BMI Asia Pacific Automotives Insight February 2012

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Unformatted text preview: IMPORTANT NOTICE: The information in this PDF file is subject to Business Monitor International's full copyright and entitlements as defined and protected by international law. The contents of the file are for the sole use of the addressee. All content in this file is owned and operated by Business Monitor International, and the copying or distribution of this file, internally or externally, is strictly prohibited without the prior written permission and consent of Business Monitor International Ltd. If you wish to distribute the file, please email the Subscriptions Department at [email protected], providing details of your subscription and the number of recipients you wish to forward or distribute this information to. DISCLAIMER All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Business Monitor International accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the publication. All information is provided without warranty, and Business Monitor International makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained. February 2012 Issue 69 Asia Pacific automotives Regional Focus Contents BMI's monthly market intelligence, trend analysis and forecasts for the automotives industry across Asia Pacific insigHT Expo Creates ASEAN Opportunities For Chinese Brands In the same way that Indian carmakers have been looking to beat the domestic slowdown by eyeing South East Asian markets (see 'Indian Slowdown Prompts Companies To Target ASEAN Growth', Dec 13 2011), Chinese companies are looking towards a similar strategy. This is evidenced by the first China-ASEAN Automotive Expo, held in early December, which gave autos firms from both sides the opportunity to generate new business. Branching Out Vehicle Sales Growth Forecasts (% chg y-o-y) 12 10 8 6 4 Indonesia Malaysia Thailand Average 2012f 2013f 2014f 2015f 2016f Regional Focus Expo Creates ASEAN Opportunities For Chinese Brands ........................................... 1 Global Focus EU-India FTA: Boon For European Carmakers ......................................................... 2 Saab: A Victim Of Consequences Or Competition? .................................................. 3 China New Restrictions To Boost Green Car Technology Transfer ....................................... 5 GM Looks To Join China's Luxury Three-Horse Race ................................................ 5 China's Duties On US Imports Will Not Have Major Impact ...................................... 6 India India Offers New Opportunities For Parts Makers Under Agreement ......................... 7 Honda Gears Up To Take On Former Partner As Bike Sales Soar ............................... 7 Ford Upsizes In Line With Buying Patterns.............................................................. 8 Indonesia Would A National Car Bring Progress Or Protectionism?........................................... 9 Rural Demand Targeted But Foreign Brands Lose Out ............................................. 9 Thailand Legal Settlement Frees Up Volvo To Expand Market Share ......................................10 Philippines Auto Sector Can Bounce Back But Policy Is Still Crucial ..........................................10 Australia Ford Secures Short-Term Future While Industry Needs A Long-Term Fix ..................11 Japan More Help Needed To Improve Domestic Sales ......................................................12 2 0 f = BMI forecast; Sources: Gaikindo, Thai Automotive Industry Association, MAA The show was held in Liuzhou, which is becoming a hub for autos production and is home to some of the country's largest national carmakers, including Shanghai Automotive Industry Corp (SAIC), First Automotive Works, Dongfeng Motor and Sinotruck. The city is also gaining traction as an export hub, generating revenues of US$140mn from autos exports in January to October 2011, up 48% year-on-year (y-o-y). Moreover, shipments to South East Asia accounted for around 40% of this total. According to China Daily, some ASEAN companies have reported cost savings by importing from Liuzhou, such as a Vietnamese trader quoted in the report, who said transport costs have been cut by 70% after sourcing tractors from Liuzhou rather than Jinan. With this advantage in mind, carmakers at the expo have been showcasing vehicles which are particularly popular in ASEAN markets, such as low-cost passenger cars, trucks and specialist vehicles. The Chinese interest in South East Asia has already extended beyond exporting vehicles for some of the larger firms. In September, Geely Automobile announced plans to establish its regional production hub for Editorial Office: 85 Queen Victoria Street, London EC4V 4AB, UK Tel: +44 (0)20 7248 0468 Fax: +44 (0)20 7248 0467 GloBAl Focus Asia Pacific Automotives South East Asia in Indonesia. The new plant will increase Geely's local output by five times and improve access to other growth markets in the region. Geely will invest US$20mn to build a plant with an initial annual production capacity of 10,000 units. The company currently assembles 2,000 units per year at a plant owned by domestic firm Astra International. Geely Mobil Indonesia CEO Budi Promono said the market is 'huge' for the carmaker, largely owing to 'the expectation of better infrastructure development'. Dongfeng also plans to upgrade its facility in Thailand, which manufactures the Dongfeng Xiao Kang mini truck, from semiknocked down to completely knocked down production. A minimum of 40% of production of the company's mini truck will be shifted to Thailand when the facility begins full production in 2012. BMI believes the Thai truck market in particular offers considerable potential, as we forecast average annual growth of 12% in light commercial vehicle sales between 2012 and 2016. Overall, BMI is not surprised by the organised push toward ASEAN markets by the Chinese industry. We forecast average growth of 9.3% between 2012 and 2016 for the three major markets of Indonesia, Thailand and Malaysia. The industry is also looking to the longer term, with plans to hold the auto show every year from now on as part of the wider China-ASEAN Expo, held every October. Growth Vs Size New Vehicle Sales: Historical Data and Forecasts 18,000,000 16,000,000 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 0 2006 2007 2008 2009 2010 2011e 2012f 2013f 2014f 2015f India EU 35 India EU 30 25 20 15 10 5 0 -5 -10 -15 2007 2008 2009 2010 2011e 2012f 2013f 2014f 2015f global Focus EU-India FTA: Boon For European Carmakers India and the European Union moved a step closer to a proposed free trade agreement (FTA) after the two parties reached a consensus on the touchy issue of import duties on automobiles on December 30. The new agreement broadly envisages a reduction in duties for auto imports from both sides in a way which will improve market access for both Europe- and India-based carmakers. Although the final details are likely to be set out in February 2012, BMI believes that the current blueprint looks more favourable for European and EU-based foreign carmakers than their Indian counterparts. Top chart refers to unit sales; Bottom chart refers to % chg, y-o-y. e/f= estimate/forecast. Source: SIAM, ACEA, BMI An Equal Exchange? Initial details from official sources suggest that India will halve its import duty on finished cars from the EU from the current 60% to nearly 30% in return for preferential duty-free access to the EU for small cars exported from India. The latter change will give Indian exports a price competitiveness boost of nearly 6.5%, the amount that is generally levied on all EU auto imports. At first glance, it appears that the deal is mutually beneficial to both sides, as European carmakers will gain improved access to the high-potential Indian autos market, where BMI expects sales to grow an impressive 10% year-on-year (y-o-y) on average between 2012 and 2016. To a large extent, this will be a boon for European carmakers that have been