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BREXIT Impact on the Automotive Industry

AutoForecast Solutions LLC (AFS) provides a detailed analysis of the current and future automotive production footprint in the UK and other jurisdictions affected by the recent BREXIT vote. Contact us for more global automotive insight. info@autoforecastsolutions.com

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BREXIT Impact on the Automotive Industry

  1. 1. www.autoforecastsolutions.com AutoForecast Solutions AutoForecast Solutions LLC Market Alert The BREXIT Vote& theAutomotiveImpact ProductionOutlookandScenarioAnalysis August2016 Joseph McCabe, President www.AutoForecastSolutions.com 855.734.4590 ext. 1001
  2. 2. www.autoforecastsolutions.com AutoForecast Solutions What is in the Report • This presentation highlights the potential impact the recent vote (on June 23rd, 2016) by the United Kingdom to exit the European Union has on its domestic automotive market as well as collateral effects on the global community. • with our partners at provide a detailed vehicle and powertrain forecast to our global clients on a monthly basis; focused on an eight-year planning window. • We supply these forecasting solutions to the global automotive community – currently be utilized by customers ranging across global OEMs, suppliers, government agencies, financial institutions, and academia. • Using our proprietary forecasting tool, AFS Scenario, light vehicle production scenarios were created based on various market criteria to understand the potential impact of UK and EU actions resulting from the BREXIT vote. • This study focuses on the current and future automotive footprint of the major OEMs in the UK. The final outcome of the BREXIT, with speed-to-completion and the level of willingness of the remaining EU countries to maintain a strategic business relationship with the UK, will be major factors driving the future landscape. Contact AutoForecast Solutions LLC for more information on our Production Forecast Databases and Business Intelligence Software used to create this report Joe McCabe jmccabe@autoforecastsolution.com 855.734.4590 x1001 2 AutoForecast Solutions
  3. 3. www.autoforecastsolutions.com AutoForecast Solutions The UK AutomotiveIndustry:Landscape& Issues • The UK is currently one of 28 countries within the European Union • 11 EU member countries maintain engine production facilities as of 2015 • 12 EU member countries maintain transmission production facilities as of 2015 • The UK is home to: • 17 different automotive brands produced by 13 OEMs • 7 major light vehicle engine facilities in the UK producing products for light vehicles in 31 countries • 1 major light vehicle transmission facility in the UK producing products for light vehicles in 13 countries • On June 23rd, 2016, the United Kingdom voted to leave the European Union by a 51.9%/48.1% vote – otherwise known as “Brexit” • Per SMMT, the automotive industry in the UK accounts for more than £71.6 billion turnover and £18.9 billion value add: • 169,000 directly employed in manufacturing operations – 814,000 throughout the automotive industry • The automotive market accounts for 12% of total UK exports • 80% of components in a car can be made in the UK • 41% average content per vehicle in UK assembled cars • Average value of a car exported from the UK as of 2015 was £20,900 • £ 2.5 billion invested annually in R&D • 30 vehicle manufacturers (VMs), building over 70 models, supported by more than 2,000 component suppliers • Light vehicle imports into the UK are nearly 90% of the total market • EU countries (excluding the UK) are the predominant source of vehicle imports to the UK (approx. 80%) • Through 2015, Over 77% of vehicles produced in the UK are exported: • 57.5% consumed by the EU • Other top export destinations include: US (10.9%), China (7.0%), Turkey (2.9%), Australia (2.8%), Russia (2.0%) • Domestic applications of engines in the UK have increased from 35% in 2015 to 44% in 2016 as a result of more localized investment (primary Tata) • From a supplier perspective, approximately 50% of automotive components used in vehicles assembled in the UK are imported from the EU 3
  4. 4. www.autoforecastsolutions.com AutoForecast Solutions The UK AutomotiveIndustry:RecentInvestment • Tata (Jaguar / Land Rover) • £1 billion and 1,300 new UK jobs for its West Midland manufacturing sites • Honda • £200 million investment and recruitment of 500 new employees to produce the Honda Civic in Swindon 2 • Nissan • Announced £137 million to produce new Juke and a new extra-large press line at Sunderland • Announced 300 new jobs for production of the Infiniti Q30 and QX30 at its Sunderland Plant • Ford • Announced £181 million for new low emission engines at its Bridgend facility 4
