AutofactsFAPPresentation100901Excerpts.ppt

Asia PacificAutomotiveOutlook UpsideScenario Economicgrowthscontinues infrastructureimproves anddemandfornewvehiclesincreases Successfulimplementationofregionaltradeblocsandstablegovernmentsallowfortheconsolidationofoperationsacrosstheregionandtherationalizationofduplicateandnon competitiveoperations allowingefficiencytoaccompanygrowth DownsideScenario Asia seconomicstimulibackfireandtheregionfallsvictimtoanothereconomiccrisis Tradeblocsbreakdownreinforcingbarriersbetweenmarkets Politicalupheavalspossible perpetuatingthevolatilityoftheregion Worstcasescenario Large volumeassemblybecomesviableonlyinthelargestofmarkets newforeigninvestmentbecomesunlikelyduetoregionalinstability Significantpartsof1990sautoinvestmentsproveunsustainableinthelongrun Asia PacificBusinessEnvironment Asia Pacific despiteitschallenges remainsundoubtedlythelargestgrowthpotentialregionintheworldAsiaiswitnessingstrong butfragile recoverydependentontheabilitytoexportandmaintaineconomicandpoliticalstabilityHowever itremainsvulnerabletoaftershocksfollowingthe1997 98economiccrisissincerecoveryisbasedonunsupportedloansTheweakeningUSeconomywilldirectlyaffectprofitlevelsinAsiaastheUSisamajordestinationforexportsFuturegrowthliesinemergingAsia PacificmarketsChina Indiadomesticdemandcontinuestogrowspurredbyagrowingmiddle classSuccessofAFTAwillallowforincreasedinter regionalbusinessamongASEANmembersSouthKorea sgrowingdomesticdemandandincreasedexportsarekeytoitsgrowth Asia Pacific RegioninFocusEmergingfromanearcripplingeconomiccrisistheproverbialtigerisdonelickingitswoundsandisreadytoroar Significantmarketgrowthpotential Politicalinstability Diverseinter regionalmarketconditions Economicuncertaintycontinuestolinger Asia PacificMarketOutlook Asiaisseeingstrong butfragile recovery dependentonabilitytoexportandmaintaineconomicandpoliticalstability ExcessCapacity Units Units Assembly Capacity PotentialGlobalRepercussionsofTerroristAttacks EuropeDirect exportstoUScriticaltoGermanautomakers withweaker hurtingrepatriationevenatstablevolumesIndirect overallweakerregionalmacroenvironmentduetolowerconsumerconfidenceandreducedexportstoUS confirmingrecessionarypressures AsiaPacificDirect exportstoUScriticaltoJapanese Koreanautomakers withweaker hurtingrepatriationevenatstablevolumesIndirect overallweakerregionalmacroenvironmentduetoreducedoverallexportstoUS exertingrecessionarypressures SouthAmericaDirect limitedimpactIndirect globaleconomicweaknesslikelytounderminealreadyfragileregionalmacroenvironment Direct automotivetradeimpactIndirect macroeconomic otherimpacts Asia PacificeconomicgrowthremainsdependentonexportsandhenceonthecontinuedeconomicvitalityofNorthAmerica Asignificantdownturn especiallyintheUS wouldhaveadirectnegativeeffectontheregion TerroristAttacks EffectonAsia PacificAutomotiveIndustry Baselinescenario Asiagrowthisflatfrom2000to2001 duetopreviouslyexpectedcontinueddeclineinJapanandslightdecreaseinoutputfromSouthKoreaOverallregionalgrowthreturnstoaconservative3 5 in2002Downsidescenario ifasignificantdeclineinUSmarketoccursin2002duetoweakeningeconomicconditions expectedAsia Pacificgrowthin2002coulddisappearduetoreducedUSimportdemandandasetbackinAsianeconomicrecoverytrendsDropinvalueofthedollarmayremoveKoreanandJapaneseexchangerateadvantage impactingprofitabilityforAsianautomakersandthreateningthemarketopportunitiestheirpriceadvantagehasgiventhemHowever KoreanmarketshareinNAmarketcouldincreaseifeconomicconditionsgetworseinnearterm nextsixmonthsandbeyond aslowercost highvalueofferingsfromHyundai