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Eastern Automotive Summit October 19, 2006 The Global Automotive Outlook: Strategic Trends & Implications.

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Presentation on theme: "Eastern Automotive Summit October 19, 2006 The Global Automotive Outlook: Strategic Trends & Implications."— Presentation transcript:

1 Eastern Automotive Summit October 19, 2006 The Global Automotive Outlook: Strategic Trends & Implications

2 Presentation Outline The automotive outlook –North America –Global –Strategic and tactical issues Shifts: OEMs and segments –Winners and losers Contribution to growth Key drivers, enablers and constraints –Brand positioning and momentum –Energy –Strategic investment –The path to growth/recovery Other issues –Alliances –Delphi Summary, conclusions and implications

3 North American Automotive Outlook

4 Outlook Scorecard* Key NAFTA Drivers Business environment –Economic growth %/yr. overall –Employment growth slow pickup; productivity growth –Inflation increasing pressure – % –Interest rates slow adjustments –Energy improvement but risk remains –Government regulations emphasis on fuel economy, emissions Automotive environment –Ownership & operating cost incentives slow –Vehicle demand moderately high volume without economic, energy, political crises * Expected performance by factor assessed by color and time of evaluation: GREEN (good); YELLOW (moderate); RED (bad) Source: AutomotiveCompass

5 Mid-term North American Auto Outlook: Light Vehicle Production Volume Mid-term, million planning volume range, reflecting …. 1.Healthy economic growth in the mid-term Real GDP up %/yr –Supporting employment and income growth Inflation advancing at %/yr 2.Growth in driving age population Immigration driven US and Canada driving age population growing at %/yr 3.Substitution effects: imports replaced by domestic production Europe - Euro pressure Asia - domestic content; credibility; political support; labor stability North America gaining an export base - BMW, VW, Mercedes-Benz Source: AutomotiveCompass

6 Oil Prices – 12 months tracking Updated 10/11/ planning range $60-80/bbl Risks: supply disruptions - hurricanes, war, terrorism

7 NAFTA Auto Outlook: Production Light Vehicle Production Volume in 000s, Source: AutomotiveCompass

8 NAFTA Auto Outlook: Production Light Vehicle Production Share (%), Source: AutomotiveCompass

9 Segment Definitions: Cars and Light Trucks Cargo vehicle over 6,000lbs GVWRLVN Usually car-based and FWD vanMVN Primarily American, SUV over 6,000lbs GVWRLSV Truck-based SUV under 6,000lbs GVWRMSV Usually car-based (FWD-based) SUVSSV Primarily American, pickup over 6,000lbs GVWRLPU Truck-based pickup under 6,000lbs GVWRMPU Sporty vehicle not meeting "F" category definitionS Exotic and ultra-luxury cars, regardless of size. Chiefly a pricing categoryF "Near luxury" or "large car"E "Executive car," known as "mid-sized" in the U.S.D Typical "compact" vehicles, principally family cars in Europe and AsiaC "Supermini" classification, regarded as "minicompacts" in the USB DescriptionSegment Source: AutomotiveCompass

10 Segment Shift: Cars Source: AutomotiveCompass North American Market Share by Product Segment

11 Segment Shift: Light Trucks North American Market Share by Product Segment Source: AutomotiveCompass

12 Segment Shift: Big Pickups & Small Cars Pickups stabilize –Functionality and competitiveness –Added PU capacity & products will drive a content and price war Small cars grow –Energy pressure and competitiveness –Strong entries battle it out with content and price … European- type market development North American Market Share Source: AutomotiveCompass

13 Segment Shift: SUVs vs Crossovers North American Market Share by Product Segment Source: AutomotiveCompass

14 Market Share shift in : Big 3 Domestics North American Market Share by OEM Brands Source: AutomotiveCompass

15 Market Share shift in : Big 3 Transplants North American Market Share by OEM Brands Source: AutomotiveCompass

16 GM Overview The sleeping giant is awake –Period of denial over? –Gaining momentum –Needs sustained positive results to maintain credibility and control –Stock price up sharply… up almost 75% since April 2006 Gaining traction –New products 2 strong products in the global top ten (GMT900, Delta2) Other strong platforms: Epsilon2, Theta, Lambda, Zeta Strongest product line-up in decades emerging –Improving cost structure –Delphi situation improving Risks –Cash squeeze –Proxy fight for control –Union cooperation –Delphi –Execution - sustained speed and agility

