Decoupling Emerging Markets: Is There Anywhere to Hide from the Crisis? Tim Armstrong Managing Director Global Automotive Forecast Operations

Decoupling Emerging Markets: Is There Anywhere to Hide from the Crisis? Tim Armstrong Managing Director Global Automotive Forecast Operations

Outline Overview of emerging markets Focus on Russia India Brazil and Argentina Middle East and Africa South Korea Thailand Malaysia Summary Some Themes Future light vehicle demand and production in emerging markets The rise of small cars Production shifts in selected Asian markets

Emerging Markets Provide Stability Thousands 45000 40000 35000 Light Vehicle Sales 30000 25000 20000 15000 10000 5000 0 Triad BRICs LV Sales Rest of World All Emerging Markets 2014 2012 2010 2008 2006 2004 2002 2000 Note: Triad comprises USA, Japan, & W.Europe

Where Is the Decoupling? Difference in % GDP growth 2009-2008 2 0-2 In 2009 LV sales will fall by 2.83 times the fall in GDP growth India China -4 USA -6-8 -10-12 Japan Russia Germany Brazil Decoupled Zone Bubble size equals Ukraine -14 sales volume in units Iran -60-50 -40-30 -20-10 0 10 20 % Change in LV Sales in 2009

Emerging Markets Exposure to Downturn Country Govt. Economic Stimulus Auto Market Stimulus XR Yr end 08 on 07 LCU vs US$ External Trade Exposure Credit Crunch Exposure Automotive Production Adjustment Brazil Small IPI -31% V. Large Large Large Russia Import Duties -20% V. Large V. Large China Massive Large tax incentives +7% V. Large Small Small India Excise tax -23% Large Japan V Large Eco Tax & Scrapping +19% V. Large V. Large Korea Excise Tax -35% V. Large V. Large Australia Green Car Fund -26% Small Thailand None -3% V Large Philippines Small None -15% Small Taiwan Small Excise Tax -1% Large Indonesia Small None -16% Large Malaysia Large Scrapping -5% Large

Selected Emerging Markets: Change in LV Sales 2009 2011 Africa Asia E. Europe M. East S. America 2011 2009 40% 30% 20% 10% 0% -10% -20% -30% -40% -50% -60% BRAZIL ARGENTINA MEXICO UAE SAUDI ARABIA IRAN UKRAINE TURKEY SLOVAKIA RUSSIA ROMANIA POLAND HUNGARY CZECH REPUBLIC BELARUS THAILAND TAIWAN SOUTH KOREA MALAYSIA INDONESIA INDIA CHINA SOUTH AFRICA

Emerging Markets Light Vehicle Production Moves Down Sharply 20% Quarterly Change in Production (vs Same Quarter of Previous Year) 10% 0% -10% -20% Emerging Markets Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010

Russia Is Caught Between Opposing Market Drivers Market Drivers Industry Incentive programs re-opened (e.g. 166 & 566) Loan Financing Support Used Imports Limitations Slowing Demand & RBL Depreciation Credit Cost & Lacking Availability Higher Import Tariffs Market Restraints

Russia Number of HH by Income Bands (2000 US$) 2008 Forecast 2009 Forecast 0.45 0.40 0.35 0.30 0.25 0.20 0.15 0.10 0.05 0.00 0.45 0.40 0.35 0.30 0.25 0.20 0.15 0.10 0.05 0.00 2018 2016 2014 2012 2010 2008 2006 2004 2018 2016 2014 2012 2010 2008 2006 2004 E 60-80 F 80-100 G 100-150 H 150+ E 60-80 F 80-100 G 100-150 H 150+

Russia: Winners and Losers 2009 vs 2014 DAEWOO MAZDA SKODA VW FIAT OPEL MITSUBISHI NISSAN GAZ KIA RENAULT TOYOTA HYUNDAI FORD CHEVROLET LADA 0 100,000 200,000 300,000 400,000 500,000 600,000 LV Sales GEELY CADILLAC LIFAN ISUZU NISSAN RENAULT HYUNDAI CHEVROLET -100,00 0 BMW VOLGA BRILLIANCE CHERY VORTEX TOYOTA SSANGYONG GREAT WALL OPEL TAGAZ VW SKODA FIAT UAZ KIA FORD GAZ LADA 2009 vs 2014 0 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 LV Production

Customs Duties and Excise Taxes in India Type Category Form Petrol ccm Diesel ccm Length Rate Excise Tax Passenger Vehicles (Small Cars) <1.2l <1.5l < 4000 mm 8% (from December 2008) Excise Tax Passenger Vehicles (Large Cars) >1.2l and <2.0l >1.5l and <2.0l >4000 mm 20%+ 15,000 Indian rupees from June 2008 Excise Tax Passenger Vehicles (Large Cars) >2.0l >2.0l >4000 mm 20%+ 20,000 Indian rupees from June 2008 Excise Tax Hybrid Vehicles 14% Excise Tax Goods Vehicles 20% (16% on CNG/LPG) Customs Duties Passenger Vehicles CBU c. 100% Customs Duties Passenger Vehicles CKD 10% Customs Duties Goods Vehicles 10%

