Global Automotive Outlook:Uncertain Demand and the

Consequences for Production

Pete Kelly

Senior Director, Europe

25 November 2004

40

45

50

55

60

65

70

75

80

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Strong Global Sales Outlook

Global Light Vehicle Sales (Mn units)

5.0b

55M

+ 14.0 mn Vehicles+ 23%

Forecast

61M

Annual Change in Sales

+ 2.1 mn Average/Year + 3.2% Average/Year

75M

+ 6.4 mn Vehicles+ 12%

Est.

Sources of Global Growth

Global Light Vehicle Sales (Mn units)

Projected Incremental Growth In Sales Between 04 and 09

Vehicles % Change

61M

75 M

14.0 M

2004Est.

2009Forecast

Developing (Emerging) Nations + 9.6M + 51%

China 5.1 105 Brazil 0.6 38 Russia 0.5 40 India 0.5 42

ASEAN 0.7 42 Other Developing Nations 2.2 28

Developed Nations: + 4.5M + 10%

USA 0.7 4 Western Europe 2.0 12 Japan 0.6 11 South Korea 0.8 72

Australia 0.2 19 Other Developed Nations 0.2 11Total Incremental Growth + 14.0 M + 23%

0

1

2

3

4

5

6

'81 '85 '89 '93 '97 '01 '05 '09

-6

-4

-2

0

2

4

6

8

Global GDP Global Sales

Global GDP and Sales GrowthP

erc

en

t

Pe

rce

nt

Sales GrowthGDP Growth

Threshold of Recession

0

1

2

3

4

5

6

'81 '85 '89 '93 '97 '01 '05 '09

-6

-4

-2

0

2

4

6

8

Global GDP Global Sales X China

Global GDP and Sales GrowthP

erc

en

t

Pe

rce

nt

Sales GrowthGDP Growth

Threshold of Recession

Global Growth by Region: 2004 to 2008

0%

1%

2%

3%

4%

5%

6%

7%

8%

Emerging AsiaMature Economies Emerging Europe Latin America

The Direction in Europe …

• Slowly improving economic backdrop• Mild consumer recovery next year• Risks not balanced – oil, assets, exchange

rate• Accession countries contribution to overall

economy small• But faster growth will increase share

What Has Been Happening to Residential Property Prices?

50

70

90

110

130

150

170

190

210

230

250

Eurozone UKFrance SpainItaly Germany

• UK and Spain • France and Italy

• Germany

House Price Indices (1992Q1=100)

Source: BIS, from National Agencies

Long-term View of West European Car Market

9

10

11

12

13

14

15

16

17

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Mn units

SAAR Moving Ave. Forecast Annual

Incentives – the Supply-side Stimulus

• Early 2003 saw a sharp slide in the sales across Western Europe as consumer confidence fell (recession + war)

• Manufacturers reacted with pricing incentives – a large fall in sales was averted

Choice

Lower market volumes

Lower capacity utilisation

Layoffs, plant idling

Lower margins

Incentives

Lower margins

Avoidance of layoffs

Readiness for upswing

Consumer Choice is Accelerating

Models on Sale (Demand > 1,000)

200

250

300

350

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

Mod

els

on S

ale

Model Glut: 17 /

year!

Trend 7.2 per year

Car Sales – Eastern Europe

..51.

1.52.

2.53.

3.54.

4.5

1995 2000 2004 2009

Mn unitsUkraine

Turkey

Slovenia

Slovakia

Russia

Romania

Poland

Hungary

Czech Republic

Croatia

Bulgaria

Implications for Assembly

• European Production – Sluggish demand in West– Stronger situation in Central & Eastern Europe– Stock overhang from 2003– What are the prospects of build through the horizon ?

• Capacity Utilisation– Utilisation has improved over the last 2 years, but further

steps in this direction are still required– Is enough being done ?

Some Industry Issues Recently Highlighted

• Excess Capacity– GM ‘Project Olympia’ removed 350K 2001-4. Lines removed in

Antwerp, Bochum & Russelsheim. Luton car plant (UK) closed.– Fiat closed Termini Imerese … but then re-opened it !– Ford closed Dagenham (UK), with Browns Lane (UK) to follow.

• Flexible plants– Often dual marque, dual model or dual platform.– 3 shift working.– Flexible working arrangements – banked hours.

• Optimal Plant size– GM views Russelsheim as optimal (270K), similar to Toyota &

Honda’s plants (but not Nissan). Ford, Renault & PSA seem to suggest 400K or more.

