AUTOMOTIVE SEMINAR 11 OCTOBER 2006 PARIS MOTOR SHOW 2006 FRANCE. Will Diesel Continue To Be The Strategy For Profitability?

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1 11 OCTOBER 2006 PARIS MOTOR SHOW 2006 FRANCE Will Diesel Continue To Be The Strategy For Profitability? Tom De Vleesschauwer Senior Automotive Consultant

2 AGENDA DIESEL OUTLOOK CONTINUED EMISSION THREAT CONTINUED PROFITABILITY FOR SUPPLY COMMUNITY? AN END TO A WINNING STREAK? DIESEL PROFITABILITY : BMW THE ULTIMATE CASE STUDY? DIESEL LEADERS REACTIONS VW/PSA EUROPEAN FUEL/POWERTRAIN OUTLOOK Copyright 2006 Global Insight, Inc. 2

3 DIESEL OUTLOOK : WEST EUROPEAN MARKET 7,000,000 6,000,000 5,000,000 4,000,000 Diesel Growth % Common Rail launched VW Unit Injector TDI-PD launched PSA DPF launched Multiple Injection CR launched 3,000,000 Audi TDI launched 2,000,000 1,000,000 Rover & Fiat DI launched Euro 1 Euro 2 Euro 3 Euro Copyright 2006 Global Insight, Inc. 3

4 DIESEL OUTLOOK : A WINNING STREAK? The diesel market in Europe remained upbeat throughout the summer of 2006, and our forecast indicates that the European diesel market will almost hit the 7.5 million unit mark for 2006, or a diesel share of 50.9%. The market is still expected to grow for the medium-term outlook, hitting an all-time high in 2010 (with 57.1% diesel penetration), in time for the next round of diesel emissions standards, Euro V. So it appears that diesel is continuing its winning streak in the market, and on the racetrack! Copyright 2006 Global Insight, Inc. 4

5 DIESEL OUTLOOK : A WINNING STREAK? However, a recent U.K. survey found that in the current economic and political environment, motorists are keeping their cars for longer. Car usage also appears affected. In 2005, German motorists have driven less compared with The average annual mileage in Germany now stands at 12,660km! This trend of reduced vehicle usage is also reflected in the market for automotive fuels. Gasoline fuel sales in Germany have decreased by 6.5% in the first seven months of While diesel fuel sales in the first seven months of 2006 have remained stable at +0.1%. Copyright 2006 Global Insight, Inc. 5

Increasing precious metal costs But also a health threat Particulate Matter Recent

6 CONTINUED EMISSION THREAT Diesel continues to be threatened by escalating aftertreatment costs: DPF SCR or NOx-Trap Ever sophisticating EGR systems Increasing precious metal costs But also a health threat Particulate Matter Recent concerns about NO2 And technical issues Biodiesel fuel vs. DPF Copyright 2006 Global Insight, Inc. 6

7 CONTINUED PROFITABILITY FOR SUPPLY COMMUNITY? BOSCH DPF Investment Loss Made investment of 200M Euro into Sinter-Metal DPF (HJS) Original SOP target was 2005/6 (ready for Euro-4) Initial planned 200K-300K (single production-line) Planned capacity by M units (4 lines) But Bosch has now confirmed that they have a cost issue with the sinter-metal DPF filter they were developing, and that they are reviewing their options. Basically all work on the sinter-metal filter has been put on hold, and it will not be marketed anymore to the light-vehicle market. It could still be offered to the heavy-duty market, but that is also looking unlikely. Copyright 2006 Global Insight, Inc. 7

8 CONTINUED PROFITABILITY FOR SUPPLY COMMUNITY? Twin-Tec Retrofit DPF supplier complains The German environment minister s opposition to a proposal from two German states that promotes particulate filter retrofitting has made filter makers nervous. If the requirement doesn t come soon, we have a problem because we made the investment three years ago and have hired numerous employees, said Edmund Schnuerer, managing director of Twin-Tec. But due to this political disagreement, German motorists aren t rushing to add filters because Germany s federal and state governments continue to disagree on a number of key points. Copyright 2006 Global Insight, Inc. 8

2006 point to tough times ahead for many of Europe s leading diesel

9 AN END TO A WINNING STREAK? Has the time when everything or everyone who touched diesel and turned into gold come to an end? Certainly the latest round of financial results for the first half of 2006 point to tough times ahead for many of Europe s leading diesel players. Only German luxury OEM and money making machine BMW can look towards the future with confidence, but is it because of the diesel? Copyright 2006 Global Insight, Inc. 9

DIESEL PROFITABILITY : BMW THE ULTIMATE CASE STUDY?

The European automotive press certainly seems to think so When there is talk of BMW diesel engines, it generally

10 DIESEL PROFITABILITY : BMW THE ULTIMATE CASE STUDY? BMW has consistently been among for most profitable OEMs in Europe for years so is it the Ultimate Diesel Machine? The European automotive press certainly seems to think so When there is talk of BMW diesel engines, it generally centres on the larger sixcylinder units, but this humble fourpot device ought not to be dismissed. But does BMW agree? The fearsome 535d is something of a gruntmeister, boasting a gurgling 272bhp straight six engine that would worry a Porsche Boxster There s a touch of idle rattle, but beyond that the noise is pure BMW straight six and the auto box is first class. Copyright 2006 Global Insight, Inc. 10

DIESEL PROFITABILITY : BMW THE ULTIMATE CASE STUDY? BMW diesel engine production is located at its diesel center of competence in Austria, which is currently operating at full capacity.

