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MONDIAL DE L’AUTOMOBILE 2012 Bilan & défis de l’industrie automobile à l’horizon 2020

17 Septembre 2012

CONFERENCE DE PRESSE Remi Cornubert Marc Boilard

© Oliver Wyman

Oliver Wyman automotive team in Paris

Rémi Cornubert • Partner • Automotive practice leader in France

Marc Boilard • Associate partner • Automotive practice

28 avenue Victor Hugo 75116 Paris Phone: +33 1 45 02 33 95 Mobile: +33 6 07 37 84 27 remi.cornubert@oliverwyman.com

28, avenue Victor Hugo 75116 Paris Phone: +33 1 45 02 32 19 Mobile: +33 6 20 22 44 84 marc.boilard@oliverwyman.com

© OLIVER WYMAN

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Agenda

1 2 3 4
© OLIVER WYMAN

The 2008-09 crisis: where are we now ?
What’s next? Major trends until 2020

Consequences for the automotive players

Questions & Answers

2

Section 1 The 2008-09 crisis: where are we now ?

A Glance in the Rearview Mirror The automotive industry has been on a strong growth path for more than 100 years...
Global light vehicle production development In mn. units, light vehicles, 1900-2011
100
Growth

Comments • Despite several crises the automotive industry has been growing rapidly • Declining segments have been overcompensated by emerging segments and markets • Along with the migration to small vehicles has come a shift in regional focus, with Asia accounting for more than half of the global market in 2010 already • In spite of the long term continuous growth, the market is quite volatile and can create significant stress on a short-to-mid term basis

80

Financial crisis

?

Stability

60

Decline

40

Oil crisis Oil crisis I & II

20

World war II

0 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

Light vehicle s incl. vehicles under 6t Source: OICA, Ward's: World Motor Vehicle Data, Oliver Wyman analysis
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Outcome of 2009 Crisis – OEMs (1/3) The automotive industry has successfully overcome the crisis – some OEMs have managed to even improve operations and profitability…
Revenue development 2007-2011 Index, inflation-adjusted, 2007 = 100, selected OEMs1
200 180 160 140 Revenue 120 100 80 60 40 2007 2008 2009 2010 • The consequences of the financial crisis were already clearly noticeable in 2008, especially in Japan and the US • Since 2009 the OEMs’ revenues have been increasing and have nearly recovered pre-crisis level • OEMs from South Korea and China are highly successful in developing markets and were therefore not hit by the crisis • Overall, a small decrease in profitability can be observed in developed markets (Europe, Japan). Chinese and South Korean OEMs realize significantly higher margins • In Europe, the mass market is declining while the premium segments progress • Most of the global automotive OEMs have managed to overcome the crisis within a few years
Already before the crisis regionally differentiated revenue development 09/2008: Lehman bankruptcy

EBIT-margin 2007 vs. 2010 In % selected OEMs1 by region
10.1% 7.7%7.6% 7.9% 5.1% 5.2%

Impact restructuring GM, Ford

9.6% 9.0%

7.6%

+22% +20%
2007 2010 2007 2010 2007 2010 2007 2010

1.5%
2007 2010

+17% +17% +6%
In 2011 the Tsunami’s aftermath heavily affected Japanese automotive industry

2011

x%

Change 2010 vs. 2009

Indicative trend

1. Representative OEM sample per region Source: Factiva, Thomson Financial, company reports, Oliver Wyman analysis
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Outcome of 2009 Crisis – OEMs (2/3) The evolution of OEM’s production over the last years clearly shows contrasted performance
Light vehicles production for a sample of groups Production in vehicles, Base 100 (2009-2011)
150

‘09-’12 Cumulated growth rate Best performers: +30 - 40%

140

130

120

Average performers: +20 - 26%

110

100

Low performers: <+15%

90

80 2009

2010

2011

2012F

Source: J.D Power, Global Car & Truck Forecasting, Global Light Vehicle Production (Q2 2012) ; Oliver Wyman Analysis
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Outcome of 2009 Crisis – OEMs (3/3) Overcapacity management remains a challenge, especially in Europe
Global vehicle production capacities Comments

• The utilization rate fell significantly in Europe, reaching 66% in 2009
Free capacity
17% 26% 44% 55% 26% 29%

• Even if the over-capacity fell back to 26% in 2011, the trend is negative for 2012 with a declining market and no significant downsizing of production capacity so far • In the US, over-capacity reached the highwater-mark of 55% in 2009 but utilization was already back to 71% in 2011 thanks to restructuring and went up to 86% in Q1 2012

Utilized capacity

83% 74% 66% 45% 74% 71%

2007

2009

2011

2007

2009

2011

• Utilization rates in Europe and in US went very low during the crisis and restructuring seems to be the only way to recover profitability

Source: AlixPartners Automotive Global Outlook, WardsAuto
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Outcome of 2009 Crisis – Impact in Europe The market has declined in all major European countries, especially in Italy and Spain

Light vehicles production in Western Europe Index, 2009 = 100
120

110

100

• Italy and Spain are suffering a severe decline
• France saw a slight growth in 2010 thanks to the scrappage scheme but is now enduring the after-effects of this policy • After an impressive fall in 2010, Germany is on its way to recovery • The market remained stable in the UK

