At a Plateau? - Federal Reserve Bank of Chicago/media/others/events/... · US: Light Vehicle Sales...

© 2016 IHS Markit. All Rights Reserved. © 2016 IHS Markit. All Rights Reserved.

At a Plateau? Adapting to an ever-changing light vehicle market …

Federal Reserve Bank of Chicago – December 2, 2016

Michael Robinet, Managing Director, Automotive Advisory Solutions


Contents

• Light Vehicle Outlook

• Structural Factors Alter an Industry

• Summary

2

© 2016 IHS Markit. All Rights Reserved. Fed Reserve of Chicago/ December 2016

Global growth is expected to rise in 2017 as US/EU economies strengthen and Brazil/Russia start recovery

3

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

7

8

World UnitedStates

Japan Eurozone Brazil Russia India China

2015 2016 2017 Avg 2018-2023

GD

P g

row

th r

ate

%

World average 2016 = 2.2%

LOW INFLATION ECONOMY Weak demand + abundant supply driving commodity prices lower, impacting trade.

Source: IHS Markit

World Economic Growth Rates

© 2016 IHS Markit. All Rights Reserved.

Exchange rates per US dollar

4

Canadian dollar

Japanese yen

Euro

Chinese renminbi

0.6

0.8

1.0

1.2

1.4

1.6

2000 2003 2006 2009 2012 2015 20180.2

0.4

0.6

0.8

1.0

1.2

2000 2003 2006 2009 2012 2015 2018

4

5

6

7

8

9

2000 2003 2006 2009 2012 2015 201840

60

80

100

120

140

2000 2003 2006 2009 2012 2015 2018

Source: IHS Markit © 2016 IHS Markit



Source: IHS Markit © 2016 IHS Markit Quarterly averages

Fed Reserve of Chicago/ December 2016


US crude oil prices and natural gas prices

5

0

2

4

6

8

10

12

14

0

20

40

60

80

100

120

140

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Do

llars

/millio

n B

tu

Do

llars

/barr

el

Crude oil, WTI (Left scale) Natural gas, Henry Hub (Right scale)



Emerging Markets LV Sales Forecast

6

Recent declines only temporary – fundamentals remain positive

3.0

1.3

2.6

3.6

4.7

3.8

0

1

2

3

4

5

6

7

ASEAN Central Europe East Europe IndianSubcontinent

MiddleEast/Africa

South America

Millio

ns

LV Sales Forecast (millions, 2005 – 2023)

Source: IHS Automotive


Mature Markets LV Sales Forecast

7

Replacement demand is key driver – loyalty critical to OEMs

6.6

20.9

1.3

15.8

0

5

10

15

20

25

Japan/Korea North America Oceania West Europe

Millio

ns

LV Sales Forecast (millions, 2005 – 2023)



71

60

89

98

106

50

60

70

80

90

100

110

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Mil

lion

s

Global Light Vehicle Production Growth Ratchets Down a Gear

8

7.9, 3.6%

4.5, 5.8%

2.5, 1.4%

1.2, 6.1%

1.1, 0.8%

0.9, 3.3%

-0.8, -0.8%

-2 0 2 4 6 8

China

S Asia

EU

MEA

NA

S Amer

Jap/Kor

Millions

9million

29million

2015 – 23 Growth Volume, CAGR%

8million



Global LV Production Outlook Over 70% of Total Growth From Asia


9

Region 2015 2016 2017 2018 2023 CAGR

2016-23

CTG 2016-23

Notes

China 24.0 25.8 26.1 26.8 32.2 3.2% 42% • Tier 3 & 4 city growth

Europe 20.9 21.5 21.8 22.2 23.5 1.3% 13% • Slow rebound of Russia

and shift from West EU

NA 17.5 17.9 18.0 18.2 18.6 0.6% 5% • New capacity (Mex), D3

re-alignment

South Asia 8.0 8.2 8.7 9.3 12.6 6.3% 29% • India domestic & export,

ASEAN rise

Japan/Korea 13.3 13.0 13.2 13.0 12.6 -0.4% -3% • Slow domestic mkts,

production co-location

South America 3.1 2.7 2.7 2.8 3.9 5.2% 8% • Well below 2013 record

of 4.5 mil

Middle East/Africa 2.0 2.3 2.4 2.6 3.2 4.7% 6% • Focus of more attention

by OEMs

Total 88.7 91.4 92.8 94.7 106.5 2.2%

CAGR = Compound Annual Growth Rate, CTG – Contribution to Growth


• Shift to global structures within B through D segments is apparent at ~70% of global volume