17 GM Stock Price Up almost 75% since April! Oct `04Feb 05Jun 05Oct 05Feb 06Jun Oct 06

18 Delphi Update Delphi & GM near a pact to avoid strike –GM to subsidize Delphi wages –GM to guarantee business to Delphi –Supply disruptions likely to be avoided Risks –Creditors fear their claims will be swamped by those from GM –Terms for capital infusion from investors –Struggle for control: strategic investors vs. financial investors

19 Threats of Private Capital Financial investors have much to gain –Where business are drastically reorganized (pensions, health care, underperforming assets) AND someone else pays the bill BUT, some of the driving factors in other industries (for example, steel) are not present in the auto industry –Tactical advantage? Capturing low-cost control of re-emerging businesses may have a relatively quick payback for financial investors Strategic investors vs. financial investors –Potential difficulty for OEMs, and ultimately for suppliers, concerned about stability and long-term investing in the business –Funding of strategic investment (= long-term commitment) New products (to sell more cars) vs. new processes (to increase productivity, quality and lower cost) –At odds with goals and needs of financial investors (= short-term gains) –Holding OEMs hostage?

20 Global Automotive Outlook

21 Global Overview The global automotive outlook –Global automotive production expected to grow by almost 20% to approx. 72 million light vehicles in 2010 –Toyota emerges as the largest OEM, passing GM in 2008 Product, manufacturing, cost, branding strengths Increased global competition –Some traditional OEMs are trailing … losing share Product, manufacturing, cost weaknesses But some level of recovery is expected –Asia (China, S.Korea, Thailand, India) and Eastern Europe will account for 75% of the growth in automotive production –Excess capacity remains a serious concern (Asia, Western Europe)

22 Winners & Losers: Mid-term Scorecard Results Source: AutomotiveCompass

23 Top 10 Global Platforms NOTE: For comparison purposes the previous generation platform information is also provided Source: AutomotiveCompass

24 Improving SlippingTrailing Leading Top 11 OEMs represent almost 90% of the global market Global Market Clusters: OEMs Change in Market Share (% pts.), History and Forecast Source: AutomotiveCompass

25 Global Production by Region: 2002 Global Light Vehicle Production (units, % of total) Global Volume: 56.1 mil

26 Global Production by Region: 2010 Global Light Vehicle Production (units, % of total) Global Volume: 72.4 mil

27 Global Production by Region: Units as % of total growth over 2002 Global Production Global Volume Growth: 16.3 mil

28 Light Vehicle Production by Country US 2. Japan 3. Germany 4. France 5. Spain 6. South Korea 7. Canada 8. China 9. Mexico 10. UK 11.2 M 10.1 M 5.5 M 3.4 M 3.0 M 2.9 M 2.5 M 2.0 M 1.8 M Ranking of light vehicle production volume by country US 2. Japan 3. German 4. China 5. France 6. South Korea 7. Canada 8. Spain 9. Brazil 10. UK 12.0 M 9.5 M 5.2 M 4.8 M 3.6 M 3.4 M 2.7 M 2.6 M 2.3 M 1.7 M US 2. Japan 3. China 4. Germany 5. South Korea 6. France 7. Brazil 8. Canada 9. India 10. Spain 12.2 M 8.6 M 8.5 M 5.9 M 3.6 M 3.5 M 2.8 M 2.7 M 2.6 M Source: AutomotiveCompass

29 Key Global Issues Growing global excess capacity –As major Asian OEMs substitute home market production with local production in North America and Europe –China – supply growing faster then demand; export concerns in an increasingly hostile trading environment; investment slowdown likely Alliances… Do they help or distract? –Renault-Nissan (+) –GM – Fiat, Isuzu, Suzuki, Subaru, AutoVaz, SAIC (+), Toyota (+) –Ford – Mazda (+), Volvo (+), Land Rover, Jaguar, Aston Martin –DCX – Mitsubishi, Hyundai –Toyota – PSA (+), GM (+) Investment substitution –Growing evidence that scarce investment funding is shifting from Asia to Eastern Europe Asia – higher then expect costs, growing excess capacity, declining margins Eastern Europe – market access (Russia), low-cost production