India: Delays to Investment & New Product Launches Delays Renault pulls back on its line at Chennai plans on hold Honda delays second plant from 2009 to October 2010 Toyota delays second plant from early 2010 to late 2010 and will not build Corolla at new plant Nano new plant not expected before late 2010 Daimler plant starts on one shift only GM says India crucial new mini car and Cruze coming Some Hyundai i20 production moves to Europe after labour unrest New Launches 2009 Tata Nano Tata Indicruz Hyundai i20 Maruti Ritz Honda Jazz GM Cruze 2010 GM M-300 Beat Ford Small Car Honda Eco Maruti Mini SUV Nissan March Toyota Yaris & EFC

Low Cost Cars Will Contribute Less to Auto Demand Nano et. Al. First rising raw materials prices Then roll-out timeline disrupted at Singur Small scale launch in March 23 rd 2009 European version coming to continental Europe and UK eventually Can it sell in the U.S.? Now 40k at Pantnagar Sanand expected late 2010 Break-even point 4-500,000 vehicles? Borrowing for target consumer groups has been undermined Tata constrained in its finances Nano project financed but JLR purchases requires refinancing of $2bn of the $3bn bridging loan Thousands 450 400 350 300 250 200 150 100 50 0 7000 6000 5000 4000 3000 2000 2005 2007 Bajaj-Renault Nano 800 Price in $US Production 2009 2011 2013 1000 0 Alto 800 Nano LX Nano CX Nano STD BS3 Nano STD BS2

India: Winners and Losers RENAULT 2009 vs 2014 RENAULT BAJAJ 2009 vs 2014 PIAGGIO VW FIAT BMW FORD MERCEDES-BENZ FIAT SKODA SKODA TOYOTA FORD CHEVROLET TOYOTA NISSAN HONDA CHEVROLET M & M HONDA HYUNDAI M & M TATA TATA HYUNDAI MARUTI MARUTI 0 200 400 600 800 1,000 LV Sales Thousands 0 200 400 600 800 1,000 LV Production Thousands

Brazil Government Actions: Financing and IPI Reduction R $10 billion released for financing by Banco Central via Banco do Brasil, Caixa Economica Federal and Nossa Caixa The IPI reduction (table below) was implemented on December 11, 2008 and will carry on until June 30, 2009 Engine Size (cm³) IPI Before Measure Present Reduced IPI Up to 1.000 Car 7% 0 1.000 to 2.000 Gasoline Car 13% 6,5% 1.000 to 2.000 Flex Car 11% 5,5% Over 2.000 Gasoline 25% 25% Over 2.000 Flex 18% 18% Up to 1.000 Pick-up 8% 1% 1.000 to 2.000 Pick-up 8% 4%

Brazil & Argentina: Market Outlook Million Units 3.4 3.2 3.0 2.8 2.6 2.4 2.2 Million Units 0.7 0.6 0.5 0.4 0.3 0.2 0.1 2.0 2007 2009 2011 2013 0.0 2007 2009 2011 2013 Brazil LV Sales Argentina LV Sales

Middle East Overview Six year boom has come to an end Marked slowdown in global growth will harm trade, tourism, and investment throughout the region Oil bubble has burst reducing earnings sharply Declining external demand for non-oil exports Credit crunch has hit Construction and real estate markets are in free fall especially in Dubai Stock prices have collapsed Expatriates are returning home Automobile demand are down The recovery in 2010 is likely to be modest because the rebound in the world economy will develop only gradually 120 100 80 60 40 20 WTI US$ per barrel (Annual Averages) wti March 2008 Wti March 2009 0 1996 1999 2002 2005 2008 2011 2014 2017 2020 (West Texas Intermediate price, dollars per barrel)

Middle East and Africa 1600 1400 1200 1000 800 600 2005 2007 2009 2011 2013 GCC 6 LV Sales 250 200 150 100 50 0 2005 2007 2009 2011 2013 Israel LV Sales 1150 1100 1050 1000 950 900 850 2005 2007 2009 2011 2013 Iran LV Sales 1000 800 600 400 200 0 2005 2007 2009 2011 2013 South Africa LV Sales

Korea Market Outlook Consumption tax cut by 70% from May 1 st - December 31 st if replacing a car registered before January 1 st 2000 1.4 1.3 1.2 20% 10% 0% -10% -20% -30% -40% Quarterly Change in Production (vs Same Quarter of Previous Year) Korea 1.1 1.0 Q1 2007 Q3 2007 Q1 2008 Q3 2008 Q1 2009 Q3 2009 Q1 2010 Q3 2010 0.9 0.8 2007 2009 2011 2013 LV Sales (millions) Vehicle exports fell 30.2% in Q1 2009 to 480k Hyundai has reduced output by 30% in Q1 2009 Kia has reduced output by 27% in Q1 2009 new Forte and Soul are key models Exports projected to be down 14% in Q2 y-o-y