• Growth in China, India and NA fed from global B & C segment structures = enhanced scale economies

Global Production by Global Segment

4.4%

17%

25%

20%

9%

24%

6%

21%

32%

16%

7%

18%

A

5%

B

24%

C

32%

D

17%

E

6%

F-Frame

16%

2008 2014

2018

2002

2023

A

2%

B

34%

C 36%

D

17%

E

2% FF

9%

2014-23 Growth Share


10


Greater China Production

11

3%

14%

16%

17%

50%

Det 3

12%

Asian 4

20%

Germ 3

17% Other

West

6%

Other

China 45%

China Production Share

0

5

10

15

20

25

30

35

2000 2003 2006 2009 2012 2015 2018 2021

GC

LV

Pro

du

cti

on

M

illio

ns

Detroit 3 Asian 4

German 3 Other Western

Other China Domestic

• Asian 4 and Other China OEMs growing faster than German 3, Detroit 3 and “Other Western” OEMs.

12%

18%

17%

8%

46%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2015-23 CTG

2000 2023



Europe Production

12

30%

16% 30%

22%

2%

Det 3 18%

Asian

4

26%

Germ

3

39%

Other

EU

14%

Other

Global

3%

Europe Production Share

0

5

10

15

20

25

2000 2003 2006 2009 2012 2015 2018 2021

EU

LV

Pro

du

cti

on

M

illio

ns

Detroit 3 Asian 4 German 3

Other EU Other Global

• Other European OEMs growing faster than, German 3, Asian 4, Detroit 3 and ‘Other Global’ OEMs.

• Russia Production rises to 3.9 Million in 2022 from 2.7 Million Today.

-2%

48%

30%

9%

16%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

110%2015-23 CTG

2000 2023



Southeast Asia Production

13

0

2

4

6

8

10

12

14

Mil

lion

s

Production by Country

Australia India Indonesia Malaysia

Pakistan Philippines Thailand Vietnam

15%

30%

1%

54%

11%

46%

2%

41%

Detroit 3

8%

Asian 4

46%

German

3

5%

Other

41%

Production by OEM

2002

2012

2023



6.9m

10.5m

4

6

8

10

12

14

16

18

20

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

2019

2021

2023

Pre-Crash 40 year trend:

+140k annually

US: Light Vehicle Sales Forecast Sales peak here; return to previous long-term trend level possible

14

Source: IHS Markit Automotive, current light vehicles sales forecast

An

nu

al

Sale

s (

mil

lion

s)


Peak 2017 17.5m

17.4m

Market peaks in mid-2017 – weaker buying conditions, slower job creation, rising oil prices start next cycle. Some return to ‘cars’ likely by 2022.

Car – sales flat now, rises with slower economy, new product, greater affordability

Lt Truck – peaks in 2018, weaker housing, higher gas, regulation all force decline


0

2

4

6

8

10

12

14

16

18

20

2000 2003 2006 2009 2012 2015 2018 2021

NA

LV

Prod

ucti

on

M

illi

on

s

Detroit 3 Asian 4 German 3 Other

NAFTA Production Customer Dynamics Changing …

15

77% 17%

3% 3% Det 3

46%

Asian 4

37%

Germ 3

10%

Other

7%

NAFTA Production Share

-90%

70%

31%

82%

-100%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

200%2016-23 CTG

2000 2023

• Rise in Mazda, Fuji Heavy, Volvo and Tesla underscores

‘Other’ OEM rise – Supply base shifts.

• Detroit 3 output declines due to new competition,

comparative lack of exports and longer-term impact of

affordability.


