Production Outlook and Economic Forecast Yung Tran, Head of Member Services and Business Improvement, SMMT Robert Baker, Chief Economist, SMMT Ian Henry, Director, AutoAnalysis 14 February 2013 SOCIETY OF MOTOR MANUFACTURERS AND TRADERS LIMITED SMMT, the S symbol and the Driving the motor industry brandline are trademarks of SMMT Ltd
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Robert Baker Chief Economist SMMT SOCIETY OF MOTOR MANUFACTURERS AND TRADERS LIMITED PAGE 3
It s recovery, but not as expected and incomplete: UK still searching for a sustainable recovery by 2013 Growth has slumped, remains weak, is disjointed and slow Inflation rate eased, but remains sticky, volatile and untamed Financial and restructuring strains constrict confidence Car markets stable in total variegated in the mix SOCIETY OF MOTOR MANUFACTURERS AND TRADERS LIMITED SMMT, the S symbol and the Driving the motor industry brandline are trademarks of SMMT Ltd
UK macroeconomic agenda for 2013: - Domestic economic growth may reignite slowly; - Risks of UK fiscal stance; EZ crisis and FX volatility Continued slow growth in consumer spending Sticky but lower inflation and resilient employment Financial and investment confidence still fickle & unsure FLS may be successful in easing credit flow and terms SOCIETY OF MOTOR MANUFACTURERS AND TRADERS LIMITED SMMT, the S symbol and the Driving the motor industry brandline are trademarks of SMMT Ltd
percentage change - same quarter previous year Growth sags and recovery phase drags (1) Chart 1: UK real GDP growth - Q3 2010 to Q4 2012; recent Forecasts Q3 2012 to Q4 2013. Recovery in UK GDP now taking longer and weakest on record Actual Estimates Oxford EF - Jan 2013 Office Budget R - Dec 2012 Oxford EF: for 2011 to 2013 & 2012 to 2013 at July 2010 & 2011 SOCIETY OF MOTOR MANUFACTURERS AND TRADERS LIMITED PAGE 6
percentage change - same quarter previous year Growth sags as inflation bites(2) Chart 2: UK CPI & RPI annual inflation rates - Q12007 - Q2012; Forecast to Q42013 CPI CPI Mean trend 1997-2006 Oxford Economics CPI Forecast (Jan13) RPI Mean trend 1997-2006 RPI Oxford Economics RPI Forecast (Jan13) SOCIETY OF MOTOR MANUFACTURERS AND TRADERS LIMITED PAGE 7
real GDP volume 2009 base year - mn Long recovery path major economic changes Chart 3: UK GDP volumes Q12005 - Q32012 and Q32012 - Q42016F Forecasts from Oxford Economics (Jan 13) real GDP market prices Growth trend 1997-2006: 3.15%pa Growth trend 2010-2016: 1.5%pa Oxford Economics - Jan 13 SOCIETY OF MOTOR MANUFACTURERS AND TRADERS LIMITED PAGE 8
PSNB as % GDP QE - the APF as % GDP On Exceptional Economic Policies (1) 12% Chart 4: QE - the APF as % of GDP; Public Sector Net Borrowing as % of GDP and FLS loan stock. Source average of medium term forecasts from HMT Survey November 2012 30% 10% 25% 8% 20% 6% 15% 4% 10% 2% 5% 0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 FLS loan stock % cash GDP PSNB - % cash GDP APF (QE) - % cash GDP 0% SOCIETY OF MOTOR MANUFACTURERS AND TRADERS LIMITED PAGE 9
Sterling trade-weighted index value - Bank repo Rate % On Exceptional Economic Policies and Sterling (2) 6 Chart 5: Average of Medium Term UK Forecasts for Bank rate and - at Nov 2012 from HMT s survey of independent forecasters bank interest rate index jan2005=100 105 5 100 4 95 3 90 2 85 1 80 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 75 SOCIETY OF MOTOR MANUFACTURERS AND TRADERS LIMITED PAGE 10
annual average percentage changes EZ in remission; growth opportunities near-by Chart 6: Europe's GDP growth trends 2005-2007 and possible prospects 2011-2014 2005-2007 2011-2014 Source: OECD Q4 2012 SOCIETY OF MOTOR MANUFACTURERS AND TRADERS LIMITED PAGE 11
volumes as percentage of 2005-2007 average 2005-2007 average volumes = 100 UK new car volumes in Europe stable; below par Chart 7: Europe's car sales volumes 2005-2007; 2007, 2009, 2012; prospects by 2014 2005-2007 2007 2009 2012 2014 1.2 1 0.8 0.6 0.4 0.2 0 SOCIETY OF MOTOR MANUFACTURERS AND TRADERS LIMITED PAGE 12
