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Contents
Aia Pacic
Amiv InsIGHtMIs monthly market intelligence, trend analysis and forecasts for the automotives industry across Asia Pacific
ob 2010 I 53
Regional Focus
VW Targets ASEAN In March To Global Leadership ...............................................
China
Government Looks To EVs To Address Overcapacity Fears ....................................
GM Primed For Further Success With Opels China Strategy ..................................
GM-SAIC Milestone Project Marks Coming Of Age For Domestic Carmakers............
Spain Stands As A Strong Contender For Chery Investment ..................................
Tyre Import Duty To Hurt EU-China Relations; Renault and BMW At A Loss ...........
Volvo Faces First Test Under New Ownership .......................................................
India
Tata Takes Nano To High-Growth EMs As Competition Emerges ............................Continental Targets Key Market But BMI Warns Of Cost Risks ..............................
Mahindra Eyes Global SUV Strength Through Ssangyong Deal ..............................
Trend Of Emerging Market Firms Expanding Will Continue As MSSL Seeks Purchase
Mahindra And Importers Future Uncertain As Expansion Takes Its Toll ..................
Pakistan
Japanese Dominance Threatened As Yen Forces Up Car Prices .............................
Thailand
Ford And Mazda Invest More As Cost Advantages Become Clear ...........................
Malaysia
International Partnerships Lead To Expansion For DRB-Hicom...............................
Indonesia
Steel JV Will Increase Local Content As Vehicle Demand Rises ..............................
Philippines
Ford Uncertainty Highlights Strength Of Thai Incentives Over Philippines ...............
South Korea
Exports Will Continue To Play Greater Role In Strategies ......................................
Renaults Import Plans Could Be Hampered By Aid Conditions ..............................
Kia Follows Asian Example in Uruguay, But Risk Lays In Brazils Bubble Bursting ....
FTA Will Heat Up Competition Between Asian Carmakers .....................................
Japan
Distinct Brand Strategy And Local Production To Aid Nissans Expansion Plans .......
Toyota Withdrawal: More About Protecting US Business? ......................................
Nissan Looks For GCC Growth Despite Yen Threat ...............................................
Nissan Signs EV Agreement As Government Shows Signs Of Contradictory Policy ...
Singapore
Country Will Remain An Attractive Investment Location Despite Flextronics Pull-Ou
Australia
Cross-Continent Cooperation Makes Holden Flex-Fuel A Reality .............................
reGIonAl foCus
VW Targets ASEAN In March To
Global LeadershipGerman carmaker Volkswagen (VW) has identied South East Asia
as a prime market for growth as it looks to become the worlds largest
carmaker by 2018. According to BMI forecasts, total vehicle sales in the
region (Indonesia, Malaysia, Thailand, Vietnam, Philippines, Singapore)
are projected to rise from 1.97mn units in 2009 to 2.5mn units by 2014.
VW has already cracked the worlds largest passenger car market,
claiming rst and second place in terms of sedan sales in China last year,with its Shanghai VW unit leading with sales of 708,100 units and its
FAW-VW tie-up close behind on 669,200. However, with a slowdown
in Chinas rapid vehicle sales growth expected in H210 and into 2011,
the German carmaker is looking for a safety net in the region.
An on-off relationship with Malaysian carmaker Proton had initially
offered one of the best routes to the market, until the latest round of
negotiations broke down in June. VW has since reached an agreement
with DRB-Hicom for the local assembly of its models from 2012. Local
production in the region is particularly important to take advantage of
the ASEAN Free trade Agreement, under which import tariffs between
signatories was reduced to 0-5% from January 1.
According to German press, VW is also eyeing Vietnam as a produc-
tion base. This is apparently due to its low labour and production costs
as well as its access to other markets in the region. While Vietnam is
not one of the highest ranking markets in BMIs Industry Risk/Reward
ratings for the auto sector in Asia Pacic, local assembly will help VW
avoid the increasingly high tariffs in Vietnam.
Elsewhere in the region, VW assembles the Touran multi-purpose
vehicle (MPV) in Indonesia in partnership with the Indomobil group.
There is the potential for complete production to begin from 2012,
depending on the success of the venture. Thailand is also being tapped
through VWs 19.9% stake in Suzuki Motor, which is planning a small
car plant in the country.
Apart from the growth opportunities in the ASEAN markets, one of
the major reasons for the expansion is keeping up with current globalleader Toyota Motor. In March VWs executive vice president for sales
and marketing, Christian Klingler, highlighted Toyotas sales of around
1mn units in the region, compared with the 30,000-40,000 from VW.
VW has experience of capturing market share in emerging markets,
not only in China, but also in Brazil, where it overtook Italys Fiat for
market leadership. The product mix played an integral part, with the
Fox and Gol compact models contributing signicantly to its growth.
Assembling the Touran in Indonesia, where MPV sales accounted for
65% of the total industry volume in H110, suggests VW already has its
product strategy in mind. However, with its sales in the country down
17% for the rst half of 2010 and Japanese brands accounting for nine
out of the top 10 places, the challenges are still clear.
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CHInA
Government Looks To EVs To
Address Overcapacity Fears
As the Chinese government reveals that it expects to have 200mncars on the roads by 2020, plans are being accelerated to focus on
clean energy cars, which will go some way to addressing the build
up of emissions in the worlds largest car market, and make use
of the industrys burgeoning capacity. BMI expects total vehicle
production to surpass 23mn units by the end of our forecast period
in 2014, compared with 13.8mn in 2009.
Several government departments are coming together to provide
the necessary policy framework. The Ministry of Industry and Infor-
mation Technology (MIIT) is nalising the energy saving and new
energy vehicle development plan (2011-2020), which it expects to
publish in two months, as well as working with other departments
to revise the Automotive Industry Development Policy 2004. The
Ministry of Science and Technology is drafting a plan specic toelectric vehicles (EVs) covering research and development and -
nancial subsidies. This will be backed by the Commerce Department,
which will encourage the import of advanced related technology.
China believes it can take a lead in the EV industry and also sees
it as a necessity to face up to the big challenge of having more than
200mn vehicles on the road, according to Wang Fuchang, deputy
director-general of MIITs equipment division. He also believes the
industry should increase the market share of full electric and plug-in
electric cars. BMI notes that China has skipped ahead to focus on
EVs rather than hybrids as it wants to steal a march on other coun-
tries, while hybrids are becoming more widespread.
The country already has a number of domestic carmakers produc-
ing electric vehicles, which will provide homegrown competition to
the likes of the Chevrolet Volt and Nissan Leaf due out next year.
However, Chery Automobile is showing the rst signs of the kind
of advanced development that the government is looking towards.
Chery has announced it has developed the necessary technology for
extended range EVs (E-REVs), which would provide direct com-
petition to the Volt, though to be the rst E-REV. The Volt offers
40 miles from the battery pack, which is supplemented by a petrol
engine with a 300 mile range.
Chery has taken steps towards the E-REV, with the QQ3EV,
which travels 100km (62 miles) on a single charge, followed by the
S18, which travels 93 miles (149km). Details of the full mileage
offered by the E-REV have not been revealed, but the model will
be launched during H111, in time to take on the Volt.
GM Primed For Further Success
With Opels China StrategySince China has overtaken the US as the largest market for General
Motors Company (GM) in terms of units sales in H110, the car-
maker has given the green light to its European division, Opel, to
begin sales in the country. Despite BMIs projection for a consider-
able slowdown in vehicle sales growth, to 15% in 2010, compared
with 45% last year, GM sees demand for European cars in China
and will be marketing the brand in the premium segment alongside
German big hitters such as BMW, Daimler and its ongoing rival formarket leadership in China, Volkswagen (VW). High-end brands
have continued to perform well, despite a deceleration in growth
of the market as a whole.
After recognising demand in China, Opel tested the market in
2009 with sales of 4,000 units, according to German daily Deutsche
Welle. It is not yet know which models will be coming to China.
