Global trends in low cost vehicles and implications for indonesia

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Frost & Sullivan analysis on Global Trends in Low Cost Vehicles and its Implications to Indonesian Automotive Market.

Frost & Sullivan analysis on Global Trends in Low Cost Vehicles and its Implications to Indonesian Automotive Market.

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  • 1. Global Trends in Low Cost Vehicles and Implications for Indonesia Indonesia May 2010
  • 2. Frost & Sullivan is a global Growth Consulting CompanyThe Growth Consulting Company• Founded in 1961• Over 1,700 Consultants / Analysts across 38 global locations• 10,000+ clients worldwide including emerging companies, the global 1000, and the investment community• Offer the exclusive Growth System including: Growth Partnership Services, Growth Consulting and Growth Team Membership• Developers of the Growth Excellence Matrix – industry leading growth positioning tool for corporate executives• Developers of T.E.A.M. Methodology, proprietary process to ensure that clients receive a 360o perspective of technology, markets and growth opportunities 2
  • 3. Frost & Sullivan: The Global Growth Consulting Company Founded in 1961 in US, now operating in all continents Best Practices Over 10,000+ clients, 1,700 Consultants / Analysts across 35 global locations Growth Consulting Offer the exclusive Growth System including: Growth Partnership Services, Growth Consulting and Growth Team Membership Growth Partnership Subscription Developers of T.E.A.M. Methodology, proprietary process covering technology, economics, application and marketing behind Growth Opportunities Key Clients 3
  • 4. Frost & Sullivan’s Positioning & Thought Leadership High Research Capabilities Global Coverage Balance of Consumer research companies Frost & Sullivan domain knowledge and Low High research Automotive Domain knowledge capabilities General Consulting across the Automotive data and Companies forecast providers globe Local Low Sought after by media across the globe 4
  • 5. Low Cost Cars : Top level strategic fact sheet • Global suppliers are partnering increasingly with local regional suppliers for low-cost competence and understanding of local market know-how • In addition to local players, all key European, Japanese and American VMs are planning on huge investments to make India as a low-cost car hubGlobal Market Position of Low-cost cars VMs, 2007 Global Production of Low-cost cars – by Country, 2007 Low Low-cost technology expertise High 5.00 Tata Motors Million units Renault Group 3.75 Suzuki 2005 2013 Maruti Toyota Group 2.50 Chery General Motors BYD Source: Frost & Sullivan Hyundai Group 1.25 Volkswagen Group Ford 0.00 Africa Asia Eastern Middle North South Western Europe East America America Europe Base Year is 2007. Source: Frost & Sullivan Regional Presence Global Presence Note: Arrows represent future direction of the VM’s business 5
  • 6. Vehicle Purchasing Patterns in Developingcountries BRIC, Eastern Europe and Asia will be the growth engines for automotive production in the next 10 years Price Range for Low-cost cars – by Country, 2007 50,000• Emerging economies have a very low United States penetration of cars – India and China have GDP based on PPP - Per capita tremendous opportunities, with less than 37,500 10 people per 1,000 owing a car UK Opportunity for VMs• The Indian and Chinese automotive Germany 25,000 industries have been growing at an above average CAGR of more than 15% and 30% respectively between 2004 and 2006 China Poland (growth of vehicle unit volumes) 12,500 Russia• Many global vehicle manufacturers (VMs) Brazil have planned capacity expansions in India India by 2010, while China has already witnessed 0 0 200 400 600 a huge surge in production capacity Passenger Cars (Per 1,000 people) Source: Key Development Data & Statistics, The World Bank World Economic Outlook Database, October 2007 6
  • 7. Definition of Low-cost Vehicles“ Low cost cars are seen as vehicles with a niche focus catering to the end-user preferences of a specific region or segment ” • A low-cost vehicle is built for an audience that has similar consumer behavior and purchasing power • Expectations are far different for a consumer base of first-time car-buyers in emerging countries, compared to those of a buyer in developed economy • For example, the target segment of the Tata Nano, priced at roughly $2,500 is a first-time car buyer who are up-grading from a motorcycle to a car • Demand for low-cost cars is a niche market in developed markets especially taking into account the needs and purchasing power of the consumers in these countriesManufacturer & Model Country Built Target Group Price Range Indian middle class – First time car buyerTata Nano India < US$ 5,000 owning a motorbikeDacia Logan – Renault Romania Eastern European buyers < US$ 10,000Chery QQ3 China Chinese buyers < US$ 7,500 7