17.9 18.6 18.6


NA Regional Shift Logistics and Supply Structure Under Pressure

16


2.4 2.4 2.4 2.4 2.3 2.2 2.2 2.2 2.2

5.6 5.4 4.8 4.6 4.6 4.7 4.6 4.5 4.4

0

3

6

9

2015 2016 2017 2018 2019 2020 2021 2022 2023

Pro

d V

ol

Mil

Midwest/Ontario

2.7 2.8 2.8 2.8 2.8 2.8 2.9 2.9 2.9

0.9 0.9 1.0 1.0 1.0 0.9 0.9 0.9 0.9 0.8 0.8 0.8 0.8 0.9 0.9 0.8 0.8 0.8

0

3

6

2015 2016 2017 2018 2019 2020 2021 2022 2023

Pro

d V

ol

Mil

Southeast

1.1 1.3 1.4 1.5 1.6 1.6 1.6 1.6 1.6

1.6 1.6 1.9 2.0 2.1 2.2 2.2 2.1 2.1 0.5 0.4 0.6 0.7 0.9 0.9 0.9 1.0 1.0

0

3

6

2015 2016 2017 2018 2019 2020 2021 2022 2023

Pro

d V

ol

Mil

Mexico

A4 D3 G3 Oth

• Mix towards D/E-segment and Full Frame

• Detroit 3 still account for +60 of MW/ONT volume by 2023

8.1 7.0

4.6 4.7

3.5

5.0

• Remarkable stability – newer facilities w/export focus

• Higher concentration on C & D-segment CUVs

• Mid-Mexico now accounts for ~70% of Mex volume

• Rise of B & C-segment products with increasing luxury focus for export


Shifting Geography Matters

17


• Logistics cost and risk reduction is focal to OEM cost reduction initiatives

• Key at GM, Nissan and VW

• Massive shift from 2015 (Jackson, TN) to 2020 (Oneida, AR) at 31 miles/yr

• Alters locational strategies, competitiveness etc.

• US South and Mexico customers growing faster than other markets

‘Center of the Industry’ shifts impacts all facets of supply


9.3 9.2 8.9 8.7 8.9 9.0 8.8 8.7 8.6

8.2 8.7 9.1 9.4 9.7 9.8 10.0 10.0 10.0

0

4

8

12

16

20

2015 2017 2019 2021 2023

Mil

lion

s

Detroit 3 All Others

Divergent Trajectories – NA LV Production Detroit Three Reaches an Apex in 2016

18

+2

1%

-7

%



Detroit Three Volumes Peak …..

0.5

0.6

0.7

0.8

0.9

1.0

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Q32016

Q42016

Q12017

Q22017

Q32017

Q42017

Q12018

Q22018

Q32018

Q42018

Millions

Quarterly NA Light Vehicle Production

GM GM Run Avg Ford Ford Run Avg FCA FCA Run Avg

19



0

2

4

6

8

10

12

2005 2010 2015 2020 2025M

illio

ns

NA Engine Output by Cylinder Count

0 1-3 4 5-6 8+

4 Cyl.

1-3 Cyl.

8+ Cyl.

0 Cyl.

5-6 Cyl.

North America Engine Output Sub 3.0L totals to 73% of the Market

0

2

4

6

8

10

12

14

16

18

20

2005 2010 2015 2020 2025

Millio

ns

NA Engine Output by Displacement

0L 0.1-0.9L 1-1.9L 2-2.9L 3-3.9L 4-4.9L 5L+

2025

20



North America Engine Technology Trends

21

0

2

4

6

8

10

12

14

2014 2015 2016 2017 2018 2019 2020 2021 2022

Mil

lio

ns

Electric

Fuel Cell

Hybrid-Full

Hybrid-Mild

Stop/Start

Diesel

Gas-E85

Gas DI

Gas Boosted



Contents



• Autonomous Vehicles, Lightweighting, Powertrain Shifts and Regulations

• Summary

22


Global Vehicle Program Launches by Region Increased Launch Activity Raises Risk

17 18 25 16

34 24 17

26 26 33 18 21 23 19

24 20 23

26

30

26 23

21 33

27

25 26 21 17

20 14

21 16

14

16 19

15

19 21

17 15 20 18

21

16

33

31

32

33

25 16

35 31

39 33 24

22

8

5

8 17

5 15

6 13

21 25

13 20 23

15

0

20

40

60

80

100

120

140

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

# O

F L

AU

NCH

ES

North America Europe Japan/Korea China Other

73

114

137

Increased industry pace places pressure on talent,

resources and infrastructure.

