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Eight Overarching China Auto Trends

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Presentation to EU Chamber in China on April 16, 2010

Presentation to EU Chamber in China on April 16, 2010

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  • 1. Booz & Company April 16, 2010 Discussion Document The Eight Overarching China Automotive Trends That Are Revolutionizing The Global Auto Industry Presented to European Union Chamber of Commerce in China This document is confidential and is intended solely for the use and information of the client to whom it is addressed.
  • 2. In terms of passenger vehicle market, China has become the most important country in the world CAGR Size and Growth of Global Passenger Vehicle(1) Market 2001-2009, % (Major Countries) 40% 35% China 30% arket 25% Emer ging M 20% Iran Turkey India 15% Argentina Saudi Arabia 10% Indonesia Brazil Thailand Russia Germany 5% CAGR of Global Market =1.6% France Korea 0% UK Japan -5% Italy US Spain -10% 0 1 2 3 4 5 6 7 8 9 10 11 2009 Market Size (Million Units) Bubble size: 2009 market size (1) Includes segment of A, B, C, D, E, F, MPV,SUV Source: Global Insight,Booz & Company analysis (million units) Booz & Company EUCCC Speech final without backup.ppt Prepared for client name 16 April 2010 1
  • 3. China’s auto market has been experiencing explosive growth, in 2009 China exceeds US to become the world largest auto market Total China Auto Sales Top Five Auto Market in the World(1) 2005 - 2009, in Million Units 2008 - 2009, in Million Units 13.64 66 63 +23% 9.67 8.98 44% Others 50% 7.34 5.90 4.62 5% Brazil 1.66 Jan 4% 6% Germany 5% 7% 1.21 Feb Japan 8% 1.74 Mar 16% US 2005 2006 2007 2008 2009 2010 20% 1st Quarter 21% China 13% Vehicle sales in the 1st quarter of 2010 in China rose 71.8% from the same period last year to 4.62 million 2008 2009 1) : Data does not include heavy truck Source: Global insight, CAAM auto market press release, Literature research, Booz & Company analysis Booz & Company EUCCC Speech final without backup.ppt Prepared for client name 16 April 2010 2
  • 4. China’s strong economic performance will further stimulate its car industry China Passenger Vehicle Installed Base (PARC) Key Drivers Forecast (2005-2030) Car ownership in China is powered by the 350 Increase in Car growing economy – the upside is High Forecast substantial 327 Ownership 300 Base Forecast Passenger Vehicle PARC (million units) Low Forecast 250 Government has been continuously Government’s guiding and supporting the industry’s Support to development across manufacturing and 200 Auto Industry distribution 150 153 China’s financial system is less exposed China and GDP growth is still very fixed Economy’s investment driven, thus is less vulnerable 100 Resilience to recent financial turbulence impact 87 50 Highway network development provides Infrastructure foundation for more motor vehicle-based 0 Development based transportation 2005 2010 2015 2020 2025 2030 China is investing in infrastructure to support alternative propulsion Note: Passenger vehicles contain sedans, MPVs and SUVs Source: Global Insight, OPEC, DGS Report, Booz & Company analysis Booz & Company EUCCC Speech final without backup.ppt Prepared for client name DATE 2010 16 April 3
  • 5. As the leading automotive market, China has the opportunity to fundamentally transform the global auto industry Shanghai: A Lean, Green Detroit Zhejiang Geely Holding Group, China's No 10 automaker, sealed a binding deal on Sunday to buy ailing Swedish luxury car brand Volvo from US giant Ford for $1.8 billion “… In acquiring a stake in BYD, Buffett broke a couple of his own rules. "I don't know a thing about cellphones or batteries," he admits. "And I don't know how cars work." But, he adds, "Charlie Munger and Dave Sokol are smart guys, and they do understand it. And there's no question that what's been accomplished since 1995 at BYD is extraordinary…” Source: Literature research Booz & Company EUCCC Speech final without backup.ppt Prepared for client name 16 April 2010 4