30 GM - Renault Nissan Alliance – Chronology May 4, 2005: Kerkorian seeks to boost his GM stake to 9 percent. Nov. 21, 2005: GM lays out plan to cut 30,000 jobs, reduce capacity by 1 million vehicles and close 12 plants in North America to restore profits. Jan. 10, 2006: In a speech in Detroit, longtime Kerkorian adviser Jerry York calls on GM to cut brands, dividends and executive pay. Feb. 6: York named to GM board. June 30: Kerkorian calls for GM board to immediately study a three-way alliance with Renault and Nissan. GM board calls an emergency meeting to discuss Kerkorian's actions. Directors agree to study the situation. July 7: GM board agrees to have company management team, led by Rick Wagoner, open talks with Renault-Nissan. Sept. 27: Carlos Ghosn, CEO of Renault and Nissan, meets with Wagoner in Paris as a deal appears increasingly unlikely. Sept. 28: Kerkorian tells GM he wants to buy up to 12 million more shares, increasing his stake in the company to about 12 percent. He again calls for GM board to examine the deal, including hiring independent adviser. Oct. 3: GM board convenes regularly scheduled meeting and discusses widely different analyses of the benefits of a tie-up. While Renault-Nissan has estimated the eventual potential annual savings to GM at $10 billion, GM puts the savings closer to $3 billion a year. Oct. 4: Companies announce that they've ended talks because they could not reach an agreement on the value generated by the proposed alliance.

31 Conclusions & Implications

32 North American Trends North American automotive outlook –Recession likely to be avoided for 2007 –Moderately strong mid-term Economic growth, driving age population growth, import substitution Automotive industry risks: energy, cost of regulations, ability to withstand shocks, profitability needed to fund investment growth and replacement, the Asia factor –Price and content war in full-size pickups likely for Domestics dig-in as NAMs add capacity/products and attempt to extend momentum – Toyota, Nissan and possibly Hyundai –Cross-overs and small cars will gain volume and share –NAMs expected to gain over 3 share points (550,000 units) at the expense of the traditional domestics –Mexico will gain approx. 3 share points

33 Global Trends Global automotive outlook –Global automotive production expected to grow by almost 20% to approx. 72 million light vehicles in 2010 –Toyota emerges as the largest OEM, passing GM in 2008 Product, manufacturing, cost, branding strengths Increased global competition –Some traditional OEMs are trailing … losing share Product, manufacturing, cost weaknesses But some level of recovery is expected –Asia (China, S.Korea, Thailand, India) and Eastern Europe will account for 75% of the growth in automotive production –Excess capacity remains a serious concern (Asia, Western Europe)

34 Pervasive Global Change Kondratiev (1920s) predicted the fall of communism because it could not generate the investment to drive invention, while capitalism rewarded invention –11/9/89, the Berlin Wall came down Spiraling fuel prices –Escalating fuel prices from very low cost to an expensive, essential commodity in 50 years The growth of Asian auto OEMs –Gaining 25+ share points (globally) in 50 years, from nothing to dominance

35 Business Models in Conflict The traditionalists (Mass Production) –Resistant to change … reactive, slow, legacy restrictions, decisions short-term oriented, less focus on innovation, business as usual. The change specialists (Lean System) –Proactive, agile … anticipate and thrive on change … long-term planning point-of-view … understand that growth favours the prepared … crisis-driven and enabled: energy, financial, brand image

36 The Lean Model – Critical Elements The Lean Model has 5 essential elements: 1.A Product Development Process 2.A Supplier Management Process 3.A Customer Management Process 4.An Overarching Enterprise Management Process 5.A Production Process From Order to Fulfillment

37 Special Issues: Opportunities/Threats An energy crisis favours agile OEMs with advanced powertrain technology –Toyota, Honda, Nissan –DCX (diesel) Hyper-competition favours low-cost OEMs –Asia –Eastern Europe Financial crisis favours deep pockets to fund technology and innovation –Toyota

38 Conclusions and Implications Building a successful future – for shareholders and the workforce – depends on building and sustaining a competitive advantage –Adopting the change specialist business model –New and better products –New and better processes –Collaborative relationships (partnerships) –Customer-facing interaction –An innovative point of view –Turning threats into opportunities

39 Eastern Automotive Summit October 19, 2006 The Global Automotive Outlook: Strategic Trends & Implications


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