2014 Automotive Industry Outlook: Bold Predictions and Trends

Sarwant Singh, Senior Partner & Practice Director Shwetha Surender, Senior Research Analyst

Automotive & Transportation

A Joint Presentation with

Pete KellyManaging Director, LMC Automotive

© 2014 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproduced without the written approval of Frost & Sullivan.

12 February 2014

2

Today’s Presenters

Sarwant SinghSenior Partner and Practice Director, Frost & Sullivan

Shwetha SurenderSenior Research AnalystFrost & Sullivan

Pete KellyManaging PartnerLMC Automotive

3

Focus Points of Our Presentation Today

1. Key Predictions and Top Trends for 2014

2. Market Growth Forecasts

3. Highlight Key Growing Markets, Customer Segments

4. Models And Opportunities For Industry Players

4

POLL QUESTION

Which OEM do you think has all the right strategies to lead the

market in 2014?

A. Toyota

B. Volkswagen

C. General Motors

D. Hyundai

E. None of the above

What Do You Think

5

The 2013 Global Automotive Market in Perspective - Actuals vs Forecast

Our Top 5 Predictions for 2013 What actually happened – Highlights of 2013

• China will sell 20 million vehicles. • China crossed 21 million unit sales.

• An OEM could sell over 10 million units in 2013.

• At 9.96 million units (cars + trucks), Toyota came closest to the 10 million mark.

• At least one inter-brand JV, consolidation or M&A. • Fiat and Chrysler consolidated (valued at $4.35 billion)

• VW group will become number one • Toyota was the leading automaker, while the Volkswagen Group at 9.5 million was number three

• One billion vehicles in operation, creating aftermarket opportunities

• In 2013, the Global Aftermarket grew by 4.8%, and eRetailing Aftermarket by 25-30%.

• Autonomous Driving to be a hot R&D topic with a possibility of a trial test in sub-city

• Audi was the first automaker to get the first testing license to autonomous vehicles in Nevada, USA. Continental and Google were two other key players who were awarded the testing license.

6

Top Predictions for 2014

China is expected to sell 23-24 million vehicles and U.S. is expected to cross the 16 million mark.

We expect 2 Major OEMs to cross 10 million unit sales in 2014.

The Luxury Car market is expected to accelerate in 2014, growing in double digits.

2014 to see OEMs launch new mobility business models (such as integrated muti-modal mobility platforms, Corporate Car sharing solutions) and volume OEMs to launch carsharing operations.

Future of car retailing will evolve to become digital by convergence of the bricks and the clicks transforming the customer experience.

7

Top Trends for 2014

Stan and Jan

countries to

be a region of

focus

Small /

Compact

SUV’s and

Crossovers

to continue to

gain

momentum

Rise of

alternative

fuel vehicles

(fuel cell,

hybrid and

EV)

Connected

mobility,

tethering and

V2V and V2X

2014 will be

the Year of

Big Data

8

POLL QUESTION

Which trend in your opinion would have the greatest

impact on the market in 2014?

A. Daimler could become no. 2 luxury car OEM overtaking

Audi

B. The Hybrid Electric Vehicle (HEV) market to accelerate

C. Fuel cell vehicles could what Toyota Prius was a decade

ago

D. Connectivity in vehicles to be major source of revenues

E. Semi autonomous car features and possibly fully

automated pilot to hit roads

What Do You Think

9

Global Light Vehicle Sales by Region in 2014—A Snapshot China at 24 million to account for over 1/4th of global sales and the U.S. to reach 16 million mark, but the market in Europe will still be challenging

2013 2014Africa Asia Eastern

EuropeThe Middle

EastNorth

AmericaLatin

AmericaWestern Europe

0

5000000

10000000

15000000

20000000

25000000

30000000

35000000

40000000

45000000

Light Vehicle Sales, Global, 2013 and 2014

Note: Africa - South AfricaAsia - Australia, China, India, Indonesia, Japan, South Korea, Malaysia, the Philippines, Taiwan, Thailand, New ZealandEastern Europe – Bulgaria, Bosnia, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Macedonia, Poland, Romania, Russia, Serbia, Slovakia, Slovenia, Turkey, UkraineThe Middle East – Egypt, IranNorth America - Canada, Mexico, USALatin America - Argentina, Brazil, Chile, Colombia, Ecuador, Uruguay, VenezuelaWestern Europe - Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, the UK

Uni

ts (M

illio

n)

China 24.2

Japan 5.0

India 3.2

Russia 2.8

Poland 0.3

Turkey 0.8USA 16.2

Argentina

France 2.2Germany

3.2

Spain 0.7 UK 2.3

Indonesia 1.2

~ 88.5 Million

Africa

Asia

Easter Europe

The Middle East

North America

Others

Western Europe

Africa

Asia

Eastern Europe

The Middle East

North America

OthersLatin America

Western Europe

~ 84.3 MillionLatin America

20145.38% YoY growth (2013–14)

Note: All figures are rounded; the base year is 2013. Sources: LMC Automotive, Frost & Sullivan.