  • 8. Definition of Low-cost Vehicles Price Range for Low-cost cars – by Country, 2007 12000 Hyundai Accent 9000 Chevy Aveo Dacia Kia Rio The cost range of low-cost Logan GM Spark Kei Daihatsu Sonica cars differs by geography 6000 Dacia Logan Mitsubishi I with higher costs in Source: Frost & Sullivan Suzuki Cervo developed economies such Chery QQ3 as Japan, Europe and North 3000 GM Spark BYD F1 America Tata Nano Maruti 800 0 India China Eastern Europe Japan North Europe America Note: Price ranges are indications based on existing / future planned car models in respective regions Price Ceiling for Low-cost cars 8
  • 9. Definition of Low-cost Vehicles Price positioning of vehicle models and their production estimates – by Country, 2007 € 10,000 LOW-COST CARS Fiat Panda **Retail Price of Vehicle Models Renault Clio # € 7,500 VW Low- Tata Indica cost car Xiali Wei Zhi Toyota € 5,000 Dacia Logan * Low-cost GM Spark Suzuki car Hyundai Wagon R BYD F1 Santro Chery QQ3 € 2,500 Maruti Alto Hyundai LCC Maruti 800 Tata Nano EASTERN INDIA CHINA JAPAN FUTURE VEHICLES$ EUROPE €0 Source: Frost & Sullivan Note: Bubble Size represents the production volumes of the vehicle models in 2007. $ - For Future vehicles, bubble size does not represent production volumes * - Does not include Iran Price Ceiling ** - Price in Poland for Low-cost # - Price in Slovenia (Although a basic Clio is priced relatively less in Slovenia, <10,000 cars are sold in cars Slovenia and most of the volumes are exported to Western Europe, where it is much more expensive) 9
  • 10. Drivers and Restraints for Low cost cars New vehicle segment Increasing constituting first- purchasing power of Increasing time car buyers and a growing middle interest of global people switching class in emerging automakers to Limited public from two-wheelers markets – tap the low-cost transportation to cars increasing demand car segment and infrastructure for affordable cars create new and a demand for Government policy Market Drivers products affordable encouraging small- transportation displacement and low-emission cars Market Restraints Source: Frost & Sullivan Brand image erosion Lack of Competition Increase in vehicle infrastructure to from used- costs due to support growing Low-margins and car market legislations on vehicle fear of bleak safety and population chances for profitability emission standards 10
  • 11. Competitive LandscapeTata’s $2,500 Nano and Renault’s Logan have propelled many other globalVMs to re-look at their model line-ups and consider Low-cost cars seriouslyTata: Renault:- Developed the world’s cheapest car, Nano for US$2,500 - Developed Europe’s first low-cost car, Logan, through targeting the Indian middle class its European subsidiary Dacia of Romania- Using design-to-cost & engineering innovation for low - The group plans to develop a low-cost car for India by cost 2010, partnering with Indian two-wheeler maker, BajajSuzuki / Maruti Suzuki: Volkswagen:- Two key markets – as Maruti Suzuki in India, as Suzuki - Volkswagen produces its low-cost cars at present in in Japan targeting Kei car segment Brazil – namely the Fox and Gol- Maruti 800 /Alto is currently the cheapest car in India - The company is developing a low-cost car priced below- Suzuki is the leading player for Kei car sales in Japan €7,000 for Europe based on the “UP” concept car, and such as Cervo, Alto, Wagon etc. another car for India, based on the Polo platformToyota: Chery:- Toyota’s Daihatsu brand is the second largest Kei car - Chery is the second largest Chinese manufacturer with manufacturer with models such as its Daihatsu Cuore, an active interest in global expansion Sirion, Sonica etc. - The company is planning to assemble cars in Russia and- Toyota also plans a low-cost car for India and for partnering with Chrysler for small cars Europe (possibly assembled in Russia), by 2010 - The company already sells its QQ3, low-cost car in China 11