Table: business environmenT raTings auTo indusTry asia Pacific
Rewards Risks
IndustryRewards
CountryRewards
Rewards Industry Risks Country Risks Risks Autos Risk/ Reward Rating
RegionalRanking
Australia 58.3 87.2 68.4 80.0 68.2 74.1 70.1 1
China 81.7 44.9 68.8 65.0 65.2 65.1 67.7 2
South Korea 63.3 65.8 64.2 75.0 70.4 72.7 66.8 3
Japan 51.7 76.6 60.4 50.0 75.4 62.7 61.1 4
Thailand 53.3 48.3 51.6 60.0 56.4 58.2 58.3 5
India 68.3 28.2 54.3 60.0 55.8 57.9 55.4 6
Philippines 50.0 46.1 48.6 75.0 58.0 66.5 54.0 7
Indonesia 56.7 36.3 49.5 75.0 52.9 63.9 53.9 8
Malaysia 40.0 61.2 47.4 60.0 69.7 64.8 52.6 9
Taiwan 35.0 50.0 40.3 70.0 71.5 70.8 49.4 10
Singapore 11.7 90.1 35.3 55.0 86.0 70.5 48.5 11
Vietnam 45.0 26.8 38.6 85.0 51.5 68.2 47.5 12
Hong Kong 10.0 87.4 37.1 55.0 82.9 68.9 46.6 13
Domestic PowerhousesChinas Leading Domestic Carmakers In New Energy Projects
Source: Asia Times
Company Model Power
Chery Automobile S18 Electric
A5, A3, A13 Hybrid
BYD Auto F3DM Plug-in Electric Hybrid
E6 Electric
Geely Automobile EK-1 Electric
Chana Motors Joice HEV Hybrid Electric
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Previously, Opel vehicles sold outside of Europe have been rebadged
under the Buick brand. BMI believes the key to success will be to
avoid overlapping with models from the GM group, especially in
markets where GM is successful, such as China, which is the groups
most protable overseas business.
The rst indications that Opel would move beyond its traditional
boundaries came in February 2010 when GMin its plan for restruc-
turing the unitrevealed it would make Opel the base of its overseas
operations and would also export its cars to markets in the Middle
East and Asia Pacic, if feasible. Although GM cited an improved
outlook in Europe as a factor in its decision to withdraw from the
sale of Opel to Canadas Magna International, the continued
weakening of the market has prompted Opel to seek more promis-
ing gains overseas.
With BMI forecasting a fall of around 6% in European car sales,to 15.5mn units this year, CEO Nick Reilly estimates that Opel
will be able to corner only 1mn units by the end of the yeardown
nearly 20% compared with last year. In comparison, our forecast
for 15% growth in China, albeit less than half last years growth,
offers considerably more potential.
Australia is another target for Opel. GM already has a strong
presence through its Holden subsidiary, which can be built upon,
and if Opel is targeting the higher end segments, sales of medium
and large cars are up by 14.3% and 2.6% respectively in the seven
months to July. Spokesperson Andreas Kroemer added that other
markets in Asia Pacic and South America would follow.
BMI believes that Opels choice of these new international mar-
kets is highly strategic. China, Australia and Brazilthe largest ve-
hicle market in South Americarank among the top 10 auto markets
in BMIs Business Environment Ratings for the global industry. All
these markets clearly outshine Europe in terms of potential vehicle
sales growth. In BMIs ve-year forecast, we expect vehicle sales
in Europe to grow an average 2.7% y-o-y between 2010 and 2014,
while we expect them to rise 8-10% in China and South America,
and 4% in Australia during the same period.
GM-SAIC Milestone Project
Marks Coming Of Age For
Domestic CarmakersGeneral Motors Company (GM) and its Chinese partner Shanghai
marks the rst time a domestic carmaker and international partner
have shared technology. The two will develop 1.0 to 1.5-litre direct
injection turbocharged gasoline engines, aimed at tapping into the
smaller car segment, which is eligible for government tax breaks
incentives. The project also endorses BMIs view that government
policy will increasingly inuence product development.
Work on the engines will be shared between GMs Detroit
facilities and the Shanghai GM joint venture (JV)s own Pan Asia
Technical Automotive Centre. The engines will be used in models
sold both in China and globally, in a further boost for domestically
developed technology, although it will be three years before they
are available. One GM business likely to benet is General Motors
India, now a 50:50 JV between GM and SAIC. Two of the new
models due to be launched in India are the Spark small car and the
slightly larger Aveo.While the project ts with the Chinese governments view of
creating a strong domestic industry, it also aligns with the countrys
move towards clean energy vehicles. Shanghai GM is well geared
for this with its own Drive to Green strategy, which has already
seen investment of US$1.1bn in powertrain development. Through
the programme, the JV is aiming to reduce the fuel consumption
and CO2 emissions of its vehicle eet 15% between 2011 and 2015.
The JV will also complete development work on the prototype of the
Chevrolet New Sail EV, which will again involve local production.
The engine project will give Shanghai GM a good head start
toward its targets. According to Tom Stephens, GMs vice chair-
man of global products, the new engines will help reduce carbon
emissions by around 20% when coupled with new transmissions,
also to be developed by the JV, which will improve fuel efciency
by around 10%.
Stephens also said GM plans to launch 12 fuel efcient engines
in China over the next ve years. This could mean further coopera-
tion with SAIC as the two have already spent US$1bn on combined
research and development since 2008, according to Stephens. The
tie-up is paying off, enabling SAIC to expand outside of its domestic
market to India, where BMI
Spain Stands As A Strong
Contender For CheryInvestment
0
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
2006
2007
2008
2009
2010f
2011f
2012f
2013f
2014f
China
India (four-wheeled sales)
Engine For GrowthChina and India Total Vehicle Sales (CBUs)
f = BMI forecast; Sources: CAM, SIAM
0
5
10
15
20
25
30
35
40
20
05
20
06
20
07
20
08
20
09
2010f
2011f
2012f
2013f
2014f
BRIC North America
Growing EM Domination
Market Sales As % Of Global Sales
f = forecast. Source: BMI
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Chinese carmaker Chery Automobile is considering setting up its
rst European assembly facility in Catalonia, Spain. While other
potential sites in Turkey and Italy are also reportedly being looked
at, Jose Montilla, head of the regional government believes that the
Catalonia region is best positioned to aid in the Chinese carmakers
plans for vehicles sales in the European and Mediterranean markets.
Spains biggest strength lies in the fact that the country continues
to offer a highly competitive base for autos production in Europe.
Estimates from the US Bureau of Labour Statistics show that hourly
labour cost for workers employed in the Spanish autos industry
stood at US$31.78 in 2007, way lower than the US$41.65 paid in
the UK and even more competitive than the US$33.36 paid in Italy.
Cherys choosing Spain could also be inuenced by Italys rela-
tively poor record on raising productivity, widespread corruption
and an inefcient labour market. Experiences of domestic carmakerFiat have proved just how difcult and inexible operating condi-
tions can be for carmakers under pressure to improve efciency in
autos production in Italy.
Meanwhile, Spain could win the project over Turkey on the
back of its EU membership, given also that the possibility of the
latter joining the EU remains off the cards for at least the next 10
years, in our view.
However, Spains auto production has been highly vulnerable to
the current trend of manufacturers transferring production facilities
to countries in Eastern Europe such as the Czech Republic, Rus-
sia, Slovakia and, to a lesser degree, Poland in recent years. This,
combined with aggressive restructuring by carmakers resulted in
autos production falling from the record 2.88mn units in 2007 to
just over 2.17mn units by end-2009. Worse is the fact that while
Ford Motor is looking to move its Fiesta assembly to outside of
Spain, Nissan Motor has revealed it plans to operate on reduced
capacities within the country for at least the next three years. This
trend has prompted BMI to envisage a rather painful recovery for
Spanish autos production, reaching only 2.36mn units by the end
of our forecast period to 2014.
Our forecasts, however, could face upside risks now that carmak-
ers are showing interest in increasing their manufacturing footprint
in Spain. In May, Frances PSA Peugeot Citron revealed plans to
roll out a new car, specially designed for emerging markets, from its
facility in Vigo, Spain. In the same month, Ford revealed it wouldbuild its rst hybrid models for Europe at its Valencia plant. Should
Chery opt for Spain, it will be looking to build a plant with an an-
Tyre Import Duty To Hurt EU-
China Relations; Renault and
BMW At A LossThe EU is looking to impose a 22.3% import duty on Chinese alu-
minium car wheels for the next ve years in a bid to guard domesticrms from low priced tyres made in China.
The increase in the 20.6% tariff imposed in May this year will
further strain Europes relations with China. It will also put a dent
in the cost saving measures ofRenault and BMW, which both use
Chinese-made aluminium wheels.
Europes tyre market is primarily dominated by Bridgestone
Europe, Continental, Cooper Tires, Goodyear Dunlop Tires
Europe, Michelin and Pirelli. Most of these rms have streamlined
their operations in Western Europe and increased their manufac-
turing presence in lower cost Eastern European locations such as
Poland, Slovakia, Romania and Slovenia.
Europe produces about 50mn tyres a year. However, it hasbecome increasingly exposed to Asian imports, particularly from
China, India, Indonesia and South Korea. These countries made up
38% of total imports to the EU in 2007, according to the European
Rubber and Tyre Manufacturers Association (ETRMA).
