European and

Production Outlook

September 2012

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Contents

Introduction and analysis overviews: Individual vehicle manufacturer reviews:

About this report 3 BMW 58 Key Highlights 4 Daimler 65 Economic Background 9 (incl. ) 71 Automotive Market Overview 15 Ford 78 Overcapacity & Restructuring 20 GM 83 Demand Side Perspective 26 Honda 89 UK VM Summary 29 Hyundai- 91 Production Outlook Overview 33 PSA 94 Country Rankings 47 -Nissan-Dacia 100 Alternative Scenarios 50 Suzuki 109 Disclaimer 56 Tata – Jaguar 110 Toyota 114 (incl. ) 117 127 Volvo 128 Mitsubishi 131 SAIC MG 131 Saab-Spyker 131 Other Chinese – Chery and Great Wall 132

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About this report This is the fifth 2012 Production Outlook report from AutoAnalysis.

This last report for this year will appear in November. The views and projections contained in this report are those of the author, Ian Henry of AutoAnalysis. They do not represent an official SMMT view. The projections regarding new model timings, changes in production locations and the associated production volumes shown here have been compiled on the basis of information from a variety of sources. In most cases, the vehicle companies do not provide official information on which models will be made at which plants, nor do they provide detailed information on future volumes and timings. They have been prepared on the basis of judgments made by AutoAnalysis, taking into account the information, opinion and inside from a range of industry, press and analyst sources available at the time of compiling this report. Ian Henry of AutoAnalysis will gladly address SMMT members’ specific questions on this report. Readers’ comments and questions on this report will be greatly appreciated. Please e-mail: [email protected].

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the case. The Greek economy is relatively small and its problems may be Key Highlights regarded as “manageable”; of greater concern is not so much what would happen in Greece and if it has to leave the Euro, but rather the situation in Economic recovery still a long way off … Spain, or even Italy. Spanish unemployment is around 25% now and in some age groups it is as high as 50%, hardly a recipe for social harmony. Economic  Following the 2008-9 economic and financial collapse, the global economy indicators in Spain are very poor indeed. began to recover in 2010 and continued to do so through the early part of 2011, albeit in a very uncertain manner in many parts of the world. However, since  Some financial analysts still speak of the fundamentally unviable nature of the then it has stuttered and in Europe especially, the picture is now uncertain at Euro and many continue to regard it as simply a matter of time before the Euro best, with recession having returned in some countries (the UK included) and project collapses entirely. severe financial problems across the Eurozone in particular.  The UK government’s expectations for economic recovery in the short term  According to recent official figures, as reported in the Financial Times on appear to be somewhat optimistic and any growth in 2012 will be less than 1%; August 25, in Q2/2012 the UK saw a fall of 0.5% in GDP which – following the according to Capital Economics, the UK’s GDP is already 1.1% below the fall in Q1 – means that the UK is technically back in recession. The revised level it had reached at the start of the recent dip; and more significantly it is figures for the quarter were actually slightly better than the provisional figures 4.3% below the peak it was at before the 2008 collapse. In this light, it (of -0.7%)released a month earlier. remarkable how the has continued to invest here and plan for the long term. The evident competitiveness of the Nissan plant  Across the developed world, low interest rates are now the accepted norm and and the global attraction of JLR’s UK designed and built vehicles have given are expected to remain the norm for several years ahead. Conventional the UK’s automotive manufacturing sector a great deal of hope for the future. economic theory had been that a low interest rate environment would act as an encouragement to invest; however, the UK and Europe’s low interest rate  The strong export orientation of UK vehicle manufacturing insulates the UK environment and the UK’s recent quantitative easing have not yet resulted in automotive industry from specifically domestic economic problems, although it renewed dynamism in the economy. The European Central Bank is thinking of is far from protected from global economic ups and downs, especially those in cutting interest rates still further, but what happens when they get to zero has Europe. One added positive aspect to the UK’s automotive manufacturing not been explained. Moreover, although the base rates are at all time lows, sector is how many of the produced here are only made here in the UK, the real rates of interest being paid by consumers and businesses alike are ie the UK is the global supply point for many models. Although this does not much higher than the base rate, so the validity or practical impact of cutting guarantee success, it certainly helps and does not expose UK manufacturing rates any further must be questioned. to the risk of relocation which affects several plants in continental Europe..  Across Continental Europe, excepted, severe problems remain  Previously, in the light of the recent round of investment in UK car unresolved. Even Germany, for all its financial strength, is feeling the pressure manufacturing capacity, we asked whether, given the economic uncertainty in of being Europe’s saviour of last resort. Political pressures within Germany are Europe as a whole, whether the automotive industry was bucking the trend in building against further support for weak economies, especially Greece. defiance of economic reality? Have other industries have accepted the economic solution too meekly or are they the realistic ones?  Fortunately, the manifold and deep-rooted economic problems in Greece have not been fully resolved, but the much feared contagion effect of the Greek  Put another way, can the automotive sector lead the economy out of its slough economy has not yet spread elsewhere, or any spread has certainly not been of despond and into recovery mode? The recent news that PSA and GM have as extensive or widespread as some commentators feared might have been accepted the need to restructure and cut out excess manufacturing capacity in

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the next few years suggests that the industry is beginning to face up to reality. in 2013 and nearly 92.5mn units in 2014. We had expected these global totals These VMs’ structural problems are being addressed, and other volume VMs, would be likely to be revised downwards (even slightly) because of the recent especially Ford, Fiat and Renault are now beginning to do the same. Ford is European slowdown, but this has not happened, largely due to the continued certainly looking seriously at the make-up of its European operations and growth in China, and Russia, and these markets’ significant potential for changes to its manufacturing footprint seem inevitable. further production growth – this highlights the need for suppliers to increase their focus on emerging markets, both from an engineering and  By contrast, there are several VMs, especially the Koreans, the VW group, the development point of view, but also ultimately in terms of production German premium brands, JLR and indeed some of the Japanese, for whom locations. the current economic uncertainty is less problematic than the traditional European volume brands. There are always going to be winners and losers – German and UK premium brands and Hyundai-Kia pushed what the current situation suggests is that the losers are going to be the European production to 19.2mn in 2011 traditional volume brands whose recent and likely future restructuring may only serve to delay their demise.  High demand for German vehicles and – in H1/2011 at least – the success of the French VMs in mid-sized MPVs and LCVs, boosted European production  In the last recession, there was extensive government support for the industry, in 2011. For the VMs and models covered in this report, European production especially in France and Germany; now, we think such government help for for 2011 was just under 19.3mn units. H2 saw better than expected production the industry is unlikely to be available – European governments are all volumes from the German VMs, and JLR and here in the UK. financially stretched to put it mildly, so what the French government can actually do in the light of PSA’s announcements that it will close Aulnay and  Including Russia, Europe will be down very slightly this year, at just under institute cutbacks elsewhere is open to debate. Its formal response to the PSA 19.2mn units according to our base forecast. However, taking Russia out of closure and cutback plans are due in September, having been delayed from the equation, Europe will fall from c18.4mn to 17.9mn units – and as we July. We wait with interest to see what they contain. explain later in this report, there are a number of reasonable scenarios in which this fall could be even greater and longer lasting. The implications  Elsewhere, the UK and German governments appear resolute in their “fiscally of such an occurrence are very serious.. austere” approach; the UK remains committed to cutting its deficit, and although the Bank of has extended its QE strategy still further, there UK’s long term production should reach 2mn upa… is no substantive sign that the injection of over £300bn into the economy so far has had the desired effect and increased real economic activity.  This is the really important message for the UK automotive sector, and for suppliers – UK vehicle production is on the increase and is widely expected to Record global vehicle production in 2010-11 – and more global continue to grow despite all the economic uncertainty. Certainly, 2011 was a growth in 2012 and beyond expected… very good year for UK’s automotive production, with a series of positive announcements concerning increased investment in vehicle manufacture.  2010 saw record global production and this was repeated in 2011, despite the widespread economic uncertainty and the disruption caused by the Japanese  Moreover, 2012 has started with more good news, from Nissan, JLR, GM and earthquake and tsunami. According to Price Waterhouse Coopers (PWC) BMW-Mini; as a result of these investments, the decision to maximise AutoFacts, total global vehicle production was just under 74.7mn units. utilisation of their UK facilities by a number of VMs and the strong export orientation of the sector means we remain confident that the UK’s annual  AutoFacts remains optimistic that this will continue in 2012, with a global production in the UK should soon breach the highly significant 2mn upa barrier. forecast of 79.6mn units – moreover, it expects this total to rise to 86.0mn units

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 Last year, BMW and Nissan confirmed next generation models would be made to be made each year by European, Japanese and Korean VMs in Russia at in the UK, while GM confirmed that Luton will continue with production within the next 5 years. The significance of Russia in determining the future until 2025 and expansion of the existing model range is now accelerating at direction for many VMs and suppliers should not be underestimated. In 2012 Jaguar-Land Rover. JLR also gave the UK a major boost in September when and 2013, production growth in Russia will effectively account for all of it confirmed it would build a new plant here, its first (currently the aggregate growth in European production (there will be some growth in are sourced from Ford’s UK engine factories). the UK, Slovakia, Hungary and the Czech Republic, but this will be “cancelled” out by declines at the volume VMs in France, Spain, Italy and indeed  So far in 2012, we have had good news from: Germany).  BMW, with further expansion at Mini (£250mn additional investment announced in July). Is the recent European investment wave at an end?  GM, with confirmation that it will keep open and make it  2011 saw expansion and positive change elsewhere across Europe’s vehicle the lead plant for the new Astra. manufacturing sector, alongside the start of significant expansion in full  Honda, with the start-of-production of the latest CRV in September, manufacturing operations in Russia by the European, Japanese and Koreans. confirming this is nearly the end of a significant £267mn investment in Selected European highlights from 2011 and some of the less good news from new models, engines and production equipment at the Swindon plant. the first half of 2012 include:  JLR, with confirmation it is expanding output at its Halewood factory by  expanded in Germany and Hungary and this year has confirmed moving to 24/7 working and that it will build the new F-type . Mexico as the site of its first plant in North America.  And Nissan, with confirmation of not one, but two, new cars for  Ford announced a reorganisation of its European production footprint to Sunderland, one to replace the outgoing Note, and one which will make better use of its factories here. However, Ford ended 2011 by expand the factory’s capacity and portfolio still further; this will be a C- announcing a number of production slowdowns and has confirmed further segment car, effectively the long-run replacement for the Almera. slowdowns in 2012. More significantly, Ford announced substantial losses in Europe for H1 and its CEO, Alan Mullaly, has spoken openly about the  On the back of this, and the commitment of Toyota to its UK plant (Toyota is need for the company to address structural problems in Europe – a senior centralising production of the new Auris in the UK), the UK should see a Ford executive admitted at a recent new product launch event in steady rise in production through the period covered by this report – we expect Amsterdam how the company will have to adapt its European footprint that the expansion of models offered by JLR and the strong performance of structure to the real level of demand; the possibility of a Ford European Nissan will lead to over 2mn units being made in the UK by 2015/6. plant closing – or at least substantial cutbacks at a number of plants – is very real indeed.  We expect UK production should remain at least at this level for the rest of the decade – indeed further expansion at one of these VMs, especially now that  Fiat swapped production of selected models between Italy and Poland, as the GM Ellesmere Port factory appears to have been saved, will help to make well as confirming plans to export various models to the US from Italy, this increased production volume projected here even more “secure”. Turkey and even Serbia in the long run, where production in a completely revamped factory will soon begin. However, the downturn in the Italian car Production in Russia will be increasingly important market has had a direct impact on production at Fiat and the idea of closing an Italian factory has once again come to the fore. As discussed  Russian production will also help drive future production growth in Europe as a later in more detail, although there has been a great deal of talk about this, whole, with over 2.5mn units – and quite possibly more – currently scheduled so far no concrete plans or proposals have emerged, and the feeling

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remains that Fiat has been waiting for other VMs to make the first moves  In addition, the centralisation of Auris production in the UK and the continued in terms of plant closures before it acts itself. Now that both GM and PSA expansion at Nissan means that the opportunities for UK suppliers are have announced plant closure plans, will Fiat follow? As explained later substantial – certainly the prospects for suppliers here, assuming that the VMs on in this report, we have severe doubts about the long term viability of the can produce what they intend to produce, are far better than they have been Cassino factory in southern Italy. for a very long time.  Hyundai and Kia have completed the swapping of production between Plant closure announcements have begun – and several plants their two plants to optimise these plants’ utilisation – they are both close to full capacity utilisation. With faster than expected expansion in Russia and remain vulnerable to closure across Europe the expected addition of another model to its Turkish factory in around  In the immediate aftermath of the 2008-9 downturn, two plants (one at GM and 2015, we now expect Hyundai-Kia to make close to 1mn upa in Europe one at Fiat) closed, albeit actually a year or so after the depth of the recession; within a couple of years. We also expect expansion of the model range Saab has gone out of business since then and Mitsubishi will finally stop made by Hyundai at its Czech plant. production in the Netherlands at the end of the year – the Saab factory is  Nissan has confirmed two new models for the UK, JLR is expanding its model reportedly due to be re-born as an EV plant and the Mitsubishi plant has been range and increasing production of the existing range, while BMW is still in the sold to Dutch company VDL, although what it will do with the plant remains process of expanding production of the Mini range – and has reportedly been to be seen. looking at contracting production to the Mitsubishi Nedcar plant. The German  However, the scale of structural change as a result of the previous downturn premium brands are also expanding their production footprint outside Europe, was less than many had expected. The signs are that this time around, greater but for now (’ bringing forward expansion in Hungary apart) we doubt change is underway. Alongside the expansion of vehicle production in the UK, they will be investing further in their European operations – making the most of GM has confirmed Bochum will stop production from 2016, and PSA has their existing and recently expanded assets is their immediate task. confirmed the end of vehicle assembly at Aulnay; it will also cut back  With all of the above and earlier investments in new plants by Mercedes production at Rennes, its large car plant. Its SevelNord plant in France has, Hungary and Dacia Morocco for example now on stream, as we have noted however, been saved, with Toyota replacing Fiat as PSA’s development and before, despite all the economic and political uncertainty, this remains a manufacturing partner there. very dynamic time in European vehicle production and significant  These moves follow much talk in recent months about plant closures. The opportunities exist for suppliers. decision by PSA to close one (or possibly two) plant(s) has been long signalled  Many of these significant opportunities are evident in the UK where not only in the press; French politicians have, not surprisingly, described the move by has JLR awarded substantial new contracts with the start of the Evoque, and PSA as “unacceptable” and the government has said it will announce a plan to will surely do so again with the next round of new models (eg the F-type and support the industry during September, having originally said it would do so at others yet to be announced); in addition, GM has shown its commitment to UK the end of July. Quite what this will involve is far from clear and unless the suppliers by re-sourcing over £200mn worth of business to the UK, some of government is simply going to subsidise the production of vehicles which fewer which is for export, for supply to GM plants in Germany and Spain. GM has and fewer people are willing to buy, it is difficult to see what else can happen also committed to doubling the UK content of the next Astra from 2015 and is other than closing further vehicle assembly capacity. now in the process of searching out new UK-based suppliers.  In our previous report, we suggested that 2012 and 2013 will indeed see a round of plant closures – and over the following 3-6 months, it would become much clearer which plants will actually close and by when. The news from GM

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and PSA is just the beginning; we discuss which plants might follow later in this report. Alternative scenarios This report also includes a number of alternative views in addition to our Base Outlook. We discuss what would be the impact of additional reductions in production in certain markets and across Europe as a whole – the worst of these sees the long run volumes (excluding Russia) through to 2016 being more than 4.5mn units down on our Base Outlook. The implications of such a sustained decline would almost certainly be additional plant closures and significant further industry restructuring. On balance, we do not think European production will fall as steeply as it did in the 2008-9 downturn; the decline in the near future will, we believe, somewhat shallower, but equally we expect a slower, steadier recovery – there was something of an immediate bounce-back in 2010-11 which was due to the introduction of scrappage incentives across Europe. Although such incentives could be reinstated, given European governments’ financial difficulties, we do not see a repeat of these incentive schemes as particularly likely. Without Russia, our Base Outlook has European production recovering to 21.6mn units in 2016. our alternative scenarios address the issue of what would be the implications of greater falls in various markets, more sustained falls for a longer time period across the whole of Europe and also a slower recovery. It is, of course, impossible to predict which scenario is most likely, but rather the aim of these scenarios is to highlight the scale of the problem which could face Europe if the current recession is deeper and the ultimate recovery slower and later than we currently expect. In the worst case, European production will be down at 17.6mn in 2016 – and if this were the case, it is inconceivable that all the existing VMs could survive in their current forms. Who might actually disappear is a matter for conjecture right now, but something which will need to be considered seriously in the months and years ahead.

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collapsed entirely – and it should be remembered that in some markets, 2011 had Economic Background actually seen strong growth. The fact that Germany grew by 8.8% in 2011 was essential to the European car market last year. The same applies this year where Uncertainty prevails Germany has managed to remain at least broadly unchanged, underpinning European demand as a whole. The fact that the UK has also posted improved As we have written in all our recent reports, the only certain thing about the global sales figures for the year to May is also encouraging, economy right now is uncertainty. In addition, there is a wide variation in the performance of the European economy and that of the US; European economic Severe problems remain in the Eurozone performance remains poor by comparison to that of the BRIC markets which have Throughout 2011, there were severe problems with sovereign debt and continued to perform strongly by and large. After a slowdown in economic growth government borrowing levels in several Eurozone countries; initially this was a in China at the end of last year and the beginning of 2012, there has been a particular problem in geographically peripheral markets, ie Ireland, Portugal and renewed burst of investment and expansion, across several industries, not just Greece, but during the course of the year the problems spread to Italy in particular. automotive, although there are some concerns as to whether China can continue Despite significant help from the ECB, EU and IMF, these countries’ problems to generate recent levels of demand. Ford, Volkswagen and numerous Japanese have still not been resolved. brands in particular continue to expand in China. Chinese demand for premium vehicles from Germany and the UK especially remains strong and on course for The credit rating agencies, Moody’s and Standard & Poor’s especially, have continued growth. JLR will also soon be producing vehicles in China in its indicated that they are not convinced by the various EU and government initiatives forthcoming JV with Chery; the JV has recently been granted technical approval. to deal with the Eurozone crisis. France was stripped of its triple A rating in early 2012, much to the fury of French politicians. S&P clearly believes that the actions Back in Europe, uncertainty and confusion reign. Despite the politicians’ well- taken within the Eurozone are inadequate to solve the crisis which S&P attributes publicised efforts to sort out the problems of the Eurozone, even now we are still mostly to what it calls fiscal profligacy at the periphery of the Eurozone. In addition, some distance from a practical resolution of all of its problems – or at least one S&P takes the view that the divergence of economic performance between core which is believed to be workable in the long run. The complete collapse of Greece Eurozone and peripheral Eurozone economies is unsustainable in the long run. and its exit from the Euro have been averted so far, but one has to wonder what Imposing too much austerity on peripheral Eurozone countries will inevitably lead has been the overall cost to the country’s social fabric. Crises have so far been to a fall in economic activity, more job losses and a collapse in their governments’ averted in any of the vulnerable major economies, ie Spain and Italy, but the tax revenues. structural problems which have brought these countries to the economic brink remain and there is still no sign of a clear plan to solve their problems. No one can S&P doesn’t believe that the Euro will survive and does not see how fiscal union be certain that such risks will not return in the future, especially in view of the eye- can hold – and it has de-rated France because of this and because of its exposure wateringly high levels of unemployment across Spain, which has reached 50% to a potential collapse in the Euro. For now, the UK has avoided a de-rating by the amongst some sections of the workforce. Since May, the Spanish government, rating agencies because of the UK government’s commitment to reducing the backed by ECB and EU funds has effectively bailed out the country’s major banks. deficit, while at the same time keeping the economy afloat with quantitative easing. the probability is that further financial support for the country’s financial sector will Having said that it would embark on another round of QE earlier in the year, the be required. Bank of England has subsequently changed tack and in early July it “created” While all this uncertainty abounds, car sales have declined and they will another £50bn of new money which it will inject into the economy steadily over the undoubtedly fall still further in most markets this year; and indeed European sales next four months. The latest round of QE involves, as before, the Bank of England have fallen for the last eight months in succession. However, they have not (yet) buying bonds from commercial banks giving these banks additional working capital

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which the Bank of England and government clearly hope will eventually flow into by the German-led bailout. In the meantime, the new French President and his the “real” economy by way of business loans or other forms of credit. There has government are clearly not in tune with the austerity song favoured by the been widespread criticism of the banks for failing to lend to small and medium Germans. The Greek government is trying to gain extra time to implement the sized businesses especially and severe doubts remain as to whether these new cutbacks in the State sector and welfare provision required by the European funds will really find their way into the businesses which need the, authorities in exchange for the bail-out the country has received, but to little or no effect. The new French government wants to see a new round of state-backed The UK press has been particularly critical of the Eurozone leaders in the search investments in public works to stimulate the economy; it has also responded to the for – and their failure to find – solutions to the region’s manifold problems. More news that PSA plants to launch a wrecking ball on whole swathes of its recently, the Bank of England warned in early July that the British Banks as a manufacturing footprint by describing such moves as unacceptable – it has also whole do not have enough base capital to withstand a complete Eurozone collapse. said it will announce a plan for the automotive industry during September; we await While sympathy for the banking sector is in short supply, to a very large extent it is news of this with interest. caught between a rock and a hard place – on the one hand it has to maintain certain levels of liquidity (quickly saleable assets) to enable it to bear losses on It has also been reported that the Italian government is supportive of the loans which might yet turn sour, but at the same time, it is being encouraged to “investment” approach of the French and a counterpoint to the fiscal austerity route loosen lending requirements to boost the economy: in late June, the government of favoured by Germany may well be gathering steam. That said, quite where the the Bank of England went so far as to tell the banks to stop hoarding cash. finances for this proposed investment will come from and quite what Germany can or will do if France and Italy try to go down this path is very uncertain. Clearly the Bank of England wants to see a return on its “investment”, ie from all the Quantitative Easing which it has undertaken; it is not entirely clear was the UK’s full economic recovery and future growth delayed precise benefit of the QE which has taken place so far has actually been, but it is widely believed that things would probably have been even worse without it. Some During 2011, the UK government’s forecast for GDP growth appeared optimistic – observers, on the other hand, have questioned the whole point of the QE process: at the mid-year point, it had for example suggested the UK would see growth of we drew attention in our previous report to analysis by Fathom Consulting which 1.3% in 2012, rising to 2.0% in 2012, and 2.4% in 2013 and 2014. This certainly concluded that QE may actually be “suffocating” the potential recovery, suggesting seems optimistic – as noted earlier, the UK has seen a contraction in GDP in both that the UK actually needed higher interest rates and a tightening of the monetary Q1 and Q2, so the country is recession again. The idea that for the full year 2012, supply to avoid inflation getting out of control. For the car industry, retailers and the country will be able to generate total growth of even 0.9% seems optimistic at mortgage holders alike, the idea of higher interest rates is the last thing they want best right now. IMF figures released as the last report was being finalised or need. suggested that UK growth in 2012 may actually be as low as 0.2%, ie the economy is flat-lining at best and is likely to continue to do so for 2013 as well. On a broader, European level, the refusal of the Greek electorate and their politicians to accept the demands of the EU for further austerity and cutbacks in The government and the Bank of England have continued to hope that the the state sector there suggest to some observers that Germany’s economic hold programme of quantitative easing, or injecting new money into the banking system over Europe may be weakening. The Daily Telegraph’s economics editor thinks and holding interest rates at record lows for record periods of time, at 0.5%, will that Germany’s belief that it can play the “tough guy” and force Greece to accede eventually kick-start the economy. However, it is questionable whether the to its wishes or leave the euro, without any collateral damage to the Eurozone, is extensive QE programme has really had the desired effect; in parallel, inflation is simply misplaced. rising and so the UK economy is faced the twin problems of higher than expected inflation and the apparent failure of the UK banks to increase lending to While Greece has now has a fledgling functioning government, it is not entirely businesses, especially small and medium sized businesses, remain. And there is clear whether it will really follow all the restrictions which have been imposed on it little to suggest either problem is being resolved. In addition to the substantial

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funds injected into the banking system by way of QE, the Bank of England has figures in June highlighted a total fall in national manufacturing output of 0.7% in made available a further £80bn of support under the banner Funding for Lending, April, almost wiping out the 0.9% rise in March. In June the PMI manufacturing designed to provide small and medium sized companies with loans effectively index fell to 45.4, form 48.4 in May – the decline in manufacturing confidence is subsidised by the Bank of England. clear from these two months alone. The EEF has reported a similar fall in manufacturing, based on orders received, so there is no real doubt about the That said, manufacturing as a whole, and the car industry in particular, do offer situation facing the economy. some succour and hope for the economy and the government alike. The UK’s trade performance improved significantly towards the end of last year and This decline is particularly disappointing after the previous five months of the year manufacturing as a whole rose more than had been expected; the provisional had seen good news, with manufacturing recording rises each month, while cost figures showing a decline in parts of the economy were mostly to do with the pressures reportedly had eased somewhat. Earlier in the year we reported how service sector contracting more than any other sector. The UK’s new car sales one leading financial analyst how spoken of how manufacturing was “somehow” were up 2.7% in June (they had grown by 7.9% in May, the biggest monthly managing to grow despite the government's austerity programmes and the increase the end of the scrappage incentive schemes in mid-2010); in recent times, problems in the financial sector. The “somehow” remains an interesting issue – the main growth in UK sales has come from small fuel efficient cars. despite the problems in the financial sector, inflation, consumer confidence supposedly falling and the impact of the government’s austerity programme, Is a change of thinking required? manufacturing had continued to grow, but this too has now stopped. Returning to the macro issues affecting the UK economy, it seems clear that new Will the government really stick to its fiscal austerity plans? ideas and new policies will be required to kick-start the economy. The “old days” of easy money, cheap imports and consumer confidence backed up by The UK government remains committed to cutting the UK’s fiscal deficit and government and central bank “support” being effective and guaranteed have all appears – officially – to have ruled out further fiscal stimulus, the recent round of gone. A number of commentators have spoken about new forms of supply side QE notwithstanding. However, the history of quantitative easing and the possibility stimulus being required; whether the current suggestion of substantial investment that the government will find ways to underwrite new house purchases – or as in infrastructure is viable and realistic in terms of kick-starting the economy suggested recently, invest in major as yet unknown infrastructure programmes – remains to be scene. amongst other ideas amount to fiscal stimulus in one form or another. The pressure to find ways to stimulate – or reflate – the economy in some form will Something needs to change to arrest decline … become increasingly powerful, especially now that the full year growth rate for Although initial figures for 2012 suggested that the year could be a good one 2011 was indeed less than 1%; even with the good news from the automotive manufacturing in the UK. The early positive signs came from the Markit/CIPS sector, it is unrealistic to expect 2012 can produce even 1% growth, let alone the manufacturing purchasing managers' index which rose to an eight-month high of originally hoped-for 2% growth rate. 52.1 – it was 49.7 in December and anything over 50 is said to indicate expansion, VMs continue to invest despite economic uncertainty whereas a number below 50 indicates contraction. It was 51.7 in March, although it fell to 50.2 in April – the slowdown was blamed on what the report’s compilers That said, the UK automotive industry appears to be bucking the trend and said was the steepest fall in new orders since May 2009. continuing to invest; for this investment to be a success in the long run, the UK and Eurozone authorities need to ensure economic stability, or at least stave of However, in May the index fell below 50, to 45.9 which was actually the biggest collapse. The jury is still out on this issue! The investments announced last year monthly fall since the immediate aftermath of the 2008 financial crisis and indeed by Nissan, JLR and BMW Mini (and those announced this year by GM, BMW Mini, the second largest fall in the survey’s 20-year history. These figures and later Nissan and JLR) are substantial and signal long term confidence in the UK

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economy by these companies. They also represent significant opportunities for  Having invested substantially in its Leipzig plant to make the i3 suppliers. The March and April announcements of new models for Nissan at by 2013, BMW is also introducing a front--drive version of the 1-series to Sunderland in particular reinforce the good news from last year and confirm the its line-up, reinforcing the move of the BMW brand down into smaller and lower attractiveness of the UK as a manufacturing location for overseas investors. The price segments. It has also confirmed that the larger, hybrid i8 will also be decision by JLR to expand existing operations and add the F-type to its production made at Leipzig; this plant has been designated as its centre of electric and portfolio is further icing on the cake. alternative powertrain technologies. During 2011, BMW also confirmed £500mn of investment for the UK in vehicle assembly, pressings and engine In spite of all the recent economic uncertainty and concerns over consumer production. It then backed this up with a further £250mn investment in its UK confidence, the VMs continued to invest and expand their product ranges and facilities announced in July 2012 – full details on what this will mean for the production capabilities throughout 2011 – and while there may not be so many all- individual plants in the UK have yet to be released. new investment announcements in the second half of 2012 (there have been four major invested decisions so far this year despite the economic problems affecting  In addition to Mercedes increasing its own small vehicle range, together with the global and regional economies), from now on the VMs will expect their recent Renault it has formed a joint venture in the small car segment, providing the investments to begin to pay dividends and produce the vehicles which will help underpinnings for the next and a new range of Smarts; this JV kick-start the sector or at least improve their positions in an increasingly now also includes electric vehicles. A Nissan model using this joint platform is competitive market. The VMs as a whole have to take a long term view and have also likely, but its timing awaits confirmation. Nissan will also source its first clearly concluded that they had to position themselves to take advantage of current European-made model for the Infiniti brand from Magna-Steyr which will be opportunities and also be optimally positioned to take advantage when the full build the vehicle based on the latest Mercedes A-class. The Renault- recovery occurs. Mercedes JV has been extended to include Mercedes supplying engines to Global vehicle production in 2011 was inevitably hit by the Japanese tsunami and Infiniti, Renault supplying diesel engines for the new A-class and Mercedes the disruption this caused; just as the Japanese VMs had got back on their feet, supplying batteries for the JV’s electric vehicles and Renault will supply the they were hit by the disruption caused by the Thai floods, although the scale and electric motors. Mercedes is also expected to provide a platform for Renault to length of this disruption turned out to be somewhat less than had been thought at make its own premium model later in the decade. Such has been the demand first. In Europe, the worst-hit Japanese VMs were Honda and Toyota. However, for the new A- and B-class that Mercedes has had to engage Valmet of they are largely now back at normal production rates and indeed they are in the Finland to provide short-term capacity to make an additional 100,000 A-class midst of ramp-ups of production of several new models, and have more new models over the next few years, while plans to raise production at its new models coming on stream later in the year, giving a further boost to production. factory in Hungary to 300,000 upa have had to be brought forward. The situation at Honda, which will slow production in the last four months of the  Nissan confirmed investment in another two new models for the UK, the year on one line, while ramping up production on its second line, shows how fickle Invitation (announced at the ) and a C segment car the automotive environment can be occasion – and how quickly VMs feel they (announced in April); these new models will, as noted elsewhere in this report, have to adjust production rates to avoid being caught with too much stock. help to push production at Nissan to well over 600,000 upa by the end of the period covered by this report. What does this all mean for the automotive industry?  Having modified its UK assembly line for the Auris to make the hybrid version, The VM profiles which follow provide details on recent investment plans, but the Toyota is also now making make a second hybrid vehicle in France, a version following are indicative of the way in which the market is moving: of the new Yaris. All production of the next Auris will be in the UK (giving added volume to the UK plant and a major boost to UK suppliers) and to

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compensate the Turkish plant for its loss of Auris production, Toyota will make The financial and economic uncertainty affecting most of the developed world, the Corolla in Turkey instead. A second plant in Russia is still a added to the disruption caused by the Japanese earthquake and tsunami last year, possibility, although in view of the Japanese earthquake and tsunami, the could lead to one fear another major collapse in the automotive industry on the timing for this remains open. In the interim, Toyota has added a second shift at scale of the 2008-9 collapse. While sales figures were down in some markets its existing Russian plant and is also investing in new production technology during 2011, production volumes continued to grow last year. The UK and there to increase its degree of vertical integration. Germany remain reasonably robust markets in terms of both automotive sales and production and both countries’ automotive manufacturers have good export ratios  Ahead of its recent problems emerging, PSA had almost doubled its capacity which appear to be holding up, especially exports bound for markets outside to make the DS3, the smallest model in its new premium DS range which is a Europe. sub-brand of the Citroen brand. The DS range will be expanded with a small DS1; a large model, DS9, is understood to be on the cards, although this could Even so, the picture for the market as a whole will be mixed throughout 2012: the be made in China. In parallel to Citroen moving up market with the DS range, volume manufacturers are finding it tough going and most will experience a fall in is moving more and more to crossovers and MPVs, exemplified in the production and sales this year. The premium brands appear to be less subject to recent strong sales of the 3008 and 5008. However, PSA has numerous the economic vicissitudes in Europe, partly because of their export sales and party financial and structural problems – which have led it into its alliance with GM. because their customer base appear less affected by the economic climate that Both companies are looking for solutions to their manifold problems; we expect the mass volume brands’ customers. their solutions will include production of vehicles for each other to improve their The economic recovery which started in 2011 has certainly now faltered – PSA own factories’ efficiencies and utilisation. Whether this will in turn result in and Renault appeared to have been the first VMs to have recognised this with additional plant closures remains to be seen. plans to reduce production in the short term to avoid excessive stock build-up.  In 2010, Volkswagen had to recruit in Germany and Slovakia to cope with Ford soon followed and has announced additional production slowdowns this year increased production, including rising demand for large SUVs, and has as well. Honda, Suzuki, Fiat and GM have followed suit. Even so, production in expanded capacity in Belgium to make both the Audi A1 and its planned SUV Europe did grow in 2011 and, taking into the account the rapid growth in derivative, the Q2. Audi is increasing its range of Q models, with the Q4 and production in Russia, there will be further growth in 2012 and beyond. Taking Q6 expected to be confirmed shortly. Substantial investment in Hungary has Russia out of the equation, however, and there will indeed be a fall in also been announced for engine and vehicle production, involving an increase production this year as explained later in this report. in capacity from 50,000 to 125,000 upa. Plans have been confirmed for The problem with overall pictures is that they mask immensely variable situations 300,000 upa capacity in Russia, through a mixture of its own factory and a JV at the different VMs which occur as a result of their model cycles and particular with GAZ. The VW group goes from strength to strength (except perhaps at its market positions and segment focus. Thus PSA is going to face a tough 2012, as SEAT subsidiary) and there seems little to stop the company on its continued will Ford and , owing to their exposure to the B & C segments with vehicles, growth path, not even the economic uncertainty of the present time. especially in the B segment, due for replacement in the next 2-3 years. They are  And in line with the moves by GM and VW, both Fiat (on its own) and Ford (in facing the double whammy of having most of their sales in segments which face a JV with Sollers) will also add their own all-new or expand existing factories in the greatest competition and economic threat – and also having to compete in Russia, mostly within the next year or so; Fiat confirmed a Russian bank would these segments with models at the end of their natural life cycles, or at least past be its partner in Russia. Collectively these, along with Renault’s involvement their peak of sales. at Avtoframos and AvtoVAZ will mean production capacity in Russia for Despite the economic uncertainty, given the new investment planned over the next European, Korean and Japanese VMs will be close to 2.5mn upa. 3-5 years in Russia and the wide range of new models, including a number of EVs,

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which will come onto the market in the short term, we still see production growth in Europe as a whole as the most likely outcome in the long run. However, as we explain in more detail later in the report, a large part of this production growth will be in Russia, where European, Japanese and Korean brands have been expanding aggressively, but equally we see growth continuing in the UK and in locations such as the Czech Republic, Slovakia, Romania and Hungary. Our Production Outlook continues to be based on the key assumption that Europe – and indeed the world as a whole – avoids complete collapse, even if according to some data the much feared double dip recession is indeed already a reality in some countries. In reality, despite the insistence by the UK and German governments that no more fiscal stimulus will be allowed, we find it impossible to be believe that European and US authorities especially will allow their economies to collapse – even if (as seems probably) further problems emerge in banking sector, governments will have to find a solution to these problems without causing a total failure of the economic system and untold social consequences. As reported last time, a further round of quantitative easing in the UK was approved recently; the real impact of this on the economy remains to be seen however – most of the money injected into the economy is thought to have remained within the banking sector; dissatisfaction with the banks and their widely reported reluctance or even failure to invest in companies in the “real” economy, especially in manufacturing, has led the government to look at extensive restructuring of the sector and at ways of introducing further competition into the sector. Quite when or indeed if this will actually happen is another of the great unanswered policy questions awaiting an answer. The UK government has also spoken, in admittedly rather vague terms, of credit easing to help suppliers who cannot get finance from the banks. As one famous economist once said – “in the long run, we are all dead”; and it is for this reason, above any other, that we continue to believe the politicians in the leading global economies will have to find a means (no matter how much of an apparent fudge this may involve) to keep their economies alive and avoid a total economic meltdown. They will wish to avoid the social breakdown which would follow from a complete economic collapse should this occur “their watch”.

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example. Given Fiat’s disappointing sales of its own and those of the Alfa and Automotive Market Review brands too, and the decision to make the 500X and equivalent mini- SUVs in Italy at the Mirafiori factory in Italy, rather than in Serbia, there are Amid continued economic uncertainty, the auto industry question marks over what exactly the Serbian plant will make other than the one remains committed to long term growth plans – but these are model, the 500L, which has been confirmed. having to be revised all the time It is also worth emphasising, moreover, that a significant proportion of recent investment by volume and premium brands alike has been made to re-position the The individual VM reviews which follow show that, despite all the recent economic companies concerned for the next couple of decades, ie several factories have upheaval and uncertainty, almost all of the major car companies in Europe have been reconfigured to build hybrids, EVs and smaller, more fuel efficient cars, or in stuck with and indeed in some cases increased their new investment programmes the case of the new Mercedes plant in Hungary for example, to give Mercedes in recent years. They continued along this path during 2011 and some have enough capacity to become a serious player in the growing premium element of continued to invest in 2012, eg further investment announcements in the UK in the C segment. in fact even the initial investment in Hungary has proved to particular by Nissan, BMW, GM and JLR; here in the UK we also have the recent be insufficient and plans have been brought forward to raise capacity there start of production of the new Honda CRV which represents the near culmination and additional short term capacity has been sought at Valmet in Finland to of a £267mn investment at the Swindon factory. Elsewhere across Europe, Russia meet demand for the A-class apart, the story is less positive in terms of new investments (there have not really been any such announcement). Indeed retrenchment is the order of the day for the In the UK, the investment involves both new model programmes and general volume VMs in particular; plant closures/cutbacks and 8,000 job losses at PSA investments which will help to reinforce the long-term commitment of these VMs to have been confirmed, although these will not happen immediately. the country – this is especially the case with JLR, Nissan and BMW Mini, all of whom are both widening the model ranges they make in the UK and improving Outside Europe, VW and the Japanese VMs continue to expand in China. China their existing facilities to make them more efficient, ie maximising utilisation of their will continue to be the main focus of future growth; JLR’s Chinese JV with Chery existing manufacturing footprints. Honda has recently announced how it is nearing will soon be in operation as well: technical approval has been granted by the the end of a £267mn investment in new models, new engines and new production Chinese authorities for this project to proceed. The premium German brands are, technology at Swindon, by and large, doing better than the market as a whole – see the individual VM profiles for details. At the volume VMs, the picture is not so good – for example, Much of the recent round of investment has been in electric vehicles (eg at PSA’s global sales were down 13% in H1, while Renault fell too, although by a less Renault-Nissan and BMW) and hybrid powertrains (eg PSA, BMW and VW). In significant amount, just 3.3%. While there are still signs of confidence and addition, the German premium brands (especially BMW and Mercedes) have buoyancy amongst the Japanese (for whom domestic production is also rising invested heavily in new small car ranges in order to reduce their historic once again), the Koreans and the premium UK and German brands, there is a very dependence on large cars which have been the mainstay of their sales. different situation at the volume manufacturers; they all face a challenging future in Investment in vehicles for the low carbon future has been undertaken at BMW’s Europe, especially where they have invested in new factories or refurbished and Leipzig plant, while same is true at Ford Valencia which has been designated as expanded existing factories. Ford’s hybrid production centre. As noted in the VMs profiles later in this report, most of the recent investment at We noted before how Fiat has completed the reconfiguration of its Pomigliano both volume and premium brands actually involves the completion of new factories factory to make the new Panda, while VW is spending up to €500mn at each of which had been planned and started to be built in better economic times. This is three plants in Germany to ready them to make vehicles on the new MQB platform the case with Fiat’s factory in Serbia and Mercedes’ factory in Hungary for which will underpin the new A3 and Golf and vehicles in that size range. The costs

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of this new platform have been booked in the last quarters’ accounts and this has from this lack of consumer confidence is a significant strategic issue for the resulted in a slowdown in VW’s financial performance but the benefits will be national governments and the EU alike. apparent in the next few years. On balance, we – along with many other observers – continue to take a pragmatic By contrast, Fiat has had to call a halt to its plans to invest and reconfigure its view, ie our baseline forecasts are predicated on the fundamental assumption that Mirafiori factory to prepare for the next decade and beyond – at the same, time as the current problems in the Eurozone will be resolved, even if this resolution takes noted elsewhere, several VMs have recognised that their existing manufacturing longer than was originally thought. footprints are too large and complex for future demand and that they need to be At this stage, we have factored in a slowdown in production over the next couple of cut back. GM has confirmed the end of production at Bochum and PSA has done years in certain countries and at certain VMs for reasons explained in the country the same with Aulnay in Paris The message from the European VMs appears to and VM sections. The majority of the slowdown will be at the volume VMs and we be two-fold – ie that they are prepared to tough it out and help create the believe that demand for the UK and German premium brands in particular will foundations for renewed economic prosperity, but at the same time, they know remain broadly stable and may even increase in some cases, both in Europe and they have to restructure existing operations to make their investments in the future outside. As we have noted before, during 2011 there were a number of increases worthwhile. in capacity for such models in Germany and in the UK. JLR signalled it will PWC forecasts continued growth for the automotive industry increase production substantially in the years ahead. The premium brands have a strong export element in their sales mix, to North America (where demand is rising In its mid-2012 forecast, PWC AutoFacts said it expects global vehicle production across most segments), the BRIC markets and the Middle East. This will underpin for the year to be c79.6mn, a rise of 6.6% on its 2011 global estimate of 74.68mn, demand and help insulate the VMs from any fall in the short term in Europe. one itself a record and a rise over 2010 which had also been a record. Beyond this, downside potential issue is that as the North American market especially PWC expects global production to climb significantly to just over 86.0mn in 2013, continues to grow, so will the pressure on the European VMs with factories nearly 92.5mn in 2014 and to 97.5mn in 2015, before breaking the 100mn barrier there to increase production there yet further – the associated risk of this is in 2016. PWC remains confident of growth in automotive production despite the that European factories could in the long run lose potentially significant economic uncertainty. export markets. Much of this growth will come from the developing Asia-Pacific region, which PWC As we noted in previous issues last year, the resilience of demand for premium sees as growing from 29% of global production in 2011 to nearly 38% in 2016. brands has led Citroen to develop its own near-premium brand, the DS, and Even so, PWC expects growth in Europe as well. Peugeot and Opel in particular to look at developing a range of up-market models, PWC sees EU production climbing from just over 16.8mnn units in 2011 to just even if they have decided not to launch their own premium sub-brand. Peugeot over 19mn in 2016, with production in Eastern Europe, which includes Russia has developed what it calls an upmarket version of the 508 (the 508RXH) and rising from 3.3mn to 4.75mn over the same period. plans to do the same with the 208; and Opel also intends to position the Adam as a premium model. The Adam was launched in the UK just as the previous report Like many other analysts, PWC’s view is that the Eurozone crisis will be both was being prepared and GM clearly has high hopes for this vehicle – press reports contained and resolved, although in many ways, this is an act of faith. While the have likened the Adam to the Citroen DS3 in terms of the aims of the model for the UK has signalled further quantitative easing, in the Eurozone this route has not brand, ie to bring a degree of “premium” status to a volume brand. However, the been followed, largely because the German government will not support it (the fear difference between the GM and the PSA strategies is that PSA has introduced DS of hyper-inflation appears to be hard-wired into the German national psyche). as a new sub- or parallel brand to Citroen which many consumers appear to like Interest rates are being held at record lows, but this has still not resulted in an and accept; whether such a strategy will work with the Adam without a new or upturn in consumer confidence across Europe – the lack of demand which flows