  5. 5. www.autoforecastsolutions.com AutoForecast Solutions Market Scenarios – Basis • Leadership ignores vote and remains in EU • Currencies and markets stabilize • Reflected in the June 2016 AFS global production forecast • <5% probability - Dismissal by the UK government of a recent online petition signed by over 4 million people for a second vote further reinforces this as a low probability result 5 Best Case Scenario Probable Scenario Possible Scenario Worst Case Scenario • The exit process is streamlined (<1 yr) • UK and EU economies see a short-term negative affect (6-9 months) • Favorable trade agreements between the UK and the EU are enforced for goods and services (either enforcement of existing or some hybrid compromise) • Consumer confidence declines but recovers in the mid-term • >50% • The exit process is slow (>1 year) • A lagging uncertainty results in a substantial UK / EU recession • Favorable trade agreements between the UK and the EU are enforced for goods and services (either enforcement of existing or some hybrid compromise) • Consumer confidence is impaired for a greater period • 25% • The EU “punishes” the UK for their decision to exit as an example to other countries who may be investigating the same strategy. • Economies of both the UK and the EU are substantially affected for a period of no less than 5 years • Reevaluation of assembly plants and component supplier locations will be focused in areas outside the EU in an effort to limit future exposure to another EU country exodus • No trade agreements are enforced, resulting in 10% duty on vehicles and 4% duty on parts • A ripple effect, similar to Australia is almost certain – leading to a greatly diminished and eventual non-existent automotive footprint in the UK • <10%
  6. 6. www.autoforecastsolutions.com AutoForecast Solutions Market Exposure / Risk Analysis In terms of market exposure and overall risk, ranked from highest to lowest annual light vehicle and/or powertrain production volume footprint in the UK as of 2015: • Tata – With a heavy investment in the UK, Tata is not expected to exit the jurisdiction (or at least, viewed as the last to leave). However, future investment will be focused in areas such as Brazil, China, and Slovakia. Recent investments in their UK engine facility will limit exposure to any tariffs imposed on components and support the decision to stay. Land Rover/Range Rover products considered “Made in England” and therefore any movements from the jurisdiction may be detrimental to brand equity. Recent investment in Slovakia capacity provides Tata with several benefits including lower labor costs, access to the Eastern European market, and continued membership in the EU. • Ford, with a significant powertrain footprint at two facilities, will benefit in the short term with the Sterling devaluation impact on exports. However, maintaining some of the top selling vehicles in the country without domestic production support, the exchange rate benefit will be offset in the long term should economic conditions not improve quickly with the BREXIT process. • Nissan – Significant volume footprint in the UK. Will need to investigate more consolidated platforms with Renault partner to utilize facilities outside UK. Currently, no existing plant capacity available to absorb domestic volume, therefore any exit from the market will require a substantial investment. The Nissan issue is a perfect example for the need to consolidate global vehicle architectures, allowing for product sharing across the same platforms and easier movement of a production footprint to limit exposure in volatile markets. Movement of this amount of volume (500K+/yr.) will cost billions and take a significant amount of time to complete. • BMW – With a majority of parts supplied from Germany, future investment from BMW into their “Made in England” brand, Mini, will be focused outside of The UK. However, similar to Land Rover, this may be detrimental to the equity of the brand. Additionally, the majority of BMW vehicles sold in the UK are sourced from South Africa (right-hand drive units) – limiting future tariff exposure. • General Motors – High volume production of a low cost vehicle (Opel Astra) and the Opel/Vauxhall Vivaro van provides significant exposure to sales directly proportional to any imposed tariffs. Without any free trade agreements put into place, GM is viewed as the first VM to exit the UK in preference for another facility, further supported by the fact that GM maintains the lowest parts localization in the UK (approx. 