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Auto china industry summary 2011

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China overtook US to become the world’s largest auto market in 2009 and maintained its leadership in 2010. International brands reinforced their market leadership over their competitors. Volkswagen, General Motors and Hyundai were the top 3 manufacturers in 2010. China remains a 70% sedan market, while SUV & MPV enjoys steady growth.

Rapid urbanization will continue to drive the demand for cars. Read about this and other emerging consumer and industry trends for automotive in this paper authored by Booz & Co’s Bill Russo (click here to view Bill’s profile) entitled: “Realigning Strategic Marketing Focus to Gain Competitive Edge in China’s Automotive Industry”.

TO GET A COPY OF THE FULL PAPER, PLEASE EMAIL TO admin@autoplastcon.com

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Auto china industry summary 2011

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  5. 5. September, 2011 BeijingChina’s Automotive Industry in 2011Bill Russo 1
  6. 6. Part 1: Review of 2010 market development and automakers performancePart 2: Emerging consumer trends and government policy changes in 2011Part 3: Emerging trends to anticipate in 2011 and beyondPart 4: Conclusion and recommendations 2
  7. 7. Part 1: Review of 2010 market development and automakers performancePart 2: Emerging consumer trends and government policy changes in 2011Part 3: Emerging trends to anticipate in 2011 and beyondPart 4: Conclusion and recommendations 3
  8. 8. Year 2010 was another hall-mark year for China auto industry after the short setback in 2008 due to global financial crisis Overall China Auto Industry* 2010Sales 2009 Sales 18.06 Million 13.64 Million 32% 2007 Sales 2008 Sales 46% 8.98 Million 8% 9.67 Million 2006 Sales 22% Truck 7.34 Million Truck 21% 20% Truck Truck 21% Truck 22% PV Bus PV Bus 21% Bus 64 3% 62% 3% 2% PV Bus PV Bus 61% 2% % Van Van PV Van 60% 2% 59% 18% Van Van 13% 14% 16% 16%PV*=4.45 Million PV*=5.43Million PV*=5.91Million PV*=8.73Million PV*=11.26Million Passenger vehicles consistently represent the majority of total automobile demand Robust growth momentum is continued in 2010 driven by government incentive program and infrastructure investment Note: * PV volume excluded pickup and van sales volume Source: CAAM auto market press release 4
  9. 9. China exceeded US to become the world largest Auto market in2009 and maintained leadership in 2010 Top Five Auto Market in the World(1) Total China Auto Sales 2008 - 2009, in million units 2005 - 2010, in million units 66.0 63.6 US market sales in 2010 is only 11.58 Million, 36% less than China sales 50% 45% Others 18.06 +23% 13.64 5% Brazil 4% 6% Germany 9.67 5% 8.98 7% Japan 8% 7.34 16% US 5.90 20% 20% China 13% 2008 2009 2005 2006 2007 2008 2009 2010Note 1): Data does not include heavy truckSource: Global insight; CAAM auto market press release; Literature research; Booz Company analysis 5
  10. 10. Among international brands, VW, GM and Hyundai hasreinforced their market leadership over their competitors Passenger Vehicle Sales by Top 10 Manufacturers (2002 Vs. 2010)Shanghai Volkswagen 31% Shanghai GM 7% Faw-Volkswagen 22% Shanghai Volkswagen 7% Shanghai GM 12% FAW-VW 6% Tianjin Faw 10% Beijing Hyundai 4% 4% Peugeot Citroen 9% Dongfeng Nissan 3.8% Changan Suzuki 7% BYD 3.6% Guangzhou Honda 6% Chery 3% Chery 5% Geely 3% Geely 5% Changan Ford 2.8% Dongfeng Nissan 4% FAW Toyota 2.0% Others 21% Others 53%Source: China PV Database; Booz Company analysis 6
  11. 11. Part 1: Review of 2010 market development and automakers performancePart 2: Segment growth in 2010 and government policy changes in 2011Part 3: Emerging trends to anticipate in 2011 and beyondPart 4: Conclusion and recommendation to automakers 7
  12. 12. While there is clear growth in the SUV, MPV and cross-over segments, China remains a 70% sedan market SUV/ Micro Small Compact Std / Lux Mid Std Lux / MPV Brand 2010 PV Sales Market Share Full Cross-over 7% 12% 36% 12% 2% 28% 3% 1,830,000 14% 959,900 7% 406,400 3% 656,400 4.8% 646,600 4.7% 1,093,000 7.9%COPV: Crossover Passenger Vehicle - i.e. pickup and light buses with 9 seats or under Source: Accuracy Automotive, CAAM 8