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different brand is something which we will watch with interest. been allowed under the Ford global strategy to export significantly beyond Europe. we do not expect this to change in the foreseeable future Overall, we remain very sceptical regarding how realistic it will be for volume brands to transform themselves into premium, or “pseudo-premium”, marques. PSA has the potential to set off development costs through its presence in China, We have our doubts as to how far consumers will, for example, accept the Opel even if its European production volumes end up settling down at a lower level than Adam as a premium model if sold under the Opel brand; and the same points in the past. This does not necessarily apply so much to Opel and Ford’s European apply at Peugeot and also at Renault which has recently gone public in saying that operations which remain very Euro-centric in focus, even if their vehicles are it wants to move the Renault brand upmarket into the premium sector,. The ostensibly made off global platforms. Ford and Opel have limited export strategy employed by Citroen of introducing a new sub-brand (DS) is likely to potential in their own rights at the present time and accordingly we have prove more successful in our view. concerns that their lack of export potential from Europe and their own investment in markets outside Europe will be detrimental to their European For the premium brands we think demand within Europe will hold up and this will operations’ long-term survival and future growth. be underpinned by continued export demand, ie beyond Europe, especially to the US, China and Russia – we have already noted how BMW has had a record H1. 2011 saw slower production growth than 2010 The strength of the premium brands had been evident throughout 2011, despite the financial turmoil surrounding the rest of the economy, and we still see no 2010 saw total European production volume grow by over 2mn compared to 2009 reason at the present time to revise this opinion. While this optimism applies to the (from c16.1mn to c18.2mn units); despite the general economic uncertainty, our premium brands, we have concerns about the volume brands, especially the revised total production estimates for 2011 was that c19.21mn vehicles were made French, Fiat, Opel and Ford, all of which will see declining production in 2012. in Europe, including Russia. This is around 0.6mn lower than we had expected at the start of 2011, and in line with the 19.2mn projected in our late 2011 reports; the The challenge facing the volume brands German VMs performed better in Qs 3 and 4 than we had expected. With the exception of Fiat (which has the Chrysler/Jeep channel to exploit in North But there will be no growth at all in 2012, except in Russia America in particular), the volume European brands actually have limited export potential from Europe; and where they have potential to do so, they have been We now see total European production falling slightly in 2012, from 19.21mn to slow to exploit these and generally have somewhat limited plans for exports just under 19.2mn; however, this fall actually disguises the picture in the European (although Opel has a nascent strategy in this area), so their dependence on heartland – taking Russia out of the equation, European production falls by nearly European demand is much greater than is the case with the premium brands. 685,000. More specifically: Renault has recognised its vulnerability to overdependence on European demand  The Fiat group will be down by 103,000 units, despite full year production of and has developed the Dacia brand for emerging markets very successfully so far the new Panda and the start-up in the last quarter of the 500L. This is worse – with extensive component sharing between Renault and Dacia models, Renault than projected last time and reflects delays in new model start-ups and can exploit opportunities outside the core European market more effectively. PSA production losses owing labour disputes as much as general market decline. and Renault moreover see their real growth opportunities for their core brands  Ford will be down by around 133,000 units at least, possibly more, depending outside Europe, and specifically outside France, especially in China, India and on how much Ford decides to slow production in Germany. This is worse than Latin America – and this is where much of their future investment will be made. we projected last time and reflects additional planned slowdowns in Germany Moreover, it is important to note that Renault and PSA have chosen to expand especially. production in the BRIC markets rather than use Europe as an export base, thereby limiting their export potential from Europe; and has never really

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 Opel will be down by c190,000 units; again this is worse than projected before 2013 should see renewed growth …. and reflects severe problems in most of its markets; the one bright spot, which could reduce the decline, will be the start-up rate for the Adam later in the year. Our Base Outlook assumes that eventually the problems in the Eurozone are contained and full-scale collapse is averted; on that basis, we expect 2013 to be  PSA will be down by around 214,000 units, which is not as bad as we the year when European production, including within core European countries, projected last time, but some of the ”improvement” is due to better projections begins to grow once again. This will, moreover, be aided by new model for Russian production. Even so, a fall of over 200,000 units’ production this programmes coming on stream at this time at most of the major volume VMs. year reinforces the need for PSA to take drastic action with plant closures and other cutbacks; the loss is spread across the two brands roughly equally and is On this basis, we expect European production in 2013, including Russia, to be due largely to model cycle effects and their presence in the tough A, B and C 19.88mn, admittedly much lower than projected in May (21.4mn); this is because segments. The C1/107 are nearing the end of their lifecycles while the C3 has we now fully factor in the impact of the economic downturn across Europe in 2012 passed the peak of its new lifecycle sales; similarly at Peugeot, the C segment and believe the recovery will be slower than previously thought. That said, we 308 is also passed its lifecycle peak and the switch from 207 to 208 will not expect 2014 volumes should be what previously we had thought 2013 would reach, fully make up for this, although it does explain why Peugeot suffers relatively ie just over 21mn units, before reaching 22.9mn units in 2015 and 24.1mn units in less than Citroen. 2016. Effectively we have delayed the recovery in production by a year.  Renault will be down by around 145,000 units with the fall spread across most Taking Russia out of this equation, we see European production climbing from of its passenger car range; were it not for the launch of the Zoë, the fall at 17.92mn in 2012 to nearly 18.22mn in 2013, 19.29mn in 2014, 20.7mn in 2014 and Renault would be even worse. 21.6mn in 2016. . Some VMs will be broadly unchanged (or even increase very slightly); this will be Rising production in Russia underpins production growth the case at BMW, Mercedes, Nissan and Volkswagen, while others will record a through to 2016 more significant rise, eg:  Dacia, which will receive a real boost of c96,000 units from rising production in It is clear that a critical factor in any European production growth picture is what Russia and from its new plant in Morocco coming on stream. happens in Russia – by far the largest part of the total growth expected between 2011 and 2016 will come from rising production by the Japanese and European  Honda, which is recovering from an especially poor and disrupted 2010-11 – vehicle companies in Russia. Indeed we think that Russian production will indeed production in Europe will almost double in 2012 with the new CRV and account for at least 1.735mn of the 4.929mn units’ production increase Civic in production. projected between 2011 and 2016, equivalent to around to close to 35% of  Hyundai-Kia, which will benefit from its Russian plant’s rising volumes and the rise in production over the period. strong demand for the cee’d, i20 and most of the other models made in its New plans for Russian production have been announced on a regular basis since Czech and Slovakian plants. Hyundai-Kia will add over 180,000 units output in the start of 2011; as before, we have to caution that our projections for the timing 2012 and make more than 1mn units in Europe including Russia by 2014. and volume ramp-up of recently announced expansions at Fiat, Ford, GM and VW  Toyota, which is also recovering from a problematic 2011, will benefit from a in Russia remain provisional, with information on these plants being drip-fed by the full year’s production of the Yaris and the switch to the new Auris. Production car companies. Fiat’s production plans have been scaled back from 300,000 to should rise by c66,000. around 120,000 upa, but Fiat will balance this with increased engine and  And Tata’s JLR which will see a rise of nearly 90,000 units 2012. component production in Russia. Even so, by 2016, production in Russia by the European, Japanese and Korean VMs will be approaching 2.5mn units, ie more

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than 3x their combined volumes for 2011 – the likely scale of growth is quite staggering. Moreover, at the moment we do not include all the BMW, GM and Hyundai-Kia "production" in Russia because a significant proportion of this is really kit production and the kits are counted within German, US or Korean numbers. In the near future, it is likely that the local content of some of these models will reach the threshold at which they need to be regarded as full production for Russia – in which case the production for Russia will show an even bigger increase than here. Chinese companies’ strategies slowly becoming clearer With Geely owning Volvo, the Chinese vehicle companies’ collective presence in Europe is really beginning to be noticed. Chery in Turkey, and Great Wall in Bulgaria are the first of what we believe will be many Chinese vehicle companies to take on the Europeans in their backyard. Great Wall has confirmed assembly in Bulgaria has started and we now understand Chery will be in production in Turkey by the end of 2013 rather than this year. Full details are still awaited, but we still believe that by the end of the decade up to 0.5mn Chinese vehicles will be made in Europe, and possibly more than this. SAIC will not make MGs in the UK in the long run we believe and we have now excluded this from our Outlook. In addition to building their production capacity in Europe and Russia – and other developing markets – the Chinese vehicle manufacturers will increase their own export activities; while this will not challenge the European VMs in the upper and premium segments, there will ultimately be some impact in the entry level segments.

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seen, there is real risk that there will not be enough long run demand in Overcapacity & Restructuring Europe to absorb all of this production capacity. Further structural change seems inevitable – it is just a question of how this will work out and when it In essence, the biggest issue facing the European automotive industry is uncertain will occur. demand, but in the face of this, the overcapacity issue is the most significant The generally accepted view is that overcapacity is indeed a major issue in structural problem facing the industry as a whole; and some VMs have greater traditional production locations in Europe (especially in France and Spain, but also issues in this area to address than others. If European demand does not recover at volume VMs with operations in the UK and Germany); certainly there are a soon and on a sustained basis, several European VMs will have to make major number of factories have seen their futures called into question in recent times. decisions regarding the long-term structure of their European operations. Regular readers of our reports will know that we have had concerns for some time degree So is a new round of plant closures about to begin? of overcapacity for vehicle production in Europe for some time. The capacity issue has actually worsened recently with the addition of Renault’s Post 2008, structural change amongst the VMs was much less capacity in North Africa (we include its new Moroccan plant within the Production extensive than might have been expected … Outlook – and this could actually get worse if Renault decides to install a full production facility in Algeria). Allied to this, we have seen the expansion in Russia Like many analysts, we had expected that the economic turmoil in the previous by several VMs, as noted herein. In 2012, the new Mercedes factory in Hungary decade would result in a major restructuring of the vehicle manufacturing sector in has come on stream and Audi’s expansion in Hungary is also shortly to become Europe. While some restructuring did take place, the actual scale of change was active – the Fiat factory in Serbia will also come into play this year, as will the much less extensive than we had anticipated. Dacia plant in Morocco; and the first Chinese factory in Turkey will begin While North America took out around 5mn units of capacity, the amount taken out production in 2013, admittedly somewhat later than expected. With all this new in Europe until recently amounted to less than 1.25mn units and some of this is not capacity, the long-term health of the internal EU market is obviously critical, really permanent as it involves line shut-downs rather than plant closures. but export markets will clearly also be crucial to many VMs’ futures. Even in the boom times, it was generally accepted that the European automotive The need for change in the historic imbalance between demand and capacity had industry had suffered from two specific problems: been recognised for many years, and change finally started when the global economy went into turmoil in 2007-2008. Fiat and Chrysler started their move  Firstly, too many vehicle manufacturers, many of which were simply too small towards their recent effective merger and a number of VMs, especially in the US, to have a realistic chance of making sustainable profits. closed plants.  And secondly, over-capacity in terms of the number of vehicles which could be made compared to long term levels of demand. The corollary of this is that However, in Europe plant closures were limited and the VMs have also proved to some factories were operating at production volumes which were clearly sub- be remarkably adept at the keeping plants open, switching production between scale. factories where assembly line flexibility allows it, or cutting shifts, or putting workers on temporary short time working. Until last year only two plants had closed, Put another way, there have been too many factories producing cars in too many one at GM Europe, at Antwerp in Belgium, and one at Fiat, on Sicily. During 2011, shifts; this became evident in the fields and airstrips full of unsold cars before the Saab stopped production and will almost certainly not restart. And at the start of last crash. However, since the crash, Europe has seen continued investment in 2012, Mitsubishi confirmed it would stop production at its factory in the new plants and only limited restructuring of existing plants has actually taken place, Netherlands at the end of the year – interestingly, BMW (which does not have the implication of this is that given the faltering recovery which we have enough capacity had spoken of contracting Mini production to this plant, although

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these plans appear to have been stymied by the sale of the plant to a Dutch bus at the moment we remain rather sceptical that this venture will be a success company, VDL.. and for now, given the long turn uncertainty and the very slow penetration of full EVs in the market, we have not included this in our Outlook (full production And as losses continue at GM Europe, GM’s US management has again asked is likely to be after 2016 in any case). European management to look at its European production capacity. Finally, after much debate, GM decided to stop vehicle production in Bochum from 2016 and  In addition, Mitsubishi in Holland will also stop production by the end of the concentrate Astra production in the UK and Poland. Further closures or cutbacks year. This factory has been sold to the Dutch bus company, VDL, for a in Germany can also be expected. This year will see specific production slow notional €1; BMW has apparently been in discussion with Nedcar (the owners downs at Russelsheim and the engine plant at Kaiserslautern – and in the UK, GM of the plant) about using it as a contract assembler for Minis; this could still will stop production for at least a week at both the Luton van and Ellesmere Port happen but we think it is unlikely now that VDL has taken over Nedcar. car plants. Together with earlier shutdowns of specific assembly lines (eg one of the two lines In addition, as we noted before, the alliance between PSA and GM has added at Toyota Burnaston and two of three lines at PSA Rennes), these closures will another twist to this situation, although for the moment this focuses on sharing ultimately amount to the removal of more than 1.5mn units of capacity from components, logistics and purchasing, rather than making vehicles for one brand Europe. Some of this, eg the temporarily shut lines, could be re-opened, so until in another’s factory. However, shared production will almost certainly happen; this factories close and the gates are locked, there has not necessarily been a is unlikely before 2015-6 because of the decisions by both PSA and GM to close complete removal of capacity. some of their own existing capacity – it would be politically impossible to make in France nor in Germany in the next couple of years for example! By contrast, between 2005-2012, in North America over 5mn units of capacity (c25%) were removed on a permanent basis. The North American manufacturers The situation changed further just as the last report was being prepared, with PSA now appear much better prepared to absorb the impact of another downturn than confirming that Aulnay would to stop vehicle production; rather elliptically, PSA their European counterparts, having shed of much of their historic structural costs, said the plant would be converted for other uses without specifying what these for a leaner future. would be – it is notable that within the Aulnay complex, the stamping company Magentto has an operation of its own, supplying PSA and other VMs, so what will Meanwhile in Europe, new plants, eg Mercedes in Hungary, have begun to come happen to this operation remains to be seen. Ahead of the Aulnay announcement, on stream, whereas elsewhere, eg BMW Leipzig and Audi at Neckarsulm in it had said that existing production arrangements at SevelNord in Northern France Germany and at Gyor in Hungary, existing factories are being expanded. And, as would finish from 2016, although since then the plant has had a reprieve with noted above, the other thing which European VMs have done to save vulnerable Toyota replacing Fiat as PSA’s partner there. Indeed both companies will co- plants is to reconfigure their factories to make EVs and hybrids; the biggest move develop a new van for production there from 2017. Uncertainty remains at PSA’s along these lines has been at Renault, where its Valladolid and Flins factories Madrid factory and we believe this could well be saved, with a new Citroen have been reconfigured to make electric vehicles. produced there from 2014. A CEO of one of the major VMs told AutoAnalysis in the middle of last year that Two other plants can also be added to the closure list, although while they will stop Europe had missed the chance to restructure the vehicle manufacturing sector in conventional car production they are likely to be used for other purposes. More the earlier downturn; he added that significant over-capacity remains and will come specifically: back to haunt the industry, if not now, then at some point in the future. With this is mind, it is notable that Sergio Marchionne, CEO of Fiat, spoke earlier  Saab in Sweden has now stopped production of traditional Saabs, but this this year of the need for European VMs to cut capacity; the head of industrial plant is now being reconfigured ostensibly as an EV plant under new owners – operations at PSA also went on the record stating that PSA will address the

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problem of its manufacturing footprint. He noted that PSA had done a great deal We believe that the real change will occur at the volume VMs: the German already by slowing lines, cutting shifts, and even closing some assembly lines, eg premium brands (and Volkswagen) have indicated that they don’t need to close Aulnay and Rennes. However, PSA recognised that this was not enough to plants and in some cases, notably Mercedes and BMW, have even suggested they address the structural costs in its own operations and has followed Mr do not have enough capacity as things stand. BMW is looking specifically for ways Marchionne’s suggestion and announced a plant closure. GM has done the same to increase Mini production (either at its own plant in Oxford, in Leipzig in Germany – with GM and PSA having “blinked first”, who will be next?. or possibly by contracting production to the Nedcar plant in the Netherlands, although how practical this will be given the imminent sale of this plant to a bus When the 2008-9 crisis emerged, we expected a rapid round of plant closures in company is perhaps questionable. As noted elsewhere, lack of its own capacity Europe; certainly we, along with many other analysts, had expected more plants to has forced Mercedes to contract some A-class production to Valmet of Finland. have closed than has actually been the case. It appeared that rather than close plants, the VMs as a whole decided in the interim that they would rather “box Which plants could close? clever”, moving production between factories, ensuring the factories have the flexibility to make more than one model, or better still vehicles off more than one This is very difficult to form a definite view on because of the myriad challenges platform. The VMs have appeared to prefer reducing shifts and laying off workers faced by each VM and the specific geo-political considerations facing individual to balance production between plants than bearing the extensive costs and plants. Some car plants are the principal employer and economic driving force in reputational damage which tend to follow on from a plant closure. The their immediate region – taking Renault out of Palencia or Valladolid in Spain, or announcements from PSA and GM recently suggest that a re-think is under way. PSA out of Vigo in Spain for example could amount to local economic destruction. If such a re-think is indeed under way, what might happen next? Our view is that each of the volume VMs would ideally “like” to close at least one assembly plant, and in many cases two plants. But which VM(s) actually (be able The VMs have been trying hard not to close any more car plants than they have to; to) do this? And indeed, can they afford the costs of closure? AutoAnalysis while we know that GM will close Bochum and PSA will also close Aulnay (and understands from discussions it has had with a number of banks involved with possibly Madrid), no other plants are projected for definite closure in VMs’ financing and treasury functions that many volume VMs simply do not have Outlook. However, if the production volumes for Europe excluding Russia turn out the cash flow to afford the substantial “lumpy” payments which would be required to be something in the range shown in the “worst case” scenarios for vehicle when closing a plant. The costs of closing Opel at Bochum alone has been production in this report, then widespread plant closures would seem inevitable. estimated at more than €1bn, although not all of this would have to born by GM itself – that said, the relevant government bodies, whether in Germany as in this European VMs are struggling to maintain an even keel financially it is, but if case, or elsewhere for other plants, simply do not have the financial resources to production remains at below 18.75mn units in the long run, ie below the 2008 afford the myriad costs which would flow from a plant being closure level), further plant closures would seem to be unavoidable. Core European market sales will be down this year, the fifth year in succession – whereas export The situation is especially worrying in Spain where unemployment is rising strongly, growth, emerging markets and the buoyancy of the German economy have especially amongst the young and where the government’s finances are severely maintained production volumes, the pinch is being felt across all such markets. stretched. The social and financial costs of closing a car plant and the consequential loss of jobs in the supply chain and supporting industries will be What is notable about the current situation is that a number of VMs have begun to worrying policy makers in Madrid, and local governments in the cities and regions speak publicly about the need to cut capacity and close factories. The message housing the PSA and Renault plants in particular. that VMs cannot sustain the fixed costs of numerous underutilised plants appears to have been heard loud and clear. The question is what will happen? With this in mind, in the next section we now look at each of the volume VMs and assess which of their European plants are most vulnerable to closure and why.

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Fiat Ford Fiat’s CEO, Sergio Marchionne, has suggested that all European VMs should have Ford has spent a great deal of time reorganising its manufacturing footprint in a similar “haircut” and should each close at least one plant. GM and PSA may recent years. Its latest reallocation of models between different factories has not well be following Mr Marchionne’s call, but will he do the same? yet been completed, but even when this is finished, there is likely to be little more than a temporary lull before further change begins. Fiat has four large car plants in Italy: one, at Pomigliano near Naples, has recently been heavily invested in and it would financially perverse to close it now, especially will remain the centre of Ford’s engineering operations and will also as it makes the Panda, one of two main volume models made by Fiat (the other become the sole production source for the Fiesta on the new model in a couple of being the Punto) years’ time; similarly, Saarlouis is now the sole Focus factory for Europe (Russia has its own plant making the Focus). Kocaeli will be the principal Transit van plant A second plant, the HQ factory at Mirafiori, was due to receive substantial and it will also make a small van (based on the Fiesta platform we understand); investment to upgrade it as part of the plan to make a number of models, mostly Craiova in Romania will make the B-Max small MPV, and a second model, as well compact SUVs for Fiat and Jeep (mostly for export to North America) – while plans as increasing volumes of engines. All of these factories appear absolutely core to to make these new models remain, we understand, capital investment in Mirafiori Ford’s European operations and it is difficult to see any of them closing without has been put on hold or at the very least reduced to a minimum. We think it highly Ford incurring substantial (and probably currently unaffordable) costs involved in unlikely that Fiat would close its HQ plant, especially in view of the commitment it moving production to other plants and re-establishing embedded supply chains. has made to produce a number of new models there. This logic calls into question the future of the Valencia plant in Spain and of the This leaves the Melfi and Cassino plants in central Italy; Melfi is the core Punto Genk plant in Belgium. Valencia has recently received production of the C-Max factory with a complex just-in-time supply chain located around the factory. Closing MPV and will receive the Kuga and new Transit Connect from early next year. this plant does not make sense as it is inconceivable that Fiat would exit the Punto Theoretically, C-Max production could be re-allocated to Saarlouis, Transit segment – if it closed Melfi, it would have to re-establish a similar production Connect could go back to Turkey (or even Romania where it was due to be made facility and supply chain elsewhere. originally!) and the Kuga will ultimately move to Russia anyway. If such moves On this basis, we conclude that Cassino is the most likely Fiat plant to close, entailed capacity issues at Saarlouis or in Turkey, then production of the Focus especially because the models currently made or likely to be made there could be and/or Transit could probably be increased in Russia. accommodated within Fiat’s other plants. Cassino is also the plant slated to make Closing Valencia would be a possibility for Ford, if it was forced to cut a plant, the Alfa Giulia – however, this model could yet be made in north America and if although it would also lose the investment it has made in moving or planning for this happens, and Fiat decides to cancel the new Bravo (ie it could exit the C moving models to Valencia already; the other alternative for closure is Genk in segment), then the future of the Cassino plant would be very bleak indeed. Belgium which makes Ford’s large cars, ie Mondeo, S-Max and Galaxy, but this is While a practical case could be made for closing Cassino, it is difficult to see Fiat also one of Ford’s major stamping plants in Europe and closing the assembly line closing two car plants (some press reports in July suggested that this was what only would not close the whole facility which would definitely be needed to support Fiat was thinking of) without wholesale restructuring of its core operations which other Ford facilities. would change the nature of the company. Closing one of the van factories (Iveco Closure of any Ford facility in Europe would entail substantial disruption costs and and Fiat run two van plants in Italy) and consolidating production of in one loss of significant recent investment; what is certain is that Ford’s US management place could be a possibility, although whether closing a van plant would be a will not countenance losses of the scale expected for Ford in Europe this year on a sufficient cost reduction move is open to debate. sustained basis.

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GM production. We now discount the idea of Madrid becoming a dedicated EV factory for PSA (and its EV partner Mitsubishi); at the moment, PSA is importing EVs from GM has taken the first step in announcing that Bochum is to close, but it still needs Mitsubishi in Japan and has not committed to building EVs in Europe. The to find ways of increasing output and utilisation at its remaining plants. Bringing relatively slow development of the EV market and Europeans’ current preference Chevrolet production to Europe in the second half of the decade is possible, but far for hybrids calls into question whether it will be economic in the near term for PSA from guaranteed. to build EVs in Europe. Some analysts have suggested that PSA and Mitsubishi In terms of other plants which could close, attention will focus on Germany; GM could make up to 40-50,000 EVs annually in Europe, but we have to question as to has committed to making the next Astra in the UK and Poland and confirmed that whether this is a viable volume given the attendant costs of producing EV-specific Zaragoza will be the lead plant for the Corsa. This means that the only other car components, such as batteries, inverters and motors. We also question whether plants in the GM production network which could be closed are Russelsheim (the PSA would have the ready funds to invest in the plant to convert it to EV company’s home plant) and its Eisenach factory which is essentially an assembly production. plant. As with Fiat and Mirafiori, it is difficult to see GM closing its HQ plant, so if Renault another GM plant is to close it would appear to be Eisenach. Renault has a myriad of assembly plants in France and Spain, plus one in each of The downside here would be whether GM would have to invest strongly at another Slovenia and Turkey and a growing presence in Russia through its controlling plant to enable its new small “premium” model, the Adam, to be made there. stake in AvtoVAZ and its long-established link with AvtoFramos; the Turkish plant Zaragosa would be the most obvious alternative location should Eisenach close, is unlikely to close because of its lower cost base compared to the French and but whether GM will want to concentrate all its small car production in Spain, Spanish plants – and because it has recently been allocated increased production especially in view of past problems with the unions is an open question. of the Clio. We doubt the Slovenian plant would close because of its cost We think Russelsheim will receive one or more PSA models in addition to its own competitiveness versus Spain and France, as well as specific tooling having been Insignia replacement later in the decade – the combined volumes for both installed there for the Twingo and successor models. Such investment would be companies should make the plant viable in the long run, assuming that is that lost or have to be replaced elsewhere if the Slovenian plant were to close. both Opel/Vauxhall and PSA can maintain meaningful presences in the D Attention therefore focuses on Renault’s plants in France, ie Flins (Paris), Douai, segment. Sandouville, Batilly and Maubeuge, plus Valladolid and Palencia in Spain. Flins is PSA in the process of being converted into Renault’s main EV plant, for both vehicles and battery production; closure here is unlikely, although production of As the last report was being compiled, PSA confirmed that Aulnay will close and conventionally powered cars is going to continue to reduce. Douai makes the that Rennes will see a cutback in employment and output; it also said that and no Scenic and will make the next Laguna and Espace – as such, and given the new models will be allocated to SevelNord after the current models finish in 2016. dedicated supplier network around the plant, it is difficult to see Renault closing However, it has since gone back on that decision at Toyota will replace Fiat as its this plant, particularly as the Scenic is central to its overall market presence. partner there; together PSA and Toyota make a new van there from 2017. Sandouville is in the process of becoming a van-only plant, for the Trafic medium We still have great concern regarding the future of the Madrid factory which has, van; this will put it on a similar footing to Maubeuge which is dedicated to the as far as we understand, no new models allocated to it after the current 207 Kangoo small van and Batilly which is dedicated to the Master large van. Whether production finishes. We have taken the optimistic view in the Outlook that it will it is realistic for Renault to retain all three plants for van production rather than indeed receive the proposed Citroen E3/C-Cactus model from 2014, but this is far consolidate production in 2 or even 1 is something it will no doubt be considering. from certain. It is questionable whether PSA will be able to afford to put this into

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The unions and local government lobbies will be very powerful and we actually doubt Renault will close a plant in France in the short term; more likely, if it has to close a plant, it would probably be one of the Spanish facilities. We think that Spanish production of the Megane could be accommodated within Renault’s plant in Turkey and within Douai. Ultimately, some Megane production could also be moved to the new Renault group plant in Morocco which is regarded as part of Europe for production purposes as it is within the tax-free zone in Tangiers, allowing tax-exempt exports to Europe. The other Renault plant in Spain, Valladolid, has been long under threat of closure – in the short term, it will produce the B-segment SUV which will replace the Modus and it will also make the Twizy EV; the Twizy is not actually a car and as such we exclude it from our Production Outlook. We also have severe doubts as to the long term viability of the Twizy programme – in the event that the Twizy falls short of expectations and the B- segment SUV also fails to meet sales expectations, pressure to close the Valladolid plant will only intensify Other VMs At this stage we do not see any of the Japanese (Mitsubishi excepted), Koreans or German and UK premium brands closing any of their plants in Europe – indeed if anything, these VMs are more likely to continue to increase production capacity for reasons outlined in the individual profiles.

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these schemes brought forward demand from 2010-11 and this is evident in the Demand Side Perspective sales figures for these years. 2011 started to show signs of general slowdown in demand across Europe, although the picture varied from month to month and Several VMs reported record sales in 2010 and 2011, but mostly between different countries. The first six months of 2012 has seen largely outside Europe disappointing figures, with sales in the EU27 markets down around 6.8% year-on- year. EU27 & EFTA combined registrations were down 6.3%, while EU15 and BMW, Mercedes, VW and indeed PSA all reported record global unit sales in 2010, EFTA figures were down 6.9%. despite the economic concerns affecting Europe and other developed markets. The German VMs all recorded record figures again for 2011, but the French did For the purposes of the next section, we are referring the EU27 figures, although not – indeed H2/2011 was a bad time for PSA in particular. H1/2012 was not much the picture for the ways of measuring the region are broadly the same. better! Cars The Germans all grew strongest in China in both 2010 and 2011, confirming the January-June results: car demand fell by 6.8% in this period; the German market increasingly Asian focus for their business, although they also saw strong demand actually grew slightly by 0.7% and the UK grew by 2.7%. However, there were in the US which appears to be pulling out of recession remarkably quickly – at significant falls in Italy (down 19.7%) and France (down 14.4%), while Greece fell least in terms of demand for premium vehicles. China has been especially strong by over 41%, perhaps not surprisingly. A number of the smaller markets also grew: in this regard in the first half of 2012.  Bulgaria: +6.6% BMW and Mercedes already have well-established production facilities in North  Czech Rep: +6.7% America and they will soon be joined by Audi (which will build a plant in Mexico to  Estonia: +18.9% make the Q5 SUV) – and they are also all expanding in China: VW has also confirmed at least one more all-new plant in the country, as well as expansion at  Hungary: +19.9% existing sites. More will undoubtedly follow. At BMW, expansion in China is part of  Poland:+7.6% a deliberate long-term strategy to balance production between Germany and the  And Romania: + 5% rest of the world. Meanwhile, several other markets joined Italy and France with significant falls, ie: The same logic is behind the expansion of Mercedes production in the USA and  Belgium: -12.7% China. Renault is finally going to move into China (following the lead set by PSA)  Portugal: - 41.9% and PSA is also going to build a plant in India (following Renault’s lead). There is no doubt that China and India will be critical markets for the French in the medium-  Slovenia: -14.0% long term – and without this new geographic focus, they would be remain over-  Spain: -8.2% dependent on their declining home market, something which is clearly not  And Sweden: -9.2%. sustainable. And in terms of the VMs, most companies saw a decline in EU sales, reflecting the Sales figures show a mixed picture state of the region economy and highlighting need for them to increase exports beyond Europe, ie: Looking at the European sales picture in some detail, taking the data released by  PSA: down 13.9%, with Peugeot down 15.2% and Citroen down 12.2% ACEA, we see a market which has been hit by the end of the scrappage and other incentive schemes which boosted demand in 2009; as was suggested at the time,  Renault: down 19.6%, and Dacia down 5.9%

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 Opel/Vauxhall: down 15.0% o Bulgaria, up 22.3%.  Fiat: down 17.9%, with Alfa down 31.2% o Estonia, up 73.5%.  And Ford, down 10.4% o Finland, up 12.6% o Latvia, up 77.8%. In all of these cases, except Ford, the figures for the first five months were marginally better than they had been for the first Q1, ie the year-on-year falls were o Lithuania, up 65.9%. slightly lower than in Q1, but they were falls all the same. Toyota (-1.8%), Honda o And Iceland, up 62.2%. (-11.1%) and Nissan (-3.9%) all fell, but we would expect them to pick up later in  As noted, the major markets – France, Italy, Spain and the UK – all fell, as did the year on the back of new model launches; BMW (0.8%), Mini (-1.6%) and Greece and Portugal which were both down 31%, Poland (down 12.2%) and Volkswagen (-2.2%) were down slightly, but again this is partly due to model Romania, down 13.6%. cycles effects. VM summary for 2011 Audi was up 4.58% and there were positive results from Mercedes (up 1.1%), JLR (up 34.6% overall, with Land Rover up 42.4%, and Jaguar up 9.5%); and finally Looking at the market from the point of view of the major VMs, there is a clear Hyundai was up 11.6% and Kia was up 24.7%. division between winners and losers in 2011, ie: 2011 summary  The winners were:  VW group, up 7.5% over the year, with Volkswagen itself up 8.8%, Audi up Full year figures 2011 had shown a decline for the year of 1.7%, this was actually 9.0% and Skoda up 5.4% - even SEAT was up marginally, by 1.1%. less than the 2010 decline of 5.4%: more specifically, ACEA reported that, for 2011 as a whole:  BMW, incl. Mini, up 7.6%, with Mini itself up 18.8%.  EU car registrations declined just over 13.1mn units, a 1.7% fall.  Nissan, up 13.5%.  The decline varied widely by country – France was down 2.1% (similar to the  Land Rover, up by 10.9% (although Jaguar sales were down, by 14.4%, previous year’s fall of 2.2%), while the UK fell around 4.4%; more significant while the brand awaits the launch of a number of new models). falls were recorded in Italy (down almost 11%) and Spain (down 17.7%).  Hyundai, up 10.4%; and sister brand Kia, up 11.2%. However, the German market actually grew, by 8.8%, compared to a signficant  Volvo, up 10.0%. fall of 23.4% in 2010.  The big losers were:  A small number of markets, grew, ie:  Fiat, down 12.1% overall, although Alfa posted a 19% rise. o Austria, up 8.8%.  Ford, down 3.7%. o Belgium up 4.5%.  Honda, down 21.7%. o Czech Rep, up 2.4%.  PSA, down 9.0%. o Denmark, up 9.7%.  Renault, down 8.4%. o The Netherlands, up 15.2%.  And Toyota, down 6.4%. o Slovakia, up 6.5%. o And Sweden, up 5.3%.  Daimler was barely changed, while GM was down 2% and Ford was down by  In addition, a number of countries the periphery of Europe also grew, ie: 3.2%.

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Light commercial Vehicles January-June results As a whole total European (EU and EFTA) light commercial vehicles sales were down in the first six months of the year, by 12.2%, with the largest falls in the Belgium (down 12.9%) Portugal (down 55.0%), Greece (-49.7%), Italy (down 37.8%), Spain (down 25.5%) and the UK (down 10.1%) Country summary for 2011 ACEA’s commercial vehicle data for 2011 show European LCV sales were up by 7% over 2011, which itself was a 8.4% rise over 2010. As with the car market, there was notable variation between the different markets. For the major countries, the situation was:  France was up 2.7%, compared to a rise of 11.5% in 2010.  Germany was up 18.8%, compared to a rise of 16% in 2010.  The UK was up 16.7%, compared to a rise of 19.5% in 2010.  And by contrast, Italy was down 6.1% and Spain was down 10.1%. Double digit growth in LCV sales was also recorded in all other European markets, except Greece (down 40%), Portugal (down 23.6%) and Slovakia (down 17%). This positive picture in the van market over the last couple of years reflects the low sales base from which the recovery is taking place. 2009 had seen a fall of close to 28% in commercial vehicle sales in Germany for example. However, this positive picture can quickly change at January 2012 was not a good month for LCV sales in Europe as they fell by 6.4% across the region, with the UK (-16.4%), Spain (-19.8%) and Italy (-32.8%) all showing double digit falls.

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indicated that a modest expansion at Swindon is not out of the question later in the UK VM Summary decade. In 2011, the major announcements were as follows: New investment in vehicle production in the UK  Early March: supply contracts of over £2bn for the new Range Rover Evoque 2011 was a remarkable year for far for the UK automotive industry. The good were announced for more than 40 UK-based suppliers; series production has news stories have continued in 2012, with positive news from BMW, GM, JLR and since started. Nissan especially:  Late March: GM confirmed that the Luton van plant will make the next  BMW is increasing its commitment to the UK with a further £250mn investment generation Vivaro van, for Vauxhall and Opel, also potentially for sale outside in its Mini assembly, engine and stampings operations. Europe too. Starting in January 2014, this vehicle programme should secure  GM has confirmed it will make the new Astra in the UK at the Ellesmere Port the future of the Luton plant until at least 2025. factory which has now been “saved”, hopefully until well into the 2020s.  Mid April: production of the Aston Martin Cygnet started and it was also  Honda has recently started production of the new CRV and when the new confirmed that low volume assembly of the MG6 will take place at the SAIC- for the Civic comes into UK production in December this year, MG facility at Longbridge. Development work on MGs to be made in China will this will represent the end of a £267 investment programme at Swindon. take place at Longbridge, reinforcing the automotive R&D base here in the UK (although production is now most unlikely to be restarted here once again).  Nissan has confirmed two more new models for Sunderland, first the Invitation B-segment car which was announced at the Geneva Motor Show,  Late April: Jaguar confirmed investment in Solihull to make the low volume C- followed by an as yet unnamed C segment car which was announced in April: X75 hybrid super car; creating 4,500 jobs in the UK, with 85% UK content, symbolising the high-tech low carbon direction of the company. o The Invitation will replace the Note on the production line, even if its market position will be slightly different.  Early June: confirmation that Aston Martin will transfer production of the Rapide back to the UK, from Austria; this will be effective from mid-2012. o The C segment car will take Nissan’s UK production line-up into a segment it had exited some years ago with the end of production of the Almera and  Early June: Nissan confirmed £192m investment in the UK to design, engineer its replacement by the Qashqai. and build the second generation Qashqai; this will safeguard at least 6,000  JLR has confirmed the F-type will be made in the UK, from 2014, and has jobs in the country – the current Qashqai has 83% UK content, a level which is expanded production capacity at Halewood for the Evoque and Freelander. expected to be repeated and possibly even exceeded on the next model. The new models at Nissan will push production over the 600,000 upa barrier and  This followed on from the earlier announcements of £420m investment for the the expected growth at both Jaguar and Land Rover should do the same there; the Nissan Leaf, starting in 2013, and the battery plant for Renault and Nissan, implications for their suppliers are clearly very positive, with several thousand jobs starting production in 2012. to be secured in the supply chain to support this expanding production:  Early June: BMW confirmed £500m investment for the new Mini, with expansion at the Mini assembly plant in Oxford, the pressings plant in Swindon  JLR was massively oversubscribed with applications for recent new jobs at and the engine plant in Birmingham. Halewood (Evoque production increase), Castle Bromwich (for the F-type), Solihull (general expansion) and Wolverhampton (new engine plant).  Late June: Toyota said its UK plant will export the Avensis estate to Japan.  Late July: Honda confirmed that production of the new Civic will start at Meanwhile, BMW Mini is proceeding with its revamp at the Oxford plant to make Swindon by the end of the year (and indeed that Swindon will be the only the new Mini; and as noted in the profile later in this report, Honda has also

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factory making the five-door version worldwide); and that the next  When and if the Toyota plant brings its currently mothballed second assembly CRV will go into production in late 2012. line back into action; Toyota has suggested it will add a couple of new models to its European production network during the second half of the decade. These announcements secured at least 4,000 new jobs and the safeguarding of thousands more at the vehicle plants concerned and throughout the supply chain.  How quickly and successfully the expected expansion at Jaguar-Land Rover takes place. Our report includes our current view on the timings for these new In the last four months of 2011, more good new announcements appeared, ie: models and the likely volumes; the timings could change and we have been  In September, there was confirmation of the engine plant deliberately cautious with regard to volumes for the new models. and news from that, with the aid of a government grant, it will expand its model development and all-round R&D activity in the UK.  It is worth adding that if JLR production continues to grow in the BRIC and North American markets at current rates, then the pressure for additional  The good news from JLR continued in November with the announcement that production capacity, outside the UK, in addition to that planned for China (and it will recruit a further 1,000 workers at its to work on the wide kit assembly arrangements elsewhere) will become very strong indeed. This range of new models due to go into production at Solihull in the next few years. may, in turn, limit the long term production growth potential for JLR beyond the  In addition, Toyota confirmed the start of production of the latest Avensis, a volumes shown here. move which reinforces this model’s position as integral to Toyota’s The environment for investing in UK manufacturing appears much more attractive manufacturing strategy in Europe. Toyota will also centralise all European now than it did even two years ago. The government’s new found enthusiasm for production of the Auris in the UK from 2012; and Ford is continuing with its manufacturing has certainly encouraged the vehicle companies to invest here in substantial investment plans in its powertrain operations in the UK. the UK. Of particular significance is the investment in vehicle and powertrain Implications of the above development at Honda, JLR, Nissan and Ford in particular, plus GM to a lesser extent at Millbrook. On the back of existing demand and a hoped-for eventual economic recovery, we see UK car and light commercial vehicle production rising above 1.6mn The decision to develop the new Nissan Qashqai from the beginning here in the units in 2012 and approaching and indeed exceeding 2mn units pa by 2015/6. UK (starting with design at Nissan’s London design studio and moving onto The potential for this be achieved and maintained has been reinforced with engineering at the Nissan technical centre at Cranfield) can only help to embed confirmation of the long term future of GM at Ellesmere Port. Nissan even more firmly into the UK economy; having vehicle assembly and component production here is naturally welcome, but it is widely acknowledged As for the rest of the decade, further growth in UK production volumes can be that having R&D centres here in the UK is essential to maintaining the country’s expected, but the scale of growth will depend on a number of decisions yet to be recent automotive resurgence. Bentley is also increasing its UK R&D activity. made: Ford’s concentration of diesel engine development and production at Dagenham  Now that GM has confirmed it is retaining Ellesmere Port, will it also allocate and all of Jaguar-Land Rover’s vehicle development are the basic underpinnings of European production of the Ampera to the plant? For now we doubt this will volume automotive R&D in the UK, but Nissan’s commitment to production here happen until after 2016, if it happens at all. with the new Qashqai, Invitation and the new C segment car is especially welcome.  Will the Luton van plant be awarded significant export contracts beyond Europe? At the moment this does not appear to be very likely. The decision by SAIC to continue to develop its MG range here in the UK is also significant for the maintenance and growth of the country’s R&D base, as is the expansion of product development at Aston Martin. In addition, the government and the industry – through the Automotive Council and other initiatives such as the

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TSB funding programme – are helping to build the country’s R&D skills in low purchasing executives at the international VMs have also expressed concerns to carbon technologies, a move which is clearly welcome. us that some of their potential suppliers have been unable to get financial support from UK banks putting into jeopardy these VMs’ plans to award new supply Three concerns remain … contracts in the UK. There has been a great deal of talk about this issue, but However, there are three serious concerns which remain and need to be rather little action in terms of making sure that finance is actually available to addressed and not forgotten about amidst the euphoria over the expansion of suppliers. The worrying thing is that we have been saying this in several reports, vehicle production, namely: and the matter is reportedly widely discussed within government and the banking sector, but there is little evidence of the situation changing.  The lack of R&D undertaken in the UK by the tier 1s.  Reports from suppliers across the supply chain, from tier 1s through to tiers 3 The SMMT, together with the Smith Institute, has begun to identify roadblocks and and 4, regarding difficulties with raising investment and working capital barriers to such investment and is working closely with the government and banks, finance in the UK. and hopefully overcome such blockages. The report, available at http://www.smith-institute.org.uk/file/give%20them%20some%20credit.pdf  And reports from suppliers regarding problems with recruiting enough is a major step down the road towards developing a solution; clearly there is a skilled manufacturing employees and engineers. serious risk of a long term “disconnect” between the needs of the supply base and Although the likes of JCI, Faurecia and Denso have production facilities here in the the willingness of the UK financial sector to support the supply base. How this UK, they undertake little fundamental R&D and project specific development circle can be squared is unclear at present, but the issue needs to be addressed engineering here. This work tends takes place at their facilities elsewhere. Even otherwise the scale of opportunity open to the UK will be under exploited and GKN, one of the few major UK-owned tier 1s, undertakes much of its driveline supplier investment will take place elsewhere, with the consequent loss of jobs and development work outside the UK. associated wider economic -offs. Somehow, tier 1s have to be encouraged or persuaded to bring some of their R&D In terms of labour and skill shortages, this may appear somewhat counter-intuitive work to the UK – in this regard, Nissan’s commitment to developing the new in an era of rising unemployment and with the supposed increased in Qashqai in the UK is highly significant as an increase in fundamental vehicle R&D apprenticeships and training schemes. However, at the SMMT’s September 2011 in the UK can only help to encourage suppliers to locate some of their R&D here Open Forum, a number of UK suppliers said they were already finding it too. The Automotive Council and government together need to develop a coherent difficult to recruit enough skilled workers to fulfil future contracts. plan to bring this idea to life. Similar sentiments were also heard amongst suppliers at the Open Forum in The second issue of suppliers having problems raising finance is something March 2012 and at the International Automotive Summit in June 2012; they which we believe will be of increasing importance in the short-medium term. added that they were winning an increased volume of business from suppliers in At the SMMT’s 2011 International Automotive Summit in London a number of UK continental Europe and saw the problem of inadequate labour supplies becoming suppliers, small tier 1s and large tier 2s, openly expressed their frustration with the an increasingly significant issue. Several of those located in the area where the UK financial sector and the difficulties in raising working capital, to support specific new Jaguar Land Rover engine plant is to be built added that they feared losing capital investment or fund development work on various VM projects. their best workers to this plant when it opened – they fully expected JLR to be able AutoAnalysis heard similar stories from its client base regularly throughout 2011. to pay a premium over what they could afford to pay. This is reminiscent of the frustration which the supplier industry experienced in the This is potentially a serious issue for the UK automotive industry and economy in recession when the government’s Automotive Assistance Programme failed to general – and something which policy makers need to address. As we noted in result in any actual financial support for a supplier. A number of UK-based previous reports, it would be ironic at best and even tragic at worst if the

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increased willingness of the VMs to increase sourcing here was met by an inability of UK suppliers actually to be able to fulfil the orders the VMs want to place here. At the end of the day, there is no doubt that government and industry alike will simply have to train more skilled manufacturing engineering workers – this will not be a quick or easy task, but it will have to happen if the UK is to maximise its chances of benefiting from the recent investment in automotive manufacture.