badly hit by stagnating car demand in their home region. Indian carmakers, on the other hand, will cherish the opportunity of gaining access to the huge 27-nation EU autos market, which has annual vehicle sales of nearly 13mn units nearly four times more than India. A switch to a 30% tariff could be a major boost for European premium vehicle manufacturers such as BMW, Audi and Mercedes, which currently face import tariffs of up to 100%. Huge opportunities are also on offer for European carmakers developing hybrid and electric cars. In its March 2011 budget, the Indian government proposed a cut in excise duty on the development and production of hybrid vehicle kits from 10% to 5%, as well as the removal of customs and countervailing duty on imports of specialist hybrid parts. Given the government's focus on these vehicles, there is a strong possibility that the final agreement could include provisions that give alternative fuel vehicles better import conditions. Indian Advantage Or Costs? On the Indian side, the FTA could help bring about a major change in the competitive landscape of the country's passenger car market. Preferential access to the Indian market will tempt the likes of Volkswagen and Peugeot as well as locally based companies such as Honda Motor, General Motors Company, Ford Motor and Toyota Motor to increase their exports to India. All of these companies currently have a very limited presence in the country, mainly owing to the dominance of domestic brands Maruti Suzuki and Tata Motors. Another significant advantage is that the Indian auto manufacturing segment will gain a specialisation in small car production and might be able to increase its exports to the EU. India is currently the EU's fifth largest source of imports, and accounts for nearly 6% of total vehicle imports. However, this could be on the rise as Maruti Suzuki and Hyundai Motors will be looking to exploit their strong manufacturing presence in India to increase their exports to the EU. However, potential threats from these changes in trade could European Advantage However, a look at the finer details of the agreement indicates that India could end up paying a lot more for what it gains from the deal. 2 GloBAl Focus Asia Pacific Automotives outweigh the possible gains. There remains a lot of ambiguity with regard to the treatment of completely-knocked down units (CKDs) in the agreement. BMI understands that these vehicles currently attract a 10% import duty and unless this is reduced, European carmakers particularly premium vehicle manufacturers may be inclined to export their finished products from the EU instead of assembling their vehicles in India. That would hurt autos investment and the transfer of advanced high-end vehicle technology to India. Additionally, domestic brands will be exposed to competition from their foreign counterparts. There are indications that India could be looking to limit the number of cars eligible under the Tariff Rate Quota to somewhere between 12,000 and 15,000 cars a year, but the EU is likely to bargain for a much higher quota. The Indian Content EU Vehicle Exports And Imports By Markets (%), 2010 Mercosur China 1.9 2.2 Africa 3.9 India 5.7 South Korea 11.1 EFTA 0.7 ASEAN 0.7 Others 1.2 car brand, the re-emergence of which we believe is unlikely. No Success Formula What made Saab so desirable to Spyker was its distribution network and vehicle technology, especially of the 9-5 car model. In return, Spyker would have had to invest in improved product offerings and increased sales, and focus on large-scale production. Given that Spyker has itself failed to post a profit since forming in 1999, its acquisition of the bigger firm in January 2010 had long made BMI sceptical about its ability to turn around the struggling brand. Inviting Trouble Swedish Automobile Financial Performance, 2005-2010 Japan 33.3 Turkey 15.4 Source: Bloomberg NAFTA 23.9 South Korea 2.2 Australia 3.6 Japan 5 Russia 5.4 Middle East 5.4 Turkey 5.6 Africa 5.6 India 8.2 Others 3.3 NAFTA 29.3 However, there was some hope when in July 2011, SA finalised deals with Chinese companies Pang Da and Zhejiang Youngman Lotus Automobile, which would have given the struggling division a EUR245mn cash injection (see timeline below). Through the plans laid out in the June agreement, it was hoped that Saab would also gain access to the lucrative Chinese premium car segment, which was a central feature of the company's turnaround strategy. With the same intention, the partners were also in talks to form a threeway joint venture aimed at the production and distribution of Saab vehicles in China. Running Out Of Steam Saab Global Sales (Units) 140,000 120,000 100,000 EFTA 10.5 China 15.9 Top chart refers to imports; Bottom chart refers to exports. Source: ACEA Saab: A Victim Of Consequences Or Competition? After two tumultuous years of operating under its new parent Swedish Automobile (SA) a Dutch company previously known as Spyker Cars and having examined every possible option to raise cash from Russia or China, Saab Automobile filed for bankruptcy at the district court in Vanersborg in Sweden on December 19. Although Saab's survival prospects had been questioned since its buyout from former parent General Motors Company (GM) in January 2010, the trigger was GM's refusal to approve cash-strapped Saab's attempt to raise cash from China's Zhejiang Youngman Lotus Group. The filing brings an end to a six-decade-old Swedish premium 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 80,000 60,000 40,000 20,000 0 Source: GM, BMI To some extent, this Chinese association seemed to replicate the path undertaken by Volvo Cars since its takeover by Geely Automobile. Geely's ownership helped Volvo's sales in China rise 36% year-on-year (y-o-y) in H111, outpacing the company's 3 GloBAl Focus Asia Pacific Automotives global growth of 20% for the six-month period. Geely also helped Volvo launch new high-end models such as the XC60 crossover, which achieved sales of 5,000 units in its first month on the market in China. Also, Volvo is adopting the local production route to tap the lucrative Chinese market. What made Saab's attempts unsuccessful was its use of GM's technology, the intellectual property of which the latter feared would be transferred to Chinese hands if Youngman and Pang Da were to acquire 29.9% and 24% stakes in Saab as planned. Part of the blame also goes to the excessively competitive operating environment in the automotive industry. The presence of a large number of players and high operating costs have made it extremely difficult for low-volume carmakers to survive. With an annual sales level of nearly 60,000 cars globally, Saab and its parent struggled to gather enough cash to help it undertake essential technology upgrades and renew its model line-up. pany at EUR2.52mn (US$3.8mn), down a staggering 98% so far in 2011. When Spyker bought Saab, it agreed to pay GM US$74mn in cash and US$326mn in preferred shares. However, following the bankruptcy, the Dutch group has revealed that it did not expect to receive any value from its shares in Saab. Foiled Plans Swedish Automobile Share Performance, 2009-Present 7 6 5 4 3 2 1 0 Taking Stock Of Winners and Losers Saab's bankruptcy is likely to be a huge blow to SA, the 3,000 workers directly employed at Saab and its associated suppliers. Shares in the Dutch company stood at EUR0.07 at the time of writing, 12.5% lower than at the previous close, valuing the comMar-10 Nov-09 Nov-10 Mar-11 May-10 May-11 Nov-11 Jan-10 Jul-10 Jan-11 Sep-09 Sep-10 Jul-11 Sep-11 Source: Bloomberg TIMELINE: SAAB'S ROUTE TO BANKRUPTCY Year 2010 2011 Date Jan-26 Jan-05 Mar-29 Key Developments Spyker buys Saab from General Motors for US$400 mn, with US$74mn in cash, the rest in deferred shares. Spyker says Saab sold 31,696 cars in 2010 after cutting its full-year target to 30,000 from 35,000 units. Saab halts production due to disputes over non-payment of suppliers. Apr-28 Sweden's Debt Office and GM give initial approval for an investment of EUR30mn in Saab by Russian investor Vladimir