Current State of Automotive Industry: Where Is It Going?

Report
Current State of
Automotive Industry:
Where Is It Going?
Ted Chu
Lead Economist
General Motors Corporation
September 6, 2007
The Yin and Yang of
Global Auto Industry
Income growth
and urbanization
OE restructuring
and new entries
AUTOMOBILE
INDUSTRY
Innovation and
integration
Pressure on
energy
and environment
Bottom Line: More business — but tougher business
Economic & demand growth
Global Real GDP* Growth Outlook
5%
4.1
4%
3.9
3.9
3.7
3.4
3%
3.5
3.3
3.2
3.3 3.4
2.8
2.5
2.5
1.9
2%
1.4
1.9
1.6
1.6
1%
0%
‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08
* Based on market exchange rates. Base year = 2005
Global Industry:
Continues to Outperform Expectations
Thousands
70,000
60,000
50,000
Japan bubble
Gulf War
Europe recession
40,000
Second
oil crisis
30,000
‘80
‘82
‘84
Actual
‘86
‘88
‘90
‘92
‘94
BP01
‘96
‘98
Linear (Actual)
‘00
‘02
‘04
‘06
New Vehicle Sales by Region
Millions
40.0
Forecast
37.1
30.0
AP
25.5
Europe
22.7
20.0
NA
10.0
LAAM
0.0
‘80
‘85
‘90
‘95
‘00
Source: GMIA; GSRA, July 2007 Short-term Forecast, Prelim BP08
‘05
‘10
9.1
‘15
U.S. Economic Forecast
 Economy forecasted to expand 1.9% in ’07
and 2.7% in ‘08
 Residential housing sector will remain a weak
spot of the economy going into 2008
 Unemployment rate expected to remain low,
but will increase from current 4.5%
 The U.S. dollar will generally remain weak
against major currencies through 2008,
providing support to exports
 Downside risks for 2008 forecast remain high
 Housing market could be worse than expected
 Spill-over of sub-prime market slump to the
broader credit market
 Energy prices could be volatile
Key U.S. Economic Indicators
From Recession
From 2003:Q2
From 2006:Q2
Recession
through 2003:Q1
through 2006:Q1
to Current
Latest Data2
Real GDP
Average Q/Q% @ AR
-0.2%
1.7%
3.5%
1.6%
3.4%
Real Consumption
Average Q/Q% @ AR
1.5%
2.7%
3.5%
3.2%
1.3%
Index of Consumer Sentiment
Average Index
88.2
87.7
91.2
88.1
90.4
Nonfarm Payroll Employment
Average Monthly Change, Thousands
-203
-61
160
160
92
Real Disposable Income
Average Y/Y% Change
1.8%
2.6%
2.7%
3.2%
3.1%
Corporate Profits
Average Y/Y% Change
-1.5%
18.6%
12.9%
10.3%
1.2%
ISM-Manufacturing Index
Average Index
44.4
51.5
0.0
53.0
53.8
New and Existing Home Sales
Average, Thousands
5,611
6,015
7,113
6,522
5,844
West Texas Intermediate
Average $/Bbl
25.67
27.18
45.45
64.64
67.48
CPI Inflation
Average Y/Y% Change
2.8%
1.8%
2.8%
2.9%
2.4%
Fed Funds Rate
End of Period, Percent
3.4%
1.6%
2.2%
5.2%
5.25%
1
Notes:
1
2001:Q1 - 2001:Q3 for quarterly data or March 2001 - November 2001 for monthly data.
2
Latest quarter or month.