111

23



North American Engine Production Global vs. Regional Engines

16%

1%

34% 30%

2%

15% 1%

26%

3%

40%

1%

19%

0% 10%

1%

• Over ¼ of NA engine production volume will be <2.0L and based upon global platforms

• Shift towards 48V will further solidify growth of smaller 4 & 3 cylinder engines as (turbo and super) charging efficiency rises

• Upwards of 66% of volume will be <2.9L and global in nature

• V6s are increasingly being squeezed from the top by ‘vocation V8s’ and bottom by turbo I4s

• Regional engines account for only 15 of NA production volume

• V8s are only ~10% of the market by 2022

Global 1-1.9L

Global 2-2.9L

Global 3-3.9L

Regional 4-4.9L

Regional 5.0L+

Regional 2-2.9L

2022

2015

Global Engine Family – Built in 2 or more regions

Regional 3-3.9L

24



Global Engine Program Launches by Region New Powertrains pulled forward to 2018/19

11 8 11 13 10 8 10 10 12 10 1 5 3 5

18

9

25 16

12 19 12 14

33

14

5 3 4 3

11

12

11

6

5

11 9 5

10

10

7 2 1 0

11

14

14

23

17

17 20

19

24

17

14 8

0 1

9

7

8 6

6

7 12 7

7

10

6

1

3 1

0

10

20

30

40

50

60

70

80

90

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

# O

F L

AU

NCH

ES

North America Europe Japan/Korea China Other

69

62

86

OEMs focus greater

attention on electrification,

revision of existing engines and packaging.

19

25



U.S. Midterm Evaluation – Highlighting the Compliance Gap

• OEMs are girding for widening compliance gaps – Direct BIW lightweighting will play a critical role to reducing primary and secondary mass to close these gaps.

0

10

20

30

40

50

60

Fuel Econom

y

U.S. Passenger Cars

0

5

10

15

20

25

30

35

40

45

Fuel Econom

y

U.S. Light Trucks

CAFE Target CAFE Target

Compliance gaps are

increasing in NA, Europe and China

26



0

50

100

150

200

250

300

350

Mil

lio

ns

of

Un

its VIO Will Increase +10% by 2021

History Forecast

U.S. Light Vehicles in Operation

Data as of January1 each year.

Source: IHS Automotive Fed Reserve of Chicago/ December 2016


28

40

50

60

70

80

90

100

110

120

130

Millio

ns

0 to 5 6 to 11 12+

Average Age Rise Impacts VIO Units


Average Vehicle Rises

2014 2015 2016 2019

11.4 yrs 11.5 yrs 11.6 yrs 11.8 yrs



29

L4: Full Self-driving

L3: Limited Self-driving

Autonomous Braking

Park Assist

Self-Driving & Human-Driven Car

Self-Driving Car Only

L2: Partial Autonomy

Auto Pilot: Highway

Auto Pilot: Parking

2010 2015 2020 2025 2030

Adaptive Cruise Control

Adaptive Cruise Control

L1

L5: Self-driving Only

Lane Keep Assist

Self-Driving Car Evolution



Global CO2 Targets Are Swift and Aggressive

30

• Reduced CO2 emission equates to improved fuel efficiency • Global convergence toward 2025



Material Forecast Analysis NA LV Material Consumption (Net Usage)

31

6.9 4.7

3.4

5.0

4.5

3.3

2.5

3.2

3.1

0.6

0.8

1.0

1.0

0.9

1.0

2.1

1.2

16.0

16.5

17.0

17.5

18.0

18.5

19.0

19.5

0

2

4

6

8

10

12

14

16

18

20

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

N.

Am

. Pro

duction (

line)

Millions

Tota

l M

ass (

Billions o

f lb

s.)

Mild Steel High Strength Steel Advanced High Strength Steel Ultra High Strength Steel

GigaPascal Steel Aluminum Sheet Aluminum Cast Aluminum Extruded

CFRP/SMC/Plastic Magnesium Other North American Production



Electrification Takes Hold Shift From S/S to Mild/Full Hybrids Starts Next Decade

32

Electrification is Required

• Larger D & E segment offerings require several solutions

• Fewer options into the next decade

• 48V is an enabler though a learning/cost curve ensues

• Low oil environment complicates

• CARB electrification mandate complicates


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Propulsion Systems – North America

BEV Full Hybrid Mild Hybrid Start/Stop ICE OnlyElectrification =Stop/start, MHEV,

FHEV & BEV


Three Disruptive Realities

33

How Do Industry Participants Adapt ….