BMI believes tensions between the EU and China have been
driven by two factors:
Chinese imports have increased substantially from 3.7mn in 2006
to nearly 6.1% by mid-2009, making China the largest exporter of
aluminium wheels to the EU, where it accounted for 12.4% of total
tyre imports in 2009. But just 2% of EU tyre exports go to China,
thanks to trade barriers
Increased imports of low-priced Chinese tyres have made Eu-
ropean tyre makers uncompetitive and they have lost market share.
BMI believes this trend was accentuated by a US ruling placing an
additional 35% tariff on tyre imports from China, prompting most
Chinese companies to divert their attention to Europe.
A nal law governing the aforementioned duties is likely to be
passed by mid-November this year. While we expect most European
tyre makers to welcome the ruling, there are concerns that the import
restrictions are not strong enough to ward off Chinese competition
to local industry. A 22.3% duty is nowhere near the 30% and 25%
tariffs imposed by US for 2010 and 2011 respectively.
Volvo Faces First Test Under
New OwnershipVolvo Cars has started producing the new V60 station wagon at its
Torslanda plant in Sweden. The model will offer strong competi-
tion to the BMW 3 Series Touring, Audi A4 and Mercedes-Benz
C-Class, and is an integral part of Volvos strategy to improve its
protability under its new owner Zhejiang Geely Holding Group.
Turning around Volvo is likely to prove one of Geelys biggest
challenges, given that the Swedish brand has not reported an an-
nual prot since 2005. Worse is the fact that its major markets are
Europe and the US, where BMI expect a slowdown in economic
growth in H210 and 2011.
Volvo is pinning its hopes on the V60, along with a newly intro-duced S60 sedan, to boost sales and protability in Europe. Plans
for the models sale in the US have been put on the backburner,
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
2005
2006
2007
2008
2009
2010f
2011f
2012f
2013f
2014f
Buses and Coaches production (CBUs)Trucks production (CBUs)
Light Commercial Vehicles production (CBUs)
Cars production (CBUs)
Maintaining AttractivenessSpain Autos Production (Units) : Historical Data and Forecasts
f = forecast. Source: Ana, BMI
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Volvo hopes these new models will take its total sales to 400,000
cars a year, compared with the 334,800 units it shifted last year.
However, given that the company expects to sell 90% of the V60sin Europe, BMI is cautious about the extent to which the model
could turn the company around.
The Association des Constructeurs Europens dAutomobiles
(ACEA) estimates sales of luxury vehicles in the region have been
declining since 2007. That year, the sector made up nearly 14% of
all new passenger car sales. The share fell to close to 10% by the
end of 2009 and declined further to 9.3% in Q110.
We believe luxury cars have lost out as small vehicles have
become increasingly popular in light of the impending emission
norms and consumer preference towards engines with greater fuel
efciency.
However, we feel there are opportunities for Volvo to make
the V60 successful abroad. At the time of its acquisition, Geely
indicated it was keen to expand Volvo in other markets. Plans are
already under way for a new Volvo plant in China, to augment its
existing presence in the country.
We do not expect V60s brand image to be hurt by concerns about
its Chinese ownership, mainly thanks to the fact the vehicles will
be built, and mainly sold, in Europe. The V60 is due to go on sales
in Europe later this year and will be a litmus test for Volvo under
its new ownership.
IndIA
Tata Takes Nano To High-
Growth EMs As Competition
EmergesIndian carmaker Tata Motors is building on the domestic success of
its Nano budget car with plans to target markets in Latin America,
Africa and the Association of South East Asian Nations (ASEAN).
BMI believes there is potential for the US$2,500 car in emerging
markets with strong auto demand. We forecast average annual
growth of 5% for the combined ASEAN states and 8-9% for Latin
America over the next ve years.For other regions, the expansion of the Nanos reach is likely
to involve dropping the title of the worlds cheapest car. The Nano
airbags and a more powerful three-cylinder engine. Tata is consider-
ing launching the upgraded Nano in India after it reaches Europe.
Tata is ramping up production of the Nano for its global expan-sion. After selling more than 50,000 units since its launch in July
2009, the opening of a dedicated plant in Sanand will provide the
capacity to produce 250,000 units per year. Prakash Telang, manag-
ing director of Tata Motors, expects output of around 20,000 units
per month.
However, BMI points out that while Tata is upgrading the
Nanos features to appeal to a wider global audience, the recent
incidents of three Nanos catching re is likely to arouse concern.
An internal investigation is being carried out and all Nanos sold are
being inspected, which Tata says is to allay concerns and is not
an ofcial recall.
The importance of Tata nding new markets for the Nano hasbeen heightened since the threat of competition has emerged from a
tie-up between Bajaj Auto and the Renault-Nissan Alliance. Bajaj,
a two and three-wheeler specialist, has undertaken the research and
development work for what has been named the Ultra Low Cost
(ULC) car. In May, Bajaj said it had been working on a car that
will offer low running costs and an engine that it hopes will be one
of the most fuel-efcient in its class.
BMI believes it would be difcult to beat the original Nano on
price, which is why Bajaj has been focussing on different priorities
such as fuel efciency and running costs. According to the com-
panys managing director, Rajiv Bajaj, it has been leveraging the
lower costs structure from its production of two-wheelers to lower
the production and running costs of the car, which should enable
some of Indias millions of motorcycle owners to upgrade.
Motorcycle owners have been a target market for small car
producers, who have been trying to encourage an upgrade to four
wheels. So far, however, Indias two-wheel market has in no way
suffered from the inux of new small cars and is forecast by BMI
to surpass sales of 10mn units in the current nancial year (ending
March 2011), up 6.9% year-on-year. Within the two-wheeler sector,
motorcycle sales are expected to grow by 7.8%.
Continental Targets Key
Market But BMI Warns Of CostRisks
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
8,000,000
9,000,000
2006
2007
2008
2009
2010f
2011f
2012f
2013f
2014f
India* ASEAN LatAm
Targeting Similar Growth PatternsVehicle Sales In India, ASEAN And Latin America (CBUs)
* four-wheel vehicles only, f = BMI forecast; Sources: SIAM, Gaikindo, TAI, CAMPI,
VAMA, MAA, Anfavea, AMIA, Adefa, Cavenez
0
2,000
4,000
6,000
8,000
10,00012,000
14,000
16,000
18,000
20,000
2007 2008 2009
-3000
-2500
-2000
-1500
-1000
-500
0Revenue LHS
Operating Profit RHS
Reversing The LossesVolvo Cars Financial Results (US$mn), 2007-09
Source: Ford
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commercial vehicle segment, which BMI expects to outperform the
market in the current nancial year. An increased workforce and
higher localisation are also on the agenda as the company looks to
capitalise on growing vehicle demand.
Continentals focus on India became apparent when the Com-
mercial Vehicle Tyre division revived its partnership with Modi in
2009 with a technical agreement, under which the local company
will produce a million truck tyres under the Continental brand. BMI
expects the commercial vehicle segment as a whole to outperform
passenger car sales for the next ve years. Despite incentive-driven
growth for the passenger car segment, the commercial vehicle
market grew 38.3% in the last nancial year. BMI expects this to
be followed up by growth of around 10.7% in the current nancial
year, with the segments growth peaking at 15% in the year endingMarch 2013.
The passenger car market is also expected to achieve strong
double-digit growth, albeit slightly below the commercial vehicle
growth. BMI expects growth of 9.8% in the current nancial year,
followed by steady growth of 10-11% for the remaining four years of
our forecast period. Continental does plan to enter the passenger car
tyre market, although managing director of Continental India, Claude
dGama Rose, says it is too early to say how or when. However, the
company does forecast growth of 35-40% in the passenger car tyre
market and 50% in the commercial vehicle tyre market.
An interesting factor in Continentals strategy for India, is the
countrys growing role as an export base. Rose added that due to the
large number of vehicle manufacturers now exporting from India,
in line with BMIs core view that emerging markets will become
global production bases, a high standard of tyre is required. BMI
expects sustained double-digit growth in total vehicle exports over
the next ve years, averaging 13.6%.
Although additional capacity will depend on the companys
growth in India, Continental does plan to expand its research and
development team by 30% this year. The German rm does plan to
increase its localisation in terms of the value chain, which includes
local design centres and production facilities.
However, BMI would outline one risk to increasing the locali-
sation of sourcing, if this were to be part of the plan, which is the
rising cost of raw materials. In July it was reported that rising rubbercosts, which are now 150% higher than in December 2008, have
prompted tyre manufacturers to increase prices by 10% already this
Mahindra Eyes Global SUV
Strength Through Ssangyong
DealIndian utility vehicle manufacturer Mahindra and Mahindra plans
to use its acquisition of a majority stake in South Koreas SsangyongMotor to gain momentum in global markets, which aligns with
BMIs view that emerging market brands will increasingly expand
globally. Mahindra has signed an agreement with the SUV special-
ist, which has been restructuring under court supervision, and due
diligence will follow.