10

Global Medium and Heavy Truck Market Forecast 2014 The Economic Recovery in Markets Such as China and North America, and the Improvement in EU MD-HD Truck Market Will Lead to a 3.7 Percent Growth in Truck Sales in 2014

North America

South America

China India Russia Europe Next 11 RoW0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

MCV HCV

2013

2014 Regional Shares

85.1 %

2014

~2.74 million~2.87 million

46%

35%

30%

52% 24%

25%49% 55%

37%37%

63%

54%65%

70%

48% 76%75%

51%45%

63%

Next 11 includes the following countries: Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, Turkey, South Korea, Vietnam, and Bangladesh.

Uni

ts

MCV: 6T to 16THCV: 16T and above Note: All figures are rounded; the base year is 2013. Source: Frost & Sullivan analysis.

Global CV Outlook 2014: Unit Shipments—Global: 2013–2014

3.7% YoY Growth

11

Global Light Vehicle Production by OEM in 2014—A Snapshot (Excludes MCV and HCV) OEMs globally are banking on growth in emerging markets and to offset the downturn in Europe

Mazda Motors

Daimler Group

Other Chinese Manufacturers

SAIC Group

BMW Group

Suzuki Group

PSA Group

Fiat-Chrysler Group

Honda Group

Ford Group

Hyundai Group

Renault-Nissan Group

General Motors Group

Toyota Group

Volkswagen Group

2014 2013 Units (Million)

7.23%

1.69%

4.01%

3.34%

3.66%

4.66%

11.74%

-2.42%

4.59%

1.50%

18.77%

12.27%

16.43%

5.02%

5.27%

Light Vehicle Production by OEM, Global, 2013 and 2014

Note: All figures are rounded; the base year is 2013. Sources: LMC Automotive, Frost & Sullivan.

12

Key Regional Markets—BRI, MISTA (N5) and the Stan and Jan After the BRI and MISTA economies, OEMs will focus on the Stan and Jan countries which are considered the next frontier.

2.3%4.9%6.4%

16.1%8.1%

10.2%0.9%4.1%9.1%3.9%7.8%2.3%5.1%11.8%

IndiaBrazil

RussiaIndonesia

S.KoreaThailand

MexicoTurkey

ArgentinaPoland

UkraineKazakhstan

Czech…Slovakia

BrazilIndiaRussiaS.KoreaThailandIndonesiaMexicoArgentinaTurkeyPolandUkraineCzech…

KazakhstanSlovakia

1

2

3

4

5

6

7

8

9

10

11

12

13

14

1

2

3

4

5

6

7

8

9

10

11

12

13

14

Note: All figures are rounded; the base year is 2013. Sources: LMC Automotive, Frost & Sullivan.

Light Vehicle Sales, BRI, MISTA, Stan and Jan, 2013 and 2020

3,573K

2,927K

2,762K

1,504K

1,278K

1,094K

1,067K

893K

834K

330K

229K

176K

159K

70K

7,225K

5,003K

3,604K1,846K

1,604K

1,508K

1,403K

1,147K

1,051K

601K

501K

315K

269K

119K

RankingCAGR ‘13-’20

13

Growth in Fleet and Leasing Market in EuropeTurkey promises to be an exciting market for fleet leasing followed by Spain, while UK, France and Germany will continue to be big market for company car fleet

Note: Company cars includes outright purchase, operational and financial leasing. Source: Frost & Sullivan

25% 30% 35% 40% 45% 50%0

2

4

6

8

10

12

Company Car Penetration of Total PV Sales in 2012 and 2020 (Dark metallic Bubbles represent 2012 while lighter shade represent 2020)

2012

-202

0 O

pera

tiona

l Lea

sing

Mar

ket C

AG

R

(%)

