Automotive Industry Update Key Trends & Developments Conference ID Wednesday, June 18, 2014 at 2:00 PM EDT

Transcription

1 Automotive Industry Update Key Trends & Developments Wednesday, June 18, 2014 at 2:00 PM EDT Dial-in Info: Conference ID Thanks for joining us! The webinar will begin shortly Imagination at work.

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3 Today s Speakers: Richard Aldrich Director of Industry Research Senior Research Analyst GE Capital Richard.Aldrich@ge.com Mike Wall Director, Automotive Analysis IHS Automotive mike.wall@ihs.com Imagination at work.

4 Disclaimer: This webcast is for information purposes only and is not intended as an offer, solicitation, or recommendation for the purchase or sale of a financial instrument or to effect a transaction. The information contained within this webcast has been obtained from and is based upon sources believed to be reliable. General Electric Capital Corporation and any of its affiliates (collectively GECC ) do not guarantee the accuracy or completeness of the information and make no express or implied representations, but reasonable steps have been taken to determine the accuracy and completeness of the information. All opinions, projections and estimates constitute the judgment of the authors as of the date of the webcast and are subject to change without notice. Market rates, valuations and availability of financial instruments also are subject to change without notice. Nothing contained within the materials constitutes financial, legal, tax, accounting or other advice, nor should any investment or any other decisions be made solely based on this webcast. You should obtain advice from qualified experts before making any investment decision. This webcast is produced separately from any other activity of GECC and was completed without access to non-public information that may have been received by other units of GECC. This webcast may not be reproduced or redistributed in any form without prior written permission from GECC. The use of this webcast in connection with the writing, marketing or promotion of any financial instruments, services or products is prohibited. Auto Industry Update Webinar 18 June Intended use for participants on Webinar 4

5 Table of Contents Richard Aldrich Industry Key Trends, Fundamentals and Indicators Short term sales, financing and macro trends / drivers Supplier pulse Mike Wall Opportunities & Risks in a Dynamic Global Environment Global /regional long term forecasts / dynamics Secular trends for weight reduction, powertrain evolution and autonomous driving Auto Industry Update Webinar 18 June Intended use for participants on Webinar 5

6 Key Trends / Indicators Auto Industry Update Webinar 18 June Intended use for participants on Webinar

7 Global Auto Sales Continue to March Upward Global Light Vehicle Sales YT-May % Change JAPAN CHINA KOREA WESTERN EUROPE USA CANADA OTHER EASTERN EUROPE BRAZIL / ARGENTINA -10% 0% 10% 20% Source: LMC Automotive Global light vehicle sales remain strong with Western Europe recovering and China holding strong. On the negative side, Japanese gains could fade; Eastern Europe hit by Ukraine situation; and rising inflation / constrained spending impacting South America. Auto Industry Update Webinar 18 June Intended use for participants on Webinar

8 Mil Units % of Total LV Sales U.S. Light Vehicle Sales Bounce Back in May U.S. Light Vehicle Sales - Retail & Fleet (Annualized) Source: Polk, JD Power YT-May 14 May-14 87% 86% 85% 84% 83% 82% 81% 80% 79% 78% 77% Retail Sales (left scale) Fleet Retail Sales as a % of Total LV Sales (right scale) Retail sales have been strong, suggesting good quality of sales Auto Industry Update Webinar 18 June Intended use for participants on Webinar

9 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Mil. Units N. American Macros Continue Slow Improvement 130 Source: Consumer Sentiment Indices U.S. Canada Source: Conference Board U.S. Housing Starts (Annualized) FORECAST 0.45 Source: Oxford Economics; GE Forecast Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15 1Q16 1Q17 U.S. Unemployment and Payroll Growth 11% Source: 10% 9% 8% 7% 6% 5% 4% Source: BLS 3% Composite Leading Indicator (YoY % Change) 8% 6% 4% 2% 0% -2% -4% -6% -8% United States Canada Source: OECD, June 2014 Total Nonfarm Payroll Additions (Thousands - RS) Unemployment Rate (LS) Auto Industry Update Webinar 18 June Intended use for participants on Webinar 9