South Korea: Winners and Losers Korean LV Sales by Brand LV Production by Brand SSANGYONG 2009 vs 2014 SSANGYONG 2009 vs 2014 SAMSUNG SAMSUNG DAEWOO DAEWOO KIA KIA HYUNDAI HYUNDAI 0 200 400 600 800 Thousands -200 0 200 400 600 800 1,000 1,200 1,400 Thousands

Investment Moves Away from South Korea Hyundai Brand LV Production by Country Kia Brand LV Production by Country 2014 2014 2009 2009 2004 2004 0% 50% 100% KOR IND USA CHN RUS CZE TUR OTHER Hyundai Shifts production to: India: i10, i20 USA: Sonata, Santa Fe, VeraCruz Czech Republic: i30 0% 50% 100% KOR CHN SVK IRN RUS USA CZE OTHER Kia Shifts production to: Slovakia: Ceed, Sportage Expands in China: Soul, Forte, Rio, Sportage, QB

Thailand Overview Vehicle sales in Thailand fell by 2.5% to around 615,200 units in 2008 Political unrest has dented investment confidence Decomposition of demand shifted very significantly out of pick-ups and into small cars Sales dropped by 30% in first two months of 2009 Down by 37.8% in March, passenger cars sales down 23.4% Vehicle exports fell 39% in March 2009 The government refused to provide large scale direct support to the industry Honda, Nissan, Mazda may ask for crisis loans 800 700 600 500 400 300 200 100 0 2007 2009 2011 2013 LV Sales ('000s)

Small Cars Will Win Market Share in Thailand SUZUKI TATA CHEVROLET MAZDA FORD 2009 vs 2014 The Thai industry shifts from pickups to small cars Investment dates for Eco-car projects have been pushed back and local content and volume requirements are being contested No Eco-car project has yet been formally cancelled NISSAN ISUZU MITSUBISHI HONDA TOYOTA Projected SOP Honda late 2010 Mitsubishi late 2011 Toyota late 2011 or 2012 Tata 2012 Nissan early 2011 Suzuki early 2011 0 100 200 300 400 500 600 Thousands LV Sales by Brand

Thailand Shifts Away from Pickups Thousands 2000 1800 1600 SUZUKI TATA CHEVROLET 1400 SUV MAZDA Car LCV 1200 PICKUP FORD 1000 800 600 400 OTHER LCV OTHER CAR SMALL CAR (A+B) NISSAN ISUZU MITSUBISHI 200 0 2009 2014 2013 2012 2011 2010 2009 2008 2007 LV Production by Type 2014 HONDA TOYOTA 0 100 200 300 400 500 600 LV Production by Brand 2014 Thousands

Malaysia Overview Malaysia total vehicle sales recovered by 12.6% to 548,889 units in 2008 Introduction of new, wellperforming models (esp. Proton Saga and Persona) For January-March 2009 period vehicle sales fell 9.2% to 118,681 units The LCV market boosted by upcoming launches of the Proton Exora and Perodua MPVs Vehicle scrapping subsidy of RM 5000 ($US 1400) available if you trade in a car 10 years old and buy a new Proton or Perodua Vehicle Also RM 200m ($US 57m) boost to industry through Automotive Development Fund 650 600 550 500 450 400 350 300 2007 2009 2011 2013 LV Sales ( 000s)

Malaysia Misses Out On Investment BMW 2009 vs 2014 MERCEDES-BENZ 2009 vs 2014 MERCEDES-BENZ SUZUKI ISUZU MITSUBISHI TATA HYUNDAI Proton and Perodua will lose market share as competition rises DAIHATSU ISUZU HYUNDAI Malaysia misses out on long term investment to Thailand SUZUKI KIA KIA TOYOTA NISSAN NISSAN HONDA TOYOTA HONDA PROTON PERODUA PERODUA PROTON 0 50 100 150 200-50 0 50 100 150 200 Thousands LV Sales by Brand LV Production by Brand Thousands

All Asia LV Production: Scenario Ranges Millions 38 36 Upside Scenario (15%) 34 32 30 28 Base (63%) Risk Weighted Average 26 24 Downside Scenario (22%) 22 2006 2007 2008 2009 2010 2011 2012 2013 2014

Summary Insights Outside China there is very limited decoupling of the automotive market from the economy Asia s importance has increased Some emerging markets are a stabilising force Government support is helping to mitigate the economic effects India and China provide most support to world growth Export markets are hit hardest on production Japan, Korea and Thailand production The downturn lasts to 2011 & growth rates have been reduced Increased protectionism reduces long term growth Wealth destruction & support for green investment favours small cars which increases the need for economies of scale and undermines industry profitability Investment projects are delayed but there is still strong pressure to move production to low cost regions Japan and Korea lose out to India and Thailand

Thank You! Tim Armstrong Managing Director Global Automotive Forecast Operations tim.armstrong@ihsglobalinsight.com