  • 6. The Eight Overarching China Automotive Trends That Are Revolutionizing The Global Auto Industry 1 5 China automotive capacities and Policy-driven China market is highly fragmented Globalization Of The government is accelerating the capabilities are integrating into the Consolidation Of China Automotive consolidation of the domestic industry value-chain of multinational auto Chinese VMs Capacities to drive scale economies companies and suppliers 2 In the face of a Global downturn, 6 Hyper-competition Higher share of sales in entry-level, Global Redistribution China continues enjoy non-linear lower margin segments Across The China Of Assets To Capture growth Multinational brands expand into Auto Market China Market Growth Shift in the global automotive “center small segments while local players Segments of gravity” to the East expand into larger segments 3 Chinese VMs attempt to integrate 7 Local VMs’ market share increase Acquisition Of Assets And Key foreign acquisitions Local VMs Push To significantly but Multinational brands Development Challenges and transactional barriers Build Brand Equity retain majority share Competencies of M&A remain Local VMs push to build their brand equity and upgrade capability 4 Government is willing to keep investing 8 China’s Changing Growth fueled by urbanization trend Investment In Challenges of consumer acceptance Demographics and and the emerging new middle-class Infrastructure & New remain Growing Tier 2 & 3 Low-tier cities developing with Energy Vehicles Active engagement of both Demand increasing wealth multinational and local players Booz & Company EUCCC Speech final without backup.ppt Prepared for client name 16 April 2010 5
  • 7. 1 Policy-driven Consolidation Of Chinese VMs To achieve economies of scale, the government is accelerating domestic consolidation Major Chinese Auto Manufacturers and JV Partners Selected Recent Consolidations in the Auto Industry Changan and AVIC merger (Nov 2009) Dongfeng’s Hangzhou unit took a 20% stake in Luxgen Motor (June 2009) Chery and JAC proposed cooperation BAIC is planning to purchase shares in Fujian Daimler (in progress) Booz & Company EUCCC Speech final without backup.ppt Prepared for client name 16 April 2010 6
  • 8. 1 Policy-driven Consolidation Of Chinese VMs In 2009, China government announced plan to build up a “Top 10” group of globally competitive automakers Existing Situation and Challenges Over 120 registered VMs, locals cannot compete with MNCs in terms of scale Tier 1 & 2 Auto Group in China Highly fragmented structure cannot provide for a stable development of the current domestic players Government has long expressed desire to consolidate Tier 1 Group Tier 2 Group the industry and develop a handful of home-grown champions Definition Has annual capacity of 2 Has annual capacity of 1 million units million units Main Objectives of Policy Encouraged to acquire Encouraged to acquire smaller companies smaller companies within Boost sales and production in 2009 to 10 million units countrywide surrounding region and keep growth at about 10 percent in the next 3 years Raise market share of domestic brand PV from 34% to Candidates SAIC BAIC 40% FAW Group GAIG Consolidate small regional manufacturers into bigger Dongfeng Automobile Chery Automobile Co. national auto groups Co. China Heavy Duty Truck Encourage more fuel-efficient, lower-polluting vehicles Chang’An Automotive Corp. (CNHTC) – Market share of ≤1.5L PV to increase to 40%, Co. among which ≤1.0L to 15% – Building 500K new energy vehicle (NEV) capacity, and increase NEV market share to 5% of PV sales Source: China Automotive Industry Stimulus Plan; Booz & Company analysis Booz & Company EUCCC Speech final without backup.ppt Prepared for client name 16 April 2010 7