Antonov in exchange for a 29.9 percent stake. May-02 May-16 Jun-13 Jun-27 Saab lines up almost EUR60mn in funds to restart production after a month of stoppages. Spyker announces a deal with China's Pang Da Automobile Trade Co Ltd worth as much as EUR110mn. Saab restarts production on May 27. Spyker says it has signed a non-binding memorandum of understanding for Zhejiang Youngman Lotus Automobile Co to take a 29.9 percent stake and Pang Da to take a 24 percent stake for a combined EUR245mn. Saab says it has secured funds to pay wages and some suppliers, staving off the threat of collapse. Owner Swedish Automobile, until recently called Spyker, says an undisclosed Chinese company had ordered 582 Saabs for EUR13mn. July 4/5 A SEK255mn property sale and leaseback deal with a consortium headed by Hemfosa Fastigeheter, has been approved by Sweden's Debt Office and the EIB, easing Saab's plight. Sep-21 Saab wins a court protection from creditors while it awaits Chinese investment. Sep-28 Swedish Automobile says it will sell its Spyker luxury sports car business to the private equity firm of racing car enthusiast Alex Mascioli for about EUR32mn. Oct-28 Pang Da and Youngman agree to buy Saab for EUR100mn from Swedish Automobile. Oct-31 Pang Da and Youngman say they are targeting sales of up to 55,000 Saab cars for 2012 and have promised a volume of up to 205,000 units per year longer term. Nov-07 GM says it will stop supplying components and technology if the two Chinese companies succeed with their acquisition bid. Victor Muller, chief executive of Swedish Automobile, says GM's rejection of the proposed rescue plan means that negotiators will have to "go back to the drawing board" with Chinese investors Pang Da and Youngman Lotus. Dec-05 A Chinese bank is in talks about taking a stake in Saab, the latest attempt to rescue the crisis-hit car maker. The next day GM says it will not support a proposed ownership structure that included a Chinese bank Dec-07 Saab faces a fresh threat when a court-appointed administrator says its protection from bankruptcy should be removed due to a failure to secure Chinese investments. Dec-13 Saab receives a first payment of EUR3.4mn from China's Zhejiang Youngman Lotus Automobile as it struggles to stay in business. Dec-15 Sweden's Vanersborg District Court says Saab has put forward Lars Soderqvist of law firm Hokerberg & Soderqvist as its new administrator, having said the day before another lawyer called Lars-Henrik Andersson would take the position. Dec-19 Saab says the rejection of a rescue plan for the company by GM has forced it to apply for bankruptcy. Source: 4 chInA Asia Pacific Automotives The business of the suppliers associated with Saab has long been hampered by payment issues, and Lars Holmqvist, the CEO of European supplier association CLEPA, estimates that its members will have to write off debts of up to EUR300mn following the bankruptcy. Apart from this, we do not see any significant disruption to the suppliers' base in Sweden as they have reportedly been gearing their business to other Swedish carmakers such as Volvo. It is hard to think of gain during a bankruptcy, but in hindsight, GM seems to have played its cards well. Although GM hardly received any return on the US$700mn it spent acquiring a 50% stake in Saab in 1990, or the additional US$125mn it paid for the remaining share in 2000, Saab's sale allowed GM to distance itself from the brand, which had been a drain on its cash and had made consistent losses. More importantly, GM's current ownership of preference shares in Saab owing to its technology sharing gives it a better chance of getting some payment during the sale of assets, which would have been impossible if GM had simply wound the brand down back in 2009. cHina New Restrictions To Boost Green Car Technology Transfer The Chinese government has revealed a new list of priority industries for foreign investment, with autos no longer among the most prominent. While this may appear to be a restriction on investment, which could tackle potential overcapacity but also isolate the sector from foreign involvement, BMI believes there are other factors in the new strategy, aimed at actually increasing the transfer of new technology from international carmakers. Drop In The Ocean? New Energy Cars As Component Of Total Passenger Car Sales The NDRC's move is designed to help the development of new key industries. This is backed by the country's Science and Technology Minister, Wan Gang, who said the research and development of EVs needs to be improved. Gang added that standards for EV batteries should be established as soon as possible. The government is keen to have as many regulations and policies in place as possible to support its push for 1mn EVs on the road by 2015. The latest investment rules are unlikely to have a massive impact on the major carmakers already operating in China. General Motors Company (GM), one of the leading foreign brands by sales volume, has already signalled its intention to up its game in the alternative fuel segment. In November 2011 it revealed that its joint venture with Shanghai Automotive Industry Corp, Shanghai GM, plans to launch 12 fuel-efficient engines by 2015 as part of its clean technology development strategy. Fuel-efficient vehicles account for 72% of the company's total sales and Shanghai GM is reportedly keen to add EVs to its product range in future. Similarly, Ford Motor announced in September 2011 that it plans to produce electric cars with its local partner, Changan Automobile Group. Although a timeframe for the project has not been released, Ford's CEO, Alan Mulally, commented that 'a rollout of electric vehicles depends largely on infrastructure and advances in battery technology' but added that 'as we move to more electrification, you're going to see more hybrids, plug-in hybrids and all-electric cars'. The investment policy is likely to be more problematic for those only just looking to break into the Chinese market with the production of conventional vehicles. There is good reason for this, however, as the NDRC wants to promote the 'healthy development' of the industry after years of unprecedented double-digit growth, which had raised concerns of a bubble scenario. The demand side has been addressed through the withdrawal of purchase incentives and restrictions on the number of new registrations in certain cities, slowing car sales growth to an estimated 3% in 2011, but with investment still flooding in, production has to be brought in line. GM Looks To Join China's Luxury Three-Horse Race General Motors Company (GM) has announced expansion plans for its Cadillac brand in China, where it expects the premium segment to continue outperforming the overall passenger car market. According to GM China president Kevin Wale, the company will add more Cadillac models in order to compete in a market currently Taking On The Big Three Premium Brand Sales In China And US, November 2011 (CBUs) 35,000 China US Source: Ministry Of Industry And Information Technology, BMI Forecast 30,000 25,000 20,000 15,000 10,000 5,000 0 In 2010 there were suggestions that the government would insist on any foreign carmaker wishing to produce electric vehicles (EVs) in the country forming a joint venture with a local company, a move generally received with some scepticism in the industry. Indeed, there is still a 50% limit on foreign ownership of companies producing EV batteries. However, the latest foreign investment guidelines from the National Development and Reform Commission (NDRC) do leave alternative fuel vehicles in the 'encouraged' section, rather than downgrading to 'permitted', as with the majority of vehicle production, and BMI believes this is a softer approach to encouraging foreign participation in the green car segment. BMW Sources: GM, MotorIntelligence Mercedes Cadillac Audi 5 chInA Asia Pacific Automotives dominated by the world's top three high-end marques Audi, BMW and Mercedes-Benz. As new models join the Cadillac line-up, GM will increase its domestic production of the