25%) according to the Cardiff Business School. • Toyota – Only two Toyota nameplates (Auris and Avensis) currently produced in the UK. Toyota has been working for years to increase its capacity within EU-located plants, with talk of adding CUV production. However, the Burnaston facility is underutilized (approx. 60% utilization). Recent adjustments to the AFS global forecast have the next generation Avensis cancelled at the UK plant – further reducing plant utilization and providing a gateway to either exit the domestic market or add vehicles. As of now, Toyota products can be moved from the UK facility. Similar to Tata, investigating a new facility in an Eastern Europe EU member country could be a viable option. • Honda – With capacity of 250,000 units/yr., and recent investment for Civic production, the Swindon 2 facility is the global source of the Civic Hatchback. Primarily an exported vehicle, additional tariffs could force Honda to investigate relocating production to reduce pricing exposure on this low cost vehicle. All factors remaining the same, decisions for product investment/migration will be determined based on the number of hurdles and speed to complete the BREXIT process. 6
  7. 7. www.autoforecastsolutions.com AutoForecast Solutions UKLightVehicleProduction-Scenarios (2015–2023) 7 1,300 1,400 1,500 1,600 1,700 1,800 Thousands June 2016 Forecast July 2016 Forecast Worst Case Scenario • June 2016 Forecast • Pre- Brexit vote, presumption to STAY in EU. • Although a strong first half of 2016, We are general conservative on the UK market, with a near flat outlook of vehicle production. • July 2016 Forecast • Post-Brexit results of vote to LEAVE. General softening of the market as a result of an unknown future, time to completion, reduced consumer confidence, and a weakened currency • Since we were already conservative on the UK prior to the BREXIT vote, annual vehicle production volume is expected to decline in UK by less than 100K/yr. in our July 2016 forecast. • Worst Case Scenario • UJK is “punished” with no free-trade agreements with the EU. Economic conditions deteriorate along with consumer confidence. GM moves their vehicle production footprint to other EU countries, and other VMs are affected by tariff issues • Annual vehicle production volume decline in UK by an additional 300K/yr. 300K 100K Source: AutoForecast Solutions – July 2016
  8. 8. www.autoforecastsolutions.com AutoForecast Solutions EUPowertrainProductionExposure UK Engine Production Consumption Domestic vs. Remain EU 41% 59% UK Rest of EU 8 0% 100% UK EU less UK 2023 UK Transmission Production Consumption Domestic vs. Remain EU 2015 • UK engine production footprint is less exposed to a EU exit with a higher domestic consumption rate as compared to domestic transmission production, which is virtually zero post 2019 • However, regardless of scenario analyzed, it is unlikely that the UK powertrain footprint will dramatically change 2023 2015 Source: AutoForecast Solutions – July 2016
  9. 9. www.autoforecastsolutions.com AutoForecast Solutions Conclusions & Implications • The Consumer & Business Climate • With a devalued Sterling and an uncertain future, consumer confidence will weaken and business investment in the UK will be delayed. Vehicle sales in the short term should remain strong, especially with the long view of future price increases if free trade agreements are not established. This too will soften in the future as a BREXIT strategy is established. • Vehicle Production/Sales • Short to mid-term sales are not expected to be impacted • Similar in result to when a jurisdiction offers a time-based tax incentive, demand may actually increase as we approach a BREXIT resolution in an effort to prepare for uncertainty. This will cause a ripple in a short-term sales decline shortly after the process is finalized • 3 of the top 10 vehicles sold in the UK are produced domestically • Nissan Qashqai (5th best seller through June 2016) • Opel/Vauxhall Astra (6th) • Mini (8th) • Ford Fiesta, Vauxhall Corsa, and Ford Focus maintain the top 3 best selling cars in the UK respectively and are NOT assembled in the UK • Without a trade agreement in place, these traditionally low cost cars could suffer in terms