Automotive Round-Up – First Quarter 2003

What of the major vehicle markets? We kick off with what has been happening in the automotive world in the first three months. Additional figures are now available from the International Rubber Study Group (IRSG) for tyre production in the main markets for 2002 for car tyres and for commercial vehicle tyres. It should be noted that the regions are defined as follows; “Europe” is France, Germany and Italy, and “Asia” is India, Japan and Korea.

Car Tyre Production by region (000 Units): USA: 214,714 (1999), 223,003 (2000), 202,967 (2001), and 198,029 (2002)Brazil: 26,190 (1999), 27,955 (2000), 25,011 (2001), and 26,157 (2002)Europe: 138,048 (1999), 140,804 (2000), 141,207 (2001), and 128,596 (2002)Asia: 173,513 (1999), 181,248 (2000), 180,142 (2001), and 189,431 (2002)Commercial Vehicle Tyre Production by region (000 Units) USA: 52,938 (1999), 53,762 (2000), 43,651 (2001), and 36,462 (2002)Brazil: 8,172 (1999), 9,430 (2000), 9,368 (2001), and 10,254 (2002)Europe: 21,047 (1999), 21,118 (2000), 20,126 (2001), and 18,095 (2002)Asia: 68,851 (1999), 68,992 (2000), 65,725 (2001), and 65,532 (2002)One of the most obvious points arising from these tables is the decline in the US and European figures. However, it should be remembered that these are figures for tyre production, not sales and perhaps are indicative of the trend for production to move to low-cost locations. Certainly car tyre production rises in Asia and Brazil would seem to bear this out, but the fact that Asian truck tyre production is falling is something of a surprise.

So much for tyres, but what of the major vehicle markets? As usual, we kick off with what has been happening in the USA in the first three months.USALight vehicle sales for the first three months were 3.758 million units, 4.

4 per cent down on the 1Q 2002 figure of 3.930 million. Of the Big 3 (Ford, GM and DaimlerChrysler), GM’s market share was down 5.

7 per cent, compared with 1Q last year, while DCX lost 2.3 per cent. The big surprise, however, was Ford, which made a profit in 1Q and its market share was up 2.

7 per cent. This good news should be put in perspective, however, as the company’s shares are at an all-time low and some analysts have downgraded the company’s rating. The worry is that, if the US market continues to weaken, Ford might not be able to cut costs quickly enough to make up for falling sales.

Much of Ford’s hopes for the future are pinned on its range of pick-ups, which continue to grow in popularity, and the company has redesigned its F-150 pick-up. It seems unlikely that Ford will have things all its own way, as both Nissan and Toyota have plans to introduce competing models. Toyota executives have gone on record as saying that the company wants to double its share of the large pick-up market to 10 per cent, or 250,000 vehicles, by 2007.

The pick-up market is second only to the middle car sector in terms of sales, accounting for 17.4 per cent of the market (middle cars account for 22.6 per cent).

SUVs, incidentally, make up 15.5 per cent of the market.Discounts and interest-free credit deals continue to dominate the US market, but even these are apparently losing their attraction, as news from Detroit is that the manufacturers will cut production in 2Q.

This would appear to be a malaise affecting more than the auto industry, as US industrial output slipped by over 4 per cent in March. GM has already warned that the company might well not achieve its full-year targets. The amount of inventory held by the Big 3 in March are shown here, with the “normal” stock supply in brackets:Passenger Car: 75 days’ supply (66)Light Truck: 101 days’ supply (76)Light Vehicles: 91 days’ supply (72)Sales were also affected by worries over the war with Iraq and there were fears expressed by French and German manufacturers that their governments’ stance on the conflict might lead to a consumer backlash in the US.

While there was undoubtedly an element of this, once the war actually started, the worries seemed to have been overstated.All in all, the Big 3 sales for 1Q were down 5.4 per cent.

The best percentage increase came from Honda (up 13.8 per cent) and Toyota continued to make progress, with sales up 1.2 per cent.

It was a good quarter for Toyota, as the brand was voted as “the most desirable franchise to own” in a survey of US car dealers, carried out by UBSWarburg. As a matter of interest, Lexus was voted second and, together, these two represent a remarkable 52 per cent of responses. The least desirable franchise, incidentally, turned out to be Oldsmobile.

Toyota continues to move closer to the Big 3 in terms of market share, less than four per cent behind DCX. Market shares (ource: Analysts Reports) for 1Q:GM: 26.9%Ford: 21.

4%DCX: 14.7%Toyota: 10.9%Honda: 8.

9%Nissan: 4.7%Analysts predict that sales in April onwards will increase as consumer confidence returns and the Big 3 ramp up their marketing programmes. In practice, this seems to mean even-larger discounts; GM announced its “Zero to Sixty” programme, offering interest-free finance for 60 months on all products except the Hummer and up to $3,000 cash back on some products.