range. Wale said the carmaker could increase its annual production capacity by up to 40% over the next two years. Domestic production of larger cars is more of an issue than ever, since the Chinese government announced it would be imposing 'anti-dumping' tariffs on US-built imports with an engine capacity of 2.5 litres or above for the next two years. GM will also increase its imports of some models, but Wale believes the company will suffer a limited impact from the new tariffs, as imports account for just 0.5% of GM's Chinese sales. Indeed, GM could gain a considerable advantage over the likes of BMW and Mercedes-Benz, which import models into China from their US factories in much larger volumes than GM. In 2010, Mercedes imported around 11% of its China sales from the US, while BMW imported 13% of its sales for the first 11 months of 2011 from its South Carolina plant. BMI believes it is unlikely that they will suffer any serious side-effects of the new duties, given the status symbol nature of the brands in China. It is an important risk to factor in, however, as China becomes increasingly important in the battle for global market leadership in the premium segment. While sales in their domestic European market are waning, Audi, BMW and Mercedes all achieved double-digit growth in China in the first 11 months of the year. Audi's sales rose 35% year-on-year (y-o-y), BMW's were up 40% and Mercedes' sales were 31% higher y-o-y. Cadillac sales in China have also been enjoying a boost, however. Monthly sales of the brand crossed 3,000 units for the first time in November, with 3,008 units shifted, up 64% y-o-y. Compared with the German trio, however, this is a small fraction of their monthly sales. Audi sold 29,861 units in November (incl Hong Kong), while BMW sold 19,155 units and Mercedes 18,067 units. Adding to its model range could easily put Cadillac in a better position to compete, however. When comparing sales in the US, another key market for the premium segment where the domestic brand has a wider product line, Cadillac was ahead of Audi in November sales. It is still far off the pace of BMW and Mercedes, but sales were impacted by the phasing out of the DTS and STS models and there are two new models to join the Cadillac range in 2012. Bigger Fears Behind The Spat? China - Trade Account, US$mn Trade Surplus Total Exports Total Imports 200,000 150,000 100,000 50,000 0 Source: BMI, Customs General Administration China's Duties On US Imports Will Not Have Major Impact The Chinese Ministry of Commerce has announced it will impose anti-dumping tariffs on certain imported US vehicles, effective from December 15 and lasting two years. This is the latest move in a saga of trade disputes between China and the US, many of which have centred on the autos sector. However, as with many previous issues, BMI believes the move is largely a gesture and will not seriously affect US imports, given the relatively low volumes involved. Duties will be imposed on vehicles with engines of 2.5 litres or above, signalling the government's intent to protect its own domestic industry as it tries to move into the premium market. Although Andrea Mead of the US Trade Representative says the tariffs 'violate multiple WTO rules', the actual impact on carmakers is likely to be limited by their increased production operations in China. As the leading US carmaker in China, attention turns to General Motors Company (GM), which sells is Cadillac and Buick high-end brands. However, GM says the volume of cars imported from the US is less than half of 1% of its total Chinese production. Moreover, the company has already been planning to move more production to China, including its Cadillac models. CEO Dan Akerson said import duties almost double the cost of imported vehicles and 'it will be important to manufacture cars for China in China'. GM currently produces just one Cadillac model locally, the Cadillac SLS sedan, but will expand capacity when more models are brought out in China, Akerson added. Chrysler said in a statement that it is 'reviewing the decision to determine the impact', but its import levels as a fraction of total sales in the US are also quite small. Aside from US domestic brands, foreign brands importing to China from US plants will fall foul of the new duties. However, Honda Motor has said it only imports one model with an engine larger than 2.5 litres (the 3.5-litre Acura TL) and annual sales in China are less than 1,000 units. German premium brands Mercedes-Benz and BMW export to China from the US in larger numbers. Mercedes imported 16,400 units into China from Alabama in 2010, equal to around 11% of its total China sales, while BMW imported 28,700 X3, X5 and X6 models from South Carolina in the first 11 months of 2011. Despite the higher volumes than some of the other brands, BMW said it does not expect the tariff to have a major impact, while Mercedes is waiting for the details to be finalised before making an assessment. We believe this is because premium brands are a status symbol among China's high-end consumers, and increased cost will not be a deterrent to buying. As we have said on previous occasions, BMI believes these measures are largely retaliatory and will not seriously affect trade volumes. Indeed, this latest policy follows the WTO's ruling a year earlier in favour of the US, which imposed a tariff on Chinese imported tyres. This in turn came on the back of news that China was leading an 'anti-dumping investigation into the practices of the US 'Big Three' (GM, Chrysler and Ford Motor), which was itself a follow-up to a complaint brought against China by the US, EU and Canada in 2006, claiming that new tariffs discriminated against imported foreign auto parts. 6 Dec-07 May-08 Oct-08 Mar-09 Aug-09 Jan-10 Jan-05 Jun-05 Nov-05 Apr-06 Sep-06 Feb-07 Jul-07 Jun-10 Nov-10 Apr-11 Sep-11 Feb-12 Jul-12 Dec-12 -50,000 IndIA Asia Pacific Automotives india India Offers New Opportunities For Parts Makers Under Agreement A comprehensive economic partnership agreement (CEPA) between India and Canada would allow Canadian companies to access the Indian automotive component segment, where tariffs are currently considered too high for doing business. The CEPA is expected to be concluded in 2013, by which time BMI expects India's vehicle sales growth to be back up to 10% after a recovery from the current slowdown. It is this much higher rate of growth in sales, coupled with the lower car density and rising production growth, relative to Canada, which is generating the interest in the Indian parts sector. However, the current import tariff on components is 7.5%, which Canada's high commissioner to India, Stewart Beck, describes as 'very high'. He added that the fourth round of negotiations between the two countries Too Good To Pass Up Indian Component Segment Turnover And Growth 45 40 35 30 25 20 15 10 5 0 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 While there are clearly risks to sustained growth in these regions, in the short term at least, this has not stopped suppliers from investing in India. According to ACMA, investment in component production capacity was around US$2-2.5bn in the last financial year and the association expects this to rise to US$3bn in the current financial year ending March 2012. ACMA's president, Srivats Ram, says this is because of the time taken to get such projects onstream, meaning companies are preparing 'for the next phase of growth'. Honda Gears Up To Take On Former Partner As Bike Sales Soar After splitting from Hero Moto Corp in 2011, Honda Motorcycle and Scooter India (HMSI) has laid out its strategy for replacing its former partner as market leader by 2020. The traditionally strong Indian two-wheeler market, which has easily outperformed its four-wheel counterpart in the testing economic conditions of the financial year-to-date, has prompted the Honda Motor subsidiary The Two-Wheeled Advantage Indian Vehicle Sales Growth By Segment Apr-Nov 2011 (% chg y-o-y) 40 35 30 25 20 15 10 5 0 25 20 15 10 5 0 -5 Twowheelers Turnover (US$bn) (LHS) Grow