auto china industry summary 2011

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1

China’s Automotive Industry in 2011

Bill Russo

September, 2011 Beijing



2

Part 1: Review of 2010 market development and automakers performance

Part 2: Emerging consumer trends and government policy changes in 2011

Part 3: Emerging trends to anticipate in 2011 and beyond

Part 4: Conclusion and recommendations



3


Part 2: Emerging consumer trends and government policy changes in 2011


Part 4: Conclusion and recommendations



4

Truck 22%

Van 16%

Bus 2%

PV 60%

Overall China Auto Industry*

Passenger vehicles consistently represent the majority of total automobile demand

Robust growth momentum is continued in 2010 driven by government incentive program and infrastructure investment

2006 Sales

7.34 Million

PV*=4.45 Million

Bus 2%

Truck 21%

Van 18%

PV 59%

2007 Sales8.98 Million

PV*=5.43Million

22%

2008 Sales

9.67 Million

PV*=5.91Million

Truck

21%

Van 16%

Bus 2%

PV 61%

8%

2009 Sales

13.64 Million

PV*=8.73Million

Truck

20%

Van

13%

Bus

3%

PV

64%

46%

Year 2010 was another hall-mark year for China auto industry afterthe short setback in 2008 due to global financial crisis

Note: * PV volume excluded pickup and van sales volumeSource: CAAM auto market press release

2010Sales

18.06 Million

PV*=11.26Million

Truck

21%

Van

14%

Bus

3%

PV

62%

32%



5

China exceeded US to become the world largest Auto market in2009 and maintained leadership in 2010

Total China Auto Sales2005 - 2010, in million units

5.90

7.34

8.989.67

13.64

+23%

2010

18.06

20092008200720062005

Note 1): Data does not include heavy truckSource: Global insight; CAAM auto market press release; Literature research; Booz & Company analysis

8%7%

6%

50%45%

5%

China

US

Japan

Germany

Brazil

Others

2009

63.6

4%

20%

16%

5%

2008

66.0

13%

20%

Top Five Auto Market in the World(1) 2008 - 2009, in million units

US market sales in 2010 is only 11.58Million, 36% less than China sales



6

Among international brands, VW, GM and Hyundai hasreinforced their market leadership over their competitors

Others 21%

Dongfeng Nissan 4%

Geely 5%

Chery 5%

Guangzhou Honda 6%

Changan Suzuki 7%

Peugeot Citroen 9%

Tianjin Faw 10%

Shanghai GM 12%

Faw-Volkswagen 22%

Shanghai Volkswagen31%

Passenger Vehicle Sales by Top 10 Manufacturers(2002 Vs. 2010)

6%

Shanghai Volkswagen

4%

Beijing Hyundai

7%

Shanghai GM7%

4%

FAW-VW

3.6%BYD

Others 53%

FAW Toyota 2.0%

3.8%

Changan Ford

Dongfeng Nissan

2.8%

Geely3%

Chery

Source: China PV Database; Booz & Company analysis

3%



7


Part 2: Segment growth in 2010 and government policy changes in 2011


Part 4: Conclusion and recommendation to automakers



While there is clear growth in the SUV, MPV and cross-oversegments, China remains a 70% sedan market

1,093,000

7.9%

646,600

4.7%

656,400

4.8%

406,400

3%

959,900

7%

1,830,000 14%

2010 PV Sales Market Share

MPVSUV/

Cross-over Std / Lux

Full Std / Lux MidCompactSmallMicro

Brand

8

7% 12% 36% 12% 2% 28% 3%

COPV: Crossover Passenger Vehicle - i.e. pickup and light buses with 9 seats or under Source: Accuracy Automotive, CAAM



Driven by government tax incentives and shift of productpreference, 2010 has seen a mixed results of segment growth

Segment Sub-segment 2010 sales(=000)

Year on year

growth(%)

Vehicle sales Total 18061.9 32.37Passenger

Vehicle Total 13757.8 33.17SUV Subtotal 1326 101.27

Compact SUV 2.0L and below 799.8 105MPV Total 445.4 79.82

Passenger Car Subtotal 9494.3 27.05<1.6L 6631.8 27.98

1.6-2.0L 2152.7 29.77Crossover Pickup,

Minibus, etc.