Electrif-

ication

•S/S >> Plug-in Mild Hybrid >> Full Hybrid >> BEV

•Enablers – Legislation, 48V, mass reduction

•Implementation depends on segment, geography, scale, infrastructure and customer purchase capability

•How does the ICE and accessories adapt through this process? What about transmissions and driveline?

Automated

Driving

•Speed of implementation depends more on legislation versus technical capability

•Several disruptors enter with little patience for automotive timelines, processes and structure

•Will the lack of driver intervention alter content and structure of the powertrain?

•Areas of the vehicle materially altered by automated driving: Interior, Powertrain, Electrical & Chassis

Shared Mobility & Connected

Car

•New generations live in a more global, urban and environmentally-friendly world

•Ride sharing and reduced/limited driver input changes ownership, maintenance and use structures

•Impact on municipalities, healthcare, dealer/service infrastructure, need for a license

•How does shared mobility alter the vehicle cycle, supply base, insurance, aftermarket, standardization and safety?

2015-2020

•PHEVs

•Level 2 >> 3 Driving

•Uber/Lyft

2020-2025

•Increased Electrification

•Level 3 >> 4

•Expanding Mobility Solutions

2025+

•BEVs & Infrastructure

•Level 3 & 4 >>> 5

•Vehicle Park Reflects Shifts



~2020

Mass Reduction Shifts Beyond The ‘Edge Segments’

Mild Hybrid Rise Starts in Larger Segments, 48V

L3 Autonomy, More ADAS Content, Warranty Visibility

Today

BIW & Chassis System Lightweighting Begins

Down Displacement, Multi-speed Trans & S/S

ADAS & Connectivity Content Rises, Warranty Costs

A Looming Cost Cliff Alters The Market OEMs, Suppliers, Regulators and Customers Are All Impacted

34


~2025

Integration of ‘Non-Standard Materials’ & Joining Methods

Full Hybrid, BEV and Alternative Drive Formats Rise

L3/4 Autonomy, Global influences, System Profit Pools Shift Success in a Rising Cost Environment

• Understand your costs, markets & risk profile

• Diversify customers, segments and cadence

• Hedge technologies

• Smart vertical integration

• Proactive engagement

• Today’s differentiators are not tomorrow’s


Contents



• Summary

35


Shifts in Supplier/OEM Relationships

• Plateauing volumes alter the landscape

> OEMs feeling the pressure of increased incentives

> Existing suppliers begin to cannibalize business

• Looming cost cliff drives urgency into system cost reductions

> Share of ‘value’ devoted to hard parts decline – the pie slices thinner

> Increased evidence of incremental cost transparency driven by OEMs

> Likelihood of regulatory relaxation are in play – Select OEMs and California

• Supplier strategies to combat vary by system

> Vertical integration to offer enhanced capability to maintain margins

> Marketable technology, cost efficiency and customer/regulatory solutions

36



Summary Foresight Reigns ….

• Volumes plateauing in several markets and segments

> Japan/Korea, North America and Europe grow below global trend

• Cadence is faster – challenging for Tier 2 & 3 regional suppliers

> Increased complexity coupled with shorter cycles

• Meeting the legislative mandates difficult on the edges

> Electrification/ Lightweighting/ Reducing parasitic losses/ Aerodynamics/ Optimization

• The New Differentiators

> Innovation, cost reduction and strategic patents protect margins

> Ability to anticipate and benefit from major shifts – electrification, automated driving, lightweighting, packaging efficiency and the hard/soft part shift

37



Thank You

Michael Robinet

Managing Director, IHS Markit Automotive Advisory Services [email protected]

38

COPYRIGHT NOTICE AND DISCLAIMER

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At a Plateau? - Federal Reserve Bank of Chicago/media/others/events/... · US: Light Vehicle Sales...

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Transcript of At a Plateau? - Federal Reserve Bank of Chicago/media/others/events/... · US: Light Vehicle Sales...