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The weak economic outlook, lack of consumer confidence and the progressive Production Outlook Overview shift of production from Europe to China and the US at several VMs, means that we expect to see a much slower and later recovery than we had projected before. Introduction Although European production has recovered from the hit taken at the Japanese VMs because of the earthquake/tsunami and Thai floods last year, weak demand Our Production Outlook runs to 2016. It should be noted that while we include the for most of the major volume European brands is the principal reason behind the full manufacturing volumes for the European/Japanese/Korean/American VMs in fall in production. Russia, we do not include the pure CKD volumes for these VMs. Furthermore, we Amidst the general economic gloom, there are, however, some bright spots when do not include the indigenous Russian brands (mostly the original Ladas), which looked at from a country perspective. Significant investment in the UK by most of are all slowly being replaced by international models (essentially , Dacias the major VMs means that the UK should actually experience rising production in and Nissans). There is still a lack of information to allow fuller coverage of the 2012; despite the widespread economic uncertainty, investment continues to grow Chinese VMs; Great Wall has now opened its plant in Bulgaria, while the Chery in the UK and 2012 in particular will see production boosted by a combination of plant in Turkey, which is a JV with Turkish company, Mermerler, will not actually new models from Honda, the new Toyota Auris, the widening of the Mini range start production until next year; as before, this report covers limited information continued strength at Nissan and new models at Land Rover. these companies, plus SAIC in the UK. Chery’s annual production is expected to reach 200,000 upa by the end of the decade. However, production at a number of continental VMs, especially Fiat, Ford, Opel, PSA and Renault will not be so good in 2012 as in 2011 and this will have some Production rose strongly in 2010; this continued in 2011 – but impact on the picture in different countries. Specifically: will fall in 2012 …  Fiat, which lost over 130,000 units in 2011 over 2010, will see a further fall to 2010 saw production rise across Europe by over 2mn units to almost 18.2mn units, below 1.4mn units this year, this despite the new Panda, continued strong compared to 2009’s 16.1mn units; our revised total for 2011 is now just under production of LCVs and the imminent of the new 500 series. Delays in 19.21mn units; we now have to include our best estimates for some German the launch of various models, especially the new Bravo, various Alfas and by figures because the VDA (the equivalent to the SMMT in Germany) is not currently consequence delays to the equivalent Jeep versions explain the fall as much releasing detailed production data for Germany. This is expected to be released in as declining demand. As a result of the economic situation and these September this year. programme delays, we don’t expect Fiat’s recovery in production to take place In our previous report we had expected Europe, including Russia, to see a rise in until 2014 and this recovery is itself contingent upon US consumers accepting production this year, the economic uncertainty notwithstanding. This confidence European made models and production in Russia, at an all-new plant, being a was based on the continued strength of the German market, strong demand from success. China, the USA and other key emerging markets. However, the core European  Ford, which lost just over 200,000 units in 2011 over 2009 will lose another markets themselves have weakened considerably in recent months and as more 130,000 units this year alone, largely due to slowdown in production of its large economic data becomes available, we have reduced our projections accordingly. models made in Belgium, the Fiesta (ahead of a new model in the next couple Thus we now project 2012 European production, with Russia, to be just under of years) and delays to new models to be made in Romania. 19.2mn units this year, approximately 1.1mn units down on Q2 view; without  Opel/Vauxhall, which lost just over 40,000 units in 2011 compared to 2010, Russia, we expect Europe to be just over 17.92mn units this year, down from will see a further fall of around 190,000 units, with this loss spread across most c18.41mn units last year. Next year, we expect a modest recovery to nearly of its range. The expectation is that Opel/Vauxhall volumes will continue to fall 19.89mn units, including Russia, and to just over 18.2mn units without Russia.

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for a couple of years ahead of the new Astra and Corsa which are due from on recent years, but still some way short of the high point in the middle of 2014 onwards. The replacement Zafira and Insignia follow soon afterwards. the previous decade. The model cycle timings of the Opel/Vauxhall range could not have come at a worse time in terms of coinciding with the economic downturn. This is evident  Czech Rep.: production climbed to over 1mn units for the first time in 2010 in the company’s decision to close the Bochum factory. and this was sustained in 2011. The country has benefited from the success of Hyundai and Skoda in particular – they have more than compensated for the  PSA, which was stable in 2011 over 2010, will lose around 250,000 units in falling production at the PSA-Toyota JV. We expect Skoda and Hyundai to 2012 and a further 65-70,000 in 2012 – and this is despite the switch to the continue to grow and expect and with the PSA-Toyota JV to produce a new new Peugeot 208; almost all of the PSA range is heading into the downward model line-up in the near future – on the back of this, we have a broadly phase of their model cycles and facing tremendous competition in very difficult positive outlook for production, expecting it to reach over 1.4mn units by the economic times. Although PSA should recover from 2014 onwards, we still do end of the period covered by this report. If Hyundai invests further at Nosovice, not see it getting back to 2007-8 production volumes – the pressure to close as we expect it will, this 1.4mn level could easily be significantly surpassed in more than one factory in Europe will get ever stronger. the second half of the decade.  Renault: although Renault group production, including Nissan and Dacia is  France: production reached c2.26mn units in 2011, following two years of largely on an upward curve, at Renault itself the reverse is true; we expect growth; production is still some way off the 2.5mn units in 2008 and the 2.9mn Renault to lose around 190,000 units this year and although Nissan will grow units of 2007. However, 2012 will see a fall in French production despite the slightly (its big growth will be from 2014 onwards) and Dacia continues to go benefit of the new Peugeot 208, the new Yaris, revised and the EVs from strength to strength, the Renault brand’s decline means the group itself coming from Renault; in fact we see 2012 production in France now falling by loses around 55,000 units this year. around 200,000 to 2.06mn units, with a small fall again in 2013 and 2014; there will be modest rises in the following years, but with Renault increasingly By contrast, all other groups and brands will either be stable in 2012 or will see orientating itself towards Russia and other emerging markets, following PSA’s modest increases in production. lead, we expect French production will settle down around the 2.1mn units Turning now to the country picture, we look at the main vehicle production mark on an annual basis. This will mean France falling behind Spain and the countries in alphabetical order: UK in the battle for 2nd, 3rd and 4th spots in the EU country rankings, behind Germany. Our Outlook for France assumes that if French VMs close any of  Belgium: last time, we had adjusted some of the historic data for Opel here their factories in France, then any replacement output from these plants will be and this was reflected in slight differences between the figures quoted in the re-allocated to other French plants, although some Clio production will last report and here and those in earlier reports. Having seen over 851,000 definitely shift from France to Turkey – the prospects for vehicle production in vehicles made there in 2007, production fell steadily since then to just over France are somewhat worse than they had been in our previous reports. 571,000 in 2010. 2011 saw another fall to c555,000. o French production fell from 2007-2009, with a modest recovery in 2010 o We expect a fall again this year to just under 514,000 owing to declining and again last year. During 2010-11 that political considerations began to demand for the large Fords and the older Volvo models made there. The influence some decisions regarding vehicle production arrangements. loss of the Opel Antwerp plant was also felt for the first time last year. There is a long term reduction in vehicle production in France taking place o The one bright spot in Belgium is the Audi plant which will produce close to and the political dimension, especially at Renault, is clearly in response to 200,000 upa by the end of our Outlook period. This will help boost Belgian this; there will be a modest recovery in vehicle production volumes in production back to close to 600,000 on a sustained basis, an improvement France over the period, but this would not have been on track to happen

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without the involvement of the French government. The decisions by o A general decline in production in Germany by Opel and Ford. Renault to bring LCV production back from the UK and Spain to replace o By the end of the period covered by our report however, we expect large car production at the Sandouville plant (Renault will shift production production to have climbed back over 6mn unit on a sustained basis, to of large cars from Sandouville to Douai) and not to shift all Clio output around 6.1mn units, with a series of new models boosting production; by from France to Turkey or Slovenia (where Renault could take advantage of this time, moreover, we expect the current economic uncertainty to have ostensibly lower cost plants) were made after undoubted pressure from the become a thing of the past. French government. o The continued importance of Germany to European vehicle production will o That said, Clio production will rise in Turkey at the expense of France in remain. All the principal German brands will remain focused on producing the long run. It is notable, for example, that the main electric vehicle plant vehicles in Germany, although the capacity installed by the premium for Renault is likely to be Flins near Paris. The substantial support given to German brands outside Germany is increasing. Daimler has now started the French VMs by the government has been, we believe, predicated on a full scale production at the new Mercedes plant in Hungary and we now clear understanding that French production facilities will not close. expect production in Hungary to be higher than previously thought; and Currently the main uncertainty in France surround whether the PSA factory BMW has said it will establish full manufacturing in Russia, although this at Aulnay to the north of Paris will close or not – we had expected some will almost certainly be after the time period with which this report is clarity on this shortly after the French presidential election; at the time of concerned; Daimler will establish a van production JV in Russia, but has writing this report no definite decisions had been announced, although we said it will not build a car plant there for the time being. expect it will close and this assumption is built into our Outlook. o Audi is also expanding production capacity in Neckarsulm in Germany and o By the end of the Outlook period, production in France, at just over 2.1mn at Gyor in Hungary and has confirmed it will build a factory in Mexico with will be over 800,000 units down on the 2007 level, reflecting already production starting there in 2015. It worth repeating the comment made in planned production shifts by PSA and Renault to Slovenia, Slovakia and previous reports that one of the reasons for the expansion of BMW and Turkey, political pressures from the French government notwithstanding. Mercedes production outside Germany has largely been undertaken in The possibility of large car production by PSA moving to China has been order to free up capacity in Germany and to allow the German factories to denied by PSA – it remains committed to the Rennes factory where its produce a wider range of models. Audi had to add shifts in 2012 to cope large cars are currently made. What happens to large car and MPV with strong demand. It has also had to use SEAT to produce the Q3 SUV production in the GM-PSA alliance could have a significant impact here. owing to capacity shortages at its own plants in Germany. It is also expanding its product range significantly which will lead to further pressure  Germany: last year saw German production climb to almost 6.13mn units; on its existing capacity in Europe – and could actually accelerate the however, we expect 2012-2013 will see a slight fall. There are a number of decision to build a plant in North America. reasons for this, including: o Opel has confirmed the name of the new small “premium” Opel for the o Failing production of several models which are due to be replaced in the Eisenach plant – this will be called Adam. This car is designed to help next 2-3 years, eg Mercedes C-class, Ford Fiesta, , and the Opel compete directly against Mini and similarly positioned German Volkswagen Passat/CC. models, but whether this positioning is achievable for the Opel brand o A shift of some production away from Germany, with the Passat being remains to be seen. We project that production in Germany by 2016 will made in the USA as well as Germany, and the Mercedes A- and B-class be around 6.2mn units, substantially above the 2007 pre-crisis levels; seeing some production moving to Hungary. indeed German production was actually back above 2007 volumes in 2010 and again last year; this followed the record sales levels for most of the

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German brands in 2010. However, we now expect a fall in production in reorientation of Fiat towards Italy, car and LCV production there should be Germany in 2012 and 2013, with volumes down at Ford, Opel and even around 1.12mn units made in 2016, ie still just below the level in 2007. some VW models; 2014 will be broadly the same as 2013, before the real Long run production in Italy is shown as lower than previously projected recovery from 2015. The downturn and lack of growth in 2012-4 is due to because we now understand Chrysler/Jeep production in Italy will be lower a combination of economic uncertainty and model cycle effects; the than earlier thought – and because some of the production which Fiat economic recovery and model cycle effects should result in a renewed could have made in Italy will now take place in Poland, Turkey and Serbia. increase in production and growth in 2015-6. o With the transfer of the Panda from Poland to Pomigliano now complete,  Hungary: for some years, vehicle production in Hungary has been limited to Fiat and therefore Italian production should be rising strongly, but it is Suzuki and a small volume at Audi. However, we can expect to see a steady clearly not rising; moreover, the economic uncertainty has hit Italian rise in production in Hungary in the years ahead. Audi is adding capacity to demand hard (Fiat is still very dependent on its home market) and allow production in Hungary of more than 100,000 upa and Mercedes will problems with a number of models have led to delays in their introduction. produce some of the new A- and B-class programmes in an all-new plant in The timing for the next Bravo and various models from have the country. We expect the 213,000 units made in 2011 to almost treble to been put back; we no longer expect the recovery in Italian production to c630,000 in 2016. get under way next year, but we expect this should begin in 2014 –  Italy: just as France saw a fall from its 2007 peak, so has Italy experienced assuming that is, that the various small , Alfas and which are to something along these lines. Production in Italy was over 1.2mn units in 2007, be made in Italy for the North American market in particular are successful but it fell steadily every year until last year when production was just over in their export markets. Some of the Alfas and Jeeps may actually now be 751,000 units. This period coincided with a major reorganisation at Fiat, the made in north America, calling into question the viability of at least one of closure of one plant, in Sicily, and extensive negotiations with the unions about Fiat’s plants in Italy. improving the efficiency and cost base of its Italian operations. Negotiations o From 2014/5 onwards, the new Bravo, Punto, Giuilia and SUVs under with the Fiat unions have been far from simple and at some points in the various nameplates should be in full production and – assuming some process the possibility that another plant in Italy could close was real – recent reasonable economic recovery in parallel, it is reasonable to expect Italian reports that Fiat was considering closing Mirafiori and Pomigliano seem wide production to reach the 1mn level again by 2015.Some time ago, Fiat had of the mark, especially in view of the recent investment in Pomigliano to make set a target of 1.5mn units under its Fabbrica Italia banner – this is no the new Panda and commitment to build a new range of Fiats and Jeeps in longer realistic, partly because of the state of the economy, but it is Mirafiori: questionable whether this was realistic in the first place. Alfa has continued to be plagued by delays in model development and its sales o Government pressure helped to bring production of the next Panda from Poland into Italy with the unions finally agreeing to the changes in working prospects are worse now than they have been for some time. The lack of practices which Fiat had requested; that said, there were many union new model introductions will have an inevitable impact on its market profile problems at the plant which is now making the new Panda and at other and by the time the new models do appear, many potential customers are plants in Italy; indeed for a while during 2010-11 it was far from certain that likely to have gone elsewhere. the proposal to bring Panda production back from Poland to Italy would o Because of the failure of Alfa to bring out new models in a timely manner actually happen. Moving Panda production to Italy will result in a parallel and the generally poor sales for Fiat, the idea of closing a factory in Italy decline in Polish production, although this has been partly recompensed has once again been raised. Indeed the idea of Fiat closing two plants has by the decision to move Lancia Ypsilon production to Poland. With the even been mooted. Whether Fiat has the political backing to do such a

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thing or the management strength to see such a move through is another 149,000 in 2010, but which rose again last year, to c183,000 units – although matter. we now expect it to fall steadily over the next few years. We doubt that the VW Eos and Scirocco will sustain the same volumes in the rest of this decade As discussed in the Fiat profile and elsewhere in this report, we can o as they did in previous years and while we expect the VW Sharan to have a envisage either Cassino or possibly Melfi closing, but there are major good couple of years with the all-new model, we see volumes here falling; the logistical and organisational consequences of closing one or other these best days of the large MPV segment are arguably behind it. We also have plants. For all the words of Fiat CEO, Sergio Marchionne, we still remain doubts as to how long PSA will retain its small plant at Mangualde – we to be convinced that he will bite the bullet and close an Italian plant in the believe that the production volumes here could easily be absorbed within the near future. Vigo factory (which also supplies most of its stampings). o In the short term, we expect Italian production to stay below 700,000  Romania: like Hungary, this country should see a rise in production in the upa and we do not expect a recovery in Italian production until at coming years. While the Dacia factory has reached close its capacity, the least 2014 and even this may be optimistic. country will finally see Ford produce a new model here. The B-Max should be  Poland: here production reached its peak in 2008 when nearly 930,000 produced at a rate of c100,000 upa from next year, and we believe that Ford vehicles were made; since then production has fallen, and we expect this fall will also add a second model here in the next few years. It has said it will do to continue, at least in the absence of further commitment to its plants there so, but the fact that it is cutting production in Germany owing to falling demand from Fiat, VW and GM. The real cause of falling production in Poland is Fiat for the Fiesta may also cause the timing for the second model at Craiova to be which has transferred the Panda to Italy and which will lose the Ford Ka delayed. We had previously understood that a SUV version of the Fiesta volumes in the next few years as well: would be made here, but we now under that the Ford Ecosport will be made in India. The continued popularity of the Dacia range and the ambitious plans for o Transferring the Lancia Ypsilon to Poland helps to alleviate the loss of Ford Craiova (which has been given a new model line-up in Ford’s latest Panda volumes but it far from fully compensates for this loss. Following reorganisation of its production footprint) explain the increase in production the switch of the new Panda back to Italy, it is difficult to see how the between 2007-2015; with the second Ford model and continued success for country can return to the 870,000+ units annual production which it has Dacia we no expect production will be in the range 550-600,000 upa. The seen in the recent past. However, we think c600-6200,000 upa is realistic Dacia plant is understood to be close its full capacity – this has led Renault to in the light of known plans for Fiat and GM in Poland. build a second Dacia factory in Morocco to supply Europe and the near East. We have also factored in the expected end of the Ford Ka in Poland. In o  Serbia: ahead of the recent economic collapse, Fiat agreed to take on the addition, Poland has suffered with the loss of Zafira production to Germany former Zastava plant in Serbia and received significant EU, Serbian – although the Astra is still produced there, the volumes at the moment are government and EIB support. Its initial plans are to make a series of small 5- not sufficient to make up the loss of the Zafira. We now know that Opel’s and 7-seater MPVs based on the Fiat 500 platform and indeed an SUV version Gliwice factory will be safe within the imminent reorganisation of GM in for Jeep. We had expected this plant would also make a version of the Uno Europe and it could be that once the final decisions have been made (project 326) which is being made in Brazil, but we now think this has been regarding the footprint of the new Astra build – and indeed the next Zafira delayed. This plant should make over 100,000 units next year and could well (which we currently have in Germany) – future production in Poland could exceed 300,000 in the second half of the decade depending on which models be higher than shown here. That would, in turn, mean reduced production are allocated to this plant. Whether Fiat would have taken on this plant had it in Germany or the UK. been able to foresee the state of the global car market by 2012 is an  Portugal: here production fell from just under 168,000 in 2007 to just under interesting question – almost certainly the 500L could have been made in

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Poland, but it is too late for Fiat to pull out now. o The situation in Spain remains uncertain because of the country’s economic situation and the continued concerns surrounding SEAT’s long  Slovakia: production here is very much on the rise, or on the up – due to the term viability. Our projections continue to be based on a number of key ! In 2007, production in Slovakia was just over 538,000 and assumptions, notably that SEAT will indeed sort out its manufacturing after falling in 2008-9, was back to the 2007 level in 2010. In 2011, with inefficiencies at Martorell and that none of the major VMs currently growth at Kia (due to the Sportage and continued success of the cee’d), and operating in Spain will pull out of manufacturing in Spain entirely. There the new Touareg at Volkswagen, output climbed to nearly 580,000 units: remain doubts about the long run viability of the PSA plant in Madrid o On the back of this, and full year production for the Volkswagen Up!, 2012 (officially it will be retained as part of PSA’s manufacturing network – but will see a rise of c290,000 units to 869,000 units – the bulk of this will be what it will make once the current 207 stops production is not clear. due to the Volkswagen Up! and its SEAT/Skoda versions. The expansion o Similarly, VW’s Pamplona plant is expected to produce a wider range of in this range, the expected continued success of Kia and the widening of models based on the Polo, while Ford is has allocated a number of new the Audi SUV range will all help to put Slovakian production closer to 1mn models to Valencia which is also a flex plant (and it will be the centre of upa by 2016. The other model which will boost production in Slovakia this Ford’s hybrid production activities), but we now expect Fiesta production to year will be the new Peugeot 208. Continued growth in production here is be concentrated in Germany, reducing production in Spain; Opel has due to PSA, VW and Kia. And this growth is not solely down to small, designated Zaragosa as the lead Corsa plant and sole source for the cheap cars - VW Slovakia had to recruit additional staff in 2010 to cope Meriva. Additional capacity for Corsa and Meriva production is now with rising demand for large SUVs. By the end of the Outlook period, available at Zaragosa as the Corsa-based Combo stopped production at production will be c970,000 upa and it is conceivable that volumes could the end of 2011; production of its replacement will be at the Fiat-Tofas climb above 1mn upa not long after, especially in VW approves a further plant in Turkey. We do not at the present time see GM’s Spanish plant as expansion at its Bratislava plant. at risk of closure. Slovenia: here this is just one factory, owned by Renault. Production will fall  o In addition, Renault has pulled back from the possible closure of the this year owing to poor sales for the Twingo and the cutting of one shift; we Valladolid plant; this is now earmarked as one of the core EV plants for expect a modest recovery next year but it will need until the new Twingo and Renault; Valladolid will also make a small SUV-like vehicle. Even so, Smart derivatives from 2014 for production to recover to around the 220,000 production in Spain in 2016 (at c2.23mn units) is likely to be c530,000 upa level. Without this JV, we suspect this plant could well have been deemed units lower than it was in 2007; on this basis, we would definitely expect superfluous to Renault’s needs. at least one plant, or may be two, to close in Spain – the question is which  Spain: production in Spain was over 2.75mn units in 2007, since when it fell in VM(s) will be brave and take the first decision to close a factory.. 2008 and 2009; there was a recovery in 2010 on the back of increased o With the uncertainty over PSA’s factory in Madrid and the doubts as to production to meet small cars for the various European scrappage schemes. how successful the new models planned for Renault Valladolid will really However 2011 saw a slight fall and 2012 is expected to see around 420,000 be, we do not expect to see any significant increase in vehicle production units cut. There will be reduced production at most VMs in Spain; indeed apart in Spain until 2014 and beyond – production in Spain will be sustained by from the Audi Q3, new Seat Leon and the Connect & Kuga (which the Volkswagen Polo, strong LCV/SUVs and Pick-up production by Nissan are being transferred to Spain over the next two years), production of all other and the decision by PSA to allocate their emerging markets C-segment models in Spain will fall this year. vehicle to Spanish production. These models should, along with the new Citroen C4 Picasso help Spain to recover to the 2.1-2.2mn units range, but

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this could fall if the decision is taken to close at least one manufacturing more existing models having a better than expected run, production facility in the country. volumes in Turkey could easily trend towards 1.5mn units a year and higher. Production of at least 300,000 more vehicles by the Chinese in  Sweden: here vehicle production will be much lower than in the past and will Turkey by the end of the decade is a distinct likelihood. Chery alone stay at a much reduced rate for the foreseeable future. In 2007, Sweden expects to reach 200,000 upa by 2018. produced just over 340,000 vehicles, but this fell to just fewer than 189,000 last year and we see a further drop over the next two years before a strong  UK: production here fell significantly from 1.72mn units in 2007 and 1.62mn model-led and export-led recovery to around 275,000 by 2016 – units in 2008 to only 1.075mn units in 2009; 2010 and 2011 were excellent although some of the provisional increase to 2016 is for production of as recovery years for UK vehicle manufacture. Production was around 1.44mn yet unnamed models by Volvo which could be shared between Belgium units in 2011, and we think it will rise to 1.64mn units this year, to just over and Sweden so the recovery in Sweden may be slightly less than is 1.7mn units in 2013, 1.89mn units in 2014 and over 2mn upa thereafter: shown here. The reasons for the recent fall in production are: o UK vehicle production is well-placed to recover back to the levels it was at o The end of production at Saab. in 2007, although it will take until 2013-4 report for this to happen. This is o And the reduction in production in Sweden at Volvo. Volvo Sweden quicker than we had thought during 2011 and this acceleration is due to focuses on the larger Volvo models whereas its Belgian plant makes the faster growth at most of the VMs manufacturing in the UK, especially the smaller and more popular models – so unless Volvo decides to move Japanese. Nissan achieved record production volumes in both 2010 and some of its smaller vehicles to Sweden, it is difficult to see anything other 2011, and production volumes are rising again at Honda and Toyota. than a decline in production here. Nissan production will be boosted in the next few years by the new Qashqai and the recent announcement regarding the Nissan Invitation and  Turkey: here, apart from a dip in 2009 when production fell to just under an as yet unnamed C segment model which will be made at the 850,000 units, production has been around 1-1.1mn upa in recent times. Sunderland factory from 2013/14. Model life cycle effects and the general economic uncertainty will mean a slight fall in production in 2012, but the new Chery factory and the new o 2012 was a very good year for the UK, with further investment confirmed should give production a boost to 1.12mn units in 2013 and to 1.45mn by 2016. for Mini just as this report was being finalised – although the production This total will be underpinned by the new Ford Transit and the new Ford small volume implications of this news are not yet known, nor is the timing of this van from 2014. All being well, we expect production in Turkey to settle down investment entirely clear at this stage, this news, plus the earlier at around 1.3-1.4mn upa for the remainder of the decade. confirmation that Vauxhall’s Ellesmere Port will be the lead plant for the next Astra, is further confirmation of the strength of UK vehicle production. o The Turkish plants of Ford, Fiat, Hyundai and Renault are integral to these companies’ European production networks; as such, Turkey has a o In addition, UK production is underpinned by excellent prospects at other remarkably stable manufacturing portfolio, one which is highly unlikely to VMs, eg: move away from Turkey given the centrality of the plants and the models o Nissan has committed to making the Leaf EV, the next Qashqai and concerned to the VMs’ overall strategies. the two new cars announced this year in the UK – with the probability o In addition, the Chinese VMs will soon be manufacturing in Turkey, that production at Nissan UK will reach 660,000 by around 2016. although not at full rates until at least the end of the period under review. o Honda has two new models coming on stream (the Civic and the CRV) At the moment we project that from 2013 annual production in Turkey in and we understand the Jazz will stay in production in the UK. the range 1.35-1.45mn units – with a couple of Chinese plants and one or

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o Toyota has allocated all production of the new Auris to the UK. by PSA and Mitsubishi with their JV – this is being transformed into a full production unit and Nissan has committed to expanding production in Russia, And JLR is in the midst of a significant new model expansion o with the new Almera to be joined by the Qashqai in the next few years. Suzuki programme. We can envisage over 400,000 Land Rovers and close will soon open a plant, and Honda will do the same shortly; even may to 200,000 Jaguars made in the UK if current product plans go well. have an operation of some form in Russia in the coming years. Both Nissan o Production volumes at Ford Southampton will fall permanently when the and Toyota are investing in new press and large injection moulding facilities in plant switches to assembly of chassis cab Transits. The long term future of Russia to bring these plants into line with capabilities at its other plants around GM’s Luton plant has been resolved and it will make the new Vivaro van the world. from 2014. With the expected expansion in the product ranges at Jaguar  Hyundai has opened a brand new plant capable of making 300,000 vehicles and Land Rover, allied to the continued good performance expected at and is well on the way to utilising this capacity. However, the biggest change Nissan, by 2013 we expect UK production to be back up at over 1.7mn in Russia involves Renault/Dacia models being made at AvtoVAZ, the units; and if plans at JLR are fulfilled then it should get to around manufacturer of Ladas. Later this year, Renault will take full control of nearly 2.13mn units by 2015 and climb over 2.2mn units in 2016. AvtoVAZ, in association with Nissan. Beyond that date, we expect annual UK production to fluctuate around the 2.0-2.2mn units mark. How high UK production reaches will  All of these developments means that in 2012 we expect just over 1.26mn really depend on the long term success of the new models from Jaguar vehicles will be made in Russia by these international brands – and by 2016 Land Rover and the next phase of investment at Nissan. the total will approach 2.54mn units and could quite possibly be higher than this; the rate at which the old Ladas are replaced by new models based on the o The situation in the UK has been boosted by confirmation that the future of the GM Ellesmere Port plant has been secured for the new Astra – indeed platform will be the main driver here. this will be the lead plant for this model, which will also be made in Poland  Increasing Russian production will clearly underpin European production at Gliwice. GM Europe is expected to lose a significant sum of money this growth; moreover, for suppliers this means that the need to follow the VMs to year and GM management in the US has given European management Russia is even more pressing than it has ever been. The importance of one more chance to come up with a plan to stem the losses and produce a Russia to European production will be especially evident from 2012 onwards: profit. The unpalatable idea of closing a factory has returned with a vengeance – Bochum in Germany will close by 2016.  We project European production including Russia as rising from c19.2mn in 2011 to almost 22.9mn in 2015 and nearly 24.2mn in 2016. In addition, we have to consider Russia:  However, Russian production of full manufactured international brands is  Here we only cover the international brands which have full manufacturing projected to rise by c460,000 units this year, ie from nearly 804,000 to 1.26mn operations in Russia. Back in 2007, less than 150,000 vehicles were made on units. Even with this boost from Russia – and indeed strong growth in this basis, mostly the and the Renault Clio made at Avtoframos. Slovakia and the UK – overall European production will be down slightly in Since then, VW has opened a plant at Kaluga, Ford has added the Mondeo 2012. and expanded its plant, GM has opened its all new plant at St Petersburg and  If the Eurozone’s difficulties are resolved by the end of 2012, we can expect several other VMs have also started full production in Russia. GM and VW production in Europe excluding Russia to grow again from 2013. Currently we have also established JVs with GAZ, while Fiat is opening its own plant, have total production in 2013 growing to c19.89mn units, ie a rise of c690.000 backed by the Russian bank Sberbank. units – nearly 400,000 of this is expected to come from Russia alone.  Toyota and Nissan have relatively small operations and they have been joined

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In summary … and VW whose factories in North America in particular will limit the degree of exports possible from their German factories. 2012 will see a definite fall in production at certain VMs and in certain countries as noted above (and as described in the VM profiles which follow); there will certainly To date, the uncertainty affecting much of the European economy has not caused be a slowdown in the economy this year, and in some countries recession has the kind of collapse in vehicle production which was seen in 2008. Some VMs, returned. Despite the ups and downs of recent months, there is a general view notably Ford and Renault, had already announced production slowdowns and GM that the Euro crisis will be solved – but the longer it takes for this to happen, the has announced the first result of its review of its production footprint in Europe with greater the concern as to when or whether this assumption will turn out to valid. the expected closure of the Bochum plant by the middle of the decade the first of many likely changes. In addition, PSA is now following GM’s lead and will close at However, it clear that across Europe consumer confidence and the availability of least 1 plant and institute cutbacks at others. vehicle finance are both weak and falling. So far, the Spanish and Italian economies have staved off the kind of collapse that has been seen in Greece; Ford and GM will lose significant sums in Europe this year, as will PSA; and clearly there remains a risk that Spain or Italy could collapse, and were this to Renault and Fiat are far from safe financially. Were it not for other brands happen, the consequences are arguably too complex to consider within the context contributing to group profits, Renault and Fiat on their own would be in severe of this report. Even so, production in these countries is falling and will not recover difficulty quickly. Despite these problems, many of the VMs – especially the Germans (and indeed The European VMs as a whole, and especially the Germans and JLR in the UK, Jaguar Land Rover) are in a much better state financially at this point than they plan to export aggressively from Europe and also change their mix of models to were when the collapse happened in 2008/09; BMW claims it is now able to smaller and more fuel efficient cars. GM has announced a modest export withstand a collapse of the same size as the 2008 collapse and still remain programme, with seven markets across the globe having been identified as profitable. In 2011, the French VMs both managed to repay their government amenable to the Opel brand; exports have already started and could ultimately loans far earlier than had been expected, although PSA’s full year figures for 2011 account for 6-7% of Opel's European production. and H1/2012were very disappointing indeed. The German VMs reported strong revenue and profit figures during 2011, although the French VMs reported a Fiat is also banking on exports to the USA to help maintain the long run viability of downturn in their economic fortunes in H2. The German VMs (Ford and GM its Mirafiori factory, as well as its plant in Serbia and its Tofas JV plant in Turkey – excepted) also reported healthy financials for both full year 2011 and the first the success of these factories is going to be dependent on Jeeps made in Italy and quarter of 2012. Moreover, most of the VMs have invested heavily in new model Ram/ made in Serbia and Turkey being sold successfully in these lines and this will act as an additional boost to production in 2013, if not this year. brands’ home market. However, because of the delays to most of these The downturn in many markets will mean that financial results for H2 of 2012 will programmes, we can’t expect to see any real benefit from these new vehicles until be much less positive than had been expected earlier in the year. the last couple of years covered by this Outlook. The reaction of North American consumers to Jeeps and Rams made outside North America will be interesting to observe, as this reaction will determine the economic viability of this strategy. The gradual increase in hybrids, EVs and vehicles will all help to maintain production volumes, alongside the anticipated growth in exports. Countering this largely positive view is the expansion of production in North America (and elsewhere) by BMW, Mercedes

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European Production Outlook to 2016, by VM and major brands – Base Outlook Production Production Production Production Production Group Marque 2007 Production 2008 Production 2009 Production 2010 Production 2011 Production Outlook 2012 Outlook 2013 Outlook 2014 Outlook 2015 Outlook 2016 BMW BMW 1,097,076 988,949 874,520 973,046 1,028,700 1,057,000 1,068,750 1,112,750 1,172,500 1,270,250 BMW MINI 237,709 235,019 213,670 241,043 294,117 326,500 381,000 407,000 445,000 457,000 BMW Rolls Royce 1,009 1,247 870 3,215 3,685 2,950 3,200 3,550 3,600 3,400 BMW ALL 1,335,794 1,225,215 1,089,060 1,217,304 1,326,502 1,386,450 1,452,950 1,523,300 1,621,100 1,730,650 Daimler Mercedes‐Benz 1,279,654 1,202,414 924,352 1,207,929 1,254,072 1,232,750 1,322,400 1,390,500 1,380,250 1,486,500 Daimler Smart 102,660 139,964 115,469 97,435 103,560 107,500 95,000 88,500 137,500 157,000 Chrysler Chrysler 41,811 12,926 2,146 3,002 0 0 0 0 0 0 Chrysler Jeep 29,213 16,781 3,230 2,495 0 0 0 0 0 0 Daimler 320 317 205 157 200 150 100 25 0 0 Daimler & Chrysler 1,453,658 1,372,402 1,045,402 1,311,018 1,357,832 1,340,400 1,417,500 1,479,025 1,517,750 1,643,500 Fiat Fiat 1,483,731 1,433,011 1,438,865 1,376,723 1,217,989 1,161,675 1,147,350 1,274,000 1,403,000 1,488,500 Fiat Alfa Romeo 151,499 109,428 104,022 120,068 136,121 106,500 105,000 126,000 188,000 204,750 Fiat Lancia 117,864 113,298 113,796 97,963 108,172 91,250 79,500 85,000 89,000 83,500 Fiat Chrysler/Jeep 0 0 0 0 0 0 0 50,000 125,000 165,000 Fiat Ferrari 6,561 6,722 6,213 6,627 7,314 7,450 6,950 6,500 6,000 5,750 Fiat 7,669 9,294 4,041 5,842 6,161 6,050 6,300 9,950 12,750 11,575 Fiat ALL 1,767,324 1,671,753 1,666,937 1,607,223 1,475,757 1,372,925 1,345,100 1,551,450 1,823,750 1,959,075 Ford Ford assem 1,920,173b 78,266 1,842,089 131,587 1,470,319 40,240 1,557,907 146,326 1,551,524 204,610 1,418,500 301,500 1,480,000 329,000 1,604,000 380,000 1,774,250 431,000 1,814,500 475,500 FordGM Volvo Saab/Cadillac 488,756 119,912 356,748 86,480 294,108 20,685 202,379 1,482 0 0 0 0 0 0 0 0 0 0 0 0 FordJaguar53,812000GM ALL 1,851,978 1,627,748 1,145,051 1,382,591 000000 1,396,037 1,301,000 1,262,000 1,278,000 1,552,250 1,641,500 FordHonda Land Rover Honda 232,548 263,435 0 280,516 0 93,847 0 150,103 0 109,800 0 209,250 0 251,000 0 287,250 0 293,250 0 292,750 FordMazda14,235000Hyundai‐Kia Hyundai Turkey 90,190 80,682 52,082 75,495 000000 91,866 101,500 106,500 168,500 194,500 210,500 FordHyundai ALL‐Kia Kia 2,709,524 156,465 2,198,837 200,823 1,764,427 160,182 1,760,286 229,505 1,551,524 252,200 1,418,500 295, 1,480,000000 302,500 1,604,000 297,500 1,774,250 295,250 1,814,500 298,750 GMHyundai Opel‐Kia Hyundai 1,653,800 1,409,681 0 11,004 1,084,126 116,200 1,234,783 200,010 1,191,427 377,136 999,500 511,000 933,000 561,500 898,000 554,000 1,121,250 549,000 1,166,000 526,750 GMHyundai Excludes‐Kia kits ALL 246,655 292,509 328,464 505,010 721,202 907,500 970,500 1,020,000 1,038,750 1,036,000 LDV LDV 10,418 9,308 40 0 0 0 0 0 0 0 SAIC MG MG 0 468 88 0 1,315 0 0 0 0 0 Mitsubishi Mitsubishi 66,433 63,135 50,620 52,275 52,775 50,250 40,000 45,000 43,000 42,500 PSA 1,174,855 1,125,641 995,343 1,051,806 1,069,416 901,250 871,500 871,000 894,750 972,500 PSA Peugeot 1,502,828 1,352,227 1,242,968 1,325,329 1,310,011 1,229,750 1,192,750 1,250,500 1,280,250 1,305,500 PSA ALL 2,677,683 2,477,868 2,238,311 2,377,135 2,379,427 2,131,000 2,064,250 2,121,500 2,175,000 2,278,000 Renault‐Nissan Renault 1,745,311 1,482,313 1,377,999 1,495,692 1,488,420 1,290,750 1,337,500 1,386,500 1,431,250 1,479,750 Renault‐Nissan Nissan 546,415 522,298 386,205 529,377 668,985 691,000 688,000 840,500 930,500 969,500 Renault‐Nissan Dacia 361,402 357,029 345,663 428,147 466,839 563,500 737,000 835,000 887,000 905,750 Renault‐Nissan AvtoVAZ 0 0 0 0 0 32,500 135,000 182,000 271,500 425,000 Renault‐Nissan ALL 2,653,128 2,361,640 2,109,867 2,453,216 2,624,244 2,577,750 2,897,500 3,244,000 3,520,250 3,780,000 Suzuki Suzuki 246,786 286,007 186,049 178,897 172,874 144,750 166,000 214,750 233,000 256,500 Toyota Toyota 805,736 686,731 516,435 476,763 478,087 543,750 599,000 648,750 753,250 760,000 Volkswagen Volkswagen 2,026,602 2,054,283 1,835,493 2,124,741 2,369,789 2,527,500 2,559,500 2,613,250 2,693,150 2,690,500 Volkswagen Audi 974,706 1,019,616 931,007 1,148,791 1,369,401 1,353,300 1,335,400 1,497,750 1,515,500 1,596,600 Volkswagen Seat 412,937 379,834 293,548 344,054 351,140 303,250 326,250 329,250 343,250 369,500 Volkswagen Skoda 621,626 614,999 541,189 558,735 583,000 674,400 710,300 687,000 721,000 779,000 Volkswagen Lamborghini 2,580 2,424 1,253 1,227 1,738 2,350 2,600 2,800 3,200 4,000 WallVolkswagen Great Wall Bentley 0 10,000 0 7,692 0 3,596 04,792 0 7,528 7,500 9,575 32,000 10,325 42,500 10,400 44,000 12,300 46,500 12,400 TotalVolkswagen Total Porsche 20,251,546107,170 18,997,036 96,721 16,077,142 75,637 18,191,309 95,529 19,209,676 127,165 19,183,630 143,000 19,875,643150,168 21,246,175 171,650 22,960,600 190,100 24,138,875 192,750 VW Group ALL 4,155,621 4,175,569 3,681,723 4,277,869 4,809,761 5,013,375 5,094,543 5,312,100 5,478,500 5,644,750 Tata Jaguar 0 72,696 41,765 56,456 49,932 51,000 65,750 84,500 152,750 198,750 EUROPEAN CAR AND LCVTata PRODUCTION Land Rover OUTLOOK 0 REPORT 188,147 116,581 185,096 241,099 328,250 324,500 305,000 351,000 409,500 September 2012 | Page 42 Tata Tata JLR 0 260,843 158,346 241,552 291,031 379,250 390,250 389,500 503,750 608,250 Saab Sypker Saab 0 0 0 30,763 13,555 0 0 0 0 0 Geely Volvo 0 0 0 165,103 443,526 396,750 405,000 440,500 513,250 511,750 Aston Martin Aston Martin 7,373 6,487 2,475 4,201 4,427 3,230 3,050 4,550 5,500 6,650 Chery Chery 0 0 0 0 0 0 5,000 40,000 70,000 86,000 Great

European Production Outlook to 2016 by VM Group – Base Outlook

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 BMW 1,335,794 1,225,215 1,089,060 1,217,304 1,326,502 1,386,450 1,452,950 1,523,300 1,621,100 1,730,650 Daimler 1,453,658 1,372,402 1,045,402 1,311,018 1,357,832 1,340,400 1,417,500 1,479,025 1,517,750 1,643,500 Fiat 1,767,324 1,671,753 1,666,937 1,607,223 1,475,757 1,372,925 1,345,100 1,551,450 1,823,750 1,959,075 Ford 2,709,524 2,198,837 1,764,427 1,760,286 1,551,524 1,418,500 1,480,000 1,604,000 1,774,250 1,814,500 GM 1,851,978 1,627,748 1,145,051 1,382,591 1,396,037 1,301,000 1,262,000 1,278,000 1,552,250 1,641,500 Honda 263,435 280,516 93,847 150,103 109,800 209,250 251,000 287,250 293,250 292,750 Hyundai-Kia 246,655 292,509 328,464 505,010 721,202 907,500 970,500 1,020,000 1,038,750 1,036,000 Mitsubishi 66,433 63,135 50,620 52,275 52,775 50,250 40,000 45,000 43,000 42,500 PSA 2,677,683 2,477,868 2,238,311 2,377,135 2,379,427 2,131,000 2,064,250 2,121,500 2,175,000 2,278,000 Renault-Nissan-Dacia 2,653,128 2,361,640 2,109,867 2,453,216 2,624,244 2,577,750 2,897,500 3,244,000 3,520,250 3,780,000 Suzuki 246,786 286,007 186,049 178,897 172,874 144,750 166,000 214,750 233,000 256,500 Tata JLR 0 260,843 158,346 241,552 291,031 379,250 390,250 389,500 503,750 608,250 Toyota 805,736 686,731 516,435 476,763 478,087 543,750 599,000 648,750 753,250 760,000 4,155,621 4,175,569 3,681,723 4,277,869 4,809,761 5,013,375 5,094,543 5,312,100 5,478,500 5,644,750 Geely Volvo 0 0 0 165,103 443,526 396,750 405,000 440,500 513,250 511,750 Others 17,791 16,263 2,603 34,964 19,297 10,730 40,050 87,050 119,500 139,150 Total 20,251,546 18,997,036 16,077,142 18,191,309 19,209,676 19,183,630 19,875,643 21,246,175 22,960,600 24,138,875

EUROPEAN CAR AND LCV PRODUCTION OUTLOOK REPORT September 2012 | Page 43

European Production Outlook to 2016 by VM Group – Base Outlook

European car and LCV production by VM group, 2007-2016

Others

Geely Volvo 25,000,000 Volkswagen Group

Toyota

20,000,000 Tata JLR

Suzuki

Renault-Nissan-Dacia 15,000,000 PSA

M itsubishi

10,000,000 Hyundai-Kia

Honda

GM 5,000,000 Ford

Fiat

0 Daimler

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 BMW

EUROPEAN CAR AND LCV PRODUCTION OUTLOOK REPORT September 2012 | Page 44

Country review In terms of country trends, the following table shows the expected trend in country production (please note that we now include Renault’s Moroccan factory in the Outlook – hence the appearance of Morocco in this table and chart): European Production Outlook to 2016 by country – Base Outlook 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Austria 202,014 129,098 60,411 90,440 131,838 119,880 114,000 110,750 129,000 193,250 Belgium 851,330 736,185 559,570 571,387 554,783 513,750 557,000 594,000 597,000 593,250 Bulgaria 0 0 0 0 0 7,500 32,000 42,500 44,000 46,500 Czech Rep 931,853 934,267 973,890 1,049,583 1,105,689 1,220,650 1,281,550 1,241,250 1,355,650 1,446,000 Finland 23,026 16,145 10,414 6,385 2,015 0 10,000 35,000 30,000 25,000 France 2,931,425 2,504,298 2,006,002 2,186,643 2,259,868 2,064,250 2,041,500 2,029,500 2,059,250 2,108,750 Germany 5,740,191 5,527,096 4,989,595 5,690,798 6,126,306 5,872,450 5,629,818 5,691,675 5,957,850 6,229,750 Hungary 298,704 341,203 218,103 217,428 212,582 229,000 381,500 541,000 601,250 628,350 Italy 1,233,763 966,361 810,762 798,411 751,167 699,025 668,700 877,250 1,064,950 1,120,075 Morocco 0 0 0 0 0 70,000 167,000 240,000 310,000 340,000 Netherlands61,69260,30550,62048,02540,77530,0000000 Poland 788,746 929,437 870,891 886,169 823,659 708,250 613,750 518,000 566,500 620,500 Portugal 167,806 155,460 131,480 148,681 183,390 168,500 159,500 142,250 152,000 155,250 Romania 292,161 284,311 296,312 350,857 335,167 361,000 471,000 549,000 561,000 553,750 Russia 145,215 247,353 160,421 419,976 803,965 1,262,000 1,658,000 1,959,750 2,255,250 2,538,750 Serbia 0 0 15,000 15,000 8,000 42,000 129,000 158,500 178,000 158,500 Slovakia 538,288 520,953 521,853 539,101 577,907 868,750 904,500 935,500 935,250 970,250 Slovenia 200,157 198,094 212,680 212,493 173,782 124,500 117,500 207,500 221,250 222,750 Spain 2,758,555 2,494,012 2,139,857 2,368,832 2,362,341 1,940,500 1,936,500 2,084,000 2,165,000 2,228,000 Sweden 340,311 252,647 126,158 174,656 188,869 161,000 143,500 180,000 264,250 274,750 Turkey 1,028,581 1,083,227 848,015 1,049,652 1,124,753 1,084,500 1,120,000 1,219,750 1,364,500 1,435,500 UK 1,717,728 1,616,584 1,075,108 1,366,792 1,442,820 1,636,125 1,739,325 1,889,000 2,148,650 2,249,950 Total 20,251,546 18,997,036 16,077,142 18,191,309 19,209,676 19,183,630 19,875,643 21,246,175 22,960,600 24,138,875

EUROPEAN CAR AND LCV PRODUCTION OUTLOOK REPORT September 2012 | Page 45

UK European car and LCV production by country, 2007-2016 Turkey Sweden Spain Slovenia 25,000,000 Slovakia Serbia Russia 20,000,000 Romania Portugal Poland Netherlands 15,000,000 Morocco Italy Hungary 10,000,000 Germany France Finland 5,000,000 Czech Rep Bulgaria Belgium Austria 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

EUROPEAN CAR AND LCV PRODUCTION OUTLOOK REPORT September 2012 | Page 46

almost certainly more than this in due course, it is the changing position of the UK Country Rankings which is most relevant to the discussion of country rankings. The UK appears to be the one bright spot in terms of established countries for The battle for second place intensifies vehicle manufacture. Elsewhere in this report we detail the numerous recent investment announcements from the major VMs; BMW’s announcement of further The position of Germany as the largest vehicle production country is well- expansion of Mini capacity (including engine and component production) in July is established and will continue. In 2011 Germany actually saw car and LCV further evidence of the confidence which the VMs as a group have in the UK as a production climb above 6mn units, due to strong demand from the premium brands future manufacturing location. and Volkswagen in particular. The picture in Germany would have been even better had Ford not experienced a decline owing to the switch of C-Max production The planned new model programmes and the continued growth at Mini, JLR and to Spain and a general decline in production of its other models made in Germany. Nissan (despite the economic climate) are very positive for the UK. In addition, we All other VMs actually recorded a rise in production in Germany in 2011, including have the return to production health of Honda & Toyota, plus the confirmation that Opel which benefited from the switch of Zafira production from Poland to Bochum GM will retain both of its vehicle plants in the UK. All of this means we can expect and the temporary addition of Astra production at Russelsheim – such moves are UK vehicle production to rise to 1.6mn units this year and continue on a steady now to be relatively short-lived. path thereafter, to over 2mn upa by the middle of the decade. On this basis, we expect to see the UK producing very similar production volumes to those made in Below Germany, the position of different countries is changing. For many years Spain and France. It now seems reasonable to expect the UK actually France has been the clear no.2 and Spain the clear no.3 in terms of production produce more vehicles in the long run that both Spain and France, volume ranking. In 2007, France produced c2.9mn units and Spain c2.76mn – cementing its position in the core European country rankings in second both have declined significantly since then and their positions have actually place behind Germany. reversed; in 2011, Spain made c2.36mn units and France c2.26mn. Further evidence of the changing focus of vehicle production in Europe comes Our Base Outlook sees France declining slightly in the years ahead, remaining in from the rise in production in the Czech Republic and Turkey (both now well over the range 2-2.1mn units per year, while Spain is projected to fall below 2mn for a 1mn upa and rising) and Slovakia which is also trending towards 1mnupa. couple of years (giving France back its second place!), before recovering somewhat to c2.2mn units. The actual volumes made in France and Spain are Subject to its export programme for Jeeps to North America being a success, Italy subject to change depending on key decisions regarding the final allocation of should see production climb back above 1mn upa in 2015 for the first time since models between PSA and Renault’s French and Spanish sites – if PSA decides to 2007; for the moment we have taken the view that this will indeed happen but have make Madrid into its EV plant for example, the picture for Spain could be better to caution that this is far from certain. than shown here, while further transfer of production by Renault to Turkey is During the period 2011-2016, we expect to see production rises as follows: possible, worsening the possible picture for both countries.  Czech Republic, +31% However, it is the future position of the UK and Russia which pose the biggest  Hungary, +198% challenge to France and Spain. Russia is something of a unique case in that almost all of the production growth there is for the local market and because of  Romania, +65% import duties, it is extremely unlikely that Russian demand could have been met  Slovakia, +68% from core European production sites in the long run. So, while we expect to see  And Turkey, +27.5%. Russian production of international brands reach over 2.5mn units by 2016, and

EUROPEAN CAR AND LCV PRODUCTION OUTLOOK REPORT September 2012 | Page 47

The position of Germany relative to the other major European vehicle production companies is shown on the following chart. The distance between Germany and the other countries is especially clear. The chart also makes it clear how close the battle is for second place between the UK, Spain, France and Russia.