  • 9. 1 Policy-driven Consolidation Of Chinese VMs Major VMs are also restructuring their component operations to improve investment efficiency and accelerate development Vertically integrated operations of China’s three leading vehicles manufacturers Huayu has completed restructuring in 2009 and is HUAYU AUTOMOTIVE now the holding company for the 23 auto parts SYSTEMS COMPANY LIMITED companies from SAIC group -- already one of the top auto parts players in China PARTS & COMPONENTS To achieve the aim of "Fine, Strong and Large" , the BUSINESS UNIT. DONGFENG company is determined to further improve Motor CO.LTD management, and cost and expenditure control ability to increase profitability FAW-FAWER Automotive In accordance with the 5-year strategic planning, Parts Co., Ltd FAWER will carry forward the good traditions of FAW and learn from advanced experience of TOYOTA so as to establish new organization and set up new team in order to promote core enterprise competitiveness Source: Literature research Booz & Company EUCCC Speech final without backup.ppt Prepared for client name 16 April 2010 8
  • 10. 2 Global redistribution of assets to capture China market growth To compete and succeed in China, MNCs’ R&D needs to adapt to the needs of the local Chinese market Breakdown of Passenger Vehicle Sales in China1) Proper Handling of Localization can Define Market (2009) Success - Case Study MPV A SUV 5% 8% 9% B VW - Golf GM - Excell E+F 6% 13% Vehicle Similar configurations D 14% Go to market July, 2003 August, 2003 time & initial 149.9K RMB 149.9K RMB Total Sales Volume: price 47% 8.6 million R&D effort on Limited Extensive C localization Rely on SKD Achieved CKD production production with Small & Economical Models are still preferred by Price- heavy local sensitive Chinese Consumers2) sourcing 2005-2009 CAGR Lowest market 109.5K RMB 82.3K RMB A&B A: 4.5% price achieved (Small Size Vehicles) B: 34.6% Sales 431 units sold 19,462 units C C: 33.3% performance on only sold (Economical/Compact PVs) second month D & Above D: 24.3% after going to Market Market (Mid to High-end PVs) E+F: 25.5% market Failure Success Note: 1) 2) Global Insight Database Source: Booz & Company Analysis Booz & Company EUCCC Speech final without backup.ppt Prepared for client name 16 April 2010 9
  • 11. 2 Global redistribution of assets to capture China market growth While GM is unloading underperforming assets to ensure survival , they are rapidly expanding their China business GM’s Sales in China Expansions of GM’s Corporate Operations (2005-2009, in Million Units) in China At present, China is GM's largest overseas market, GM has established in China a 1.83 total of eight joint ventures +29% 1.54 Recently, GM announced a a plan to set up Shanghai GMIO headquarters, 1.04 0.88 managing the unified management of all 0.66 overseas business, which indicates an the central role China plays in GM's global strategy GM and SAIC also announced to set up a 2005 2006 2007 2008 2009 GM-SAIC Motor Investment Co. in Hong Kong with a total investment of $1 billion GM aims to sell 3 million vehicles a year there by 2015 split equally between the two for use in as it adds new, more fuel-efficient models to meet demand purchasing 100 percent shares of General “ China GM’s largest single market worldwide and GM will Motors India launch 25 new models in China in 2010 and 2011 in a bid – GM-SAIC India is expected to make to maintain its leading position” - Gan Wenwei, President small cars and commercial vehicles in and General Manager of GM India Source: Automotive News, Company profile, Booz & Company analysis Booz & Company EUCCC Speech final without backup.ppt Prepared for client name 16 April 2010 10
  • 12. 2 Global redistribution of assets to capture China market growth VW continues to localize their most advanced vehicle and Powertrain technologies in 2018CY China strategy Insert Text Here (1.4/1.8/2.0 TSI Engine) (DSG Auto Transmission) Green Technology represented by TSI engine and DSG Gearbox starts to power full range China locally built VW vehicles in 2009 Booz & Company EUCCC Speech final without backup.ppt Prepared for client name 16 April 2010 11