Ford also introduced a similar 0 per cent for 60 months, as has DCX, which has also upped discounts on the Ram by $500 to $3,000 and is matching $750 down payments on minivans and the Jeep Cherokee. All in all, it seems that there has never been a better time to buy a vehicle in the USA – the only question is, how long can it go on for?Western EuropeThe Group market shares in the five major Western European markets are much more even, as can be seen: VW: 17.1%PSA: 15.

7%Japanese manufacturers: 12.1%Ford: 11.7%Renault: 10.

1%GM: 10.0% Fiat:: 8.2%Sales were down 2.

5 per cent YOY in 1Q, but the fortunes of the various markets was mixed. March especially was a mixed month, with an increase in sales in Italy of 27.4 per cent.

This figure was artificially inflated by a flurry of purchases due to the ending of incentive schemes in the country. The UK had a good March too – a record March in fact – while sales in Germany were down slightly and in France and Spain by over 5 per cent.The worst performance in terms of growth in 1Q came from Fiat (down 13.

3 per cent), followed by Renault (down 9.1 per cent) and BMW (down 6.2 per cent).

Non-European manufacturers did well, with Honda showing growth of 15.4 per cent, Korean manufacturers grew by 9 per cent and Toyota was up 2.8 per cent.

Fiat also lost over 11 per cent market share, while Japanese manufacturers increased their share by 8.6 per cent.Looking at the individual markets, Germany was affected by a weakening economy, rising unemployment and higher fuel prices.

The leading three companies in terms of market share for 1Q were VW: 29.6 per cent, DCX: 13.5 per cent and GM: 11.

8 per cent.French car demand was down 5.6 per cent.

Not surprisingly, the market is dominated by the two French groups PSA and Renault, with 1Q market shares of 34.1 and 25.4 per cent respectively.

The third placed company – VW – is a long way back at 10.1 per cent.In Italy, if we ignore the March sales figures, sales for the first two months were down 4.

4 per cent year on year. The leader is Fiat, whose market share of 29.1 is nevertheless down on previous years (it was over 33 per cent a year ago).

The second and third positions are very even, with PSA (11.9 per cent) just shading out Ford (11.2 per cent).

The record number of UK sales in March is easily explained, as March and September are the two months when the registration plate numbers change and have traditionally been top sellers. When it comes to market shares, there is no clear leader as in many other European countries. Ford is number one, with 16.

9 per cent, with GM and PSA virtually neck-and-neck, at 13.9 and 13.4 per cent.

The fifth large market in Western Europe is Spain, where 1Q sales fell by 5.7 per cent. One figure worth noting is the performance of Mitsubishi, where sales rose 74.

9 per cent in 1Q, albeit from a low base. PSA has most market share (22.5 per cent), followed by VW (21.

9 per cent) and Renault (11.9 per cent), although Ford’s share is only 0.1 per cent lower than Renault.

The fortunes of individual car manufacturers have been as varied as the performances of the different markets. We mentioned the performance of Mitsubishi in Spain, and this came as the company launched its first-ever pan-European advertising campaign in an attempt to lift its market share to 2 per cent (it currently stands at 0.8 per cent, but in 2000 it stood at 1.

1 per cent.).The two companies which have made most headlines in Europe – and, it has to be said, for all the wrong reasons – are Fiat and VW.

Fiat suffered a tragedy with the death of honorary chairman Gianni Agnelli, with Umberto Agnelli stepping into the breach. Back in February, Fiat revealed a plan to inject around 5 billion Euros into Fiat Auto, hoping to raise 3 bn from sales of Fiat Avio, an aeronautics company and Toro, an insurer. Another possible source of income could be GM, as Fiat has the option to sell the remaining four-fifths of the company to GM (GM already owns 20 per cent).

The way things are at the moment, GM does not really want the Italian company and there is speculation that GM might inject cash in return for cancelling the arrangement.In Germany, VW warned that its 1Q profits would fall, causing VW shares to drop 11 per cent. The company also increased the amount of money it puts aside to cover warranty costs by 13 per cent, seen by some as a sign that quality standards are dropping.

Critics point to the fact that 850,000 cars were recalled to replace faulty starter coils and a US magazine rated VW as second worst for reliability. VW chief executive Bernd Pischetsrieder has announced that he is going to shake up the board of directors and has also assumed responsibility for marketing after the sales and marketing director quit suddenly. VW is beset by outside factors such as the growing strength of the Euro and internal matters such as an ageing product range.

This will be addressed by new models next year, but this will be too late for this year, with VW saying that its operating profit this year will not match last year’s figure of 4.76 billion Euros.AsiaHowever, every cloud has a silver lining, and for VW, that means China, where the company is the clear market leader.

Economically China is leaping ahead, with a 1Q growth in gross domestic product of 9 per cent, a rise in foreign investment of over 56 per cent for the quarter and exports up 34 per cent.One of the main factors in domestic sales has been the demand for cars, with 440,000 vehicles rolling off China’s production lines in 1Q. Last year sales were up 56 per cent to 1.