Base Outlook Major Countries

7,000,000

6,000,000 Czech Rep 5,000,000 France Germany 4,000,000 Italy Russia Units 3,000,000 Spain Turkey 2,000,000 UK 1,000,000

0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Years

EUROPEAN CAR AND LCV PRODUCTION OUTLOOK REPORT September 2012 | Page 48

The following chart replicates the data from the preceding chart but takes out Germany to highlight more clearly the changes in the relative positions of the different countries and shows in particular how the UK will overtake France and quite probably Spain too by the end of the period covered here.

Base Outlook Major Countries, excl. Germany

3,000,000

2,500,000 Czech Rep France 2,000,000 Italy

Russia 1,500,000 Units Spain

Turkey 1,000,000 UK

500,000

0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Years

EUROPEAN CAR AND LCV PRODUCTION OUTLOOK REPORT September 2012 | Page 49

Alternative Scenarios In this section we look at a number of alternative scenarios for European production – these have been prepared in order to provide readers with some alternative perspectives on how the Outlook could vary in the current uncertain economic climes. These have been produced on similar lines to the scenarios in our last report, except our worst case scenarios which have been re-cast to look at what might happen if the current downturn is both deeper and longer than we have assumed in our base forecast and other scenarios which address country specific possibilities. The implications for European vehicle production in the event of our worst case scenarios is rather worrying. The Base Outlook The Base Outlook presented above and in the individual VM profiles is our most likely scenario, taking into account our judgement of the regional and global economic climate, consumer and business confidence and the short and medium product and manufacturing plans of the VMs themselves. In the Base Outlook, we see European production in 2012, including Russian production of international brands, totalling just under 19.2mn units – this would be a fall of just 26,000 units from 2011; also in the Base Outlook, we see a modest overall recovery in 2013 to 19.89mn units, although most of this “recovery” is due to continued expansion of the international brands in Russia rather than due to an improvement in the core European market. The new Base Outlook shows a worse position than we had projected earlier in the year; back in May we had projected a rise in total European production to over 20.1mn units, admittedly also largely driven by Russia. We need to emphasise that our Base Outlook takes into account current rates of European market sales (and current expectations of continued decline); we also take into account already announced plant shutdowns and reliably expected closures or temporary shuttering (Opel Bochum, Mitsubishi Netherlands, PSA Aulnay and possibly Madrid). On this basis, we see production, including Russia, declining slightly from 19.209mn to 19.183mn units – however, taking Russia out of the picture, we see a more significant decline, from c18.41mn to 17.92mn units, a fall of 685,000 units. Base Outlook - total European production with and without Russian production of international brands 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Total inc. Russia 20,251,546 18,997,036 16,077,142 18,191,309 19,209,676 19,183,630 19,875,643 21,246,175 22,960,600 24,138,875 Total exc. Russia 20,106,331 18,749,683 15,916,721 17,771,333 18,405,711 17,921,630 18,217,643 19,286,425 20,705,350 21,600,125 Our Base Outlook, moreover, assumes the recovery across Europe will occur from 2014, when we expect total production to reach 21.25mn including Russia; continued growth in 2015 and 2016 is then projected. All this assumes that the current economic uncertainty (and depression or stagnation in some markets) is resolved and complete economic meltdown across Europe is averted. However, because of the myriad of complexities affecting the industry right now and the economic uncertainty, we need to provide some overall insight as to what might happen if things turn out to be worse than currently expected. Alternative views However, the uncertainty in the Eurozone in particular means that more pessimistic views need to be considered. We present three sets of scenarios, first two sets of variants on the Base Outlook, one including Russia and one without – most of the Russian production of international brands is for the Russian market.

EUROPEAN CAR AND LCV PRODUCTION OUTLOOK REPORT September 2012 | Page 50

Scenario 1 Here we look at what would happen if production in Spain, Italy and France fell by between 2-5% pa more than projected in the Base Outlook between 2012-2016, with the bulk of the worse performance being in 2012-13. The reason for looking at this scenario is that these three countries produce mostly in the A/B/C segments which are the most prone to major volume impacts in a worsening economic climate. In addition, the volume VMs in these countries are especially vulnerable to the increasingly competitive Koreans and the move into the C segment especially by the premium brands (who appear to be less affected by the current economic situation than the volume brands). It is worth noting that French ministers have recently called for an EU investigation into Korean VMs, as the French clearly feel they are being undercut on prices, especially in France. In this scenario, including Russia, we have European production falling below 19mn units this year, to 18.78mn, before recovering along a similar line as in the Base Outlook – albeit with lower annual totals. Taking out Russia, European production falls from 18.41mn in 2011, by 720,000 units to 17.69mn units – more significantly, this means that, taking Russia out of the equation, European production does not recover to its 2007 peak until 2015. Scenario 1 - France, Spain and Italy down 2-5% pa 2012-2016 compared to Base Outlook 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Total inc. Russia 20,251,546 18,997,036 16,077,142 18,191,309 19,209,676 18,948,441 19,658,193 21,146,360 22,854,816 23,975,170 Total exc. Russia 20,106,331 18,749,683 15,916,721 17,771,333 18,405,711 17,686,441 18,078,242 19,186,610 20,599,566 21,436,420 Scenario 2 Here we look at what could happen if, in addition to the falls in France, Spain and Italy noted above, German production sees a fall of between 1-4% per year more than projected in the Base Outlook. While this extra fall would be spread across 2012-2016, most of the fall would be in 2012-2013. The impact of this would be that Europe would lose nearly 950,000 units in 2012, rather than 720,000 as in scenario 1. This scenario specifically excludes any further allowance for a fall in production in the UK, Slovakia, the Czech Republic, Hungary and Romania where significant investment is now coming on stream, producing new models from highly competitive VMs. In this scenario, total European production, including Russian production of international brands, would be c18.7mn units in 2012 and just under 19.2mn in 2014. Taking Russia out of the equation would mean that Europe would see production fall by nearly 1mn units in 2013 to 17.45mn units. As in scenario 1, this would mean that Europe would take until 2015 before it again reached its earlier 2007 peak. Scenario 2 = scenario 1, plus Germany down 1-4% pa 2012-2016 compared to Base Outlook 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Total inc. Russia 20,251,546 18,997,036 16,077,142 18,191,309 19,209,676 18,713,543 19,173,260 21,089,443 22,735,659 23,912,873 Total exc. Russia 20,106,331 18,749,683 15,916,721 17,771,333 18,405,711 17,451,543 17,515,260 19,129,693 20,480,409 21,374,123 Scenario 3

EUROPEAN CAR AND LCV PRODUCTION OUTLOOK REPORT September 2012 | Page 51

Here we look at what would happen if all European production countries, except Russia, saw a fall of between 2-5% pa beyond the Base Outlook. This would result in European production, including Russian production of international brands, falling to c18.29mn units in 2012. Taking Russia out of the equation means there would be an even bigger fall in European production, from 18.41mn units to 17.02mn units, a fall of c1.38mn units. This scenario moreover means that European production, excluding Russia, would barely reach its 2007 peak in 2015 and only really pass it significantly in 2016. Scenario 3 - whole market, except Russia, down 2-5% pa 2012-2016, compared to Base Outlook 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Total inc. Russia 20,251,546 18,997,036 16,077,142 18,191,309 19,209,676 18,287,549 19,329,114 20,860,447 22,546,493 23,490,871 Total exc. Russia 20,106,331 18,749,683 15,916,721 17,771,333 18,405,711 17,025,549 17,671,114 18,900,697 20,291,243 20,952,121 The data in the above table is now shown graphically below, first with Russia and then without.

European Production - Base Outlook and 3 alternative scenarios

24,000,000

23,000,000

22,000,000

21,000,000 Base Outlook 20,000,000 Scenario 1

Units 19,000,000 Scenario 2 Scenario 3 18,000,000

17,000,000

16,000,000

15,000,000 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Years

EUROPEAN CAR AND LCV PRODUCTION OUTLOOK REPORT September 2012 | Page 52

The following chart shows the Base Outlook and three alternative scenarios without Russia.

European Production Excl Russia - Base Outlook and 3 alternative scenarios

22,000,000

21,000,000

20,000,000 Base w/o Russia 19,000,000 Scen 1 w/o Russia Scen 2 w/o Russia Units 18,000,000 Scen 3 w/o Russia 17,000,000

16,000,000

15,000,000 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Years

EUROPEAN CAR AND LCV PRODUCTION OUTLOOK REPORT September 2012 | Page 53

And if things were even worse than this? A fall of up to 5% more than our Base Outlook would be bad enough, but it could be worse! With this in mind, we have constructed three further scenarios for European production excluding Russia. These are discussed below. Whereas scenarios 1-3 with and without Russia are predicated on a reasonable recovery through to 2016 (including continued export growth, eg of Fiats/Jeeps to North America and of the premium brands to North America, China and the Middle East), scenarios 4-6 have been designed to reflect the potential impact of significant stagnation in Europe and a failure of the export-led strategy of Fiat and the premium brands to counter reduced sales in Europe. Scenario 4 assumes that from 2012 the market is 5% worse than the Base Outlook throughout the Outlook period. Then in scenario 5, we assume the 5% decline in 2012 is followed by a further decline of 2.5% in each of 2013 and 2014, before a recovery in 2015 of 3.5% and then 7% in 2016. Scenario 6 assumes the same as in scenario 5 for 2013 and 2014, but then assumes a smaller rate of recovery, ie just 1.5% in 2015 and 3% in 2016. Scenarios 4. 5 and 6 versus European Base Outlook, without Russia 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Base Outlook exc. Russia 20,106,331 18,749,683 15,916,721 18,261,333 18,405,711 17,921,630 18,217,643 19,286,425 20,705,350 21,600,125 Scenario 4 exc. Russia 20,106,331 18,749,683 15,916,721 18,261,333 18,405,711 17,025,549 17,306,761 18,322,104 19,670,083 20,520,119 Scenario 5 exc. Russia 20,106,331 18,749,683 15,916,721 18,261,333 18,405,711 17,025,549 16,599,910 16,184,912 16,751,384 17,923,981 Scenario 6 exc. Russia 20,106,331 18,749,683 15,916,721 18,261,333 18,405,711 17,025,549 16,599,910 16,184,912 16,427,686 16,920,516 The data above is shown graphically overleaf At the moment, VMs are trying hard not to close any more car plants; while we know that GM will close Bochum and that PSA will close Aulnay and possibly Madrid, but no other plants are projected for closure in Outlook. However, if the production volumes for Europe excluding Russia turn out to be something in the range shown in scenarios 5 and 6, then widespread plant closures would surely be inevitable. European VMs are struggling to maintain an even keel financially as it is, but if production remains at below 18.75mn units in the long run, (ie below the 2008 level), plant closures would be unavoidable. Core European market sales will be down this year, the fifth year in succession – whereas export growth, emerging markets and the buoyancy of the German economy have maintained production volumes, the pinch is being felt across all such markets. What is notable about the current situation is that a number of VMs have begun to speak publicly about the need to cut capacity and close factories. The message that VMs cannot sustain the fixed costs of numerous underutilised plants appears to have been heard loud and clear. PSA and GM to a lesser extent have begun to act – the question is who will be next?

EUROPEAN CAR AND LCV PRODUCTION OUTLOOK REPORT September 2012 | Page 54

Base Outlook versus worst scenarios (4, 5 and 6)

European Production Excl. Russia - Worst Scenarios

24,000,000 Base Outlook 23,000,000 Base w/o Russia

22,000,000 Scen 4 w/o Russia Scen 5 w/o Russia 21,000,000 Scen 6 w/o Russia 20,000,000 Units 19,000,000

18,000,000

17,000,000

16,000,000

15,000,000 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Years

EUROPEAN CAR AND LCV PRODUCTION OUTLOOK REPORT September 2012 | Page 55

Disclaimer As noted at the outset, the views and projections contained in this report are those of the author, Ian Henry of AutoAnalysis. They do not represent an official SMMT view. The projections regarding new model timings, changes in production locations and the associated production volumes shown here have been compiled on the basis of information from a variety of sources. In many cases, the vehicle companies do not provide official information on which models will be made at which plants, nor do they provide detailed information on future volumes and timings. They have been prepared on the basis of judgments made by AutoAnalysis, taking into account the information, opinion and inside from a range of industry, press and analyst sources available at the time of compiling this report. Ian Henry of AutoAnalysis will gladly address SMMT members’ specific questions on this report. Readers’ comments and questions on this report will be greatly appreciated. Please e-mail: [email protected].

EUROPEAN CAR AND LCV PRODUCTION OUTLOOK REPORT September 2012 | Page 56

Vehicle manufacturer reviews

EUROPEAN CAR AND LCV PRODUCTION OUTLOOK REPORT September 2012 | Page 57

BMW The positive sales figures were also reflected in the Q1 financial results for which BMW reported record sales, revenue and earnings figures; BMW reported a rise in Key recent developments: the global economic uncertainty does not appear to revenue of over 14% in Q1 to just over €18.3bn. Gross profits were up by just over be affecting BMW unduly. Sales have continued to grow during the first half of 17%, resulting in a very healthy gross profit margin of nearly 21%. Similarly 2012 and the company continues to invest in new models and its production impressive results were reported at the pre-tax level, with Q1 pre-tax profits up facilities, both here in Europe and further afield. Plans for a BMW plant in South nearly 22% at just over €2bn. The group’s net income for the quarter was nearly America are progressing. And intriguingly the company is also increasing its €1.35bn, a rise of just over 18% compared to Q1/2012. quotient of full-time employees; it will add 3,000 full-time posts by the end of 2013, although it will also cut the number of temporary staff from 12,000 to 6,000 over However, Q2 earnings were not as impressive, owing to a variety of product the same time period. development and investment costs being booked this quarter; Q2 revenue was up 7.3% year-on-year, but the major profit measures were all down, ie: 2012 to be another good year after records in 2010 and 2011  EBIT was down 7.3% After two record years in 2010 and 2011, the company has continued to grow in  Pre-tax profits were down 25.4% 2012. Group sales for H1 were up by 8.1% at over 900,000 units and by the end of July (which saw a year-on-year rise of 5% and year-to-date rise of 7.6%), they  And net earnings were down 28.1%. had reached over 1.03mn units, the first time the group had sold over 1mn units by Despite this, BMW is predicting a stable second half of the year, and projections the end of July. made earlier in the year are still regarded as on target. In a presentation to More specifically, Asian sales were up by a quarter in the year to July, with financial analysts in early 2012, BMW had set out a number of key targets for 2012 particularly strong growth in Korea and China. European sales, however, were and beyond, ie: down 2.4% in July and 0.4% in the year to July. The company is expecting a  Global sales in 2012 of c1.6mn (this has recently been revised upwards, as better H2 in Europe with the launch of the new 3-series Touring and xDrive models, noted below). as well as a revised X1 in the last quarter of the year.  Automotive ROCE of over 26% and automotive EBIT of between 8-10%. In addition to strong sales in Asia, sales in Russia were up 17% in the seven  Increase R&D expenditure (back to 5%) and an increase in the capex ratio to months to July, while the Middle East saw a rise of over 30%. These markets close to 7%. benefited from the (US-built) X3 and the (German-made) 5-series/6-series and Gran Coupe.  Improved purchasing and engineering efficiency through the increased use of modules and materials cost reduction. These strong sales results so far in 2012 come after record sales in 2010 and 2011. In 2011, group sales for all three brands – BMW, Mini and Rolls-Royce – The Q1 figures suggest that the company is on track to meet these targets. The had risen by over 14% to almost 1.67mn units; despite the economic uncertainty Q2 profit figures were a disappointment, but the situation should be recoverable in prevailing at the time, December alone witnessed a rise of nearly 12%. At the end H2, especially once the various new models now in their launch phases have of 2011, BMW said it was expecting a strong 2012, largely driven by the new 3- reached full production volumes. In addition, it is worth noting that, having had a series coming on stream and the completion of the changeover in the 1-series to a very good start to the year, especially with increasing sales outside Europe, BMW new platform. The early signs are that this prediction is coming true, especially now expects to achieve 2mn unit sales in 2016, rather than the earlier target of with the record sales globally for H1. 1.6mn units by this date. If the company can continue to break its own records on a consistent basis, these targets may well be met even sooner.

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New 3-series to boost production parts on the content if the long term additional production location were further to the east, ie in Leipzig, or further south, ie continuation of production in Austria at The switch to the new 3-series will give a boost to BMW’s production especially in Magna. Using Nedcar has a clear logic, but the situation has become more the second half of 2012; given the strength of the 1-series and strong sales outside complex with Mitsubishi having decided to sell this factory to Dutch bus company Europe, we now think European production for the BMW brand will rise to nearly VDL; VDL has yet to make any official comment or announcement as to what it 1.06mn units this year. Previously, we had expected a slight fall because of a wants to do with this plant. combination of the 5-series, 7-series and X1 having passed their early life cycle sales peaks. However, initial figures for the 1- and 3-series suggest 2012 will be a Partnerships to play an important role in BMW’s strategy better year than we had expected. Despite the company’s many strengths and rapid pace of model renewal, it cannot The strong sales performance at BMW in 2011 and H1/2012 comes on the back of do it all alone. Selective, technology-specific partnerships are increasingly extensive recent restructuring and a very dynamic new model programme. All this common across the automotive industry these days and BMW is very much party has taken place despite the economic uncertainty around the world. What is more, to this way of working. For example, the existing BMW and PSA JV in small petrol BMW is willing to continue to invest – as this was especially clear in the mid-2012 engines was expanded into electric vehicle technology. However, this would announcement that it will increase investment in the UK by a further £250mn to appear to be likely to be a short-lived arrangement with as the PSA partnership is expand and upgrade Mini production facilities. This investment will take place now under review following the GM-PSA alliance and GM taking a stake in PSA;. through to 2015 and it will include expansion at the Mini assembly plant in Oxford, We would not be surprised to this JV come to a premature end – it is notable that the pressings plant in Swindon and the engine plant near Birmingham. BMW has announced an investment of €125mn in EV parts production on its own, with no specific reference to PSA. BMW has also decided to bring its hybrid As noted last time, the company has also begun to speak openly about the need development work entirely in-house. for permanent additional production for Minis away from Oxford; although improvements to the paint shop will allow for a modest increase in capacity at While the arrangements with PSA are under review, BMW is developing its links Oxford, the lack of physical space to expand there means that the Oxford plant will, with Toyota; specifically: even allowing for the recently announced investment, soon be at the limits of its  BMW and Toyota have signed a memorandum of understanding regarding production capacity. BMW has been using Magna in Austria as a contract lithium-ion batteries. manufacturer for the Mini Countryman for some time, but it would appear not to regard this as a viable long term solution.  BMW has also agreed to supply Toyota Europe with 1.6 and 2.0 litre diesel engines from 2014. It has not been confirmed which model(s) will feature The general expectation had been that Mini production would be added to Leipzig, BMW engines. Nor is it entirely clear what the diesel engine deal means for the where BMW has the space to grow, but this idea appears to have fallen out of Toyota engine plant in Poland which makes diesel engines. favour; we now think that BMW wants to give itself flexibility in terms of how it uses  And this summer, news emerged that the two companies would collaborate on the Leipzig plant, especially in the event of better than expected growth in the “i” the development of a new sports car, although the timing and exact positioning range of electric vehicles. of this model remain to be confirmed. Earlier in the summer, there were reports that BMW wanted to contract production In May 2012, news emerged of a possible collaboration between BMW and of additional Minis to the Nedcar plant in Holland; one of the attractive aspects of Hyundai in future engine development, although at this stage no firm details have this is the geographic proximity of this plant to the UK and the existing supply base been released. Discussions with GM regarding possible co-development work in for Mini components – shipping components there from the UK could be a realistic fuel cells appear to have come to an end. possibility compared to the added costs of establishing a new supply base for Mini

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Manufacturing news: as we have reported before, BMW has been expanding its make cars in the region, rather than import them all from Europe – the US market production activities outside Germany for some time as it seeks to reduce its is a strong one for the premium German brands and eliminating exchange rate risk dependence on its home market factories. There have not been any significant when importing from Europe is clearly another important factor behind recent changes to production arrangements at the core BMW factories in Europe in decisions to increase North American production. recent months and we do not expect any in the medium term. The one uncertainty The long-established factories in the US and South Africa have exported vehicles, in Europe surrounds where any future additional Mini production will take place – worldwide, for some time – for example 70% of the output from Spartanburg was currently, Magna in Austria assembles the Countryman, but it would appear that exported in 2011, although the fact that the X3/X5/X6 are only made is the US BMW does not want this to continue for the long run. We have retained production largely explains this; it is also worth noting that the kits for these models in Austria in our current Outlook and also assumed that additional production assembled in various locations around the world are made largely from parts volumes for the next Mini would be in Germany from late 2014, but this is likely to supplied from the US. change. Until recently, production at BMW’s Chinese factory has been for the local market However, continued change, or rather expansion, outside Europe can be expected. only, but in late 2011, reports emerged that BMW would export Chinese-made 5- For example in February, BMW South Africa announced it would implement a third series sedans, the first time a premium or luxury marque has exported cars from shift by the end of 2012, raising production there to over 90,000 upa; this will in China. Although the company admitted it was struggling to meet even local turn result in a doubling of exports from South Africa, with output destined for North Chinese demand from its Chinese factory, it wants to test the market’s acceptance America, Japan, Australia, New Zealand and various Asian markets. One of the of Chinese-made vehicles and expects to export some its Chinese production, to Asian markets which will receive cars from BMW South Africa is China which is the Middle East or developing Asian markets in general. Exports started in low now expected to account for as much as 10% of the output from BMW South volume at the end of 2011. 2012 will see an expansion of the model range made Africa, this factory having been granted a permission to export to China. in China, with the X1 SUV due to be made in China early in 2012. Production at This news from South Africa followed on BMW’s announcement in January that it BMW’s plant in Shenyang is expected also to include the next 3-series and also would increase its commitment to its US factory by investing nearly US$900mn Chinese-made TwinPower Turbo engines. there to make another SUV, the X4, a coupe-style version of the X3, similar to the This news follows from the announcement at the start of 2011 that BMW intended X6’s relation to the X5. And, albeit on a much smaller scale, it now seems likely to more than double its manufacturing capacity in China, adding a second plant to that BMW will confirm a kit assembly plant in Brazil later this year. This will be the run alongside its first 150,000 upa factory. In China, BMW has been making 3- pre-cursor to a full production facility later in the decade; and speaking at the series and 5-series models in a JV facility with Brilliance in Shenyang. The new SMMT’s International Summit in London earlier in the year, BMW’s Ian Robertson factory, also in the Shenyang region, is scheduled to make the X1 and other suggested that the assembly arrangements in Russia (with Avtotor in Kaliningrad) models. Around €560mn will be invested in this second factory which will bring will see a gradual increase in local content, with full manufacture there a distinct BMW’s total investment in China to over €1bn. The new factory will make up to possibility in the long run – no specific timing was given for this however. 200,000 upa. In addition, reports have emerged that BMW is looking at Mexico for a possible As noted previously, one of the key reasons behind the expansion in China second North American factory, to make the FWD version of the next 1-series and and the USA in particular is BMW's long term aim of equalizing production also the 3-series for the North American market; again, nothing official has been between Germany and locations outside Germany. said on this, but given the decision by Audi to build a plant in Mexico, rising Volkswagen production in the US, and the decision by Mercedes to add some C- BMW has also said that any further increase of production of the 3-series outside class production to its US factory, it would be entirely natural for BMW also to Germany (it could be added to the US factory as well) would be to allow other

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models to be added to German production facilities, e.g. the i3 in Leipzig and  4WD models will be available, although possibly not in right-hand-drive form. possibly future Minis (although as noted above, we think BMW would like to find a  Coupe and cabrio models, which will use the 2-series name, will appear during different long term location for additional Mini production rather than Leipzig). 2013. These will be rear-wheel-drive. At Mini, a major expansion in the range is now under way. In 2011, BMW For the 3-series, which will feature an all-new range of 11 turbocharged diesel and confirmed a £500m investment in the UK for the new model, with the investment petrol engines, we understand that the plan is as follows: spread across the Mini assembly factory in Oxford, the pressings plant in Swindon  Saloon (F30) and touring (F31) models in Q2 and Q4 2012 respectively. and the engine plant in Birmingham. This investment should safeguard as many as 5,000 jobs in the UK. Re-tooling for the new Mini at Oxford is now well under  Coupe (F32), Cabrio (F33), GT (F34) and 4-door coupe (F35), from early 2013 way for production of the new model later in 2012. The investment at Mini is being to early 2015 – these will be the models which will adopt the 4-series name. increased by a further £250mn, with this extra investment spread across the three It has also been reported that BMW is already working on the following 3-series, UK plants, notably for body panel production. for 2020; this will be a super-lightweight, high fuel economy vehicle with advanced aerodynamics and potentially a 9-speed automatic gearbox. Speaking at the announcement of the new Mini, the head of BMW, Norbert Reithofer suggested that there could be as many as 10 Mini variants once the Mini BMW is also close to launching its new “i” sub-brand of electric cars; the first 3 was in full production. A coupe and roadster version of the current Mini are will be the i3 and i8 which, as noted above, will feature extensive use of carbon- already in production and press reports have even suggested a notch-back fibre parts. The i3 is due to be launched in 2013, with initial production of around (booted) version which will provide the Mini designers with an interesting challenge 30,000-40,000 upa. The i3 and the larger i8 were shown in near ready production – how can a booted Mini stay true to the established Mini design heritage? At the format at the motor show in September 2011. BMW has released the Geneva motor show in March, BMW also confirmed an additional Mini variant, the following details on the “i” series, as follows: Clubvan – which will undoubtedly be a low volume “premium” small van for urban  The i3 will be built on what BMW calls its LifeDrive architecture, which features delivery work where a Mini could be seen as adding cachet or status to the both CFRP panels and other lightweight materials. The interior will be made company concerned. from a range of natural fibres and renewable materials. New models:  The i3 will be a pure battery electric car, while the i8 will be a plug-in hybrid. BMW started production of the new 1-series range in late 2011 and is in  The i8 which will have a 2+2 seater with a modified version of the electric drive throes of ramping up for full scale production of the next 3-series. As part of system from the i3, mated to a 3-cylinder turbo fitted at the rear these programmes, BMW will introduce two new nameplates, ie the 2-series (for (the electric drive will be fitted at the front). An i8 concept version, a plug-in the sporty versions of the 1-series) and 4-series (for the sporty versions of the 3- hybrid Spyder open top car, has recently been put on show. This features a series). range of innovative technologies, including upwardly swivelling, window-less doors and the latest iterations of BMW’s connected car technologies. The More specifically, for the new 1-series, the complete model plan is as follows: Spyder plug-in hybrid has a 131hp electric motor on the front axle working in  The five-door appeared in September 2011, followed by the three-door in early tandem with a turbocharged 3-cylinder petrol engine generating 223hp to the 2012; these are rear-wheel-drive, and will be followed by two front-wheel-drive rear axle; the electric motor and the petrol engine are both in-house models in 2013-14, a GT version and a small estate. developments. On a fully charged battery, the Spyder covers 39km/19 miles.  The front-wheel-drive models will share technology with the next Mini. They The engines for i8 will be made at BMW’s UK engine plant at Hams Hall, near will also be the start of even greater change, from 2018, when the third Birmingham. generation 1-series will appear, which is likely to switch entirely to FWD.

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Press reports have suggested there could be a smaller i1 and an i5 to sit between the i3 and i8; the idea of a complete range of “i” models was described as “reasonable speculation” by a BMW respondent at the Geneva motor show – however, at this stage it would be unreasonable to expect these to appear until nearly the end of the decade. The new 1-series and 3-series will feature new engines as noted above, specifically a three-cylinder 1.5 litre turbo diesel (N37) and petrol (N30) – and the 3-cylinder petrol unit will be the engine fitted to the i8. At Mini too, a significant expansion in the range is also planned; we understand the product plan is likely to involve the following:  Late 2012 – The Mini Clubvan.  2013 – The first new Mini, F56, a direct replacement for the main volume 3- door model.  Late 2013 – New Mini cabrio, F57.  Late 2013 – Mini Countryman Coupe (Paceman); this will be a coupe version of the Countryman and will be built in Graz by Magna Steyr.  From 2014 onwards, timing to be confirmed: o Mini Clubman 2, using the same platform as the current Mini Countryman. o Mini Traveller – an MPV also based on the Clubman/Countryman (UKL1) platform.

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The timing for these new models and others are summarised below: 2012 2013 2014 and beyond 2015-2016 3-door RWD 1-series Front-wheel-drive 1-series 2-series coupe/cabrio (F22/23) New 7-series (2015) New 3-series saloon and estate (F30/F31) – 4-series coupe/cabrio/3-series GT Others to be confirmed, incl. New X1 (2015-16) production having started in 20111 (F32/33/34/35) widening of the Mini range, incl. Mini New 5-series (2016) 6-series 4-door coupe/GranCoupe (competitor to 3rd gen Mini Traveller & Clubman Mercedes CLS) Mini Paceman Rolls-Royce Ghost coupe and cabrio Mini roadster i3 electric car (one of these could be 1 year Mini Clubvan Rolls-Royce stretched Ghost earlier) Hybrid i8 The expansion of the Mini and 1-series ranges shows how BMW is looking to reduce its traditional dependence on sales of its larger vehicles. The market is undoubtedly shifting towards smaller cars as a whole and the wider the range of Minis and the FWD version of the 1-series will help position the company better against Audi, and especially the A1 and A3. By 2016, we expect the Mini range to account for at least 26% of BMW Group’s European production, up from 20% in 2010; in practice, this percentage is likely to be increased later in the decade, but not before the future production arrangements for the widening Mini line-up have been clarified. For the 1- series/2-series/X1, the rise will be from c24% to at least 26% of the BMW brand total, although this could be a higher % depending on the timing of the launch of certain new derivatives. In the Production Outlook table which follows, we provisionally have the BMW brand producing close to 1.1mn units in Europe in 2012 and project it to climb steadily to close to 1.3mn by 2016; our projection for BMW in Europe is tempered somewhat by the decision to expand production in the USA and China, and in South Africa to a lesser extent. Moreover, kit production in Russia, various Asian markets and indeed in Brazil in the near future will also take a small proportion of production volume away from Europe, although parts for the CKD kits will, by and large, be produced in Germany. In the short term, we see BMW largely bucking the trend in terms of European production – while the volume manufacturers are clearly feeling the pinch, the success of the 1- and 3-series, and the rising popularity and expansion of the Mini range, will result in continued growth.

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BMW Production Outlook to 2016 Vehicle Country Start Segment Prod'n Prod'n End Next new Production Production Production Production Production

Series (platform) Group Marque Model range Plant of 2007 Production 2008 Production 2009 Production 2010 Production 2011 Production type of model Outlook 2012 Outlook 2013 Outlook 2014 Outlook 2015 Outlook 2016

BMW BMW FWD 1‐series Pass C Mini Countryman Leipzig DE H1 12 2012 0 0 0 0 0 0 7,500 65,000 80,000 98,000 BMW BMW 1 series Pass. C E87 Regensburg DE Q3 04 2011‐2012 133,109 115,543 127,915 108,685 59,500 000 0 0 Q3/04 & BMW BMW 1 series Pass. C E81/82/88 (L2) Leipzig DE 2011‐2012 49,116 112,570 97,301 76,669 82,000 5,000 0 0 0 0 Q2/07 BMW BMW 1‐series Pass. C L7/F20/F21 Regensburg DE H2 11 0 0 0 51 65,000 94,000 96,000 78,000 73,500 71,000 BMW BMW 1‐series Pass. C L7/F20/F21 Leipzig DE H2 11 0 0 0 0 0 109,000 128,500 121,000 109,000 94,500 BMW BMW 2‐series (1‐series coupe and cabrio) Pass C L7/F20/F21 Regensburg or Leipzig DE H1 13 0 0 0 0 0 0 0 15,000 60,000 70,000 BMW BMW 3 series Pass. D E90 Leipzig DE Q1 05 108,834 34,415 29,682 7,752 0 0 0 0 0 0 BMW BMW 3 series Pass. D E90 Munich DE Q2 05 H2 12 219,636 223,394 217,531 206,039 167,000 000 0 0 BMW BMW 3 series Pass. D E90 Regensburg DE Q2 05 H2 12 170,657 158,254 93,653 113,546 128,000 28,500 0 0 0 0 BMW BMW New 3‐series and 4‐series Pass. D L7/F30 Munich/Regensburg DE Q4 11 2019 0 0 0 0 7,000 335,000 322,000 288,000 281,500 276,000 BMW BMW 3‐series MPV/GT Pass. D L7 Regensburg DE H1 12 2010 0 0 0 0 0 0 40,000 62,500 60,000 58,000 BMW BMW i3 electric vehicle Pass. C New Leipzig DE Q4 13 or Q1 14 2013/14 0 0 0 0 0 0 10,000 30,000 39,000 45,000 BMW BMW 5 series Pass. E E60 Dingolfing DE Q3 03 2010/2011 237,356 205,798 144,654 10,599 0 0 0 0 0 0 BMW BMW 5 series Pass. E L6/F10/F11 Dingolfing DE Q2 10 2016 0 0 590 185,530 242,000 231,000 219,000 201,000 189,500 208,500 BMW BMW 5‐series MPV/GT Pass. E L6/F07 Dingolfing DE Q3 10 2009 0 25 10,147 28,714 23,000 20,500 18,250 17,250 17,000 16,750 BMW BMW 6 series Pass. E E63/E64 Dingolfing DE Q1 03 2011 21,199 15,915 5,126 3,272 50 0 0 0 0 0 BMW BMW 6 series Pass. E L6/F12/F13 Dingolfing DE Q1 11 0 0 7 555 17,000 19,000 17,500 16,000 14,500 12,500 BMW BMW 6 series 4dr GranCoupe Pass E L6/F06 Dingolfing DE Q4 12 2012/3 0 0 0 0 150 11,500 16,500 15,000 14,000 11,000 BMW BMW 7 series Pass. F E65/E66 Dingolfing DE Q1 05 Q3 08 2008 45,410 27,088 0 0 0 0 0 0 0 0 BMW BMW 7 series Pass. F L6/F01 Dingolfing DE Q3 08 2015 94 12,873 56,384 66,650 75,000 66,000 61,500 57,500 77,500 85,000 BMW BMW i8 Pass E? New Leipzig DE Q4 14 2014 0 0 0 0 0 500 4,000 6,500 7,000 6,250 BMW BMW Z4 Pass. Sports E89 Regensburg DE Q4 08 2015 0 211 28,902 21,700 18,000 17,000 16,000 14,500 12,000 20,750 BMW BMW Z9 Pass. Sports Z9 Munich DE 2014 0 0 0 0 0 0 0 500 1,500 1,000 BMW BMW X1 Pass. SUV L2 Leipzig DE Q1 10 2015/6 0 0 16,655 111,547 145,000 120,000 112,000 105,000 98,000 127,000 Graz (Magna‐Steyr BMW BMW X2 Pass. SUV L2 AU H2 16 2016 0 0 0 0 0 0 0 0 0 32,500 factory) BMW BMW X4 Pass. SUV X3 TBC‐ possibly Leipzig DE H1 14 2014 0 0 0 0 0 0 0 20,000 38,500 36,500 Graz (Magna‐Steyr BMW BMW X3 Pass. SUV E83 AU Q2 03 Q4 09 2009 111,665 82,863 45,973 31,737 0 0 0 0 0 0 factory) BMW BMW Total 1,097,076 988,949 874,520 973,046 1,028,700 1,057,000 1,068,750 1,112,750 1,172,500 1,270,250 BMW MINI MINI Pass. C R50 Oxford UK H1 01 Q3 06 2006 32,523 20,184 0 0 0 0 0 0 0 0 MINI Countryman SUV and Graz (Magna‐Steyr BMW MINI Pass. SUV R60 AU Q3 10 2010 0 0 0 24,741 102,643 101,000 97,500 89,000 75,000 90,000 Paceman factory) TBC, after BMW MINI MINI Coupe/Roadster Pass C R55 Oxford UK 2011+ 0 0 0 0 9,200 33,000 34,500 31,000 29,000 26,000 2011 BMW MINI MINI 2nd gen Pass. C R55 Oxford UK Q3 06 Q4 12 2013 205,186 214,835 213,670 216,302 182,274 165,500 0 0 0 0 BMW MINI Mini Clubvan Comm.CR55OxfordUkH2 12 2012 0 0 0 0 0 2,000 14,000 12,000 10,000 8,500 BMW MINI MINI 3rd gen Pass. C L3NF Oxford UK Q1 13 0 0 0 0 0 25,000 235,000 245,000 256,000 247,500 TBC‐ possibly Leipzig, BMW MINI MINI 3rd gen Pass. C L3NF DE Q3 14 0 0 0 0 0 0 0 30,000 75,000 85,000 could be Nedcar NL BMW MINI Total 237,709 235,019 213,670 241,043 294,117 326,500 381,000 407,000 445,000 457,000 BMW Rolls Royce All Pass. F Goodwood UK 1,009 1,247 870 3,215 3,685 2,950 3,200 3,550 3,600 3,400 BMW Rolls Royce Total 1,009 1,247 870 3,215 3,685 2,950 3,200 3,550 3,600 3,400 BMW ALL Total 1,335,794 1,225,215 1,089,060 1,217,304 1,326,502 1,386,450 1,452,950 1,523,300 1,621,100 1,730,650