The deal is likely to be mutually benecial. While Mahindras
automotive division president, Pawan Goenka, says it plans to tap
into Ssangyongs R&D and technology expertise by investing in a
new product range, the company also plans to create new growth op-
portunities for Ssangyong in Indias rapidly growing SUV market.
Mahindra believes the two rms are also similar in size and their
orientation towards SUVs, making them a perfect t to join forces.
Mahindra expects the deal to be nalised by November, after
which it will consider bringing Ssangyongs premium SUVs to India.
The Indian giant is already a leader in the utility vehicle segment,
which grew 23.8% in the rst four months of the current nancial
year (April to July). The acquisition of Ssangyong is aimed at adding
to the product portfolio to create a joint global brand.Outside nancing for the deal will not be required as Chair-
man Arnand Mahindra claims the company has cash reserves of
over US$500mn, although a value for the acquisition has not been
revealed. The size of Mahindras stake is also as yet unknown. At
present, creditors hold 70% of Ssangyong, while its former Chinese
parent company, Shanghai Automotive Industry Corp (SAIC),
holds 10%.
Ssangyong workers hold SAIC management largely responsible
for the carmakers near collapse. Following Ssangyongs bankruptcy
ling in February 2009, unionised workers said that they planned
to take legal action against SAIC for mismanagement. They were
looking for compensation for damages, while also claiming that thelawsuit would secure complete separation from the rm. The Chinese
carmaker, which lost management control when Ssangyong entered
Costs Inate Tyre PricesAverage Monthly Price Of Indian Standard Natural Rubber: Jun 09-May
10 (INR)
Source: Rubber Board of India
m&ms global exPansion since 2000
Year Markets Models
2000-2004 Tanzania, Sri Lanka, Congo, Madagas-car, Mozambique, Ethiopia, Rwanda,Burundi and Nigeria
Scorpio SUV, MahindraPik Up
2004 Uruguay, South Africa Scorpio, Bolero Pik Up
2005 Italy, France Scorpio (known asGoa), Bolero Pik Up
2006 Spain Goa, Mahindra Pik Up,Bolero Pik Up
2007 Bhutan, Sudan Morocco, Algeria,Ghana, Chile
Mahindra Pik Up
2008 Egypt, Brazil (both CKD production),Peru, Paraguay
Scorpio, MahindraPik Up
2009-10* US Mahindra Pik Up,Scorpio
* = planned; Source: Mahindra & Mahindra
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which was approved by the Seoul Central District Court in December
2009. The SUV specialist is aiming to return to protability within
three years and triple sales in the same timeframe. BMI believes
that another positive aspect of Ssangyongs plan is that its product
strategy ts with the South Korean governments plan to speed up
mass production of electric vehicles. A revamp of the companys
product range features heavily in its turnaround plan, which includes
producing an electric and a plug-in electric hybrid model within the
next ve years. This is technology that Mahindra may be able to
take advantage of for its own development.
Trend Of Emerging Market
Firms Expanding Will Continue
As MSSL Seeks PurchasesThe trend of companies from emerging markets (EMs) making
forays into traditional markets continues to gain momentum as
Indias Motherson Sumi Systems (MSSL) seeks opportunities
for acquisitions in Europe. BMI believes that opportunities for theIndian supplier lie in the growth potential of auto production in
Europe, which we expect to reach 21.7mn units by the end of 2014,
an 30% increase between 2010 and the end of the forecast period.
While this growth is hardly anything compared with the near
48mn likely to be produced during the same period in Asia, it testies
one ofBMIs long-term core views that domestic Asian brands will
be looking to expand globally. This is despite widespread fears of a
slowdown in vehicle demand and production in Europe, indicating
that companies are drawn on one hand to the maturity and stability
of Western Europe, and also to the long-term demand and produc-
tion potential in emerging Europe.
Having established a strong client network of local majors such
as Mahindra and Mahindra, Tata Motors and Maruti Suzuki,
MSSL is keen to exploit its ties with South Koreas Hyundai Mo-
tor to help it win similar contacts in Europe. MSSL will be helped
by its European subsidiary SMR, formed after its acquisition of
Visiocorp in January last year. The subsidiary has already brought
new orders from European original equipment manufacturers for the
Indian suppliers, and reportedly increased its clientele to regional
majors such as Volkswagen, Renault and BMW. The supplier isalso reportedly building its second plant in Hungary, with production
likely to commence from March 2011.
year, and is looking to strengthen its presence in Europe, having
already built links ties with the likes of BMW and Volkswagen.
This clearly highlights a strategy that most companies from EMs
are adopting. The global economic crisis and consequent fall in the
value of businesses in Europe has made such acquisitions possible.
It not only created a ready network of client for these companies
with global ambitions, but also gave them access to well-established
manufacturing facilities in the region, making them more condent
about their investments in the region. MSSL alone is expected to
spend a signicant proportion of its INR400-INR500cr (US$80-
US$100mn) investment in Europe on increasing its production
presence in the region.
Mahindra And Importers
Future Uncertain As Expansion
Takes Its TollWhile BMI generally views the global expansion of emerging mar-
ket (EM) brands as a positive development, Indian utility vehiclemanufacturer Mahindra and Mahindra is nding its move into
the US to be a steep learning curve. After facing a lawsuit from US
importer Global Vehicles in June over the time taken to gain the
necessary testing and certication to get vehicles on the market,
Mahindra now claims that the four-year agreement between the
two has been terminated.
This is perhaps one of the rst signs of Mahindras lack of local
knowledge, as Global Vehicles claims the termination is invalid
according to both federal and state of Georgia laws. If anything, it
could only serve to plunge the Indian rm into a deeper legal mire,
particularly as Global Vehicles stated in its lawsuit that it has al-
ready spent US$35mn on preparing for the import and distributionof Mahindras compact diesel truck.
Dealers are also refusing to recognise the termination of the
import agreement. According to Automotive News there are some
300-350 to dealers with franchise agreements and some have already
started investing in showrooms. The truck is scheduled to arrive,
pending its approval by the Environmental Protection Agency
(EPA), in December, which is already 18 months after Mahindras
original target of mid-2009.
Aside from the contractual obligations, Global Vehicle is also
keen to take advantage of market performance. CEO John Perez has
expressed his keenness to have the rst four-cylinder diesel truck on
the market, which is why the company has been pushing Mahindra
to secure EPA approval. Sales data show that this is a particularly
good time as truck sales have been improving.
Light truck sales were 17.8% higher year-on-year (y-o-y) in July
and 17.3% higher for the rst seven months combined. Although
dealer incentives traditionally offered at this time of year are a fac-
tor, there has been a noticeable return to the pick-up market. The
downside risk for Mahindra is that sales of imported trucks were
down 1.3% in July and 5% for the seven months. Acceptance of an
EM brand may also be an issue, particularly if it has taken so long
to gain certication.
If Mahindra does want to go its separate ways it will be faced
with the cost of nding a new importer and dealer network, not to
mention the likelihood of trust issues following its legal wranglingwith Global Vehicles. It is a price worth paying, however, given
the importance of the market. Mahindra, which controls 65% of the
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
4,000,000
4,500,000
2007
2008
2009
2010f
2011f
2012f
2013f
2014f
Poland Czech Republic Slovakia
Romania Hungary Slovenia
Too Big To Ignore?Key European Autos Production Markets: Historical Data and Forecast
f = forecast. Source: OICA, BMI
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PAkIstAn
Japanese Dominance
Threatened As Yen Forces Up
Car PricesJapanese carmakers have been forced to increase prices in Pakistan
after the yen rose 10% against the rupee in the last three months,
threatening their sales dominance and the countrys overall produc-
tion industry. Pak Suzuki and Indus Motors, which represents
Toyota Motor in Pakistan, are likely to increase prices by 2-3% in
order to protect their operating margins. Although both companies
assemble models locally, components still have to be imported to
Pakistan from Japan, which is driving up costs.
The price hikes come at a time when the industry is already suf-
fering from a number of factors, including an earlier price increase
in April on the back of rising raw material costs. A similar 2-3%
increase was implemented as the price of steel sheet rose from
US$493 per tonne in Q109, to US$1,050. At the same time, carmak-
ers are facing declining volume sales in the wake of the countrys
worst ever oods.
Government support for the industry is negligible. The Daily
Times reports the government is actually calling for price cuts to
make cars more affordable. Additionally, rules regarding the im-
port of used cars are being changed to allow second-hand cars less
than ve years old into the country, which would further impact
domestic assembly.