Kiabecomehigheronconsumers needtobuyversuswanttobuylistDriversofpositiveAsianmarketgrowthretainsomeindependencefrompotentialUSspilloverChinaWTOentryinlate2001willincreaseintra regionalexportgrowthopportunitiestoChinabeginningin2002 2003 althoughlimitedbylikelyChinesegovernmentwillingnesstoincurWTOsanctionstoprotectlocalindustryASEANeconomicgrowthandfullimplementationofAFTAholdpromiseforlocalautomotiveindustriesManymanufacturerswillberollingoutregionalmanufacturingplanstotakeadvantageofreducedprotectivetariffsStill theimproving yetstillshakyemergingmarketeconomiesareverymuchatriskifglobaleconomyfalters Asia PacificLightVehicleAssembly GrowthcomingfromeverythingbuttraditionalmainstayofJapan asChinatakesanincreasinglyimportant andpotentiallydestabilizing role Units Asia PacificUtilizationbyCountry RateofplantrationalizationinJapanmatchedbypaceofassemblytransferSouthKorea Localdemand exportpotentialnotsufficienttojustifycapacityAnnualcapacityremainsthreetimeslocalmarketdemandHyundai splansforincrementalNAandpossibleEUfacilitiescouldnegativelyimpactutilizationratesKoreamayhaveaJapan likecapacitycorrectioninitsfutureRestofAsiaChina India Thailandcombinefor30 ofregionalexcesscapacityResultofaggressivebuildupoffacilitiesforover estimatednear termdemand DCXandGMalliancesandacquisitionsdrasticallychangethedistributionofvolumegrowth Surprisingly near termgrowthexpectedfromnon AsianVBEsifalliancestrategiesareexecutedsuccessfully Asia PacificVehicleBrandEnterprise VBE Growth 80 DCX GM RenaultacquiringregionalscalethroughJapaneseandKoreanpartners butsuccesswillonlycomebyachievingprofitablegrowth afarmoreelusivegoal Adequateutilisationratesremainelusive despitedivergentVBEregionalstrategies Asia PacificVehicleBrandEnterprisePerformance 2000 2008Avg Asia PacificEmergingMarketVBEPerformance 2000 2008Avg 80 DespiteDCX sgambleonacquiringhighvolumeinAsianemergingmarketsviaHyundaiinvestment noonehassolvedtheriddleofachievingoperatingexcellenceinthesehigh growth butdesperatelycomplexandvolatilesetofmarkets DoesAsianriskpromiseworthwhilereturnsinanadequatetimehorizon MatureMarketsinclude Australia Japan TaiwanEmergingMarketsinclude China India Indonesia Malaysia Pakistan Philippines SouthKorea Thailand Vietnam Asia PacificKeyConclusions AsiaislessanregionalstorynowandmoreaglobalstoryInmarkedcontrasttothepast topfourslotsinregionalgrowthareheldbynon AsianbrandenterprisesGlobalVBEshavetakena buy versusa build brandandmarketshareapproachGM Renault DCX FordutilizeJapaneseandKoreanbrandsforAsianentryLong termmarketleadershipdependentonabilitytolocallymanagewithinaglobalstrategyGrowthdependentonprospectsofemergingmarketswithdivergentcharacteristicsSouthKorea matureindustryscale butdevelopingmarketdynamicswithhighrisksandheavyrelianceonexportsChinafacesmassivestructuralshiftWTOentrywillincreaseforeigninvestmentandhastendevelopmentofindustryOutlookdependentonsuccessofdevelopmentofconsumermarketratherthangovernmentplanneddemandThailandseeksroleasexportcenterforintra regionaltradeASEANautoindustrybettingthatAFTAcanbeimplementedandwillboosttradeinregionASEANmotivationtocooperateisfromfearoflosinginvestorstoChinapost WTOentrySowhatdothiscompetitiveenvironmentissuesadduptoforFord AUTOFACTSASEANAnalysis UpsideScenario AFTAsuccessfullyimplemented regionaltradegrows governmentsallowbusinessestomakedifficultchoices uncompetitivecompaniesfail oldandexcesscapacityeliminated Chinaservesasengineforregionalgrowth andpoliticalandeconomicstabilitymaintainedacrosstheregion Ifallthisoccurs ASEANwillbekeyglobalgrowthregion