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Daimler sales of Mercedes cars were up 9.4%, to nearly 455,000 units. The key reason for this strong start to 2012 is the new model range which is now coming on stream – Key recent developments: 2011 was, as noted in previous editions, a good year sales of the B-class and M-class have led the way, with new A-class and revised for Daimler and especially for the Mercedes car division. The positive sales picture GLK to follow soon. NAFTA sales have been at record levels throughout 2012 so from 2011 has continued in the first half of 2012, with excellent results in the early far – US sales were up over 17% in April year-to-date to nearly 84,000 while months, although some June and July figures do suggest some tailing off in the Canada they were up nearly 16% and in Mexico they had risen by nearly 30%. recent good results, at least in Europe. Other markets saw strong sales growth in April: for example Russian sales were Excellent start to 2012 up nearly 26%, and those in the Middle East grew by over 20% as well. Japanese January saw a record for Mercedes, up 5.1% year-on-year across the globe, but sales were up nearly 39% in the first four months of 2012 to almost 12,500. Even with especially strong sales in the US, which was up nearly 24% and even in in Europe there was strong growth, with German sales up by 10% in the first four Germany sales were up 14%. Interestingly, sales actually fell in China, largely due months of the year to nearly 79,000 units, the strongest performance of all the to limited model availability following production shortfalls from the Chinese JV premium brands in Germany – and in the rest of Western Europe, they rose by factory – the rationale behind planned production capacity there is clear. 3.8%. Total west European sales were almost 180,500 units, up 6.5%. In February, sales were up 20% year-on-year, with the year-to-date total up almost Mercedes’ H1 results were a record too 13% for the group. The January sales slowdown in China was overcome, with Although June sales were almost flat, recording a rise of just 0.9%, the figures for record February sales (up over 57%), while there were also record Mercedes sales the Mercedes-Benz brand for the whole of H1 were another record; global sales in Russia (up 30%); other markets with strong sales growth were Taiwan (up 25%) were up 6.9% to almost 653,000 units. Taking in the Smart and Maybach brands, and Japan (up 31%). In addition, Mercedes saw strong growth in its core total sales were up 6.5% to over 708.000 units. established markets, eg February sales were up 17% in the US and 21% in Germany. The launch of the new A- and B-class ranges will underpin further sales The company is expecting to surpass 2011 (a record year as noted below) momentum this year. because of the impact of the new A-class. The main sales growth driver was the US which saw record sales, at nearly 129,000 units, a rise of nearly 16%. German Strong financials in Q1 sales were also up for the first six months, by 4.5%, although sales in June alone In terms of Q1 figures, Daimler reported strong results, ie: fell by nearly 3%.  Total vehicle sales up 8% to over 502,000 units. In financial terms, Q2 saw a decline in EBIT of 13.1% which offset the gain made  Group revenue up from €24.7bn to €27bn – Mercedes cars saw revenue rise in Q1, meaning H1 overall saw a decline in EBIT of 5.2%. Group revenue rose 8% to €14.9bn. 9.7% in Q2 and 8.5% in H1 overall, to €51bn. The fall in EBIT was reflected in a fall in net profits, of 11.1%, with these falls attributed by Daimler to a combination  Group net profit up 20% from €1.18bn to €1.42bn – but Mercedes car’s EBIT of factors in the different divisions. was actually down slightly, by 3% to €1.25bn, a decline attributed to temporary weaker pricing in China (highlighting the importance of this market!) and also a For example, although revenue from Cars rose by 4.9% in Q2, and 6.3% in H1, number of costs attributed in this quarter related to expansion in production EBIT fell in Q2 by 16.1% and by 10.1% for H1; this was attributed to a less capacity. favourable model mix, booked expenses for expanding production facilities, rising materials costs and additional up-front expenditure on a range of new technologies. These good sales figures continued in April when the Mercedes car division announced a monthly volume rise of 3.5% to nearly 114,000 units; year-to-date

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Despite these problems, the company is positive that new model launches in H2 Daimler has already cautioned against expecting too much growth in 2012; it (and the full ramp-up in recently introduced models) will have a positive impact on expects rising revenue and unit sales, but expects EBIT to be broadly unchanged, H2 results. That said, Daimler has been very limited in its guidance to analysts, suggesting significant additional costs are likely to be booked this year. Indeed the with Daimler chairman, Dieter Zetsche saying that the company aims (or hopes?) decline in Q1 EBIT for the car division confirms this is likely to be the case. for an EBIT result “from ongoing business in 2012 … in the magnitude of the prior Also, in 2011, Daimler’s CEO, Dieter Zetsche, spoke of the company’s strategy, year.” He added, somewhat elliptically, that “economic uncertainty and risks exist specifically of being no.1 in profitability and sales in the premium segment – with in nearly all segments …”; quite what Daimler will achieve in H2 is clearly the specific volume target of 1.35mn Mercedes brand car sales per year, and of something the company’s best internal analysts can’t predict at the present time. outselling Audi in particular. As we have noted before, given the range expansion H1 2012 saw record car sales planned by Audi in the coming years and its great success in China, achieving this will be a challenge. In terms of H1 results, the key highlights are as follows:  Record car sales, up 6.5% to just over 708,500; June sales were up just 0.2% That said, the Mercedes brand will experience a strong range expansion so the to 131,000 suggesting the first signs of a slowdown competition between the two brands will be real and intense. The range extension planned by Mercedes will see it enter a number of new niches, including the  The US saw the greatest growth, with a rise in sales of nearly 16% to over coupe-style SUV market with a version of the ML (to be made in the US) and the 128,500; meanwhile China saw sales rise by 7.8% and Russia saw a rise of shooting brake estate-like version of the CLS and also a wide range of vehicles over 27% based on the new A-/B-class platform.  Even Germany saw a rise in H1, of 4.5% to 128,500 (ie the same volume as Certainly, the company is confident it can achieve these lofty ambitions; in sold in the US), but in June, sales fell by 2.9%. December 2011, it announced it planned to make more than 1.25mn Mercedes  Interestingly, sales at the smart brand rose 1.4% in H1, although they fell 7% cars in 2012 and in preparation for this that its production plants were operating in June – smart is now on sale in China and Mexico, as well as the US, as close to full capacity in late 2011, with most plants working extra shifts to cope with Daimler looks to reduce the brand’s depended on European sales. demand. In fact, it sold over 1.26mn units in 2011. The total for Mercedes, Smart 2011 was a record year and Maybach for 2011 was actually over 1.36mn, a record for the company. In fact the last quarter sales of over 341,000 units were also the best quarterly sales In 2011, Daimler reported record revenue, net profit and EBIT. Admittedly there ever which the company had recorded. was some margin decline, but overall the financial performance of the group was very strong. Total revenue for 2011 reached over €106.5bn, a rise of 9% on the The table for Daimler production which follows shows that we project Mercedes 2010 figures; EBIT from ongoing business rose from €7.2bn in 2010 to almost production in Europe alone will exceed the 1.25mn target, but this includes vans €8.98bn in 2011. The company had suffered some financial impairment as a result and passenger versions thereof; without vans, the total is 1mn for Mercedes or just of the Japanese tsunami/earthquake and consequential supply chain disruption – over 1.1mn if smart is included. In the long run, the launch of the entire A- and B- this was at a cost of around €80mn. class range and the renewal of the smart programme means that Daimler’s aim for 1.25mn cars should be achievable. The group’s best ever results came from across all its divisions; and with the new model offensive under way at the moment and the expansion of its production Growth outside Europe critical to the company’s future network, it seems likely that 2012 will see another year of good results, although Daimler’s chief, Dieter Zetsche, has attributed much of this recent growth to the as noted above, Q2 has seen a decline in EBIT although the company is still strength of the US and BRIC markets. Ironically, the one weak point in Daimler’s profitable. impressive growth was Western Europe which saw a 1% fall in 2011, with a slightly

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larger fall of 1.2% in Germany alone; as noted above, early signs for 2012 in Daimler has a number of joint ventures, notably between Renault and Daimler in Europe are actually much better, especially because of the strength of the German small cars and the JV with Bosch in electric motors. Readers are referred to market. NAFTA sales in 2012 however rose by over 1% and in Asia-Pacific they earlier reports for full details thereon. rose by over 21% which more than compensated for any fall in Europe. It also appears that Mercedes will supply the underpinnings for a new premium Sales have grown continuously in China, with 2011 sales in China rising by nearly Renault model, from 2016 or slightly later. Details on this have still not been 31% to over 193,000 units. In the light of strong sales growth in China, Daimler released officially and at this time we have not included such a model in our plans to expand production in China; in the long run, Daimler aims to produce as Outlook. We will monitor this situation in future issues. While exact details have much as 2/3 of its sales of Mercedes cars in China at its Chinese factories. This yet to be confirmed, it has been confirmed that Mercedes will supply engines to would require production capacity in China of at least 200,000 upa – last year, Nissan’s Infiniti range from 2012/13. In reverse, the Renault JV is being widened Zetsche had noted that there are almost 700,000 millionaires in China and that to include Renault supplying 1.5 litre diesel engines for the A-class; these will be “until they are all driving the S-class, we have things to do”! Daimler sees similar built at Renault’s plant in Valladolid in Spain. This contract is now under way. potential in China as BMW, as least in terms of the possible number of premium Previously, we had reported that Infiniti could use a Mercedes platform and we had brand customers in the country. speculated that this could be based on the next C-class, with production in North Other markets also experienced significant sales growth in 2011, eg Russia (up America. In fact this Infiniti will actually be based on the new MFA platform which 47%), India (up nearly 23%), Brazil (up 35%), Taiwan (up nearly 32%) and Korea underpins the new A- and B-class models and will be made by Magna Steyr in (up nearly 19%). Austria from 2013 (the production volumes for this are included in the Nissan section). New model offensive under way The Maybach brand is now being phased out; indeed production of the Maybach As noted already, the company has a major new model offensive in hand; the actually finished in June, several months earlier than planned; and Mercedes’ Geneva motor show showed the new A-class, and production of this model and presence in this super-luxury market will be covered by extending the S-class the slightly larger new B-class is now under way. Indeed, such has been the early platform. A small number of already built models remain to be sold. success of the new B-class that it set sales records in June, for the month and the year-to-date – June sales were up nearly 43% to nearly 15,000 units and H1 sales Manufacturing news: as noted above, production was running at record levels in were just under 69,000 units, up nearly 10%. 2012 will also see all-new or revised Germany for much of 2011, with several plants working extra shifts at several G-Wagen, GLK and GL vehicles. Further details on new models are provided later plants, especially those making the C-class. We have previously noted the on in this company profile. expansion in capacity in North America, with the C-class and a coupe version of the M-class due to be added in the near future. Expansion in China is also Mercedes’ confidence in its strategy and its established manufacturing planned, with the company wanting to double production there, to close to 200,000 footprint was also reinforced in Q3/2011 by the decision to extend its upa. It is likely that a new factory will be added here in the next couple of years existing labour contract through to the end of 2016. This deal was due to run and press reports have suggested that Daimler is actively seeking an investor out at the end of 2011. Interestingly, this deal allows for temporary workers to be partner in China for this second plant. taken on to account for up to 8% of the Daimler workforce – the company is also guaranteeing the jobs of its existing 130,000 permanent employees. Production in Hungary has now started and should soon be running at full rates. Indeed, Daimler is planning to raise production at the new Hungarian factory to Numerous joint ventures to play a significant role in long term future 300,000 upa by 2015 – such is the better than expected demand for the A-class, that Daimler has decided it cannot wait for the expansion in Hungary to meet this

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demand – it has contracted with Valmet of Finland to make 100,000 extra units of be the C- and E-class, followed by the S-class hybrid in 2014. Although it has the A-class between 2013 and 2016. confirmed these hybrid models, Daimler has also stated that it sees fuel cells as a key technology for the future, and a senior engineer at the company has gone Mercedes production outside Germany will increase, both within Europe and so far as to say that the company expects fuel cells to be cheaper than EVs outside. For example, there will be: within a five year period. The B-class will be Mercedes’ first production vehicle  The addition of A-class production in Finland. with a fuel cell option.  Faster ramp-up and greater than expected expansion in Hungary.  The expansion of the model line-up made in the US.  Kit assembly of US-made models in Asia.  And the planned expansion of production in China. However, despite all this, it is clear Daimler will remain committed to its manufacturing operations in Germany; for example in late November it confirmed a €980mn investment in its Unterturkheim factory for 2012, building on the €670mn invested there in 2011. The new investment will be for axles, transmissions and engine production for the new A- and B-class range. Around 25% of the investment will be for the production of dual-clutch transmissions, with the expansion also covering foundry and forging operations including the production of new turbocharging housings in a new casting process. New models: Mercedes has confirmed details of the four-door coupe be built in Hungary – this was shown at the Beijing motor show as the Concept Style Coupe; this is essentially a small or junior version of the CLS, ie a four door coupe style vehicle. We expect this will be called CLA. There will also be a shooting brake version of this model. The new CLA will be targeted at the Audi A3 and new BMW 1-series 4-door version. Interestingly this new model will be cheaper than the C- class, but it will also be slightly longer and wider. This will be followed by the GLC SUV based on the B-class from 2013 and a roadster, probably called SLA from late 2013/early 2014 The all-new GLK in 2016 will finally include a right hand drive version; and in the US a coupe version of the M-class, to be called MLC will appear in 2016, to compete against the BMW X6 and forthcoming Audi Q6. Mercedes had also confirmed in 2011 that it will have hybrid versions of most of its large cars, from the C-class upwards, on the road by 2013. The first of these will

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The key new model highlights are as follows: 2012 2013 2014 2015-2016

New A- and B-class New C-class (W205) New Smart ForTwo, incl. EV version New GLK New small van based on Renault’s A-class 4-door coupe (CLA), B-class SUV (GLC) New Smart 4-seater (made by Renault) New E-class (W213) Kangoo New S-coupe replacing CL B-class plug-in hybrid New S-class New V-class/Viano New Sprinter (possibly 1 year earlier) CLS estate version, to compete vs. 5- New G-Wagen New C-class range completed series GT Shooting brake version of CLA A-class roadster SLA

The Production Outlook table which follows shows a continuous rise in production for the next few years – this is partly due to A/B-class volumes growing faster than previously thought; the bulk of the growth at Mercedes from just over 1.2mn units in 2010 to over 1.48mn units to be in Europe in 2016 is in the period 2013-2016, ie when the new A- and B-class will be in full production and the various derivatives of these models will also have been introduced; and in addition in 2015-6, the company will benefit from the new E-class giving an additional boost to sales.

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Daimler Production Outlook to 2016 Vehicle Country Segment Start Prod'n Prod'n End Next new Production Production Production Production Production

of type Group Marque Model range Series (platform) Plant of 2007 Production 2008 Production 2009 Production 2010 Production 2011 Production

model Outlook 2012 Outlook 2013 Outlook 2014 Outlook 2015 Outlook 2016

Daimler Mercedes‐Benz A‐Class Pass. C W169 Rastatt DE Q3 04 2011 148,836 131,276 108,254 120,102 92,500 000 0 0 Daimler Mercedes‐Benz B‐Class Pass. C MPV W169 Rastatt DE Q1 05 2011 133,682 121,062 100,054 118,284 85,000 000 0 0 Daimler Mercedes‐Benz New A‐class Pass. C W176 Uusikaupunki (Valmet) IF H2 13 0 0 0 0 0 0 10,000 35,000 30,000 25,000 Daimler Mercedes‐Benz New A‐class Pass. C W176 Rastatt DE H1 12 2019 0 0 0 0 250 75,00095,000 115,000 89,000 120,000 78,000 109,000 72,500 102,000 68,500 DaimlerDaimler Mercedes‐Benz Mercedes New‐Benz B‐class A‐class roadster SLAPass C Pass C W176 C117 Rastatt Rastatt De H1 12 DE H2 12 2012 2019 0 0 0 0 0 0 0 00 0 0 3,500 12,000 16,500 16,000 Daimler Mercedes‐Benz New B‐class Pass. C W246 Kecskemet HU H1 12 2019 0 0 0 5 150 45,000 65,000 70,000 80,000 78,000 Daimler Mercedes‐Benz B‐class SUV GLC Pass C SUV W246/X256 Kecskemet HU H2 11 2019 0 0 0 0 050025,000 53,000 57,500 56,250 CLA (4‐door coupe and shooting Daimler Mercedes‐Benz Pass C W246/S117 Kecskemet HU H2 14 2020 0 0 0 0 0 1,000 65,000 85,000 90,000 85,000 brake)

Various unknown extra models Daimler Mercedes‐Benz based on A‐/B‐class, including extra Pass C W246 Kecskemet HU H2 13 0 0 0 0 0 0 15,000 45,000 65,000 80,000 production of above‐named models ‐Benz C‐Class Pass. D W203 Bremen DE H2 06 2007 43,210 0 0 0 0 0 0 0 0 0 Daimler Mercedes H2 2013 to Daimler Mercedes‐Benz C‐Class Pass. D W204 Bremen DE H2 06 113,639 170,781 89,120 91,569 83,500 80,000 15,000 0 0 0 W205 Daimler Mercedes‐Benz C‐Class Pass. D W205 Bremen DE H2 13 2013 0 0 0 0 0 0 195,000 225,000 200,000 189,500 Daimler Mercedes‐Benz C‐Class Pass. D W203 Sindelfingen DE H2 06 2007 432 0 0 0 0 0 0 0 0 0 Daimler Mercedes‐Benz C‐Class Pass. D W204 Sindelfingen DE H2 06 H2 13 121,984 112,000 117,172 149,168 182,500 160,000 0 0 0 0 Daimler Mercedes‐Benz C‐Class Sports coupe Pass. D CL203 Sindelfingen DE H2 06 2007 11,987 0 0 0 0 0 0 0 0 0 Daimler Mercedes‐Benz C‐class coupe Pass D C204 Bremen DE H1 11 2011 0 0 0 134 35,000 44,500 39,000 34,500 32,500 31,500 Daimler Mercedes‐Benz E‐Class Pass. E W211 Sindelfingen DE Q1 02 H2 08 2008 193,487 159,153 10,450 0 0 0 0 0 0 Daimler Mercedes‐Benz E‐Class (2016 Coupe/Cabrio = W213) Pass. Pass. E E W212 C207/A207 Sindelfingen Bremen DE DE H2 H1 08 09 2016 2017 0 0 1,189 0 168,495 33,402 240,583 71,261 203,00056,000 187,50049,500 180,000 43,000 170,000 39,000 160,000 35,000 235,000 45,000 DaimlerDaimler Mercedes Mercedes‐Benz‐Benz E‐class CLS Pass. E W211/C219 Sindelfingen DE Q1 05 2010‐11 30,437 22,692 6,386 10,516 0 0 0 0 0 0 CLS, incl. estate version to compete Daimler Mercedes‐Benz Pass. E W212/C218 Sindelfingen DE H1 11 0 0 0 2,329 38,000 37,500 33,000 30,000 28,500 27,500 vs. 5‐series GT 2012 to Daimler Mercedes‐Benz S‐Class Pass. F W221 Sindelfingen DE Q1 06 87,206 77,907 40,437 71,521 76,500 35,500 0 0 0 0 W222 Daimler Mercedes‐Benz CL Pass. F W221/C216 Sindelfingen DE H2 06 2013 11,590 6,984 1,672 2,778 2,400 750 0 0 0 0 S‐Class, incl.. S‐coupe replacement 2012 to Daimler Mercedes‐Benz Pass. F W222 Sindelfingen DE Q1 12 0 0 0 0 0 65,000 96,500 102,000 100,000 97,500 for CL when switch to W222 W222 R171 Bremen DE Q4 03 2011 30,859 29,853 12,090 13,216 0 0 0 0 0 0 DaimlerDaimler Mercedes Mercedes‐Benz‐Benz SLK SLK Pass. Pass. Sports Sports W203/ W204/ R172 Bremen DE Q1 11 2011 0 0 0 490 37,500 28,000 24,500 22,500 20,000 18,000 Daimler Mercedes‐Benz CLK Pass. Sports C209 Bremen DE H2 07 2007 21,343 16,460 0 0 0 0 0 0 0 0 Bremen/ Osnabrück Daimler Mercedes‐Benz CLK (cabrio) Pass. Sports A209 DE H2 07 2007 19,267 15,373 4,056 0 0 0 0 0 0 0 (Karmann) Daimler Mercedes‐Benz SL Pass. Sports R230 Bremen DE H2 01 2010 9,817 15,401 4,609 4,864 2,500 000 0 0 Daimler Mercedes‐Benz SL (incl. SSK) Pass. Sports W212/ R231 Sindelfingen DE H2 11 0 0 0 0 500 12,250 10,500 9,500 8,500 7,500 Daimler Mercedes‐Benz "Baby SLS" Pass Sports SLS Sindelfingen DE H2 15 0 0 0 0 0 0 0 0 1,500 3,000 Daimler Mercedes‐Benz SLS/SLC Pass Sports SLS Sindelfingen DE H2 10 2010 0 0 141 4,807 3,250 3,500 2,900 2,750 2,500 2,500 Daimler Mercedes‐Benz GLK Pass..Van C‐SUV W639 W204 Vitoria Bremen SP DE Q2 H1 02 08 2013 2015 97,103 0 102,494 23,537 54,601 63,518 70,248 76,795 78,00096,000 66,50071,500 54,000 68,000 50,000 55,000 49,500 0 70,000 0 DaimlerDaimler Mercedes Mercedes‐Benz‐Benz Viano/Vito Viano/Vito Comm Comm.Van W640 Vitoria SP H1 13 0 0 0 0 0 0 0 2,500 78,000 81,000 Düsseldorf/ .Van NCV3 DE Mid 06 2015‐6 124,482 118,754 73,943 113,829 132,500 126,500 120,000 95,000 90,000 106,500 Daimler Mercedes‐Benz New Sprinter Comm Ludwigsfelde Daimler / Freightliner Sprinter Comm.Van Dusseldorf DE 2006 25,984 18,009 1,906 5,023 1,900 0 0 0 0 0 Düsseldorf/ Contract runs to .Van DE 2006 49,867 54,008 30,133 35,103 40,000 34,750 28,500 26,000 22,750 34,500 Daimler VW Crafter Comm Ludwigsfelde 2016 Daimler Mercedes‐Benz Sprinter Comm.Van GAZ RU 2012 0 0 0 0 0 5,000 17,500 22,000 25,000 21,000 Graz (Magna‐Steyr Major FL Daimler Mercedes‐Benz G‐Wagen Pass. SUV AU 4,442 5,481 3,913 5,304 7,122 8,000 7,500 6,750 6,000 5,750 factory) 2013 Daimler Mercedes‐Benz Total 1,279,654 1,202,414 924,352 1,207,929 1,254,072 1,232,750 1,322,400 1,390,500 1,380,250 1,486,500 Daimler Smart ForTwo Pass. A A451 / C451 Hambach FR Q1 07 2012 102,660 139,964 115,469 97,435 103,560 107,500 95,000 75,000 0 0 Daimler Smart New ForTwo Pass A Renault JV Hambach FR H1 12 0 0 0 0 0 9,000 102,500 112,000 Daimler Renault Renault version of ForTwo Pass. ARenault JV Hambach FR H1 12 0 0 0 0 0 0 0 4,500 35,000 45,000 Daimler Smart Total 102,660 139,964 115,469 97,435 103,560 107,500 95,000 88,500 137,500 157,000 Chrysler Chrysler Crossfire Pass. Sports W202/ R170 Osnabrück (Karmann) DE H2 03 2008+ 716 0 0 0 0 0 0 0 0 0 Chrysler Chrysler Crossfire Roadster Pass. Sports W202/ R170 Osnabrück (Karmann) DE H2 04 2008+ 1,398 0 0 0 0 0 0 0 0 0 Chrysler Chrysler 300C Pass. E Hemi Graz (Magna) AU Q3 05 2010+ 19,078 11,426 2,146 3,002 0 0 0 0 0 0 Chrysler Chrysler Voyager/ Grand Voyager Pass. MPV RS Graz (Magna) AU H2 06 2006 20,619 1,500 0 0 0 0 0 0 0 0 Chrysler Chrysler Total 41,811 12,926 2,146 3,002 0 0 0 0 0 0 Chrysler Jeep Grand Cherokee Pass. SUV WK Graz (Magna) AU Q1 05 22,540 14,318 3,041 2,495 0 0 0 0 0 0 Chrysler Jeep Commander Pass. SUV WK Graz (Magna) AU Q3 07 2010 6,673 2,463 189 0 0 0 0 0 0 0 2012 320 317 205 157 200 150 100 25 0 0 Chrysler Jeep Total 29,213 16,781 3,230 2,495 0 0 0 0 0 0 Daimler Maybach Total 320 317 205 157 200 150 100 25 0 0 Daimler Maybach Maybach Pass. F W220 Sindelfingen DE H1 Daimler & Chrysler Total 1,453,658 1,372,402 1,045,402 1,311,018 1,357,832 1,340,400 1,417,500 1,479,025 1,517,750 1,643,500

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Fiat (incl. Chrysler from 2010) The importance of Chrysler to Fiat was made even clearer when the H1 figures were released; group revenue for Q2 was just over €21.5bn of which Chrysler Key recent developments: 2011 was the year when saw the alliance between continued just over €13bn – taking Chrysler out of the equation, revenue was just Fiat and Chrysler accelerated significantly, such that by early 2012, Fiat’s stake in under €9.25bn, or 7.5% down year-on-year. For H1 as a whole, although revenue Chrysler had reached 58.5%, with the remaining 41.5% held by an employee trust. was from €22.36bn to €22.57bn, this was essentially due to Chrysler, as Fiat As a result, Fiat now has effective control over Chrysler and the integration of the recorded a half year fall of 6.6% in revenue. companies will continue at a pace largely determined by Fiat from now on. Fiat actually has the option to buy around 3% from the VEBA employee trust Q2 trading profits were just over €1bn, but without Chrysler they would have been stake in Chrysler every six months – just as the last report was being just €144mn; when looked in pre-tax terms, the situation is even worse – group finalised it was announced that Fiat would be doing just that, and it now has earnings were €532mn for Q2, but taking Chrysler out results in a loss of €154mn a 61.8% stake in Chrysler. Readers are referred to last year’s reports for full – this a reversal of €1,658mn from the Q2/11 profit of €1,504mn The company details of how the present ownership structure in Fiat has been reached. attributed the decline to falling volumes in Europe. Control of Chrysler not enough for Fiat The real problem at Fiat is the declining sales level in Europe, where shipments in Q2 were down around 13% to just over 300,000 units; the luxury brands, Ferrari Interestingly, despite the ever closer relationship between Fiat and Chrysler, and Maserati, actually saw a rise in profitability for the quarter – it is clear that the Sergio Marchionne has also said the company will look for further alliance core of the problem is at the Fiat, Alfa and Lancia brands were sales are well opportunities; he said this at around the time that GM and PSA were cementing below expectations. their new alliance, something which some analysts have suggested could well have been a defensive move by GM to prevent Fiat becoming involved with PSA. The situation is not helped by the continued slowdown in Punto sales as this model The obvious gap in the Fiat-Chrysler alliance is in Asia; which Japanese VM could approaches the end of its life (and has to compete against newer and more highly enter the alliance remains a matter for speculation, although Mazda (now that it specified competitors) and the fact that sales of the new Panda have been slow to has a much reduced involvement with Ford) would be the most likely partner. ramp-up fully. In addition, a number of labour disputes in Italy throughout H1 caused a loss of production at all Fiat factories, with a consequent loss of over While Fiat would undoubtedly like to establish an alliance of some sort in Asia, its 20,000 vehicles. Hopefully, the second half of the year should be better for Fiat as manifold problems in Europe will be occupying management time at present and the new small MPV range will come into production in Serbia and production of the for the foreseeable future and we would be surprised to see a major move in Asia new Panda should be at full tilt – although production shutdowns in Italy have been for some time to come. announced for the end of September and early October, suggesting the sales Chrysler now essential to Fiat’s finances outlook is far from promising. The integration of Fiat and Chrysler’s accounts produced a set of good results for Fiat is still projecting 2012 revenues of around €77bn and a trading profit of in the 2011 (see below), but problems in Europe meant that Q1/2012 figures were range €3.8-4.5bn, with net profit of €1.2-1.5bn. Despite the poor figures for Q1 disappointing. Excluding Chrysler, Q1/2012revenue was down almost 6% at and Q2/2012, Fiat has not changed its forecasts for the year – suggesting either €8.7bn, against just over €9.2bn in Q1/2011. Together with Chrysler, group that it had been expecting a poor start to the year or that it has reasons to expect a revenue was over €20.2bn, ie Chrysler’s revenue contribution was almost €12.5bn, positive set of results later in the year. In its H1 results presentation, it noted that it or nearly 62%. More significantly, the group’s Q1 trading profit of €866mn would “expects to articulate (the) effect of Eurozone economic climate on its 2014 plan have been transformed into a marginal loss (€6mn) without Chrysler; EBIT would when releasing Q3 2012 results” – in other words, further details on the likely similarly have been a loss of €12mn without Chrysler – rather than €895mn profit cutbacks in investment and delays to new model plans can be expected later in the which was achieved with Chrysler. year.

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Speaking to the unions at the start of August, Sergio Marchionne signalled the some ) or Melfi (home to the Punto) would close, if an Italian plant was direction in which the company is heading – announcing a suspension of indeed to close. In the preceding section on Restructuring, we concluded that investments in Italy, with around €500mn of spending at Mirafiori being delayed, Cassino would be the most likely to close if such a decision has to be made. We although expansion at Pratola Serra where a new diesel engine programme is now understand the much-delayed Alfa Giulia will be made in North America and under way has been retained. possibly China – this would further call into question the long run viability of Cassino which is where the Giulia had been due to be made. In spite of the current problems, there have already been a number of clear benefits from the integration of Fiat and Chrysler – the North American operations GM and PSA have begun to follow the suggestion set down by Mr Marchionne by are now benefiting from Fiat’s small engine and small car technology and this is closing plants – the question is when or will Mr Marchionne do the same with a Fiat likely to increase. Shared production facilities (eg small Jeeps to be made in factory, or even two? There have been reports that Fiat was considering closing Serbia, possible C-segment Jeeps in Italy and Alfas to be made in the US) are two factories in Italy: we see this is as unlikely, if only because of the tremendous already in evidence; but a great deal remains to be done to create a single disruption costs which would follow were Melfi or Mirafiori close. company; convincing the financial community that the merged company will be a Reports of closing an Italian plant are, moreover, somewhat ironic given the start success remains to be done. In 2011, for example, the ratings agency Moody’s of production this year at the Serbian plant which Fiat “acquired” from the Serbian had actually downgraded Fiat debt recently, from Ba1 to Ba2, a level which is two government; and in addition, expansion appears to be name of the game at Fiat’s points below investment grade. Turkish partner, Tofas, where production of the Opel version of the Doblo has now Moody’s is unconvinced by the merger with Chrysler and is also wary of the started, and where plans are in place for a significant expansion of B segment car European car market’s uncertainty. Moody’s is also concerned about the delayed production. It is also notable that Tofas is said to be the only part of Fiat Europe model launches in Europe – especially at Alfa, but possibly also at Fiat – and the which is profitable – and that the Serbian government’s own financial problems impact all these delays could have on market share, sales and ultimately on profits. have meant that it has delayed payments due to Fiat; Fiat will now receive €50mn this year and €40mn in 2013 – apparently, the previous Serbian government Fiat CEO calls for co-ordinated industry restructuring budgeting had neglected to include these sums in its cash-flow planning! Speaking at the Geneva motor show earlier in the year, Sergio Marchionne called Manufacturing news: readers are referred to previous reports for full details on for official EU action to address the automotive industry’s problems with excess 2010-2011 investments and plant by plant reorganisation. Indeed, much of 2011 capacity. In his role as president of ACEA, Marchionne called for a plan to ensure was taken up with extensive reorganisation at its core Italian factories – a large that the inevitable pain which will flow from a reduction in production will impact all part of which was actually ensuring its plants could cope with a doubling of countries and companies in the EU equally. Such an idea is nice in theory but it is production (if demand required it). This has not been without its problems, both very difficult to see working out in practice. with the unions and the new vehicles under development. Marchionne’s comments may well have been made in the light of reports, since Things reached a head in November when Fiat told its unions it would scrap all denied vehemently by Fiat, that the company was working on plans to close both labour contracts on December 31, 2011, leading to an immediate strike threat. A the Pomigliano and Mirafiori factories in Italy. So far, Fiat has closed one factory in few weeks later in mid-December, however, Fiat signed a new labour deal with Italy, its plant on Sicily at Termini Imerese, but in the long run, another factory most of the unions; as part of this agreement, a new round of investment of up to seems likely to be closed. Given the recent investment to refurbish Pomigliano €20bn was included. The deal will also see Fiat workers get an unspecified pay and the (delayed but partially completed) investment programme at Mirafiori, it rise and a 10% rise in overtime rates, as well as one off €600 production bonus in would seem logical that these plants are “safe” in the short term; the implication 2012. The largest Fiat union, FIOM, reportedly did not sign the agreement, would therefore appear to be that either Cassino (which makes the Bravo and although 2012 has not seen major labour problems at Fiat, although occasional

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problems do surface from time to time. That said, there was truck drivers’ strike in possibly even for its own brand – in the years ahead. The focus of this growth Italy in early 2012 which caused Fiat to lose over 20,000 units’ production. Other will be on vehicles in the B segment, replacing the ageing Albea/Linea models. short term strikes have taken place at most Fiat plants this year, with additional  In Mexico, the Chrysler plant at Saltillo is to be expanded to build a Ram losses to production; these are minor, but still unwanted contributors to the badged version of the Fiat Ducato van – this will fill a gap in problems facing the company this year. Chrysler/Ram/Dodge’s line-up which occurred when supplies of the Mercedes The first revamped factory to come on stream with new models was Pomigliano, Sprinter stopped. the former Alfa Romeo plant in the south of Italy. This has been reorganised to And in Poland, Fiat has decided to continue building the old Panda even though make the new Fiat Panda, with a €100mn investment in new tooling alone – and a production of the new model is now under way in Italy at the Pomigliano factory – new capacity of 300,000 upa. Total investment in Pomigliano was around €800mn. we have included this in our Outlook until 2014/5, although this programme could The next Fiat Italy factory to be subject to a complete reorganisation is the HQ be extended beyond this date. plant at Mirafiori; this was due to be effective from 2013, but we understand the investment here has been slowed, and indeed much of the investment has been Outside Italy, the Fiat JV in China, with Guangzhou, will start production in mid- postponed, if not cancelled, in part owing to Fiat’s dire financial situation – it 2012, making both Fiat and Alfa models. remains to be seen what this will be in terms of the timing of start of production of Maserati has ambitions too a range of new models which are due to be made there in the next few years. Maserati has also announced major expansion plans for this low volume unit. In While uncertainty surrounds the situation regarding its plants in Italy, Fiat has April reports appeared, suggesting the brand wanted production to reach as much reached agreement with PSA regarding the ending of the companies’ joint venture as 50,000 units a year, with sales of 60,000 units a year. There are two inferences in vans and MPVs in France. Having stopped taking MPVs from the JV some time here, one that around 10,000 would be made by a third party (we expect ago, Fiat is now only sourcing a small and declining number of Scudo vans. This this to be the SUV to be made by Chrysler in North America) and two that Maserati arrangement will finally come to an end during 2016 and PSA will take full itself would see as much as an 8-fold increase in European production. Fiat is ownership of this facility; Toyota will take Fiat’s place alongside PSA. already committed to investing €500mn to expand and modernise capacity at the Fiat increasing production outside Italy former Bertone plant at Grugliasco, and this plant will both the new Quattroporte and a smaller model positioned just below the Quattroporte as well as other still Despite the problems within Italy, Fiat intends to increase production capacity unnamed new Maserati models. There sub-Quattroporte model is thought to be outside Italy. Notably, despite the concerns over excess capacity and the worries the model which will give Maserati a direct competitor in the S-class/A8/7-series of some financial analysts like Moody’s, Fiat has pressed ahead with its expansion segment; however, we struggle to see how this can get Maserati quickly to plans and has managed to secure finance in Russia, from Sberbank, for its the 50,000 units’ annual production level spoken of in the April reports. Our proposed new factory in St Petersburg; this new factory which will produce up to outlook for the brand is much more cautious. 120,000 upa initially. Fiat will be the majority shareholder, with an 80% stake, while Sberbank will hold the balancing 20%. The plant will make Jeeps and Iveco New models: Fiat’s new model plan been substantially re-ordered since early vans initially, but we would also expect Fiat models to be made there ultimately. 2011. The all-new Panda is now in production, although the old model has been confirmed for continued production in Poland. The new model is slightly larger In addition: than the old model and features a somewhat rounder exterior than the old model.  In Turkey, Fiat’s partner Tofas (part-owned by the Koc group) will raise It will also feature the TwinAir two cylinder engine range, both in turbo and capacity to around 500,000 upa although the timing for this has not been naturally aspirated form. Fiat’s Turkish affiliate, Tofas, has also launched a drop- confirmed – Tofas is also going to build a number of new models for Fiat – and side pick-up version of the Doblo small van.

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In this regard, a very important new model, launched at the Geneva motor show, is Bravo to be cancelled – there have also been internet stories and industry rumours the 500L, the small MPV which will be produced in 5- and 7- configurations in that Fiat will retrench and focus on the Punto/Panda/500 segments. the former Zastava factory in Serbia. SUV versions of the 500L (called 500X) will A further question surrounds the C segment SUV/CUV which has been scheduled be made for Fiat and Chrysler-Jeep in Italy. for production at Mirafiori for both Alfa and Jeep – for now we have included these In addition, Fiat wants to make the 500L series, which is now in production in models in our Outlook, but at lower volumes than previously considered; we also Serbia, into a mini-brand in its own right. Future possible models include a think it is highly likely that these could both be cancelled, at least in terms of potential competitor to the Mini Countryman and a vehicle to compete against the European production, with manufacture switched to the US. Mini Clubman. The number of would-be competitors to Mini is growing (viz the

Opel/Vauxhall Adam) but whether mass market brands can truly compete against the Mini is perhaps a moot point. A second model, project 326 (a European version of the new Uno which is made in Brazil), was also expected to be made in Serbia, although we now doubt this will be made there. Rather a version of this model is likely to be the new B segment car which Tofas will make in Turkey for Turkey and surrounding markets. Uncertainty in the C segment One of the most important new models for Fiat could be the new Bravo – last time we noted that this has been delayed until late 2013, with some early reports suggesting this will be rather like the Nissan Qashqai in overall looks, but equally something which is said will go beyond the Nissan design concept. However, industry rumours also suggest that Fiat will re-focus on vehicles below the Punto segment, suggesting that the Bravo may well have been cancelled or at least postponed again, calling into question the future of the Cassino factory which is due to make it. At the end of 2011, reports emerged that Alfa would add a wagon version of the Giulietta in 2013, to sell alongside the hatchback version; this will also provide a boost for Alfa dealers who are still waiting for the delayed Giulia and a crossover from Chrysler, both of which will not appear until sometime in 2014. The big issue surrounding Giulia is whether it will be made in North America rather than in Italy – some reports over the summer of 2012 suggest that the Giulia may well only be made in North America. If this happens, then this would call into question the viability of the Cassino factory where it had been due to be made. For now, we have retained both the Giulia and the Fiat Bravo for Cassino production, but we would not be surprised to see the Giulia only made in North America and for the

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The following table summarises the timings for the main new Fiat models for European production:

2012 2013 2014 2015-2016 Fiat 500 EV New small Fiat, sub-500 New B-seg vehicle (Turkey production) New 500 starts and others yet to be 500L: New 5- and 7-seater Current Punto replaced by all new model 500X (B segment SUV for Fiat and Jeep) announced, including a Ferrari 599 hybrid, featuring two 100hp electric motors MPVs (to replace Idea, Musa New Lancia Delta production ramp-up Replacement for Bravo (with a radical new and Multipla) New Ducato (2015) Mito 5-door design) – could be cancelled New Panda production ramp-up nd New Mito (2016) Giulietta wagon 2 generation Giulietta starts Revised Alfa Mito, including 5- New Spyder/Brera C segment Alfa SUV and Alfa Giulia – could door version be made in the US Alfa 4C limited edition sports car Lancia C segment new models New Maserati Quattroporte and sub-

Quattroporte model All new high-end Alfa sedans

The Production Outlook which follows shows a decline in production in 2011, owing to the ageing of a number of models and the comparatively slow introduction of their replacements. However, despite the economic uncertainty, the new model launches at Fiat should actually result in a modest revival in production volumes in 2012, especially with expected exports to the US beginning soon. The truck dispute in early 2012 and the generally poor market conditions meant that 2012 production recovery will be slower and less pronounced that we had previously expected. Production of the new Panda and the 500L will prevent a complete collapse in Fiat brand production volumes in 2012; in the absence of a complete economic collapse, and assuming we do see an eventual recovery in Europe, by 2015-6, we expect to see Fiat production reach nearly 1.5mn – although this is dependent on the Bravo being retained in the long term plans, as well success for the next Punto and 500 & derivatives, allied to the introduction of new MPVs in Serbia and, crucially, the opening of the new factory in Russia. It is also important to note that most of this growth in Fiat production will be in Serbia and Turkey, and not in Italy. Alfa’s target of reaching 400,000 units remains, in our view, well beyond the capabilities of European production alone, especially if the Giulia moves to the US. This target may be achieved with Alfa badged versions of SUVs made in the US. The production of some Chrysler and Jeep brand vehicles in Europe in the next few years will also help push group production up to close to the 2mn upa level by the end of the period covered by this Outlook. However, we must add a note of caution to this – around 250,000 units of this the c1.96mn projected for the group in 2016 would be from models which could either be cancelled or made in North America – and a further 350,000 units is accounted for by new models to be made in Turkey, Serbia and Russia. Taking these out of the equation leave the rest of the Fiat operations in Europe looking rather vulnerable. Please note there are some cells in the following table which are coloured yellow; these are to indicate some corrections to historic data in Poland. These changes are relatively minor but have been highlighted for convenience.