90

80

70

60

50 2009

2010

2011

2012F

Source: J.D Power, Global Car & Truck Forecasting, Global Light Vehicle Production (Q2 2012) ; Oliver Wyman Analysis
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Outcome of 2009 Crisis – Impact on suppliers Some suppliers struggled significantly more than OEMs, but the supplier industry as a whole has almost recovered from the crisis
Revenue development 2007-2011 Index, inflation-adjusted, 2007 = 100, selected suppliers1
200 180 160 +28% 140 Revenue
2007 2010 2007 2010 2007 2010 2007 2010 2007 2010 09/2008: Lehman bankruptcy

EBIT-margin 2007 vs. 2010 In % selected suppliers1 by region
11.1% 8.2% 6.5% 7.0% 6.0% 5.9% 2.5% 5.8% 7.6% 6.6%

+24% 120 100 80 60 40 2007 x% 2008 2009 2010 2011 -8% +15% • With the exception of Japanese suppliers, revenues in the traditional markets have mostly recovered from the crisis’ impact
Overall, the consequences of the crisis were not yet sensible in 2008 view

+11%

In 2011 the Tsunami’s aftermath heavily affected Japanese automotive industry

• Especially in Japan, but also in the US and Europe, the profitability of suppliers decreased significantly • Japanese suppliers also suffered from the diversification of supplier panel initiated by OEMs • Particularly in China and South Korea, suppliers have realized a considerable increase in revenues and profitability

• Overall, regional development behaves relatively analogue between suppliers and OEMs. The USA represent the only exception, as the suppliers cannot fully participate in the OEM’s upturn 1. Oliver Wyman automotive supplier database. All data with regard to local currency and inflation-adjusted Change 2010 vs. 2009 Indicative trend
Source: Oliver Wyman supplier database, company reports, Oliver Wyman analysis
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Growth perspectives OEMs expect a production of 118M vehicles by 2019 (+5,8% p.a.), but market forecast is closer to 104M
Global light vehicles production by group Production in vehicles, in millions
120
105 100 119
Other

Cumulated Annual Growth Rate Actual (’09/‘12), Forecast (’12/’19)
‘09 – ‘10 24.6% 13.0% ‘10 –’11 0.8% (5.8%) 15.9% 10.1% (4.2%) (13.4%) 7.2% 6.7% 13.0% 9.7% 10.0% 14.7% ‘11 – ‘12 6.5% 12.5% 4.6% 0.2% (7.8%) 20.2% 3.2% 2.7% 6.2% 1.8% 2.4% 2.9% ‘12 – ’19 8.1% 4.0% 6.8% 6.9% 6.4% 5.0% 5.9% 5.0% 6.0% 4.5% 4.1% 5.0%

Millions

110

114

99
93 104

14.7% 12.8% 8.2% 4.9% 1.6% 9.6%

85
80 64 60 72 75 80

40

3.7% 19.8%

20

12.0% 11.7%

8.6%

(6.5%)
4.2%

19.0%
5.6%

3.2%
5.8%

-

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019 Total

13.3%

Toyota Group Renault-Nissan Group Fiat-Chrysler Group Daimler Group Other

Volkswagen Group Hyundai Group Honda Group BMW Group Sales Forecast

General Motors Group Ford Group PSA Group Mazda Motors

Source: J.D Power, Global Car & Truck Forecasting, Global Light Vehicle Production (Q2 2012) ; Polk Global Auto Forecast, Oliver Wyman Analysis
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Section 2 What’s next? Major trends until 2020

Main trends The automotive industry will be deeply impacted by a few major trends until 2020

A Environment
• Environmental regulation • Growing consciousness of sustainability

B Society / C Demography
• Shift of growth to emerging countries • Emergence of megacities • Aging, more active population • Increasing demand for mobility

Customer Demand

D Technology
• A more and more connected world • Electrification of powertrains • Lightweight challenge

• Shift towards premium and low cost segments • Increasing demand for safety • Individualization of demand • Increasingly “using instead of owning”

Source: Oliver Wyman
© Oliver Wyman

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A B C D

Environmental regulation Objectives of CO2 emission reduction have been set at European and international level for new vehicles, impacting the car industry and the mobility habits of populations

Context and objectives for the reduction of CO2 emission
European Green Book (towards a new culture of urban mobility) End of Kyoto protocol : -5% global CO2 Financial penalty Attribution of CO2/km objectives per constructor, to be reached in stages

CO2 emission Level

140 g CO2/km 120 g CO2/km 95 g CO2/km 70 g CO2/km

140 g CO2/km (voluntary engagement)

120 g CO2/km
95 g CO2/km

European objective: -20 to -30% CO2 Emission*

95 to 70 g CO2/km 2008 2009 2012 2015 2020 2025

2007

Calendar for the reduction of new vehicles average CO2 emission

Impact for automotive
Source: Le BIPE a 50 ans * Compared to 1990
© Oliver Wyman

• Shift to new drive technologies, including electric vehicles and new products, e.g. mobility services • Continued search for lightweight materials to minimize fuel consumption • Increasing share of R&D costs for OEMs