2492.1 27.77

Sales growth of SUV and MPVoutperform passenger cars

2.0L and below accounts for 60% of total SUV sales. 2WD is sold 1.7times more than 4WD vehicles

1.6L and below cars account for 70% of total passenger car sales

Pickup and minibus enjoyed a 28%growth attributed to favorablegovernment subsidies

9

Source: China Automotive Industry CAAM report Literature research; Synergistics Limited analysis



China government incentives successfully boosted sales of 2009and 2010, however, most policies will discontinue in 2011

•Mar. 2009-Dec.2010•5% sales tax reduction in 2009 anddown to 2.5% only in 2010

•For sales of all 1.6L and belowvehicles

Sales Tax

Break

•Mar 2009-Dec.2010•10% off retail price, 5,000CNY atmaximum

•For farmer buyers of mini-bus,

pickup and light truck

Subsidy for the farmers

•June 2009-Dec.2010•5,000/car, 6,000/van, 18,000CNY/truck

•For trade-in of 15+ years used cars

Trade-insubsidy

Subsidy for 1.6L and

below cars

Many personal buyers pulled ahead car purchase planfrom in 2009 for 5% tax incentive and stimulus effect

weakened in 2010

Successfully boosted sales of mini-bus and pickup, lighttruck , up by 83% in 2009 and 28% in 2010

Low subsidy level and complicated trade-in processdiscouraged car owners, the effect is very limited

Successfully boosted sales in 2nd half of 2010 andcontinue to take effect in 2011

10

• June 2010-present•3,000 CNY for car buyers•For 1.6L and below cars and require 20%+better fuel efficiency than standard

Government Incentive Incentive Summary Impact assessment

Source: Literature research; Synergistics Limited analysis



11

Source: Global Insight 2010; Booz & Company analysis

China new passenger vehicle sales(2004-2015E)

02,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

22,000

2004 2005 2006 2007 2008 2009 2010F 2011F 2012F 2013F 2014F 2015F

Unit ‘000

1618714582

13137

11835

10662

9606

8654

57045294

4328

3267

2631

Total Passenger Vehicle

Year on Year growth % 21% 24% 33% 22% 8% 52% 11% 11% 11% 11% 11% 11%

With termination of incentives, China auto sales will downshift toa stable growth from 2011 and rise to 20 million in next 5 years

13760

20940 Adjusted forecast

Initial GI forecast

Initial GI forecast



12


Part 2: Segment growth in 2010 and government policy changes in 2011


Part 4: Conclusion and recommendation to automakers



13

#5&%2

85%0

Rapid urbanization is anticipated to rise from 48% to 60%, afundamental driving force of private demand for cars

China’s Urban Population Chinese Urbanization in Comparative Context

0

5

10

15

20

25

30

35

40

45

50

55

60

65

Urban population as ashare of the total (%)

30E20E10E0090807060

Overall Emerging Markets

ChinaForecast

Trend 1: Sustainable demand growth fueled by urban economic development

Source: Literature research; Booz & Company analysis



14

439

417

197

180

236

268

%2(39)5

In the coming decade, we will see a significant increase in middleage population and many of them will be wealthy

China Population Breakdown by Age(2007 Vs. 2020E, Million)

Comments

By 2020, China's population in the agegroup 45 and above will increase 118million, while the 25-44 age group willdecrease 22 million

By 2020, with the fast wealthaccumulation, a significant portion of the400 million 45-64 age group people willbe wealthy

Those affluent mid-age people will be

major customers for luxury products

Source: EIU; “China 2047”; China Statistic Year Book 2007; )6%8235+ Booz & Company analysis

Population Increase2008 Vs. 2020

+32

-17

+43

-22

+75




15

C a r s p e r 1 , 0

0 0 P e o p l e

GDP Per Capita (Logarithmic Scale)

0

100

200

300

400

500

600

1,000 10,000 100,000

Yet China is still just entering the accelerated growth phase typicalof emerging markets

Turkey

India

China

Indonesia

Iran

Thailand

Mexico

Brazil

Argentina

Malaysia

Russia

Poland

Australia

Canada

Germany

U.K.