In terms of import costs, the Japanese brands have such a stran-
glehold that they may not suffer relatively in market share terms. In
the passenger car segment, the only non-Japanese brand producing
locally that could have taken advantage was South Koreas Hyundai
Motor, but data from the Pakistan Automotive Manufacturers As-
sociation (PAMA) show no output data from November 2009 and
no sales gures from May 2010. It does provide an opening for
other brands to enter at a competitive advantage, however. Chinese
brands have already emerged in the truck and motorcycle market and
could see this as an opportune time to expand into passenger cars.
On the downside, the heavy Japanese presence does mean the
industry as a whole will suffer and at a time when the sector had
started to recover. After a particularly bad year in 2008-2009, sales
for 2009-2010 (July to June) rose 43% in the passenger car and light
commercial vehicle segment, while output was 37% higher. How-
ever, this does have to be seen in the context of a low base from the
previous year and the increasingly difcult conditions for carmakers
mean similar growth in the current nancial year looks unlikely.
tHAIlAnd
Ford And Mazda Invest More As
Cost Advantages Become Clear
Ford Motor and Mazda Motor will invest an extra US$350mn intheir AutoAlliance Thailand (AAT) plant in Rayong, which is prov-
ing to be just as effective for other Ford subsidiaries as for AAT itself.
The cost savings achieved by importing certain models from
Thailand, the leading South East Asian market in BMIs Industry
Risk/Reward ratings, means that Ford Australia is beneting from
its sourcing from the plant and can improve its sales by having ac-
cess to more stock.
While BMI believes that strong government policy and a well
developed production industry make Thailand one of the best export
bases in the region, Ford Australia now sources the Ford Fiesta from
the country. This is an endorsement of the AAT plant, which was
set up to produce the Fiesta and Mazda2 small cars under the gov-
ernments Eco car programme, both for domestic sale and export.
Although Ford Australia is reticent about the chances of also
sourcing the Focus when Fords sole-owned plant comes on-
stream, there are a number of reasons why it would make sense.
The US$500mn plant is producing the Focus for export throughout
Asia Pacic, which should include Australia. Ford Australia itself
has also noted the benets of cost and tax savings from importing
within the region, while also picking up on the disadvantages of its
current Focus sourcing.
At present the Focus is imported to Australia from South Africa.
However, Ford Australias marketing general manager, David
Katic, has been quoted as saying the company has had supply is-
sues and that the high variation of Focus sales is a result of that.
Katic added that Ford Australia is now looking for consistency in
its supply of the Focus.
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
2007
2008
2009
2010f
2011f
2012f
2013f
2014f
T hailand Malays ia
Ind one si a Phi li pp ine s
Thailand On TopVehicle Production In Major ASEAN Markets (CBUs)
f = BMI forecast; Sources: CAMPI, Gaikindo, Thai Automotive Federation, MAA, OICA
bmi JaPan currency forecasTs
Spot S-T Target End-10 End-11
JPY/US$ 84.55 - 87.00 89.00
JPY/EUR 126.52 - 126.15 111.25
Target Rate (%) 0.1000 - 0.1000 0.1000
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If a model cannot be built domestically it is important that deal-
ers can be assured a reliable source of stock. Before switching the
Fiesta sourcing, Katic said dealers could not aggressively market
the model as they did not have enough to sell. With sales of the
medium car segment, in which the Focus competes, up by 25% in
July and 14% for the year-to-date, having a large enough inventory
to satisfy demand will be key to being competitive. However, the
new Thai plant will not be operational until 2012.
With the Fiesta now proving its worth, the latest investment for
AAT will be aimed at building a new compact pick-up truck from
mid-2011. The money will be used to upgrade and retool the plant
to produce the truck for the domestic and export markets. Although
sales of pick-up trucks have dwindled in recent years, sales in H110
were up 47% year-on-year, while demand in other countries is also
a factor. Pick-up sales in Indonesia more than doubled in the seven
months to July, while in Australia, light commercial vehicle sales
were 6.8% higher in the same period.
MAlAysIA
International Partnerships Lead
To Expansion For DRB-HicomMalaysias DRB-Hicom has announced plans to expand the capac-
ity of its plant in Pekan, on the back of its growing ties with global
carmakers. According to the groups managing director, Datuk Seri
Mohammed Khamil Jamil, the expansion and tie-ups are a step
towards the company developing its own vehicle brand. This is in
line with BMIs view that emerging market companies will expand.
DRB-Hicoms existing partnership with Suzuki Motors is
proving popular: there is a two-month waiting list for the recently
launched Suzuki Alto small car. The latest partnership with British
sports car manufacturer Potenza will see the Malaysian rm produc-
ing completely built units (CBUs) and knocked down kits (CKDs)
for export to be assembled in the UK, while talks are ongoing to
reach an assembly agreement with Germanys Volkswagen.
The Potenza partnership is particularly signicant for the Malay-
sian rms global ambitions, as it will see DRB-Hicom produce kits
for export back to the UK to be assembled for the domestic and other
European markets. The CBUs, meanwhile, will be shipped around
the Asia Pacic region. There are also plans to produce hybrid and
electric versions of the sports cars, which will give the company ac-cess to new technology. Production is due to begin in 2012, by which
time BMI expects total industry production to exceed 650,000 units.
with assembly of CKD kits and according to Jamil, speaking at
the signing of the agreement in August, the project should play a
central role in making Malaysia a regional production hub, which
is a goal of the Malaysian government. In line with BMIs view on
government intervention in the auto sector, the Malaysian Ministry
of International Trade and Industry (MITI) has opened a dedicated
division to oversee the development of the domestic industry, as it
looks to compete with other major ASEAN states.
The partnership is also a step forward for VW, which had been
looking to expand its ASEAN presence through a relationship with
national carmaker Proton, but talks were unsuccessful. VW has had
an on-off relationship with Proton. A previous agreement collapsed
in 2007. After the most recent negotiations failed, Proton cited VWs
statement of having other priorities as a factor.
DRB-Hicoms vision of designing and developing our own
brand of vehicles in cooperation with our global partners is a strat-
egy employed by some major Chinese brands, who built up expertise
and technical capability through joint ventures with foreign carmak-
ers, before launching their own brands. One risk to this scenario is
that the new National Automotive Policy is aimed at rationalisingthe industry to two major volume producers, in order to curb the
threat of overcapacity, which is prevalent in China.
IndonesIA
Steel JV Will Increase Local
Content As Vehicle Demand
RisesA joint venture (JV) between leading South Korean steel producerPosco and Indonesias Krakatau Steel is expected to serve the
majority of Indonesias automotive steel demand if completed on
schedule in 2014, by which time BMI expects annual vehicle pro-
duction to be just short of 1mn units. The dominance of Japanese
carmakers means that a signicant amount of steel is still imported
from Japan, which given the current strength of the yen, is increas-
ingly expensive.
Krakataus vice president of corporate communications, WawanHernawan, said the new plant would enable the company supply steel
for interior parts and chassis, as well as the steel for car bodies that
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
2006
2007
2008
2009
2010f
2011f
2012f
2013f
2014f
Sales Production
Hub PotentialIndonesia Vehicle Sales And Production (CBUs)
f = BMI forecast; Source: Gaikindo
Much Improved
Malaysian Vehicle Production And Sales H110/09 (CBUs)
Source: MAA
H110 H109
Passenger car production 269,884 209,072
Commercial vehicle production 23,889 20,770
Total Production 293,783 229,842
Passenger car sales 271,873 228,420
Commercial vehicle sales 29,204 22,885
Total Sales 301,077 251,305
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Asia Pacific AutomotivesPhIlIPPInes
spectively. The economic crisis hit hard in 2009 with output slipping
22%, but BMI expects a return to production growth of 34.4% in
2010, to accommodate sales growth of 40.6%.
In H110, total vehicle production was up 65% year-on-year (y-o-
y), according to data from the Association of Indonesian Automotive
Industries (Gaikindo), but Hernawan says the local steel industry
can only provide 40% of the 100,000 tonnes per year required by
the auto sector. As Japanese carmakers accounted for 99% of total
output over the six-month period, the majority of imported steel
comes from Japan.
According to Hernawan, it is not only the amount of steel required
that is an issue at present, but also the specications. The company
produces steel ats with a width of two metres, which is smaller
than the usual requirement for the auto industry. Posco has report-
edly promised to have the Cilegon-based plant operational by 2014,
producing steel that will meet the needs of the domestic industry.