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A B C D

Growing consciousness of sustainability With the shift of customer requirements, the innovation focus will change from comfort and variety to strong environmental and cost efficiency improvements
Change in innovation focus1 Share of vehicle innovations by customer value, in %, multiple nomination possible, n = 2,551
100%

Comments • The innovation focus “environmental friendliness” and “cost efficiency” have increased significantly in the last years • The focus of technical innovation was on vehicle concept and body in 2006 (31% 2006 vs. 14% 2010), the focus today is dominated by innovations in vehicle drive train

75%

54% 50% 50% 42% 31% 25% 24% 18% 18% 18% 19% 14% 16% 8% 0% 2006 2010 2006 2010 2006 2010 Comfort 2006 2010 Safety 2006 2010 Performance 2006 2010 Variety

• The innovation focus of safety and performance has remained almost the same level in the past few years

Environmental Cost efficiency friendliness

Impact for automotive

• Refocus of R&D on environmental performance and cost efficiency • Safety remains a must

1. Approach: All innovations are evaluated based on customer value (innovation focus). Each innovation could address various customer value Source: Center of Automotive Management, Oliver Wyman analysis
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A B C D

Shift of growth to emerging countries A strong shift towards “emerging” markets will make Asia the dominating automotive region
World light vehicle production In mn. units
Western Europe
+3.0%

Eastern Europe and Russia
+4.0%
11,2 6,7

North America
+1.9%
18,8

China
+5.5%
2012 2025

14.0

17.8

12,8 2012

2025

Rest of Asia
+.5.5%
18,7

2012

2025

37,5

S. Korea & Japan
+0.9%

3,6

7,2
2012 2025

14,0 2012

15,7 2025

Global growth 2012 – 2025 CAGR: + 4% Weight of BRICS1 vs total market: • 2012: 42% • 2025: 53%

Africa
South America
+3.3%
4,5 2012 6,9 0,7 2012 2025 0,9 2025

2012

2025

India
+11.2%
15,5 3,9 2012 2025

+2.0%

RoW
+5.1%
2,0 3,8 2025

X.X%

CAGR (Compound Annual Growth Rate) Emerging markets Other

2012

Established markets

Impact for Automotive
© Oliver Wyman

• Global coverage required for OEMs to capture market growth • Increasing competition in emerging countries, also with new local players

Source: LMCA Q1/2012, Oliver Wyman Research and analysis 1Included here: South America, China, India, Eastern Europe and Russia

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A B C D

Emergence of Megacities In the future, a major share of the world population, especially in emerging markets, will be living in megacities
Example

Emergence of Megacities

Remarks
• In the future, a major share of the world population, especially in emerging markets, will be living in megacities • Megacities globally gain importance in absolute number and size, esp. in emerging markets

Los Angeles New York

Delhi Istanbul Kairo Karachi

Beijing Tientsin Dhaka

Tokyo

Osaka Shanghai Manila

Mexico Lagos

Kalkutta Mumbai

Sao Paulo Rio de Janeiro
Level of urbanization Population in cities (%) -10 >10 to 20 >20 to 30 >30 to 40 >40 to 50

Jakarta

• The share of the world population living in urban areas is constantly growing (47% in 2000, 53% in 2015) • Management of resources becomes key to prevent environmental collapse • The dominance of megacities requires innovative solutions for responsible resource management

Buenos Aires
>50 to 60 >60 to 70 >70 to 80 >80 to 90 >90 to 100 Megacities Population in year 1950 1975 2001 2015 City population (mn) 30 25 20 15 10

Impact for Automotive

• • • •

Demand for vehicles suited for city traffic, vehicle becomes a mobile lifestyle hub Introduction of emission based access permissions and / or street tolls Usage of public transportation systems as alternative, especially for weaker incomes Development of electric bikes and scooters
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Source: Department of Geography, Cologne University, UN, Oliver Wyman study
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A B C D

Aging, more active population The worldwide share of population >60 years old will significantly increase, leading to a large market segment with new, age-related requirements
Percentage of population > 60 years old of total population
34% 27% 24% 22% 21% 17% 14% 11% 9% 9% 5% 10% 24%

Remarks
• • According to the UN the aging of population is unprecedented, pervasive, and enduring Aging population in mature markets mainly benefits from social security coverage; however, decreasing ratio of working to retiring people increasingly is a financial burden Financial coverage of older population in emerging markets with higher uncertainty due to limited welfare Aging societies faced by lack of young, qualified workforce

25%

World

Europe

Northern America

Latin America

Asia

Oceania

Africa

2005

2050

The population gets older and – when affordable – will follow a more active lifestyle than in the past

Impact for Automotive

• In emerging markets growth of generation most likely to buy cars • Special requirements of “older” people in mature markets – In 2002, 25% of the new cars in Germany were sold to people > 60 years, whilst in 1992 these were only 14% – Need for new car designs to facilitate access and use – Mobility in the “third age1” is an important factor for social integration and an active lifestyle

1 Third Age = Time after retirement Source: UN, Shell PKW Studie 2004, OECD, Oliver Wyman study
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A B C D

Increasing demand for mobility Job-related traveling as well as increasing traveling in the spare time lead to higher demand for mobility
Example

Increasing demand for mobility
Passenger travel Germany until 2015 In mn. Passenger km
1 200 1 000

