The future of the World Car Fleet: The Road Ahead by BBVAResearch
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Motivation: Analysis of long run determinants of car industry ...

Motivation: Analysis of long run determinants of car industry
• Developing Models for tracking long term changes (“pionering model”)
• Analisys of long term trends which are shaping the new economic order.
• Wealth not population is driving the economic transformation
• Population+Wealth (“Middle Classes”) will be key for business opportunities

Results: Car industry will experience an important transformation
• Population, Wealth, Middle Classes and Urbanization will bias the future of Car Fleet
to Emerging Markets
• East Asia will experience the highest increase followed by Latam
• Development Economies will experience moderate increases except in the US
economy
• BBVA Markets will improve depending on where we focus

Annex The BBVA Research Car Model
• Motivation and alternative models
• The BBVA CAR Model: Especification, estimation and comparative results
• Comparative analysis

More in: Automotive
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  • 1. The Future of World CarFleet: The Road Ahead(A BBVA Research model for long-termautomobile projections)November, 2012Cross-Country Emerging Markets Unit
  • 2. A BBVA Research model for long-term automobile projectionsKey Messages • Developing Models for tracking long term changes (“pionering model”)Motivation: • Analisys of long term trends which are shaping the new economic order.Analysis of longrun determinants • Wealth not population is driving the economic transformationof car industry • Population+Wealth (“Middle Classes”) will be key for business opportunities • Population, Wealth, Middle Classes and Urbanization will bias the future of Car FleetResults: to Emerging MarketsCar industry will • East Asia will experience the highest increase followed by Latamexperience an • Development Economies will experience moderate increases except in the USimportant economytransformation • BBVA Markets will improve depending on where we focusAnnex • Motivation and alternative modelsThe BBVA • The BBVA CAR Model: Especification, estimation and comparative resultsResearch • Comparative analysisCar Model 2
  • 3. A BBVA Research model for long-term automobile projections ContentsAnalysis of long run determinants of Car IndustryGlobal resultsAnnex: The BBVA Research CAR Model 3
  • 4. A BBVA Research model for long-term automobile projectionsCar Fleet DeterminantsBBVA Model: Car Fleet DeterminantsSource: BBVA Research World Car Fleet Determinants Population Car Ownership Long Run Saturation levels Cyclical Determinants Real GDP GDP Growth per Capita Acceleration Population Economic Recessions Density (dummy) Urbanization Rates Infrastructure (Roads Quality) Financial Depth (Private Credit/ GDP) 4
  • 5. A BBVA Research model for long-term automobile projections Different Population DynamicsPopulation pyramids for selected economies (2010)Source: BBVA Research and UN G7 Countries Eagles Ageing Advanced Eagles Populating Premiun Male 100+ 100+ Female Female Male Female Male90-94 90-9480-84 80-8470-74 70-7460-64 60-6450-54 50-5440-44 40-4430-34 30-3420-24 20-2410-14 10-14 0-4 0-4 4 3 2 1 0 1 2 3 4 5 4 3 2 1 0 1 2 3 4 5 5 4 3 2 1 0 1 2 3 4 5 55