  13. 13. Driven by government tax incentives and shift of productpreference, 2010 has seen a mixed results of segment growth Segment Sub-segment 2010 sales Year on year growth Sales growth of SUV and MPV (=000) outperform passenger cars (%) Vehicle sales Total 18061.9 32.37 Passenger Total 13757.8 33.17 Vehicle 2.0L and below accounts for 60% of total SUV sales. 2WD is sold 1.7 SUV Subtotal 1326 101.27 times more than 4WD vehicles Compact SUV 2.0L and below 799.8 105 MPV Total 445.4 79.82 1.6L and below cars account for Passenger Car Subtotal 9494.3 27.05 70% of total passenger car sales 1.6L 6631.8 27.98 1.6-2.0L 2152.7 29.77 Pickup and minibus enjoyed a 28% growth attributed to favorable Crossover Pickup, 2492.1 27.77 government subsidies Minibus, etc.Source: China Automotive Industry CAAM report Literature research; Synergistics Limited analysis 9
  14. 14. China government incentives successfully boosted sales of 2009 and 2010, however, most policies will discontinue in 2011Government Incentive Incentive Summary Impact assessment •Mar. 2009-Dec.2010 Many personal buyers pulled ahead car purchase plan •5% sales tax reduction in 2009 and Sales Tax down to 2.5% only in 2010 from in 2009 for 5% tax incentive and stimulus effect Break weakened in 2010 •For sales of all 1.6L and below vehicles •Mar 2009-Dec.2010 •10% off retail price, 5,000CNY at Successfully boosted sales of mini-bus and pickup, light Subsidy for maximum truck , up by 83% in 2009 and 28% in 2010 the farmers •For farmer buyers of mini-bus, pickup and light truck •June 2009-Dec.2010 Trade-in •5,000/car, 6,000/van, 18,000CNY/ Low subsidy level and complicated trade-in process truck discouraged car owners, the effect is very limited subsidy •For trade-in of 15+ years used cars Subsidy for • June 2010-present Successfully boosted sales in 2nd half of 2010 and •3,000 CNY for car buyers 1.6L and •For 1.6L and below cars and require 20%+ continue to take effect in 2011 below cars better fuel efficiency than standard Source: Literature research; Synergistics Limited analysis 10
  15. 15. With termination of incentives, China auto sales will downshift toa stable growth from 2011 and rise to 20 million in next 5 years Unit ‘000 China new passenger vehicle sales 22,000 (2004-2015E) Adjusted forecast 20940 20,000 18,000 16187 14582 Initial GI forecast 16,000 13760 13137 14,000 11835 12,000 10662 9606 10,000 8654 8,000 6,000 5294 5704 Total Passenger Vehicle 4,000 4328 3267 2,000 2631 0 2004 2005 2006 2007 2008 2009 2010F 2011F 2012F 2013F 2014F 2015F Year on Year growth % 21% 24% 33% 22% 8% 52% 11% 11% 11% 11% 11% 11% Initial GI forecast Source: Global Insight 2010; Booz Company analysis 11
  16. 16. Part 1: Review of 2010 market development and automakers performancePart 2: Segment growth in 2010 and government policy changes in 2011Part 3: Emerging trends to anticipate in 2011 and beyondPart 4: Conclusion and recommendation to automakers 12
  17. 17. Trend 1: Sustainable demand growth fueled by urban economic development Rapid urbanization is anticipated to rise from 48% to 60%, a fundamental driving force of private demand for cars Chinese Urbanization in Comparative Context China’s Urban PopulationUrban population as ashare of the total (%)
  18. 18. 65 60 Forecast China 55 Overall Emerging Markets 50
  19. 19. 85%0 45 40 35 30 25 20 #5%2 15
  20. 20. 10
  21. 21. 5 0 60 70 80 90 00 10E 20E 30E Source: Literature research; Booz Company analysis 13
  22. 22. Trend 1: Sustainable demand growth fueled by urban economic developmentIn the coming decade, we will see a significant increase in middleage population and many of them will be wealthy China Population Breakdown by Age (2007 Vs. 2020E, Million) Comments Population Increase
  23. 23. 2008 Vs. 2020 By 2020, Chinas population in the age
  24. 24. 268 +32 group 45 and above will increase 118 236 million, while the 25-44 age group will 180 -17 decrease 22 million 197 By 2020, with the fast wealth 417 -22 accumulation, a significant portion of the 439 400 million 45-64 age group people will be wealthy +75
  25. 25. Those affluent mid-age people will be +43 major customers for luxury products %2( 39)5 Source: EIU; “China 2047”; China Statistic Year Book 2007; )6% 82 35+ Booz Company analysis 14
