DECONSTRUCTING THE BRICS: DYNAMICS IN THE POST CRISIS PERIOD August 18, 2009
Ellen Hughes-Cromwick
1
TOPICS TODAY •
Automotive industry in the BRICS
•
Long-term growth prospects in the post-crisis period
•
Memo: Mature market performance with U.S. focus
2
BRICS: KEY AUTO SECTOR CHARACTERISTICS Fundamentals differentiate these markets Series
Units
Brazil Russia
India
China
Population Today
Mils
194
141
1,130
1,322
GDP
2007$ Bils
1,314
1,291
1,171
3,280
GDP per Capita
2007$ PPP
9,456
14,770
2,737
5,337
Vehicle Stock
Mils
26
34
14
40
Per 1,000 Pop
Units
184
281
18
38
New Vehicle Sales
2008 Mils
2.9
3.2
2.0
9.4
2003 – 2007 Growth
% (a.r.)
12
15
15
14
3
POPULATION GROWTH 1995 TO 2008 Annual % Change 2.0 1.6
1.5
1.0
1.0 0.6
0.5
Brazil
Russia
India
China
0.0 (0.5)
(0.5)
(1.0) 1995
1998
Source: U.S. Census Bureau
2001
2004
2007 4
2008 NOMINAL GDP $ Billions
1,573
Brazil
4,402
China
8,861
Russia 1,677
India
1,210 Source: International Monetary Fund
5
GDP GROWTH Annual % Change 15
10
9.0 7.3 5.6 5.1
5
0
(5)
(10) 1995
Brazil 1997
Russia
India
2001
2003
1999
Source: International Monetary Fund
China 2005
2007 6
GDP GROWTH Brazil Real GDP
% 12.0
% chg yoy
Russia Real GDP
10
8.0
5
4.0 0.0
(1.5) (3.3)
(4.0) GDP YoY GDP Annual. QoQ
(8.0) (12.0)
12/05
(%yoy)
(10)
12/06
12/07
India Real GDP GDP Pct. Chg. yoy
0% 01
02
03
China Real GDP GDP (Q1): 6.1 CPI (Q1): (0.6)
16 12 8 4 0 (4) Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09
4%
00
(10.9)
12/08
GDP (Q1): 5.8% CPI (Q1): 9.4% WPI (Q1): 2.4%
8%
(5)
(15) 12/01 12/02 12/03 12/04 12/05 12/06 12/07 12/08
(16.0) 12/04
12%
0
04
Real GDP
05
06
07
08
09
GDP 7
INCOME PER CAPITA PPP 2007$ 16,000
14,770
14,000 12,000 10,000
9,456
8,000 5,337
6,000 4,000
2,737
2,000 0 Brazil
Russia
India
China 8
CHINA POPULATION & GDP BY REGION Heilongjiang
Jilin Xinjiang
Liaoning
Beijing Gansu
Inner Mongolia Ningxia
Tianjin Hebei Shanxi Shandong
Qinghai
Hubei
Sichuan
J
Shaanxi Henan Tibet
Jiangsu Shanghai
Anhui
i
Chongqing Guizhou Yunnan
Hunan
Zhejiang i
Jiangxi Fujian
Tier 1 Taiwan
Guangxi
Guangdong
Tier 2 Tier 3
Hainan
population (mil.) 2007
2018
Driving-age population (mil.) 2007
2018
GDP per capita @ 2005 USD 2007
National
1,322
1,052
5,088
Tier 1
366
299
8,463
Tier 2
491
395
4,487
Tier 3
464
358
2,924
2018
9
INDIA POPULATION & GDP BY REGION
GDP per Capita > $4,000 $2,500 < GDP per Capita < $4,000 GDP per Capita < $2,500
population (mil.) 2007
2018
Driving-age population (mil.) 2007
2018
GDP per capita @ 2005 USD 2007
1,130
770
2,584
Tier 1
233
158
4,279
Tier 2
353
241
2,974
Tier 3
544
371
1,606
National
2018
10
2007 VEHICLE STOCK Mils. 45
40
40 34
35 30
26
25 20 14
15 10 5 0 Brazil
Russia
India
Source: Ward’s Automotive Group, Vehicles in Operation in 2007
China 11
VEHICLE STOCK GROWTH Mils. 1995
45
2007 40
40 34
35 30
26
25 20
23
15
14
15
10
10
7
5 0 % Change (a.r.)
Brazil 4.4
Russia 3.2
Source: Ward’s Automotive Group
India 6.4
China 11.9
12
2008 NEW VEHICLE SALES Mils. 10
9.4
9 8 7 6 5 4 3
2.9
3.2 2.0
2 1 0 Brazil Source: IHS Global Insight
Russia
India
China 13
VEHICLE SALES GROWTH Mils. 1995
10
2008*
9.4
9 8 7 6 5 4 3 2
3.2
2.9
2.0
1.7 0.8
1
1.5
0.6
0 % Change (a.r.)
