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© 2017 IHS Markit© 2017 IHS Markit. All Rights Reserved.
Sourcing disruption and riskDealing with unexpected turns
AUTOMOTIVE
Mark Fulthorpe, Director Light Vehicle Production Forecast, +44 203 159 3474, [email protected]
8 March 2017 | Plymouth, Michigan
Contents
© 2017 IHS Markit
Trading nationsWhat is the risk?
Global outlookRegional development
New phase of consolidationCoincidence or inspired timing?
Summary
Presentation Name / Month 2016
2
Contents
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Presentation Name / Month 2016
3
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Only the United States shows a significant import increase
4
Trade balance (export-import) of top-10 production countries in 2010–16
Outlook and sourcing in context 2017 Spring automotive conference | 8 March 2017
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Structural factors constrain exports and fuel imports
Key markets North America spotlight on Mexico
5
Imports
Fueling imports• Mexico grows as production
footprint in NAFTA.• Stronger US dollar encourages
Japan /EU/Korea exports• OEMs hesitate to invest in United
States owing to lower potentialgrowth.
• Detroit 3 have competing focus ontrucks.
Exports CanadaMexico
ChinaEU
Middle EastAfrica
Others
Constraining exports
• Detroit 3 distance from globaldemand.
• Pickups much less opportunitybeyond NAFTA.
• Detroit 3 enhance localization inChina to avoid tariffs.
• Middle East/Africa demandstagnates owing to lower oil price.
Demand-supply balance in the United States in 2010–16(annual average in million units)
Produced in the US
2017 Spring automotive conference | 8 March 2017
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Detroit and VW most exposed to “big tax”
Production mix in Mexico
6
2017 Spring automotive conference | 8 March 2017
2016 share of Mexican build exported to US 2024 share of Mexican build exported to US
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Passenger cars become most exposed to “big tax”
A-segment
1% B-segment
19%
C-segment
26%D-
segment22%
E-segment
1%
Full-frame31%
B-segment
16%
C-segment
48%
D-segment
20%
Full-frame16%
Production mix in Mexico
7
2017 Spring automotive conference | 8 March 2017
2016 share of Mexican build exported to US 2024 share of Mexican build exported to US
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Expect all OEMs to review export strategies and reduce exposure to US marketD-3 under greatest pressure:
• Ford pulls out of USD1.6-billion San Luis Potosi investment, among other changes
• GM and FCA truck build can offset risk owing to margin and investing in United States/Canada
High-margin vehicles and brands best insulated from any new tax/tariffs
Production of small vehicles—46% of current build and forecast to reach 64%—faces margin/price pressure, most at risk from tax/tariff changes and possible sourcing switch
Asian OEMs could move small cars out and backfill with higher-margin CUVs; accelerating removal of weak-performing programs
VW highly exposed to Mexican production, but strong exports beyond NAFTA; expected to focus BEV output in Chattanooga
Mexican summary
8
2017 Spring automotive conference | 8 March 2017
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Withdraw and redraw
9
Trans-Pacific Partnership members
© 2017 IHS Markit. All rights reserved. Provided “as is”, without any warranty. This map is not to be reproduced or disseminated and is not to be used nor cited as evidence in connection with any territorial claim. IHS Markit is impartial and not an authority on international boundaries, which might be subject to unresolved claims by multiple jurisdictions.
2017 Spring automotive conference | 8 March 2017
• Public disapproval
• United States withdraws (January 2017)
• TPP in current form cannot proceed
• Members to continue talking trade
TPP status
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United States rejoins Continue without United States Cancel
• Very unlikely
• Ratification not until February 2018, member withdrawal still possible
• Loss of credibility for TPP
• Other members may raise US reliability concerns
• More negotiation
• US could pressure new terms
• Trump presidency impact on member attitudes
• Protests/opposition continues
• China participation less likely
• Possible
• 11 remaining members
• New agreement
• Key US-Japan link gone
• China involvement, potential to increase tensions with UnitedStates
• Delays, more negotiation to update terms without United States
• Increased pressure to recruit other members (Thailand, China)
• Lost value (US 65% of TPP)
• Protests/opposition continues
• US access incentive gone
• Most likely
• More focus on bilateral agreements (US-Japan)
• FTAs more likely than EPAs, focus on trade, less on labor, environment, etc.
• Less opposition/protests
• Simpler, less bureaucracy
• Negotiate individually
• Smaller markets may miss out
• Local laws unchanged (TPP requirement)
• Barriers remain in Pacific Rim
• TPP as a template
10
2017 Spring automotive conference | 8 March 2017TPP possible scenarios
TPP not dead, but future uncertain
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2017 Spring automotive conference | 8 March 2017
Losers• High-cost TPP member production could suffer as
production moves to low-cost members
• Thailand (nonmember) could suffer as production moves to low-cost TPP members
Winners• Low-cost TPP member production to
benefit a lot (lower cost/barriers, volumes increase)
Canada?
