Developing Asia: To infinity and beyond..? AUTOFACTS Global Automotive Outlook Q2 Executive Briefing

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1 VERSION Developing Asia: To infinity and beyond..? AUTOFACTS Global Automotive Outlook 2003 Q2 Executive Briefing PwC refers to the individual member firms of the world-wide organisation. All rights reserved. AUTOFACTS is a trade mark of the worldwide organisation and is registered in the US by LLP

2 Key Issues 2003 LLP. All rights reserved Q2 Release Data. Developing Asia = China, Thailand, India China s growth continues Chinese supply base not yet up to the task Thailand growing the right way Top three countries boast nearly 93% of growth from 2002 to 2010 China 66%, Thailand 16%, India 11% China car sales up over 100% so far in 2003 vs 2002 Last year assembly increased over 40%, 2003 likely ~30% - where to from here? Could China be growing too fast? (e.g., Brazil) All Chinese assemblers are adding models and/or capacity Chinese supply base remains costly Tier-two plants inefficient, requiring tier-ones to establish their own supply base Growth predictions for assembly make supply base acceleration probable Thailand predicted to double assembly by 2010, without excess capacity Benefiting from product relocation from Japan, other investment India begins to accelerate India beginning to attract more players India will not see the explosive growth like China s but becoming more attractive due to positive GDP growth, infrastructure growth, new models 5.4% CTG 01-02, 8.9% 02-03, 11.5% 04-10

3 State of the Industry 2003 LLP. All rights reserved Q2 Release Data. 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 Capacity Trajectory Excess Capacity Assembly Volume Utilisation (R Scale) 75% 70% 65% 60% 55% 50% 45% Key Assumptions Impressive growth is driven largely by China, followed by Thailand and India China and Thailand together contribute >80% of growth , Developing Asia responsible for 40.2% global CTG, (China 26.3%) Capacity will most likely ratchet higher with future announcements Will likely lead to significant excess capacity (currently only about 56% utilization) Growth forecast slows toward end of window due to regional instability % Even with this growth curve, may not be industry s panacea low profit small cars, fierce competition, excess capacity As in other emerging markets, VAs have rushed into Developing Asia hoping that a rising tide lifts all boats, but as has been proven time and again, this is usually not the case.

4 Key Vehicle Actions 2003 LLP. All rights reserved Q2 Release Data. Shanghai Volkswagen begins assembly of the Gol Opens door to sub-100,000 yuan ($12,000) market the fastest growing market segment in China Key to helping VW try to maintain dominant market share in China Honda doubling capacity in both China and Thailand China: doubling Guangzhou output to 240K by 2004 to satisfy local demand and also for new export-only JV recently announced Thailand: production of the City/Fit to meet increased demand in Japan and elsewhere GM positioning its numerous brands for growth in China GM Daewoo has announced it will begin assembling the Lacetti sedan at its Shanghai JV Recently purchased Yantai Autobody, and will transfer Buick Sail assembly to that facility Toyota goes with the Vios in India Toyota will likely assemble the Vios small car in India this represents their bid for a share of the slow-to-heat-up-but-tempting-nonetheless Indian market. Marketing the Vios using MTV and Britney Spears; decided in favor of the Vios rather than a larger car or SUV BMW-Brilliance joint venture finally approved in China Interesting not in and of itself, but because it seems to be the start of a trend, or at least a hope, for a booming Chinese luxury car market Mercedes, Volvo, Land Rover, and others are now investigating local assembly facilities

5 Performance by Competitor (VBE) VBE Share of Growth VBE Volume by Brand Avg LLP. All rights reserved Q2 Release Data. % of Growth 20% 15% 10% 5% 0% Toyota Honda Hyundai GM Ford Ren-Nis VW DCX PSA Other Toyota VW Other TELCO Ren-Nis PSA DCX Ford Hyundai PROTON Honda GM Nearly EVERYONE is growing in China While Toyota leads growth, six VBEs are each contributing over 10% of growth. Volkswagen, the long-time market leader, is struggling to keep up