Remarks
CAGR 00-15

1130

800
600 400 200 0

926 43 77 75

1012 46 72 76

1036 55 74 76

73 98 86

1,3% 3,6% 1,6% 0,9%

• Growth in passenger travel driven by increasing job required mobility as well as increasing activities in spare time • Road vehicle traffic accounting for around 80% and growing stronger than public transportation • Specification automotive industry – High pressure on automotive mobility budgets, e.g. volatile oil prices, increasing taxes, tolls, etc. – However, vehicle stays the major means of transportation despite growing pressure on household mobility spending

731

818

831

873

1,2%

2000
Road vehicle traffic

2004

2008

2015
Rail travel Air travel

Road public transport

Passenger mobility will continue to rise, while the vehicle stays the major means of transportation

Impact for Automotive

• The car market will continue to grow in all geographies • Due to the pressure on automotive mobility budgets, low-cost and second-hand markets will grow

Source: VDA 2005, Oliver Wyman study
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A B C D

Polarization of Income Distribution Polarization of income distribution shifts demand structures toward Entry and Premium
“Loss of the middle” in mature markets
• Increasing polarization of income distribution • Losses in the medium-volume segment • Growth in premium, upper-middle class and fun segments • Growth of the low-cost segment and demand for specific low-cost models
Income Income

Automobile production by vehicle segments Worldwide, in %, 2006-2015
CAGR ‘06-’15

8%

9%

Premium

1,3%

71%

67%

Middle

-0,6%

21%
Households Households

24%

Entry

1,5%

2006

2015

Impact for Automotive

• Collapse in the middle for vehicle segments, simultaneously increase of premium, higher middle class and low cost segments (e.g. Dacia Logan); in some emerging markets growth of middle class • Polarized demand regarding automotive distribution channels, e.g. full service leasing vs. fast fit • Positive or negative impact on OEMs margin, depending on market positioning

Source: Oliver Wyman, Polk Marketing Systems
© Oliver Wyman

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A B C D

Shift towards of premium and low cost segments Dacia has been extremely successful since 2004 ; Entry level is expected to represent up 40% of total Renault Group Sales by 2013
Renault Group: Entry level sales and % of total sales 2004-2014
Dokker Lodgy

Annual sales (k units) Thousands

1400 Sandero 1200

Duster

1300 1200 1010

1000 Logan 800 600 400

814 685 510 367 259 174
15% 11% 7% 2005 2006 2007 2008
Entry Level

40% 36%

40%

532
26% 23%

30%

21%

200 0

96
4% 2004

2009

2010

2011

2012e

2013e

2014e

% of Group Sales

Source: Société Générale Cross Asset Reasearch Note: Figures encompass all entry level vehicles, whether branded as Dacia or Renault
© Oliver Wyman

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A B C D

Increasing Demand for safety Consumers’ & governments’ rising demand for safety is strongly present and continues being a major driver for automotive innovation, now shifting from passive to active safety
Increasing demand for safety
Food Safety Nuclear Safety Medical Safety

Remarks
• As basic consumer needs are satisfied, safety aspects are gaining importance • Higher performance and complexity supplied and required (globally increasing hazards e.g. terrorism, diseases, etc.) • Increase in consumer information, education • Specification automotive industry

Chemical Process Safety

Increasing demand for safety
Traffic Safety

Seismic Disaster Prevention

– Decrease of road fatalities as major objective (increasingly successful) – Focus on passive safety complemented by the increasing development of features for active safety – Introduction of obligatory rating tests regarding safety features

– Intensification of customers‘ upfront research on product offerings – growing importance of brand values and trusted third party sources

Impact for Automotive

• Safety remains a major innovation area , especially active security equipment • Need of a comprehensive and affordable safety package from entry level

Source: planetsave, tagesschau, Superfos, aiche, www.medizin.de, VDA, OECD, Oliver Wyman study
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A B C D

Individualization of demand …leading to an increasing complexity: the number of models offered by German premium OEMs has tripled in the last twenty years
Vehicle models # of models Example Number of models, 1990, 1999 and 2012
1990 1999 2012

23
X3

23 20

G Off-Road SL Roadster S-Class Coupé S-Class Lim. E-Class Coupé E-Class Kombi E-Class Lim. 190 Lim.

14 11 8 9

G Off-Road ML SUV V-Class MPV SL Roadster SLK Roadster CLK Cabrio CLK Coupé CL Coupé S-Class Lim. E-Class Kombi E-Class Lim. C-Class Kombi C-Class Lim. A-Class Lim.

7

7

Viano SLS Roadster SLS Coupé SLK-Klasse SL-Klasse S-Klasse R-Klasse M-Klasse GLK-Klasse GL-Klasse G-Klasse Cabrio G-Klasse E-Klasse Coupé E-Klasse Cabrio E-Klasse T-Modell E-Klasse Lim. CLS-Klasse CL-Klasse Coupé C-Klasse Coupé C-Klasse T-Modell C-Klasse Lim. B-Klasse Lim. A-Klasse Lim.

