2012 European production should actually be above 2007 (pre-recession) peak; assuming no global economic collapse, the real recovery in production will be seen from 2013 – driven by major new model programmes and rising demand from Russia

• Production growth to 2016 will feature increasing sales of small cars, EVs and hybrids – and increased production in Russia


Assuming we do not have a complete collapse,

Russia will help drive European production growth

European car and LCV production by country, 2007-2016

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

UK

Turkey

Sweden

Spain

Slovenia

Slovakia

Serbia

Russia

Romania

Portugal

Poland

Netherlands

Morocco

Italy

Hungary

Germany

France

Finland

Czech Rep

Bulgaria

Belgium

Austria

• Germany will remain Europe’s production hub – but despite adding c600k

units 2010-2016, its share of European production falls, from c31% to c27%

• Russian production of developed world brands grows nearly 6x, from 375k to

almost 2.25mn, or from 2% to 8.6% share of production

• Other rising production locations = Czech, Slovakia, Romania, UK – even

Italy (albeit from a very low base)


Significant investment in UK

• BMW and Nissan confirmed c£700m new investment in new Mini and Qashqai

• JLR expanding model range, increasing UK sourcing, and has also confirmed it will be build its own engine plant

• GM retaining Luton van plant

• Honda confirmed new Civic 5-door to start in late 2011, new CRV in late 2012 – but with slight delay owing to Thai floods

• Toyota won Japan export contract for Avensis, started production of revised Avensis and centralisation of Auris production in UK

• Aston Martin repatriating production to UK

• Bentley increasing UK R&D and widening product programme, backed with modest government aid


BMW & Daimler

• BMW: very impressive 2011 results, record monthly sales in September (nearly 400k) and year-to-date figures (>1.23mn). Financial restructuring should enable company to remain profitable if 2008 downturn is repeated. Major cost savings through 1- and 3-series sharing components

• 2010 European production = 1.22mn; 2016 = 1.64mn

• Future growth from:

– New 1-series (production has now started) and new 3-series from 2012

– Start of JV with PSA in electric powertrains; collaboration with Toyota

– Expansion at Mini, launch of i3 and i8

– Expansion in China – including exports of 5-series

• Daimler: very profitable in H1, after excellent 2010:

• Q3 saw slowing of profits, so successful launch of expensive new model programme will be essential to maintain momentum

• New B-class showcases more technology than any other Mercedes …will include series production of fuel cell and natural gas powered versions

• 2010 European production = 1.31mn; 2016 = 1.59mn – overtaken by BMW/Mini

– Major investment in Unterturkheim powertrain operations

– Expanding production line-up in China


Fiat & Ford

• Fiat now has majority stake in and effective control over Chrysler: – Ambitious shared model, platform and manufacturing plans proceeding, with Jeeps to be

made in Italy, although at lower volumes than expected!

– 2010 European production = 1.69mn; 2016 = 2.44mn – assuming success in Russia and with Chrysler/Jeep in Europe …

– Return of Alfa to North America delayed, and several Alfa model launches delayed

– Labour problems on the horizon? Announced cancellation of labour contracts from December 2011 …

• Ford’s European operations profitable in 2010, but back into the red in Q3/2011: – Slowdown in southern European sales led to production cuts at Saarlouis

– Spanish factory on short time for H1/2012

– Possible problems with Romanian government – Ford has not hit “agreed” production targets there

– New models and expansion in Russia cannot come soon enough – will this be enough?

– 2010 European production = 1.76mn; 2016 = 1.97mn

– Russian JV will involve production of Explorer SUV and Transit van

– In June, announced reorganisation of European footprint:

• Transit Connect & Kuga move to Spain

• 2nd B-segment vehicle to be made in Romania – timing tbc

• 2nd LCV to be added to Turkey – believed to based on Fiesta, tbc

• 4th generation Focus confirmed for Saarlouis


GM Europe

• Likely still to be loss-making in 2011:

– But breaking even at operating level

• Has completed reorganisation of European operations, but Bochum transmissions plant will remain until 2013

• Existing Zafira to be upgraded and retained alongside all-new model to give Opel/Vauxhall direct competitors to Ford in MPVs

• Production of Buick Regal (rebadged Opel Insignia) switches from Russelsheim to US this year:

– Astra added to Russelsheim in recompense

• Freed capacity for Corsa and Meriva in Spain by sub-contracting Combo replacement to Tofas, Fiat’s partner in Turkey

• Future of Luton van plant confirmed – through to mid 2020s

• Formal export strategy in place for markets beyond Europe

• Rumours of future reorganisation of Astra production between UK and Poland

• Press reports of GME trying to win Antara and Agila replacement production from Korea

• 2010 European production = 1.31mn; 2016 = 1.54mn


Honda, Hyundai-Kia, Mitsubishi

• Honda:

– New Civic SOP in late 2011, slight delay due to Thai floods;

Swindon will be the sole production location for 5-door

hatchback version

– UK and Turkey plants should double production 2010-16, 150k to

nearly 300k

• Hyundai-Kia:

– 3rd shift started in Czech Republic, production swap between

Slovakia and Czech plants completed, full scale production in

Russia under way

– 2010 European production =506k; 2016 = >910k

• Mitsubishi:

– Long term future of Born factory remains uncertain

– Colt replacement will be made in Thailand

– Outlander volumes for EU27 markets insufficient to justify factory?


