SEARCHING FOR GROWTH MARKETS MUSTAFA MOHATAREM Chief Economist, General Motors
GLOBAL ECONOMIC AND INDUSTRY OUTLOOK Global auto sales jumped more than 45 percent over the last decade China accounted for more than 60% of the growth However, auto sales in other BRIC economies Brazil, Russia, and India also grew significantly Additional growth came from a number of middle income countries Thailand, Turkey, Indonesia, etc. Growth prospects in China still look promising While potential remains, pace of growth will moderate However, the other BRIC countries have hit the reform wall and sales are stagnant or declining Significant changes in economic policies will be required return to the Washington Consensus to restore growth In the long term, prospects in emerging markets remain promising provided they address their domestic economic policy challenges and achieve political stability
2014 NEW VEHICLE SALES BROADLY UNSYNCHRONIZED China still growing, but at a slower rate North America recovery continues with record sales in Canada Western Europe posting moderate sales growth GM International sales largely mixed with slowing Asian markets partially offset by strength in MENA Eastern Europe sales collapsing largely due to Russia-Ukraine conflict Millions 90 89 88 87 86 85 84 83 84.8 Global Industry Sales 2013 2014 Y o Y Comparison by Major Regions 1.6 1.1 0.7 0.2 0.4 0.7 86.9 South America sales continue to decline 82 81 80 2013 Greater China North America Western Europe GM International Eastern Europe South America 2014 (prel.)
GLOBAL ECONOMIC ACTIVITY GENERALLY MIXED Economic and political conditions consistent with modest global growth outlook Economic developments in line with unsynchronized monetary policy Canada Housing risk US Slow housing recovery Fed exit strategy Mexico Economic reforms Real GDP Growth, q/q% Change Country in recovery; 2 or more qtrs q/q% > 0 Country near recovery; (q/q% < 0 followed by q/q% > 0) Country near recession; (q/q% > 0 followed by q/q% < 0) Country in recession; 2 or more qtrs q/q% < 0 SA quarterly data not available UK Steady recovery QE exit strategy EU referendum Ukraine Russia conflict Recession Egypt Economic uncertainty Venezuela Hard currency shortage Devaluation risk Hyperinflation Recession; social unrest Euro Zone Deflation risk; Possible QE EUR falls to lowest level since 2006 Russia sanctions Greek elections Jan 25 following political transition Brazil Structural inefficiencies China slowdown Policy rate up 450bps Declining commodity prices Social unrest/protests Argentina High inflation Debt default High currency risk 2015 elections India Post election reforms South Africa Work stoppages Twin deficits Thailand Military coup Russia Ukraine conflict Capital outflows Oil prices collapse RUB falls to record low Policy rate up 1150bps in 2014 Japan Recession Second consumption tax increase delayed China JPY at weakest level since 2007 Econ rebalancing Heavy indebtedness Sources: National Statistics Agencies, Haver Analytics 3
CHINA AND NORTH AMERICA ARE LEADING GLOBAL VEHICLE SALES Total Industry Sales (Millions) 30 25 20 15 10 5 Europe Greater China Other International Operations North America South America Sales Rolling 12 Months 2001-CYTD 2014 (Nov) 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: GSRA; Calculations: General Motors Company
AUTO SALES IN THE U.S. HAVE TRACKED PREVIOUS RECOVERIES 20 1975 Recovery 1983 Recovery 1991 Recovery Current Recovery 18 Millions of Units 16 14 12 10 8 2008 2009 2010 2011 2012 2013 2014
THIS TIME IS NO DIFFERENT Millions of Units 20 18 16 14 12 10 8 6 4 2 0 The Roaring Twenties Great Depression First Oil Shock The Great Moderation 1991 S&L Crisis Second Oil Shock 2009 Great Recession 1901 1908 1915 1922 1929 1936 1943 1950 1957 1964 1971 1978 1985 1992 1999 2006 2013 2020