Note: Forecast volumes are possible trends only
United States
ThailandMalaysia
0M
2M
4M
6M
8M
10M
12M
14M
'10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20
Automotive Production
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Vietnam
Mexico
Japan
0M
2M
4M
6M
8M
10M
'10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20© 2017 IHS
Automotive Production
TPP (or similar) automotive production
Accelerated move to low-cost locations
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What did he say?
Brexit still looms
12
2017 Spring automotive conference | 8 March 2017
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UK industry remains at risk
13
Very low
Very low
Very low
Very low
Low
Medium
Medium
Medium
High
JLR Halewood
JLR Castle Bromwich
JLR Solihull
BMW Oxford
Nissan Sunderland
GM Ellesmere Port
Toyota Burnaston
Honda Swindon
GM Luton
191,000
66,000
295,000
210,000
507,000
118,000
180,000
139,000
74,000
Unlikely
Unlikely
Partial
Partial
PartialPossible total—
NA exports?Possible total
Possible total—NA exports?Possible total
Risk Plant output 2016 Destination marketsSourcing
alternativesMajor
investment timingsLatest Next
Key markets Europe constraints in the face of Brexit
Europe UK Rest of world
2017 Spring automotive conference | 8 March 2017
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Risk increases with geopolitical shocks
Implications for global auto industry
14
Risk of broad retreat from globalization
Trump, Mexico, NAFTA,Brexit, Eurozone, TPP
Counter-synchronization of auto sales cycles across world regions continues, with emerging markets and developed markets on opposite
waves. Wave amplitude will likely dissipate in time.
Increased risk of new disruptive business models “breaking the forecast”
Risk of longer-term planning volatilities
uncertainty hurts long term planning
2017 Spring automotive conference | 8 March 2017
Contents
© 2017 IHS Markit
Trading nationsWhat is the risk?
Global outlookRegional development
New phase of consolidationCoincidence or inspired timing?
Summary
Presentation Name / Month 2016
15
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85
90
95
100
105
110
2014 2016 2018 2020 2022 2024
Mill
ions Q1 '17
Q4 '16
2016 2017 2018 2019 2020 2021 2022 2023 2024Total Light Vehicle 1,834,343 1,954,954 1,202,891 462,228 376,357 99,837 -128,537 -93,819 -187,897Europe 66,396 9,728 -36,688 -67,802 -65,094 -87,992 -229,247 -232,906 -327,176Greater China 1,570,608 2,024,428 1,298,602 1,203,368 755,262 466,355 441,046 416,625 612,244Japan/Korea 117,230 51,445 -100,436 -317,399 -155,041 -134,306 -112,390 -88,097 -104,410Middle East/Africa -36,160 42,519 127,904 81,407 132,701 55,023 32,892 -63,690 -55,163North America -60,795 -389,227 -231,657 -317,142 -165,136 -70,570 -121,219 -60,683 -207,086South America 40,719 275,915 186,188 40,323 42,693 4,694 -25,892 -6,962 -27,878South Asia 136,345 -59,854 -41,022 -160,527 -169,028 -133,367 -113,727 -58,106 -78,428
Global production outlook changes
16
2017 Spring automotive conference | 8 March 2017
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Close to the peak and changing the mix
16.5
17.0
17.5
18.0
18.5
19.0
2014 2016 2018 2020 2022 2024
Mill
ions
Q1 2017 Forecast
Q4 2016 Forecast
• Trends
America first
• 2016–18 US sales expected to fall 1% in
2017, then recover in 2018 US car/truck mix evolves further
toward trucks; expect 63% by 2018
Strategic move to lower overall volume but higher profitability
• Long-term
Wildcards: EPA/CARB emissions rulings and trade policy
North America production outlook changes
17
2017 Spring automotive conference | 8 March 2017
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Short term “rollercoaster,” less excitement to follow
• Trends
Overall growth still moderates
• 2016–18 Small car tax changed from 5.0%
to 7.5% Pull-ahead in late 2016 but still
expected to have a positive effect in 2017—strong fundamentals may have been masked
• Long-term
Lower GDP trend level
Replacement demand becomes more important
Greater China production outlook changes
18
2017 Spring automotive conference | 8 March 2017
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Recovery quickly gives way to saturation
• Trends
Uncertainty within EU about further destabilization
• 2016–18 Recovery cycle in domestic sales
passes the peak Exports become crucial to support
overall growth
• Long-term
Localization will remain a competing trend to exports; trade dependencies may accelerate
Central European operations become expansion point
Europe excluding CIS* production outlook changes
19
2017 Spring automotive conference | 8 March 2017
* CIS = Commonwealth of Independent States: Russia, Ukraine, Belarus, Kazakhstan, Uzbekistan
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An old story that does not change much
• Trends
Significant impact from external policy developments
• 2016–18 Japanese consumption-tax
increase deferred to 2019 Korea restores consumption tax
mid-2016
• Long-term
Despite volatility, localization will remain a competing trend to exports; trade dependencies may accelerate
Japan/Korea production outlook changes
20
2017 Spring automotive conference | 8 March 2017
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Mixed and likely to remain volatile
21
2017 Spring automotive conference | 8 March 2017
Commonwealth of Independent States Middle East/Africa
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Growth returning and stabilizing
Key emerging-market production outlook changes
22
2017 Spring automotive conference | 8 March 2017
South America ASEAN/India
Contents
© 2017 IHS Markit
Trading nationsWhat is the risk?