Increasing the availability of domestic raw materials will be a
contributing factor to meeting the governments target for annual
production of one million units in ve years. This is largely in
line with BMIs forecast for just under 990,000 units by 2014. Itshould also increase the competitiveness of producing locally and
attract more investment, which is another aim of the government.
In April, Industry Minister MS Hidayat announced that Indonesia
is looking for ways to make its auto sector an integral part of the
ASEAN Economic Community and not just become a market for
other ASEAN countries.
For Posco, the JV is another step into a country that is not only
resource rich, but also has strong vehicle demand. The company is
also planning a US$12bn steel plant in India, where BMI forecasts
average annual vehicle output growth of 12% over the next ve years
and will take a 20% stake in a Brazilian operation run by Vale SA
and Korean steel producer Dongkuk Steel Mill Co. BMI expectsvehicle production in Brazil to grow an average 7.7% between
2010 and 2014.
PHIlIPPInes
Ford Uncertainty Highlights
Strength Of Thai Incentives
Over PhilippinesNews that Ford Group Philippines (FGP) does not have a denite
replacement for the Focus when production of the model is moved
to Thailand in 2012 supports BMIs view that Thailand is a more
attractive investment prospect due to its strong industry policy and
incentives. The uncertainty surrounding the nalisation and imple-
mentation of the latest Philippines Motor Vehicle Development
Plan (MVDP) has only served to further highlight the difference in
competitiveness.
If Ford does not replace the Focus with another model, it
will have even greater ramications for the Philippines domestic
industry, as the US carmaker is the only vehicle exporter in the
country. Out of a full capacity of 15,000 units, Ford exports around
10,000. The company acknowledges that the incentives offered
under the current MVDP have been very helpful in making thePhilippines more competitive against larger car making neighbours
such as Thailand. However, Ford has said it is keen to under-
changes to the new MVDP for consideration, incentives have beenproposed that would favour carmakers producing for export rather
than focusing on domestic demand. While this would clearly support
Ford as the industrys only exporter, details are still vague and Fords
US headquarters is already in the process of studying potential new
models to be built in the country. BMI also believes there is a risk
in supporting exports to the detriment of developing the domestic
industry as a whole. Ford itself highlighted a need to develop parts
production in order to have a competitive auto manufacturing in-
dustry, when the export issue was discussed in July.
FGPs president, Randy Krieger, told local press at the launch
of the Fiesta on August 16 that government incentives play a big
part in investment decisions. Other criteria include the size ofthe domestic market and its needs. This is similar to BMIs own
Industry Risk/Reward Ratings, which include total sales and growth
potential over the next ve years as criteria for the Industry Reward
component. With a much larger domestic market to begin with and
average annual growth of 4.9% over the next ve years, Thailand
has an Industry reward score of 51.6 out of a possible 100, compared
with 48.6 for the Philippines.
For the time being, Krieger says that Fords investment in pro-
duction of the Focus in Thailand will not impact its operations in
the Philippines up to 2012. Ford also has an advantage as it is one
of the industry players working with the government to hammer out
the details of the new industry policy.
soutH koreA
Exports Will Continue To Play
Greater Role In StrategiesSales results for August show that South Korean carmakers have
achieved some of their strongest growth in export markets, which
is a trend that BMI expects to continue as the country becomes an
important part of wider global planning. This is particularly true
of those companies with international ownership, such as Renault
Samsung Motors.Ssangyong Motor, which reached an agreement to be taken over
by Indias Mahindra and Mahindra in August this year, registered
42
44
46
48
50
52
54
Industry
Reward
Country
Reward
Overall
Reward
Score
P hil ip pi ne s T hai land
Comparing RewardsBMI Auto Industry And Country Reward Scores For Philippines And
Thailand
Note: The Rewards Rating comprises an Industry and a Country element, which have
a 65% and 35% weighting respectively. These are based upon specic Industry growth
and size dynamics within the market, and the broader economic and socio-demographic
environment of the country.
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compared with 1,072 units the year before. The impressive results,
though, are mainly the result of a labour dispute in August 2009,
when striking workers took over Ssangyongs plant in Pyeongtaek
for two months. This cost the carmaker an estimated KRW300bn
(US$245mn) in lost output and provided an especially low base for
comparison.
However, BMI believes Mahindras acquisition of Ssangyong
will give the SUV specialist access to a wider global audience and
higher export sales should be sustainable, although not at the same
levels as August. India will be one of Ssangyongs new export
destinations, as Mahindra plans to launch the companys premium
SUVs to tap into growing demand in the country.
Renault Samsung also stands to benet from its international ties,
as the Renault-Nissan Alliance has decided the strength of the yen
means that increasing capacity in South Korea to move productionfrom Japan will be more cost effective. Renault Samsungs doubling
of exports in August, to 8,736 units, made up for a 5.3% drop in
domestic sales, to 10,153 units, taking total sales up by 34%.
Growth for Kia Motors in August was split relatively evenly
between its domestic and export markets, with South Korean sales
up 53% on last year, to 38,620 units, and outbound shipments up
56%, to 111,921 units. This resulted in overall growth of 55% in the
month, considerably higher than its larger parent Hyundai Motor,
which registered 17% overall growth. However, BMI believes that
Hyundais growing network of overseas production bases means
that the need for exports is reduced. This is particularly signicant
when global models are produced overseas, such as the i20 compact
made in India.
GM Daewoo Auto and Technology was the one carmaker to
buck the trend with growth of 28.3% in domestic sales in August,
to 9,128 units, compared with a 26% rise in exports, to 39,091 units.
A new product strategy could turn this around, however, as the
GM Daewoo plant will become the rst to produce the Chevrolet
Orlando SUV in 2011. The model will rst be shipped to Europe
before being sold domestically later in the year. The company has
also commenced exports of the Matiz Creative small car, rebranded
as the Chevrolet Spark, to Uzbekistan, which will begin contributing
to this months export results.
Renaults Import Plans CouldBe Hampered By Aid Conditions
has reported, long before the models planned unveiling at the Paris
Motor Show in October. The model, only 5% of which are likely
to be imported into Western Europe from the Renault Samsung
Motors plant in South Korea, has raised the eyebrow of the French
government. Since a sharp 44% decline in Frances auto production
between 2006 and 2009mostly due to high production costs, the
government sees Renaults current strategy as part of a drive to shift
more production to low cost bases abroad.
Marketing LogicInstead, Renault sees the model as a cure for its narrowing share in
Europe, where the Laguna has lost popularity to competing models
from the Volkswagen and General Motors Company stable. While
the Laguna, introduced in H207, has missed its targeted 190,000
sales by the end of H108, the SM5 sedan has proved immensely
popular in South Korea, signicantly contributing to the carmakers
61% year-on-year increase in sales during H110. In view of this
success, company spokesperson Gaelle Gicquel has revealed the
rm is looking to import 5% of the SM5 models produced in South
Korea to Western Europe, hoping it will help increase its marketshare in the mid-size segment.
Problems for Renault, however, stem from the fact that 15% of
the company is owned by the government, which makes it possible
for the government to directly intervene in its operations. Addition-
ally, Renault is bound by the conditions of maintaining domestic
production and helping auto parts suppliers in France in return for
the near EUR6bn in aid that it and compatriot PSA Peugeot Citron
received from the government last year.
Government Standing FirmSince then the government has managed to put a considerable amount
of pressure on Renaults production plans. In 2009, Renault wasforced to reverse its plans of shifting production of the Clio Campus
from France to Slovenia, in a move that reafrmed BMIs view
that the aid will keep a check on any signicant fall in production
volumes in the country during our forecast period, to 2014.
While we continue to hold on to this view, BMI warns that a
complete recovery in auto production to past levels will not be pos-
sible in the foreseeable future. With improved nances being theutmost priority for carmakers, we do not expect French carmakers
to move production from their low cost bases to France. Rather an
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
2007
2008
2009e
2010e
2011f
2012f
2013f
2014f
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Total production (CBUs mn) (LHS)
Cars production (CBUs mn) (RHS)
Preventing Further LossFrance Autos Production: Historical Data And Forecasts
e/f = forecast. Sources: Comit des Constructeurs Franais dAutomobiles, Organisation
Internationale des Constructeurs dAutomobiles, BMI
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
Total Passenger
cars
Buses Trucks &
SPVs
7M09 7M10
Export StrengthSouth Korean Vehicle Exports By Segment (CBUs)
Source: KAMA
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compared with 2009 levels. Renaults French plants were reportedly
operating at half of their production capacity last year.
Over time, we expect carmakers to be more inclined to boost
production overseas and gradually reduce production domestically,
after they have repaid the aid. However, we doubt if Renaults
ownership structure will encourage the company to take such bold
moves in the future.