  • 6. A BBVA Research model for long-term automobile projections Labor force will gradually decline in EM but still maintains an important premium with DevelopedLabor Force Population Population Growth Labor Force Population Population Growth(% yoy) (% yoy)Source: BBVA Research and UN Source: BBVA Research and UN 4 Mid Long 4 Mid Long term term term term 3 3 2 2 1 1 0 0 China Korea Russia Turkey -1 India Indonesia -1 Brazil Mexico G7 G7 -2 -2 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 66
  • 7. A BBVA Research model for long-term automobile projections ..But Household size will also decline limiting the population decline impact in some goods Household Size and GDP Per cápita World Household Size (in members ans log of gdp per capita) (members per housold unit) Source: BBVA Research and UN Source: BBVA Research and UN 8 7.0 7 6.5 6.0 6 5.5Household size 5 5.0 4.5 4 4.0 3.5 3 3.0 2 2.5 2.0 Finland Germany Netherlands United Kingdom Belgium France Canada Hungary Lithuania Bulgaria Russia Spain Ireland Poland Slovenia Uruguay Israel Bosnia and Herzegovina Brazil Sri Lanka FYR Macedonia Costa Rica Panama Botswana Malawi Mexico Belize Paraguay Vietnam Bangladesh Iran Tanzania Chad Tunisia Central African Republic India Sudan Jordan Yemen 1 0 1 2 3 4 ln of real PPP-adjusted GDP 7
  • 8. A BBVA Research model for long-term automobile projectionsThe Wealth Effects: GDP per capita growthdifferences will remain important… GDP per capita Growth Rate (1980-2020) (% yoy, in nominal PPP-adjusted USD) Source: BBVA Research Advanced economies 1990-00 Economies Advanced Major advanced economies (G7) 2000-10 2010-20 European Union Other advanced economies 0 1 2 3 4 5 6 7 8 9 10 Central and eastern Europe Commonwealth of Independent States Economies Emerging Newly industrialized Asian economies Developing Asia Latin America and the Caribbean Middle East and North Africa 0 1 2 3 4 5 6 7 8 9 10 8
  • 9. A BBVA Research model for long-term automobile projections …With a Fast track in Middle Classes creationEstimation of income distribution by GDP per capita in emerging economies (1980-2020)(millions of people and % of total population; original data in real PPP-adjusted USD)Source: BBVA Research 6000 100% Slow Motion Distribution changes Fast Track Slow Motion Distribution changes Fast Track 90% 5000 80% 70% 4000 60% 3000 50% 40% 2000 30% 1000 20% 10% 0 0% 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 Affluent High Middle Class Medium Middle Class Affluent High Middle Class Medium Middle Class Low Middle Class Low Income Poor Low Middle Class Low Income Poor Affluent (>40000 USD) High Middle Income (25000 to 40000 USD) Medium Middle Income (15000 to 25000 USD) Low Middle Income (5000 USD to 15000 USD) 99 Low Income (1000 USD to 5000 USD) Poor( <1000 USD
  • 10. A BBVA Research model for long-term automobile projections … Specially in some areas…Estimation of income distribution by GDP per capita in emerging economies regions (1980-2020)(millions of people and % of total population; original data in real PPP-adjusted USD)Source: BBVA Research 2500 2000 East Asia South Asia 2000 1600 1500 1200 1000 800 500 400 0 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 350 600 Emerging Europe Latam 300 500 250 400 200 300 150 200 100 50 100 0 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 Affluent (>40000 USD) High Middle Income (25000 to 40000 USD) Medium Middle Income (15000 to 25000 USD) Low Middle Income (5000 USD to 15000 USD) 10 10 Low Income (1000 USD to 5000 USD) Poor( <1000 USD