  26. 26. Trend 1: Sustainable demand growth fueled by urban economic developmentYet China is still just entering the accelerated growth phase typicalof emerging markets Canada 600 Australia Discussion Germany A countrys threshold 500 U.K. of mobility lies near US The S- curve U.S. $10,000 GDP per capita Poland (PPP), where 400 automobile ownership Cars per 1,000 People Malaysia accelerates Russia 300 Argentina China is at the early taking-off stage of the S- Mexico curve 200 Brazil Turkey India remains fairly distant from the mobility India Thailand 100 inflection point, but Iran continues to make China Indonesia steady progress 0 India 1,000 10,000 100,000 China GDP Per Capita (Logarithmic Scale)Note: Each line of symbols represents a 19-year progression for one country, from 1990 through 2008, GDP Per Capita is in Purchasing Power Parity (PPP)Source: Booz Company analysis 15
  27. 27. Trend 1: Sustainable demand growth fueled by urban economic developmentIt is likely that China’s strong economic performance will continueto stimulate car industry growth for the foreseeable future China Passenger Vehicle Installed Base (PARC) Key Drivers Forecast (2009-2030) Car ownership in China is powered by the 600 Increase in Car growing economy – the upside is High Forecast Ownership substantial Base Forecast Passenger Vehicle PARC (million units) 500 Low Forecast 480 Government has been continuously 400 410 Government’s guiding and supporting the industry’s Support to Auto development across manufacturing and Industry distribution 330 300 China’s financial system is less exposed China and GDP growth is still very fixed 200 Economy’s investment driven, thus is less vulnerable Resilience to recent financial turbulence impact 100 Highway network development provides Infrastructure foundation for more motor vehicle-based 0 Development based transportation 2009 2014 2019 2024 2029 China is investing in infrastructure to support alternative propulsionNote: Passenger vehicles contain sedans, MPVs and SUVsSource: Global Insight 2010, OPEC, DGS Report, Booz Company analysis 16
  28. 28. Trend 2: Shifting preferences for increasingly savvy consumersChinese customers become increasingly savvy and motivated byemotion and self-expression, luxury B segment as an example Prioritized Purchasing Factors Prioritized Self-expression Motivations B Segment Customers B Segment Customers Driving experience 45 To enhance my 36% business image/ status Brand 40 To reflect my personality 36% Safety 38 Appearance 36 To reflect my good taste 30% Price/performance ratio 18 To integrate into 20% Quality 10 my social circle Comfort 9 Sense of independence 17% Fuel economy 7 Sense of family 17%After-sales service, maint. Costs 5 Configuration 5 My personal space 15% Trim 3 Stylish/trendy 12% Interior space 2 Versatility 2 Others’ admiration 11%Note: Based on new car buyers during Jan-May, 2009; B segment N=570, A4L N=175, 3S N=168 Driving experience includes factors such as power, handling and brakingSource: Luxury Car Consumer Quantitative Survey(11-12, 2008), Booz Company analysis 17
  29. 29. Trend 2: Shifting preferences for increasingly savvy consumersYoung generation buyers are increasingly influencing automakers’product design More sporty, sculptured and Integration of cutting edge and premium-oriented design functional technologies Sonata 2010MY Sonata 2011MY Focus 2011MY Focus 2012MY Sebring 2009MY 200C 2010MY Quest 2010MY Quest 2011MYSource: Automotive news, BoozCo. literature research
  30. 30. Trend 3: Value and relationship oriented approach to address lower tier market demandChina is a country equivalent to a continent, large anddiverse China and its Three Major Economic Regions Three Major Economic Regions consist of Tier 1 and 2 city groups – Yangtze River Delta Region • Centered on Shanghai • 80 million population • ~4.5 trillion RMB GDP – Pearl River Delta Region • Centered on axis between Guangzhou and Shenzhen • 45 million population • 2.5 trillion RMB GDP – Beijing-Tianjin Region • Bohai Sea region • 25 million population • ~2 trillion RMB GDPSource: China Statistical Yearbook, The China Strategy, Booz Company analysis 19

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