6 Supplier Issues in Developing Asia 2003 LLP. All rights reserved Q2 Release Data. Quote of the Day: The market for replacement parts is especially good, due in part to the number of accidents caused by inexperienced drivers and the technical deficiencies of domestically produced cars. Autoparts Report (China) Supplier Issues Still time to get in on China s growth Developing Asia may be a good place to start a relationship India becoming more attractive as supply base AFTA may help suppliers in ASEAN Summary Points Growth expected to continue; need for higher-quality parts; export potential (GM using China-built engine in new Equinox crossover) GM, Ford, and VW together intend to procure $5B in parts from China in 2003 Region may present opportunities to get in with OEMs suppliers have not previously worked with Can be difficult to take any realized profits out of the country, however not allowed has resulted in purchasing more parts from China (Equinox engine) OEMs using India as a source for low-cost, high-quality parts; cheap, highlyskilled and -educated labor Indian companies can expect to achieve 15 to 20% savings over the West As local content rules are abolished, and tariffs decline, assemblers are likely to turn more to this region as they have done with China and India Toyota, for example, is building assembly and supply plants throughout ASEAN to take advantage of the relatively low labor cost vs. Japan (+10x less) As in the assembly forecast, there is a positive outlook for suppliers within Developing Asia. There are plenty of issues to investigate prior to market entry, however.

7 Executive Briefing Service As part of our commitment to industry thought leadership, the AUTOFACTS team has developed a suite of quarterly updated Executive Briefings to address key issues in the automotive industry LLP. All rights reserved Q2 Release Data LLP. All rights reserved Q1 Release Data Issues to Watch Focus: War in Iraq Conventional Wisdom: Key Issues Assumptions Implications for Auto Sector Business Spending Consumer Spending Fuel Prices International Trade Despite fluctuations in the level of support from the international community (i.e. France & Germany) for a U.S.-led military solution in Iraq, many analysts believe a conflict is inevitable and could erupt as early as the end of February. Businesses are more reluctant to put large capital investments in place as a result of geopolitical conflicts Consumers are less inclined to purchase large-ticket items during large-scale global conflicts Fuel prices would spike if a war in Iraq were to erupt duration(?) Heavy export-dependent economies would suffer from a drop in western consumer demand Already too tight disinflation(?) Employment will stay down Incentives hard to maintain Immediate drop in vehicle demand Consumer is already tired Exacerbated by mounting debt Opel Meriva Overall vehicle demand drops Shift towards more efficient cars Smaller vehicles more popular Potential of Proper Execution Foreign OEM profit erosion Heightened border security Truncated economic growth The duration of the conflict and the successful management of post-war issues are the key factors driving the set of near and medium-term socio-economic implications. Units (000) W. Europe B Seg. MPV Volumes Fusion Meriva Punto MPV Clio MPV 27 Key product in GME s turnaround plan Reinforces commitment to placing product, style, and quality back at the top of the new product agenda More than just a competitor in growing B segment MPV market Wide engine line-up includes new high tech 1.3JTD from the powertrain JV with FIAT Positive media response and high aspirations due in part to GM s innovative approach to practicality Just as GM created a benchmark interior configuration with the Flex7 seating on the Zafira, so is the interior of the Meriva Early consumer opinions are that the Meriva far more innovative and stylish than cross-town rival Ford s Fusion Positioned a half size above Corsa minimizes cannibalization and maximizes potential conquest sales, again unlike Ford s Fusion which has little to differentiate it from Fiesta 2003 Q2 Executive Briefing Topics Automaker In Focus (VBE) Honda DaimlerChrysler Volkswagen (short) Industry Issue In Focus Mid-Size Cars in North America Industry and Market Outlook North America European Union Post-2004 Developing Asia Global Summary Other Recent Topics of Interest The AUTOFACTS Executive Briefing Service offers the unparalleled competitive advantage of focused Q&A sessions with AUTOFACTS team specialists GM: VBE-in-Focus Ford: VBE-in-Focus PSA: VBE-in-Focus Global Hybrid Powertrain Outlook Propulsion Type Battleground: Fuel Cell vs. Diesel vs. Advanced Gasoline North American International Auto Show Review & Analysis Issues Confronting the Supplier Sector

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