th rate (%) (RHS) Source: ACMA Source: SIAM is scheduled for February, with an agreement expected in 2013. If the agreement is finalised, the two sides expect bilateral trade to treble by 2015. In 2010, total trade between the two countries was valued at US$4.5bn, which is expected to rise to US$15bn under the CEPA. In terms of the Indian component segment itself, turnover is expected to rise from US$39.9bn in FY2010-11 (ended March 2011) to US$66.3bn by FY2015-16. This is a high-growth market for any company to target, particularly those looking to diversify from much slower growth in North America. BMI identifies Magna International as one such Canadian firm expanding in Asia. Indeed, the company already supplies parts to Indian customers and its subsidiary Cosma Magna already announced in December 2011 that it would build a plant near Pune, thereby avoiding the high import tariffs. Magna also formed a partnership with local firm Hero Motor in 2010 to produce drivetrains. As India grows into its role as a global production and sourcing hub, it is not just domestic vehicle sales that will carry the component sector and make it attractive to overseas investors. In the year ending March 2011, turnover from component exports grew 54%, to US$5.2bn, which the Automotive Component Manufacturers Association of India (ACMA) attributed to a recovery in demand in its key overseas markets of North America, Western Europe and Asia. to announce investment of INR10bn (US$189.5mn) for FY2012-13 (starting April 2012). With plans to double its annual production capacity over the next two years, HMSI announced a third plant is to open in Karnataka. This will complement existing facilities in Manesar and Tapukara, as the company looks to take its annual capacity up from 2.2mn units to 4mn within two years. If achieved, this would give HMSI a 22% share of the country's total motorcycle production, based on BMI forecasts for FY13-14. By 2020, HMSI aims to claim the lead of the Indian motorcycle market, doubling its market share to 30%. It also plans to increase its production capacity further to reach 10mn units by the same year. The extra output will be supported by an expansion of the company's dealership network. This will begin with an increase from the current 1,200 outlets to 1,500 by the end of the year. Product mix will also play a role, starting with seven new models to be rolled out over the first five months of the year. The majority of the new launches are in the smaller mass volume segment, which BMI considers a strategic move given that consumers who cannot afford a car owing to the increased purchase and running costs are turning to two-wheelers as a cheaper alternative. It is also an area Commercial Vehicles Passenger Cars Utility Vehicles Vans 7 IndIA Asia Pacific Automotives where Hero is particularly strong. In April, HMSI will launch the CBR150R, a new 150cc bike costing less than INR120,000 (US$2,275). It will be followed by the smaller 110cc Dream Yuga in May, along with updates of the existing CBR250R bike, CB Shine 125cc bike and DIO Scooter. Data suggests that the shift towards two-wheelers rather than cars makes the choice of new launches logical. In the first eight months of the current financial year (April to November) sales of motorcycles and scooters grew 14.87% year-on-year (y-o-y) and 23.4% y-o-y respectively, compared with a 3.5% decline in sales of passenger cars. This is in line with BMI's forecast for two-wheelers to achieve record sales of 13.9mn units in the year ending March 2012. However, in line with BMI's view on premiumisation in leading emerging markets, it is not just the mass segment deserving of attention. The arrival of Harley-Davidson, complete with a domestic production plant, and its recent launch of two new premium bikes, is evidence of the growing demand for high-end motorcycles for leisure riding rather than as a necessary form of transport. That said, the iconic US firm is still aware that this is an emerging market and is using the advantage of domestic production to shave INR400,000 (US$7,580) off the usual price for its new FXDB Street Bob and FXDC Street Glide. Such is the demand at the higher end of the two-wheeler market that Harley now produces five of its 15 Indian products at its local plant. HMSI's assault on the larger bike segment will come in the form of the VT1300CX and CBR1000RR models, which will go on sale later in January. The major obstacle to Honda's plans is that Hero has its own growth strategy following the split. Hero, which expects growth of 27% y-o-y in the year ending March 2012, has announced plans to increase the capacity of its motorcycle plants from 5.4mn to 7mn units by March 2012, as well as adding a fourth plant to be ready by 2013. This will keep it ahead of Honda in capacity terms and it has also enjoyed a massive advantage during the downturn, owing to its product range. Hero has one of the best-selling models on the market with the 100cc Splendor, which sells for around INR100,000 (US$1,895) less than Tata Motors' Nano, dubbed the 'world's cheapest car' but still overpriced for many in the current climate. Figo, which is also built in India for export, it is following the changing trends in consumer preference. As soaring interest rates have pushed up the cost of buying even the cheapest of small cars, sales have dropped. Passenger car sales for the first eight months of the current financial year (April to November) fell 3.5% yearon-year (y-o-y), while SUV sales rose 11% in the same period. Not only are those consumers who are able to afford bigger and more high-end vehicles less impacted by rising costs, but the ranks of such buyers are swelling. Joe Hinrichs, president of Ford Asia Pacific and Africa, said, 'As the customers' incomes grow, they want to upgrade to a bigger car.' As BMI's Asia team expects India's GDP per capita to double between 2011 and 2016, we believe there is potential for this trend to be sustained. Indeed, Ford is not alone in unveiling a new SUV at the New Delhi show. Maruti Suzuki, which is the country's leading passenger car maker and has suffered as a result of its exposure to the segment in the financial year-to-date, showcased its XA Alpha compact SUV concept. The company's head of sales echoed Ford's sentiment saying that 'when customers move up the value chain, they want to move from a small car to a small SUV'. This plays perfectly into the hands of utility vehicle specialist Mahindra and Mahindra, which acquired South Korean SUV producer Ssangyong Motor in 2010. Mahindra had already planned to introduce Ssangyong's models to the country as a feature of the acquisition. Automotive division president Pawan Goenka referred to India's 'rapidly growing SUV market' back Bigger Is Better Indian Vehicle Sales Growth By Segment Apr-Nov 2011 (% chg y-o-y) 25 20 15 10 5 0 -5 Twowheelers Ford Upsizes In Line With Buying Patterns US carmaker Ford Motor is targeting India's growing market for SUVs with the new EcoSport compact SUV, unveiled at the New Delhi auto show. Although the model is one of eight global models set to be introduced to Ford India's locally produced range by the middle of the decade, and will be sold in 100 markets, it is also a strategic move for the Indian market, where small car sales are declining rapidly, while larger vehicles are faring much better. While this is largely a side-effect of rising car ownership costs in India, it also fits with our core view on premiumisation in emerging markets. Ford has committed US$142mn to its Chennai plant for production of the EcoSport, which will be launched later in the year. The plant's capacity will be held at 200,000 units per year, but the money will fund new tools and equipment related to the model's production. Ford has already signalled its confidence in India's long-term prospects with a US$1bn investment in a second plant in Sanand. Although much of the company's investment in the country to date has been directed towards its smaller cars, such as the Source: SIAM in mid-2010. The Rexton and Korando will be launched in India later in the year, following the success of Mahindra's own model, the XUV500, which attracted 8,000 orders in the 10 days after its launch in October 2011. For Ford, the EcoSport is also part of its wider plan to bring 50 new vehicles and powertrains to Asia and Africa by the middle of the decade. India will play a key role, taking on eight global models of which the EcoSport is the second. Ford revealed in April 2011 that new model launches specific to India also feature heavily in its plans for growth. The carmaker currently has a market share of less than 3% in India, which it is looking to improve on. Achieving this would be central to its goal of Asia and Africa sales accounting for over 30% of its global total by 2020. 