Industry (Millions) VEHICLE SALES TOOK OFF AFTER CHINA JOINED WTO IN 2003, TOTAL VEHICLE SALES EXCEEDED 23 MILLION UNITS IN 2014 30.0 25.0 20.0 15.0 10.0 5.0 0.0 Industry GM 13.7 18.3 18.7 8.5 9.1 1.8 7.1 4.6 5.2 5.8 3.4 0.9 1.0 1.1 2.2 2.5 0.7 0.4 0.5 0.1 0.1 0.1 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2.4 2.5 19.4 2.8 22.2 3.2 23.9 3.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 GM (Millions) Sources: GM Global Sales Reporting System
VEHICLE PRICES IN CHINA BEGAN TO DECLINE AFTER WTO ACCESSION 110 Mini Small Medium High Luxury PV 100 90 80 70 60 50 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Sources: Cheshi.com.cn
FROM A LONGER TERM PERSPECTIVE, THE GLOBAL ECONOMY IS EXPERIENCING A MULTI-SPEED RECOVERY WITH EMERGING MARKETS GENERALLY OUTPERFORMING DEVELOPED MARKETS Peak Real GDP = 100 at Time = 0 170 160 150 140 130 120 110 100 90 80 Key: North America G7 Economies BRIC Misc. Other Real GDP Relative to Pre-Crisis Peak 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 China (No Peak) India (Peak = 2008 Q3) Indonesia (No Peak) Turkey (Peak = 2008 Q1) S Korea (Peak = 2008 Q3) Mexico (Peak = 2008 Q2) Brazil (Peak = 2008 Q3) S Africa (Peak 2008 Q3) Canada (Peak = 2008 Q3) USA (Peak = 2007 Q4) Russia (Peak = 2008 Q2) UK (Peak = 2008 Q1) Sources: National Statistics Agencies, Haver Analytics; Calculations: General Motors Company
IN LINE WITH THE POST-CRISIS REAL GDP DEVELOPMENT, NEW VEHICLE SALES SINCE 2007 HAVE BEEN LARGELY UNEVEN Sales = 100 at 2007 300 250 200 150 100 50 0 Key: North America G7 Economies BRIC Misc. Other New Vehicle Sales Relative to 2007 2007 2008 2009 2010 2011 2012 2013 2014 Indonesia China India Brazil S. Korea Turkey Canada Japan USA UK Mexico Germany S. Africa Russia France Italy Sources: Polk, General Motors Company; Calculations: General Motors Company
GLOBAL NEW VEHICLE SALES ARE ESTIMATED TO TOTAL 86.9M IN 2014, UP 20.2M SINCE THE 2009 RECESSION Millions 100 90 80 70 60 50 40 30 20 10 13.7M 34.8M 41.8M Second Oil Shock First Oil Shock Euro Introduced 50.5M 64.7M Asian Financial Crisis Gulf War Dissolution of Soviet Union Great Recession 81.2M 0 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2014 Source: Polk, General Motors Company; Calculations: General Motors Company
CONTRIBUTORS TO GLOBAL SALES GROWTH Growth in sales from the 1990 s to the 2000 s largely reflected synchronized gains among developed and developing markets Growth in new vehicle sales in the current decade largely reflects gains from developing markets New Vehicles Sales (000 s) 1990 s 2000 s 2010 s 1 USA 14,764 USA 16,189 China 18,731 2 Japan 6,766 China 6,602 USA 13,757 3 Germany 3,820 Japan 5,599 Japan 4,975 4 France 2,374 Germany 3,625 Brazil 3,706 5 Italy 2,263 United Kingdom 2,713 Germany 3,340 6 United Kingdom 2,196 France 2,577 India 3,201 7 South Korea 1,311 Italy 2,570 Russia 2,693 8 Canada 1,299 Brazil 1,977 France 2,446 9 Brazil 1,292 Russia 1,796 United Kingdom 2,367 10 China 1,248 Spain 1,700 Italy 1,759 11 Spain 1,243 Canada 1,639 Canada 1,699 12 Russia 768 India 1,453 Iran 1,562 13 Australia 642 South Korea 1,330 South Korea 1,549 14 Netherlands 570 Mexico 1,031 Australia 1,073 15 India 553 Australia 920 Thailand 1,056 Green Text: Increase versus previous decade Top 15 Total 41,109 Top 15 Total 51,721 Top 15 Total 63,914 average Top 15 as % of Top 15 as % of Top 15 as % of Red Text: Decrease versus previous decade 81% 80% 80% Total Total Total Source: average Polk (data through 2013CY); Calculations: General Motors Company