1990

1999

2012

8

14

23

Impact for Automotive
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• Higher diversity and complexity for OEMs • Increase of R&D modules to prevent development costs explosion
22

Source: Company information, Oliver Wyman Research

A B C D

Increasingly “using instead of owning” (1/2) The use of mobility services like car sharing is still limited today but should grow as owning a car is not anymore a symbol for younger generations
Overview car usage patterns 2011; in % of respondents; all sample countries
Use a company car for private use
3% 12%

Car usage patterns by geography 2011; in % of respondents; all sample countries
Use a company car for private use Own/lease private car

No car or drivers license

100% 90% No car but hold a driver license 80% 70% 60% No car, use 1% car sharing scheme 50% 40% Highest share among students, lowest among workers 30% 20% 10% 0%
26% 26% 44%

1%

2% 4%

4%

3%

43% 70% 3% 66% 57%

11%

6%

No car, use car sharing scheme No car but hold a driver license No car or drivers license

2% 1% 16% 16% 21% 14% 20%

26%

73%

23%

6%

Own/lease private car

Thereof share of hybrid / electric vehicles <2%

English Metro

French Metro

German Shanghai Singapore Metro

Impact for Automotive
© OLIVER WYMAN

• Need to take into account this new type of usage and new approach to mobility • Opportunities to develop new offers as the market for a “pay per use” model will emerge
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Source: Oliver Wyman / ESB research

A B C D

Increasingly “using instead of owning” (2/2) New operators emerge: the success of Autolib’ launched in Paris end of 2011, relies on a dense urban network of stations and user-friendly service
Both network density and subscribers made good progress but challenges remain Number of subscribers (actual and forecast) Number of cars (one year evolution)
80 000

User testimony In spite of some difficulties in the starting days, customer satisfaction is good

Others Premium1 Cars 32 000 20 000 3000

I experienced some technical issues at the beginning, but the system is now running pretty well

6 000 250 dec-11 febr-12 june-12 sept-12 dec-12 (Launch) 2018F

The opportunity to book a car or parking place directly on the iPhone app is a real breakthrough

Canadian Communauto bought Mobizen from Veolia Transdev and will offer an alternative car sharing solution in Paris
Source: Autolib’, Oliver Wyman 1 Annual subscription
© OLIVER WYMAN

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A B C D

Increasingly “using instead of owning” – Impact on business models Different industries start taking positions on the market for comprehensive mobility Illustrative services

Utility companies Travel and touristic companies
Car sharing Service / replacement car ... Lufthansa Sixt /Europcar

OEMS

Sixt flight Bookding

Rental car companies Infrastructure companies

Broker

Impact for Automotive
Source: Oliver Wyman
© OLIVER WYMAN

• Threat of new players entering the market, some of them leaders in their domain • Opportunities for diversification and partnerships
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A B C D

A more and more connected world (1/2) Driven by the rapid technology development, connectivity within different ecosystems is accelerated, forming a connected world in the near future
Connected products Connected systems Connected life

Past

Today

Future

Impact on vehicle usage transformation (selected examples)

Automotive as fastest growing connectivity platform by 2014
Source: Oliver Wyman
© OLIVER WYMAN

Digital explosion by more than 210 mn. connected cars till 2016

Connected car app users fold 40 times from 3.2mn to 129 mn by 2016

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A B C D

A more and more connected world (2/2) The global number of cars with embedded or hybrid connectivity devices will rise to 210 million in 2016 – by then more than 80% of new vehicles sold are connected cars
Telematics market coverage Worldwide vehicle population, 2011-2016, in mn. units
CAGR 36% 210 18%

Telematics market revenue Worldwide market, 2011 – 2016, in bn. USD
CAGR 22% $40 bn.

Comments • Number of Connected Cars forecasted to grow strongly at ~36% p.a yielding 210 million in 2016 • Shipments of OEM telematics systems grow from ~26 mn. in 2011 to 70 mn units in 2016 (CAGR 22%) • Aftermarket shipments of telematics systems rise from 8 to ~16 million units in 2016 (CAGR 15%)

$15 bn. 45 5%
2011 2016 2011 2016

• Overall market revenue will rise by only 22% p.a. to 40 billion USD in 2016 - due to increasing number of affordable non-embedded, hybrid solutions (e.g. Ford SYNC)

x%

% share of worldwide car fleet

Significant growth of telematics shipments and a global penetration of +80% in new vehicle sales
1 Telematics refers to embedded OEM and aftermarket systems (hardware plus included services) as well as hybrid systems based on smartphone connectivity Source: ABI Research, BCC Research, iSuppli, Oliver Wyman analysis
© Oliver Wyman

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A B C D

Electrification Powertrain electrification opens up a new and broad spectrum of alternative drive technologies, but with significant additional costs
A significant cost gap remains €30k +
Fuel Cell (Honda FCX Clarity) 100% savings > €30 000

Additional Cost

PHEV (Chevrolet Volt) 40 - 65% savings + €10 000-16 000

EV (Tesla Roadster) Up to 100% savings > €10 000

MHEV (Honda Insight) 10 - 20% savings + €1000-4000 ICE (Mercedes C-Class) 10 - 20% savings + €500-3000

HEV (Toyota Prius) 15 - 40% savings + €3000-6000

Fuel Savings

100%

Impact for Automotive
© Oliver Wyman

• Huge R&D efforts to develop HEV / EV powertrains ; partnership opportunities • HEV/EV powertrain cost reduction necessary until 2020 to increase target customer base and sales • Impossibility to develop all the powertrain solutions ; risks to miss the future winning technology
28