8 Commercial Vehicles Passenger Cars Utility Vehicles Vans IndonesIA Asia Pacific Automotives indonesia Would A National Car Bring Progress Or Protectionism? The news that Indonesian students have developed a 'national car' has prompted the government to support a push for a domestic vehicle production industry. As South East Asia's largest passenger car market and with considerable growth potential, which has attracted major international brands to invest, it seems a logical step to have a national brand. However, BMI questions whether this would lead to the kind of protectionism seen in neighbouring Malaysia in the past, which has actually helped Indonesia to win investment in recent years as a more welcoming alternative. Students at a vocational high school in Solo have developed a 1.5-litre SUV, named the Kiat Esemka Rajawali, as well as the Bima pick-up truck, powered by a specially adapted engine from South Korea's Kia Motors. Teacher Budi Martono said that 80% of the parts are locally sourced, including the chassis and many interior parts. The high level of local content has contributed to a relatively low price for the vehicles, at IDR95mn (US$10,500) for the SUV and IDR75mn (US$8,200) for the pick-up. Ratings Back Investment Inflows Industry Indicators From BMI's Autos Risk/Reward Ratings Industry Rew ards Industry Risks 80 70 60 50 40 30 20 10 0 Thailand Indonesia Philippines Malaysia There have already been signs that the industry could be heading down this path. In December 2011, the government revealed it would supply low-cost cars to farmers from 2012, in line with BMI's core view that rural demand will be a key driver of autos growth in emerging markets. However, there are no opportunities for the market's leading brands to capitalise on this rural push as no foreign investment will be allowed. Designed by the Industry Ministry, the car will be produced by state-owned PT Inka and will cost around IDR60mn (US$6,550). The government will buy up all of the cars for distribution, which according to Industry Minister Muhammad Hidayat is part of the state's 'pro-people' policies. On the positive side, we believe Indonesia's auto sector is already more developed than Malaysia's was when it restricted foreign participation. Indonesia has welcomed the leading overseas brands and its annual output is already higher than Malaysia's. Indeed, according to BMI forecasts, it will take Malaysia another two years to achieve the same annual production as that recorded by Indonesia in 2010. This perhaps puts the sector in a better position to accommodate both international and domestic brands, providing one is not sacrificed for the other. Rural Demand Targeted But Foreign Brands Lose Out BMI's core view that rural demand will be a key driver of autos growth in emerging markets has been echoed by the Indonesian government, which will supply low-cost cars to farmers from 2012. As well as providing access to car ownership for rural consumers, the project will also generate business for the domestic production industry, as the majority of content will be locally sourced. However, there are no opportunities for the market's leading brands to capitalise on this rural push as no foreign investment will be allowed. Designed by the Industry Ministry, the car will be produced by state-owned PT Inka and will cost around IDR60mn (US$6,550). It will be a compact car with a 0.7-litre engine and around 70% of the components will be sourced from local suppliers. The government will buy up all of the cars for distribution, which according to Industry Minister Muhammad Hidayat, is part of the state's 'propeople' policies. BMI's Asia team points out that there is an increasingly uneven income distribution in Indonesia, despite the GDP per capita of more than US$2,000. The car scheme could be a measure to address this, while also providing work for the domestic industry, which should feed back into the wider economy. Our Asia team sees continued Domestic Demand Remains The Key Indonesia - Contribution To Real GDP Growth, pp 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 -1.0 2011f 2012f 2013f 2014f 2015f 2016f 2017f 2018f 2019f 2020f Source: BMI; scores out of 100, risks are based on higher score for lower risk The reasonable prices have already piqued the interest of the public, with the Jakarta Globe reporting that 'hundreds of potential buyers' have been in touch with the school about the vehicles. However, the models still have to pass a number of tests required to become road-going vehicles, while Budi said the project also needs 'substantial financial backing'. Here there is some confusion as to whether this will come from the public or private sector. House Speaker Marzuki Alie has been quoted as saying 'we can't allow such a project to be run by private firms', while State Enterprises Minister Dahlan Iskan said he expected the private sector to take charge. BMI believes that state involvement, while positive in terms of ensuring the project gets up and running, could end up being detrimental to the industry's chances of foreign investment. For many years, Malaysia had protectionist policies in place to ensure national brands Proton and Perodua stayed ahead of the market. As a result, large international brands were deterred from investing in local production, making Malaysia's production industry uncompetitive compared with its neighbouring rivals such as Indonesia and Thailand, which attracted the foreign brands with more investorfriendly policies. Private consumption Gross domestic fixed-capital investment Net Exports Source: BMI Government consumption Changes in stocks 9 ThAIlAnd Asia Pacific Automotives wage growth and an improving employment outlook (we forecast that unemployment will fall from 6.6% at the end of 2011 to 6.2% at the end of 2012) supporting the Indonesian consumer story in 2012, even as external conditions falter. This creates a virtuous cycle for the economy, wherein increasing consumer demand leads to increased production, improving the employment and wage growth outlook, which then feeds back into the strong consumer story. It does remove an area of significant potential growth for major international brands, however, some of which have already implemented rural-oriented strategies (and investment) in other Asian countries. India stands out as a market attracting investment to cater to its rural segment, with companies such as Hyundai Motor, General Motors Company and Tata Motors all rolling out dedicated products or divisions for the target market. In July 2011, Toyota Motor announced it is investing in the expansion of its production capacity in Thailand to accommodate growing demand for pick-up trucks, which the company says is largely fuelled by demand from the agricultural sector. It is unlikely that the government's project will deter investors from Indonesia. It is still the region's largest passenger car market with vast untapped potential, given its relatively low vehicle ownership rate of less than 60 vehicles per 1,000 people. There are also still opportunities within the rural segment for consumers in need of larger vehicles, or different vehicle types. If anything, the project only highlights the demand that exists if the right price point can be found. THailand Legal Settlement Frees Up Volvo