of domestic sales • Demand for UK-built vehicles has steadily increased, with nearly 77% of production for the export market • Significant domestic production impact expected if trade agreements are not established • Powertrain Capacity • Through May 2016, Just over 56% of UK engine production was destined for export consumption, with the split of gas and diesel nearly equal – per SMMT (down from 64% in 2015) • Recent investment in engine production (specifically from Tata) has improved the UKs domestic powertrain content; providing a benefit for Jaguar/Land Rover products • Ford’s large engine production footprint (export-focused) provides a near-term financial benefit with the devalued Sterling, but a long-term loss offset by potential vehicle price increases – expectations for cost reduction through innovation, light-weighting, and supply chain input is expected to solidify their competitiveness in the UK • Both Toyota and Honda are currently not maximizing their UK engine capacity • Magna (via it’s newly acquired Getrag-Ford transmission facility in Halewood, UK) is the only volume transmission producer in the UK and is in prime position to capitalize on domestic supply if trade agreements with the EU are not negotiated 9
  10. 10. www.autoforecastsolutions.com AutoForecast Solutions Conclusions & Implications (Cont’d) • Relocation Strategies • Other EU members may consider an exit strategy based on the results of the UK move • The process of migrating production to another country to maintain a strong economic position within the EU will not be an easy task. This is especially true in the larger EU countries which also maintain the largest automotive footprint in the jurisdiction • Investment in Eastern European EU members to maintain membership access, Eastern European access, and lower labor costs • Countries like Slovakia, Poland, and the Czech Republic are unlikely to leave the EU if brought to a vote • Basically, Eastern Europe has the most to gain in terms of manufacturing capacity investment. Expect these countries to offer significant incentives for local VM and supplier investment • With Turkey’s desire to become an EU member, investment strategies into this key, expanding automotive jurisdiction, should be taken seriously • Vehicle Architectures • Exposure to volatile market conditions that may threaten short/long-term production costs strengthen the necessity for more global vehicle/powertrain architectures and manufacturing commonality. This would allow a more fluid process to migrate production to less volatile jurisdictions to allow markets to stabilize. • Ripple Effect • VMs are notorious for applying pricing pressure on their supply base. With a 4% tariff on parts, the concern that the supply chain will be “forced” to share in the pain is highly likely. Large suppliers may either a) be able to say no, or b) share in the load with high volume contracts. Smaller suppliers will not be as fortunate to accept either of these options. • Ace up their Sleeve? • The ongoing Transatlantic Trade and Investment Partnership (TTIP) may provide the UK with the economic benefits of EU and North America free trade participation without the other social and political issues associated with EU membership. This is especially important due to the “special relationship” the US and UK maintain – providing the UK with the opportunity to join the TTIP negotiations sponsored by the US. 10
  11. 11. www.autoforecastsolutions.com AutoForecast Solutions Conclusions & Implications (Cont’d) • A majority of the scenarios analyzed by AFS favor some level of positive negotiations to maintain free trade agreements between the UK and the EU. Time to completion is the major element in determining the level of economic impact of these scenarios. However, if no acceptable free trade agreements are put into place, there will be significant risk in product migration out of the local market. Results may include: • Ford is at the greatest risk with no vehicle production facilities in the UK and maintaining several of the best selling vehicles in the jurisdiction. A large engine manufacturing footprint will provide some revenue offset with high exports and a devalued Sterling, but not enough to maintain a net gain. • Imported, right-hand drive, BMWs and Mercedes-Benz vehicles are sourced from South Africa. UK may be able to establish a separate free trade agreement with the country even if EU agreements are not established • The Mini brand is well accepted as a core UK brand and improved