  • 13. 3 Acquisition of foreign assets and key development competencies by Chinese companies China’s automotive companies attempting to integrate foreign acquisitions into their operations will face challenges An inorganic approach to globalization-the Marriage of Geely and Volvo Key Challenges and Risks Chairman Li has committed to keep independence of Strategic Volvo operations Gelly’s Inorganic Approach Alignment and Bridging the huge gap between Volvo’s traditional Opportunities Governance European (and some would argue “Scandinavian”) management mode and Geely’s dynamic family business mode Learn the Volvo “eco-system” and get in the global game Volvo maintains their current business structure, processes and supply base Use this opportunity to Cost Structure Geely may need to subsidize the Volvo global promote the corporate Geely operation with the very thin margins generated from name worldwide Geely’s local brand operations, which poses high risk and places pressure on Geely’s working capital Learn to manage a high-end car brand: essential skills for a Geely faces a number of product portfolio and platform global car company decisions regarding Volvo product offerings for China Market and the global markets Positioning Volvo products would need to be repositioned in order to serve a mass-market instead of merely following the luxury-market leader Audi Booz & Company EUCCC Speech final without backup.ppt Prepared for client name 16 April 2010 12
  • 14. 3 Acquisition of foreign assets and key development competencies by Chinese companies Businesses hoping to grow “inorganically” would be wise to learn the lessons from the causes of the failed cross-border mergers Causes of the failed cross-border mergers: the DaimlerChrysler case Lack of alignment and sufficient top-down direction needed to build a globally integrated automotive Strategic Mis- enterprise Alignment – Juergen Schrempp was seeking to build scale and elevate the prominence of the automotive business in the Daimler-Benz portfolio of companies. – Bob Eaton was seeking to expand Chrysler’s global reach beyond its core North American market Struggle over brands cut to the heart of the merger integration challenge – Daimler was concerned that a direct association with Chrysler would damage the Mercedes-Benz Brand Tension “premium” image – Chrysler was concerned that Daimler’s higher cost structure would make Chrysler’s mass-market brands less cost competitive The core business functions were left unchanged and the only functions that were integrated were the Lack of Core FS division and several corporate staffs including HR, IT, and Corporate Finance Business Integration The automotive businesses failed to realize any concrete benefits from the partnership Within two years, a significant percentage of top 100 managers left the company Brain Drain While it may be difficult to avoid completely, it is critical to plan for the retention of the key leadership, or company performance and employee morale will suffer Language and cultural misunderstanding is not the most fundamentally challenging issue Culture Shock The most difficult issue is to establish a common understanding of what each partner wants out of the relationship – and finding a way to work with that Booz & Company EUCCC Speech final without backup.ppt Prepared for client name 16 April 2010 13
  • 15. 4 China’s investment in new energy vehicles and related infrastructure China has a clear and compelling need to reinvent the propulsion technology of the automobile Bejing, Xi’an, Shenyang, Shanghai and Guangzhou have been listed among the Top 10 cities with the worst Air Pollution air pollution The rapid growth of the automotive market worsens the problem China imports two-thirds of its oil, and its ever-increasing Energy thirst has had a dramatic impact on global energy prices. Consumption The gasoline and diesel consumption has accounted for half of the total consumption of petroleum products. The rapid growth of the personal automotive sales Traffic outpaced infrastructure development. Traffic congestion Congestion has been a major problem in big cities like Beijing, Shanghai, Guangzhou, etc. China will have over 150 million vehicles in 2020 Booz & Company EUCCC Speech final without backup.ppt Prepared for client name 16 April 2010 14