2012 2020

4.2 Million Company Car Registrations

SpainUK

Netherlands

FranceItaly Germany

Belgium

Turkey

Italy

France

UK

NLTurkey

Spain

Germany

Italy

France

UK

NLTurkey

Spain

Germany

Belgium

Belgium

5.1 MillionCompany Car Registration

Total Corporate Fleet and Leasing Market Unit Sales, Europe 2012 and 2020

14

Global Powertrain Mix—Sales by Region SnapshotGasoline is to remain the main fuel type, accounting for over 70% of the global fuel market; diesel powertrain growth will occur in India

*Note: Light vehicle includes personal vehicles (PVs) and light commercial vehicles (LCVs). The Powertrain Mix in China and Japan consider only PVs. The mild and full hybrids in Japan are shown under the “full hybrid” legend. Mild and full hybrids are shown as a part of gasoline and Diesel in China, India, South America and Korea.

Total for 2014 represents the sum of regions shown. All figures are rounded. The base year is 2013. Source: LMC Automotive and Frost & Sullivan

China Japan India Europe North Amer-ica

South America

Korea0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

18,000,000

20,000,000

98.0–98.5%

69.0–72.0% 37–38%

43–45%

92–94%

33–34% 72–75%

1–2%

0.5–1.2%

55-56%

51.5–53.5%

2–3.5%

9–10%

16–20%

0.2–0.4%

1–1.5% 0.2–0.3%

0.4–0.7% 0.5–1%

~0.02%

0.1–0.2%

27-29%

1–1.5%

2.5–3.5%

7–8%

2–3%

0.2–0.5%

56–58% 4–6%

0.5–1%1–1.3%

GasolineDieselAlt. FuelsMild HybridsFull HybridsEVs

Expected Light Vehicle* Unit Shipment by Region and Powertrain Mix, Global, 2014

Uni

ts (M

illio

n)

~72.0 Million

72–75%

17–20%

5–6%

2014

China, 19.2 M

Japan, 4.2 M

India, 4.1 M

North America,18.6 M

South America, 6.1 M

Europe,18.1 M

Korea1.6 M

Others3–4%

15

Electric Vehicle Sales—2013In 2013, EV sales increased by 58.6 percent and about 190,000 units were sold globally - in comparison to 119,748 units sold in 2012-2014, Forecast Suggests 280k unit sales

The United States50%

Europe26%

China5%

Australia0%

Japan17%

BEV58%

eREV14%

NEV2%

PHEV22%

Unclassified4%

Electric Vehicles, Sales by Country, Global, 2013

Note: Figures are rounded. The base year is 2013. Source: Frost & Sullivan

The Unit

ed Stat

es

German

yFran

ce

Norway

The Unit

ed King

dom

Denmark

Switzerl

and

The Neth

erlan

ds

Austria

Sweden Ita

lyOthe

rsJa

pan

China

Austra

lia

97,936

6,88914,204

7,6651,728 453 1,071

8,272820 1,840 1,422 3,800

31,180

9,532278

Uni

ts

Country Note: Others include - other European countries

Electric Vehicles, Sales Breakdown by Region, Global, 2013 Electric Vehicles, Sales Breakdown by EV Type, Global, 2012

Note: November & December 2013 sales have been extrapolated

16

Key 2014 Powertrain Market Trends Global emissions norms (Euro 6/7, EPA, 2020 ACEA) and fuel economy standards (CAFE, CAFC) constantly encouraging OEMs and the automotive value chain to innovate and adopt varying global powertrain strategies

Turbo Engine Downsizing

Alternative Fuels

Powertrain Modularity and Lightweighting

High Speed Transmissions

Dual Clutch Transmissions

Powertrain Electrification

Emission reduction & Fuel Efficient ICE

technologies

2- and 3-cylinder engines, Reduced engine displacement,

Downspeeding

High speed DCT, 8/9/10-Speed

Aluminium, Modular construction, parts commonality

Wet and Dry clutch DCT PHEVs, Diesel hybrids, transmission electrification, EVs,

Range Extenders

Ethanol, LPG, CNG, Hydrogen Fuel Cell, gas plants

DI, VVT, SCR, EGR, LNT, Start-Stop, Cylinder Deactivation, GPF

Drivers: Euro6, ACEA,EPA, CAFE

Fuels, Lubricants and Engine Oils

Low Viscous Oils – 0WLow-SAPS

Enhanced Additives

17

Shift from Vehicle Ownership to Vehicle UsershipThe divisions between segments is reducing. The market is moving away from traditional car ownership and car leasing model to a more dynamic and flexible mobility afforded by car sharing and car rentals

up to 24 hrs up to 2 weeks up to 36 months0

5000000

10000000

15000000

20000000

25000000

~45.0–50.0% share by Enterprise, Hertz,

Avis, Europcar

Others include D’Ieteren, Sixt AG

and so on

ALD

~75.0–78.0

Others include VW Leasing, Arval, Sumitomo

Mitsui, Alphabet, RCI Banque, Lex Autolease,

Athlon and so on.