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Fiat Group Production Outlook to 2016 – Fiat brand detail and other brand totals Vehicle Country Start Segment Prod'n Prod'n End Next new Production Production Production Production Production

Series (platform) Group Marque Model range Plant of 2007 Production 2008 Production 2009 Production 2010 Production 2011 Production type of model Outlook 2012 Outlook 2013 Outlook 2014 Outlook 2015 Outlook 2016

Fiat Fiat Seicento Pass. A 187 Tychy PL 05/10 35,976 25,166 10,794 9,152 0 0 0 0 0 0 Fiat Fiat New City Car (sub 500) Pass. A 312 Tychy PL H1 13 2013 0 0 0 0 0 0 0 0 20,000 50,000 2012 FL, Fiat Fiat 500 Pass. A 312 Tychy PL Mid 2007 65,116 201,825 184,143 185,102 157,233 147,500 129,000 104,000 124,000 150,000 new 2015 Fiat Ford Ka Pass. A 312 Tychy PL Mid 2008 2008 0 19,046 112,493 92,927 67,204 63,500 54,500 31,000 0 0 Fiat Fiat Panda Pass. A 169 Tychy PL H1 03 2011 260,775 246,849 298,020 246,067 205,765 117,000 68,000 45,000 12,000 0 Fiat Fiat New Panda Pass. A Pomigliano IT H2 11 0 0 0 0 3,159 132,500 159,000 152,500 141,000 139,000 Fiat Fiat Grande Punto Pass. B Corsa/199 Melfi/ Mirafiori IT H1 06 2013 339,737 226,565 274,781 236,588 224,565 161,000 145,000 167,500 180,000 200,000 Fiat Fiat Grande Punto Comm.Van 179/188 Mirafiori IT H1 06 9,302 8,841 5,911 6,748 9,603 7,750 6,050 7,500 8,500 7,500 Fiat Fiat 500X ‐ SUV like version Pass B‐SUV 500L Mirafiori IT H2 14 2014 0 0 0 0 0 0 0 80,000 105,000 95,500 Fiat Fiat Punto Pass. B 179/188 Mirafiori IT H2 06 2006 82,562 37,483 60,465 31,695 0 0 0 0 0 0 Fiat Fiat Punto Comm.Van 179/188 Mirafiori IT H2 06 2006 7,078 4,068 1,975 1,437 0 0 0 0 0 0 Fiat Fiat Punto Pass B 179/188 Zastava Serbia H1 13 0 0 15,000 15,000 8,000 2,000 0 0 0 0 Fiat Fiat Idea Pass. B‐MPV 188/350 Mirafiori IT H2 03 2011 23,206 13,227 9,488 5,864 5,874 3,900 0 0 0 0 Fiat Fiat Idea Comm.Van 188/350 Mirafiori IT H2 03 2011 232 189 66 39 0 0 0 0 0 0 Fiat Fiat Stilo Pass. C 192 Cassino IT Mid 06 2006 12,507 281 0 0 0 0 0 0 0 0 Fiat Fiat Stilo Comm.Van 192 Cassino IT Mid 06 2006 812 21 0 0 0 0 0 0 0 0 Fiat Fiat Bravo Pass. C 198 Cassino IT End 2006 2011 115,328 86,051 63,785 44,685 30,065 22,000 12,500 3,500 0 0 Fiat Fiat Bravo Comm.Van 198 Cassino IT 0 472 478 500 626 275 100 0 0 0 Fiat Fiat New Bravo Pass C 317 Cassino IT H1 13 0 0 0 0 0 0 700 39,000 55,000 50,000 Fiat Fiat Croma Pass. D Vectra (Epsilon) Cassino IT H2 05 2012 24,992 26,722 11,363 9,328 0 0 0 0 0 0 Fiat Fiat Croma Comm.DVectra (Epsilon) Cassino IT H2 05 2010+ 18 10 0 0 0 0 0 0 0 0 Fiat Fiat Multipla Pass. C‐MPV 186 Mirafiori IT 2009 19,771 16,015 9,802 7,835 0 0 0 0 0 0 Fiat Fiat Multipla Comm.Van 186 Mirafiori IT 2009 450 390 194 72 0 0 0 0 0 0 Fiat Fiat 500L ‐ new 5‐ & 7‐seater MPVs Pass B‐MPV L0330 Zastava Serbia H1 12 0 0 0 0 0 40,000 125,000 145,000 160,000 142,000 Valenciennes ( Fiat Fiat Ulysse Pass. MPV VF FR Q1 02 2011 4,504 2,688 1,717 888 0 0 0 0 0 0 Nord) Valenciennes (Sevel Fiat Fiat Scudo Comm.Van U FR Q1 02 2012 41,008 35,856 17,837 19,450 19,786 16,000 14,000 12,000 9,000 7,500 Nord) Fiat Fiat Ducato Comm.Van X250 Val di Sangro (Sevel Sud) IT H2 06 2013FL 136,440 140,036 70,674 105,548 125,944 109,000 93,000 89,000 93,000 98,000 Fiat Iveco Daily Comm.Van Brescia IT Pre 2002 2010+ 51,054 42,982 23,455 30,013 30,665 33,000 34,500 32,000 30,000 28,500 Fiat Iveco Daily Comm.Van Valladolid SP Pre 2002 2010+ 40,329 30,799 12,334 15,500 16,000 13,750 13,000 14,500 16,000 15,500 Fiat Fiat Palio Pass. B 178 Bursa (Tofas) TR 2009+ 3,101 2,161 1,771 1,628 1,000 000 0 0 Fiat Fiat Palio Comm.Van 178 Bursa (Tofas) TR 2009+ 1,400 163 122 0 0 0 0 0 0 0 Fiat Fiat Albea Pass. B 178 Bursa (Tofas) TR 2012/3 28,896 27,353 12,009 23,041 10,000 12,000 10,000 8,000 5,000 0 Fiat Fiat New BPassB326Bursa (Tofas) TR H2 14 2014 0 0 0 0 0 0 0 25,000 105,000 165,000 Fiat Fiat Linea Pass. B‐CD200Bursa (Tofas) TR H2 07 2014 23,147 18,043 14,065 21,650 35,000 36,500 25,500 14,000 9,000 0 Fiat Fiat and PSA Fiorino/Nemo/Bipper Comm.Van Bursa (Tofas) TR H2 08 2015/6 10,639 111,810 99,069 123,635 0 0 0 0 0 0 Fiat Fiat and PSA Fiorino/Nemo/Bipper Pass. Van Bursa (Tofas) TR H2 08 2015/6 0 0 48,909 43,682 0 0 0 0 0 0 Fiat Fiat and PSA Fiorino/Nemo/Bipper All Van Bursa (Tofas) TR H2 08 2015/6 0 0 0 0 139,000 124,000 112,500 108,000 104,000 98,500 Fiat Fiat Doblo Comm.Van 178/223 Bursa (Tofas) TR 2009 98,108 78,768 59,720 0 0 0 0 0 0 0 Fiat Fiat Doblo Pass. Van 178/223 Bursa (Tofas) TR 2009 40,235 27,259 18,425 0 0 0 0 0 0 0 Doblo, inc Ram versions for US from incl. in Doblo Fiat Fiat Pass. &Van 199/263 Bursa (Tofas) TR H2 09 2009 0 0 98,649 118,000 95,000 101,000 115,000 119,000 106,500 2013 above 178 FIat Opel New Combo based on Doblo Comm.Van 199/263 Bursa (Tofas) TR H2 11 0 0 0 0 10,500 25,000 34,000 36,500 32,500 30,000 Fiat Fiat Other Pass. Bursa (Tofas) TR 7,008 1,872 0 0 0 0 0 0 0 0 Various Fiat/Iveco vans and Jeep Fiat Fiat/Jeep Var Various New Russian plant RU H2 13 0 0 0 0 0 0 10,000 45,000 75,000 105,000 SUVs Fiat Fiat Total 1,483,731 1,433,011 1,438,865 1,376,723 1,217,989 1,161,675 1,147,350 1,274,000 1,403,000 1,488,500 Fiat Alfa Romeo Total 151,499 109,428 104,022 120,068 136,121 106,500 105,000 126,000 188,000 204,750 Fiat Lancia Total 117,864 113,298 113,796 97,963 108,172 91,250 79,500 85,000 89,000 83,500 Fiat Chrysler/Jeep Total 0 0 0 0 0 0 0 50,000 125,000 165,000 Fiat Ferrari Total 6,561 6,722 6,213 6,627 7,314 7,450 6,950 6,500 6,000 5,750 Fiat Maserati Total 7,669 9,294 4,041 5,842 6,161 6,050 6,300 9,950 12,750 11,575 Fiat ALL Total 1,767,324 1,671,753 1,666,937 1,607,223 1,475,757 1,372,925 1,345,100 1,551,450 1,823,750 1,959,075 Fiat’s other brands’ production volumes are shown in the next table, overleaf:

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Fiat Group Production Outlook to 2016 – other brands

Vehicle Country Start Segment Prod'n Prod'n End Next new Production Production Production Production Production

Series (platform) Group Marque Model range Plant of 2007 Production 2008 Production 2009 Production 2010 Production 2011 Production type of model Outlook 2012 Outlook 2013 Outlook 2014 Outlook 2015 Outlook 2016

Fiat Fiat Total 1,483,731 1,433,011 1,438,865 1,376,723 1,217,989 1,161,675 1,147,350 1,274,000 1,403,000 1,488,500 Fiat Alfa Romeo Mi.To Pass. B 955 Mirafiori IT H2 08 2012‐13FL 0 24,759 65,342 50,391 41,077 31,500 33,000 37,500 40,000 42,000 Fiat Alfa Romeo 147 Pass. C 937 Pomigliano IT Late 06 2009 57,441 30,906 12,281 4,036 0 0 0 0 0 0 Fiat Alfa Romeo Giulietta Pass. C 940 Cassino IT Q4 09 2009 0 0 0 46,619 82,236 75,000 70,000 64,000 59,000 53,000 Fiat Alfa Romeo Torino (149 Sprint) Pass. C 940 Cassino IT H2 10 2010 0 0 0 0 0 0 0 0 2,000 3,000 Fiat Alfa Romeo 159 Pass. D 939 Pomigliano IT Q3 05 2011 70,822 42,129 22,514 14,469 12,808 0 0 0 0 0 Fiat Alfa Romeo Giulia Pass. D 940 Cassino IT H2 13 0 0 0 0 0 0 0 10,000 35,000 45,500 Fiat Alfa Romeo GT (159) Pass. D 947 Pomigliano IT Q1 04 2011 FL 13,322 5,305 1,259 1,237 0 0 0 0 0 0 Fiat Alfa Romeo 166 Pass. E 936 Mirafiori IT Q1 07 2011 632 0 0 0 0 0 0 0 0 0 Fiat Alfa Romeo "169" ‐ name unknown yet Pass. E 936 Modena or Mirafiori IT H2 12 2013 TBC 0 0 0 0 0 0 0 3,000 6,000 5,000 Fiat Alfa Romeo Brera Pass. Sports 946 Grugliasco (Pininfarina) IT H1 07 2013 4,755 3,770 1,661 1,718 0 0 0 0 0 0

Fiat Alfa Romeo Brera Spyder Pass. Sports 938 Grugliasco (Pininfarina) IT H1 06 2013 4,527 2,559 965 1,598 0 0 0 0 0 0 Fiat Alfa Romeo 4C Pass Sports Modena IT H1 13 2013 0 0 0 0 0 0 2,000 3,000 2,500 1,750 Fiat Alfa Romeo New Spider Pass Sports Grugliasco (Pininfarina) IT H2 14 2014 0 0 0 0 0 0 0 1,000 3,500 4,500 Fiat Alfa Romeo C‐SUV Pass SUV Mirafiori IT H2 12 2012 0 0 0 0 0 0 0 7,500 40,000 50,000 Fiat Alfa Romeo Total 151,499 109,428 104,022 120,068 136,121 106,500 105,000 126,000 188,000 204,750 FL 2006, all Fiat Lancia Ypsilon Pass. B 188/843 Termini Imerese IT Q2 03 Mid 2011 76,149 55,861 50,999 48,859 36,876 0 0 0 0 0 new 2009+ Fiat Lancia Ypsilon/Deltina Pass. B 199/846 Tychy PL Mid 2011 2009 0 0 0 207 37,558 62,000 59,000 47,500 44,500 42,000 Fiat Lancia Musa Pass. B‐MPV 188/350 Mirafiori IT Q3 04 2011 36,592 32,220 31,142 24,138 15,642 14,250 3,500 0 0 0 Fiat Lancia New MPVs Pass. LO0330 C Compact Zastava Serbia H2 12 0 0 0 0 0 0 4,000 13,500 18,000 16,500 Fiat Lancia Delta Pass. C 844 Cassino IT H2 08 2008 0 20,638 29,568 23,198 17,359 13,500 9,000 19,000 22,000 21,000 Fiat Lancia Chrysler 200 (Delta) Pass. C 844 Cassino IT 0 0 0 0 737 1,500 4,000 5,000 4,500 4,000 Fiat Lancia Thesis Pass. E 841 Mirafiori IT 2007 885 511 91 0 0 0 0 0 0 0 Valenciennes (Sevel Fiat Lancia Phedra Pass. MPV VL FR Q1 02 2011 4,238 4,068 1,996 1,561 0 0 0 0 0 0 Nord) Fiat Lancia Total 117,864 113,298 113,796 97,963 108,172 91,250 79,500 85,000 89,000 83,500 Fiat Jeep C SUVs Pass. C‐SUV Various Mirafiori IT 0 0 0 0 0 0 0 25,000 75,000 90,000 Fiat Jeep B SUVs Pass B‐SUV Fiat 500 Mirafiori IT 0 0 0 0 0 0 0 25,000 50,000 75,000 Fiat Chrysler/Jeep Total 0 0 0 0 0 0 0 50,000 125,000 165,000 Fiat Ferrari Ferrari Pass. Sports All Maranello IT 6,561 6,722 6,213 6,627 7,314 7,450 6,950 6,500 6,000 5,750 Fiat Ferrari Total 6,561 6,722 6,213 6,627 7,314 7,450 6,950 6,500 6,000 5,750 Fiat Maserati Other unknown models Pass. Sports Modena IT TBC 0 0 0 0 0 0 500 1,750 3,500 3,250 Fiat Maserati M156 sub‐Quattroporte Pass. F Modena IT H1 2014 0 0 0 0 0 0 750 2,500 4,000 3,500 Fiat Maserati Quattroporte Pass. G Modena IT 5,334 3,706 1,254 1,411 1,592 1,800 500 0 0 0 Fiat Maserati M157 Quattroporte Pass. G Grugliasco IT H1 2014 0 0 0 0 0 0 750 2,500 2,250 1,975 Fiat Maserati Coupe / GT / Gran Cabrio Pass. Sports Modena IT 2,335 5,588 2,787 4,431 4,569 4,250 3,800 3,200 3,000 2,850 Fiat Maserati Total 7,669 9,294 4,041 5,842 6,161 6,050 6,300 9,950 12,750 11,575 Fiat ALL Total 1,767,324 1,671,753 1,666,937 1,607,223 1,475,757 1,372,925 1,345,100 1,551,450 1,823,750 1,959,075

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Ford had already been announced for Spain, especially of the Fiesta. Production in Spain is actually going to receive a boost this year with the transfers of the Transit Key recent developments: 2012 has not been very good for Ford in Europe so Connect and Kuga models to Valencia. far and the second half of the year is unlikely to see any improvement on the losses sustained in H1. Production slowing in 2012 Poor financials in H1 2012 We have production for Ford projected to fall this year, from 1.55mn to just under 1.42mn units; however, this includes a rise in production in Russia of over 40.000 Ford lost US$404mn in Q2, compared to a modest profit in Q2/2011; effectively and the addition of the new B-Max in Romania; taking these models out and Ford this amounted to a worsening of around $500mn in Ford’s European performance production would be below 1.4mn units for the year. in a year, a situation the company attributes to tough economic conditions, rising material prices and declining sales. The situation for Ford in 2012 remains especially worrying when one factors in that 2011 had seen a rise sales of almost 2.5% - the company sold 1.56mn units in Losses for H1 reached $553mn, versus a profit in H1/2011 of $469mn – clearly the Europe, although this still meant a small loss in regional market share from 8.4% to situation worsened significantly in Q2 and the company is expecting a full year loss 8.3%. Russia, which is going to become a major production location for Ford in of around $1bn, although this could be an underestimate. coming years, was one of the few significant growth markets for Ford sales – 2011 The current loss-making situation in Europe is a continuation of a trend which volumes in Russia were up nearly 31%, giving Ford its best sales performance in started in Q2 last year – at this point earnings started to fall, by US$146mn, from the country since 2007. US$322mn to US$176mn. At the time, Ford attributed the fall in European The financial losses referred to earlier were reinforced by recent sales figures – for earnings to rising commodity prices and a number of structural costs, as well as example European sales in July were down 12.3% year-on-year, or just over 10% dealer costs associated with the end of various scrappage schemes. By Q3 last on a year-to-date basis. year, the declining profits had turned into losses when Ford reported a pre-tax loss of $306mn, much worse than the loss of US$196mn a year earlier. Geography of production re-focusing to Russia This poor financial story then continued into Q4/2011; and when the full year A year or so ago, we had suggested that 2012 could be the start of better days for figures were released; Ford reported a pre-tax operating loss of US$190mn for Ford in Europe, with the start of production of the new B-Max, Transit and Transit Europe, leading to a full year loss (after the profits in Q1 and Q2) of US$27mn. Connect. However, the reality of the sustained economic downturn in Europe and The company as a whole was profitable, reporting total operating profits of the increasing competitiveness of other brands mean that Ford’s position in under US$8.8bn and a full year net income of US$20.2bn, after a one-off non-cash item increasing threat in its traditional European markets. gave a technical gain of US$12.4bn in Q4 – this was due to revaluation of net Faced with manifold problems in Europe, Ford is in part looking to Russia for deferred tax assets. salvation. It has a well-established production operation, making the Focus and the At the start of the year, Ford said it expected European sales to be down Mondeo, and is now being expanded through a JV with Sollers; this will make the significantly in 2012 and with rising commodity and material costs it warned the Explorer SUV, Transit van and probably the Fiesta small car. financial markets that it will lose money in Europe this year. This is clearly going to Certainly, Ford is banking on its new Russian JV operations with Sollers to give its happen but how Ford can quickly turn this situation around is difficult to envisage. production volumes a boost. These will be aided by the new Focus from mid- The head of Ford Germany has also indicated that production will be slowed at its decade; also, the new Fiesta will help reduce the average age of Ford’s model two German factories during the first half of the year – last year, production cuts line-up; including Russia, production could ultimately get back to around 1.8mn upa in Europe. this would, however, still be below the 2007 peak, which largely

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excluded Russia. The challenge facing Ford, simply to maintain its current position Intriguingly in March it was reported that rather than being fined for low production is clearly a major one volumes, Ford will actually receive less state aid from the Romanian government than it had been expecting. The Romanian government will now give Ford €75mn, The financial warnings noted above indicate strongly that 2012 is unlikely to be rather than €143mn which had been planned. The factory is now expected to especially positive for Ford at all. Although a number of new models are coming make around 800,000 vehicles between 2013 and 2017, a level which will require on stream this year and next, there are significant costs associated with these new over 150,000 units a year to come off the assembly line Craiova. Ford will be models and in the challenging market conditions in Europe and it is difficult to see entering new segments with the vehicles produced in Romania, so this will be quite a quick solution to the problems facing Ford. Ford’s CEO, Alan Mullaly, has a challenge. spoken openly about how Ford will address the problems it faces in Europe – how far the eventual decisions the company takes move beyond plant slowdowns into Developments in Russia plant shutdowns will be an interesting development to watch in the coming months. As with many other VMs, the one bright spot in Europe for Ford is Russia where it Layoffs and slowdowns in Spain and Germany seems that expansion in both production volumes and sales can be expected in 2012. Ford had announced a manufacturing JV in Russia with Sollers in 2011. Last year in November, Ford announced it would lay off 4,000 of its 6,200 This will involve the production of cars and SUVs, plus engines and stampings for workforce in Spain, with at least 39 production days to be lost in 2012. This Russian-made models. The JV will operate under Decree 166 which sets out the reduced production activity in Spain is taking place despite plans to move the Kuga Russian’s government’s requirements for local content and other and Transit Connect there. Some press reports had suggested that Ford was incentives/support for local manufacturing operations. planning to reduce production in Spain to just 152,000 units, significantly down on the 2011 level. Although we think this is too pessimistic for Valencia, a fall along The first model definitely to be made in the Sollers plant is the Explorer SUV these lines is likely in the future; we now think that when the next Fiesta comes which hitherto has only been made in the US. This is being followed by the Transit on stream, production will be concentrated in Germany, taking Fiesta van and will be accompanied by increased production of the Focus and Mondeo at production out of Valencia. It also likely that the next Kuga could also be made Ford’s existing plant in St Petersburg. We also believe that the Fiesta will be in Russia, rather than in Spain. Valencia will benefit from Kuga production for just added to the Sollers production arrangement, although whether this will see a short while. production by Ford in St Petersburg or by Sollers itself is not yet clear. The split of production between Sollers and the additional production in St Petersburg has yet Ford also announced a production slowdown in Cologne, as sales of the Fiesta tail to become clear – some of the volumes we note in the Production Outlook as off ahead of the new models. 8 production days were cut in July, with further cuts taking place in the Sollers JV could actually be production in St Petersburg. also possible later in the year. The JV will also involve annual production of 180-200,000 engines in Russia, Reduced grants in Romania some of which may be exported back to Europe, although the vast majority are Another problem issue for Ford lies in Romania: a local report last year had likely to be needed by the JV’s production facilities. Sollers’ CEO, Vladim suggested that Ford could be fined (a modest) €14mn for failing to meet a Shvestov, has also told the press that he expects the JV to involve exports of cars production commitment made to the Romanian government. The support Ford and engines to Europe, although vehicle exports to Europe seem rather unlikely received when it took on the Craiova plant was that it would make 250,000 given Ford’s extensive – and apparently to be under-used – capacity in Western vehicles in the country in 2011; in fact the total for 2011 did not even reach 7,600. Europe. Indeed production is now only just getting under way for the B-Max. Ford has said Also in mid-2011, Ford announced a number of changes to its European it plans to build a second model in Romania, but the timing for this remains production arrangements, as noted below. uncertain and while we include it in our Outlook from 2014, this is very provisional.

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Manufacturing news: The old Fusion is now being replaced by the all-new B-Max which will be built at a rate of 150,000 upa initially. This will be made at the Ford plant in Craiova; this is due to be made alongside an as yet unconfirmed second B-segment model, although the timing for this as set out in the accompanying table is very provisional for now. The Fiesta itself is being facelifted during 2012, and the seventh generation of this model will be made in Cologne only from 2014, ie the new Fiesta will not, we believe, be made in Spain. The 4th generation Focus will be made in Saarlouis from 2015, while the and Transit Connect will be added to the production line-up in Spain from 2012/13; €800m is being invested in the Valencia plant to support production of these new models. The Valencia factory was allocated production of the C-Max and Grand C-Max from Germany, as well as the new Kuga which had been expected to be made in North America, whereas the Transit Connect was due to be have been made in Romania. Ford also plans to build a second LCV being added to the Turkish plant, alongside the Transit. We understand this will be a small van, based on the Fiesta.

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New models: Ford’s new models are set out in the table below. 2012 2013 2014 2015-2016 Transit replacement starts Kuga and Transit Connect (V408) start full scale Mondeo full launch Completion of new Fiesta launch, incl. B-Max production in Spain Fiesta renewal starts (end of year) version to replace Ka made by Fiat Focus Electric (in association with C-Max plug-in hybrid and electric model 2nd Ford LCV in Turkey Focus 4 Magna) Galaxy in full production C-Max (2016) S-Max and Galaxy Mondeo, including hybrid 2nd model for Romanian factory In the Production Outlook which follows, we project note that Ford production in 2012 will be around 133,000 units down on 2011 volumes, which is a worsening of around 50,000 units from our last report; that said, we expect a recovery from 2013, due to the full production of the new B-Max, Transit and Transit Connect, plus an increase in production at the Sollers JV in Russia and later in the decade, the introduction of the new Fiesta and Focus. The importance of Russia to Ford cannot be underestimated – take the projected Russian production out of the 2016 volumes and there will be almost no growth at all in Ford’s volumes compared to the present day. And even with Russia, Ford will struggle to get back to its 2007 peak in Europe which did not include Russia.

EUROPEAN CAR AND LCV PRODUCTION OUTLOOK REPORT September 2012 | Page 81

Ford Production Outlook to 2016 Vehicle Country Segment Start Prod'n Prod'n End

Next new Production Production Production Production Production

type of Group Marque Model range Series (platform) Plant of

2007 Production 2008 Production 2009 Production 2010 Production 2011 Production model Outlook 2012 Outlook 2013 Outlook 2014 Outlook 2015 Outlook 2016

Ford Ford Ka Pass. A BE146 Valencia SP H1 96 Q3 07 2008 53,012 35,761 0 0 0 0 0 0 0 0 Ford Ford Fiesta Pass. B B256 Valencia SP Q1 02 H2 08 2008/9 145,784 80,000 0 0 0 0 0 0 0 0 Ford Ford Fiesta (inc. 3dr as Ka replacemen t) Pass. B B2XX Valencia SP H2 08 H2 2014 0 33,684 169,306 108,986 50,000 25,000 0 0 0 0 Ford Ford Fiesta Pass. B B256 Cologne DE Q1 02 2008/9 269,001 126,116 0 0 0 0 0 0 0 0 Ford Ford Fiesta (inc. 3dr as Ka‐ replacemenB‐sports t) B2XX Pass. B Cologne B2XX Cologne DE H2 14 DE H2 08 2014 0 2014 0 0 138,854 0 343,757 0 340,5480 333,0000295,000 0 10,000 265,000 22,000 240,000 24,000 325,000 335,000 Ford Ford Fusion Pass. B‐MPV B226 Cologne DE Q2 02 2009/10 129,847 115,411 55,696 38,971 24,000 7,000 0 0 0 0 Ford FordFord B‐ FordMax New Puma Pass. B‐MPV B232 Pass B Craiova RO H2 11 0 0 0 0 0 28,000 75,000 100,000 98,000 93,000 Ford Ford 2nd B seg model in Romania Pass B B232? Craiova RO After 2012 0 0 0 0 0 0 0 25,000 55,000 60,000 Ford Ford Focus Pass. C C307 Saarlouis DE Q3 04 2008 FL 254,421 243,982 208,174 226,308 0 0 0 0 0 0 Ford Ford Focus Pass. C C307 Valencia SP Q1 05 2008 205,982 208,201 131,041 102,606 59,500 000 0 0 Ford Ford Focus Pass. C C307/C346 St Petersburg RU Q2 05 Q3 11 69,088 64,967 37,000 69,722 84,056 104,000 106,000 102,000 96,500 92,000 Ford Ford Focus Pass. C C346 Saarlouis DE H2 10 2015 0 0 0 397 280,000 307,000 295,000 269,000 275,000 292,000 Ford Ford Focus C‐MAX Pass. C‐MPV C214 Saarlouis DE 2007 FL 137,821 111,061 69,102 42,570 0 0 0 0 0 0 Ford Ford Focus C‐MAX Pass. C‐MPV C344 Valencia SP H1 10 0 0 0 45,058 121,000 105,000 96,000 90,000 84,000 95,000 Bairo Canavese 08 0 44,403 62,360 81,074 82,000 65,000 0 0 0 0 Ford Ford Focus coupe cabrio Pass. C S383 IT Q2 06 15,088 12,472 3,886 4,346 0 0 0 0 0 0 Ford Ford Kuga (Focus SUV) Pass. C‐SUV C394(Pininfarina) Valencia SP H2 12 0 0 0 0 0 5,000 68,000 73,000 45,000 5,000 FordFord Ford Ford Kuga (Focus SUV) Kuga (Focus SUV) Pass. C‐SUV Pass C394 C‐SUV C394 Saarlouis Sollers JV DE H1 RU H2 12 07/05 0 0 0 0 0 5,000 25,000 30,000 28,500 75,000 Ford Pass. D CD162 Genk BE H1 07 32,346 0 0 0 0 0 0 0 0 0 Ford Ford Mondeo Pass. D CD3XX Genk BE H2 07 2013‐14 142,874 197,503 116,973 110,128 94,500 78,000 91,500 105,000 98,500 92,500 Ford Ford Mondeo Pass. D CD3XX St Petersburg RU H1 09 0 0 4,367 10,668 14,751 19,500 22,000 20,000 18,500 16,750 Ford Ford S‐Max Pass. MPV CD3XX Genk BE H1 06 69,108 57,553 41,492 49,786 48,500 5,000 0 0 0 0 Ford Ford S‐Max Pass. MPV CD390 Genk BE H1 13 0 0 0 0 0 40,000 45,000 40,500 38,500 36,500 Ford Pass. MPV CD3XX Genk BE Q2 06 2013 33,137 33,193 25,441 25,778 27,500 20,000 14,000 0 0 0 Ford Ford Galaxy Pass. MPV CD390 Genk BE H2 13 0 0 0 0 0 0 5,000 24,000 30,500 32,250 Ford Ford Various Cars Pas Var Various Sollers JV RU 0020,000 45,000 60,000 . Van B256/ B2XX Cologne DE 2008+ 12,080 9,815 6,709 11,935 10,000 7,000 5,500 3,500 2,500 0 FordFord Ford Explorer /Transit Comm. Van Pass. V227 Var Various Kocaeli Sollers JV TR RU H2 10 H1 12 2010 112,093 0 84,847 0 54,063 0 75,588 0102,000 097,000 15,000 84,000 45,000 0 60,000 0 72,000 0 74,500 Ford Ford Transit Connect Comm. Van V227 Craiova RO H2 09 0 0 300 9,558 7,547 0 0 0 0 0 FordFord Ford Ford Transit Connect Fiesta Comm. Van Comm V408 Valencia SP H1 12 0 0 0 0 0 0 15,000 99,000 125,000 109,000 Ford Ford Transit Comm. Van V347/8 Southampton UK H2 06 2011‐2012 75,662 66,215 20,981 28,270 28,170 25,000 0 0 0 0 Ford Ford Transit Comm. Van V347/8 Kocaeli TR H2 06 2011‐2012 2012 162,829 178,051 119,671 175,610 185,000 35,000 0 0 0 0 Ford Ford 2nd LCV for Turkey Comm Van B460 Kocaeli TR H2 13 tbc 0 0 0 0 0 0 0 65,000 90,000 101,000 Ford Ford Transit. Van V362/3 Comm Southampton UK H1 12 0 0 0 0 0 5,000 28,000 26,500 24,750 23,500 Ford Ford Transit Comm. Van V362/3 Kocaeli TR H1 13 0 0 0 0 0 126,000 195,000 201,500 200,000 197,500 Ford Ford Total 1,920,173 1,842,089 1,470,319 1,557,907 1,551,524 1,418,500 1,480,000 1,604,000 1,774,250 1,814,500 Ford Volvo C30 Pass. C Y279 Ghent BE H1 07 2012+ 61,284 37,722 31,061 23,420 All production from August 2010 counted in Geely Ford Volvo XC30 Pass C‐SUV Y556 Ghent BE H2 12 2012 0 0 0 0 All production from August 2010 counted in Geely Ford Volvo S30 Pass. C Y555 Ghent BE H1 12 2012 0 0 0 0 All production from August 2010 counted in Geely Ford Volvo S40 Pass. C Y276 Ghent BE Q3 04 H2 10 2011+ 55,000 40,579 27,424 14,974 All production from August 2010 counted in Geely Geely Ford Volvo V50Ford Volvo Pass. C V60 Y280 Ghent Pass CBE Y283 Q3 04 H2 10 Gothenburg 2011+ SE 60,500 H1 11 61,090 52,093 0 35,942 All 0production from August 0 2010 counted in 0 All production from August 2010 counted in Geely Ford Volvo S60 Pass. D P24 Ghent BE Q1 00 H2 07 2010+ 37,576 25,461 6,345 0 All production from August 2010 counted in Geely Ford Volvo S60 Pass. D CD3XX/ Y283 Ghent BE H2 10 0 0 0 2,885 All production from August 2010 counted in Geely Ford Volvo V70 Pass. D P26/ Y285 Ghent BE Q2 00 Q2 07 2007 37,000 0 0 0 All production from August 2010 counted in Geely Ford Volvo V70Ford Pass. D Volvo CD3XX/ P2X V70 Gothenburg SE Pass. Q2 07 D P26/ Y285 2014 Gothenburg 30,000 SE 56,003 Q2 00 Q2 07 42,889 2007 26,566 7,877All production from August 0 2010 counted in 0 Geely 0 All production from August 2010 counted in Geely Ford Volvo S80 Pass. E P3X/Y286 Gothenburg SE Q2 06 2013‐14 61,056 29,022 16,858 10,920 All production from August 2010 counted in Geely Ford Volvo V90 Pass. E P3X Gothenburg SE 2013 tbc 0 0 0 0 All production from August 2010 counted in Geely Ford Volvo XC60 Pass. D‐SUV P1/Y359 Ghent BE Q1 08 0 14,682 66,655 46,837 All production from August 2010 counted in Geely Ford Volvo XC70 Pass. SUV est. P26 Gothenburg SE Q3 00 Q2 07 200707 18,522 0 20,000 0 31,046 0 All 14,578 production from August 12,761 2010 counted All production in Geely from August 2010 counted in Geely Ford VolvoFord XC70 Volvo XC90 Pass. SUV est. CD3XX/ P2X Pass. Gothenburg SUV P28 SE Q3 Gothenburg SE Q2 02 2011FL 79,611 48,336 27,955 21,323 All production from August 2010 counted in Geely Ford Volvo C70 CC Pass. Sports Y281 Uddevalla SE Q3 05 2012+ 20,330 12,807 8,250 6,751 All production from August 2010 counted in Geely Ford Volvo Total 488,756 356,748 294,108 202,379 0 0 0 0 0 0 Ford Jaguar X type Pass. D X400/ CD132 Halewood UK Q1 01 H2 09+ 2009+ 20,153 0 0 0 0 0 0 0 0 0 Ford Jaguar S type Pass. E X200/ DEW98 Castle Bromwich UK H2 99 2008 11,042 0 0 0 0 0 0 0 0 0 Ford Jaguar XF Pass. E X250 Castle Bromwich UK H1 08 1,436 0 0 0 0 0 0 0 0 0 2010 major Ford JaguarXK8 XJ / XJR Pass. Sports X150 Pass. F Castle X350/ Bromwich DEW98 CastleUK Bromwich H1 06 UK H2 02 11,233 09,948 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Ford Jaguar Total From 2008 counted as Tata ‐ JLR 53,812FL 0 0 0 0 0 0 0 0 0 Ford Land RoverFord Freelander Jaguar XK / Pass. SUV P1/L359 Halewood UK Mid 2006 76,258 0 0 0 0 0 0 0 0 0 Ford Land Rover New Discovery Pass. SUV L319 (T5) Solihull UK Q2 04 2010 FL 43,919 0 0 0 0 0 0 0 0 0 Ford Land Rover Range Rover Sport Pass. SUV L321 Solihull UK Q2 05 2005 61,021 0 0 0 0 0 0 0 0 0 Ford Land Rover Range Rover Pass. SUV L322 Solihull UK H2 01 2012 30,057 0 0 0 0 0 0 0 0 0 Ford Land Rover Defender Pass. SUV Solihull UK 2011 21,293 0 0 0 0 0 0 0 0 0 Ford Land Rover Total From 2008 counted as Tata ‐ JLR 232,548 0 0 0 0 0 0 0 0 0 Ford Mazda Mazda 2Pass.BB256 / J37 Valencia SP H1 07 14,235 0 0 0 0 Ford Mazda Total 14,235 0 0 0 0 0 0 0 0 0 Ford ALL Total 2,709,524 2,198,837 1,764,427 1,760,286 1,551,524 1,418,500 1,480,000 1,604,000 1,774,250 1,814,500 EUROPEAN CAR AND LCV PRODUCTION OUTLOOK REPORT September 2012 | Page 82

GM through which it can sell output from the factory – ie exports beyond Europe. As part of its long term commitment to production in Luton, GM confirmed that it would Key recent developments: 2011 saw the reorganisation of GM Europe all but invest c€130mn in the Luton plant on manufacturing equipment and a further completed. Or that at least was thought to be the case – however, the downturn in €50mn in tooling with suppliers. the European market and general economic uncertainty has led to GM reconsidering what to do with its European operations which are still losing money. In Germany, GM reached agreement with the unions at the Bochum plant While GM’s European management comes up with a new plan for another regarding the final round of job losses at this plant. The end of transmissions restructuring, GM has established an alliance with PSA, involving GM taking a production at Bochum has actually been delayed until late 2013; this is because shareholding in PSA and the two companies setting up shared purchasing and the Bochum factory will continue to make transmissions for export to Brazil by model development programmes. This is discussed in more detail below. when a new transmissions factory will be in operation there. To counter the reduction in capacity and job cuts at Bochum, around €175m was committed to Poor Q1/2012 financials in Europe produce the new large Zafira MPV, called Zafira Tourer; production of the existing GM reported a fall in net profit for the group of 69% in Q1, due largely to write-offs model will continue in the medium term alongside the new model. in Europe. Profits had actually been boosted by the sale of some parts of Delphi The decision to stop production at Bochum will not be a cost-free one, with various and the finance arm, Ally. The North American operations reported a rise in EBIT reports suggesting total closure costs in the region of €1bn, at least half of which to US$1.7bn, up by US$400mn) while in Europe there was a loss of US$256mn. would be cash costs to GM. The remainder would be shared between GM and the Q2 did not show any improvement German government (the latter through reduced tax receipts and increased social welfare payments). When the H1 results were announced, the Q2 figures showed a loss of $361mn; put another way, the Q2 loss was a reversal of $463mn from the Q2/11 profit of And more reorganisation follows on the back of further losses … $102mn. Moreover, GM Europe’s Q2 revenue fell by 21% to just under $5.9bn, However, the return to losses in Europe has forced GM into further reorganisation with unit sales down from 488,000 to 454,000 – although Chevrolet had seen sales of its European production operations – with the very possibility that further change rise slightly. is possible. GM has confirmed it will stop production in Bochum from 2016, For the half-year as a whole, revenue was down from $14.3bn to $11.4bn, with unit although it has not confirmed where the next Zafira will be made after this date; we sales also down from 922,000 to 852,000. The total H2 loss of $617mn compared had thought that Russelsheim would be the most likely place. However, as noted to a profit in H2/11 of $107mn. below, we now suspect Zafira-sized vehicles will be made by PSA and larger PSA models will be made by GM; this has not been confirmed but press reports and 2011 had seen major steps in European reorganisation industry insiders suggest this is the most likely and indeed logical scenario. It had been thought the final pieces in the jigsaw process of reorganising GM While production arrangements for the Zafira are uncertain, GM has confirmed the Europe had been successfully completed last year with confirmation of reduced production of the next Astra will take place only in the UK and Poland. capacity and employment at Bochum and the saving of the Luton van plant which will make the new Vivaro van from January 2014. In the long term, we expect GM Much remains to be done … will become rather more aggressive in the LCV market, both in Europe and in Despite the extensive restructuring of GM’s European operations which has terms of exports beyond its core European markets. already taken place, the financial position of these operations is still far from ideal; The Luton plant will not produce Renault versions of the new van, despite the H1 losses have been noted above and the “optimism” of German press reports in vehicle being co-developed with Renault, so GM needs to find other channels December 2011 which suggested that Opel was expecting its operating profit in

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2012 to be around €1bn lower than expected in the restructuring plan which it had US GM VP Steve Girsky who is thought to be a tougher act and not afraid to apply been implementing may well be misplaced; if the loss in Q1 continues in US corporate principles of slashing capacity to Europe. Stracke is now taking on subsequent quarters, GM Europe will almost certainly see 2012 losses even special assignments for GM Chairman, Dan Akerson, although what those special greater than those which it experienced last year. assignments are is not known. GM’s full year European loss was US$747mn in 2011, with US$562mn lost in Q4 The JV with PSA alone. Faced with these losses, plant closures or bringing in new models to boost And while GM Europe management was settling down to develop a new strategy, capacity utilisation – or even a combination of the two – have to be considered. featuring yet more cost cutting, and possibility further reductions in capacity, most The idea of GM producing Chevrolet models in Opel plants has been suggested on probably involving plant closures, the deal with PSA was announced. a number of occasions in the recent past – nothing however has been confirmed although there is no doubt that GM Europe is actively investigating this idea. The key elements of the PSA deal are as follows: New business plan approved  GM will pay €304mn for a stake of 7% in the enlarged capital base of PSA (the Peugeot family have seen their stake in the company fall from 30.3% to 25.5%, The announcement of the closure of Bochum was accompanied by the approval of although they still have a voting share of just under 38%. It is worth noting a new business plan for Opel through to 2016. This includes: that in August GM confirmed that it had already recorded a book loss of  23 new models being launched (including numerous derivatives and variants $160mn on its stake in PSA, PSA’s stock value having fallen significantly on main nameplates, plus 13 new powertrains, including 3 new engine in recent months. families; new models include the Mokka SUV, Adam premium small car and a  Shared platforms will be developed in the B and D segments initially, with the new cabrio – all of which were already well-known and had been factored into possibility that these arrangements could be replicated in other segments. If the Production Outlook. production of the next Zafira moves to PSA, as seems likely, this would  New sales strategies, although little detail has yet been revealed on these. suggest that a shared C segment platform is likely to be introduced more  A new brand strategy which will be focused on existing and potentially quickly than a shared B segment platform. attainable customers, and which is designed to result in a much more precise  Shared purchasing, which will see around US$125bn of annual spending brand definition. shared, while the two companies look to save at least $2bn annually in  Clear plans to cut costs in materials, production and development, especially materials, logistics and engineering savings. through leveraging the global GM organisation and the synergies with PSA.  In the logistics area, GEFCO (PSA’s in-house logistics arm which is actually  A coordinated export strategy especially focused on China, Russia and being partly sold off) will take over much of the GM Europe logistics. Turkey; the immediate aim is to sell 20,000 Opels in China. The initial focus of these shared arrangements will be in Europe where PSA is  The exclusion of compulsory workforce reductions before 2016. expected to lead the development of the next B segment platform for both companies. If a shared platform can be successfully developed here, the potential  The implementation of the proposed 2012 wage increase. economies of scale are vast with the possibility for the two companies to have a Stracke moves on … shared platform of over 2mn units pa. The B segment platform sharing plan could also include a low cost version for emerging markets. Straight after the ink had dried on the statement that Bochum would close and the 2012-16 business plan had been approved, Karl-Friedrich Stracke stepped down Similarly in the D segment where GM, especially in the US, is much stronger, total as chief of Opel – he is being replaced as interim Head of European Operations by combined volumes of around 1.6mn units pa are expected. This would give PSA

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access to a platform of much bigger scale than it currently has for its rather called the risk of at least one GM Europe closure as real; whether any more plant marginal models in this segment, the success of the current Peugeot 508 closures are on the cards is not known. Some analysts have even suggested GM notwithstanding. might decide to close its Spanish plant, although given the investment there to make the Meriva and Corsa, it may be questionable whether savings achieved The practical implications of this alliance are still not fully clear, especially in terms through moving production of the Corsa and Meriva would be significant or of manufacturing and product development as it will take a number of years for any sufficient to be deemed worthwhile in the long run. apparent benefits to be realised. The unions on both sides of the alliance have expressed concern as to what this could mean in terms of potential plant closures. We believe that for GM to find a way of avoiding a plant closure or two, it will have A senior PSA executive has, however, recently said that there are no plans at the to find additional products to push through its European factories; for this to present time for PSA and Opel to share production facilities and produce cars for happen, the most likely solution would be for Chevrolet models to be made here, each other in Europe. rather than in Korea. We have included this possibility in our Production Outlook – which is also predicated on the assumption for now that no Last time we noted that any production sharing for these programmes will be European GM plants will close. unlikely until some time after any of the GM or PSA plants which are now due to close have actually closed. That is still possible, but equally likely is Manufacturing news: the possibly of production sharing arrangements being brought forward. The The key news since our last report is two-fold: possibilities in this regard are noted below in the section on Manufacturing.  Bochum will close sometime after 2016, although quite probably during 2016. GM has a somewhat chequered history of alliances in Europe, its earlier purchasing, platform and engine production alliance with Fiat having lasted just a  Ellesmere Port will be retained and will be the lead plant for the new Astra; the few years. Some analysts expressed their scepticism with regard to the PSA to second plant for the Astra will be Gliwice in Poland. GM’s Stracke at the Geneva motor – “wait and see, it’s too early to give details” These key news items emerged just as GM Europe was settling down following an seemed to the holding answer at this point. And waiting is what we will have to do extensive reorganisation in 2010-11; the key elements of that reorganisation were: in the short term, recognising that another plant closure to add to the closure of the  The closure of the Antwerp plant. Antwerp factory last year and the announcement that Bochum will stop production  The concentration of Astra production in Ellesmere Port and Gliwice, with remains a very real possibility. additional “flex” production for Astra at Russelsheim. Gliwice will also make Which GM plants might close? the new Cascada cabrio and has started making the Astra GTC coupe. “Flex” production of the Astra had started at Russelsheim in August 2011; the five- Press reports on which GM factories could close are many and varied. The door Astra is made on the same line as the larger Insignia. Flex production of “consensus” back in March and April was that Bochum and quite possibly the Astra at Russelsheim will be a short-lived phenomenon: in our Production Ellesmere Port would close, although some reports have suggested that even Outlook, we include it through to 2016, but given the overall decline in GM Russelsheim was under consideration for closure – the idea of Opel closing its production in Europe, this arrangement is likely to come an end rather sooner. “home” plant has always seemed somewhat unlikely in our view. However, there is no doubt that a range of possibilities are being considered as GM Europe works  The concentration of Zafira production in Bochum and the reduction in scale of out a new plan to bring down the break-even point of its European operations to a the Bochum factory. It is not year clear whether the market’s demand for this more manageable level. model will actually be met from, although we now expect this will be made in France at a PSA factory. Having announced the intention to close Bochum and having retained Ellesmere Port, the question is what is next for GM and possible closures. We had previously

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 The addition of a new model, originally referred to as Junior (but now Away from vehicle production, GM has been reorganising its engine production in confirmed as due to be called Adam), at Eisenach; this small car has been recent years – central to this is the new expansion at GM’s Hungarian plant at designed to operate at the upper end of this segment and is specifically Szentgotthard which will be the centre of production for a new family of two intended to help move the Opel/Vauxhall brand up market, against premium gasoline and one diesel engine (a second diesel engine for GM will continue to be small cars such as Mini and pseudo-premium models like the Citroen DS3. sourced, as now from Fiat). Over €90mn will be invested in Eisenach to make this new model which is due In the transmissions area, PSA and GM are currently in the midst of evaluating to include a full electric version, although the press reports in late 2011 whose DCT technology to use across both companies’ model lines – again, a suggested that cost cutting at Opel could see this programme scrapped. It is decision here is expected in H2. important to emphasise that this new model will not be the replacement for the Agila – an Agila replacement will also arrive, probably made outside Europe at Shared production possibilities a GM Daewoo facility. The idea of sharing production facilities between PSA and GM Europe has been  In Spain, production of the Combo van has finished; in its place, Opel will mentioned several times in the wake of the companies’ JV: industry insiders now source a version of the Fiat Doblo from the Tofas JV in Turkey in a seven year think it is highly likely that the Citroen DS5/C5 and Peugeot 508 will move to a deal for 250,000 units starting in late 2011. shared platform with the (itself shared with other GM models) and  Retaining the Luton van plant, with the new Vivaro being produced from production of the PSA models will move to Russelsheim. This could be as early as January 2014. The high roof version of the Vivaro will be made by Renault 2016, depending on the final decisions regarding the run-out of the PSA models; because the Luton plant cannot handle high roof variants. the 508 is likely to continue beyond 2016 given its relative youth, but the C5 would be an obvious candidate for an early switch to GM production. GM watchers have also been expecting news of production arrangements for the Ampera range extender vehicle to be announced by now; however, given the new Were this to happen, we feel sure the companies would need to agree something round of restructuring that is under way, a decision on the Ampera’s production’s in the opposite direction, with the most likely move seeing the next Zafira made by location in Europe has almost certainly been delayed until once GM has decided PSA. on its overall strategy for European production. Although we have not been GM in Russia: GM will increase capacity at its own plant in St Petersburg to given any specific guidance by GM on this matter, we now think that Ampera 230,000 upa, with production at the JV with AvtoVAZ rising to 120,000 vehicles per production is unlikely to come to the UK within the period covered by the year. Together these will give GM the 350,000 upa it requires under Decree 166 Outlook, and possibly not at all. We think it is more likely that Ampera will which provides numerous financial benefits for producing at this volume. Reports continue to be made in North America, to keep the Hamtramck plant in in January 2012 suggested that GM was actually planning to raise production in Detroit fully operational and if production came to Europe, then it would Russia to over 500,000 – this would presumably have to include either further move to Germany, partly as a payback for the closure of Bochum. expansion at St Petersburg or expanding the kit assembly deal with GM has with One possibility almost certainly being considered is changing arrangements for the Avtotor. production of the next Astra: the 3-door GTC is now built in Poland, but next time The wholly-owned GM St Petersburg plant will make Chevrolet and Opel models this could switch to the UK and the UK-built Tourer (estate) could be made in for the local market, while the AvtoVAZ JV will focus on new versions of the Niva Poland – the UK is the biggest market for the GTC model and most Tourers are and Lada 4x4. Local content will be around 60%, and locally sourced engines and exported. Moreover, the latest GTC has almost no commonality in body parts with transmissions will be fitted to 30% of GM vehicles made in Russia. In return, the other Astras made in Poland so moving it to the UK would not reduce customs duties on imported components will be reduces to between zero and 3% production efficiencies. for eight years.