2014 volume as percentage of 2005-2007 average 2005-2007 average volumes in millions UK new car volumes in Europe stable; below pars Chart 8: Europe's car volumes at 2005-2007 and growth prospects by 2014 2014/2005-2007 as % (lhs) 3.25 2005-2007 volumes (rhs) If 2014 volume = par with 2005-2007 average (lhs) 2.75 2.25 1.75 1.25 0.75 0.25 SOCIETY OF MOTOR MANUFACTURERS AND TRADERS LIMITED PAGE 13
UK s unique revival in private car demand? A timely (low) point on recovery s route for many habitual new car buyer types and confidence raised Postponed buying meant heightened needs to buy new Ability to buy as jobs stable, cash & collateral rich; PPI missselling payments windfalls ( 9.5bn); housing in doldrums Willing to replace from earlier buying vintages OEMs ready to respond dire EZ! / attractive Packaged marketing & asset-backed car finance must have helped too SOCIETY OF MOTOR MANUFACTURERS AND TRADERS LIMITED PAGE 14
volume changes 2001 to 2012 Thousands Thousands UK new car volumes in Europe 1 of 8 states to grow in 2012 Chart 9: EU (27) volume of car sales in 2012 & volume change 2011 to 2012 3500 2012-2011 volume change 2012 total volumes (TIV) 3000 2500 2000 1500 1000 500 0 Net 1.076mn fall across EC27 (8%) = 8 states up by 117K in total (89% UK) & 18 down by 1.193mn SOCIETY OF MOTOR MANUFACTURERS AND TRADERS LIMITED PAGE 15
Thousands percentage change on same quarter year before Car sales forecasts to 2014; 2012 s gains held (1) 2200 2175 Chart 10.1: SMMT Forecasts at January 2013 30% 25% 2150 20% 2125 ALL CARS: quarter growth (right axis) ALL CARS: rolling year total (left axis) 15% 2100 10% 2075 5% 2050 0% 2025 2000 Forecasts (Jan 2013) -5% -10% 1975-15% 1950-20% 1925-25% SOCIETY OF MOTOR MANUFACTURERS AND TRADERS LIMITED PAGE 16
Thousands percentage change on same quarter year before Private cars forecasts to 2014; 2012 s gains held (2) 1150 Chart 10.2: SMMT forecasts at January 2013 40% 1100 1050 PRIVATE: quarter growth (right axis) PRIVATE: rolling year total (left axis) 30% 20% 1000 10% 950 0% 900 850 Forecasts (Jan 2013) -10% -20% 800-30% 750-40% SOCIETY OF MOTOR MANUFACTURERS AND TRADERS LIMITED PAGE 17
Millions UK new car TIV to 2008 to 2014 sales types 1.25 1.2 1.15 Chart 11: UK car sales types rolling 4 quarter years PRIVATE FLEET BUSINESS (left axis) 180000 170000 160000 1.1 1.05 Forecast (Jan 2013) 150000 140000 1 130000 0.95 120000 0.9 110000 0.85 100000 0.8 0.75 90000 80000 SOCIETY OF MOTOR MANUFACTURERS AND TRADERS LIMITED PAGE 18
Millions SMMT Forecasts a note on coincidence 1 Chart 12: SMMT annual forecasts for private sales and actual rolling year totals Forecast for 2013 - as at first month of quarters Q4-12 to Q1-13 0.95 PRIVATE - 4Q rolling total; actual to Q4-12 and Jan13 Forecasts to Q4-13 0.9 SMMT's Forecasts Q1-2013 Q4-2013(Jan 2013) 0.85 0.8 2011-Q1 Q2 Q3 Q4 2012-Q1 Q2 Q3 Q4 2013-Q1 Q2 Q3 Q4 SOCIETY OF MOTOR MANUFACTURERS AND TRADERS LIMITED PAGE 19
UK Output cars on a roll; commercials readjust Chart 13: UK Car & CV output volume trends - rolling years, 12 months to Dec 2012 volume of cars and CVs in thousands. cars left hand scale; CVs right hand Cars Cars Car Exports CVs CVs CV Exports 250 225 200 175 150 125 100 75 50 25 0 SOCIETY OF MOTOR MANUFACTURERS AND TRADERS LIMITED PAGE 20
UK Output developments in the mix (1) Chart 14 JLR Nissan BMW - MINI Toyota Vauxhall - GM Honda Others 2017F 2012 2007 250 500 750 1000 1250 1500 1750 2000 UK car assembly volumes in thousands SOCIETY OF MOTOR MANUFACTURERS AND TRADERS LIMITED PAGE 21
UK Output developments in the mix (2) Chart 15 2007 2012 2017F JLR Others Nissan UK car assembly by OEM: UK totals (in 000s) at 2007, 2012 & 2017F 2 OEMs JLR (Tata) and Nissan (Nissan/Renault) = 640K of all 2007's output = 870K of all 2012's output = 1,200K of 2017's forecast output Honda BMW - MINI Vauxhall - GM Toyota SOCIETY OF MOTOR MANUFACTURERS AND TRADERS LIMITED PAGE 22
UK Output incremental shifts 2012 to 2017 Chart 16 Others Honda Vauxhall - GM Toyota BMW - MINI 2012 total volume 2017F incremental volume change 2012 to 2017 Nissan JLR -100 0 100 200 300 400 500 600 700 UK car assembly volumes in thousands SOCIETY OF MOTOR MANUFACTURERS AND TRADERS LIMITED PAGE 23