sales in non-EU countries are increasing their likeliness to remain in the UK • GM can change the product footprint at the Ellesmere Port plant in order to capitalize of maintaining 3 of the top 10 best selling vehicles in the UK to their facility (Vauxhall Corsa, Astra, and Mokka). However, developing an exit strategy to move production is more likely. • All three products will share the new GM VSS architecture – providing improved commonality in parts and manufacturing processes • Next generation not scheduled until 2018 at the earliest, so any non-favorable trade agreements may accelerate this timeframe if GM decides to maintain a UK assembly footprint • The future Toyota NGA vehicle architecture (shared with the next generation Auris and Avensis) will also be built in Turkey starting in 2018. Toyota can investigate migrating the UK product to this facility. • Production migration out of the UK is possible since neither of the Toyota vehicles produced domestically are in the top 10 best selling list • Recent news indicates the next generation Avensis will NOT be assembled in the UK with no replacement as of now • The Auris is built in the UK and Japan only • With a recent investment, and as the lead global plant for the Civic Hatchback, Honda has made a significant investment in the UK. Turkey is also an option for Honda, but less likely since the UK investment is fairly recent. • Nissan has a significant product footprint and may need to leverage its Renault partner should plant migration be needed. However, the sheer size of their UK footprint will not be an overnight move and will be costly. 11
  12. 12. www.autoforecastsolutions.com AutoForecast Solutions Supporting Documentation Scenario Analysis 12
  13. 13. www.autoforecastsolutions.com AutoForecast Solutions AFS ProductionForecast– June 2016 Highlights • The June 2016 global release from AFS was based on the premise of a vote in favor of the UK remaining in the EU. This is currently defined as BEST CASE Scenario. • Prior to the vote, The UK was viewed in a neutral production position, with a near-flat topline forecast • As of July 11th, 2016, an online petition for a second referendum on Britain’s EU membership, signed by over 4.1 million people, was rejected by the UK government. This further influences the position that a BEST CASE scenario result, where the leave vote is overturned, has a less than 5% chance of success. • There is a significant amount of EU exposure currently embedded in the UK automotive production footprint, both from an assembly and component perspective. • Short term vehicle sales will maintain a steady growth path, with domestic exports and EU imports to maintain a high percentage of the trade • Consumer confidence will soften in the short term under the pressure of uncertainty, but a decision to remain in the EU adds new life to sales and improves domestic business investment • Domestic producers will benefit from increased export sales with the devalued Sterling. 13
  14. 14. www.autoforecastsolutions.com AutoForecast Solutions AFS ProductionForecast– July 2016 Highlights • The most recent global production forecast from AFS (July 2016) represents the more probably outcome of BREXIT. This includes the UK exit from the EU with the eventual, and somewhat fast-tracked, establishment of free trade agreements. • The UK has gone through an unprecedented multi-year run of year-over-year vehicle sales increases. Domestic vehicle sales are anticipated to slow in the wake of the BREXIT uncertainty supported by a reduction in consumer confidence, and the devalued Sterling. As we approach the finalization of BREXIT, sales should stabilize but still be depressed in comparison to current market conditions. This process of reduced vehicle sales should extend over the next 2-3 years. • Short-term benefits for export sales are expected as a result of the devalued Sterling • It has not been determined yet if trade agreements established between the UK and the EU will need to follow the same rules as the current agreements (inclusion of non-EU countries through pass-through agreements) or if the UK will need to re-establish trade agreements with non-EU countries on an individual basis. • As exports to emerging markets increases (i.e., China), it is anticipated that the UK will focus on establishing trade agreements with these areas. • The UK can focus on regaining EU trade benefits by attempting to join into the Tran-Atlantic Trade and Investment Partnership (TTIP). • Although not on the list of