  • 11. A BBVA Research model for long-term automobile projections … and in some segments related to different consumption patterns Low Medium Income Medium Middle Income High Middle Income Affluent (5000 to 15000 USD) (15000 to 25000 USD) (25000 to 40000 USD) 300 (>40000 USD) 2000 800 250 Africa Africa Africa Africa 1800 Em.Europe Em.Europe Em.Europe Em.Europe LatAm LatAm 250 LatAm LatAm 1600 200 East Asia East Asia East Asia East Asia 600 South Asia South Asia South Asia 1400 200 South AsiaMillion People 1200 150 1000 400 150 800 100 100 600 200 400 50 50 200 0 0 0 0 1980 1990 2000 2010 2020 1980 1990 2000 2010 2020 1980 1990 2000 2010 2020 1980 1990 2000 2010 2020 Consumers Cycle Basic Goods Motorcycles Tourism cars Luxury Cars Food White Goods White Goods Tourism… 11 Housing Services
  • 12. A BBVA Research model for long-term automobile projectionsMiddle classes will trigger demand for seminecessities and discretionary spending… Consumption Patterns in China (2000-2020) (% of total urban household spending) Source: Mckinsey 12
  • 13. A BBVA Research model for long-term automobile projections …Urbanization will increase very fast in some of the regions… World Urbanization Rates(1980-2020) World Urbanization Rates(1980-2020) (Urban population as a % of total) (Annual Change in Urbanization Rates) Source: United Nations Source: United Nations90 0.8 0.780 0.670 0.560 0.450 0.340 0.230 0.120 West Europe N.América 0 East Europe Asia10 -0.1 Latam Africa 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 0 West Europe N.América East Europe Asia Latam Africa 13
  • 14. A BBVA Research model for long-term automobile projectionsRegional Aggregates mask some rapid changesin some countries (Andeans & South East Asia) World Urbanization Rates(2011) World Urbanization Rates(2030) (Urban population as a % of total) (Urban population as a % of total) Source: United Nations Source: United Nations 14
  • 15. A BBVA Research model for long-term automobile projections …and we will observe an intensive Urban agglomeration process specially in AsiaPercentage of urban population and agglomerations by size classSource: UN Urbanization Prospects, 2011 revision 2011 2025 15
  • 16. A BBVA Research model for long-term automobile projections… But Emerging Markets still lags in transportinfrastructure …Road Density World Map Paved Road World Map (% of total roads, from 0=lighter to 100= Darker)(Sinthetic indicator, from -1=lighter to 1= Darker) Source:World Bank Development IndicatorsSource:World Bankand BBVA Research 16
  • 17. A BBVA Research model for long-term automobile projections.. and this leads to important opportunities ofinvestment in this segment… Public Private Initiatives Infrastructure Transport Projects (US Billions) Source:World Bank 35 Middle East & Africa 30 Asia Latam 25 Emerging Europe 20 15 10 5 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 17
  • 18. A BBVA Research model for long-term automobile projectionsContentsAnalysis of long run determinants of Car IndustryGlobal resultsAnnex: The BBVA Research CAR Model 18
  • 19. A BBVA Research model for long-term automobile projectionsA brief reminder on the composition ofaggregates EAGLEs Nest G7 Other Russia Poland France Spain Turkey Ukraine Germany Europe Italy UK Brazil Argentina Canada Mexico Chile USA America Colombia Peru Bangladesh Japan Australia China Malaysia India Asia Pakistan Indonesia Pacific Philippines Korea Thailand Taiwan Vietnam Middle E. Egypt Iran & Africa Nigeria S.Arabia S.Africa 19