11 DIESEL PROFITABILITY : BMW THE ULTIMATE CASE STUDY? BMW diesel engine production is located at its diesel center of competence in Austria, which is currently operating at full capacity. 60% 50% 40% 30% 20% 10% 0% BMW diesel engine production reached almost 50% penetration in 2005, but now advanced gasoline engines are anticipated to grow in importance again And BMW is still looking into launching diesels in other geographic areas Copyright 2006 Global Insight, Inc. 11

DIESEL PROFITABILITY : BMW THE ULTIMATE CASE STUDY? So BMW is reducing diesel reliance in Europe, in favour of a new generation turbo-charged gasoline engine. In fact, it s new inline six 3.

12 DIESEL PROFITABILITY : BMW THE ULTIMATE CASE STUDY? So BMW is reducing diesel reliance in Europe, in favour of a new generation turbo-charged gasoline engine. In fact, it s new inline six 3.0 litre direct injection gasoline engine produces over 300BHP, and effectively this engine behaves like a 4.0 litre V8, without the fuel consumption penalty. A proper, class leading engine-downsizing strategy, executed in typical BMW style. Firmly putting the gasoline engine back on top at BMW. Is there a lesson to be learned here? Copyright 2006 Global Insight, Inc. 12

13 DIESEL LEADERS REACTIONS - VW Volkswagen : New Diesel Image VW Blue-Motion A New Take on the Thrifty Diesel Image? Introduced with the newly updated VW Polo Average diesel fuel consumption of only 3.9 litres per 100km Featuring: 5-speed manual transmission, optimised aerodynamics, low roll-resistant tyres in combination with lowweight 14 inch wheels. This is not exactly a new technological benchmark, but the marketing and branding is the key issue here. Copyright 2006 Global Insight, Inc. 13

DIESEL LEADERS REACTIONS - VW Volkswagen : New Gasoline Threat VW TSI: Can Diesel Still Compete? The VW Golf 1.4 TSI is comparable in both power-output and fuel consumption to a modern VW 2.

14 DIESEL LEADERS REACTIONS - VW Volkswagen : New Gasoline Threat VW TSI: Can Diesel Still Compete? The VW Golf 1.4 TSI is comparable in both power-output and fuel consumption to a modern VW 2.0 TDI unit. More importantly, the first German motor-press reports are clear, the TSI engine is very close to the TDI! And the diesel's extra purchase cost will take a long time to recover (especially with declining average annual mileages), so the turning point is close. Copyright 2006 Global Insight, Inc. 14

15 DIESEL LEADERS REACTIONS - PSA PSA s strategy remains firmly centred around diesel! Diesel HDI-Hybrid : 1.6 HDI 90HP with Stop&Go technology Fuel/CO2 reduction of 28% Diesel HDI : 4.7L Hybrid HDI : 3.4L 90 CO2/gkm (combined cycle) 80 CO2/gkm (urban cycle) By 2010 marketable at an acceptable price? Copyright 2006 Global Insight, Inc. 15

16 DIESEL LEADERS REACTIONS - PSA PSA strategy is to lead the segments for low fuel consumption vehicles (= low CO2) Already PSA has 61% share of vehicle segment of <110 CO2/gkm This can be complemented with additional factors: Fuel diversification : biodiesel, synthetic fuels, Combined with Stop&Go, further technology optimisation and socalled mini-hybrids Overall PSA strategy is Simple & Clear Diesel Strategy If implemented correctly and adhered too, this still has plenty of scope for cost-reductions, and of course profitability. Copyright 2006 Global Insight, Inc. 16

PROFITABILITY IS NOT JUST FUEL DRIVEN It is still perfectly possible to remain on course to profitability with the diesel engine, but it s not as easy anymore as it used to be.

17 PROFITABILITY IS NOT JUST FUEL DRIVEN It is still perfectly possible to remain on course to profitability with the diesel engine, but it s not as easy anymore as it used to be. The key to success lies in the powertrain strategy, which needs to be clearly defined, and adhered too. A deep understanding of the various technologies available, and relevant market intelligence are key enablers. Global Insight can assist you in understanding the keyissues, and how to deal with them in order to succeed. Copyright 2006 Global Insight, Inc. 17

18 EUROPEAN FUEL/POWERTRAIN OUTLOOK 70% Diesel versus Gasoline Market Penetration 65% 60% Gasoline ACEA CO 2 ACEA CO2 55% 50% Diesel dominant for years? 45% 40% 35% 30% Diesel CNG Biofuel blends Hybrids HCCI Euro 5 Euro 6 Fuel Cells Copyright 2006 Global Insight, Inc. 18

19 EXECUTIVE SUMMARY The diesel success has been off the chart lately, and consequently all the early-adopters have been enjoying the associated profitability. However due to it s success, diesel profitability is currently threatened. But our latest outlook illustrates that financial success lies in a concise powertrain strategy, taking into account the many different variables which are currently threatening the market. Sustainable Mobility is the answer! Copyright 2006 Global Insight, Inc. 19

20 11 OCTOBER 2006 PARIS MOTOR SHOW 2006 FRANCE Thank You Tom De Vleesschauwer Senior Automotive Consultant

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