10 Improved Financing Terms Helping Sales Average Credit Score New Car Loan Source: Experian 1Q Q Q Q Q Q Q Q 2014 Lease Share of New Car Financing Interest Rate on 48 Month New Car Loan Source: Ferderal Researve Board 4.0 1Q2008 1Q2009 1Q2010 1Q2011 1Q2012 1Q2013 1Q2014 Average New Car Loan Tenor 31% 29% 27% 25% 23% 21% 19% 17% 15% Source: Experian 1Q Q Q Q Q Q Q Source: Experian 1Q Q Q Q Q Q Q 2014 Auto Industry Update Webinar 18 June Intended use for participants on Webinar 10

11 Incentives Still Tame Edmunds True Cost of Incentives (YoY % Change) 20% 15% Source: Edmunds.com 10% 5% 0% -5% -10% -15% -20% -25% Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Auto Industry Update Webinar 18 June Intended use for participants on Webinar 11

12 P 2014E Average Age in Years % of Vehicle Population E 2014E Mil Units Still Pent Up Demand Source: Polk; GECA Industry Research Team 2% CAGR U.S. Vehicles in Operation No Growth Light Vehicle Age and Scrappage Rate Trends Light Vehicles Scappage Rate (Right Scale) Source: Polk; AASA; GECA Industry Research Team Auto Industry Update Webinar 18 June Intended use for participants on Webinar 12

13 Regression Model Suggest Further Growth Ahead U.S. Quarterly Annualized Light Vehicle Sales (Mil Units) 20 Source: BEA, GE Capital Economics and Industry Research Q1-04 Q1-05 Q1-06 Q1-07 Q1-08 Q1-09 Q1-10 Q1-11 Q1-12 Q1-13 Q1-14 Q1-15 Actual U.S. Light Vehicle Sales (SAAR) Model FORECAST Auto Industry Update Webinar 18 June Intended use for participants on Webinar 13

14 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Original Equipment Suppliers Remain Optimistic OESA Auto Supplier Sentiment Index Source: OESA May 2014 Supplier Barometer Auto Industry Update Webinar 18 June Intended use for participants on Webinar 14

15 1Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q 2014 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Oil and Gasoline Prices a Wildcard for Outlook U.S. Gasoline Price vs. Inverse of U.S. Miles Driven (YoY % Change) $5.00 Sources: U.S. Energy Information Administration; FHA $4.50 $4.00 Contractions $3.50 $3.00 Slow Growth $2.50 $2.00 $ % -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% U.S. Gas Price - Average All Types (left scale) Miles Driven YoY %chg (INVERSE right scale) Auto Aftermarket Supplier Association Sentiment Index Source: AASA Supplier Barometer Auto Industry Update Webinar 18 June Intended use for participants on Webinar

16 Raw Material Cost Inflation Up Modestly Average Materials Content of North American Light Vehicle 3,920 lbs % 9% 2% 5% 9% 34% Automotive PPI Weighted Raw Material Cost Index 9% 7% 3% 16% Regular Steel High % Med Strength Steel Stainless & Other Steel Iron Castings Aluminum Plastics/Composites Fluids & Lubricants Rubber Glass Others Source: BEA; GE Capital Industry Research 110 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 "Automotive Raw Material Index" Auto Industry Update Webinar 18 June Intended use for participants on Webinar 16

17 Automotive Industry Outlook: Opportunities & Risks in a Dynamic Global Environment Mike Wall Director, Automotive Analysis IHS Automotive June 2014

18 Annual Real GDP Growth (in percent) World Economic Growth Multi-Speed Recovery Continues in World Average 2014 = 3.0% World United States Japan Eurozone Brazil Russia India China Source: IHS Data Insights Growth is slowing, again raising specter of a hard landing 18

19 Annual Light Vehicle Sales (in millions) The Changing Automotive World China s Importance will Continue to Rise Mature Markets China Others Change : MM down 6% China up 1,205% Others up 223% Note: Mature Markets = US, Canada, Japan, S Korea, Australia, New Zealand, Western Europe Source: IHS Data Insights 19