NEW VEHICLE SALES DEVELOPMENT AMONG THE TOP 10 MARKETS During the recession, vehicle sales in Russia were in sharp contrast to other BRIC markets Scrappage programs in Germany and France helped to limit the impact of the recession As of 2014, China and developed markets are supporting growth in new vehicle sales Flat sales in India, and declining sales in Brazil and Russia reflect a combination of cyclical, structural, and political concerns 2003 2007 2009 2013 2014 (Prelim.) USA 16,900 USA 16,406 China 14,191 China 21,451 23,900 Japan 5,849 China 9,245 USA 10,536 USA 15,652 16,858 China 4,934 Japan 5,350 Japan 4,604 Japan 5,376 5,518 Germany 3,502 Germany 3,482 Germany 4,049 Brazil 3,760 3,464 United United 2,943 Kingdom Kingdom 2,796 Brazil 3,208 Germany 3,258 3,357 Italy 2,496 Russia 2,794 France 2,685 India 3,140 3,150 France 2,441 Italy 2,776 Italy 2,358 Russia 2,898 2,539 Spain 1,715 France 2,585 India 2,267 Canada 1,637 Brazil 2,495 United Kingdom United Kingdom 2,596 2,844 2,220 France 2,173 2,211 Brazil 1,377 India 1,977 Russia 1,527 Canada 1,797 1,890 Sources: Polk, General Motors Company; Calculations: General Motors Company
MARKETS ARE FACING CHALLENGES WITH VEHICLE SALES STALLING OR DECLINING Total Industry Sales (Millions) 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 Brazil, China, India and Russia: Sales Rolling 12 Months 2001-CYTD 2014 (Nov) Brazil India Russia China (right axis) 0.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 25 20 15 10 5 0 China Total Industry Sales (Millions) Sources: GM Global Sales Reporting System
GROWTH AMONG THE BRIC MARKETS HAS BECOME LESS SYNCHRONIZED SINCE THE RECESSION Pre-Recession Growth Drivers Synchronized global growth High risk appetite High commodity prices High pent-up demand Strong growth of middle class Post-Recession Limits to Growth Uneven global recovery Increased risk aversion; capital outflows High dependency on commodity sectors or key export markets Partially exhausted pent-up demand Slower expansion of middle class Recession exposed structural concerns 170.0 160.0 150.0 140.0 130.0 120.0 110.0 100.0 90.0 80.0 70.0 60.0 Sources: National Statistics Agencies, Haver Analytics: Calculations: General Motors Company Index Normalized Real GDP with Pre-Crisis Peak = 100 at Quarter = 0 Russia (Peak = 2008:Q2) Brazil (Peak = 2008:Q3) India (Peak = 2008:Q3) China (No Peak; 100 = 2008:Q2) -16-14-12-10 -8-6 -4-2 0 2 4 6 8 10 12 14 16 18 20 22 24 26 Quarters Before and After Peak
THE PACE OF ECONOMIC GROWTH AND DEVELOPMENT WILL DETERMINE, IN PART, THE LEVEL OF VEHICLE OWNERSHIP IN EACH ECONOMY Other factors include the road infrastructure, congestion, urbanization, and population density Vehicle Parc Per 1,000 People 700 600 500 400 300 200 100 - Malaysia Poland Greece Baltics Portugal Czech/Slovakia Russia Hungary Argentina Romania Mexico Thailand Uruguay Brazil Chile Turkey Ukraine South Africa China Middle East Operations Indonesia India South Korea Taiwan Spain Italy Israel Finland Canada France Germany Hong Kong Austria Netherlands Belgium/ Lux. Singapore 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 Japan United Kingdom Real GDP Per Capita (2005 USD) Sweden Ireland Denmark Switzerland Norway Sources: National Statistics Agencies, United Nations, Haver Analytics, Polk; Calculations: General Motors Company
THE PACE OF ECONOMIC GROWTH AND DEVELOPMENT WILL DETERMINE, IN PART, THE LEVEL OF VEHICLE OWNERSHIP IN EACH ECONOMY Other factors include the road infrastructure, congestion, urbanization, and population density Vehicle Parc Per 1,000 People 700 600 500 400 300 200 100 - Malaysia Poland Greece Baltics Portugal Czech/Slovakia Russia Hungary Argentina Romania Mexico Thailand Uruguay Brazil Chile Turkey Ukraine South Africa China Middle East Operations Indonesia India Taiwan Spain Italy South Korea Israel Finland Canada France Germany Hong Kong Austria Netherlands Belgium/ Lux. Singapore 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 Japan United Kingdom Real GDP Per Capita (2005 USD) Sweden Ireland Denmark Switzerland Norway Sources: National Statistics Agencies, United Nations, Haver Analytics, Polk; Calculations: General Motors Company