13 million units.But if every cloud has a silver lining, then perhaps every silver lining has its cloud, and in China’s case, there are two. The first of these is SARS, with the virus leading to whole communities being quarantined and disruption to the economy – as an example, the recent Shanghai Auto Show was closed three days earlier than planned, as it was feared that being open over the weekend would attract visitors from all over China, risking the spread of the SARS virus.

As it was, 200,000 people attended the show, illustrating the enthusiasm for cars in China.Cloud number two is the prospect of price-cutting as a result of fiercer competition and VW’s joint venture Shanghai Volkswagen Automotive Co. has recently announced a 10 per cent cut in the price of its best-selling model, the 1.

8 litre Passat. Other Passat models will also come down in price, said a company spokesman, who declined to give a reason for the cuts.Some foreign car manufacturers are extremely frustrated at what they perceive as heel-dragging by Chinese bureaucracy in the matter of granting licences for companies to start up businesses to finance car loans.

Two years after China began consulting on regulations for the industry, it has yet to issue a single licence and, when you consider that last year both Ford and GM made more from their finance divisions than they did from building cars, you can understand their annoyance at the slow progress.Elsewhere in Asia, Toyota has announced that it will invest $180 million and its suppliers $200 million in upgrading its factories in Indonesia over the next three years. Toyota has signed a deal with local auto maker Astra, whereby Toyota takes a 95 per cent stake in the joint venture Toyota Astra Motors (TAM).

Toyota expects to build 70,000 pick-ups and multi-purpose vehicles in Indonesia by 2004, 10,000 of which would be for export. In addition, it wants to build 180,000 petrol engines in the country, 130,000 of which would be exported.Honda is aiming at setting up parts plants in numerous small markets across Asia, creating what is in effect a continent-sized factory; a car built in, for example, Thailand, might have parts sourced from Malaysia, Indonesia and China as well as Thailand.

Operating this way obviates the need to build a large, expensive auto factory in one location, covering all components.A market not often mentioned is that of Pakistan, where sales of new cars from July to November last year rose to more than 21,000. A small number, yes, but a 28 per cent increase over the year before and one which is apparently leading to traffic congestion due to the lack of a road network.

From a small Asian market to the largest in the area – that of Japan. The star performer here has to be Nissan, which has turned itself around from having a net debt of $17.4 billion three years ago, and talk of bankruptcy, to a cash surplus.

Operating profit last year was equivalent to $5.5 billion with an operating margin of 10.8 per cent – the highest in the industry.

Net profit was up 33 per cent, to $3.7 billion. This stunning success means that the final two targets in Nissan’s strategic plan, called 1-8-0, have been achieved.

1 stands for additional sales of 1 million units, 8 for an eight per cent operating margin and 0 for zero debt.Japan’s domestic sales were up 4.3 per cent in 1Q, with Isuzu and Nissan showing best growth (22.

5 and 19.2 per cent respectively).When it comes to buying cars, the Japanese demonstrate exceptional loyalty towards domestic producers, with a mere 4.

5 per cent of sales in 1Q going to importers. This is a consistent figure, with 2000, 2001 and 2002 import figures standing at 4.6, 4.

7 and 4.8 per cent.So who are the leading players? In 1Q, Toyota had most market share, at 28.

8 per cent, followed by Nissan (15 per cent), Honda (12.2 per cent) and Suzuki (10.9 per cent).

Latin AmericaThe Brazilian Central Bank has raised interest rates to a four-year high to combat inflation. This has discouraged domestic spending, but some manufacturers have hit back, tempting people with new models and offering finance deals. It was not enough to have a positive effect on sales, which were down 1.

1 per cent over the quarter. There were some marked contrasts in individual company performances, with growth for Toyota (+103.3 per cent, giving it a market share of 2.

3 per cent), Scania (+ 54.4 per cent) and Ford (+ 29.9 per cent).

VW Group was down 13 per cent, with PSA Group down 7.1 per cent.When it comes to market shares, there is close to a three-way tie at the top between Fiat (24.

7 per cent), GM and VW (each 23.4 per cent). Ford comes next and, at 10.

5 per cent, is the only other company with a double-digit market share.In addition to an uncertain economic outlook, the Brazilian auto industry has suffered industrial unrest, with metalworkers going on strike at GM and Renault car factories. The GM strike is for higher wages (the demand is for more than 10 per cent), a four-hour cut in the working week and guaranteed rises to keep place with inflation.

At the Renault plant, union leaders are demanding a 14.61 per cent wage increase.If it is volatility you are after, then look no further than Argentina.

For example, VW sales in March rose by 98.8 per cent, boosting the company’s YTD market share to 14.3 per cent from 7.

1 per cent. Ford’s market share was up from 12.2 per cent to 22.

1 per cent, while PSA’s and Renault’s YTD market shares halved to 13 per cent and 14.7 per cent respectively.Insofar as figures mean anything in such an unstable environment, 1Q sales were down 18.

5 per cent. Following figures show 1Q leading shares in the Argentinean market.Ford: 22.

1%Renault: 14.7%VW: 14.3%GM: 13.

2%PSA: 13.0%Fiat: 9.9%Toyota: 9.