Source: Oliver Wyman expert interviews, TU Vienna, company information, press clippings

A B C D

Electrification – HEV Sales HEV market has taken off, not only in terms of sales but also in terms of model availability ; however, it remains very limited today
Hybrid vehicles sales worldwide In ‘000 vehicles, from 2004 to 2010
1000
900 800 700 600 500 500 400 300 200 100 0 2004 2005 2006 2007 2008 2009 2010 180 290 370 500 940

Comments • More than 4.5 million hybrid electric vehicles have been sold worldwide by the end of 2011 • Market leader is Toyota with more than 3.5 million Toyota and Lexus hybrids (77% of the total cumulated sales) • The United States is the leading hybrid market , followed by Japan and Europe • Cumulative HEV sales up to January 2012: – USA : 2,18 million units – Japan: 1,5 million units – Europe : 0,45 millions units • 9 443 units have been sold in France in 2010

CAGR : +31,8% /year

720

Worldwide sales (M units)
61,7 64,0 66,7 70,4 66,0 64,0 69,0

% HEV
(0,3%) (0,45%) (0,55%) (0,70%) (0,76%) (1,13%) (1,36%)

Sources : Hybrid and electric vehicle development, IFP, November 2011. Alternative Fuel Vehicles (AFVs) and Hybrid Electric Vehicles (HEVs): Trend of sales by HEV models from 19992010“, analyses Oliver Wyman
© OLIVER WYMAN

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Electrification – EV Sales Over 58,000 electrics cars and trucks were sold in 2011 – less than 0,08% of the market ; the Nissan Leaf, the Mitsubishi i-MiEV and the Chevrolet Volt are clear leaders
2011 World electric cars and trucks sales
Others

Think City 1500 REVA 3% 2000 3% Tesla Roadster 2000 3% • Launched in 2008 • 2 350 units sold2 by mid-2012

Smith EV 1200 2%

BYD eBus 3620 6% 1000 2%

Nissan Leaf 20000 34%
• Launched in Dec 2010 • 35 000 units sold1 by mid-2012

Chevy Volt 10000 17%
• Launched in Dec 2010 • ~16 000 units sold3 by mid-2012

Mitsubishi iMiEV 17000 29%

• Launched in July 2009 • 20 000 units manufactured 3 by mid2012

The Electric vehicles sold in 2011 represent less than 0,08% of Worldwide vehicles sales

1: By August 2012 - "Electric Leaf coming to PR in January". Caribbean Business. 2012-08-28 2: By June 2012 - "Tesla Hits Accelerator Despite Q2 Revenue Miss". Forbes. 2012-07-25 3: By June 2012 - Bernama Media. 2012-06-26 Source: USA Department of Energy, OW analysis
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A B C D

Lightweight challenge Weight reduction is a key topic for OEMs in order to achieve the 2020 CO2 target
Illustration: car weight evolution from 1970 and target until 2020 Segment M1 (average car) 1 350 Kg
Emission treatment systems Performance systems for better acceleration, handling & braking … Occupant safety like airbags, pretensioner… Infotainment & other electrical systems Comfort systems – Air conditionning, Seats

850 Kg
Car weight

Improved Noise, Vibration, Harness & handling Increase in vehicle dimension – Longer, Wider, Taller cars

Target

750 Kg

Delta weight target: 500kg (37%) Reference C segment car (Golf and equivalent)

Equivalence : 100kg ~ 0.5 l/100km ~ 10 g CO2/100km
1970 2000 2010 2020

Impact for Automotive
© Oliver Wyman

• Lightweight design is a priority for all OEMs, and is a revolution for OEMs R&D • All the vehicule modules are investigated to track potential weight reduction (interiors, body, …) • High strength steel, aluminium, and composite materials will gain importance
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Source: Usine Nouvelle, Ecoconception conference 2010

A B C D

Lightweight challenge – Example Peugeot reduced the weight of the 208 by more than 15% compared to the 207

Weight Peugeot 207 and 208 (Heaviest model)

Example of weight savings • Car structure: -25kg – Hollow pieces – Use of High Tensile Steel • Running Gear: -50kg – Size reduction of all pieces (e.g. damper) thanks to overall lower weight • Interior: -25kg – Lighter foam and structure for seats: -8kg – Soundproofing: -14kg

1 418kg
1 180kg

207

208

• Spare wheel replaced with reparation kit: -10kg • Engine: up to -25kg – New 3-cylinders engine

238 kg saved
© Oliver Wyman

Source: Usine Nouvelle, Automobile magazine Note: Weight savings depend on the model and motorization. Comparison based on: Peugeot 207 1.6 HDi 112 Allure and Peugeot 208 HDi 115 Allure

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A B C D

Lightweight challenge – Composites Composites can save up to 70% weight when substituted to steel components, but at a higher price
Comparison of material lightweight potential Reference for price and weight is regular steel
12x
Cost relative to Steel

Comments Orders of magnitude • Glass fiber composites (GFRP) are the cheapest composite and can save around 30% weight ; their relative performance vs cost position is in the same order of magnitude as aluminium and high strength steel • Carbon fiber composites (CFRP) are most weight effective, but much more expensive, from 3-4 times the price of steel (commercial grade), to 10 times the price of steel for aerospace applications