Car Sharing Car Rentals Car Leasing

About 30.0–35.0% of the global share

is held by Zipcar,

Car2Go and Drive Now

GE CapitalARI

ORIX

Uni

ts (M

illio

ns) ~5.26 million

~31 million

~450,000

2012

2020

~53,600

~4.15 million

~19.25 million

Note: All figures are rounded; the base year is 2012. Sources: LMC Automotive, Frost & Sullivan.

Vehicle Rental Business, Europe, 2013 and 2014

18

Corporate Carsharing to be a Key Growth Market in 2014 ~1,750 vehicles used for corporate carsharing in Europe (2013); the providers were a broad mix of OEMs, leasing providers, Carsharing Operators, and mobility/technology providers, indicating the opportunity for partnership & convergence

Key Participants Typology Corporate Solution

Vehicles (2013) Countries (2013)

BMW OEM AlphaCity* 200

PSA/ Sixt OEM/ Leasing Share Your Fleet 0 (launched Oct ‘13)

Volvo/ Sunfleet OEM/ Traditional CSO Sunfleet 30

ALD Automotive Group Leasing ALD Sharing 50

Avis/ LeasePlan Car Rental/ Leasing Avis on Demand 10 Luxembourg**

Mobility Carsharing Traditional CSO Mobility Carsharing 420

Move About Traditional CSO Move About 90 Norway

Mobility Mixx Mobility Solutions Provider Mobility Pool 400

Carbox Services (excluding indirect

relationships through leasing companies)

Mobility Solutions Provider Carbox 500

Others (Renault, Arval, Athlon, Greenwheels) OEM, Leasing, CSO CAR+ Autopartage,

Athlon Car Lease, Est. 50

Corporate Carsharing Strategy of Key Participants, Europe, 2013

Others are Renault, Arval, Athlon Car Lease and Greenwheels.* AlphaCity launched in Spain and Austria in Q4 2013.

** Flag symbol not used since Luxembourg’s flag is almost identical to that of the Netherlands; Note: Mobility Mixx is an initiative of LeasePlan Netherlands. It is different from the LeasePlan/Avis venture and has been defined as one of the market participants in this study

Source: Frost & Sullivan

19

Future of Car Retailing : eRetailing and Digital Retailing to Grow By 2016 OEMs are expected to open more than 100 digital showroom/lifestyle stores globally, strategically located in city centres.

2013-14Before Clicks

2014–2015After Clicks

Digital Showrooms, pop-up stores, lifestyle stores

Single-channel auto retail Omnichannel (click-based retail)

Car loan financing at dealerships Online leasing /finance

TV ads and campaigns Social media and digital campaigns

Big-box formatcar showrooms

Images and logos are only for illustration; Source: Frost & Sullivan.

20

Automotive Parts eRetailing Showing Huge Global Promise

Online parts sales represent 7-8% of

total DIY parts revenue,

compared to just 3% for total aftermarket

revenue

Amazon, eBay drive over 65-70 percent of total automotive parts and accessories

merchandise value

Traditional parts retailers creating

aggressive strategies, acquiring

eRetailers to increase share

Unlike U.S., tires are top sellers in

EU regions, accounting for

about 20-25 percent of total

online sales

Online parts pricing (20%-40%

cheaper) key success driver;

shipping times, cost will

determine next wave of

competition

The DIY Choice

MarketplaceWinning

Parts RetailersRamping Up

Tires Top Category

All About Pricing

What does this mean for OEMs?

Diversification of digital channels (apps,

dedicated portals, product videos) for DIY customers

Partnerships with current aggregators /eRetailers and emerging ones such as Google

‘Bricks and clicks’ strategy with emphasis on fulfilment (delivery times, options)

1 2 3 4 5

Images and logos are only for illustration; Source: Frost & Sullivan.