members, the UK can leverage it’s “special relationship” with the US to gain entry • Per the Centre for Economic Policy Research, UK motor vehicle output could increase by as much as 7% as a direct result of inclusion in the TTIP • OEMs will be forced to increase incentives, which should stabilize sales in the short, to mid-term. Additionally, a short-term sales push towards the end of the BREXIT process is expected as a result of future market uncertainty – which provides the catalyst for a sales decline and overall production base ripple effect to markets supplying the UK. AFS expects this to begin no sooner than Q4 2016. • Short, to mid-term production of both vehicles and powertrain components will remain flat, with a future impact to take shape closer to late 2017 as more information of the exit plan is divulged. OEMs will maintain production levels in the short term to leverage the depressed Sterling and high export product mix. • AFS has been traditionally conservative on UK vehicle production growth – even before the BREXIT vote. Although actual vehicle production year-to-date through June 2016 is running at 14% growth, we are forecasting 8.8% growth YOY in our pre- and post- BREXIT vote results for 2016. Post 2017, Production volumes are expected to decline by 2-4% per year as OEMs and suppliers hedge their bets against the volatility. 14
  15. 15. www.autoforecastsolutions.com AutoForecast Solutions AFS ProductionForecast– July 2016 (cont’d) Impact • For the high volume BMW and Mercedes Benz vehicles sold in the UK, right-hand drive versions are sourced from South Africa. South Africa maintains a free trade agreement with the EU. The UK may be able to establish trade agreements with Africa unilaterally from any EU trade agreements. • High end brands such as Aston Martin, McLaren, and Land Rover will command a short-term benefit for the devalued currency/high export balance • Non-European based OEMs will continue to evaluate the risk/reward balance for remaining in the UK. Future investment is unlikely, with a focus on Eastern European EU members, and potentially countries like Turkey, as a method for maintaining EU bargaining and greater access into new markets. • The current forecast from AFS does not see the necessity to close any UK-based vehicle and powertrain facilities for several reasons: • Domestic-based brands maintain a strong brand equity and local supply base • Foreign-based manufacturers have selected the UK for its accessibility to the EU market and can leverage investment in innovation and working closely with the supply chain and government to ease the financial burden • Most plants in the UK are either the global lead plant for the products it currently builds OR is the largest plant supplying these products to all of Europe; reducing the feasibility of plant migration 15
  16. 16. www.autoforecastsolutions.com AutoForecast Solutions UK Light Vehicle Production-July 2016 Forecast 0 500 1,000 1,500 2,000 Thousands UK Light Vehicle Production by Brand Toyota Tata Rolls-Royce Opel/Vauxhall Nissan Morgan MINI McLaren LTI 16 0 500 1,000 1,500 2,000 Thousands UK Light Vehicle Production by VM Volkswagen Toyota Motor Tata Renault/Nissan Proton Morgan McLaren Cars Honda Motor General Motors 17 18 18 19 19 20 Millions EU Light Vehicle Forecast EU 0 20 40 60 80 100 120 Millions Regional Light Vehicle Forecast WESTERN EUROPE SOUTH AMERICA NORTH AMERICA MIDDLE EAST/AFRICA EASTERN EUROPE ASIA-PACIFIC Source: AutoForecast Solutions – July 2016
  17. 17. www.autoforecastsolutions.com AutoForecast Solutions UK Engine Production – July 2016 Forecast 0 500 1,000 1,500 2,000 2,500 3,000 3,500 Thousands UK Engine Production VW - Crewe Toyota - Deeside Engine Tata - Wolverhampton RNNS - Sunderland Honda - Swindon 1 Ford - Dagenham Ford - Bridgend BMW - Hams Hall 17 • 7 major manufacturers maintain engine production facilities in the UK (top left chart). • Ford (Bridgend and Dagenham) maintains the largest production capacity, with over 1 million units of annual production • As of 2015, Tata has made a significant investment in the region, going from just over 100K units per year at its Wolverhampton plant, to nearly 700K per year by 2023. • In terms of major EU vehicle applications sourced from the UK in 2023, approximately 30% of UK-built engines are consumed domestically while 35% are consumed in Germany, 18% in Spain, and 10% in France. EU Countries 71% Non-EU Countries 29% UK Engine Production by Destination (2023 values displayed) Source: AutoForecast Solutions – July 2016