10x

60% 10.0 (Aero)

CFRP

8x

Titanium 50% 8.0

6x

4x

CFRP (Commercial)

2x
Stainless 10% 1.0 Steel Regular 0xSteel 0%

50% 3.0 Al matrix 55% composites 2.5
Magnesium 65% 2.0

30%High 1.5 GFRP 30% 1.3 Strength Steel

50% 1.7 Aluminum

Weight Reduction vs. Steel

20%

40%

60%

80%

Composites: Carbon Fiber Reinforced Plastics (CFRP), Glass Fiber Reinforced Plastics (GFRP)
Source: SAE, US Department of Energy
© Oliver Wyman

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A B C D

Lightweight challenge – Composites for structural parts Composite structural parts will not become mainstream before 2020, while semistructural parts1 could be widespread around 2015
Semi-structural Structural parts

Characteristics

• Parts or modules made by Tier 1 suppliers, assembled in the vehicle at the end of the assembly process • Bumper beams, Seat frames, hard tops, hatch • Mainly Glass fiber today • Mainly thermosets (Polyester & Epoxy) but some thermoplastic usage • Already used in some vehicles (mainly mainstream) but still limited • Ex: Land Rover Evoque (hatch)

• Parts from the body in white, made by OEMS, that go through paint shop and contribute to crash proof properties • Pillars, Floor panel, Cross car beam • Main Carbon fiber today • All thermoset • Mainly epoxy today • Limited to sport cars / “supercars” or electric vehicles • Ex: Formula1 racecars, Tesla Roadster, Bugatti Veyron, McLaren MP4-12C, BMW i3 (EV)

Example of parts Fiber Resin Current applications

Rationale of composites • Glass fiber composites can reduce vehicle weight usage with a relatively moderate cycle time, at reasonable cost • However, GFRP parts have been tested since many years (e.g. hatch Citroën DS, BX) without really managing to convince OEMs
Earliest time horizon for series vehicles
© OLIVER WYMAN

• In the supercar segment, CFRP’s long cycle time and high cost are compatible with a high selling price and small volumes

≈ 2015

≈ 2020
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1. Short Fiber composites are also very common in interiors parts for instance Source: JEC Composites, Expert Interviews, Oliver Wyman analysis

Section 3 Consequences for the automotive players

Evolving competitive landscape Although established OEMs have consolidated in the past, new entrants in emerging markets have led to an increasing number of players
Global OEM brands Absolute numbers, in defined regions
# of new/ abandoned brands South Korea Other BRIC1 129 5 7

Comments

155 4 8

Example of abandoned brands

14
-1 +3 +2 +1 +38 -4 -2

13
Example of new brands

Japan
US China

12 16 26

• Despite the strong financial and competitive pressure, OEM brands in the established markets have been consolidated only slightly over the last ten years • On the other hand, the number of OEM brands in emerging markets have increased significantly • Especially in China, where OEM brands have almost doubled, reflecting the growth momentum and indicating potential for consolidation in the near future

60
-4

Rest of World

31

+11 -16

26

Europe

32

+1

-3

30

2001
1 Brazil, India, Russia Note: Brands w/o reported production volume count as not existing Source: LMCA
© OLIVER WYMAN

2011

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Diversification of services and value shift The IT industry is an example of tremendous shift of Value…

Value migration: Example of IT industry market capitalization
$132BB
100%

$125BB

$469BB

$2,542BB

$1,907BB Google Cisco Service $52BB Internet $191BB Networking $196BB

80%

Percent total equity value

60%

Microsoft

Software $547BB

40%

Chips $467BB Intel

20%

Hardware $453BB IBM
0% 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Source: Thomson Datastream; All US public companies in Hardware, Semi Conductor, Software, IT Services, Internet & Selected Telcoms. Equip. ICB subcategories
© OLIVER WYMAN

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Diversification of services and value shift … We anticipate a similar shift in the automotive industry toward alternative sources of revenue
Value migration car mobility 1950 - 2025

E.g. repair, fuel, insurance Mobility services Services

Implications for OEM
Offering of new services Participation in growing and profitable markets Integration in existing offer Consistency with current brand world Establishment of environmental image Formation of cooperations with other parties One offer leveraging different mobility providers Sustained control of customer touch points

• • • • • • •

Operating costs Vehicle Usage fee Vehicle lease / Finance Vehicle

Vehicle purchase

Opportunities

• •
1950 2025

Decreasing market Loss of control of customer touch points Falling prices …

Threats

• •

Source: Oliver Wyman

Conclusion Agenda for automotive players
Major trends until 2020 • Strong growth in emerging countries • Painful restructuration necessary in Western Europe to tackle the over-capacity issue • Fast growing areas : A/B segments, low cost, premium • Explosion of the number of connected cars • Take off of the Hybrid vehicles market and slow emergence of Electric vehicles • Lightweight design as a key success factor for OEMs ; increasing importance of new materials like composites • Development of mobility services, shifting the value downstream, with emergence of new competitors Implications for automotive players