U.S.

Note: Each line of symbols represents a 19-year progression for one country, from 1990 through 2008, GDP Per Capita is in Purchasing Power Parity (PPP)Source: Booz & Company analysis

The S-

curve

China

Discussion

A country>s thresholdof mobility lies near US$10,000 GDP per capita(PPP), whereautomobile ownershipaccelerates

China is at the early

taking-off stage of the S-curve

India remains fairlydistant from the mobility

inflection point, butcontinues to make

steady progress

India




1616

It is likely that China’s strong economic performance will continueto stimulate car industry growth for the foreseeable future

Note: Passenger vehicles contain sedans, MPVs and SUVs

Source: Global Insight 2010, OPEC, DGS Report, Booz & Company analysis

0

100

200

300

400

500

600

2009 2014 2019 2024 2029

Base Forecast

High Forecast

Low Forecast

P a s s e n g e r V e h i c l e P A R C ( m

i l l i o n u n i t s )

China Passenger Vehicle Installed Base (PARC)Forecast (2009-2030)

480

410

330

Increase in Car Ownership

Government’sSupport to AutoIndustry

ChinaEconomy’sResilience

InfrastructureDevelopment

Car ownership in China is powered by thegrowing economy – the upside issubstantial

Government has been continuouslyguiding and supporting the industry’sdevelopment across manufacturing anddistribution

China’s financial system is less exposedand GDP growth is still very fixedinvestment driven, thus is less vulnerableto recent financial turbulence impact

Highway network development providesfoundation for more motor vehicle-basedbased transportation

China is investing in infrastructure tosupport alternative propulsion

Key Drivers




17

Chinese customers become increasingly savvy and motivated byemotion and self-expression, luxury B segment as an example

2

2

3

5

5

7

9

10

18

36

38

40

45

Versatility

Interior space

Trim

Configuration

Fuel economy

Comfort

After-sales service, maint. Costs

Quality

Brand

Appearance

Price/performance ratio

Driving experience

Safety

36%To enhance mybusiness image/ status

36%To reflect my personality

30%To reflect my good taste

20%

To integrate into

my social circle

17%Sense of independence

17%Sense of family

15%My personal space

12%Stylish/trendy

11%Others’ admiration

Prioritized Self-expression MotivationsB Segment Customers

Prioritized Purchasing FactorsB Segment Customers

Note: Based on new car buyers during Jan-May, 2009; B segment N=570, A4L N=175, 3S N=168Driving experience includes factors such as power, handling and braking

Source: Luxury Car Consumer Quantitative Survey(11-12, 2008), Booz & Company analysis

Trend 2: Shifting preferences for increasingly savvy consumers



Young generation buyers are increasingly influencing automakers’product design

Sonata 2010MY Sonata 2011MY

Focus 2011MY Focus 2012MY

Sebring 2009MY 200C 2010MY

Quest 2010MY Quest 2011MY

More sporty, sculptured and

premium-oriented design

Integration of cutting edge and

functional technologies

Source: Automotive news, Booz&Co. literature research

Trend 2: Shifting preferences for increasingly savvy consumers



19

China is a country equivalent to a continent, large anddiverseChina and its Three Major Economic Regions

Three Major Economic Regions consist of Tier 1 and 2 city groups

– Yangtze River Delta Region

• Centered on Shanghai

• 80 million population

• ~4.5 trillion RMB GDP

– Pearl River Delta Region

• Centered on axis betweenGuangzhou and Shenzhen


• 2.5 trillion RMB GDP

– Beijing-Tianjin Region

• Bohai Sea region


• ~2 trillion RMB GDP

Source: China Statistical Yearbook, The China Strategy, Booz & Company analysis

Trend 3: Value and relationship oriented approach to address lower tier market demand

auto china industry summary 2011

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