To Expand Market Share Sweden's Volvo Group will be able to build on its share of the Thai truck market through the UD brand, after settling a legal dispute with licensee Tan Chong International. Volvo will now invest around THB3bn (US$2.59mn) to expand the brand and take over domestic production operations, as it looks to regain UD's former market share of around 15%. Volvo acquired the UD unit as part of the deal which saw it take over Nissan Diesel Motor (NDM) in 2007. Tan Chong had been the authorised assembler and distributor for UD trucks since 2002 and accused Volvo of violating certain terms of its agreement with NDM from that year. Legal proceedings were put in place and an Commercial Vehicles Focus Volvo Group Revenue By Division (SEKmn), H111 Others, 11,126 Buses, 10,452 agreement reached in September 2011, which requires Volvo to pay Tan Chong a settlement. Volvo Group Thailand took over management of UD on December 1 2011 and Volvo will begin local production of UD trucks in 2013 when its Thai Swedish Assembly plant has been expanded to accommodate the additional brand. Under the terms of the settlement, Tan Chong will assemble UD trucks until Volvo is in a position to take over in 2013, with the first batch of Euro 3 compliant trucks due out in March or April 2012. According to Volvo Group Thailand's president Christophe Martin, UD used to hold a 15% share of the heavy-duty truck market in Thailand. He believes this can be regained within three years with the heavy-duty segment expected to grow 27% over the same timeframe. BMI's data for heavy trucks include a wider weight range, but we share the view that the wider heavy truck market will grow 10-11% on average over the next four years. Volvo's investment will be shared between its production operations and the sales and servicing network. Some THB2bn will go towards expanding the number of dealers and workshops from six to 15 by 2012 to incorporate the UD brand. The remaining THB1bn will be spent on expanding the TSA plant's annual production capacity to 20,000 units by 2013, of which UD trucks will account for around 85%. BMI believes increased exposure to growing emerging markets will be vital to Volvo Group maintaining its healthy financial performance. A strong recovery in truck demand in the key European and North American markets helped Volvo Group post an impressive 18% year-on-year (y-o-y) increase in its net sales, to SEK150.5bn (US$23.9bn), in H111. However, we have a more bearish view of European truck sales in particular heading into 2012, making its expansion in other markets all the more important for its longer term performance. PHiliPPines Auto Sector Can Bounce Back But Policy Is Still Crucial Vehicle sales in the Philippines fell 4% year-on-year (y-o-y) in 2011, as natural disasters in the region created a domino effect, which lasted throughout the last three quarters of the year. The upside to this, is that pent-up demand should generate strong growth in 2012, forecast by BMI to reach 10.7%, as parts and vehicle supplies to the country return to normal. However, as well as taking their toll on sales, the earthquake and tsunami in Japan and the flooding in Thailand underlined the need for the domestic industry to be better developed, which can only be achieved through the introduction of strategic industry policies. After posting growth of 8% y-o-y in Q111, sales were hampered by the Japanese disaster in March, which limited supplies of parts and vehicles to the country. By the end of H111, sales had slipped into negative territory, down 1.6%, and continued to spiral as flooding in Thailand once again held back supplies. Although many carmakers in Japan and Thailand are now back to their regular production schedule, sales for December 2011 were still down 24.5% y-o-y and 14.2% lower than November. According to data from the Chamber of Automotive Manufacturers of the Philippines Inc (CAMPI) total sales ended the year at 141,616 units compared with 147,488 units in 2010 (excluding Hyundai Asia Resources, which left the association in 2011). Construction Equipment, 33,279 Trucks, 95,682 Source: Company Investor Relations 10 AusTrAlIA Asia Pacific Automotives A smaller decline in commercial vehicle sales relative to the passenger car market eased the situation, as the segment accounts for almost two-thirds of total sales. Commercial vehicle sales ended the year down 2% at 96,754 units from 98,749 units in 2010, while car sales fell 8% to 44,862 units from 48,739 the year before. This could be because commercial vehicle manufacturers and their parts suppliers were reportedly less affected by the Japanese disaster due to their location. For domestic vehicles and parts manufacturers, however, the situation is further evidence that a better developed, more self-sufficient industry would have been in a better position to cope. BMI has long held the view that a lack of clear industry policy is holding the sector back compared with its regional peers (see 'Congress Vehicle Development Bill Could Be Too Little Too Late', September 29 2011) and the disasters in Japan and Thailand have been cited by the industry as an opportunity for domestic players to fill the void left by imports. Double Whammy Philippines New Vehicle Sales By Month (CBUs) 18,000 16,000 14,000 12,000 Japanese earthquake and tsunami 10,000 Thai flood begins 8,000 6,000 4,000 2010 2011 Feb Jan Jun Jul Mar Oct Nov May Aug Dec Sep Apr Small Is Now Big Australian Passenger Vehicle Sales By Sub-Segment 2011 (CBUs) 2010 2011 300,000 250,000 200,000 150,000 100,000 50,000 0 Large SUVs Source: FCAI 2,000 0 Source: CAMPI The Philippines Automotive Competitiveness Council, which was formed in 2009 to support the industry and improve its competitiveness, has called on the government to come up with a strategy to improve economies of scale in local manufacturing and help the industry claim a larger share of the ASEAN market by 2015. Feliciano Torres, chairman of the council, said the industry is 'both viable and sustainable' but added 'realistic strategy can take it to the next level'. Delays in implementing the latest Comprehensive Motor Vehicle Development Program, however, mean that any growth in 2012 is likely to be in favour of importers. The Association of Vehicle Importers and Distributors expects importers to increase their share of total sales from 15% in 2011 to 20% in 2012. ausTRalia Ford Secures Short-Term Future While Industry Needs A LongTerm Fix The North American International Auto Show in Detroit has already thrown up a mixed bag of news for the Australian autos industry. While Ford Motor has allocated investment of US$103mn to upgrading two of its models produced in Victoria, BMI be- lieves the ongoing discussions between Australian representatives and General Motors Company (GM) suggest that the government still has much to do in terms of convincing carmakers that the domestic industry is sustainable and worth investing in. Indeed, reports indicate that GM has mentioned closing its Elizabeth-based Holden facilities as an option. The central issue for both carmakers is that they focus on a declining segmentlarge sedans. While this was historically one of the best-selling market segments, sales fell 21% year-on-year (y-o-y) in 2011 and accounted for just 7% of the total market. In contrast, sales of small cars rose 2.1%, outperforming the total market's contraction of 2.6%. For GM, the shift was made even more apparent when its Commodore large sedan lost its 15-year title as the country's bestselling model to the Mazda3 small car. How to address the change in consumer preference is key to future plans for the domestic production industry, of which Ford and GM now account for two-thirds after the withdrawal of Mitsubishi Motors in 2008. The remaining producer, Toyota Motor, has already made positive assurances to its Australian unit that it will maintain a production presence in the country, underlined by the launch of the most recent Camry sedan. With Ford now also locked down for the next generation of its Falcon and