Light vehicle assembly volumes in millions country volumes as a percentage of all for Europe European Output key shifts 2012 to 2017 Chart 17 Chart 17 Europe's car volumes 2007 to 2012 and to 2017F share of volume rooted in the UK, Russia & Italy - stable; reemerger and legacy All (22) - vol. in mn UK - % Russia - % Italy - % 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Source: AutoAnalysis/SMMT Jan 2013 SOCIETY OF MOTOR MANUFACTURERS AND TRADERS LIMITED PAGE 24
In conclusion, on the UK economy and cars Recovered; stable; firmer growth later not sooner Less restrictive outlook for immediate household spending External threats to trade, credit and confidence remain also domestic concerns on austerity & unique monetary policy Domestic growth potential & opportunities yet to be realised Car TIV and assembly stable, but big shifts in the mix Economy adjusting to major restructuring, rebalancing and reorientation agenda unsure and unsteady growth likely SOCIETY OF MOTOR MANUFACTURERS AND TRADERS LIMITED PAGE 25
Ian Henry Director AutoAnalysis SOCIETY OF MOTOR MANUFACTURERS AND TRADERS LIMITED PAGE 26
Production Outlook 2012 key facts Provisional 2012 European production inc. Russia = 18.1mn, >1mn down on 2011: W/out Russia = 17mn, down >1.4mn Production collapse prevented by modest growth in Czech Rep., Hungary, Romania & UK and boost in Slovakia from VW Up! Big 2012 losers = Spain (c460k), Italy (c120k), France (c340k) and even Germany (c540k) Larger than expected fall in Germany due to wholesale decline at Ford & Opel and model cycle effects at Mercedes & especially Audi (A4/A6/Q5) and switch to new Golf SOCIETY OF MOTOR MANUFACTURERS AND TRADERS LIMITED PAGE 27
Production Outlook recovery highlights Germany will recover: by 2017 should be back at 2007 peak France, Italy & Spain = long-term losers, in 2017: France should be c30%/900k down on 2007 Italy down one-third/400k and Spain c20%/600k on 2007 Eastwards shift continues 2012-2017: Czech +c20%; Hungary + c140% Romania +c40%; Slovakia +c10% or quite possibly more UK production still growing, by as much as c25% 2012-2017 if Mini, JLR and Nissan fulfil expectations, reaching c2mn upa: Mini parts production boosted by Mini production in Netherlands SOCIETY OF MOTOR MANUFACTURERS AND TRADERS LIMITED PAGE 28
Base Outlook all countries incl. Russia 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 0 European car and LCV production by country, 2007-2017 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 UK Turkey Sweden Spain Slovenia Slovakia Serbia Russia Romania Portugal Poland Netherlands Morocco Italy Hungary Germany France Finland Czech Rep Bulgaria Belgium Austria Including Russia, it looks as if market recovers well from 2014 However, the reality without Russia is somewhat different SOCIETY OF MOTOR MANUFACTURERS AND TRADERS LIMITED PAGE 29
Units Without Russia, the picture is less attractive European Production Excl Russia - Base Outlook & 3 alternative scenarios 22,000,000 21,000,000 20,000,000 19,000,000 18,000,000 17,000,000 Base w/o Russia Scen 1 w/o Russia Scen 2 w/o Russia Scen 3 w/o Russia 16,000,000 15,000,000 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Years Without Russia, and being optimistic, Europe takes until 2016 to recover to 2007 volumes Scenarios 1-3 assume fall of 1-5% in major markets above and beyond the falls inherent in our Base Outlook SOCIETY OF MOTOR MANUFACTURERS AND TRADERS LIMITED PAGE 30
Units However, it may be much worse much worse 24,000,000 23,000,000 22,000,000 European Production Excl. Russia - Worst Scenarios 21,000,000 20,000,000 19,000,000 18,000,000 17,000,000 16,000,000 Base Outlook Base w/o Russia Scen 4 w/o Russia Scen 5 w/o Russia Scen 6 w/o Russia 15,000,000 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Years The widening gap between Blue and Pink lines highlights the importance of Russian production to Europe s total If 2013 is similar to 2012, best case projection (Yellow) suggests it will take until 2016 for production to recover to 2008 levels; in turn this suggests European production may not recover to its 2007 peak Continued decline in 2013-14 (Purple) not only delays long term recovery, but also risks market settling down at much reduced volumes: Europe needs to consider implications of scenarios 5 & 6, esp. scen. 6 If long run European production (excl. Russia) is <17mn upa or worse, AutoAnalysis does not believe current industry structure is sustainable SOCIETY OF MOTOR MANUFACTURERS AND TRADERS LIMITED PAGE 31