Pan-Europe Light Vehicle Excess Capacity

0

1

2

3

4

5

6

7

2003 2007

Mn units

77%

84%

Utilization

European Passenger Car Stock Movements

-200 -150 -100 -50 0 50 100 150 200

2003

2004

2005

000’sStock AccumulationDe-Stocking

European Car Production: 2004 versus 2003

0 100 200 300 400 500 600

West

East

Europe

000’s

Europe = 18.0 mn WE = 14.9 mn EE = 3.1 mn

European Car Production: 2005 versus 2004

0 50 100 150 200 250 300 350 400

West

East

Europe

000’s

Europe = 18.2 mn WE = 14.8 mn EE = 3.4 mn

LV Production in Europe (Mn units)

15

16

17

18

19

20

21

22

1.7

1.8

1.9

2

2.1

2.2

2.3

2.4

2.5

2.6

2.7Car LCV

Total LV 19.531 19.461 19.243 19.446 20.104 20.375 20.953 21.687 22.397 22.966

Car 17.563 17.541 17.382 17.469 17.996 18.201 18.735 19.327 19.921 20.406

LCV 1.969 1.919 1.862 1.977 2.108 2.106 2.21 2.359 2.476 2.56

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

(R-H Scale)

US: GDP and Sales Growth Rates Forecast:

2004 2005

GDP 4.3 3.6

Sales 16.7 16.9

Sales Growth GDP Growth

-30%

-20%

-10%

0%

10%

20%

30%

40%

-4%

-2%

0%

2%

4%

6%

8%

10%Sales Y/Y GDP Y/Y

US: Market Leading Indicators

Ability to Buy Oct ‘04

Real Disposable Income Yellow

Interest Rate Spread Green

Household Debt Payments Yellow

CompositeGreen

Willingness to Buy Oct ‘04

Consumer Attitudes Yellow

Unemployment Claims Green

Stock Market Yellow

Composite Green

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

US: Consumer Rebates (Market-wide Average)(Includes rebates and present value of subvented interest)

2000 2001 2002 2003 2004

Trend shapes consumer expectations!

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

US: Consumer Rebates (Market-wide Average)(Includes rebates and present value of subvented interest)

2000 2001 2002 2003 2004

Have incentives finally plateaued?

US: Rebates And Sales: Gap Above Or Below Trend(Actual less 5-month-centered moving average)

-$200

-$150

-$100

-$50

$0

$50

$100

$150

$200

Jun-00 Dec-00 Jun-01 Dec-01 Jun-02 Dec-02 Jun-03 Dec-03 Jun-04

-2

-1

0

1

2

3

4

5Total Incentive Sales, mn of units

R2 = 49%

Incentive Gap Sales Gap

9/11

North American Light Vehicle Assembly

17.2

15.5

16.4

15.9 15.9

16.516.7

17.217.4 17.6

14

15

16

17

18

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Total LV

Brazil Sales and Production

0

500

1,000

1,500

2,000

2,500

3,000

Sales Production

000 Units Sales 1.45 mnProduction 1.91 mn

Sales 2.03 mnProduction 2.44 mn

Sales rebounding, but production is really taking off … exports

Argentina Sales and Production

0

100

200

300

400

500

Sales Production

000 Units Sales 301K Production 239K

Sales 413K Production 340K

Investments in Brazil’s Auto Industry

1.31.8

2.4 2.51.9 1.7 1.8

1 0.7

0.9

1.2

1.3 1.81.6

1 1.1 0.8

0.30.52.2

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Vehicles Parts

After the excitement of the late 1990’s, investment has eased

Source: Anfavea, Sindepecas

Bn US$

Number Of Models Sold In BrazilOnly the Europeans have bolstered their line-up

3234

39

44

3033

48

32

37

32

40

50

0

10

20

30

40

50

60

North American Asian European

1996 2000 2004 2008

Extended Platform Use in South America

• Fiat– Idea on 178 Brazil, rather than new B-Segment used in Europe– Uno - minor facelift for 2004MY, but will live on until 2011

• Ford– Courier will not be updated until as late as 2007/2008– Fiesta B256/257 extended. Europe next-gen in mid-2007

• GM– Gamma 4400 vs. possibly Gamma 4300 Plus

• Corsa may be replaced by Daewoo product – Kalos/Optra– J-Body2 Vectra through 2006, Europe updated in 2002

• Volkswagen– Kombi and Santana may live on forever?!?!– Gol on 10 year life cycle, next-generation in 2006

Many manufacturers are extending the life of old platforms or modifying existing platforms

5

10

15

20

25

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Stronger Asia Sales Outlook

Asia Light Vehicle Sales (Millions)

10M

+ 8.1mn Vehicles+ 52%

Forecast

15.6M

Annual Change in Sales

+ 1.3mn Average/Year + 9% Average/Year

23.7M

+ 5.6mn Vehicles+ 56%

Est.

