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Lars Holmqvist, CEO CLEPA European Association of Automotive Suppliers Relocation in the Automotive Industry, EESC 29 June 2006 Facts about CLEPA • 3000 member companies in total, representing 2500 SMEs • 3 Million employees • 300 billion Euro sales CLEPA, the European umbrella membership organisation for the global automotive supply industry 20 National Trade Associations 69 Corporate members Facts about the automotive suppliers 75% of the value of the car comes from the suppliers 50% of the R and D spending from the suppliers A majority of patents are from suppliers Some examples: ABS Airbags Electronic stablility programmes High pressure injection systems Diesel particulate filters Navigation systems Automotive Key Figures Vehicle Production 2003 Europe 16.8 18.0 Nafta 2008 18.9 16.3 2013 p.a. 1.2% 17.5 18.5 1.3% Asia 21.1 26.1 30.2 3.3% World 60.1 69.4 76.4 2.4% Supplier Potential 2.4% per annum growth in world production 1.3% per annum growth through outsourcing 0.4% per annum growth through new technologies = 4.1% per annum total potential growth The European Automotive Manufacturing Industry Official number of employees 2.1 million Industry estimates 6.5 million Whereof Suppliers 5.2 million Manufacturing output €700 billion R and D spending €24 billion Whereof Suppliers €12 billion Move to New Countries New potential markets: China, India, Russia, Poland Low cost production: Baltic States, other Eastern European countries RELOCATION – The Automotive way Most components are unique to a specific model of a car i.e. “VW Golf 1.8 TDI 2002-2007” For each new model (5-7 years) a new purchasing contract is negoitiated This lead-time is 2-3 years Re-location is a way to meet the price pressure from the VMs Re-location is gradual and progressive “Made in Germany” could mean that 75% of the car is made outside of Germany Automotive Manufacturing in Western Europe under threat? • Currently, 33% of Western European Supplier (WES) has operations in Eastern Europe and 15% in China • Soon, 50% of WES will be operating in Eastern Europe and/or China • 39% of all WES intend to transfer parts of production process to Eastern Europe in the next 5 years • 23% of all WES planning similar investments in China Source: Ernst & Young VMs moving eastwards Hyundai – informal agreement to invest approx $1.2 billion in a new 300,000-a-year Czech assembly plant, adding 10,000 jobs Toyota and Peugeot – new plant in Czech Republic, having capacity to make 300,000 cars a year, investment of approx €1.5 billion Slovakia set to be the world’s biggest car producer per capita Slovakia – home of PSA Peugeot-Citroën’s newest European plant, forecast to make 1million cars a year by 2008 Kia will invest €835m in Slovakia, production should reach 300,000 cars a year from 2008 Peugeot will invest €1.1bn in Slovakia, production should reach 450,000 cars a year by 2009 VMs moving eastwards Hyundai, Toyota have set up car assemblies in Turkey General Motors rapidly expanding its manufacturing operations in Russia, also expanding in Kalingrad – GM’s 2006 target in Russia is 100,000 sales, up from 76,578 last year Ford has an assembly plant in St. Petersburg Toyota will open its assembly plant in St. Petersburg this year Renault has a joint venture in Moscow that began building the Logan last year Sales of foreign automakers in Russia more than doubled to 600,000 units last year in 2005, total unit-sales volume in Russia was 1.6 million – expected to reach 2 million before 2010 Key location factors low production costs low wage costs sound employee qualifications good engineering skills flexible and motivated labour markets good working attitudes proximity to attractive sales markets demand for cars set to grow swiftly political and economic stability Source: Ernst & Young, FT Parts market: growth and manufacturing attractiveness 2003-2010 (100 = best in peer group) Average 47.1 100 55 China United States 50 40 Cumulative automotive parts market 30 growth 2003-2010e1 20 Germany Japan France Brazil South Korea Russia Italy India United Kingdom 10 Argentina 0 0 15 Canada Turkey 3 1 Mexico 4 2 Czech Republic Slovakia Indonesia Slovenia Malaysia Hungary Ukraine Spain Romania Latvia Vietnam Bulgaria Colombia Portugal Average 12.8 Poland Philippines 30 45 60 75 Lithuania Estonia 90 Manufacturing attractiveness rating2 1 2 Combined OEM and aftermarket for automotive parts Based on manufacturing opportunity weighted with political/financial stability and investment flexibility Source: Roland Berger Strategy Consultants Conclusions The automotive industry is a growth market The outsourcing continues The growth comes from new markets and new technology Investment and employment moves to Eastern Europe and Asia The Competition is truly global both for carmakers and suppliers