21

OEM Comparative Analysis – Overall Automated Driving Strategy While traditional OEMs tend to target an identical launch plan across functions, segments and regions, Google’s model agnostic approach could be the game changer

OEM Automation Level

Launch Year

First Models Top Level Functions Region of Introduction

TJA APA Hwy

BMW Semi-Highly

20142017

X55- / 7-series

Europe & North America

Mercedes Benz Semi-Highly

20142017

E-ClassS-Class

Europe, North America, Australia

Audi Semi-Highly

2016 A8 Europe & North America

Volkswagen Semi- 2017 Passat Europe & North America

General Motors (Cadillac)

Semi-Highly-

2018>2020

SRX, ATS & XTS

North America

Ford Semi-Highly

20172020

FusionExplorer

Europe & North America

Lexus Highly 2020 LS Japan, Europe & North America

Nissan Highly 2020 Leaf Europe & North America

Volvo Semi 2015 XC90 Europe & North America

Google Fully- 2018 Model / OEM agnostic

North America

TJA – Traffic Jam Assist APA – Autonomous Parking Assist Hwy – Automated Highway Driving

Source: Frost & Sullivan analysis.

22

By 2020, about 90% of vehicle will be connected and geo-connected North America has been at the forefront in the connected car space because of OEM willingness to risk new business models and dedicated partnerships/ecosystem efforts

2%

2013

Europe North America China ROW

15%

Emb

Emb+Teth

80%

40-50%

Emb+Teth

100%

Emb+Teth

Emb

50%

Emb

2013 2020 2013 2020 2020

1%

Emb

50%

Emb

2013 2020

Connectivity Market Update, Global, 2013 to 2020

Emb - Embedded Teth - TetheredSource: Frost & Sullivan analysis.

23

Current OEM Telematics Service Offering in EuropeOEMs like BMW and Volvo who have had branded telematics service for over 6 years have seen minimal uptake because of cost. Ford and Mercedes Benz are new entrants from 2012

OEM BMW Mercedes Benz

PSA Ford Volvo

Telematics Program Assist eCall Peugeot

ConnectSYNC

Emergency On Call

Integrated with Navigation Systems

Yes Yes NoYes (Part of

SYNC Hands Free System)

No

Upfront Costs (Euros) ~3100 ~3120 290 ~900 ~400-650

Trial Period 3 years Lifetime 10 years Lifetime 2 Years

Subscription Fee (Euros) ~200/Year NA NA NA ~200/Year

Automatic & Manual eCall Yes Yes Yes Only Automatic Yes

Embedded SIM Yes- 2G Yes-2G Yes- 2G Tethered Yes- 2G

Key Partners Vodafone, ATX Bosch IMA, P&T Luxemborg NA

Wireless Car, Telenor

Connexion

Source: Frost & Sullivan.

24

Why Big Data – The Business Case Key driver for implementing a three pronged big data (internal, external and connected) strategy is the billion dollar cost savings it can provide OEMs/year, and new revenue generation opportunities it can generate across the industry eco system

Digital Leads

Warranty Costs Reduction, Predictive

Maintenance

User & Dealer Satisfaction

Internet Aggregators

Advanced Mobility services, Dynamic Navigation and

Parking

Product Performance Analysis, Production and

Supply Chain

Images and logos are only for representation Source: Frost & Sullivan.

25

Key Conclusions

Key Conclusions

1 Global sales are expected to grow by 5 percent to reach 88.5 million vehicles. The U.S. market is expected to reach 16 million and China to cross 24 million in sales.

2The compact vehicle segment is expected to be the most attractive, accounting for over 31 percent share. The SUV and luxury vehicle segments are expected to increase market growth in the U.S. and China.

3 More than 50,000 cars are expected to be sold exclusively online which includes Daimler, Renault, BMW i brand, Dacia, Ford.

4 Changes in emission norms in key global markets is to impact powertrain technologies and regional OEMs strategies

5Netherlands, Denmark, Austria, Germany and France to become the first European nations for Vehicle to Infrastructure communication implementation with the C-ITS corridor.

26

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For Additional Information

Pete KellyManaging DirectorLMC Automotive, Ltd.+44 1865 791737PKelly@lmc-auto.com

Shwetha SurenderSenior Research AnalystAutomotive & Transportation(+91) 44 6681 4041shwethas@frost.com

Sarwant Singh Senior PartnerAutomotive & Transportation+44 (0) 207 915 7843sarwant.singh@frost.com

Katja FeickCorporate Communications Manager Europe+49 (0) 69 7703343katja.feick@frost.com