  • 20. A BBVA Research model for long-term automobile projectionsIncrease and distribution of world car fleet bydecades: Eagles (China) will lead the next decadeDistribution of world car fleet (1980-2020) Increase of world car fleet by decades (mn)(% of total world car fleet) (Million cars)Source: BBVA Research Source: BBVA Research100% 350 China 90% EAGLEs exChina 300 80% Nest US 70% 250 G6 60% Others 200 50% 40% 150 30% 100 20% 10% 50 0% 1980 1990 2000 2010 2020 0 China EAGLEs exChina Nest US G6 Others 1980-1990 1990-2000 2000-2010 2010-2020 20
  • 21. A BBVA Research model for long-term automobile projectionsExpected increase in 2010-2020 and levels ofcar fleet by 2020Increase of world car fleet ex China (2020 vs 2010) Car fleet of largest markets in 2020 (mn)(Million cars) (Million cars)Source: BBVA Research Source: BBVA Research China30 240 EAGLEs exChina China 220 Nest EAGLEs exChina25 200 US Nest G6 18020 US Others 160 G6 14015 Others 120 10010 80 60 5 40 0 20 Indones… Argenti… Egypt Thailand Vietnam Brazil India Russia Mexico Colombia S.Africa Nigeria UK Canada Peru US France Ukraine Iran Poland Turkey Malaysia S.Arabia Australia Korea 0 Russia Canada US Spain Iran Thailand Brazil Italy China India Germany UK Mexico Indonesia S.Arabia Turkey Korea Australia Malaysia Argentina S.Africa Japan France Ukraine Poland 21
  • 22. A BBVA Research model for long-term automobile projectionsDeterminants of the expected increase in the carfleet. Wealth not population as the main driverDeterminants of Car Fleet Expansion (1980-2020) Determinants of Car Fleet Expansion (1980-2020)(million Cars) (million Cars)Source: BBVA Research Source: BBVA Research180 30160 Population Car Ownership 25 Population140 Car Ownership120 20100 15 80 60 10 40 5 20 0 0 China EAGLEs exChina US G6 Nest Others India S.Africa Indonesia Australia Iran Brazil Peru Thailand Poland France Ukraine US Russia Malaysia Colombia Argentina UK S.Arabia Canada Nigeria Mexico Turkey Vietnam 22
  • 23. A BBVA Research model for long-term automobile projectionsChange and levels of car ownershipCar ownership Evolution(1980-2020) Car ownership Groups Evolution(1980-2020)(Cars Units per 1000 people) (Cars Units per 1000 people. Bubble size proportional to car fleetSource: BBVA Research Source: BBVA Research 600800 China G7 (2020) Car ownership (units per 1,000 people) EAGLEs exChina 500700 Nest US600 G6 400 Others G7 (1980)500 300400 200 Nest (2020) EAGLEs (2020)300 100200 0 Nest (1980)100 EAGLEs (1980) -100 0 7 8 9 10 11 1980 1990 2000 2010 2020 log of GDP per capita (real PPP-adjusted USD) 23
  • 24. A BBVA Research model for long-term automobile projections Expected annual increase in car fleet for the next decade concentrated in Asia and LatamExpected annual increase in World Car Fleet (2010-2020)(% yearly growth)Source: BBVA Research0% 2% 4% 6% ≥8% 24
  • 25. A BBVA Research model for long-term automobile projections Different “Growth Areas” across the world Car Ownership “Gomperzt” Curve Car Fleet Growth Areas (Car Ownership and Sensitivity to GDP per Capita Growth (Car Ownership and Sensitivity to GDP per Capita Growth as a function of GDP per capita levels) as a function of GDP per capita levels) Source: BBVA Research Source: BBVA Research 500 3.5 Strong growth Accelerating Moderate growth Growth Explosive Long-term income per Sensitivity of car Saturation area 450 COW sensitivity to real GDP pc growth capita (in real PPP- ownership to income Car Ownership 3.0 Growth AreaCar ownership (units/1000 people) adjusted USD) per capita* 400 Sensitivity From… …to From… …to 350 2.5 Accelerating Growth 1,100 4,600 1 2.5 300 Explosive Growth 4,600 12,500 2.5 3.1(max) 2.0 Strong Growth 12,500 15.800 1.75 2.5 250 Growth 15.800 19,900 1 1.75 1.5 200 Moderate Growth 19,900 24,400 0.5 1 Saturation 24,400 + min»0 0.5 150 1.0 *Change of car ownership (units per 1 0 0 people) to a change of 1 0 USD in income per capita ,0 0 100 0.5 50 0 0.0 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 Real GDP per capita inPPP-adj. USD 25