Falling sales leading to falling production volumes and structural change at the volume VMs European car & LCV markets fell in 2012: EU27 at 17- year low January 2013 sales shows no sign of improvement, except UK which continued to rise: SAAR @ lowest rate since 1987 01/13 y-o-y falls: W Eur: -9.5%; Germany: -8.6% France: -15%; Italy: -12.6%; Spain: -9% Volume VMs European production falling significantly Traditional brands facing long-run, structural decline as value brands and premium marques continue to grow: New order for VMs in Europe beginning to emerge VMs attempting new strategies: Fiat wants to move core brand upmarket, possibly adding value brand Nissan and VW also considering value brands SOCIETY OF MOTOR MANUFACTURERS AND TRADERS LIMITED PAGE 32
Structural change under way at the volume VMs Restructuring began in earnest in 2012: Ford, GM & PSA closing plants; GM and PSA bringing forward closure of Bochum and Aulnay GM & PSA established a defensive alliance, but benefits not yet apparent Fiat reorganising model allocation between Italian factories, slimming down, but not closing plants: Investing 1bn at Melfi for new Fiat and Jeep small SUVs, to be made at 1600/day on a 3-shift basis Cutting at least 1,500 jobs in Poland, with 2013 production likely to be ½ that in 2009 Renault following Fiat approach, for now: Claims that union deals (c7,500 job cuts) will lead to additional 180k upa in France, including 80k from partners Nissan however has confirmed expansion in Barcelona not France Highly likely that Fiat & Renault will have to cut capacity SOCIETY OF MOTOR MANUFACTURERS AND TRADERS LIMITED PAGE 33
Although things have changed, are recent actions enough? VMs no longer just talking about restructuring they have had to act: GM and Ford each lost > 1bn in Europe in 2012; similar or greater losses expected in 2013 PSA, Renault and Fiat also loss-making in Europe PSA reportedly losing 7mn/day unions expressed fears over potential bankruptcy Will closures announced so far be enough? Can Fiat and Renault avoid closing factories for much longer? Will Ford, GM and PSA close more plants? Despite strength of German & UK premium brands, Hyundai-Kia and Nissan, we doubt whether non-eu exports can sustain European production in perpetuity, especially at the volume brands: VW group, Fiat, PSA, BMW and Mercedes all growing plants outside Europe, esp. in NAFTA, Brazil & China VW also cutting Passat production in Germany, but adding shifts to cope with demand for Golf and Tiguan; and adding Golf production in Mexico SOCIETY OF MOTOR MANUFACTURERS AND TRADERS LIMITED PAGE 34
In conclusion Production recovery unlikely before 2014, quite possibly 2015: Production revival will be shallower and slower than in 2009 Increasingly likely that long run production volumes will be far below 2007-2008 peaks Further re-structuring and capacity cutbacks seem inevitable: Realistic chance of a major European name disappearing by the end of the decade, if not before Rising strength of Koreans & Nissan and enduring appeal of German/UK premium brands should not be underestimated More value brands likely to appear Not a question of if/when European VMs will restructure further: Key issue remains: how much more change will be required? National governments unlikely to be able to save national brands SOCIETY OF MOTOR MANUFACTURERS AND TRADERS LIMITED PAGE 35
Questions and Answers Please click on the hand symbol to raise your hand if you have a question. Please ensure that you are connected to the audio to ask a question. Alternatively, you can type your question. Email: memberservices@smmt.co.uk with your questions after this session. Slides emailed to participants after this session SOCIETY OF MOTOR MANUFACTURERS AND TRADERS LIMITED PAGE 36