  • 12. Competitive LandscapeHyundai: Fiat Auto:- Hyundai manufactures a few models such as the Atos - Fiat has produced some global car models, especially its and Picanto which are low-cost in South Korea successful Palio and Uno global platforms - The company has plans to develop a US$ 7,000 car to- The company is also evaluating to produce a model be built in South America priced at $3,500 in India, to compete against other - Fiat also has plans to build a LCC for Europe through its models such as Tata Nano and Renault – Bajaj’s car partnership with its Turkish partner TofasOther Car Makers:- Geely offers its CK1 sedan starting at a price of €4,000- BYD is expected to replace its existing low-cost car, Flyer with the F1 in mid-2008 priced at around €3,500- Ford is investing 500 million in its plant in Chennai, India for a small car plant with capacity of 150,000 12
  • 13. Competitive LandscapeTata, Renault and Suzuki are expected to account for about 50% of theglobal Low-cost car production by 2013 Estimated Market Share of Low-cost car Manufacturers, 2013 IndianUnits: 2,135,731 Others, 33.3% Manufacturers, Units: 1,094,499Key VMs: GM, VW, 17.1% Key VMs: TATA,Toyota, Fiat and Bajaj + RenaultHonda (Kei cars) Regions: India,Regions: Across all South Africageographies Renault-Nissan Chinese Group, 16.9% Manufacturers, 8.7% Hyundai Group, Suzuki Group, 10.4% 13.7% Units: 560,155 Units: 878,474 Units: 1,082,795 Units: 664,454 Key VMs: Renault, Key VMs: Chery, Key VMs: Maruti, Key VMs: Kia, Dacia & Nissan BYD, Changan, Hafei Suzuki Hyundai Regions: Eastern Regions: Eastern Regions: India, EU / Russia, Japan Regions: India, Europe/Russia, Japan (Suzuki-Kei (Nissan-Kei), South South Korea China cars) America, S. Africa 13
  • 14. Global Vehicle Production Forecasts and Trendsfor Low-cost Vehicles India, China, Thailand, Romania, Turkey to emerge as key low-cost production hubs in the future • Chery • GM – WULING • Chang’an • Geely Eastern EU & Russia • BYD 2007: 0.26 million • Tianjin-FAW 2013: 0.96 million CAGR: 24.6% • Renault – Dacia Asia 2007: 2.14 million South America 2013: 4.41 million 2007: 0.34 million CAGR: 12.9% 2013: 0.65 million • Tata Motors CAGR: 11.2% • Renault + Bajaj • Maruti SuzukiLow-cost car • Hyundai Production Africa Middle East Low 2007: 0.01 million 2007: 0.12 million Medium 2013: 0.14 million 2013: 0.26 million High CAGR: 57.7% CAGR: 13.1% 14
  • 15. Global Vehicle Production Forecasts and Trendsfor Low-cost VehiclesMore than 4.4 million vehicles to be produced in Asia by 2013 – India toemerge as the low-cost car production hub Global Production of Low-cost cars – by Country, 2007 – 2013 6.4 million CAGR : 14.4% 5.0 4.41 m Units 4.0 Unit Shipments in 20132.9 million Million units 3.0 2.0 0.96 m 1.0 0.65 m 0.14 m 0.26 m 0.0 2007 Africa Asia Eastern Middle East North South Western 2013 Europe America America Europe Note: Base Year is 2007. CAGR calculated only for the forecast period between 2007 and 2013 15
  • 16. Indonesia is the most populous country inASEAN • Indonesia is the largest, most populous and fastest growing economy in the region • It is one of the largest exporter of natural gas, manufacturing contributes to about 45% of GDP • Under current regime Indonesia has made progress in attracting investments but infrastructure bottlenecks still remain key problems Historic Trend 2004 2007 2010 (F)• Capital : Jakarta• Languages: Bahasa Indonesia, English, Dutch and local dialects Population (million) 217.5 228.1 235.8• Ethnicity: Javanese 45%, Sundanese 14%, Madurese 7.5%, coastal Real GDP Growth (%) 5.1 6.3 6.0 Malays 7.5%, other 26%• Population: 228.1 Million. Sumatra 17.9%, Java 39.4%, Sulawesi GDP (USD Billion) 257.3 428.8 587.8 7.2%, Kalimantan 33.6%, Sunda Islands 1.1%, Maluku Islands 0.8% GDP Per capita (USD) 1,187 1,880 2,493 Exchange rate (v/s USD) 8,937 9,393 9,830 16
  • 17. Malaysia is in growth zone and Thailand, Indonesia andPhilippines are in rapid growth zone Position of ASEAN Countries on Growth Curve 400 Growth 350 Brunei 300 Malayasia 250 Rapid Growth C C C 200 C4 2 3 1 150 Singapore 100 Thailand Philippines 50 Indonesia 0 $3,000 $7,000 $10,000 $50,000 Cluster 4 : Markets of Cluster 3 :High Growth tomorrow Cluster 2 :Steady Cluster 1 : nearing Vietnam Thailand growth stagnation Laos, Cambodia Indonesia Brunei, Singapore Malaysia Mynmar Philippines 17