THE PACE OF ECONOMIC GROWTH AND DEVELOPMENT WILL DETERMINE, IN PART, THE LEVEL OF VEHICLE OWNERSHIP IN EACH ECONOMY Other factors include the road infrastructure, congestion, urbanization, and population density Vehicle Parc Per 1,000 People 700 600 500 400 300 200 100 - Malaysia Russia Hungary Argentina Romania Mexico Thailand Uruguay Brazil Chile Turkey Ukraine South Africa China Middle East Operations Indonesia India Poland Greece Baltics Portugal Czech/Slovakia South Korea Taiwan Spain Italy Israel Finland Canada France Germany Singapore Hong Kong Austria Netherlands Belgium/ Lux. 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 Japan United Kingdom Real GDP Per Capita (2005 USD) Sweden Ireland Denmark Switzerland Norway In terms of vehicle density, developed markets are trending at levels that reflect market saturation Sources: National Statistics Agencies, United Nations, Haver Analytics, Polk; Calculations: General Motors Company
THE PACE OF ECONOMIC GROWTH AND DEVELOPMENT WILL DETERMINE, IN PART, THE LEVEL OF VEHICLE OWNERSHIP IN EACH ECONOMY Other factors include the road infrastructure, congestion, urbanization, and population density Vehicle Parc Per 1,000 People 700 600 500 400 300 200 100 - Malaysia Poland Greece Baltics Portugal Czech/Slovakia Russia Hungary Argentina Romania Mexico Thailand Uruguay Brazil Chile Turkey Ukraine South Africa China Middle East Operations Indonesia India Spain Italy South Korea Taiwan Israel Finland Canada France Germany Austria Netherlands Belgium/ Lux. Singapore Hong Kong 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 Japan Developing Markets Have Upside Potential United Kingdom Real GDP Per Capita (2005 USD) Sweden Ireland Denmark Switzerland Norway In terms of vehicle density, developed markets are trending at levels that reflect market saturation Sources: National Statistics Agencies, United Nations, Haver Analytics, Polk; Calculations: General Motors Company
ALTHOUGH NOT WITHOUT ROAD BUMPS AND RISKS, INDUSTRY POTENTIAL REMAINS HUGE IN CHINA AT THIS STAGE Country 2013 Vehicle Parc/ 1,000 People U.S. 796 Australia 702 Japan 590 Korea 393 Russia 322 Taiwan 312 Thailand 208 Brazil 198 China 91 Egypt 56 India 26 Source: Ward s Auto, United Nations, GM calculation
WHERE WILL OIL PRICES GO IN 2015? 120 100 80 West Texas Intermediate (USD Per Barrel) OPEC and the U.S. cut production in early 2015 Global economy expands faster than expected in early 2015 (China, Europe, etc.) 60 40 20 0 Current Price 2015 Range OPEC and the U.S. cut production in H2 2015 Global economy continues at uneven pace (China slowdown ends, Europe continues to struggle) OPEC and the U.S. do not cut production until late in 2015, if at all. Global economy continues at uneven pace (China slowdown continues, Europe continues to struggle) 22
NATURAL GAS To compare oil (priced in dollars per barrel) and natural gas (priced in dollars per million BTUs) on an energy equivalent basis, natural gas prices have to be increased by a factor of 5.8, because one barrel of oil produces 5.8 million BTUs of energy. Relative to the price of oil, natural gas prices have been falling steadily since early 2006, and are now almost 80% cheaper than oil on an energy-equivalent 140 135.94 WTI Crude basis. Oil Vs. (American Natural Enterprise Gas Equivalent Institute) (In Barrels) 120 100 80 73.44 60 54.24 40 36.89 20 0 2007 2008 2009 2010 2011 2012 2013 2014 WTI Nat Gas = 59.95 20.36 23
SUMMARY Auto industry will remain a growth industry for the foreseeable future China alone will provide more growth in auto sales and revenue than possible in other industries The other BRIC countries also have tremendous potential, but will need to make significant policy changes A number of middle income countries Indonesia, Turkey, Thailand, Malaysia, etc. offer good prospects I am especially intrigued by the potential in Mexico as it implements energy policy reforms Africa could be the next frontier market high risks, but high rewards Don t forget the large developed markets in North America, Western Europe, and Japan as they will provide significant revenue growth, and will remain the prime markets for advanced technology vehicles