  • 16. 4 China’s investment in new energy vehicles and related infrastructure China’s Ministry of Science and Technology is driving a plan to support development of “New Energy Vehicles” (NEVs) In April 2009, Prof. Wan Gang announced an ambitious plan in cooperation with the Ministry of Finance & the NDRC – Promote the use of NEVs initially targeting 13 pilot cities, expanding to 20 pilot cities in 2010 – Support the development of energy-saving technology for use in government fleets, including buses, postal, and sanitation vehicles. – Deploy 60,000 energy saving vehicles in China by 2012 Key Objectives of Ministry of Science & Technology – Promote industrial development and expansion of 863 project and HEV & EV development plan. – Technically support the development of NEV, R&D for NEV, and their promotion and industrialization Tenth Five Year Plan introduced goal to commercialize and industrialize EVs – 3 Vertical Plans: force assembly, driving electric motor and dynamic battery – 3 Horizontal Plans: FCEV, HEV and EV Source: Literature research; Booz & Company analysis Booz & Company EUCCC Speech final without backup.ppt Prepared for client name 16 April 2010 15
  • 17. 4 China’s investment in new energy vehicles and related infrastructure Initially mandated by the China government, developing NEV is gradually integrated into local VMs long-term strategy Major Local OEM’s Involvement in BEV and HEV R&D BEV HEV(1) BEV HEV BEV Bus under Research Prototype E1 to be introduced at Beijing Auto Show 2010 To be introduced at Beijing Auto Show 2010 To be used at Shanghai Expo 2010 (2) (1) Includes Plug-in Hybrid Electric Vehicle (2) Acquired by Chang’an Covered Area Focus Area Source: Literature search, Booz & Company analysis Booz & Company EUCCC Speech final without backup.ppt Prepared for client name 16 April 2010 16
  • 18. 5 Utilization of China’s automotive capacities for global expansion Multi-national companies are increasingly leveraging China’s growing capabilities as platform for global expansion Stage 1 Product Sales & Circa early R&D Sourcing Manufacturing Marketing Service Development Distribution to mid 1990s Start a few, isolated production facilities Stage 2 Product Sales & Circa mid to R&D Sourcing Manufacturing Marketing Service Development Distribution late 90s Began to use China as a Began to integrate Built brand for the local procurement source production facilities market and local sales & within China distribution Stage 3 Product Sales & Early 2000s R&D Sourcing Manufacturing Marketing Service Development Distribution Integrate China into global Integrate China into global Transfer global best practice to sourcing network manufacturing network China Stage 4 Present to 5- Product Sales & R&D Sourcing Manufacturing Marketing Service 10 years Development Distribution hence Build R&D and PD centers in China Integrate China into global value chain Booz & Company EUCCC Speech final without backup.ppt Prepared for client name Jan 19,2010 16 April 2010 17
  • 19. 5 Utilization of China’s automotive capacities for global expansion Chinese OEMs are more aggressively trying to close the capability gaps in R&D, parts sourcing, and brand equity Chinese Major OEMs Capability Gaps Recent Trends on Efforts to Close the Gaps in the Auto Value Chain Manufactur Sales & R&D Sourcing -ing Marketing Take Equity of Foreign Companies to Access Core Technologies Mostly rely Strength of High ability to Needs further on external supply base adapt for development design or and quality localization of local and JV’s foreign vary across Only some international technology VMs brand equity Increase Investment in R&D to VMs have Own R&D Build Own Capability capacity for needs to low-cost pass foreign manufactur- safety ing standards Marketing and Portfolio Expansion to Build Brand No Capability Full Capability Note: Evaluation based on assessment of major Chinese OEMs such as First Automobile Works, Shanghai Automobile Industry Company, Dongfeng Motor Corp, Guangzhou Automobile Group, Chery Automobile, Great Wall Motor, Chongqing Chang’An Automobile, Haima Automobile, Beijing Automobile, Fujian Motor Industry Group Source: Automotive News, Company profile, Booz & Company analysis Booz & Company EUCCC Speech final without backup.ppt Prepared for client name 16 April 2010 18