  • 26. A BBVA Research model for long-term automobile projections Explosive and strong growth will be concentrated in Asia, Latam and TurkeyCar Fleet Growth Areas(Car Ownership and Sensitivity to GDP per Capita Growth as a function of GDP per capita levels)Source: BBVA Research Long-term income Sensitivity of car per capita (in real ownership to Growth Area PPP-adjusted USD) income per capita* Countries and Groups From… …to From… …toAccelerating Growth 1,100 4,600 1 2.5 Bangladesh, Pakistan, Nigeria, Vietnam, Philippines, India, Cameroon, KenyaExplosive Growth 4,600 12,500 2.5 3.1 (max) Indonesia, Egypt, Ukraine, Thailand, Colombia, China, S.Africa, Peru, Brazil, Paraguay, Bolivia, EcuadorStrong Growth 12,500 15.800 1.75 2.5 Turkey, Mexico, Panama, Uruguay, Bulgaria, RomaniaGrowth 15.800 19,900 1 1.75 Malaysia, Chile, Russia, Argentina, Hungary, Croatia, Lithuania, LatviaModerate Growth 19,900 24,400 0.5 1 Poland, Portugal, Slovakia, Saudi Arabia, Greece, Estonia, OmanSaturation 24,400 + min»0 0.5 Korea, G7, Australia, Spain, Switzerland, Netherlands, Czech Republic, Slovenia, New Zealand*Change of car ownership (units per 1,000 people) to a change of 100 USD in income per capita 26
  • 27. A BBVA Research model for long-term automobile projections Growth markets will lie in the Emerging Markets areaExpected increase in Car Fleet (2000-10) Expected increase in Car Fleet (2010-20)(% yearly growth)Source: BBVA Research (% yearly growth) Source: BBVA Research China China India UAE India Peru Venezuela Colombia Peru Panama Mexico Turkey Brazil Bolivia Turkey Paraguay Bolivia Panama Chile Russia Uruguay Korea Brazil Chile Argentina Colombia Venezuela Argentina Mexico Australia Russia Spain Portugal UAEUnited Kingdom Australia Switzerland United States Belgium Korea France United Kingdom Japan France Italy United States Belgium Germany Spain Uruguay Switzerland Paraguay Italy -10 -5 0 5 10 15 20 25 Japan Portugal Germany 27 0 2 4 6 8 10 12 14
  • 28. A BBVA Research model for long-term automobile projectionsContentsAnalysis of long run determinants of Car IndustryGlobal resultsAnnex: The BBVA Research CAR Model 28
  • 29. A BBVA Research model for long-term automobile projectionsLiterature on car ownership Dargay, Gately and Sommer (2007): They use a similar saturation model. Panel of 45 countries. They assume a different sensitivity of every country to GDP per capita. Chamon, Mauro, and Okawa (2008): They assume there is no saturation rate. They concentrate on estimating a “take off” income threshold at which car demand starts to grow exponentially. Medlock, K. B., and Soligo, R. (2002): Panel of 28 countries. The model includes the user cost of capital and assume and find different saturation levels for each country. 29