  • 18. Strong growth potential which would result in favorableatmosphere for automotive growth in coming years GDP-Population Chart 2007 - 2012 1000 800 Indonesia US$ (bn) 600 Malayasia Thailand 400 Philippines 200 Vietnam 0 0 50 100 150 200 250 Population (mn) 2007 2012 Size of bubble indicates per capita GDP All 5 countries are likely to grow at a CAGR of 5-7% in next 5 years Growth in population is between 1-2% region is going to see substantial increase in per capita GDP Indonesia and Vietnam are likely to grow the fastest in next 5 years 18
  • 19. Significant young population and large numberof middle income households Indonesia Population by age group 80 30.3% • Significant young populationMillions 69.3 25% 57.2 • Average 5 members per family 60 19.7% 45.1 • About 45% falls under the age bracket of 40 12.5% first time car buyers (20 to 39) 28.7 7.4% 74% 17.1 4.6% • Income skewed towards extremely lower 20 10.5 end leaving very small number of buyers 0 out of the whole population 0 - 19 20 - 29 30 - 39 40 - 49 50 - 59 60 + Annual HH income Indonesia 35.00% Vehicle Parc & Density 2004 2007 2010 29% 30.00% 27% Car Parc (‘000) 1,005 1,169 1,442 25.00% Car Density (‘000) 4.6 5.2 6.2 19% 20.00% LCV (incl MUV) 4,737 5,766 6,992 15.00% LCV Density 21.4 25.27 29.65 12% 10.00% Two wheeler parc (‘000) 28,400 42,247 50,700 8% Two wheeler density (‘000) 133 185 215 5.00% 3% 0% <Rp4.8m Rp4.8m-Rp7.2m Rp7.2m-9.6m Rp9.6m-15m Rp15m-21m Rp21m-27m > Rp27m 0.00% Source: Asian Development B 19
  • 20. High fuel prices resulted in increase inTransportation expense • Continuous fuel price increase has taken a toll on transportation expenses • Transportation is the only major expense head that has increased in top 5 expense heads • Diesel prices are growing faster than Petrol prices and catching up with Petrol Fuel Price Movement 0.7 0.6 0.5 21% US$ cents / lit 0.4 Diesel Petrol 0.3 0.2 38% 0.1 0 2000 2002 2004 2006 2007 20
  • 21. Mobility Diagram of Indonesia Mobility Diagram Thousands 6,000.00 5,000.00 2W Used Car 4,000.00 range Volume 3,000.00 Current Car 2,000.00 Bike range range 1,000.00 A/B segment - (20) - 20 40 60 80 100 120 140 160 180 Size of bubble represents volume in 2007 Price Rp (mn) Price represents the mean price of the range • Price – volume diagram across categories represent a very price conscious markets • While comparing volumes across categories one needs to compare the not only initial price but cost of operations and total cost ownership to explain variation 21
  • 22. Industry Challenges for Low cost cars • Suppliers and OEMs need to generate Providing low-cost innovative design concepts to reduce• Low margins is definitely the norm products with system costs without loss of quality with Low-cost cars and chances of acceptable quality and offering the same functionality profitability would depend solely on and performance the sales volumes generated Keeping prices low in Price competition developed markets in – Reduced profit spite of offering per car sold advanced features• Eg., Chinese manufacturer, ChangAn Challenges • Low cost cars sold in developed economies estimates its profit margin at less than 5 for need to conform to a higher standard of per cent for a single car due to increasing Low-cost safety, emission and advanced technology production costs and price competition cars required in these markets • Value-for money is the success factor rather than price in these markets Brand image Cannibalization erosion – low-cost image• Sales cannibalization is especially a problem for Indian • Consumers sometimes consider low-cost cars as a product and Chinese VMs who already sell low-cost cars at present with low price, low technology and low safety quotient• For example, sales of the Maruti 800 was severely hit • For example, consumers attribute some low-cost Chinese when Maruti Suzuki launched its Alto model in India brands to low safety and emission standards 22
  • 23. Key Conclusions Low Cost car is one of the key segments in emerging markets Growing income, government support and OEM focus are the key drivers Indonesia is one of the key growth drivers for the region Considering the macro-economic parameters, Indonesia is on a threshold of rapid growth in cars in next few years Economic, sociological indicators suggest that low cost cars can succeed Indonesia Indonesian automotive industry need to come together to determine what type of car would be ideally suited for Indonesia 23
  • 24. For Additional Information Dewi Nuraini Corporate Communications Indonesia Phone : (021) 571.0838 / 571.3246 Email : dewi.nuraini@frost.com www.frost.com 24