  18. 18. www.autoforecastsolutions.com AutoForecast Solutions UK TransmissionProduction– July 2016 Forecast 0 200 400 600 2015 2016 2017 2018 2019 2020 2021 2022 2023 Thousands UK Transmission Production Getrag Ford - Halewood 18 • The Getrag-Ford facility (now part of Magna) is the only volume transmission producer in the UK of significance for this analysis • As the primary domestic transmission producer, Getrag (Magna) is positioned to benefit from increased domestic content should tariffs be levied as part of the exit process. • By 2019, domestic consumption of UK-built transmission is nearly zero • With no domestic Ford vehicle production, consumption of Getrag transmissions in the UK is currently minimum. Relationships with the domestic assemblers will have to be strengthened • The minimal exposure in domestic content for Getrag will benefit the company through a combination of export consumption and the short-term exchange rate benefit with the weakened Sterling. Production (through 2020) remains healthy, with just a slight softening through 2023. • In terms of EU exposure, Getrag’s primary customer destinations are Germany and Spain • Getrag will need to continue to expand non-EU member customers to offset the impact and remain competitive against other EU transmission suppliers EU Countries 64% Non-EU Countries 36% UK Transmission Production by Destination (2023 percentages displayed) Source: AutoForecast Solutions – July 2016
  19. 19. www.autoforecastsolutions.com AutoForecast Solutions AFS ProductionForecast– Worst Case Scenario(cont’d) Highlights • Using the proprietary AFS Scenario tool, we are able to create and analyze a BREXIT worst case scenario at the detailed level • This scenario focuses on limited to no free trade agreements established between the UK and the EU as a methodology for the EU to “punish” the UK and set an example for other members as a deterrent to follow the exit path. Although a highly unlikely outcome, this scenario still needs to be taken into consideration. • Key domestic vehicle and powertrain producers will begin to investigate costs and determine if an exit strategy is needed, followed closely by the supply base. Migration of product to other EU countries is in focus, with Eastern Europe EU member countries the most likely candidates to benefit. Turkey also viewed as a potential beneficiary due to its increasing automotive industry and desire to become an EU member. • Although equally unlikely, but necessary for discussion, The UK will not be “invited” to participate in the TTIP • GM and Toyota will be on the shortlist for a UK evacuation. Domestic OEMs, like Mini and Land Rover, will also be greatly affected as an exodus from the UK will damage the supply base and other secondary markets. • Some manufacturers, like Nissan and Honda, will put merit behind their UK plant being the sole-source for some EU consumed products, and look to other measures to reduce the cost penalties • Suppliers will follow their VM customers to support localized content to improve just-in-time supply. An exodus of VMs from the UK market will also place a burden on the supplier community, forcing their exit in response. This will affect hundreds of thousands of people directly/indirectly connected with the domestic automotive market • Traditionally, once an automotive footprint leaves a jurisdiction, it does not return • Consumer confidence will be greatly reduced and foreign investment in manufacturing will be considerably suppressed; potentially putting the country into a recession • The devalued Sterling will not recover enough to offset loses – further depressing consumer confidence. Markets supplying the EU will be affected as a result. 19
  20. 20. www.autoforecastsolutions.com AutoForecast Solutions AFS ProductionForecast– Worst Case Scenario(cont’d) Vehicle Impact Analysis General Motors • The Opel Astra is also built in Poland. The plant would need to double in size to accommodate moving the UK volume. • 40% of the Astra’s assembled in the UK were sold domestically, but this was only 25% of the total nameplate sold across Europe • It is feasible for GM to make an investment into their Gliwice, Poland facility – making it the global source plant for the Astra nameplate and shutting down Ellesmere Port in the UK • The AFS Worst Case Scenario moves the Astra volumes to Poland • The Opel Vivaro is also built in Sandouville, France ( a plant owned by Renault/Nissan). At its peak, this plant built over 300K units/yr. There is capacity