20 Output (Millions) European Light Vehicle Production Euro Crisis Delays Recovery; Relief in Sight Eastern/Central Western Change Source: IHS Automotive Light Vehicle Production Forecast 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% Y-O-Y % Change CAGR 2.5% CAGR 3.6% CAGR 1.9% 20

21 Production (Millions) Emerging Market Trends Brazil Sales and Production Production Sales Prod Sales % 10.4% % 2.8% % 6.3% % -1.7% % -0.5% % 1.8% Sales down in 2013 due to strong IPI incentive comps, higher interest rates and sluggish growth Near-term outlook constrained by series of 2012 pull-aheads; situation in Argentina impacts Brazil exports, further constraining production; longer term growth more measured given volatile nature of the market Import gap narrows in nearterm as Inovar Automotive plan incentivizes local production and as more OEMs deploy global platforms; including premium brands 21

22 Production (Millions) Emerging Market Trends Russia Sales and Production Production Sales Prod Sales % 29.6% % 41.2% % 9.6% % -5.4% % -7.1% % 3.2% Market declined in payback for recent growth; near-term outlook remains challenged as market digests post-downturn sales gains and a lackluster economic outlook; broader outlook dominated by oil and gas pricing Ongoing Russia/Ukraine situation creates uncertainty and further downside risk for Russia Local production cannot serve demand and has only limited export potential at this stage 22

23 Production (Millions) Emerging Market Trends India Sales and Production Production Sales Prod Sales % 32.0% % 9.6% % 8.5% % -8.1% % 3.5% % 10.6% Weaker macro outlook, high fuel prices, interest rates and negative sentiment impact 2013 performance and weigh on the near-term outlook focus turns to the new Prime Minister Auto Policy sought major investment in manufacturing and employment rising concern that targets will be missed or face significant delay Production serves large domestic market for small cars and trucks; strategic exports: Honda, Hyundai, Nissan and others to follow 23

24 Production (Millions) Emerging Market Trends China Sales and Production Production Sales Prod Sales % 31.1% % 3.6% % 5.7% % 15.0% % 8.9% % 7.2% Sales and production growth following a soft-ish landing; economic volatility, bubbling real estate and Tier 1 city registration pressures offset by penetration into Tier 3-6 cities and access to financing still an evolving dynamic New Energy Vehicle (NEV) Policy remains intact; focused on fuel efficiency technologies and greater local autonomy; NEV demand still a concern As headline growth slows and congestion increases new internal markets will need to expand to support development; typically served by local OEMs but global players attracted 24

25 Percent of respondents saying Yes U.S. Consumer Behavior Intention to Buy a New Vehicle on the Rise Six-month moving average Actual Not just a needs - based recovery, but also wants driven Source: Conference Board Survey of intention to buy within 6 months 25

26 Units in Millions U.S.: Light Vehicle Sales Outlook Source: IHS Automotive Light Vehicle Sales Forecast Sales growth rate slows somewhat in the near term, yet upside potential remains with further growth expected for 2015/2016 Average vehicle age of 11+ years provides some sales support as the market works to transition from those who need to buy to those who want to buy Improving economy, expanding population, wave of new products and favorable demographics bolster the longer term outlook; engagement of Gen Y is in the spotlight Baby boomers ration auto purchases; priorities shift to a retirement lifestyle 26

27 North American Vehicle Production 2014 vs OEM 2014F (000s) 2013F (000s) % Units (000s) GM 3,361 3, % 74 Ford 3,016 3, % -64 Chry/Fiat 2,655 2, % 143 Detroit 3 9,032 8, % 153 Toyota 1,946 1, % 83 Honda 1,835 1, % 53 Ren/Nissan 1,670 1, % 200 Hyundai % -6 Asian 4 6,214 5, % 330 VW % -46 BMW % 51 Daimler % 39 German 3 1,198 1, % 44 Others % 139 Total 16,843 16, % 666 Slow but steady production growth profile GM Significant launch activity continues - K2XX SUVs & HD Pickups Ford F-Series & Mustang Chrysler Fiat-based product ramps-up All eyes on the Chrysler 200 Import substitution accelerates Honda (Fit), Mazda (2 & 3) and Mercedes (C-Class) Additional Mexico capacity starts to come on-line Source: IHS Automotive Light Vehicle Production Forecast 27