Capacity, Production, Sales Projections - China

0

2

4

6

8

10

12

14

16

2002 2003 2004 2005 2006 2007 2008 2009

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Total Capacity Production Sales Utilization %

Mn units

-5%

-3%

-1%

1%

3%

5%

7%

0% 1% 2% 3% 4%

GDP

Sal

es

Sales and GDP Growth: Mature Markets(from 03/04 to 05/06)

U.S.Japan

UK

Canada

FranceItaly

Germany

-20%

-10%

0%

10%

20%

30%

3% 4% 5% 6% 7% 8% 9% 10%

GDP

Sa

les

Sales and GDP Growth: Asian Giants(from 03/04 to 05/06)

China

India

Korea

Taiwan

0%

5%

10%

15%

20%

25%

30%

4% 5% 6% 7%

GDP

Sa

les

Sales and GDP Growth: ASEAN Region(from ’03/’04 to ’05/’06)

Malaysia

Thailand

Philippines

Indonesia

Light Vehicle Assembly in Asia …

Mn units 2003 2004 2005 2006 2007 2008 2009ASIA 20.5 22.7 24.6 26.6 28.2 29.7 31.0

8.1% 10.6% 8.5% 7.8% 6.2% 5.3% 4.5%

JAPAN 10.0 10.1 10.2 10.4 10.6 10.7 10.8-0.5% 1.0% 1.1% 1.9% 1.4% 0.7% 1.2%

CHINA 4.0 5.0 6.0 7.0 8.0 9.1 10.035.9% 25.3% 19.2% 17.1% 15.1% 13.8% 9.8%

KOREA 3.1 3.5 3.8 4.2 4.4 4.5 4.61.0% 12.9% 8.9% 9.4% 4.1% 3.5% 2.7%

INDIA 1.0 1.3 1.4 1.5 1.6 1.7 1.725.6% 28.0% 11.7% 5.8% 5.2% 4.3% 1.6%

ASEAN 1.6 1.9 2.2 2.5 2.6 2.7 2.814.3% 17.2% 19.8% 10.1% 6.3% 2.9% 4.7%

Summary – Global Production of Light Vehicles

2005 to see slower growth than 2004 Further easing over the horizon European growth concentrated in East

Developing markets adding large volumes

Mn units 2002 2003 2004 2005 2006 2007 2008 2009WORLD 57.5 59.0 62.4 65.7 68.7 71.9 74.4 76.5

4.6% 2.6% 5.7% 5.3% 4.6% 4.6% 3.5% 2.8%

ASIA 19.0 20.5 22.7 24.6 26.6 28.2 29.7 31.011.0% 8.1% 10.6% 8.5% 7.8% 6.2% 5.3% 4.5%

EUROPE 19.3 19.5 20.2 20.6 21.1 21.9 22.6 23.1-1.1% 1.0% 3.5% 2.0% 2.9% 3.6% 3.0% 2.3%

NORTH AMERICA 16.4 15.9 15.9 16.5 16.7 17.2 17.4 17.65.6% -3.0% 0.0% 3.8% 1.5% 3.2% 1.1% 0.7%

SOUTH AMERICA 1.9 1.9 2.4 2.5 2.8 2.9 3.0 3.1-37.8% -0.1% 24.0% 7.7% 8.1% 3.6% 4.0% 3.6%

OTHER 1.0 1.3 1.3 1.5 1.6 1.7 1.7 1.817.1% 25.3% 4.8% 13.6% 4.7% 7.1% 3.0% 1.8%

An Emerging Competitive Threat in World Markets …

Hyundai Market Share

0%

2%

4%

6%

8%

10%

12%

2003 2006 2009

0%

1%

2%

3%

4%

5%

6%

7%

WESTERN EUROPE

EASTERN EUROPE

SOUTH AMERICA

NORTH AMERICA

ASIA

WORLD

World: R-H Scale

Concluding Remarks

While the global economy may slow, “recessionary” conditions are not expected over the next few years

As such, economic conditions for light vehicle sales should be positive, with emerging markets (notably China and India) leading sales growth

Risks to the global economic expansion tend to be on the downside, ranging from non-economic (terrorism) to economic (retrenchment by US consumers)

With global sales outpacing their economic drivers, risks to the global automotive market may also be concentrated on the downside