Kia Follows Asian Example
in Uruguay, But Risk Lays In
Brazils Bubble BurstingKia Motors has become the latest Asian carmaker to aggressively
target Uruguay as a way of gaining low-cost entry into the highly
competitive Brazilian market.
Following the example of new entrants such as FAW, Chery
Automobile and, Geely Motor, the South Korean rm s Kia Motor
has launched production of its Bongo K2500 light trucks in partner-
ship with the Gandini Group at the latters plant in Montevideo.Such has been the impact of auto growth in Brazil, carmakers in
Uruguay have reportedly doubled their manufacturing in the past
four years with exports nearly tripling.
Other factors stand Uruguay in good stead:
The country has a well-established auto parts making and vehicle
assembly industries, which helps assure new investors.
Uruguays membership of Mercosur gives it open access for the
exports of all auto productsexcept motorcyclesto Brazil and Ar-
gentina, two of the biggest markets in the region. Although Brazil is
the priority market for Kias exports from Uruguay, Gandini Group
President Jose Luiz Gandini says it will also be looking to expand
into Argentina and Paraguay in 2012.In 2007, Uruguay adopted an investment promotion system giv-
ing companies more exibility in tax payments, VAT refunds on sup-
ply purchases, pre-export nancing and other perks. Firms involved
in auto parts trading can also benet from a low 2% minimum tariff,
subject to certain conditions. Such regulations have helped offer a
better business environment for investors.
Gandini has called the project with Kia a strategic industrial-
commercial alliance. The company is currently looking to build
12,000 light trucks a year through investment of US$25mn. Produc-
tion will be assisted by the sourcing of parts from 11 plants in Brazil
and six in Argentina and Uruguay.
A major threat to Uruguays growth potential, however, comes
from its excessive reliance on Brazil, which BMI fears could be
heading for a slowdown. We see little likelihood of the government
being able to reintroduce incentives, similar to the IPI tax breaks,
given its relatively weak scal position and the expected high level
of public investment ahead of the presidential elections in October.
We are also cautions that high levels of exports to China will make
it highly susceptible to a slowdown in the Asian country.
However, good opportunities lay in the fact that Uruguay has
signed a deal with Mexico enabling duty-free exports of vehicles
and parts. Mexico is undoubtedly a market no carmaker can afford
to ignore given that it serves as a platform for entry to the US.
FTA Will Heat Up CompetitionBetween Asian Carmakers
rea. Although Japanese majors Toyota Motors, Nissan Motor and
Suzuki Motor hold considerable inuence in Peru, BMI believes
their dominance could soon be eclipsed by South Koreas Hyundai
Motor and its sister rm Kia Motors, should a possible FTA be-
tween Peru and Japan be delayed further. Hyundai and Kia currently
stand as the second and the third most popular carmakers in Peru.
Automotive imports into Peru currently attract a 9% tariff. To
that, an immediate outcome of the FTA will be that Peruvian rms
will be able to import large vehicles (with engine sizes over 3,000cc)
tariff-free, the Ministry of Foreign Affairs and Trade in South Korea
has revealed. Meanwhile, imports of mid-size vehicles (with engine
sizes between 1,500cc and 3,000cc) will be made tariff-free within
the next ve years. All other vehicles will be exempt from tariffs
in the next 10 years.
That would make the auto industryalong with the electronicsegmentthe biggest beneciary from the deal, given that more
than a third of South Koreas total exports to Peru are auto-industry
related. If Korea International Trade Association estimates are to be
believed, the agreement has already made nearly half of Koreas auto
exports to Peru tariff-free, leading to a possible 10% year-on-year
increase in South Korean autos exports to Peru.
Without doubt, Japanese carmakers operating in Peru will receive
a setback, not only because talks of an FTA between Japan and Peru
are nowhere close to being sealed, but also due to a slew of FTAs
signed with other markets. As of March 1 2010, Peru entered into
a FTA with China, a major outcome of which will be an inux of
Chinese carmakers into the country. In the same month, Peru, along
with Colombia, concluded trade talks with European carmakers,
making way for in the arrival of European carmakers in the country.
Despite this, Peru may not necessarily be a lost battle for Japanese
carmakers just yet. Given that the aforementioned three Japanese
carmakers collectively hold close to a 40% market share in Peru,
there is a strong possibility that a potential FTA with Japan would
encourage these carmakers to establish a manufacturing presence in
the country. In contrast, the terms of the agreement between South
Korea and Peru have reportedly made provisions to safeguard each
countrys local manufacturing, which may pose limits on local manu-
facturing by South Korean carmakers. There are also concerns that
trade ows between the two partners will also be restricted in future.
For now, Japanese carmakers can draw encouragement fromSuichiro Megata, Japanese ambassador to Peru, who said in July
that the rst step to securing an FTA with Peru will be the elimina-
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2004 2006 2007 2008 2009
Stregthening The TiesSouth Koreas Trade With Peru (US$bn)
Source: Korea International Trade Association
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Asia Pacific AutomotivesjAPAn
jAPAn
Distinct Brand Strategy And
Local Production To Aid
Nissans Expansion PlansAs a part of its new business strategy for Argentina, Nissan
Americas has partnered with Manuel Antelo, the president of Ar-
gentinas largest automotive logistics company, CAR Group, to
help strengthen the companys sales, service and distribution and
achieve over a 5% share in the country by 2014.
Nissans operations in the country have so far been supported by
Renault Argentina. This partnership, together with the success of
the Nissan Tiida, helped the Japanese carmaker corner a 1.5% market
share in Argentina in the rst eight months of this year, compared
with less than 1% during the same period last year (according to
Asociacin de Fbricas de Automotores de Argentina estimates).
Despite this success, BMI believes Nissans need for a separate
brand strategy comes in view of the companys commitment towards
the Argentina and the fact that its French partner holds a much bigger
12% share in Argentina. We believe this difference has prompted
the two rms to pursue independent sales and marketing strategy
in the country.
With Argentina one of Renaults strongest markets in Latin
America, Renault is keen on rming its presence in the country. To
that, the French carmaker revealed it is looking to use its manufac-
turing facility in Santa Isabel plant in Cordoba to help it develop
vehicles, specically geared to the local market. Nissans break up
with Renault on marketing will therefore help the latter concentrate
on core strategy in Argentina.
On the other hand, BMI believes that a separate marketing strat-
egy will allow the Japanese carmaker to execute its Shift Mercosur
plan, aimed at increasing the proportion of its Latin American sales.
For growth in Argentina, we expect the carmaker to utilise its strong
manufacturing networks in Aguascalientes and Jiutepec, Morelos
in Mexico and Paran in Brazil, allowing the carmaker to pursueits strategy for introducing a low-cost vehicle in these countries
during 2010 and 2012.
retail business. The new agreement between Nissan and Antelo
will commence from late 2011, prior to which it will continue to be
supported by Renaults operations in Argentina.
Although BMI believes that the Argentine market is far from
saturatedthanks to its low 15.3% vehicle ownership ratewe
believe Nissan will face stiff competition from a large number of
market leaders such as General Motors Company, Volkswagen
and Peugeot Citron.
Toyota Withdrawal: More About
Protecting US Business?Toyota Motor has announced it will stop exports of its vehicles to
Iran in line with the UNs fourth round of sanctions against the coun-
try. It is not the rst carmaker to pull out of Iran. Germanys Daimler
announced in April it would sell its 30% stake in Iranian Diesel
Engine Manufacturing and shelve plans to export to the country.
In Toyotas case, it has a much smaller interest, having shipped
only 220 cars in the year up to the implementation of the sanctions
in June, which suggests there may be more to the carmakers plans.Separate US sanctions stipulate that any foreign companies ex-
porting material or technologies banned on its list will have its US
nances and business restricted. The timing could not be worse for
Toyota as its mass vehicle recalls and the resurgence of the Detroit
Three have seen its growth in the US slip to singles digits. Sales
for the rst seven months of 2010 rose 7.5%, compared with 13%,
22.8% and 10.8% for General Motors Company, Ford Motor
and Chrysler respectively. In July, Toyotas sales for the month
actually fell 3.2%.
There is much more at stake for Toyota in the US than in Iran,
where its sales account for far less than 1% of its global sales. Even
in 2008, when the company reported sales of 4,000 units in Iran, thiswas still under 1% of the 8.72mn units sold globally. It is likely that
the withdrawal from Iran is another component of its image rebuild-
ing exercise, particularly as it has recently announced new invest-
ment for truck production in Texas that it will be keen to protect.
Both Toyota and Daimler have been careful not to specically
mention sanctions, however. While Daimler CEO Dieter Zetsche
said that the policies of the current Iranian leadership were behind
its withdrawal, Toyota said only that exports have been halted in
light of the current situation.