Global outlookRegional development
New phase of consolidationCoincidence or inspired timing?
Summary
Presentation Name / Month 2016
23
© 2017 IHS Markit
New order could emerge as growth slows and search for scale intensifies
Top OEMs by volume 2016
24
2017 Spring automotive conference | 8 March 2017
Million units
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Top-20 subject to potential consolidation driven by new collaboration
Top OEMs by volume 2024
25
2017 Spring automotive conference | 8 March 2017
Toyota + Suzuki + Mazda
+ Fuji
VW +
TATA
R/N +
Mits.
GM/SAIC- Opel H
yund
ai
Ford
Hon
da
FCAPSA
+ Opel D
aim
ler
BM
W Geely +
Proton
BA
IC
Cha
ngan
Gre
at W
all
Million units
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Adjusting global focus
• Singular focus though One Ford subject to greater regional modification
• Continues to compete in Europe
• Lincoln struggles to establish premium branding beyond NA
• Accelerated push for electrification and seeks to demonstrate lead in autonomous vehicles
• Hybrid, PHEV, and BEV viabilities changing in view of planning priorities
• Realignment of Mexican operations reflecting passenger car challenge
• Loud overtures to GM silenced for now in favor of partner for selected passenger car opportunities
• Switching to trucks, eases margin and compliance pressure on US market; Dart and Chrysler 200 dropped, major effect on midterm volumes
• Focus likely to be reflected in China as regional strategy is revisited
• Conserving cash, canceling, deferring program investments
• Relaunch Alfa and fine-tune European compact/subcompact sectors
North American OEMs
26
2017 Spring automotive conference | 8 March 2017
• Divesting European operations
• Focus on North America and China
• Core-4: Buick, Chevrolet, Cadillac, and GMC
• Commitment to invest in Cadillac to improve competitiveness
• Truck lightweighting being accelerated
• Expect platform strategy to be revisited to reflect restructuring
• Bolt/Ampra-e forms basis of electrification strategy further derivatives to follow
General Motors Ford FCA
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The Big 3 being formed as new collaborations grow
• Further extend the alliance with the addition of Mitsubishi since mid-2016
• Nissan-Mitsubishi: Mitsubishi SUVs will be developed under the Renault Nissan CMF-C/D platform; C-segment BEVs also integrated
• Nissan will also assume lead on K-car development
• The RNPO will integrate key elements of Mitsubishi supply chain.
• Mitsubishi focus on ASEAN operations under the alliance
• Honda a question mark—high risk in continuing to operate as a standalone?
• Faces the same challenges as other Japanese OEMs: Mexico, Europe uncertainties, slowing domestic backdrop
• Recently announced joint venture with GM to develop a fuel-cell system in the United States is distant and marginal technology
• Improved performance in China could provide support, but political tension never far away
Japanese OEMs
27
2017 Spring automotive conference | 8 March 2017
• Already closely aligned with Fuji Heavy through shareholding and wholly owned control of Daihatsu
• Toyota-Mazda: Mazda will supply the Mazda 2/Toyota Yaris in Mexico, Mazda will develop BEV supported by Toyota
• We expect Toyota and Suzuki should move together in India; enhances Toyota’s ability to be cost-effective in the market if gains access to the Suzuki supply chain
• Suzuki expected to gain powertrain technology in return
Toyota + Renault-Nissan, plus Mitsubishi Honda
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New dynamics emerging
• Strong recovery from diesel crisis; China growth major compensation
• Financial headwinds still loom and will affect longer-term investment
• Aggressive push into electrification
• Looks to build collaboration with Tata to primarily address low-cost needs
• Developing dedicated brand for China
• Platform flexibility allows variation in mature regions; efforts to make better offer in US market
• BMW selected collaborations: Toyota, Daimler purchasing i NEXT to introduce next steps in electrification and autonomy
• Daimler threatening wave of electric vehicle launches on a par with VW Group; Renault-Nissan partnership could offer more, despite MFA issues
• JLR product proliferation at Land Rover trying to boost Jaguar with electrification
• Volvo enjoying financial support from Geely and opportunity to build scale with the Lynk&Co brand
European OEMs
28
2017 Spring automotive conference | 8 March 2017
• Recent restructuring paying dividends: profitability in Europe, growth in China, plus simplification of engineering efforts
• Take Opel/Vauxhall assets from GM—builds scale in Europe
• Look to enhance export/regional capabilities
• In the running for Proton
• Restructuring inevitable—UK operations at greatest risk
• Considering return to North America in some form: sales, services before any plan to build
Groupe PSA PremiumsVolkswagen Group
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Summary
29
The case of L860
A subcompact SUV to be built in India and exported globally
Investment postponed as Tata/Jaguar-Land Roverfocuses resources on Slovakia as a hedge against Brexit
Expected to revise evaluation plans for a plant in the United States to reduce risk of potential change to import duties
This could become widespread
2017 Spring automotive conference | 8 March 2017
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