China_Automotive_Outlook_Report_2011

JUNE 2011

Full Speed AheadAlixPartners 2011 China Automotive OutlookINSIDE: Automotive Industry Trends Auto Parts Industry Update Executive Survey

© 2011 AlixPartners LLP

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AlixPartners 2011 China Automotive Outlook

the lowest among all major countries in 2010. Respon-dents to the survey expect electric and hybrid vehicles, with help from government subsidies, will likely achieve about 13% market share by 2016. While this appears to be a very optimistic expectation, it does indicate the strong support this sector receives in China. However, it should also be noted that only 12% of respondents think such vehicles will be economically viable without government subsidies by 2016.

The market, however, is also loaded with opportunities pegged not only to the increasing wealth of China’s citizens but to its growing and aging population of cars. Growth rates for parts and services are expected to top 30% as the number of cars on the road in China grows to more than 145 million by 2015.

Even though light-vehicle sales in China slowed as purchase incentives ended in 2010, the industry outlook is far from gloomy. China’s population, particularly in urban areas, is getting wealthier and by 2016 the number of households with enough annual income to buy a car is set to double, according to the AlixPartners 2011 China Automotive Outlook. In its fourth consecutive year, the study and survey is based on extensive industry data as well as an in-depth survey of more than 40 senior executives from both foreign and domestic players in China’s automaker and auto-supply http://www.77cn.com.cnpetition is intense, with more than 30 domestic original equipment manufacturers (OEMs) vying for a share of a market that is also crowded with foreign brands. At 29%, domestic OEMs’ market share was

AUTOMOTIVE INDUSTRY TRENDS

China’s auto sales exceeded 15 million units in 2010, with passenger vehicle growth and sales the highest among major global markets. Light vehicle sales grew at record levels: passenger and light commercial sales rose from 11.6 million units in 2009 to 15.2 million units in 2010 – a 32% increase overall. As China phased out car-buying incentives, year-over-year sales growth dropped signi cantly from record levels. The long-term outlook for the auto industry, however, is still resolutely positive, with projected annual sales growth ranging from 12% to 15% over the next ve years. A number of trends are in play. China’s original equip- ment manufacturers (OEMs) are expected to gradually increase market share by 2016, as are hybrid and

The 32% passenger vehicle growth in 2010 was the highest of major global markets ( gure 1). In 2008-2010, vehicle categories showing the strongest growth were the SUV and Compact segments, with CAGR increases of 58% and 43%, respectively.Industry executives surveyed expect domestic OEM market share to climb from 29% in 2010 to about 34% in 2016. And even though major manufacturers BYD, Chery, and Geely all lost market share in 2010, by 2016 Geely and SAIC are expected to achieve the largest market-share gains by OEMs.

electric vehicles (with help from government subsidies), and export volume is likely to remain relatively at.

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GROWTH

32%15.2

11.813%

6%

AlixPartners 2011 China Automotive Outlook

FIGURE 1: LIGHT-VEHICLE SALES IN MAJOR GLOBAL COUNTRIES IN 2010 [M UNITS]

4%

-24%

-6%

20%

6%

4.8

3.1Brazil

3.0Germany

2.5France

2.5India

Russia

Source: AutoInsight, CSM

ChinaUSAJapan

However, sales growth in Q1/2011 quickly re ected the absence of buying incentives, slowing to about 9%, while growth in April slipped to 3%. The purchase incentives – originally a 5% purchase-tax reduction for small cars that was reduced to 2.5% in early 2010 – were phased out as of December 31, 2010, along with subsidies for farmers to upgrade from agricultural vehicles to light trucks and minivans. Also phased out: an 18,000 RMB subsidy for scrapping older vehicles, ahead of their assessed usage life, for new ones. Recently implemented restrictions on new car purchases in major cities also contributed to the slowdown in sales growth.New energy-saving incentives were introduced in 2010, including a xed 3,000 RMB subsidy for vehicles

with engine displacements of 1.6 liters or less and performance that exceeds fuel economy standards by at least 20%. This subsidy applies to 206 different models from 26 OEMs. In addition, a Central Government alternative-energy vehicle purchase plan makes 25 cit-ies eligible to offer consumers subsidies for purchasing alternative-energy cars – up to 50,000 RMB for hybrid vehicles and 60,000 RMB for electric vehicles. An averaging of survey respondent projections indicates that market share for hybrid and electric vehicles is expected to reach 13% by 2016. However, survey data indicate that only 12% of respondents believe these vehicles will be economically viable without government subsidies.

ROOM FOR GROWTH

Despite the meager showing for Q1/2011, market data support expectations for 12% to 15% sales growth over the next ve years. Seventy-two percent of urban households with income greater than 60,000 RMB own a car, up from 66% in 2009. While

those car owners currently represent 20% of the urban market and only 10% of all households, the number of households earning 60,000 RMB or more is expected to double in the next ve years, greatly increasing the likelihood that sales will grow as pre-

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dicted ( gures 2 and 3). OEM exports, however, are not expected to grow signi cantly through 2016.

AlixPartners 2011 China Automotive Outlook

Export volume increased in 2010 to about 280,000 vehicles, but it was still below 2008 levels.