Brazil
Russia
India
China
4.6
12.2
10.6
16.5
*Source: IHS Global Insight
14
VEHICLE OWNERSHIP RATES ARE VERY LOW Vehicles per 1,000 Driving Age Population 300
281
250 200
184
150 100 38
50
18
0 Brazil
Russia
India
China 15
TAKE-OFF STAGE OF ECONOMIC DEVELOPMENT
•
Importance of population and per capita incomes
•
Less direct effect from deeper capital markets
•
Focus on increasing share of discretionary purchases
16
POPULATION GROWTH 2008 TO 2018 Annual % Change 2.0 1.5
1.4
1.0
0.7 0.5
0.5 0.0 (0.5)
(0.6)
(1.0) 2008
2011
Brazil Source: U.S. Census Bureau
Russia
2014 India
2017
China 17
VEHICLE OWNERSHIP RATES AND PER CAPITA GDP % Ownership Limit Realized 120 100
U.S.
Europe
80 60 Russia
40 Brazil
20
China India
0 0
5
10
15
20
25
30
35
40
GDP PPP per Capita ( In 000s of 2005$)
45 18
POST CRISIS PERIOD •
Highly varied among these emerging markets
•
Potential growth driven by investment trends and policy
•
Institutional backdrop and innovation are the linchpins
•
Energy, environment, water, and steel are strategic properties
Implications •
Need for country-specific research and investment thesis
•
Spent SWFs and reserve cushions
•
Limits to disintermediation
•
Policy watch
19
DOWNTURN HISTORY – U.S. NEW VEHICLE SALES U.S New Vehicle Sales Downturns Peak-to-Trough % Decline % Decline from Peak 80 60 40 20
71
In 2005, U.S. new vehicle sales were 17.5 million units As of Q1 2009, sales are 45% from the 2005 level
21
24
1988
1973
32
33
36
1978
1950
1955
45
46
48
2005
1937
1941
5
0 2000
1929
Year of Vehicle Sales Peak Note: Based on annual data
20
U.S. NEW LIGHT VEHICLE SALES Steep decline after September 2008
Mil. Units SAAR 19 17 15 13 11
11.2
11.6
9.2
9 7 5 70
73
76
79
82
85
88
91
94
97
00
03
06
09 21
U.S. NEW RETAIL VEHICLE SALES Seizing up of credit markets dampened demand to historic lows Mil. Units SAAR 14 12.8
12
11.0
10.6
10 8.8
8.7
8.3
9.2
8.8 8.2
8
7.7
7.6
7.8
8.1
8.5
6 4 2007 Aug Sept Oct Nov Dec Jan Feb Mar Apr May Jun July Aug 2008 2009 22 Source: JD Power and Associates (08/19/09)
U.S. HOUSING AND AUTOS Decoupling in the period of housing financial innovation
Light Vehicle Sales and New Home Sales Mils.
Mils Light Vehicle Sales (Left Scale)
20
1.4 1.2
16
1.0
12
0.8
New Hom e Sales (Right Scale)
9.8 0.6
8
0.4
4
0.4
0.2 0.0
0
2000
2003
Note: Based on 6-month moving average
2006
2009
23
U.S. HOUSING MARKET Current and Past Housing Cycles Indexed at Peak = 100
Home Inventories 14
100 Average of Pre-1980 Housing Downturns and Recoveries
80
Months' Supply Current Selling Rates
12 Long-Run Averages New & Existing : 6 - 7 Months
10
9.4 8.8
61.9 60
8
Existing Homes
54.5 40
1981 Downturn
6
Current 25.6
20
4
74% Below Peak 2
New Homes
Great Depression Low 0 Peak
8 16 24 32 40 Months after Housing Starts Peak
0 2000
2003
2006
2009 24
U.S. AUTO FUNDAMENTALS TODAY New Nominal Vehicle Prices
Auto Inventories
% 2
'000 Units 800
1.2
735
1 0.5
0 502 400
463
(1)
415
(2)
296
(3)
137
(4) 2002
0 Ford
GM Jul-08
Chrysler
2003
2004
2005
Nom MOM % Chg
Jul-09
2006
2007
2008
2009
Nom YOY % Chg
"Good Tim e to Buy" V e hicle Inde x
A u c ti o n P ri c e s %
%*
( Y e a r O v e r Y e a r % Ch a n g e ) 80
10 6 .1
5
60
0
50
(5)
40
(10) (15) 2002
70
70
2003
2004
2005
2006
2007
Ma n h e im A u c tio n Pr ic e s
2008
2009
30 2002
2003 2004 2005 2006 2007 2008 2009 * % of Res pondents s ay ing it is a good time to buy
Source: U of M Consumer Sentiment Index
25
SUMMARY •
BRICS have potential to grow at vastly different rates
•
Building blocks for auto sector are in place
•
Long-term growth prospects are positive – Contingent on key factors of investment and policy trends
•
U.S. auto sales appear to be stabilizing – Financial crisis caused a steep downturn – Fundamentals for vehicle buyer are gradually improving
26