  • 30. A BBVA Research model for long-term automobile projectionsEnhancements of BBVA Car Model• We include the level of financial development and an infrastructure quality indicator as determinants of each country saturation level.• We associate the saturation level to a long-term or «structural» level of income instead of the observed GDP per capita.• We allow short term deviations of income per capita from its «structural» level to account for short-term variations in car ownership, instead of relying on the lagged value of the dependent variable to model short-term dynamics. 30
  • 31. A BBVA Research model for long-term automobile projectionsModel specificationThe model is estimated by maximum likelihood using a non-linear estimatorwith robust standard errors. The equation that we finally estimate is thefollowing: ݈݊‫ܹܱܴܣܥ‬௜௧ ହ௬ெ஺ ଵହ௬ெ஺ ൌ ݈݊൛൫ߙ ൅ ߚଵ ሺ‫ܥܲܲܦܩ‬௜௧ െ ‫ܥܲܲܦܩ‬௜௧ ሻ ൅ ߚଶ ሺ‫ܵܰܧܦ‬ሻவ௎ௌ ൅ߚଷ ሺ‫ܵܰܧܦ‬ሻழ௎ௌ ൅ߚସ ሺܷܴ‫ܤ‬ሻவ௎ௌ ௜௧ ௜௧ ௜௧ ழ௎ௌ ହ௬ெ஺ ൅ ߚସ ሺܷܴ‫ܤ‬ሻ௜௧ ൅ߚ଺ ሺܴܱ‫ܳܵܦܣ‬ሻ௜ ൅ ߚ଻ ܲ‫ܦܧܴܥ‬௜௧ ൯ ଵହ௬ெ஺ ଵହ௬ெ஺ ∗ exp ߛ ∗ exp ߚ଼ ‫ܥܲܲܦܩ‬௜௧ ൅ ߚଽ ‫ܥܲܲܦܩ‬௜௧ െ ‫ܥܲܲܦܩ‬௜௧ ଵହ௬ெ஺ ீ஽௉ழ଴ ൅ ߚଵ଴ ሺ‫ܥܲܲܦܩ‬௜௧ െ ‫ܥܲܲܦܩ‬௜௧ ሻ ൟ CAROW = Car Ownership, GDPPC = Real GDP per capita in PPP-adj. USD, DENS = Population Density, URB = Urbanization Ratio, ROADSQ = Quality of Road Infrastructure, PCRED = Private Credit Ratio 31
  • 32. A BBVA Research model for long-term automobile projectionsEstimated regression Variable Coefficient α (max. constant Saturation Level) 499.9*** Long-term per γ (Gompertz curve shape) -3.95*** capita income β (real GDPpc PPP-adj. 15y MA) -0 .0 0 0 17*** Real GDPpc PPP-adj. deviation 5yMA-15yMA 0 .0 0 7*** Saturation Population density (above US) -0 .18*** Level determinants Other Population density (below US) -0 .19 structural Urbanization rate (above US) 2.259*** determinants Urbanization rate (below US) -1 6* .0 Roads quality Indicator 90 .86*** Credit to private sector 1 52*** .1 Real GDPpc PPP-adj. dev. Obs.-5yMA 0 .0 0 9*** Short-Term determinants Real GDPpc PPP-adj. dev. obs.-5yMA (in recessions) -0 .0 1*** Adjusted R2 0 ,991 Number of Observations 2.0 0 1 Number of Countries 92 *** indicates significance at a 1 confidence level, ** at a 5% level and * at a 1 % level % 0 32
  • 33. A BBVA Research model for long-term automobile projections BBVA Research forecasts (2012) compared with previous IMF work (2008) Growth of Car fleet (2010-2020) Car fleet of largest markets in 2020 (average % yoy) (Million cars) Source: BBVA Research Source: BBVA Research 14 1200 13 BBVA Research (2012) BBVA Research (2012) 1 00 1 12 IMF (2008) IMF (2008) 1000 11 900 10 9 800 8 700 7 600 6 500 5 400 4 300 3 2 200 1 100 0 0 WORLD Advanced Emerging USA* India China WORLD Advanced Emerging USA* India China*BBVA Research uses only passenger cars and not light trucks 33
  • 34. A BBVA Research model for long-term automobile projectionsVariables definition and source Variable Definition Source Car ownership Passenger cars per 1,000 people World Bank and UN GDP per capita Real GDP per capita in PPP-adjusted USD 2005 constant terms) IMF and BBVA Research Population density Population per km 2 of area United Nations Urbanization Percentage of urban population United Nations Road density 1 Road kilometers per km 2 of area World Bank Road density 2 Road kilometers per capita World Bank Private credit Private credit to non-financial institutions to GDP ratio World Bank, Haver and BBVA Research 34
  • 35. A BBVA Research model for long-term automobile projectionsCross-country emerging markets analysis unitChief EconomistÁlvaro Ortiz Vidal-Abarcaalvaro.ortiz@bbva.com+34 630144485 Ext 51933 Senior Economist David Martínez Turégano dmartinezt@bbva.com +34 690 845 429 SeniorEconomist Alfonso Ugarte Ruiz alfonso.ugarte@bbva.com +34 91 3743530 35