Territory models to be launched in 2014, securing GM's interest is vital. Ford's approach to the demise of large car sales is to try and change perceptions of the segment by giving the consumer what they are now looking for in a car, which according to Ford Australia's head Bob Graziano is 'fuel efficiency, design excellence and features that enhance safety'. To that end, Ford's US$103mn will be spent on improving the fuel efficiency of the two models through technologies such as better aerodynamics, low-rolling-resistance tyres and a new six-speed automatic transmission. Details of safety improvements have not been revealed. GM may take a different approach altogether if it wins the investment assistance it is looking for to stay in the country. It has hinted that its VF Commodore could be the last domestically produced rear-wheel-drive large sedan when it is launched in 2014. There will be two models produced at the plant if the project goes ahead, as adding the Australian-designed Cruze to the plant's output alongside the Commodore increased output and enabled the plant to stay open. The only indication of what the models could be is Holden chairman Mike Devereux's comment that Holden wants to build cars for mass vehicle segments. Based on industry sales in 2011, this would be small cars and SUVs. Ford has already targeted the smaller end of the market with news that it will design a successor to the popular Medium Small 11 JAPAn Asia Pacific Automotives Ford Figo in Australia, although it will be built in India and imported. Nevertheless, this highlights an important aspect of the Australian industry which the government is keen to preserve. As well as being one of only 13 countries in the world to mass produce vehicles, it is also an important design centre. Ford's design team members in Australia have become what the carmaker's global product development chief Derrick Kuzak calls the 'go-to-guys' for low-cost volume models, while GM's Australian designers came up with the Cruze, which has spearheaded the carmaker's move towards smaller models in its portfolio since its reorganisation. Keen to retain the services of the two US majors, the federal government will contribute US$34mn from the existing New Car Plan to Ford's project, with the Victorian state government set to make its own injection. There are no details as to how much assistance GM is looking to secure, but federal manufacturing minister Kim Carr has said funds would be available from the car industry transformation fund, carbon tax compensation fund and research and development assistance grants. There could, however, be a deterrent to producing smaller cars. BMI has previously pointed out that models in the most populated vehicle segments are most likely to be imported, particularly since the introduction of a new carbon tax on the country's most polluting manufacturing industries. Although there are now only three carmakers producing in Australia, raising output to the kind of levels required for this segment would become even more costly in relation to the selling price as a result of the tax. It is measures such as this, and the withdrawal of the Green Car Innovation Fund, which have caused carmakers to consider their future in what is becoming an increasingly difficult operating environment for carmakers. They have also been hit by a strong Australian dollar, which is chipping away at profit margins on exports. This is perhaps why Devereux says any new GM models will need to be able to survive on domestic sales alone, pointing even more towards a shift in size. needed to ensure an outlet for production if the national industry is to thrive. JAMA's view that domestic sales need a further boost is supported by BMI's forecasts, which project just 7% growth in total vehicle sales in 2012, despite the pent-up replacement demand resulting from the natural disasters in Japan and Thailand, which disrupted production. JAMA has argued for a number of years that the government no longer uses the two taxes for road maintenance, but channels the money for other purposes. For this reason, it believes the taxes are no longer needed and has been lobbying the government for their removal. JAMA also claims that the government's own projections show an increase in annual vehicle sales of 920,000 units if the taxes were removed. If this were applied to BMI's forecast for 2012, total vehicle sales would return to 2007 levels of 5.3mn units. Sales dipped below 5mn units for the first time in 2009 and not have recovered since, owing to a combination of the global financial crisis, the saturated nature of the market and rising cost of ownership. Without additional stimulus, BMI does not envisage total sales volumes returning to 5mn until 2016 and even that would require higher growth rates than have been seen since the 1990s. JAMA's argument is not just about protecting sales, however. The country's carmakers are keen to keep a certain level of production at home to support the industry, but as the sustained strength of the yen is eroding the competitiveness of their exports, they are being forced to move more production overseas. According to Honda Motor's CEO Takanobu Ito, the company is looking to reduce its exports as a share of total output from around 25% to between 10% and 20%, 'even while the Japanese market is shrinking'. If all of the national carmakers take a similar stance, it would have serious implications for domestic production. In the meantime, the government has not alluded to any move on the two taxes, while the proposed new measures still need to be approved in parliament in 2012. Taxing Times Japan Total Vehicle Sales Forecast With And Without Effect Of Taxes (CBUs) 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 Actual BMI forecast With taxes removed from 2012 onw ard 2011f 2012f 2013f 2014f 2015f 2016f JaPan More Help Needed To Improve Domestic Sales The Japanese government has introduced measures to stimulate domestic vehicle sales in the wake of the earthquake and tsunami in March 2011. A three-year extension on tax incentives for the purchase of fuel-efficient vehicles, originally intended to expire in March 2012, has been proposed, along with a brand new subsidy scheme and a reduction in the vehicle weight tax. However, the Japan Automobile Manufacturers Association (JAMA) has been calling for the complete withdrawal of the vehicle weight tax and acquisition tax to reduce the cost of buying a car and increase domestic sales. The association believes there are no longer grounds for the two taxes and as carmakers look to cut back on expensive exports from Japan, increased domestic sales are 1,000,000 0 Source: BMI forecast Analyst: Anna-Marie Baisden Sub-Editor: Benjamin Cevik Subscriptions Manager: Nuria Bernardez Production: Duane Rogers Publishers: Richard Londesborough/Jonathan Feroze 2012 Business Monitor International. All rights reserved. All information, analysis, forecasts and data provided by Business Monitor International Ltd is for the exclusive use of subscribing persons or organisations (including those using the service on a trial basis). All such content is copyrighted in the name of Business Monitor International, and as such no part of this content may be reproduced, repackaged, copied or redistributed without the express consent of Business Monitor International Ltd. All content, including forecasts, analysis and opinion, has been based on information and sources believed to be accurate and reliable at the time of publishing. Business Monitor International Ltd makes no representation of warranty of any kind as to the accuracy or completeness of any information provided, and accepts no liability whatsoever for any loss or damage resulting from opinion, errors, inaccuracies or omissions affecting any part of the content. 12 ...
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This note was uploaded on 02/06/2012 for the course ECON 101 taught by Professor Ruth during the Spring '11 term at École Normale Supérieure.

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