aresurgenttiger andwillsignificantlyexceedbaselinevolumepredictions DownsideScenario AFTAfailsduetocountriespursuingowninterestsaboveregion Chinadeflectssignificantgrowthfromregion politicalupheavalandeconomicvolatilitycontinues internationalorregionaleconomicorpoliticalupheavalinfectsregion Inworstcasescenario ASEANexposedaspoorlocationforhigh volumeautoproductionduetolackofscaleversusotherpotentialassemblysites esp China andsignificantpartsof1990sautoinvestmentprovesunsustainableinthelongrun ASEANBusinessEnvironment ASEANanincompleteattempttoformasuccessfulregionaltradingblocComposedofhugelydisparatecountries economically religiously ethnicallyGeographytheonlycommonthreadNotsurprisingly cohesivenessoftradeblocremainsunderthreatEx Malaysia spostponementoftariffreductionASEANatkeyturningpointNeedstofinallysuccessfullyintegratefreetradezonetocounteremergingthreatfromChinaWouldallowVehicleManufacturerstoconsolidateoperationsratherthanscattergunapproachineverymarketOrseeASEANconceptfallapart ASEAN RegioninFocusAregionaltradeblocstilltryingtogetofftheground justastheworldseemstobedoubtingthebenefitsofregionaltradeblocmodel Severalgovernmentseachwithownagenda limitedphysicalinfrastructures growingconsumerdemand moredevelopedautoindustry Singlegovernmentinfavorofconsolidatedautoindustry limitedphysicalinfrastructure growingconsumerdemand foreignownershiplimitations ASEANvs China ASEANLightVehicleAssembly Moderatenear termgrowthpotentialinASEANcountries withThailandaccountingfornearlyhalfofthegrowthwithinASEAN Units ASEANAssemblyGrowthbySegment Growthin2000 2008willcomemainlyfrommidandsmallvehicles PickuptruckscontinuetobeasolidsourceofgrowthasThailandsolidifiesroleasglobalpickupassemblysource becomingthelargestassemblerofpickupsintheworldbehindtheU S Alargeportionofmid sizegrowthispickups ASEANExcessCapacitybyCountry ASEANcountriesaccountfornearly17 oftheaverageexcesscapacitywithinAsia Pacificwhilecontributingonly8 5 ofoverallassembly NetNewCapacityinASEAN Malaysia scapacitygrowthismostlyattributedtoProton sambitiousexpansionplans MostThaicapacitycameonlinein2000 futuretrajectoryisnotnewinvestmentbutratherutilizingexistingassets China scapacitygrowthaloneexceedsallofASEAN Over700KunitsofnegativecapacitygrowthmostlyduetoplantrationalizationinJapan ASEANUtilizationbyCountry Thoughassemblyvolumeshavequicklyrecovered utilizationratesneverreturntopre crisislevelsduringtheplanningwindow Steadyimprovementmaynotbesufficienttosustainsignificantprofitability ASEANVehicleVBEPerformance 2000 2008Avg 80 Sharedpain Allmanufacturersaresufferingfromlowcapacityutilizationintheregion ThiscanbeattributedtothehistoricneedtoduplicateinvestmentineachASEANcountryaswellascatertowildlydivergentvehicletastes taxlaws andgovernmentprotectionistmeasures GoalofASEANFreeTradeArea AFTA istoreducerestrictivedutiesonover80 oftheflowofgoodswithinSoutheastAsia Aim toallowregiontocompetewithChinaandotheremergingmarketsforpreciousinvestmentcapital Includestariffreductionto5 orlessforASEANassembled completelybuiltup CBUs lightvehicles Implementationrequiresfullcooperationofmemberstates remainsanuncertainty AFTAwillchallengeprotectionistnationalcarschemessuchasProton Perodua andTimor Aswellasuneconomicoldercapacitythroughouttheregion Already Malaysiaisbalkingbydelayingimplementationofautomotivetariffreductionsuntil2005sothatProtonandPeroduacantryandprepareforthenewcompetition AFTAwillencouragedevelopmentofregionalindustryspecialistssuchastheThaicomponentspartsindustryorSingaporelifesciences attheexpenseofinefficientandoverlappingnat