New and Existing Single-Unit Home Sales
New 1-Family Houses Sold: United States
SAAR, Thous
Existing 1-Family Home Sales: United States
SAAR, Thous
6750
1400
6000
1200
5250
1000
4500
800
3750
600
3000
2250
400
05
00
95
Sources: Census Bureau, National Association of Realtors / Haver Analytics
Spread between 2-year Treasury Yield & Fed Funds Rate
3
3
2
2
1
1
0
0
-1
-1
-2
-2
90
95
00
05
U.S. Productivity versus Labor Cost
Nonfarm Business Sector: Output Per Hour/All Persons
% Change - Year to Year
SA, 1992=100
Nonfarm Business Sector: Unit Labor Cost
% Change - Year to Year
SA, 1992=100
6
12.5
10.0
4
7.5
2
5.0
0
2.5
-2
0.0
-4
-2.5
80
85
90
95
Source: Bureau of Labor Statistics /Haver Analytics
00
05
Business vs. Private Sector Auto Purchases
Government
60
Business
50
Private
40
30
20
10
0
-10
-20
-30
-40
Q1
‘02
Q3
‘02
Q1
‘03
Q3
‘03
Q1
‘04
Q3
‘04
Q1
‘05
Q3
‘05
Q1
‘06
Q3
‘06
Q1
‘07
Average Vehicle Transaction Price
$26,500
$26,206
$25,846
$26,000
$25,855
$25,237
$25,500
$25,000
$24,710
$24,500
$24,218
$24,000
$24,006
$23,500
$23,000
$22,500
‘01
‘02
Source: GMIA, J.D. Power PIN
‘03
‘04
‘05
‘06
’07
CYTD
Air Traffic Growth Outlook
US (Airline Monitor, July '07)
2007 - 2.2%
2008 - 4.2%
2009 - 4.6%
NA (Int'l Air Trans. Asso., Oct '06)
2007 - 4.5%
2008 - 4.3%
2009 - 4.1%
U.S. Fleet Sales Outlook
 Relatively flat daily rental at slightly below 2 million units over
next few years despite expected growth in leisure and business
travel
 Structural shift of demand from light trucks to cars
 Import brands will step into the void left by the domestics, but
they may not have the same impetus to play heavily in rentals
as the Big 3 has done
 Government/commercial market is likely to see limited rebound
over next few years
 The residential construction sector will take years to fully
recover
 There could be some pull ahead into 2009 from 2010 due to
diesel pricing in 2010
Innovation and Productivity
Key Supply-side Developments
 Supply-side pressures are intensifying and
driving improvements in product affordability
 Product choice continue to increase
 Squeeze in the middle
 Movement towards luxury/premium and upcontenting
 Consumers knowledge and expectations
continue to increase
Productivity, innovation, & cost cutting
Price changes over the last 2 years
US
EU12
Germany
UK
France
China
6.7%
4.4%
3.7%
4.5%
4.4%
3.8%
3.3%
2.8%
1.2%
-0.8%
-1.4%
Total change in consumer prices (Annual, 2004-2006)
-12.3%
Total change in vehicle prices (Monthly, Mar-07 vs. Mar-05)
* Note: Vehicle price changes are based on an equipment adjusted index (except China)
China prices are for passenger cars only
Sources: Bureau of Labor Statistics (US), Statistical Office of the European Communities, Cheshi Price
Index
Total Vehicle Entries – Selected Markets
W & C Europe
U.S.
407
356
Japan
442
394
289
258
287
Major Mature Markets
257
204
1995
2005
2010
Australia
142
206
225
China
253
Russia
Major Emerging Markets
193
50
80
79
N/A
India
Mexico
19
233
53
78
Thailand
196
77
1995
2005
85
2010
S. Africa
Brazil
131
147
129
65
90
232
174
73
Source: GMIA / EZQ
Competition Has Intensified in the U.S.
Year
# of Models
Big 3 Share
1965
96
90%
1975
185
81%
1985
245
73%
1995
287
72%
2003
322
63%
2006
352
56%
Source: NA EZ Query
GM Turnaround & Transformation
 GM continues to make
significant progress in
its North America
turnaround
 Incentive spending
is down
 Increased
profitability of
rental fleet sales
 Residual values and
average transaction
prices are up
GM Turnaround & Transformation
 GM will continue to be a major player in
the commercial fleet business
 GM will continue to
grow volume
and share with
National Accounts
and GM dealer commercial business
 We’ve grown our share in the
commercial fleet business … and we
intend to continue
 GM will not chase volume at the expense
of profitability
GM Turnaround & Transformation
 GM offers fleet customers the
best products and service
in the industry
 Chevrolet Impala
“Fleet Car of the Year”
two years in a row
 2008 Chevrolet Malibu & Impala
give GM the best mid-size
lineup of any company
 GM offers customers newest
and best-selling full-size
pickups — Chevrolet Silverado &
GMC Sierra
 Helping fleets “go green”
without going broke
Integration & Restructuring
Changing Global Industry Landscape
 OE restructuring
 Production moves to low cost markets
 Rise of the AP region, esp. China
 Trade liberalization
 FX and other risks
China: Vehicle Exports — 2006
C./E.
Europe
W. Europe
26,393
North America
48,925
Rest of Asia
19,869
Middle
East
92,877
Central America and
Caribbean
41,676
ASEAN
16,621
9,282
South America
Oceania
21,037
994
Africa
61,582
Source: SIC, May 2007
Mini
Chinese OEMs’ New Entries in
2007-2009 (Low-End Passenger Vehicles)
Great Wall Perey, Reg. & 4X4 (’07)
Small
Chery A1 (’07)
Lower Medium
Great Wall Cool Bear (’07)
Landwind CV7 (’07) Great Wall Florid (’07)
Great Wall i7 (CH031) (’08) Chery M11 (A3) (’08)
Chery M-12 (A3) (’09)
Roewe W261
MG-3 (Concept)
Hafei Saibao V
JAC C926 (’07)
What Will China Do to the Auto Industry?