  • 20. 6 Hyper-competition across the China auto market segments Car price trend by segment: C-segment compact cars experiencing biggest falls and undermining VM profitability Discussion For 2008 and onwards, it is difficult for China VMs to continue the pace of price drop by 5-6% annually due to constraints of economics VMs must increasingly launch refreshed models or brand new vehicles to maintain price stability Competition is shifting from pure price to differentiation of product features, brand performance and aftersales service Source: Global Insight China Report Booz & Company EUCCC Speech final without backup.ppt Prepared for client name 16 April 2010 19
  • 21. 6 Hyper-competition across the China auto market segments While muti-national brands are expanding their portfolio into small segments… C Focus Hatchback B SVW POLO SPORTY Engine:1.8L,2.0L Dimension: 4342*1840*1500 Wheelbase:2640 C Chevrolet Cruiz B GZ Toyota Yaris Engine:1.3L,1.6L Engine: 1.6L/1.8L Dimension: Wheelbase: 2685mm 3750*1695*1545 Wheelbase:2460 MSRP: 9.2-12.56W RMB Launch:2008-6-12 B PSA 207 Hatchback B Smart Fortwo Engine:1.4L,1.6L Dimension: 3900*1680*1468 Wheelbase:2450mm MSRP: 7. 18-10.48W RMB Launch:2009-3-18 B Hyundai i30 B Kia SOUL Booz & Company EUCCC Speech final without backup.ppt Prepared for client name 16 April 2010 20
  • 22. 6 Hyper-competition across the China auto market segments …Chinese brands are expanding their portfolio into larger segments SUV Chery Reely V5 E Geely Dihao EX925 Engine:2.0L Engine:2.2L,2.4L Dimension: Dimension:4970*1880*1900 4662*1820*1590 Wheelbase:2850 Wheelbase:2800 Highlights: NA MSRP: RMB Launch: D Chery Richi G6 D Shanghai Yinglun GE Engine:2.0L Engine: 3.5L Dimension: Wheelbase: 3100 mm 4968*1845*1526 Highlights: Luxury feature Wheelbase:2820 and superior space Highlights: NA Launch:2011 MSRP: RMB Launch: C Dongfeng S30 D Brilliance Zunchi Engine:1.6L Engine:1.8L Dimension: Dimension: 4502*2610*1465 4880*1800*1450 Wheelbase:2610 Wheelbase:2790 MPV BYD M6 Spe BYD S8 Dimension: Engine:2.0L 4808mm×1802mm×1756m Dimension: m 4490*1780*1405 Wheelbase: 2950mm Wheelbase:2520 Launch: 09/2009 (09Sep) Booz & Company EUCCC Speech final without backup.ppt Prepared for client name 16 April 2010 21
  • 23. 7 China VMs push to build brand equity Local VMs are growing market share significantly but international OEMs still dominate INTERNATIONAL/ LOCAL OEM CHINA PV MARKET SHARE International OEMs/Brands International OEMs/Brands Top Local OEMs/Brands 8 Domestic OEMs VM 17.77% 3.87% 16.63% Chery 5.11% 10.32% TOYOTA 7.81% China PV sales 2008-2009 (incl. import, million units) 5.67% GM1 8.82% FAW 9.19% 4.62% 8.47% 8.6 Hyundai 10.13% 3.12% Geely 8.29% 3.66% Honda 6.73% 5.7 International 6.46% 71% 2.86% Nissan 6.18% BYD 5.17% FORD 2.96% 75% 2.95% 1.67% Brilliance PSA 3.18% 1.45% 3.19% 29% Local 3.14% 25% 1.08% Suzuki 2.67% Greatwall 1.76% MMC 0.67% 2008 2009 1.01% 1.54% 1.14% Chang’an2 BMW 1.07% 1.71% 2008 2009 1) Excluding CV volumes from SAIC-GM-Wuling 2) Including AVIC Source: Global Insight China Report Booz & Company EUCCC Speech final without backup.ppt Prepared for client name 16 April 2010 22
  • 24. 7 China VMs push to build brand equity Chery and Geely are most aggressive in revitalizing their brand portfolio “Chery is ready to meet the challenge ““A brand is closely related to its of the global market. We've cultural background. Isolated from succeeded in launching four brands that background, it is worthless” of new cars this year" --Chery's -- Geely's chairman, Li Shufu, president, Yin Tongyao Booz & Company EUCCC Speech final without backup.ppt Prepared for client name 16 April 2010 23