1
2 3

Ensure global market coverage

Address industrial overcapacity issues Focus the product offering on growing segments Invest in R&D to develop tomorrow’s key technologies: powertrain electrification, connectivity, lightweight Investigate the mobility services area

4 5

© Oliver Wyman

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Booth & Conferences at the Paris auto show Attend our conferences & Visit our booth (Hall 3 C332) to meet more of our experts and learn about our recent studies
CONFÉRENCES OLIVER WYMAN AU MONDIAL

28 SEPTEMBRE 2012 – SALLE 733B – CARINA, HALL 7, NIVEAU 3

14:00 - Informatique embarquée : Une révolution pour les équipementiers 15:00 - Mobilité du futur : Comment faire émerger de nouveaux usages ? 16:00 - Matériaux Composites 2020 : Futur incontournable dans l’auto ? 17:00 - Perspectives auto 2020 : Tendances et défis 17:30 - Voiture connectée : Quand la voiture devient Smartphone

© Oliver Wyman

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SAMPLE OF RECENT OLIVER WYMAN STUDIES IN AUTOMOTIVE CONTENTS ALONG THE ENTIRE VALUE CHAIN

CUSTOMER

R&D

PROCUREMENT / SUPPLIER

PRODUCTION

SALES

SERVICES

: AFTER SALES

Questions ?

© Oliver Wyman

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Appendix

RECENT OLIVER WYMAN STUDIES IN AUTOMOTIVE (2/7) CUSTOMER

Car Innovation 2015
The study identified five areas for action to improve innovation management: orienting R&D activities to customer needs and market developments, actively realigning the innovation portfolio, continuously improving the cost-effectiveness and risk management of R&D activities, promoting an organization and culture of openness, so as to adopt trends from other industry sectors, and continually reassessing the innovation strategy to confirm that it is up-to-date and in tune with market developments.

RECENT OLIVER WYMAN STUDIES IN AUTOMOTIVE (3/7) R&D
In-Car IT – Trends, Opportunities, and Challenges for Automotive Suppliers
The emerging role of electronics and software holds enormous opportunities for suppliers: with in-car IT, they can unlock new revenue sources and break out of their traditional role in the supply chain. Although the suppliers' management has largely recognized this, many of them still believe that there is a significant need for action if they want to keep pace with new technologies. But they can learn from the software and IT industry in particular when building up the respective capabilities.

Composites Materials 2020
Composites lightweight properties are highly attractive for many industries. This study takes a general look at the composites market towards 2020 and a closer look at Automotive, Aerospace and Wind composites demand.

RECENT OLIVER WYMAN STUDIES IN AUTOMOTIVE (4/7) PROCUREMENT / SUPPLIER

Risk Patterns in the Automotive Supplier Industry
The automotive market is undergoing significant changes. Many German suppliers are well-positioned to exploit these developments as an opportunity, but need sufficient financial power to do so. Because of uncertainty about the capital markets, it is important to proactively draw the investors’ attention to possible risks, and to present a convincing strategy for the next years.

The New Wave of Acquisitions in the Automotive Supplier Industry
Many suppliers are supposed to be put up for sale, but financial investors, in particular, are hesitant to go shopping for them. As a result, investors operating in a systematic manner have an opportunity to sweep in and acquire eye-catching companies at steeply discounted prices. At the same time, pending sales will stoke competition in many supplier segments.

RECENT OLIVER WYMAN STUDIES IN AUTOMOTIVE (5/7) PRODUCTION

The Harbour Report
This yearly confidential report is based on manufacturing data provided by the world leading OEMs. It highlights discrete objective differences among products, plants and companies. The report analyzes performance drivers and explain gaps. It provides insights into other factors beyond labor productivity that impact plant or company performance – quality, productivity and cost.

Setting the Stage for Lean Manufacturing Success
Lean’s systems and tools are valuable. But it is how a company executes them − supports their use − that makes the difference between success and failure. It takes time and needs the right people systems.

South American Auto Manufacturing
As OEMs expand their footprint into South America’s rural areas, they are inventing new ways to address their most pressing challenge: building a supplier network that can deliver the same value the OEMs enjoy in other parts of the world.

RECENT OLIVER WYMAN STUDIES IN AUTOMOTIVE (6/7) SALES

E-Mobility: Partnerships in Sales and Marketing
OEMs must come up with a clear marketing concept today to prepare for the arrival of the e-mobility wave. The top priority of this work is to lock the interface to the customer into place. Alliances concluded with the widest variety of partners are essential – from established energy suppliers to start-ups involved in mobility management and the charging process.

Connected Cars for Customer Retention in After Sales
The fight for customers is entering a new round in the lucrative after-sales business. If OEMs now go full throttle and systematically exploit the advantages of vehicle networking, they will quickly leave independent providers in their wake.

RECENT OLIVER WYMAN STUDIES IN AUTOMOTIVE (7/7) SERVICES
Connected Cars – the Smartphones of the Auto Industry
The ever stronger trend to complete vehicle networking presents a major opportunity for all OEMs in the lucrative after-sales business to retain vehicle users even after the warranty period has ended.

The Future of Mobility
Many customers are prepared to significantly change their mobility behavior. If OEMs want to stay in the game, they must position the car as a key component of the mobility mix and combine the different modes of transport in a user-friendly way.

Automotive