China's Share of
Global Manufacturing Exports
9.0%
 In 2005, China’s GDP was
around 5% of global GDP, but
produced
 50% of the world’s cameras
 25% of washing machines
 30% of air conditioners & TVs
 20% of refrigerators
 25% of toys
 51% of microwave ovens
 60% of bicycles
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
‘80 ‘82 ‘84 ‘86 ‘88 ‘90 ‘92 ‘94 ‘96 ‘98 ‘00 ‘02 ‘04
 9% of automobiles
Sources: WTO Statistical Database (2005), ATKearney – China Solutions Group Overview, Reuters News Report
One reason why China must sustain high
growth and low costs: 8 million college grads
and 15 million migrant workers enter labor
force each year
Trade Agreements: Major Vehicle Producing Countries
NAFTA
EU
Andean
ASEAN
Mercosur
SADC
Current trade agreements
Future (likely signed by 2010) trade agreements
• Even
if signed within 5 yrs, auto transition periods may be longer
• Black circles indicate major existing trade agreements
Key Exchange Rates – Current vs. 5 Years Ago
Jan-May
Appreciation
2007
2002
80.95
110.30
-26.6%
Euro
0.754
1.128
49.7%
Japanese Yen
119.6
130.9
9.4%
UK Pound
0.508
0.696
36.9%
Canadian Dollar
1.149
1.583
37.8%
Australian Dollar
1.248
1.894
51.8%
South Korean Won
935.2
1,307.7
39.8%
Brazilian Real
2.07
2.39
15.5%
Mexican Peso
10.97
9.20
-16.2%
Russian Ruble
26.11
31.01
18.8%
9.20
9.17
-0.4%
UK Pound
0.675
0.617
-8.5%
Japanese Yen
158.7
116.0
-26.9%
1,241.1
1,159.7
-6.6%
Nominal Trade-Weighted Exch Value of
US$ vs Major Currencies (Mar-73=100)
Dollar Rates
Euro Rates
Swedish Krona
South Korean Won
Source: Federal Reserve (US), Wall Street Journal, Financial Times / Haver Analytics
Pressure on Energy &
Environment
Crude Oil Price vs. U.S. Retail Gas Price
Domestic Spot Market Price: Light Sweet Crude Oil, WTI, Cushing
EOP, $/Barrel
U.S. Retail Gasoline Price: Regular Grade
Avg. U.S. $/Gallon
80
3.5
Oil prices surpass $70 per barrel
and gas prices top $3
3.0
60
2.5
40
2.0
20
1.5
0
‘00
‘01
‘02
Sources: WSJ, EIA / DO / Haver
‘03
‘04
‘05
‘06
‘07
1.0
Global Oil Consumption 000B/D
90,000
80,000
70,000
India
Remaining Asia-Pacific
60,000
China
Africa & Middle East
50,000
40,000
Europe
30,000
S. America
20,000
North America
10,000
0
‘75
‘78
‘81
‘84
‘87
Sources: BP Statistical Energy Review 2006
‘90
‘93
‘96
‘99
‘02
‘05
GM’s Vision for
Future Propulsion Technologies
Improved
Vehicle Fuel
Economy &
Emissions
Displace
Petroleum
Hydrogen
Fuel Cell
Battery Electric
Vehicles (E-Flex)
Hybrid Electric
Vehicles (including
Plug-In HEV)
IC Engine and
Transmission
Improvements
Energy/Fuel
Diversity
Petroleum (Conventional & Alternative Sources)
Bio Fuels (Ethanol E85, Bio-diesel)
Electricity (Conventional & Alternative Sources)
Hydrogen
Recycling of Carbon Results in CO2 Benefits for
Ethanol Compared to Gasoline
CO2 in the
atmosphere
CO2 via
photosynthesis
CO2 emissions
during
fermentation
Carbon
in corn
kernels
Carbon in
ethanol
Carbon
in crop
residue
Carbon
in soil
Ethanol plant
CO2 emissions
from ethanol
combustion
GM’s
2001
2-ModeHybrid
Light Hybrid
2002
Portfolio
2003
2004
2005
2006
2007
2008
2009
GM/Allison Hybrid Bus
Chevrolet Silverado/
GMC Sierra
Saturn VUE
Green Line
Hybrid
Saturn Aura Green Line
Chevrolet Malibu
Tahoe/Yukon
Escalade
2-Mode
Hybrid
Silverado/
Sierra
Saturn VUE
Green Line
Saturn VUE
Green Line plug-in
E-Flex
Chevrolet
Volt
How will fleet market be impacted?
 Natural reaction in the marketplace to higher
fuel prices
 … and to more powertrain options – hybrids,
etc.
 Battery technology is key to plug-in hybrids
and fuel cell development
 “Leaving no stone unturned” in improving
fuel economy
 Commercial markets will always need larger
vehicles and V8 engines to “get the job
done.”
 Crossover vehicles, light duty diesel trucks, &
other new products from GM
Six Potential Surprises
 Global economic downturn around 2010
 The peaking of energy/commodity “super cycle”
 The slowdown of U.S. productivity growth
 Structural reform accelerates in EuroZone
 The big breakthrough in powertrain and battery
technologies
 Accelerated auto export drive from emerging
markets

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