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New models: a major new model programme is under way, summarised in the table below:

2012 2013 2014 2015 2016 Mokka (Corsa) SUV, from Adam (new small car, New Vivaro van at Luton Electric Adam (could yet be Zafira facelift Korea previously known as Junior) New Corsa, based on new cancelled) New Meriva High performance OPC/VXR Astra coupe, Astra cabrio Korean platform; new Antara New Astra New Insignia Astra Imported Antara and Agila replacements

The Production Outlook which follows shows European production, excluding Russia, falling this year to below 1mn and in all likelihood also falling for the next two years – from nearly 1.235mn units in 2010, to 1.191mn units in 201 and just below the 1mn mark this year. This decline will continue for two more years, but in 201516, we think new models and general economic recovery well lead to a recovery to over 1.1mn units. This will reflect the new Corsa, Astra and Meriva having come on stream from late 2014 onwards, the new Astra in 2015 and the expectation that some PSA models will be made by Opel in Germany. By contrast with the current decline in its traditional European markets, GM’s sales in Russia are rising strongly – from around 130,000 in 2010 to an anticipated total of just under 0.5mn units by the second half of the decade – without Russia, GM’s position in Europe would be parlous; in this light the alliance with PSA does make some sense but getting real, quantifiable and sustainable benefits from the alliance will prove to be a very big challenge indeed. 2012 production also factors in recent decisions to cut as many as 20 production days in the last four months of the year at Russelsheim and the Kaiserslautern engine plant – effectively this is a 20% cut in production for the rest of the year. The German government is expected to help with the costs of this through its Kurzarbeit (short time working) scheme, under which it effectively subsidises some of the labour costs at companies on short time working. In the UK, Ellesmere Port and Luton will also see at least a one week production stoppage although no financial support from the government exists here. Please note there are some cells in the Production table highlighted in yellow; these reflect some minor changes to historic numbers in Poland and to the split of production between Antwerp and Bochum. These changes do not affect the overall picture but have been highlighted here for convenience. In addition, production of the Astra in Ellesmere Port and Russelsheim from 2014/5 and the Ampera from 2016 has been highlighted to reflect the provisional nature of these numbers.

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GM Production Outlook to 2016

Vehicle Country Start Segment Prod'n Prod'n End Next new Production Production Production Production Production

Series (platform) Group Marque Model range Plant of 2007 Production 2008 Production 2009 Production 2010 Production 2011 Production type of model Outlook 2012 Outlook 2013 Outlook 2014 Outlook 2015 Outlook 2016

GM Pass. A 302 Gliwice PL Q1 00 Q4 07 2008 13,116 0 0 0 0 0 0 0 0 0 GM Pass. A Corsa Eisenach DE 2012‐2013 0 0 0 0 0 8,000 80,000 90,000 83,000 77,500 GM Comm.Van S4300 Zaragoza SP Q4 00 TBC 2010+ 61,416 57,006 29,914 37,068 27,941 0 0 0 0 0 GM Opel Combo Comm Van S4400 Zaragoza SP H2 12 0 0 0 0 0 0 0 0 0 0 GM Pass. B Shared with Punto Zaragoza SP Q2 06 2014 283,605 264,250 227,048 222,617 216,084 201,000 185,000 223,000 262,000 281,500

GM Opel Corsa Pass. B Shared with Punto Eisenach DE Q3 06 2014 181,684 156,970 133,026 139,185 129,958 114,500 65,000 49,500 73,500 77,000 GM Pass. B‐MPV S4316 Zaragoza SP Q3 03 Q4 06 2006 141,359 101,936 82,708 30,846 0 0 0 0 0 0 GM Opel Meriva Pass. B‐MPV S4470 Zaragoza SP H1 07 2010 0 0 0 89,614 121,394 90,000 84,500 74,500 63,000 54,500 GM Pass. Sports S4300 Cerizay (Heuliez) FR Q3 04 2004 11,770 8,840 3,218 0 0 0 0 0 0 0 GM Opel Astra Pass. C T3300 Antwerp BE H2 04 219,194 165,505 124,180 75,120 0 0 0 0 0 0 GM Opel Astra Pass. C T3300 Bochum DE H2 04 124,406 102,696 76,599 45,700 44,379 17,500 0 0 0 0 GM Opel Astra 2010 Pass. C T3400 Russelsheim DE H2 10 0 0 0 0 18,345 35,000 29,000 20,000 12,500 5,000 GM Opel Astra (incl. van) Pass. C T3300 Ellesmere Port UK H2 04 2010 127,954 111,730 71,005 4,633 3,903 2,500 0 0 0 0 T3400/new from GM Opel Astra 2010 Pass. C Ellesmere Port UK H2 10 0 0 8,539 102,655 137,971 107,500 97,500 90,000 150,000 165,000 2015 GM Opel Astra Pass. C T3000 Gliwice PL Q3 04 37,064 29,806 8,454 0 0 0 0 0 0 0 GM Opel Astra Pass. C T3300 Gliwice PL Q2 07 14,714 33,329 13,013 18,432 21,134 14,500 2,500 0 0 0 GM Opel Astra 2010 incl. new GTC Pass. C T3400 Gliwice PL H2 10 0 0 10,860 120,796 152,881 116,500 107,000 91,500 169,000 189,000 GM Pass. C T3400 Gliwice PL H2 12 0 0 0 0 0 1,000 19,000 30,000 32,000 29,000 GM Opel Astra coupe cabrio Pass. Sports T3300 Antwerp BE Q2 06 26,763 17,958 4,369 4,093 0 0 0 0 0 0 GM Pass. C‐MPV T3300 Bochum DE Q3 05 2011 67,474 43,875 26,020 74,432 74,371 45,000 29,500 12,000 0 0 GM Opel Zafira Pass. C‐MPV T3300 Gliwice PL Q3 05 122,371 108,509 64,072 19,504 0 0 0 0 0 0 GM Opel New Zafira Pass. C‐MPV T3470 Bochum DE H 1 11 0 0 0 0 12,577 73,500 88,000 74,500 64,250 45,000 GM Pass. D J3200 Rüsselsheim DE Q3 00 Q4 07 2008 116,584 93,942 0 0 0 0 0 0 0 0 Insignia, incl. Buick Regal until GM Opel Pass. D Epsilon 2 ‐ J3700 Rüsselsheim DE H1 08 2015 0 21,918 146,916 177,532 162,410 115,000 102,500 98,000 129,000 135,000 Q3/2011 GM PSA C5/DS5 and 508 replacements Pass D Next Insignia Russelsheim DE H2 15 2015 0 0 0 0 0 0 0 0 15,000 45,000 GM Pass. E J3200 Rüsselsheim DE Q1 02 2009+ 9,358 4,163 0 0 0 0 0 0 0 0 GM Opel Vivaro Comm.Van X83 Luton IBC UK H2 06 2006 FL 65,542 60,420 26,413 37,851 53,078 39,500 34,500 0 0 0 GM Renault/ Nissan Trafic/ Primastar Comm.Van X83 Luton IBC UK H2 06 2006 FL 29,426 26,828 27,772 34,705 15,001 18,500 9,000 0 0 0 GM Opel New Vivaro Comm.Van TBC Luton IBC UK H2 13 To be confirmed 0 0 0 0 0 0 0 45,000 68,000 62,500 GM Opel Total 1,653,800 1,409,681 1,084,126 1,234,783 1,191,427 999,500 933,000 898,000 1,121,250 1,166,000 GM Chevrolet Aveo / Kalos / Lanos / Matiz Pass. A/B Daewoo small Warsaw (FSO) PL Late 06 72,578 90,428 30,949 44,782 4,883 000 0 0 GM Chevrolet/ Opel Captiva/ Antara/ Cruze and others Pass. Various Various Shushary, St Petersburg RU H2 07 5,688 41,159 6,831 23,641 39,000 98,000 115,000 145,000 165,000 189,000 GM Chevrolet Various Korean models Pass Various Various Uncertain, prob. Ger DE H2 09 0 0 0 0 0 0 0 10,000 30,000 45,000 GM Chevrolet Various Korean models Pass Various Various AvtoTor RU 0 0 0 56,010 126,000 94,500 90,000 85,000 81,000 78,500 GM Opel Corsa/Astra/Zafira etc Pass Various Various AvtoTor RU 0 0 2,460 21,893 34,727 59,000 62,000 65,000 60,000 58,000 GM Various Incl Niva 4x4 and variants Pass. Various TBA AvtoVAZ RU H1 12 0 0 0 0 0 50,000 62,000 75,000 95,000 105,000 GM Excludes kits assembled by various Russian and Uzbek assemblers, incl kits of Opel Corsa/Astra/Zafira pre 2010 78,266 131,587 40,240 146,326 204,610 301,500 329,000 380,000 431,000 475,500 GM Saab 9‐3 Pass. D J2900/ P440 Trollhattan SE Q3 08 2010? 77,598 59,847 12,378 1,112 All production from March 2010 counted in Saab‐Spyker GM Saab 9‐3 cabrio Pass. Sports P442 Graz (Magna) AU 2011? 16,997 11,047 5,057 2 All production from March 2010 counted in Saab‐Spyker GM Saab 9‐5 Pass. E J2900/ P640/641 Trollhattan SE Q4 08 2010? 22,545 14,391 3,250 368 All production from March 2010 counted in Saab‐Spyker GM Cadillac BLS Pass. E Trollhattan SE Q2 06 2,772 1,195 0 0 0 0 0 GM Saab/Cadillac Total 119,912 86,480 20,685 1,482 0 0 0 0 0 0 GM ALL Total 1,851,978 1,627,748 1,145,051 1,382,591 1,396,037 1,301,000 1,262,000 1,278,000 1,552,250 1,641,500

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Honda this year; falling demand and the short-time working referred to above mean that this is unlikely to be achieved. In addition, a new small diesel engine is due to go Key recent developments: just as this report was being finalised, Honda into production in 2012 which will is expected to boost demand for both the Civic announced the start of production of the new CR-V at Swindon which is at and the Jazz. the heart of a £267mn investment programme in new models and engines. The fruits of this investment were seen with first with the new Civic late last In addition, Honda’s European president told the press in February that it expected tear and will be completed with the start of production of a new 1.6 litre its European operations to move into profit in 2013-14, by when it also expects to diesel engine for the Civic in December this year. be sourcing around 80% of its sales in Europe from its Swindon facility – for this to happen, based on Honda's recent sales volumes in Europe, production at Swindon Honda’s aim is to make 183,000 cars in the UK this year and increase this to would need to be around 240,000 upa – and for this to happen, either sales of 250,000 pa over the next three years – we remain a little sceptical about this the CRV and Civic have to be much higher than in recent years, or the Jazz would involve Honda exceeding its last production peak back in 2007. We will be retained as the third model made at Swindon, possibly with an think it will get close to this target but were another model definitely to be additional body-style to boost market appeal. Our understanding is that Jazz added to the production line-up in Swindon then this target – and more – production will continue in Swindon for the foreseeable future. There has would be eminently achievable. been some industry talk of a mini-SUV/cross-over model based on the new Countering this ambition, the other significant news regarding Honda in Jazz which would be made at Swindon alongside the base model. Honda Europe since our last report came at the end of July when the company has not commented on this possibility yet. announced it would scale back production in the UK owing to falling In a recent interview, Ken Keir, EVP of Honda Europe, suggested that further demand; this will involve the workforce on the Civic and Jazz assembly line expansion of capacity at Swindon was possible, from 250,000 to 280,000 upa – working a four day week in September and a three day week in October, but was ambiguous on whether this would be for a new model or simply to allow followed by a four-day week for the rest of year. This decision has been increased production of existing models, especially the CRV. Our projections for taken in view of the declining European market and to avoid excessive stock Honda in Turkey are on the low side, but we think it is probable that Honda will build-up, something which affected Honda badly in the last recession. look to raise output at its factory there and take advantage of the low-cost That news aside, 2012 had been shaping up to be a better year for Honda than production arrangements there. 2011 which was not a particularly good year for Honda in Europe – its manufacturing operations were disrupted twice, first by the earthquake and tsunami damage in Japan, and latterly by the floods in Thailand. The floods cut supplies of crucial electronics parts for Swindon. Honda makes many of its key electronics parts itself in Thailand and it had to put its UK factory onto a three-day week in November and the first part of December last year. Normal production was resumed just before Christmas 2012 and this allowed production of the new Civic both in the UK and Turkey to begin in earnest. Indeed in late 2011, Honda announced that full scale production of the new Civic had started and an additional 500 jobs were being created at Swindon to support increased production in 2012. Honda had been expecting UK production in the UK to be c180,000 units in 2012, with both the new Civic and new CRV in production

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New models: the new models we expect to be made in Europe are shown below: 2011 2012 2013 2014 New Civic starts production New CRV starts production New Jazz Possible Jazz cross-over (TBC) Honda Production Outlook to 2016 Vehicle Country Start Segment Prod'n Next new Production Production Production Production Production

Group Marque Model range Series (platform) Plant 2007 Production 2008 Production 2009 Production 2010 Production 2011 Production type of model Outlook 2012 Outlook 2013 Outlook 2014 Outlook 2015 Outlook 2016

Honda Honda Civic Pass. C DX Swindon UK Q1 06 2011‐12 139,685 110,293 47,234 45,185 26,215 0 0 0 0 0 Honda Honda Civic Pass. C New Swindon UK Q4 11 0 0 80,000 85,500 91,500 88,000 86,500 Honda Honda Civic Pass. C CX Kocaeli TR Q2 06 2012 19,725 46,083 18,264 20,305 12,341 26,000 30,000 31,000 29,500 28,000 Honda Honda Fit/City Pass. B Fit Kocaeli TR Q4 05 5,938 3,990 0 0 0 0 0 0 0 0 Honda Honda Jazz Pass. B AZ Swindon UK Q4 09 2013/4 0 0 8,912 33,398 23,273 22,250 45,000 58,000 65,000 69,000 Honda Honda CRV Pass. SUV WL Swindon UK Q2 07 2012‐2013 98,087 120,150 19,437 51,215 47,971 43,500 0 0 0 0 Honda Honda CRV Pass. SUV New Swindon UK Q3 2012 0 0 0 0 0 37,500 75,000 76,500 72,250 69,000 Honda Honda Civic/CRV Pass. C/C‐SUV TBC New Russian plant RU H2 13 0 0 0 0 0 0 15,500 30,250 38,500 40,250 Honda Honda Total 263,435 280,516 93,847 150,103 109,800 209,250 251,000 287,250 293,250 292,750

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Hyundai-Kia Hyundai continued with good results in Q2/H1; the H1 results produced a 9.9% revenue rise, with operating and net income increasing by 21% and 19.5% Key recent developments: respectively. Since our last report, Kia has started production of the new estate/wagon version New Kia cee’d production launched of the cee’d, while Hyundai has also added production of the i30 estate model. Kia Slovakia has started production of the new cee’d; production started in April Hyundai and Kia continue to grow from strength to strength in Europe; and indeed with the 5-door model. Production of the estate version began in August and is both are doing very well globally. Having reported strong profit growth at both expected to account for 20% of total production; the 3-door will be produced in brands during 2011, the group has confirmed it will increase its investment during Slovakia from early 2013. The factory had already moved to a three-shift 2012 to record levels. Hyundai reported a rise in net profit in 2011 of 35%, while production system in January 2012 and will soon reach its 300,000 upa capacity. Kia reported its operating profit was up 42% for 2011. In addition to the new cee’d starting production in Slovakia, the Slovakian factory This strong performance continued at the start of 2012, with a year-to-date rise in has also started production of a new diesel engine for the Sportage SUV – this volumes at Hyundai of over 15% and a year-on-year rise for the month of over engine began life with imported components, from Korea, but from mid-2012, it will 28%. Indicating its continued strong performance, Hyundai is increasing its full move to full European components supply; including the main castings which time workforce, moving 3,000 of its sub-contract workers into the position of full- currently come from Korea; by mid-year Slovakian plant will undertake the time workers machining of locally-sourced castings. Kia reported similarly strong rises, with a y-o-y rise of 35% and a year-to-date rise Major developments in 2011 of over 14%. The good prospects for both Hyundai and Kia were confirmed when Moody’s announced it was raising its rating on both Hyundai and Kia from stable to In this regard, 2011 was an important year for both Hyundai and Kia in Europe, positive. Moody’s drew attention to the improvement in the group’s financial profile with several important developments, ie: as a result of strong and rising sales and a conservative expansion policy which is  The start of the third shift at Hyundai Nosovice in mid-September, seen as not having led to excess capacity being installed. increasing production capacity to 300,000 upa – which it should get close to Strong financials in Q1 and Q2 using in the next few years.  Also at Nosovice, construction of a new gearbox plant began, with series Following their strong performances in 2011, both Hyundai and Kia reported good production in 2012, helping to raise vehicle output at its Czech factory from starts to 2012: 200,000 to 300,000 units per year; gearbox production itself will rise to 0.5m  Hyundai saw sales rise by 17% in Q1, with sales outside Korea rising by 22%. units. Most of the gearbox production is destined for the Hyundai assembly  Q1 gross and pre-tax profits rose by 11.6% and 22.4% respectively. plant on the same site and the nearby Kia plant in Slovakia; however, around 10% of output is for the growing Hyundai plant in Russia.  Kia saw global sales up 12.4% in Q1; strongest growth was in North America, where Q1 sales rose by nearly 32% and Europe where they rose by nearly  Changing the production arrangements between Kia at Zilina and 25%; China saw a rise of nearly 15%. Hyundai in Nosovice to balance output better between the two plants. Production of the Kia Venga moved from the Hyundai factory to the Kia plant Kia saw its pre-tax and net profits rise by 23.4% and 26% respectively, with  and in reverse the moved from the Kia plant to the Hyundai plant. the pre-tax result boosted by the gain on selling a stake in Hyundai-Wia, the This switch, which required Kia to spend €40mn to modify the assembly line at in-house supplier of transmissions, transfer case and related parts.

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Zilina, was effective from October. Zilina is also moving to 3-shift operation at  In addition, Hyundai’s presence in Europe has been reinforced by the the present time. increasing role played by its R&D centre in Germany which is responsible for  Completing the expansion of Kia engine production facility, increasing the engineering and develop of the U family of small turbo diesel engines and employment to 4,000 across the engine and vehicle assembly operations; a new direct injection turbo petrol engine. once fully up and running, the expanded plant will be able to make 450,000 engines per year, a 50% increase on the current level of 300,000 units.  Full scale production starting at St Petersburg in Russia: The first model off the line was the Solaris salon. Initially, production in 2011 was due to be around 105,000 units, although the decision to add the Kia Rio to this plant boosted 2011 production. Production of the Rio should be around 100,000 in 2012.  Capacity in Russia started at 150,000 upa, but has since been raised to 200,000; indeed the potential exists for this to be raised to 300,000 upa. Exports to former CIS markets, ie Ukraine, Azerbaijan, Kazakhstan, Belarus, Uzbekistan, Moldova and Armenia started in late 2011. As with Nosovice, the Russian plant moved to three shifts at the end of 2011.  Agreement in Turkey with commercial vehicle builder, Karsan: This will lead to a new range of Hyundai vans, trucks and minibuses being built at the Karsan plant, rather than at the Hyundai Assan factory which will focus on cars and small MPVs. To date no specific details on the volumes and timing for van production have been released.  We also understand that the small Hyundai i10 will be added to the production line-up in the Turkish factory from 2014. Hyundai is actually investing €475m in its Turkish plant to double production to 200,000 upa. This will help push Hyundai-Kia production in Europe to more than 1mn units pa: o However, we suspect that Hyundai and Kia will add at least one more model each in Europe to their current line-ups and were just one of these possible models to be successful, this would push Hyundai-Kia production above the 1.25mn barrier: o We believe the i40 will be added to the Hyundai plant in Nosovice but we are not yet sure which models will be added to the Kia plant, although we would expect them to be in the C segment and based on the cee-d platform.

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New models: the new model plan for Hyundai-Kia Europe is as follows: 2012 2013 2014 2015 2016 Second C segment model (hatch back) in Russia New cee’d range completed Revised Sportage (Slovakia) New Hyundai ix35 New Kia Venga New cee’d starts production We expect another Kia model could be required to utilise the Slovakian factory’s 300,000 upa capacity in the long run, although this could be made up with additional variants of the cee’d. Please note that some of the historic data for Hyundai and Kia has been adjusted slightly from that shown in previous reports; this is due to the availability of more complete and comprehensive data from the companies themselves. The scale of the change is relatively small, but has been made for greater accuracy. The changed numbers are highlighted in yellow. The provisional additional new models for Kia later in the period covered here are also highlighted for reference purposes. Hyundai-Kia Production Outlook to 2016

Vehicle Country Start Segment Prod'n Production Production Production Production Production

Series (platform) Group Marque Model range Plant 2007 Production 2008 Production 2009 Production 2010 Production 2011 Production type of Outlook 2012 Outlook 2013 Outlook 2014 Outlook 2015 Outlook 2016

Hyundai‐Kia Pass. B Accent Izmit TR 55,971 49,723 40,247 35,854 17,940 6,500 4,500 2,500 0 0 Hyundai‐Kia Hyundai i10 Pass A Izmit TR H2 2014 0 0 0 0 0 0 7,500 75,000 110,000 112,000 Hyundai‐Kia Pass. B Izmit TR H2 2010 0 0 12 34,682 73,262 80,000 74,500 69,000 64,000 80,000 Hyundai‐Kia Hyundai Matrix Pass. C‐MPV Matrix Izmit TR 27,720 30,959 11,823 4,959 90 0 0 0 0 0 Hyundai‐Kia Hyundai H100/H1 Comm.Van Izmit TR 6,499 0 0 0 0 0 0 0 0 0 Hyundai‐Kia Hyundai New H1 Comm.Van Karsan (Bursa) TR 0 0 0 0 574 15,000 20,000 22,000 20,500 18,500 Hyundai‐Kia Hyundai Turkey Total 90,190 80,682 52,082 75,495 91,866 101,500 106,500 168,500 194,500 210,500 Hyundai‐Kia Kia "cee'd" and variants Pass. C ED Zilina SK Late 06 134,996 163,320 121,635 95,906 103,693 112,000 125,000 115,500 111,250 106,500 Hyundai‐Kia Kia Sportage inc. kits for Russia Pass. SUV HM Zilina SK H1 09 21,469 37,503 38,515 54,415 101,073 145,000 135,000 129,500 124,000 119,250 Hyundai‐Kia Kia Venga Pass. B YN Zilina SK H2 11 0 0 0 0 10,636 38,000 42,500 40,000 35,000 33,000 Hyundai‐Kia Kia Other unknown models Pass C Unknown Zilina SK H1 14 0 0 0 0 0 0 0 12,500 25,000 40,000 Hyundai‐Kia Hyundai ix35 ‐ Tucson replacement Pass. SUV HM Zilina SK H1 10 0 0 32 79,184 36,798 0 0 0 0 0 Hyundai‐Kia Kia Total 156,465 200,823 160,182 229,505 252,200 295,000 302,500 297,500 295,250 298,750 Hyundai‐Kia Pass. C ED Nosovice CZ H2 08 0 11,004 111,036 130,966 107,000 134,500 139,000 125,500 119,000 113,500 Hyundai‐Kia Pass. B UYN Nosovice CZ H1 11 0 0 0 19,725 46,316 50,000 52,000 48,000 45,000 41,000 Hyundai‐Kia Hyundai ix35 Pass. SUV HM Nosovice CZ H2 11 0 0 0 0 69,597 125,000 145,000 132,000 115,000 107,500 Hyundai‐Kia Hyundai 4th model Pass TBC TBC Nosovice CZ H2 13 0 0 0 0 0 0 25,000 45,000 60,000 62,500 Hyundai‐Kia Kia Venga Pass. B YN Nosovice CZ H2 09 0 0 5,164 49,319 28,096 0 0 0 0 0 Hyundai‐Kia Pass D St Petersburg RU H2 14 0 0 0 0 0 0 0 12,500 22,000 19,750 Hyundai‐Kia Kia Rio Pass B St Petersburg RU H2 11 0 0 0 0 19,962 109,000 102,000 96,500 95,000 92,500 Hyundai‐Kia Hyundai Solaris and variants Pass. C St Petersburg RU H2 10 0 0 0 0 106,165 92,500 98,500 94,500 93,000 90,000 Hyundai‐Kia Hyundai Total Excludes production in Russia from kits supplied from Korea 0 11,004 116,200 200,010 377,136 511,000 561,500 554,000 549,000 526,750 Hyundai‐Kia ALL Total 246,655 292,509 328,464 505,010 721,202 907,500 970,500 1,020,000 1,038,750 1,036,000

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PSA It is possible that PSA will take on production of the replacement of the Opel Zafira after 2016 (presumably based on the C4 Picasso/5008 models), while it seems Key recent developments: the main news at PSA since our last report has increasingly likely that the Citroen DS5/C5 and possibly the Peugeot 508 will be focused on its losses reported for H1 and the fall-out from the announcement that produced off the same platform as the next Opel/Vauxhall Insignia and that this it plans to close its factory at Aulnay in the north of Paris. These issues are would take place in Germany. Neither of these possibilities has been confirmed discussed later on in this profile. but press reports and commentary from industry insiders suggest that these are The GM alliance probable developments. Earlier in the year, PSA was involved in one of the most significant developments PSA has not been especially strong in the D segment for some time and it would in the industry, ie its alliance with GM; GM is in the process of becoming a 7% make sense for it to “piggy-back” on GM’s stronger presence – adding PSA to shareholder in the company. The key aspects of the alliance are as follows: GM’s European and US presence in the D segment would mean combined  GM is paying €304mn for a stake of 7% in the enlarged capital base of PSA volumes of around 1.6mn units pa could be achieved. This would give PSA (the Peugeot family have seen their stake in the company fall from 30.3% to access to a platform of much bigger scale than it currently has for its rather 25.5%, although they still have a voting share of just under 38%. marginal models in this segment, the initial success of the current Peugeot 508  Shared platforms will be developed in the B and D segments initially, with the notwithstanding. possibility that these arrangements could be replicated in other segments. We Shared purchasing and logistics will be the most immediate practical implications now think that a product-budging and production sharing arrangements of this alliance, but in terms of manufacturing and product development, it will take will also take place soon in the C-MPV segment with PSA taking on 2-3 more years for any apparent benefits to be realised. Unsurprisingly, the unions production of the next Opel Zafira, while in the D segment, Opel will take on both sides of the alliance have expressed concern as to what all this would on production of the replacement Citroen C5/DS5 and Peugeot 508. This mean in terms of potential plant closures. has not been confirmed by either company yet, but we think these moves are the most logical and practical co-development programmes in the Strong words have come from union leaders’ mouths and the new French foreseeable future. government has been equally forceful in terms of stating its objection to cutbacks by PSA (and indeed around the time that this report is released the French  Shared purchasing, which will see around US$125bn of annual spending government is expected to have announced its plans for reviving or shared, while the two companies look to save at least $2bn annually in supporting the automotive sector). Quite what either the government or the materials, logistics and engineering savings. unions are really going to be able to in view of PSA’s actual plans is open to In addition, GEFCO, the PSA logistics arm (which PSA is trying to sell off in question. stages) will take on most of the logistics work for Opel/Vauxhall in Europe). Unions’ fears realised The main focus of shared product development will be in Europe where PSA is Talk of closing PSA plants has been evident for many months – finally in early July also expected to lead the development of the next B segment platform for both came the news that the unions and the French government had feared: companies. If a shared platform can be successfully developed here, the potential economies of scale are vast, with the possibility for the two companies to have a  First, PSA announced that no new models would be allocated to the shared platform of over 2mn units pa. That at least is the long run plan – it is SevelNord MPV/van plant in Valenciennes from 2016 – although this possible, indeed probable, as suggested above, that co-development will take subsequently turned out to be incorrect as PSA first quickly announced Toyota place sooner in other segments, ie the C-MPV and D segments. as its new partner here, replacing Fiat, and then in late August it confirmed

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that €750mn would be invested in a new range of vans to be made by PSA Its market capitalisation has now actually fallen to just one-fifth of the value of and Toyota. Renault.  Second, that Aulnay, in the north of Paris, would also not receive a new model PSA It reported a fall in revenue of over 7% in Q1; revenue from vehicle sales was and production will end in 2014, with its current model, the C3 going on a actually down by nearly 17%; this is due to a fall in unit sales and a fall in market steady run-out. Some of the Aulnay workers will be moved to the nearby share in Europe. There could well be a decline for 2012 as a whole even though Poissy plant, but there will still be job losses from Aulnay. Closing Aulnay this year will see the full production ramp-up of the 208 and (hopefully) continued completely is quite a challenge because of other important activities on the site, strong production of the 508 and Citroen’s DS range. notably the pressings and stampings operation which is run by Magnetto of Italy and having been an integrated part of a PSA’s portfolio for as long as can The H1 financial results showed a loss of €662mn for the period, which is a be remembered. It is difficult to see PSA moving stampings work elsewhere, if reversal of more than €1bn since H1/2011. Faurecia, Gefco and the finance arm only because of the challenges and costs of moving stamping presses. PSA were all profitable, so the losses from the car operations are even worse. This has plans to “revitalise” the Aulnay site and has said it wants to develop the site for led the company into yet another round of cost-cutting, under the banner Rebound other uses, although few details have emerged as to what exactly this will 2015: this is tasked with generating a further €1.5bn of cash savings above the involve. 2012 cut backs previously announced. This ambitious plan includes saving €600mn through closing Aulnay, cutbacks at Rennes and “revitalising” both sites.  Third, there will be significant cut backs at Rennes where 25% (c1,400) of the In addition, capital expenditure of €550mn has been cut, and €350mn is to be 5,600 employees there will lose their jobs. GM’s chances of using a PSA saved through “product cost optimisation”. facility to make one of its own models have arguably been reduced by this news. The company had also announced earlier in the year that it would not pay a dividend for 2011 following the loss of €92mn announced in its core automotive And moreover, the company has notably refused to provide any assurances about division in 2011 – in fact the automotive division lost nearly €500mn in H2/2011 the future of the Madrid plant, another which we expect could close in the long after a profit of €621mn in H1. The group’s total operating income for the year was term. Last time we were expecting this plant to close, but we now €898mn, down from €1.7bn in 2010; net income was €588mn, versus €1.13bn in understand some low volume production of the 207 will continue into 2013 2011. and that PSA still plans to allocate the E3/C-Cactus model to this plant, but not until 2014. This has not been confirmed by PSA itself, although The real problems which emerged in the second half of 2011, ie declining sales, numerous Spanish reports to this effect have not been denied. rising component and raw material costs, have not been fully addressed; indeed the declining production volumes in H1/2012 suggest that these problems have, if Poor financials in Q1/2012 and 2011 loss highlight need for GM alliance anything, got worse. Clearly 2012 is going to be a difficult year for PSA. Its financial results have What capacity will PSA cut? severely impacted its share price and it may actually be removed from the key CAC40 index of the top 40 most valuable companies in France: based on its share It is now clear that PSA is going to be one of the leaders in capacity reduction price in late August it actually ranked as the 77th most valuable, but the political across Europe. 8,000 jobs at least will go between Aulnay and Rennes, although ramifications of removing from the index are significant, especially if it were further cuts at SevelNord appear to have been averted; the reduction in production replaced by a non-French owned, but French quoted company. at Madrid will probably see 400-500 jobs go there, but the plant has arguably been saved until a final decision is made on the production of the C-Cactus. Such has been the fall in the value of PSA stock that GM has already booked a loss of $160mn on the value of the shares it bought in PSA as part of the alliance.

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Manufacturing news: there has been little definite news on any manufacturing On intriguing side-effect of the PSA-GM alliance is that PSA has stopped shipping investment at PSA – the focus of the news has been on cutbacks. However, the parts to Iran-Khodro; officially, PSA made this decision before the PSA-GM JV with Mitsubishi in Russia is now moving into full manufacturing mode, having alliance, but it is also clear that it would have been very difficult for the alliance to been a kit operation until now. At full production this will make at least 125,000 progress with PSA continuing to supply Iran Khodro with components and upa, possibly more: technology. Quite what this means for vehicle production in Iran as a whole in the  More specifically, PSA will make the 408 and version of the C4 in Kaluga, long term is an interesting question. Russia from late 2012; this is part of a plan to raise production in the PSA- Mitsubishi JV in Russia to at least 125,000 upa. In addition, PSA has confirmed that it will make it emerging markets, low cost models, the Peugeot 301 and Citroen Elysee/C4L sedan in Vigo, Spain from the end of this year. In addition, as reported last time, the large diesel engine production JV with Ford will come to an end from 2015. The planned hybrid technology co-operation with BMW will stop before it has really started China will become PSA’s no. 1 market in the future and this where we can expect the next round of major investment to take place. By 2015, the PSA- Dongfeng JV will be making 750,000 vehicles a year. By 2020, PSA intends to have doubled its own production capacity in China; currently it has around 450,000 upa capacity, with a third factory of 150,000 upa capacity due on stream in 2012. A production JV project with Changan will add a further 200,000 capacity by 2013 – this factory will work for Citroen only, especially the DS range and certain LCVs as well. This will give PSA a total capacity in China of 800,000 upa by 2013, with 950,000 upa possible from 2015; further increases in production capacity expected after this date. In addition, it is expanding in Brazil, with €350mn having been invested in 2010-11 and €240mn committed for 2012-15. This is being done with the aim of doubling production capacity there, with production at the Porto Real plant near Rio de Janeiro reaching 300,000 vehicles and 400,000 engines a year by 2015. And in India, €650mn is being invested in a new plant in Gujarat, with an initial capacity of 165,000 vehicles a year. Production should begin during by 2014 and can be expanded to 340,000 units a year. The first vehicle to be made there could well be the Peugeot 508. Shipping components to Iran has stopped

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New models: plans for PSA in Europe are summarised in the table below:

2012 2013 2014 2015-2016 208 starts 208CC and other 208 variants, including New C1/108 New vans and MPVs to replace product C8/807 facelift GTi, X-over (possibly to be called 2008) New C5 from Sevel Nord – exact timing a 508RX and hybrid Hybrid/EV versions of most high volume T9 – replacement for 308 New C3 Picasso and C4 Picasso (B78) models by this date 4008 (imported from Mitsubishi Japan) DS1 (provisional) 308 SW 301/C4 for emerging markets 3008 and 308CC replacements (2016) Jumper/Boxer New Expert and Partner

We continue to include the large PSA MPVs, ie the 807 and C8, in our forward projections, and we expect MPVs to continue to be part of PSA’s portfolio after 2016 now that the Fiat alliance has been replaced by one with Toyota – it may well be that Toyota will simply take vans while PSA will develop MPVs for itself off the new platform without involving Toyota. Fiat stopped sourcing MPVs from the PSA-Fiat JV some time back, but it will continue to source the Scudo until 2016. The Production Outlook which follows shows a marked decline in production at Citroen in 2012-14, with only modest recovery in 2015-16 and by 2016 we think Citroen will recover to around its 2009 volumes. At Peugeot, production volumes are projected to recover from 2014, ie once the 208 has been fully replaced and when all its variants are in production; by this point, the 308’s renewal will be under way too. Even so, we do not expect Peugeot to reach 2007 levels again in the near future.

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PSA Production Outlook to 2016 – Citroen and group totals Vehicle Country Start Segment Prod'n Prod'n End Next new Production Production Production Production Production

Series (platform)

Group Marque Model range Plant of 2007 Production 2008 Production 2009 Production 2010 Production 2011 Production type of model Outlook 2012 Outlook 2013 Outlook 2014 Outlook 2015 Outlook 2016

PSA Citroën C1 Pass. A B0 Kolin CZ Q2 05 2014 98,426 108,074 116,070 102,247 88,609 76,000 65,000 80,000 89,500 99,000 PSA Citroën DS1 Pass A B0 Kolin CZ H2 13 2013 0 0 0 0 0 0 0 0 15,000 40,000 A6 ‐ switch to A55 PSA Citroën C2 Pass. B Aulnay, Paris FR H2 03 2010 66,345 52,099 41,391 0 0 0 0 0 0 0 2010 PSA Citroën C2 Comm.Van A60 Aulnay, Paris FR H2 03 2009 7,726 5,943 2,684 0 0 0 0 0 0 0 A81 ‐ switch to A51 PSA Citroën C3 Pass. B Aulnay, Paris FR Q2 02 2008/9 214,110 174,175 0 0 0 0 0 0 0 0 late 2008 PSA Citroën C3 Comm.Van A81 Aulnay, Paris FR Q2 02 2008/9 12,649 15,361 7,265 0 0 0 0 0 0 0 PSA Citroën C3 Pass. B A51 Aulnay, Paris FR H1 09 2008/9 0 0 169,503 224,406 193,702 168,000 145,000 139,000 55,000 0 PSA Citroën C3 Comm.Van A51 Aulnay, Paris FR H1 10 2008/9 0 0 0 13,042 13,586 7,500 5,000 2,500 0 0 PSA Citroën New C3 Pass B New Poissy, Paris TBC FR H2 15 2015 0 0 0 0 0 0 0 0 98,000 159,000 PSA Citroën DS3 Pass. B A55 Poissy, Paris FR H2 09 2009 0 0 1,486 68,391 77,169 72,500 65,000 57,000 51,000 73,500 PSA Citroën C3 Pluriel Pass. B sports A42 Villaverde, Madrid SP Q1 03 2009 9,456 6,900 19,890 11,791 5,500 000 0 0 PSA Citroën C3 Picasso Pass. B MPV A70/71 Trnava SK H1 09 2016 0 2,500 91,500 75,000 72,000 59,500 52,000 45,500 44,000 64,500 PSA Citroën C segment car for emerging mkts Pass B/C M4 Vigo SP H2 12 2012 0 0 0 0 0 5,000 40,000 51,000 50,000 47,500 PSA Citroën C‐Cactus/E3 Pass C New Villaverde, Madrid SP H2 14 2014 0 0 0 0 0 0 0 15,000 35,000 40,000 PSA Citroën C4 Pass. C B50/B51 Mulhouse FR Q2 04 Q3 2010 178,345 136,482 99,460 89,623 24,620 000 0 0 PSA Citroën C4 Comm.Van B50/B51 Mulhouse FR Q2 04 Q3 2010 6,314 5,019 3,131 1,930 5,329 6,250 5,500 5,000 4,500 4,000 PSA Citroën C4/C4L Pass. C B50/B51 Kaluga RU H2 10 2010 0 0 0 6,500 12,500 33,250 40,000 37,500 34,500 32,500 PSA Citroën C4 Pass. C B6 Mulhouse FR H1 11 2011 0 0 0 0 110,000 101,000 94,500 90,000 86,500 83,000 PSA Citroën DS4 Pass. C B75 Mulhouse FR H2 11 H1 2011 0 0 0 233 34,593 29,500 25,500 22,000 20,500 19,000 PSA Citroën Xsara Picasso Pass. C‐MPV N68 Vigo SP H2 08 2008 8,230 10,807 35,925 24,072 8,325 0 0 0 0 0 PSA Citroën Xsara Picasso Pass. C‐MPV N68 Rennes FR H2 09 12,143 47,846 5,942 0 0 0 0 0 0 0 PSA Citroën C4 Picasso Pass. C‐MPV B58 Vigo SP H1 07 2015 215,714 191,818 133,814 126,808 114,000 86,500 95,000 105,000 115,000 125,000 PSA Citroën DS5 Pass. C‐MPV B58 Sochaux FR H2 11 H2 2011 0 0 0 0 4,424 30,000 27,500 22,000 16,000 10,000 PSA Citroën C5 Pass. D X7 Rennes FR Pre 02 2013 49,909 98,602 79,987 79,106 65,726 42,500 32,500 30,000 25,000 5,000 PSA Citroën C6 Pass. E X61 Rennes FR Q3 05 7,343 1,667 982 1,114 1,029 1,000 0 0 0 0 PSA Citroën C8 Pass. MPV V3 Valenciennes FR Q1 02 2011FL 11,976 8,448 5,298 5,525 5,731 4,750 5,000 4,500 4,250 5,500 PSA Citroën Jumpy Comm.Van U Valenciennes FR Q1 02 2007 37,198 41,035 19,957 27,910 29,625 22,000 20,000 18,000 17,500 17,000 PSA Citroën Jumper Comm.Van Val di Sangro IT Pre 2002 H2 06 2013FL 56,688 58,215 23,916 37,038 44,267 36,000 37,000 39,000 41,000 38,000 PSA Citroën Berlingo Comm.Van‐based M59 Vigo SP H2 96 133,359 0 0 0 0 0 0 0 0 0 PSA Citroën Berlingo Comm.Van‐based B9 Vigo SP H2 08 2016 0 128,933 116,223 132,856 133,000 96,000 90,000 84,000 70,000 89,000 PSA Citroën Berlingo Comm.Van‐based M59 Mangualde PT H2 96 48,924 31,717 20,919 24,214 0 0 0 0 0 0 PSA Citroën Berlingo Comm.Van‐based B9 Mangualde PT H2 09 0 0 0 0 25,681 24,000 27,000 24,000 22,500 21,000 PSA Citroën Total 1,174,855 1,125,641 995,343 1,051,806 1,069,416 901,250 871,500 871,000 894,750 972,500 PSA Peugeot Total 1,502,828 1,352,227 1,242,968 1,325,329 1,310,011 1,229,750 1,192,750 1,250,500 1,280,250 1,305,500 PSA ALL Total 2,677,683 2,477,868 2,238,311 2,377,135 2,379,427 2,131,000 2,064,250 2,121,500 2,175,000 2,278,000

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PSA Production Outlook to 2016 – Peugeot and group totals Vehicle Country Start Segment Prod'n Prod'n End Next new Production Production Production Production Production

Series (platform) Group Marque Model range Plant of 2007 Production 2008 Production 2009 Production 2010 Production 2011 Production type of model Outlook 2012 Outlook 2013 Outlook 2014 Outlook 2015 Outlook 2016