  • 25. 8 China’s rapidly changing demographics and growing demand in lower tier cities Urbanization is the trend, China's urban population is projected to rise by a whopping 150 million by 2020 China Population Breakdown by Urban and Rural (2008 Vs. 2020E, Million) Discussion Clearly, the concentration of wealth will likely continue under this unmistakable 100% trend of urbanization, both through the 18% 26% development of currently rural areas and the permanent migration of rural 45% population to existing urban areas 65% Urban It will be curious to see which one of these two modes of urbanization will gain 82% 74% more momentum as it will affect the geographical dispersion of demand for 55% luxury items 35% Rural 1978 1990 2008 2020E Source: EIU; <China 2040>; China regional economy statistic yearbook 2008;China Population Yearbook;Booz & Company analysis Booz & Company EUCCC Speech final without backup.ppt Prepared for client name 16 April 2010 24
  • 26. 8 China’s rapidly changing demographics and growing demand in lower tier cities In urban areas, the new mid-class is emerging fast, the total number of mid-class will reach 40 million in 2020 China’s Household Income Distribution China’s Mid-class Development (1990-2010F) (Mn Individuals) +35.5 * 40.3 +3.3 * 4.8 1.5 2000 * 2008 * 2020E * Note: “Mid-class” is defined as people with more than RMB 150,000 annual income Source: Asian Demographics; Study commissioned by Beijing Young Post; China Auto Yearbook; China Statistical Yearbook; Morgan Stanley; Goldman Sachs; EIU analysis; Global Insight; Literature Research; Booz & Company analysis Booz & Company EUCCC Speech final without backup.ppt Prepared for client name 16 April 2010 25
  • 27. 8 China’s rapidly changing demographics and growing demand in lower tier cities Significant increase in middle age population and many of them will be wealthy in 2020 China Population Breakdown by Age (2007 Vs. 2020E, Million) Population Increase 1,432 2008 Vs. 2020 1,321 * Comments +32 0 - *14 By 2020, China's population in the age -17 group 45 and elder will increase 118 15 - *24 million, while the 25-44 age group will decrease 22 million -22 25 - *44 This points to the tendency for consumer preference to also grow older and +75 400 probably more luxurious in general 45 - *64 325 65 & over * 167 +43 124 2007 * 2020E * Source: EIU; <China 2040>; China Statistic Yearbook; esa.un.org; Booz & Company analysis Booz & Company EUCCC Speech final without backup.ppt Prepared for client name 16 April 2010 26
  • 28. Implications of eight overarching China automotive trends for auto component suppliers Eight Overarching China Automotive Trends Implications for Auto Components Suppliers 1 Fragmentation is mirrored in the supply base. Policy-driven Consolidation Of Chinese VMs However, restructuring will likely not be steered by policy but will most likely be led by major local VMs 2 and emerging Tier 1 “consolidators” Global Redistribution Of Assets To Capture China Market Growth Following the shift in market strength, global auto 3 suppliers will increasingly shift global footprint to the Acquisition Of Assets And Key Development east in an effort to extend global reach and gain Competencies scale advantages 4 Capable “triad” market suppliers will become Investment In Infrastructure & New Energy acquisition targets for major local VMs and Chinese Vehicles consolidators as a means to fill capability gaps 5 – Key systems will be of high interest (i.e. Utilization of China’s automotive capacities powertrain, safety, electronic controls, etc) for global expansion China will attempt to lead the transition to new 6 energy vehicles, but competency gaps create Hyper-competition Across The China Auto opportunities for suppliers Market Segments Chinese VMs will increasingly seek technology 7 partnerships with multi-national suppliers to Local VM Push To Build Brand Equity increase brand equity Continued market expansion driven by socio- 8 economic forces will create opportunities in spite of China’s Changing Demographics and Growing Tier 2 & 3 Demand the fragmented supply landscape Booz & Company EUCCC Speech final without backup.ppt Prepared for client name 16 April 2010 27

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