at this plant for the additional Vivaro volumes. • It is feasible to make an investment into the France facility – making it the global source plant for the Vivaro nameplate and reinforcing the closure of the Ellesmere Port, UK plant. However, this would have to be negotiated with Renault/Nissan; adding a level of complexity to the final decision • The AFS Worst Case Scenario moves the Vivaro volumes to France Honda • The CR-V ends at Swindon 1 in 2017 – moving to Canada. This decision was made pre-BREXIT vote and eliminates the Swindon 1 line • With a recent £200 Million investment and 500 employees added for Civic production, Swindon 2 is the global home of the Civic Hatchback • This investment strengthens Honda’s commitment to the UK • Swindon and Honda’s Gebze, Turkey plant, are the only European facilities building the Civic • The Gebze plant currently builds 20K/yr, but with current capacity for 50K/yr • To completely move the UK Civic volume to Turkey would involved a considerable investment, and unlikely with their recent investment into the UK. However, it is conceivable to move some volume to Poland to offset EU tariff issues Nissan • Sunderland is the lead plant for European consumed Qashqai, Juke, and Note; with solid sales in the UK • In Europe, the Qashqai is the 7th best selling vehicle; and growing at a significant pace • With no other EU based plant to consume this volume, it is the opinion of AFS that Sunderland will maintain production with or without free trade agreements established with the EU • AFS also calls for the Infiniti QX30 as well as the Nissan X-Trail production in the UK; both expected to be well accepted in the market • Production at Sunderland will be impacted, but remaining in the UK to satisfy the EU will be the more likely outcome Toyota • Burnaston is the lead plant for European consumed Auris; producing the 140K needed per year to satisfy the market • The AFS forecast calls for the Toyota Avensis (approx. 40K units produced per year) to not be replaced in 2018. • Expectations for a domestically consumed crossover to fill the capacity is anticipated. 20
  21. 21. www.autoforecastsolutions.com AutoForecast Solutions AFS ProductionForecast– Worst Case Scenario(cont’d) Powertrain Impact Analysis • As a result of vehicle migration out of the UK, domestic powertrain assembly may suffer from the overall market softening, but an exodus of production out of the UK is unlikely • OEMs will need to analyze if a 4% tariff is still feasible to support continued domestic powertrain production Ford • The most exposed engine manufacturer; with nearly 100% of domestic powertrain production already destined for export consumption • Ford maintains other engine plants across Western and Eastern Europe, but these plants cannot absorb the capacity of Bridgend and Dagenham without considerable investment. These include: • Cologne, Germany • Valencia, Spain • Craiova, Romania • Inonu, Turkey • With the UK current capacity over 1 million units per year, Ford will need to either: • 1. Begin investing in capacity elsewhere in the EU immediately or, • 2. maintain their position in the UK and invest heavy into innovation and cost cutting to offset the 4% tariff impact • AFS believes Ford’s footprint is too large in the UK to leave before 2025, if at all Tata (JLR) • As of 2015, Tata has made a significant investment in the region, going from just over 100K units per year at its Wolverhampton plant, to nearly 700K per year by 2023. • This significant investment will solidify Jaguar/Land Rover assembly of vehicle and powertrain components in the UK 21
  22. 22. www.autoforecastsolutions.com AutoForecast Solutions UK Light Vehicle Production-Worst Case Scenario 0 500 1,000 1,500 2,000 Thousands UK Light Vehicle Production by Brand Toyota Tata Rolls-Royce Opel/Vauxhall Nissan Morgan MINI McLaren LTI 22 0 500 1,000 1,500 2,000 Thousands UK Light Vehicle Production by VM Volkswagen Toyota Motor Tata Renault/Nissan Proton Morgan McLaren Cars Honda Motor General Motors 18 19 20 21 Millions EU Light Vehicle Forecast EU 0 20 40 60 80 100 120 Millions Regional Light Vehicle Forecast WESTERN EUROPE SOUTH AMERICA NORTH AMERICA MIDDLE EAST/AFRICA EASTERN EUROPE ASIA-PACIFIC Source: AutoForecast Solutions – July 2016
  23. 23. www.autoforecastsolutions.com AutoForecast Solutions ContactAutoForecastSolutionsLLCformoreinformation onourProductionForecastDatabasesandBusiness IntelligenceSoftwareusedtocreatethisreport JoeMcCabe jmccabe@autoforecastsolutions.com 855.734.4590 x1001