PSA & Renault

• PSA: strong 2010 financials, moving from loss to €1.5bn profit, with record global sales of 3.6mn units:

– Still profitable in H1, but by Q3 PSA was sounding pessimistic

– Automotive unit may only break even for the year, suggesting H2 loss

– 50 cost cutting teams set up to find significant savings in structural fixed and purchasing costs

– Increasing focus on hybrids, EVS, crossovers/MPVs and Citroen DS brand – DS brand the main growth element in PSA

– 2010 European production = 2.36mn; 2016 = 2.62mn – still below 2007 peak

– Will build 300k upa plant in India – widening Asian focus beyond China, but China on target to be PSA’s largest market

• Renault: 2010 revenue up 10%, significant profit vs. loss in 2009; trend continued in Q1/2011, but H1 and Q3 figures suggest slowdown in growth:

– Was less pessimistic than PSA, but recently announced production cutbacks and layoffs in Spain for H1/2012 – 200 units a day being cut

– Main growth will be outside Europe, ie Brazil and Russia

– Leading the market in purpose designed EVs – Fluence and Leaf launched, Kangoo EV, Twizy and Zoe to follow soon

– Nissan UK: record production in 2010 ;pre-earthquake continued in similar vein; new Nissan Qashqai will be designed, developed and built in UK, for worldwide markets

– Dacia production rising – not just in Romania, but Russia too; demand led to new group factory in Morocco being allocated initially to Dacia

– Combined Renault-Nissan-Dacia production growth from 2.45mn in 2010 to nearly 3.5mn in 2016 – increase due to Nissan UK, Dacia Morocco and Renault/Dacia in Russia – not core Renault brand in EU


Tata JLR: • Confirmed UK engine plant – to eliminate engine dependency on Ford

• CKD production in India imminent; production in China soon, once partner secured

(hopefully by end of 2011)

• Model line-up growing – Range Rover Evoque the first of many new models; new

Range Rover will represent a major technological and performance leap forward

• If all goes well, production should double 2010-2016 from c242k to c495k

Toyota: • Hardest hit of all Japanese VMs by earthquake

• European plants stopped overtime and weekend working; have been mostly on

reduced production rates – but Valenciennes in France resumes 3 shift working in

January

• Had hoped to be back to normal by year end, although full recovery may take until

2012 following Thai floods

• Auris production to be concentrated in UK, with additional £100mn investment and

1,500 new jobs; Avensis export contract; revised Avensis in production

• Will mothballed assembly line come back on stream?

• Total Euro production should grow: from 477k in 2010 to c643k in 2016

Tata JLR and Toyota


• Continues to go from strength to strength

• 2010 European Group production = 4.28mn; 2016 = 5.86mn

• Record turnover and global sales in 2010; strong performance continued through to Q3: 46% increase in operating profit and 25% increase in revenue!

• Heavy investment in European plants, ie €62bn and >€10bn in China JVs by 2016; 2 new Chinese plants confirmed. China is now Audi’s biggest market

• Volkswagen, Audi and Skoda all contributing to profits – but SEAT and Bentley still loss-making: Bentley will add an SUV in effort to raise volumes in pursuit of profitability. SEAT halved losses in Q3. Merger with Porsche delay, may actually not take place

• Success of Audi product range had led to capacity problems, with increased capacity required in Germany and Hungary, and bringing forward of decision re North American plant; Audi acquiring development companies to reduce in-house engineering capacity shortage; SEAT factory required to make Q3 SUV

•Skoda model range widening significantly – will become a truly global brand with its own models in India; Audi expanding Q range of SUVs. Small Up! range now in production – should lead to a further boost in production volumes

• Alliance with Suzuki coming to an undignified end following corporate fall-out

Volkswagen group


The Chinese in Europe …

Geely Volvo:

• Limited new model plans and platform strategy information released so far –

certainly less than had been expected

• Focus will be on China – c400k upa capacity being added there

• Uddevalla JV plant will close

Saab:

• Possibly in final stages of its existence – currently under court protection;

• GM threatening to block takeover by Chinese; production stopped since June

Chery & Great Wall:

• Chery’s Turkish factory will be in low volume production by end of 2011, with 200k

upa capacity by 2015

• Great Wall has started kit assembly in Bulgaria

DR Motors

• Taking over Fiat’s Sicily plant … details to be confirmed

SAIC – MG:

• Low volume production back under way in UK …


In conclusion...

• Outlook still assumes no double-dip recession

• Strong production growth of 2010 has continued in 2011, but slightly slower

than previously expected

• 2011 expected to reach 19.2mn units in Europe – but lower than previous

Outlook due to slowdown in France, delayed model launches at Fiat,

disruption at Japanese VMs due to Thai floods and economic uncertainty

• Overcapacity issue has been pushed to one side in Europe – but will arrival

of Chinese and growth of production in Russia mean it once again comes to

the fore? Ironically, Audi has not got enough capacity – will BMW and

even Mercedes have the same problem soon?

• Russia will be the focus for many VMs in the next few years – Renault,

Ford, Fiat, GM and VW will help European, Korean and Japanese VMs

produce c2.25mn vehicles in the country by 2016

• Strong production growth also expected in the UK, Germany and Italy,

each of which will see at least 500k more vehicles pa produced by 2016.

Czech, Morocco, Hungary, Serbia and Slovakia will each add >200k pa

by 2016

THE SOCIETY OF MOTOR MANUFACTURERS AND TRADERS LIMITED PAGE 36

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SMMT Webinar...Disappointing outcome for 2011, but a reality check (2) 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5...

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