28 Output (Millions) Production Outlook North American Light Vehicle Production by Country Mexico Canada US Change % % % +1,224, CAGR = 4.8% % % Source: IHS Automotive Light Vehicle Production Forecast 0% -10% -20% -30% -40% Y-O-Y % Change -475,000 CAGR = -3.2% +781,000 CAGR = 1.0% 28

29 Supplier Dynamics Capital Needs Intensify with New Launch Activity 50 North American Program Launches Source: IHS Automotive Light Vehicle Production Forecast 29

30 Million Units Supplier Dynamics Mega Platforms Drive Production Growth % 60.0% % 50.0% % 20% 20% 33% 38% 43% 39% 40.0% 30.0% 20.0% 10.0% % Share of Global Output M+ Platform < 1M Platform Share 0.0% 30

31 Supplier Dynamics Mass Reduction Efforts Create Opportunities Nissan Altima Slightly larger, 80 lbs. lighter Best-in-class 38 mpg highway (I4) Aluminum hood, high strength steel, CVT upgrades Acura MDX 339 lbs. lighter High strength steel 13% city; 29% highway fuel economy gains Next Gen: F-Series Ford Explorer Larger size, cut ~95 lbs. High strength steel, aluminum, magnesium 24% gain in fuel economy ~ lbs. weight savings target High strength steel frame Aluminum body panels (95% of body is Al) Smaller engine option, mix balance Redesigned components axles, brakes, etc. Gains critical for portfolio balance 31

32 Powertrain Technology Trends Don t Count Out the Internal Combustion Engine Future fuel economy standards can be met with high ratio of conventional technology 34.1mpg mpg EV 0.6% Hybrid 3.1% EV 1.6% Hybrid 14.1% Advanced ICE Engine 96.3% Advanced ICE Engine 84.3% 32

33 Supplier Dynamics Autonomous Driving: Big Picture: When, Not If L5: Selfdriving Only L4: Full Self-driving Self-Driving Car Evolution Self-Driving Car Only Self-Driving & Human-Driven Car L3: Limited Self-driving Auto Pilot: Parking Auto Pilot: Highway Auto Pilot: Road Train Auto Pilot: Traffic Jam L2: Partial Autonomy Park Assist ACC & LKA L1 Autonomous Braking: Many Systems Adaptive Cruise Control Autonomy Functionality

34 Supplier Dynamics Autonomous Driving: Big Picture: When, Not If Self-Driving Car (SDC) Summary Autonomous Car Tech Self-Driving Car What? When? Electronics systems that control auto driving system without driver help The car drives itself and relies only on autonomous driving technology Future Expectations Increasing autonomy controlling more driving systems via ADAS SDC will initially have a driver mode too; SDC without driver controls come later Deployment Fully self-driving cars by 2025 Self-driving only cars by 2030 Opportunity Sales share of 9% of 2035 auto sales Replace 90% of autos in-use by 2055 Benefits Declining accident rates and much more Positive society & individual impact Barriers Slow government regulation Delays from slow legal framework To be in place by 2020 or sooner To be passed before 2020 Tech Risk Software reliability & cyber-security Some hurdles, leading to good enough 34

35 Summary Ongoing North America growth and European recovery is offset by volatility in key Emerging Markets Economic risks remain yet US demand continues to strengthen. Output jumped nearly 750,000 units in 2013, growth eases to over 600K in Surge of new product offerings could create margin pressure for weaker players Globalization bolsters competitive position of North American industry Pressure to go global will intensify through the decade as regulations converge, competition strengthens and technology spreads over more volume Competitive dynamics are fluid; global export growth vs. product consolidation Technology serves as a key differentiator for automakers and suppliers alike Opportunities exists in the area of Safety, Comfort/Convenience, Powertrain, etc. Robust long-term prospects remain Local output of all-new entries surges, serving as gateways to secure growth 35

36 Questions? Richard Aldrich Director of Industry Research Senior Research Analyst GE Capital Mike Wall Director, Automotive Analysis IHS Automotive Register to receive Industry Research Monitors at: Imagination at work.