Although the sanctions are leading to the withdrawal of major
international companies, it is also acting as a catalyst for the develop-
ment of the domestic industry. In May, state-run Saipa opened what
it claims is the Middle Easts largest car plant, which will enable the
country to produce a new domestic model and offset the effects of
international sanctions. The US$350mn (IRR4trn) plant in Kashan
will have an annual production capacity of 150,000 units. More
importantly for the industry, the plant will produce the Tiba range
of domestically designed and built small cars and sedans.
Fears of losing parts supplies from international rms have also
prompted Iran Khodro (IKCO) to go ahead with plans to produce
its own alternative fuel engine, powered by compressed natural gas
(CNG), which is readily available in Iran. Dubbed the National
Engine, it will initially be used in the Samand and the Peugeot
405. IKCO plans to produce 125,000 engines in the current Iranian
year, stepping up its efforts in line with the petrol rations that alsothreatened the industry earlier in the year. BMI has previously stated
we believe there will be little difculty for Iran becoming a dual-fuel
Volkswagen,
92,323
Renault,
53,130
Ford, 49,420
Fiat, 47,638
General
Motors, 70,060
PSA Peugeot
Citroen, 52,205
Toyota, 20,572
Mercedes-
Benz, 8,823
Nissan, 6,408
Iveco, 3,054
Scania, 1,018Others, 29,150
Fighting The MajorsArgentina New Vehicle Sales (Units), Jan-Aug 2010
Source: Adefa
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Asia Pacific AutomotivessIngAPOre
Nissan Looks For GCC Growth
Despite Yen ThreatJapanese carmaker Nissan Motor is looking for ways to overcome
the eroded competitiveness of its exports from Japan thanks to the
strengthening yen, as it aims to achieve sales growth in the markets
of the Gulf Co-operation Council (GCC). Although corporate vicepresident for Nissans Africa, Middle East and India division, Gilles
Normand, acknowledges that the carmakers sales in the Middle
East and North Africa (MENA) are still below pre-crisis levels, he
expects sales for the year ending March 2011 to slightly increase
over 2009.
The risk to making these increased sales protable, however, is
that almost half of the imported vehicles come from Japan, which
is becoming increasingly expensive. Nissan has already been forcedto address this issue in other regions, taking the decision to import
its March compact model into Japan from Thailand to make it more
cost effective. There are also signs that it is increasing exports to
MENA from other countries, as it announced in April it export close
to 20,000 Tiida sedan and hatchback cars from its Mexican subsidi-
ary this year. India has been cited as another potential export base.
It is likely to be such rejigging of exports that will address the
issue rather than investing in new MENA capacity. CEO Carlos
Ghosn said there are no plans to invest in new plants in the region,
to add to the Nissan plant in Egypt and the Renault plant due to come
onstream in Morocco in 2012. While Japanese brands are welcomed
in the Middle East, Ghosn said a free trade agreement with Arab
states would be needed before going further. As a result, he saysthe best the company can do right now is hold on to market share
in the region.
The regional sales target for the year is 200,000 units, of which
the GCC states are expected to account for 130,000. Ghosn said in
February he believes that the company can double its market share
in the region, but a lack of smaller lower cost cars is holding it back.
Although small cars will undoubtedly enhance Nissans product
range in the region, BMI notes that the SUV market is traditionally
strong, particularly in the GCC markets and this is where Nissan
has an edge. Ghosns February speech marked the launch of the
Nissan Patrol SUV, which was tipped to be one of the models that
will spearhead this attempt to boost market share.
Nissan currently ranks second in the region behind Toyota Mo-tor. However, sales will need to recover from the 30% decline in
2009 While the economic crisis had an adverse impact on sales
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
Japan
WesternEurope
CEE
NorthAmerica
Latin&SouthAmerica
MiddleEast&Africa
AsiaPacific
2008
2009
Work To Do In MEANissan Global Sales By Region (CBUs)
Source: Nissan
Nissan Signs EV Agreement As
Government Shows Signs Of
Contradictory PolicyJapans Nissan Motor and the Jordanian Ministry of Environment
have signed a Memorandum of Understanding (MoU) to promoteelectric vehicles (EVs), which seems to contradict earlier policies
towards alternative fuel vehicles. While Minister of Environment
Hazem Malhas hailed the move as an obligation to our future
generations, it is only two months since the government imposed
a tax on the import of hybrid cars.
Under the MoU, Nissan and the government have agreed to
provide the necessary incentives, charging infrastructure and public
awareness campaigns to make the mass use of electric vehicles vi-
able. Nissan has entered into similar agreements with a number of
other governments, as it looks to promote it Leaf EV. In connection
with the agreement, the government is also considering acquiring
300 Leafs for the public sector to lead by example.
BMI warns that while the move to set up a full support in-
frastructure and provide incentives for the purchase of EVs is a
positive step, there is likely to be some apprehension on the part of
consumers and dealers alike following the uncertainty surrounding
the hybrid tax. In June, dealers blamed inconsistent decision mak-
ing for creating an environment where consumers are left uncertain
when it comes to vehicle purchases. The most notable example is
the hybrid import tariff.
As recently as September 2009, the government issued a state-
ment saying it would not impose a tax on hybrids, which was
becoming a growth segment for the industry. Since hybrids were
made exempt from tariffs in September 2008, over 10,000 had been
imported. However, this decision was reversed from April 30. Ac-cording to dealers quoted by The Jordan Times, consumers are now
hesitant to buy the hybrids, not only because of the tariff making
them more expensive, but because they are unsure if the decision
will be reversed again.
BMI stated at the time that Jordan could nd itself at a disadvan-
tage to neighbours such as Lebanon, which had included a tax break
for imported hybrids in its draft budget. The EV agreement appears
to be a denite attempt to get a head start on the rest of the region,
as Malhas claimed Jordan will position itself as a leader in zero
emission mobility within the Arab region. The government is also
looking into more new technology to back up the project, including
providing renewable energy for recharging EVs through solar power.
sInGAPore
Country Will Remain An
Attractive Investment Location
Despite Flextronics Pull-OutSingapore-based parts supplier Flextronics has revealed plans to
close down its plant in Mor, Hungary by March 2011, which will
result in nearly 340 job losses. Although the company has not
disclosed the exact reason for the closure, BMI sees it as a sign ofcontinued weakness in auto production, which is prompting suppliers
to consolidate and restructure their operations. However, we expect
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Asia Pacific AutomotivesAustrAlIA
development. Holden claims that it has worked with its Chevrolet
Brazil sister company over the last decade to learn about ex-fuel
technology, resulting in the Australian-built 3.0-litre SIDI V6 and
6.0-litre V8 engines.
The Commodore II ex-fuel models were developed largely with
the local market in mind. Holdens chairman and managing director,
Mike Devereux, has said it is aware that Australians want better
performance, which includes greater fuel efciency and sustain-
ability. It should give the company access to a niche in the large car
segment, which grew 2.6% in the seven months to July [source?]
The issue of supporting infrastructure, which BMI believes is
crucial to the success of any alternative fuel in a country, has also
been addressed. Caltex, the local arm ofTexaco, will supply Bio E-
Flex at 31 service stations throughout Melbourne, Sydney, Canberra,
Brisbane and Adelaide by the end of October, with the number due
to increase to 100 stations by 2011. The Holden engines can run ona mixture of up to 85% ethanol and 15% petrol (E85).
Strong demand for ex-fuel vehicles in Brazil means that the
Commodore II can form the basis of a return to exports of Australian-
built vehicles. The model will be rebadged as the Chevrolet Omega
and a limited run of 600 units will be shipped from November.
Targeting the Brazilian market, where Holden estimates ex-fuel ac-
counts for 45% of all vehicle fuel used, is also part of the companys
strategy to rebuild targeted export programmes after the economic
crisis. Holden exported to Brazil between 1998 and 2008.
Even in limited form, a boost in exports for one of Australias
three remaining vehicle producers will contribute to the industrys
recovery from a 40% drop in exports in 2009. BMI expects a modestupturn in 2010, with a 4.3% increase in exports forecast, in line with
a 6.5% increase in production. However, we warn that the strength
of the currency is a risk to export growth, as is the recovery of major
export destinations. Targeting high-growth emerging markets would
protect against this to some degree.
We do not expect demand for ex-fuel vehicles in Brazil to de-
cline in the near future as up to 90% of Brazils car eet is powered
by ex-fuel engines. This has been to the detriment of other alter-
native fuels. In June, Brazilian President Luiz Incio Lula da Silva
scrapped plans to provide incentives for the production of electric
vehicles (EVs) in the country.