PSA Citroën Total 1,174,855 1,125,641 995,343 1,051,806 1,069,416 901,250 871,500 871,000 894,750 972,500 PSA Peugeot 107 Pass. A B0 Kolin CZ Q2 05 2014 104,427 108,187 116,070 110,554 91,308 83,000 74,000 62,500 95,000 101,000 PSA Peugeot 1007 Pass. A A08 Poissy FR Q4 04 H2 11 11,391 10,396 4,788 15 0 0 0 0 0 0 PSA Peugeot 206 Comm.Van T10/T11 Poissy FR Pre 99 Q3 06 2006 8,355 4,933 4,061 6,533 4,963 2,500 0 0 0 0 PSA Peugeot 206 incl 206CC Pass. B T10/T11 Mulhouse FR Q3 06 2006 103,213 75,062 129,027 127,080 92,939 10,000 0 0 0 0 PSA Peugeot 207 Pass. B A70/71 Poissy/Aulnay FR Q4 06 2012 213,041 187,794 166,103 128,322 88,725 20,000 0 0 0 0 PSA Peugeot 207 Comm.Van A70/71 Poissy/Aulnay FR Q4 06 2012 9,991 189 0 0 0 0 0 0 0 0 PSA Peugeot 207 Pass. B A70/71 Trnava SK H1 06 2012 178,000 183,000 194,000 129,000 105,000 61,000 0 0 0 0 PSA Peugeot 207 incl 207CC Pass. B A70/71 Villaverde, Madrid SP H1 07 127,071 107,824 107,878 107,522 98,000 56,000 40,000 25,000 0 0 PSA Peugeot 208 Pass. B Poissy FR H1 12 0 0 0 0 585 150,000 167,500 179,000 185,000 175,000 PSA Peugeot 208 Pass. B Trnava SK H1 12 0 0 0 0 0 99,750 165,000 184,500 179,000 172,500 PSA Peugeot 208 Pass. B Mulhouse FR H1 12 0 0 0 0 0 40,000 52,000 45,000 47,000 49,500 PSA Peugeot 208CC Pass B Unknown FR H2 12 0 0 0 0 0 2,000 12,500 22,000 30,000 26,500 PSA Peugeot 2008 Pass B Unknown FR H1 14 0 0 0 0 0 0 0 70,000 80,000 77,500 PSA Peugeot 301 Pass B/C M3 Vigo SP H2 12 2012 0 0 0 0 0 6,500 36,000 43,000 41,000 39,000 PSA Peugeot 307 Comm.Van T50/T51 Mulhouse/ Sochaux FR Q1 02 Q4 08 2008+ 4,615 0 0 0 0 0 0 0 0 0 PSA Peugeot 307 CC Pass. C T56 Mulhouse/ Sochaux FR H2 03 H2 09 2009+ 18,167 2,500 32 0 0 0 0 0 0 0 PSA Peugeot 307 Pass. C T50/T51 Sochaux FR H1 01 H2 08 2008 161,672 0 0 0 0 0 0 0 0 0 PSA Peugeot 307 SW Pass. C T52 Sochaux FR H2 02 H2 09 2009+ 67,853 33,903 0 0 0 0 0 0 0 0 PSA Peugeot 308, incl SW and incl. CC from 2010 Pass. C T7 Sochaux/ Mulhouse FR 2007+ 2013 106,054 299,322 209,341 222,946 198,405 162,500 65,000 35,000 0 0 PSA Peugeot 3008 Pass. C‐MPV T8 Sochaux FR H2 09 2009 0 406 64,671 132,543 139,827 116,500 89,000 75,000 68,000 99,000 PSA Peugeot 308 Comm.Van T7 Sochaux FR 2008+ 2 3,478 3,337 3,088 3,885 8,500 5,000 5,500 3,500 0 PSA Peugeot 308 CC Pass. C T76 Sochaux FR 2009+ 0 1,331 21,000 0000000 T7 ‐ add cabrio in PSA Peugeot 308 RCZ Pass Sports Graz (Magna) AU H1 10 2015 0 0 92 19,135 19,725 10,500 9,000 7,500 20,000 27,000 2015 PSA Peugeot New 308 PassC T9 Sochaux FR H2 13 2013 0 0 0 0 0 0 105,000 150,000 190,000 187,500 PSA Peugeot 308 Pass. C B50/B51 Kaluga RU H2 10 2010 0 0 0 15,500 19,000 22,000 28,000 25,000 24,000 24,500 PSA Peugeot 5008 MPV Pass. C MPV T7 Sochaux FR H2 09 0 0 21,923 69,345 74,469 53,500 51,000 45,500 59,000 66,750 PSA Peugeot 408 Pass C T7? Kaluga RU H2 12 0 0 0 0 0 35,000 33,000 35,000 36,000 32,000 PSA Peugeot 407 incl coupe Pass. D D22/D23 Rennes FR Q3 04 2010 127,930 81,756 33,247 28,898 734 0 0 0 0 0 PSA Peugeot 508 incl coupe Pass. D W2 Rennes FR H1 11 2011 0 0 0 6,385 131,750 101,000 90,000 75,500 67,500 58,000 PSA Peugeot 607 Pass. D Z83 Sochaux FR Q2 07 2007 5,983 4,565 909 956 0 0 0 0 0 0 Valenciennes (Sevel PSA Peugeot 807 Pass. MPV V2 FR Q1 02 2011FL 20,223 13,384 6,185 5,724 6,376 5,000 4,500 4,000 4,000 7,000 Nord) Valenciennes (Sevel PSA Peugeot Expert Comm.Van U FR Q1 02 2007 42,049 44,075 18,950 28,893 33,260 28,000 24,500 22,000 20,000 18,500 Nord) PSA Peugeot Boxer Comm.Van Val di Sangro (Sevel Sud) IT Pre 2002 H2 06 2013FL 51,822 52,393 23,194 46,716 54,451 42,000 43,500 48,000 50,000 47,500 PSA Peugeot Partner Comm.Van‐based M59 Vigo SP H2 96 H1 08 H2 08 115,779 0 0 0 0 0 0 0 0 0 PSA Peugeot Partner Comm.Van‐based B9 Vigo SP H2 08 2016 0 108,086 93,614 112,991 122,000 94,500 79,000 73,000 64,000 80,500 PSA Peugeot Partner Comm.Van‐based M59 Mangualde PT H2 96 25,190 29,643 24,546 23,183 0 0 0 0 0 0 PSA Peugeot Partner Comm.Van‐based B9 Mangualde PT H2 09 0 0 0 0 24,609 20,000 19,250 18,500 17,250 16,250 PSA Peugeot Total 1,502,828 1,352,227 1,242,968 1,325,329 1,310,011 1,229,750 1,192,750 1,250,500 1,280,250 1,305,500 PSA ALL Total 2,677,683 2,477,868 2,238,311 2,377,135 2,379,427 2,131,000 2,064,250 2,121,500 2,175,000 2,278,000

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Renault-Nissan-Dacia  Globally, Renault brand sales rose nearly 7%, while Dacia brand sales fell slightly by just under 2% (Renault attributed this largely to supply disruption Key recent developments: although less pessimistic than PSA and less caused by the Japanese tsunami – production at Dacia was running at full financially stressed than PSA, the Renault group still faces a number of significant capacity from September onwards, but this was not enough to offset the earlier challenges. For 2011, it was actually able to report a broadly positive picture in loss of production earlier in the year – most of the loss of production of Dacia terms of volume sales and financial results. The situation in early 2012 was, was outside Europe so this is not necessarily reflected in the European however, less positive. figures). Q1/2012 saw 8.6% fall in revenue In financial terms, the key highlights of 2011 were: Renault reported a fall over 8.6% in revenue in Q1, reflecting a fall in unit sales of  Group revenues up 9.4% at €42.6bn. nearly 8%. The real cause of this downturn was a 20% fall in European sales,  Operating margin down slightly at 2.6% (2.8%). although this was slightly countered by sales outside Europe, especially in what is  Doubling of group operating income to €1,244mn (€655mn), but a reduction of called the EurAsia region by Renault, where sales rose by 27.5%. All the same, net income to €2,139mn (€3,490mn) – although the 2010 figures had included automotive revenue was down 9.6%, while finance revenue was up 12%. a €2bn capital gain from the sale of its stake in Volvo Trucks. Q2/H2 results also down  And a significant reduction in debt, from €1136mn to €299mn. H1 revenue was down slightly, by just 0.8%, at €20.935bn, although Q2 revenue 2012 outlook was actually up, year-on-year, from €10.67bn to €11.4bn, a rise of nearly 7%. However, Renault’s unit sales were down, by 3.3% to 1.328mn, with European In terms of the full year, Renault is expecting 4% growth in the global automotive sales down by nearly 15% to 708,000. The impact of this is that H1 net income market, with markets outside Europe growing most and fastest – eg Renault was down 39% - and as with PSA’s major problems being in its car unit, so this is expects Brazil to grow by 5% and Russia by another 8%, whereas it expects at the case with Renault’s core car business. least a 3-4% fall in Europe, and an even bigger fall of up to 8% in France alone. That said, Renault remains confident it can grow, with a new series of fuel efficient Although these results are disappointing enough, they would have been far worse “Energy” engines, its widening electric vehicle range and new models such as the without the contribution of associate companies, especially Nissan: associate Lodgy from Dacia all contributing to growth. companies contributed €636mn to the profit pool (up from €557mn in H1/2011), with Nissan accounting for €564mn of the H1/2012 total. Renault has responded to falling sales in Europe by reducing the amount of vehicles it keeps in its distribution system; at the start of 2011 it had around 2011 had actually been a good year 510,000 new vehicles in its stock system – by the end of December it had reduced In volume terms the key highlights were: this to 405,000; and more interestingly it had reduced its own stock from 310,000 to 153,000, while the stock held by independent dealers had actually risen from  Outside Europe, sales rose just over 19%, with Brazil and Russia contributing 200,000 to 252,000. most of this growth.  In Europe, Renault retained its no.2 position in cars and LCVs, with 8.6% Looking ahead, Renault has set the following objectives for 2013: market share – in LCVs alone, Renault was no.1, with a share of 15.6%.  To achieve a cumulative operational free cash flow between 2011-13 of over  It experienced strong growth in The Netherlands (+16%), Germany (+9%) and €2bn, having achieved its 2011 objective of >€500mn free cash flow. Austria (+9%).  And reaching a global sales target of more than 3mn units.

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These objectives and path which Renault is following are consistent with the small player. Selling certain vehicles in right hand format is no longer picture set out by Renault’s finance director, Dominique Thormann, in November economic in view of their low volumes; the models to be cut from the UK sales 2011. At that time, he confirmed that the principal growth opportunities for the list are: Espace, Laguna, Kangoo passenger version, Modus and Wind cabrio. company were outside Europe. The change in focus for the company was As noted before, 2011 saw the launch of the new Renault “2016” strategy; this already apparent by then – 5 of its top 10 markets are outside Europe, ie Brazil nd th th th th sets out a 2013 sales target of 3mn units and also calls for: (2 ), Russia (4 ), Turkey (5 ), S Korea (7 ) and Argentina (8 ); put another way, in 2007 Europe represented 65% of Renault sales, and by 2011, it accounted for  An expansion in the Renault range from 40 models in 2010 to 48 by 2018. 57%; by 2013 this will have fallen closer to 50%, with the proportion somewhat  Renault-Nissan attaining global leadership in what it calls “zero-emissions” difficult to project at this stage given the uncertainty affecting the European mobility, with a target of 1.5mn EVs from the Renault-Nissan Alliance on the economy as a whole. road by 2016. In Europe, Renault faces a number of challenges, not the least of which will be  A review of the Alliance’s capital structure within three years; this is very assessing whether it can retain all its production facilities in the long run. Since interesting as there were some calls from the financial markets in 2011 for our last report, Renault has cut the night shift at its Slovenian plant from the end of Renault to review the amount of capital it has tied up in the Renault-Nissan April, cutting 330 jobs. alliance. It would not be surprising if Renault decided to reduce its stake in Last time we reported that Renault was already planning lay-offs and reduced Nissan – certainly the pressure for a full-blown merger does not seem to be working at some plants for 2012: pressing at the present time.  At least 300 workers will be cut from the Flins workforce as the plant reduces Russian update – control of AvtoVAZ effectively now complete, new Clio production and progressively switches to batteries and EV production. It is assembly line in use not conceivable that actual labour force cuts here could be higher than this, especially if the EVs to be made here are less successful than Renault is Towards the end of 2011, Renault clarified its position vis-à-vis AvtoVAZ. It said expecting. that from March 2012, it would increase it stake in AvtoVAZ to 51%, up from its current 25%. This would allow Renault to consolidate AvtoVAZ in its financial  Renault laid off almost 2,300 workers at the Valladolid plant in Spain for more reporting and would make Renault-Nissan-AvtoVAZ into the third biggest than 25 days in H1. It has also suspended the night shift at the other Renault automotive group worldwide. plant in Spain, Palencia, affecting 300 workers. In fact, it was not until early May that the official announcement came out that o Renault’s explanation is that 15 of the planned shut-down days are due to the time required to modify the assembly lines at Valladolid for the new Renault-Nissan would take control of AvtoVAZ. This will leave Renault-Nissan SUV and EVs, while the other days are due to the economic slowdown. owing 67.13% of a joint venture vehicle which will in turn own 74.5% of AvtoVAZ by mid-2014, following an investment of US$750mn – Renault’s stake will actually o Laid-off workers will receive around 65-70% of their normal salaries. be in a new company structure in which Renault-Nissan, Russian Technologies  Production at Valladolid will fall from 460 to 340 units a day, while at Palencia and Troika Dialog will all have stakes, although the Troika stake will be the production will be much higher, but still fall from 1040 to 940 a day. In progressively bought out by 2014. As part of this deal, a number of non-core practice we think the volumes at Valladolid will be reduced even further AvtoVAZ assets will be sold to repay loans provided by Russian Technologies. by the end of the year, may be by Q3. This new financial structure came around a month after a new production line was  Meanwhile, in a move indicating the competitive market place in which Renault opened in AvtoVAZ’s Togliatti factory. This new line has seen an investment of operates, it is cutting the range sold in the UK where Renault is a relatively

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€400mn to provide new capacity of up to 350,000 cars, to make two new Ladas o Capacity here is being raised to 100,000 upa and an investment of and a Nissan model this year, and two new Renaults next year. €167mn has been made in new press and plastic injection moulding facilities. The investment has included assembly equipment which is In terms of manufacturing facilities in Russia, the group currently operates three flexible enough to make five different models on the line at the same time. production facilities with a total capacity of 1.1mn upa – this is due to rise to 1.6mn upa by 2016. Our current Outlook for Dacia/Renault/Nissan based vehicles made o Nissan wants to sell 500,000 units in Russia by 2016 and also wants 80% at AvtoVAZ and Avtoframos is provisional and in all probability conservative – we of these to be made in Russia: for this to be realistic, the 100,000 upa currently have combined Dacia/Renault/Nissan based vehicles being produced at capacity of the St Petersburg plant will either have to be raised again or as a rate of around 0.5mn upa by 2016 – this could well turn out to be an many as 300,000 Nissan units will have to come out of Togliatti. underestimate if the rate of production of “old-style” Ladas (traditionally around China 700,000 upa) declines much faster than is currently expected at the present time. Renault has been notable for its lack of involvement in China to date, but in mid- Depending on the pricing of the new Dacia models (including those to be badged June 2011, reports emerged that the company would finally begin production there, as Ladas), the ratio of old-to-new Ladas cloud change much more quickly than this. with expecting to make 100,000 upa there within a five year period. In addition to the new Togliatti line, there is also: At the end of January 2012, it was reported that Renault will establish a production  Avtoframos in Moscow, Renault’s first facility in the country, where capacity JV with Dongfeng by the end of 2012 – Renault sold just 15,000 vehicles in China is being increased to 160,000 upa; this plant will, we understand, switch partly last year. to the Megane and other vehicles on that platform. Clio production will switch Renault-Nissan Alliance to the AvtoVAZ plant in due course. Although the two companies have worked alongside each other now for many The expansion at Togliatti will allow Logan and Sandero production to move years, in their alliance, there is no sign (nor realistic prospect) of the two from Moscow – and other Renault-badged models will be made there instead, companies actually merging. That said, platform and component sharing although the timing for this switch remains to be clarified. We assume this will continues and Nissan – having completed its own restructuring some time ahead begin in earnest by 2015 – the groundwork is already being laid for this with of Renault beginning its own – is actually contributing rather significantly to the start of Megane and Fluence production at Avtoframos in late 2011. Renault’s end of year results.  The Nissan St Petersburg plant which is now being expanded. More specifically: Specifically, in 2010, Nissan contributed a total of €1.1bn to Renault’s net profit; in H2/2011 this enabled Nissan to book €367mn to Renault’s profits. Most recently, o Nissan is expanding the pressings and injection moulding capacity it has Renault reported that Nissan contributed €564mn of profits to Renault’s H11/2012 installed in Russia and will add the Qashqai and other as yet unnamed results. models to be sold under the Datsun brand to Russian production. Datsun models will also come off the line at the AvtoVAZ plant – we think this will The two companies are working closely together in a number of other markets, mean there will be a Datsun version of the Logan-based models made including a new venture in India, where a new company, Renault Nissan there. Automotive India has been established. This focuses on a new factory near o Investment will total €167mn, raising capacity to 100,000 upa and the which will soon have a capacity of 400,000 upa; around 500 new workers assembly line in Russia will be able to make 5 different models including are to be taken on in India this year to support this production expansion. Currently the Qashqai; Russian demand for the Qashqai cannot be met by Nissan this factory makes the Nissan Micra/Sunny and Renault Pulse on one line and Sunderland so additional capacity was required. assembles vehicles from imported kits on a second line. In 2010 this plant made just 75,000 vehicles so the current expansion is clearly significant.

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Nissan in Europe January 2011 – in the first week of December 2010, reports had appeared which suggested that Nissan had discounted Barcelona as a production location for the One of the most remarkable success stories of the auto industry in recent years new pick-up. Production of the NV200 van has already started in Barcelona, but has been the continual rise in production of the Japanese VMs outside Japan. production of the NV400 (the replacement for the Interstar) will take place at Batilly Although Honda and Toyota have witnessed production slowdowns owing to the in France as this vehicle will, as was the outgoing model, be based on the Renault tsunami and Thai floods, at Nissan the situation is rather different and the brand is Master. A third model, the NV300, is still expected to be made in Spain, although growing seemingly inexorably. Indeed in 2011, the Nissan UK factory produced a the timing for this remains unclear. The Pathfinder SUV will continue to be made record total in 2011, over 480,000 vehicles, of which just over 301,000 were in Spain, but the new model to be launched in the US will not be allocated to Qashqais and almost 133,000 were Jukes; the balance were Notes. Europe which will continue with the existing model for the foreseeable future. Nissan’s commitment to the UK had been reinforced in 2011 by the decision Electric vehicles announced in June to make the second generation Qashqai at Sunderland. This will involve an investment of around £192m and should save 6,000 UK jobs. It is Renault and Nissan’s commitment to electric vehicles is becoming increasingly also understood that the long term aim is to raise production in Sunderland to more evident. Having started production of EV version of the Kangoo and Fluence in than 600,000 upa – with the Invitation and new compact C segment car to be 2011, As well as launching sales of the (Japanese-made) Nissan Leaf, at the added from 2013 and 2014, exceeding the 600,000 upa barrier is eminently Geneva motor show in March, Renault launched the Zoe EV, its first own purpose reasonable. Nissan is also recruiting another 200 engineers and technicians for its designed EV. Nissan is investing €100mn in Barcelona to make an EV version of Sunderland plant to support record production, the opening of the battery plant and the NV200 van. the expansion in the manufacturing line-up. Readers are referred to earlier reports for details on Renault-Nissan’s battery The success of Nissan’s Sunderland factory was further reinforced at the Geneva plants. motor show when it was confirmed that a new B-segment vehicle would be made Manufacturing news: Renault had slowed down somewhat in the last quarter of there from 2013. Launched as a concept vehicle, called Invitation, this will replace the year, specifically to stop excessive stock build-up; this affected production at the small MPV, the Note, on the production line, even though the new vehicle will the end of October and early November, production at Douai, Flins and be more of a conventional B-segment car than the Note. Production volumes for Sandouville in France and at the Novo Mesto plant in Slovenia. This will continue the Invitation have been targeted at around 100,000 upa. in 2012 and we expect European production of Renault brand models to slow this And if the Invitation was not enough good news for Nissan in the UK, Nissan year, dropping by around 100,000 units to approximately 1.4mn units. subsequently announced a second new model to be allocated to Sunderland; this Renault is also in the midst of a reorganisation of its production footprint in France: will be a conventional C segment which will go into production in H2/2014. These new models, along with the expected continued success of  It is switching production of the next Laguna and Espace from Sandouville to Qashqai and Juke, plus the Leaf EV, mean that it is entirely plausible for Nissan’s Douai. This has clear significance for production levels at Sandouville which Sunderland plant to be making around 660,000 vehicles a year by 2016. will switch to being solely a van plant (see below). The Nissan Barcelona plant has also benefited from an investment of €80mn to  Switching Laguna and Espace to Douai from 2014 is practical because the make a new pick-up truck. The decision to award the pick-up contract to the new models will be made on the new C/D platform which Renault is Barcelona factory followed on from a new labour agreement having been signed, developing with Nissan. That said, Renault also wants to produce a premium guaranteeing increased labour flexibility in return for a commitment to produce model, quite possibly, in association with Mercedes (with whom it has a co- vehicles in Barcelona for the next 10 years; this announcement was made in mid- operation in small cars) and a premium Renault made on a Mercedes platform in the second half of the current decade is quite probable.

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 The new Renault-Nissan C/D platform will form the basis for the brands’ mid- Renault has also announced plans to re-allocate some of its engine production sized MPVs/SUVs and saloons/sedans, with as much as 70% of the between its various European engine factories, with changes taking place in components (accounting for 80% of the cost) being standardised. Other France and Spain: vehicles made on this platform will include the replacements for the Nissan X-  The Cleon factory (which will make electric motors for EVs) has also been Trail and Qashqai/Dualis, as well as the Renault Megane and Fluence. A allocated production of a new diesel engine for the Megane. Renault version of the Qashqai could appear in the second half of the decade, using this new platform. The first vehicles off this new platform will appear in  The Valladolid plant in Spain will make a new small petrol engine for the 2013, with total volumes from the platform expected to be in the region of Renault-Nissan alliance; this will be made as a downsized 900cc, 3-cylinder 1.5mn upa. unit and a 1.2 litre 4-cylinder version. The Valladolid plant is also supplying diesel engine to Mercedes for the new A-class  As noted above, once production of the current Laguna and Espace have come to an end, the Sandouville plant will become entirely dedicated to LCVs.  Production of the 3-cylinder H4 engine will also be made at the Dacia factory Sandouville will make the new Trafic and also the high roof versions of the from November 2013, while the larger 4-cylinder H5 engine will be made in new Opel/Vauxhall Vivaro from 2013: Valladolid:  Peak production here is planned to be around 100,000 upa.  These engines will produce much lower emissions that the engines which they replace; indeed the H4 and H5 are expected to account for over 80%  At this stage, no Nissan versions are planned, although they have not of Renault’s engine production by 2015. been ruled out. The Sandouville production volumes will include high roof versions of the Opel/Vauxhall Vivaro – high roof models cannot be made  Renault has said these new engines will not impact on production of at the Luton factory owing to height restrictions in the paint shop. engines at its Douvrin factory in France despite union fears that engine production will in fact be shifted abroad, to Spain and Romania.  The big question concerning Renault is whether it will actually close a factory in Europe: Expansion continues at Dacia  As noted in the Overcapacity section earlier in this report, we think Dacia production in Romania is close to the plant’s capacity; around of this Renault could well close one, or even both, of its plants in Spain; at this installed capacity this year will be used for the Duster SUV. Because of the strains stage there has been no decision to do so, but analysis of each plant on the Romanian plant’s capacity, Renault decided to add a second full in its portfolio makes it clear that these are the most vulnerable as manufacturing facility for Dacia. A new group plant in Morocco is close to coming they are, in our opinion, the least central to Renault production on stream; this factory, in the Tangiers duty free zone, will have initial capacity for network. 170,000 upa, with the potential to reach 400,000 upa when two further models are  In addition, Nissan’s luxury arm Infiniti will have a new model produced off the introduced. The first vehicles made here will be Dacias, although Renault and new Mercedes A-class platform; production will be at Magna Steyr in Austria possibly Nissan models could also be made there. and should begin as soon as early as H2/2013. Volume projections here are The Moroccan factory was officially opened in February and has started production very provisional. of the Dacia Lodgy MPV; this will be followed by a small van which will also be sold  News of expansion at Nissan in the UK, Russia and Spain has been noted in passenger format; we expect this will be a Dacia badged vehicle similar to the above. . Reorganisation of engine production in Europe The Moroccan plant is intended to supply Europe, as well as North Africa and parts of the Middle East. This may even have some long term impact on production of

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the Dacia range in Romania, depending on which model variants are to be made at each plant. If the European market fails to recover at the expected rates, quite how Renault will manage this new capacity, alongside its existing capacity, is an intriguing question. In a separate development, it also appears that Renault is considering opening a second new factory in North Africa – Algeria is the proposed location although no details have yet emerged on whether this will be a full manufacturing facility or merely a kit assembly plant and indeed how many vehicles might be made there. Brazil As reported previously, in Brazil Renault is negotiating to expand its existing plant in Curitiba in Parana, Brazil. This plant currently makes the Sandero, Sandero Stepway, Logan, Dacia and the Megane Grand Tour. The plan is understood to involve increasing production in Curitiba by 100,000, raising capacity there to 380,000 upa, adding a further 1,000 jobs; around US$240mn will be invested there. This will help to raise Renault’s local share to its target or 8%. It is worth noting, moreover, that despite Renault’s plans to expand in Brazil, Nissan is looking at building its own plant in the country, with a capacity of around 220,000 upa, which would include budget cars and possibly electric vehicles. This new Nissan plant would involve an investment of around US$1.5bn, and would be built in Resende, near Rio de Janeiro. The vehicles to be made there would be based on Nissan’s V platform, which is the latest platform for B-segment (Micra) vehicles. The new plant would be in addition to the vehicles it makes in the Renault factory, ie Livina and Frontier amongst others.

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New models: These are summarised below:

2012 2013 2014 2015 2016 Zoe EV Clio switch to X98 platform, incl. SUV-like Twingo and other models from Daimler JV New Kangoo New Logan PU Upgrades to Turkish built model to be made in Spain (replacement for (delayed by one year) New Megane starts New Juke Modus) – the new Clio will be longer, lower versions of Clio for regional Possible revival as rival to Citroen Sandero Stepway New Megane CC and wider than the outgoing model and it markets DS3 and Mini crossover will only be available in 5-door format. (SUV Logan renewal starts New Qashqai model likely to use the Captur and be Lodgy MPV launch Renault’s equivalent to the Juke) New Sandero Duster full launch in Russia New Trafic Laguna and Espace start production Renault version of Smart ForTwo New C segment car for Nissan at Sunderland New Pick-up in Spain Nissan Leaf EV Nissan Invitation starts Nissan Infiniti version of Mercedes Small Dacia van from Moroccan factory

The Production Outlook tables which follow show that we expect Renault production in Europe to fall by close to 200,000 units this year, before recovering from 2013. All of the main volume Renault models currently made in Europe has now passed the early days of their life cycles, so a decline would be expected in normal circumstances anyway. The economic uncertainty means that this situation will be somewhat exacerbated and it will be a couple of years before the new electric vehicles and new Clio will have a significant impact in terms of reviving sales. We see Renault having a much stronger time in production terms from 2013, when it starts production of the Trafic in France, and a replacement for the Modus also appears; in addition, the Zoe EV will have its first full year of production. The rise from 2014 to 2015 will be underpinned by the next Espace/Laguna and the start of the new Megane range. However, even allowing for the Megane and Fluence in Russia, we do not see Renault brand production in Europe by 2016 getting back to its 2007 pre-recession peak. Nissan’s European production will actually rise slightly this year and fall next year slightly, due largely to model cycle effects, but it will steadily climb again from 2014 once the Leaf, Invitation and new Qashqai have started production. Dacia production is also expected to rise strongly this year, largely on the back of rising production in Russia, and also the start of production at the new plant in Morocco. Group production volumes in Europe should rise approach 3.25mn units in 2014 – the tipping point should be the full scale production of Logan-based models at Togliatti; we expect over 3500,000 of these to be made there per year by 2016. 4mn units in Europe by the second half of the decade is also a reasonable expectation for the Renault group.

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Renault-Nissan-Dacia Production Outlook to 2016 – Renault and totals for other group brands Vehicle Country Start Segment Prod'n Prod'n End Next new Production Production Production Production Production

Series (platform) Group Marque Model range Plant of 2007 Production 2008 Production 2009 Production 2010 Production 2011 Production type of model Outlook 2012 Outlook 2013 Outlook 2014 Outlook 2015 Outlook 2016

Renault‐Nissan Renault Twingo Pass. A X06 Flins FR H1 07 2005 28,466 2 0 0 0 0 0 0 0 0 Renault‐Nissan Renault Twingo Comm.Van X06 Flins FR H1 07 2005 386 0 0 0 0 0 0 0 0 0 Renault‐Nissan Renault Twingo 2 /Twingo Campus Pass. A X44 Novo Mesto () SL Q1 07 2012 82,763 134,398 187,444 163,052 146,782 115,000 95,000 11,000 0 0 Renault‐Nissan Pass. A X33 Novo Mesto (Revoz) SL Q1 11 2010 0 0 0 20,000 12,000 2,000 1,500 1,500 1,250 1,250 Twingo 3 inc Renault 5 replacement Renault‐Nissan Renault Pass A Daimler JV Novo Mesto (Revoz) SL H1 12 0 0 0 0 0 0 15,000 140,000 155,000 152,500 to compete with Citroen DS3 Renault‐Nissan Smart New Four Seater Pass. ARenault JV Novo Mesto (Revoz) SL H2 13 0 0 0 0 0 0 6,000 55,000 65,000 69,000 Renault‐Nissan EV Pass. B Flins FR H1 12 0 0 0 0 0 15,000 60,000 67,500 71,000 72,500 Renault‐Nissan Renault Clio Campus Pass. B X65 Flins FR Q3 09 0 0 13,000 5,000 0 0 0 0 0 0 Renault‐Nissan Renault Clio Pass. B X85 Flins FR Q4 05 207,917 160,056 126,228 140,732 136,382 110,000 103,000 85,000 69,500 55,000 Renault‐Nissan Renault Clio Comm.BX85FlinsFRQ4 05 2013 ‐ X98 3,277 3,620 5,208 7,693 14,461 10,000 7,500 5,500 5,000 5,000 Renault‐Nissan Renault Clio Pass. B X85 Valladolid SP Q4 05 36,951 20,560 25,450 30,000 40,000 25,000 0 0 0 0 Renault‐Nissan Renault Clio Pass. B X65 Novo Mesto (Revoz) SL Q4 06 2005 117,394 63,696 25,236 29,441 15,000 7,500 0 0 0 0 Renault‐Nissan Renault Clio (Old Symbol) Pass. B X65 Bursa TR 2006 75,448 48,887 0 0 0 0 0 0 0 0 Renault‐Nissan Pass. B L35 Bursa TR H2 08 0 29,870 64,117 74,513 79,052 70,500 52,500 10,000 0 0 Renault‐Nissan Renault Clio Pass. B X86 Bursa TR 2013 ‐ X98 102,929 151,425 179,495 145,119 127,500 152,500 188,000 222,500 229,000 233,000 Renault‐Nissan Renault Modus Comm.Van J77 Valladolid SP Q2 04 2,357 0 0 0 0 0 0 0 0 0 Renault‐Nissan Renault Modus Pass. B‐MPV J77 Valladolid SP Q2 04 65,157 72,590 69,359 47,251 48,590 35,000 5,000 0 0 0 Renault‐Nissan Renault New B seg Pass B‐SUV B87 Valladolid SP 2012‐13 0 0 0 0 0 0 50,000 76,000 78,000 71,000 Kangoo incl EV and Mercedes X76 switching to 2011 (EV), Renault‐Nissan Renault Comm.Van Maubeuge FR H2 97 2007‐2008 190,252 178,602 113,488 139,243 146,677 128,500 142,500 131,000 119,000 150,000 version X61 2015 New Renault‐Nissan Renault Mégane Pass. C X84 Douai FR Q1 03 2009+ 19,019 8,000 0 0 0 0 0 0 0 0 Renault‐Nissan Renault Mégane CC Pass. C sports X84 Douai FR Q2 03 2009+ 27,907 14,000 2,750 0000000 Renault‐Nissan Renault Mégane CC Pass. C sports X95 Douai FR Q2 09 0 0 0 10,000 11,000 10,000 7,500 6,000 7,000 9,000 Renault‐Nissan Renault Mégane Pass. C X84 Palencia SP Q1 03 2009+ 168,620 157,513 65,000 0 0 0 0 0 0 0 Renault‐Nissan Renault Mégane Comm.Van X84 Palencia SP 2009+ 8,078 7,300 0 6,340 7,500 4,500 3,500 3,000 2,500 2,000 Renault‐Nissan Renault Mégane Pass. C X95 Palencia SP Q2 09 0 0 190,280 255,736 245,000 217,500 179,000 145,000 189,000 212,000 Renault‐Nissan Renault Mégane sedan Pass. C X84 Bursa TR Q1 04 2009+ 85,279 65,369 23,657 21,834 14,000 000 0 0 Renault‐Nissan incl. EV Pass. C X95/L38 & B32/38 Bursa TR Q2 09 0 0 10,312 65,617 103,994 95,000 91,000 79,000 65,000 62,000 Renault‐Nissan Renault Megane/Fluence Pass C X95 Moscow (AvtoFramos) RU H1 2011 0 3,085 5,000 15,000 35,000 65,000 75,000 Renault‐Nissan Renault Scenic Pass. C MPV J94 Douai FR Q1 03 2009+ 267,970 170,912 30,000 0000000 Renault‐Nissan Renault Scenic Pass. C MPV J95 Douai FR Q2 09 2016 0 0 130,000 184,191 166,000 142,500 129,000 98,000 79,000 98,000 Renault‐Nissan Pass. D X74 Sandouville FR H2 00 Q1 07 H2 05 40,000 0 0 0 0 0 0 0 0 Renault‐Nissan Renault Laguna Pass. D X91 Sandouville FR Q1 07 2014‐15 59,514 81,572 46,907 52,267 50,232 32,000 26,500 10,000 0 0 Renault‐Nissan Pass. E X73 Sandouville FR Q1 02 Q1 10 2008 2,812 1,693 1,180 0 0 0 0 0 0 0 J81 ‐ switch to J93 will Renault‐Nissan Pass. MPV Sandouville FR H2 02 H2 09 2011+ 40,675 21,668 15,214 16,876 14,674 11,750 7,500 2,000 0 0 take place 2014 tbc Renault‐Nissan Renault New Laguna and Espace Pass D/MPV New CD platform Douai FR 0 0 0 0 0 0 0 45,000 77,000 65,000 Renault‐Nissan Comm.Van X83 successor Sandouville FR Q4 12 0 0 0 0 0 0 55,000 67,500 75,000 80,000 Renault‐Nissan (incl Opel and Nissan versions) Comm.Van X70 Batilly FR H2 02 H2 10 2010 112,140 90,580 53,674 75,787 000000

Renault‐Nissan Renault Master (incl Opel and Nissan versions) Comm.Van X62 Batilly FR H2 10 0 0 0 5,000 106,491 101,500 97,500 91,000 79,000 67,500 Renault‐Nissan Renault Total 1,745,311 1,482,313 1,377,999 1,495,692 1,488,420 1,290,750 1,337,500 1,386,500 1,431,250 1,479,750 Renault‐Nissan Nissan Total 546,415 522,298 386,205 529,377 668,985 691,000 688,000 840,500 930,500 969,500 Renault‐Nissan Dacia Total Also approx 125,000 kits pa from Pitesti for other Logan assembly sites 361,402 357,029 345,663 428,147 466,839 563,500 737,000 835,000 887,000 905,750 Renault‐Nissan AvtoVAZ Total 0 0 0 0 0 32,500 135,000 182,000 271,500 425,000 Renault‐Nissan ALL Total 2,653,128 2,361,640 2,109,867 2,453,216 2,624,244 2,577,750 2,897,500 3,244,000 3,520,250 3,780,000

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Renault-Nissan-Dacia Production Outlook to 2016 – Nissan and Dacia/AvtoVAZ details and totals for other group brands Nissan Vehicle Country Start Segment Prod'n Next new Production Production Production Production Production

Series (platform) Group Marque Model range Plant 2007 Production 2008 Production 2009 Production 2010 Production 2011 Production type of model Outlook 2012 Outlook 2013 Outlook 2014 Outlook 2015 Outlook 2016

Renault‐Nissan Renault Total 1,745,311 1,482,313 1,377,999 1,495,692 1,488,420 1,290,750 1,337,500 1,386,500 1,431,250 1,479,750 Renault‐Nissan Nissan Micra Pass. B K123 Sunderland UK Q1 03 2010 82,917 80,746 88,429 54,580 0 0 0 0 0 0 Renault‐Nissan Nissan Micra CC Pass. B sports K127 Sunderland UK Q3 05 5,576 3,001 175 0 0 0 0 0 0 0 Renault‐Nissan Nissan Leaf (electric) Pass B New Sunderland UK H1 12 0 0 0 0 0 0 34,000 45,000 50,000 55,000 Renault‐Nissan Nissan Juke (Qazana) Pass. B‐SUV X12C Sunderland UK Q1 10 0 0 0 44,622 132,606 152,500 141,000 129,500 116,000 105,000 Renault‐Nissan Nissan Note Pass. B‐MPV E111 Sunderland UK Q1 06 2012 92,678 77,819 50,880 52,872 46,602 40,000 31,500 16,000 0 0 Renault‐Nissan Nissan Invitation Pass. B New Sunderland UK Q3 13 0 0 0 0 0 0 15,000 100,000 105,000 100,000 Renault‐Nissan Nissan New C segment car Pass. C New Sunderland UK Q3 14 2014 0 0 0 0 0 0 0 18,000 66,500 77,000 Renault‐Nissan Nissan Qashqai Pass. C‐SUV J101 Sunderland UK Q4 06 2014 164,191 224,989 198,841 271,188 301,277 314,250 299,000 319,000 323,000 325,000 Renault‐Nissan Nissan Primera Pass. D MS/ X31B Sunderland UK Pre 02 8,316 0 0 0 0 0 0 0 0 0 Renault‐Nissan Nissan Teana Pass. C FFL St Petersburg RU H2 09 2009 0 0 790 4,000 12,500 16,000 20,000 25,000 30,000 30,000

Renault‐Nissan Nissan X‐Trail Pass. C‐SUV P32E St Petersburg RU H2 09 2009 0 0 3,000 11,000 21,000 25,750 25,000 25,000 23,000 23,000

Renault‐Nissan Nissan Qashqai Pass C P32E St Petersburg RU H2 13 2013 0 0 0 0 0 0 10,000 30,000 35,000 45,000

Renault‐Nissan Nissan Murano Pass E Murano St Petersburg RU H2 11 2011 0 0 0 0 5,500 7,500 6,500 5,500 5,000 4,500 Renault‐Nissan Nissan Various other models Pass. &Various Various St Petersburg RU H2 110 0005,000 10,000 15,000 20,000 50,000 75,000 Renault‐Nissan Nissan Infiniti version of A‐class Pass C Mercedes AMagna Steyr AU H1 13 0 0 0 0 0 0 0 7,500 28,000 38,000 Primastar (and Renault Trafic, Opel Renault‐Nissan Nissan Comm.Van X83 Barcelona SP 2006 FL 86,435 69,445 24,556 41,263 69,000 51,500 7,000 0 0 0 Vivaro) Renault‐Nissan Nissan NV200 Comm Van NV200 Barcelona SP H2 09 0 0 420 12,753 27,000 26,000 30,000 24,500 20,000 17,500 Renault‐Nissan Nissan Navarra Comm.PU QZ/H61 Barcelona SP 79,147 47,194 15,102 25,925 32,000 35,000 28,000 35,000 39,000 34,500 Renault‐Nissan Nissan Pathfinder Pass. SUV QZ/P61 Barcelona SP Q2 05 27,155 19,104 4,012 11,174 16,500 12,500 11,000 10,500 10,000 10,000 New models, details to be Renault‐Nissan Nissan Comm Pass Unknown Barcelona SP 2011‐12 0 0 0 0 0 0 15,000 30,000 30,000 30,000 confirmed Renault‐Nissan Nissan Total 546,415 522,298 386,205 529,377 668,985 691,000 688,000 840,500 930,500 969,500 Renault‐Nissan Dacia Total Also approx 125,000 kits pa from Pitesti for other Logan assembly sites 361,402 357,029 345,663 428,147 466,839 563,500 737,000 835,000 887,000 905,750 Renault‐Nissan AvtoVAZ Total 0 0 0 0 0 32,500 135,000 182,000 271,500 425,000 Renault‐Nissan ALL Total 2,653,128 2,361,640 2,109,867 2,453,216 2,624,244 2,577,750 2,897,500 3,244,000 3,520,250 3,780,000 Dacia/AvtoVAZ Vehicle Country Start Segment Prod'n Next new Production Production Production Production Production

Group Marque Model range Series (platform) Plant 2007 Production 2008 Production 2009 Production 2010 Production 2011 Production type of model Outlook 2012 Outlook 2013 Outlook 2014 Outlook 2015 Outlook 2016

Renault‐Nissan Renault Total 1,745,311 1,482,313 1,377,999 1,495,692 1,488,420 1,290,750 1,337,500 1,386,500 1,431,250 1,479,750 Renault‐Nissan Nissan Total 546,415 522,298 386,205 529,377 668,985 691,000 688,000 840,500 930,500 969,500 Renault‐Nissan Dacia Logan Pass. B Clio Pitesti RO H2 04 2012 185,246 88,347 50,548 50,952 41,796 56,000 59,000 70,000 65,000 62,000 Renault‐Nissan Dacia Logan MCV Pass. B Clio Pitesti RO H1 07 2012+ 99,515 104,189 80,247 44,514 39,187 42,000 71,000 72,000 74,000 72,000 Renault‐Nissan Dacia Logan PU Comm.B Clio Pitesti RO 2012+ 0 9,847 7,721 7,276 6,201 7,500 9,500 8,500 7,500 6,750 Renault‐Nissan Dacia Logan Van Comm B Clio Pitesti RO 2012+ 7,400 7,100 8,969 10,436 11,176 11,500 12,500 10,500 9,000 15,000 Renault‐Nissan Pass. B‐SUV Clio Pitesti RO H1 2010 0 0 0 86,239 168,673 152,000 150,000 148,000 150,000 145,000 Renault‐Nissan Pass. B Clio Pitesti RO 2014 0 74,828 148,527 141,882 60,587 64,000 94,000 115,000 102,500 100,000 Logan/Sandero/ Duster ‐ Renault‐Nissan Dacia progressive switch to Renault C seg Pass. B Clio Moscow (AvtoFramos) RU 2006/ 2007 2012+ 69,241 72,718 49,651 86,848 139,219 160,500 174,000 171,000 169,000 165,000 models from 2015 Renault‐Nissan Dacia Various inch. Lodgy MPV Pass. B/C Clio Tangiers MO H1 2012 2012+ 0 0 0 0 0 70,000 167,000 240,000 310,000 340,000 Renault‐Nissan Dacia Total Also approx 125,000 kits pa from Pitesti for other Logan assembly sites 361,402 357,029 345,663 428,147 466,839 563,500 737,000 835,000 887,000 905,750 Lada/Dacia/ Renault‐Nissan Various models on Logan platform Pass B Clio Togliatti RU Q1 2012 0 0 0 0 0 25,000 90,000 102,000 195,000 355,000 Renault/Nissan Renault‐Nissan Nissan Almera Pass C Almera Togliatti RU Q3 2012 0 0 0 0 0 7,500 45,000 80,000 76,500 70,000 Renault‐Nissan AvtoVAZ Total 0 0 0 0 0 32,500 135,000 182,000 271,500 425,000 Renault‐Nissan ALL Total 2,653,128 2,361,640 2,109,867 2,453,216 2,624,244 2,577,750 2,897,500 3,244,000 3,520,250 3,780,000

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Suzuki Recent news: just as this report was being prepared Suzuki confirmed what we had assumed would be the case for some time, ie that production will be slowed for the rest of the year at its Hungarian plant; one shift will be cut through to the end of the year and the plan is to move back to two shifts in January 2013. we suspect that either one-shift production will continue in 2013 or if two shifty production is revived then the line speed for both shifts will be reduced as we do not expect a recovery in Suzuki production volumes from Hungary until later in 2013 or early 2014 when we expect new models to begin to come on stream. Previously we had reported that Suzuki wants to end its partnership with Volkswagen. In October 2011, Suzuki served Volkswagen with a notice of breach, with Suzuki claiming that Volkswagen has committed several breaches of the two companies’ Framework Agreement. This announcement has come after a period of inaction and clear disagreement between the two companies. Volkswagen had objected to Suzuki buying diesel engines from Fiat, in response to which Suzuki demanded a public retraction, without success. Suzuki claims that the partnership was intended to allow both sides to continue to operate as “independent entities and equal partners” – moreover, Suzuki specifically saw the agreement as a means for it to secure access to Volkswagen’s environmental technology, but when this did not appear to be happening, Suzuki decided to proceed along its own path. The breakdown of this alliance is not altogether surprising. Suzuki has been a notoriously independent company, while Volkswagen has been highly acquisitive in the past and very much likes to control its subsidiaries and, arguably, its partners too. In previous reports, we had commented on the lack of significant developments in the companies’ relationship. Specifically, we noted reports that Suzuki apparently feared that VW was trying to take control of the company. The break-up of the alliance is now proceeding through the London court system. Production in Hungary: The production contracts for Fiat (Sedici) and Opel (Agila) will continue in the short term, but will not be renewed. Suzuki versions of these models will continue until at least the middle of the decade. We think that Suzuki will have to add some new models to the European factory’s portfolio, simply to keep it operating efficiently – these come in from 2014 and are highlighted in the Outlook table, but they remain provisional for now. Construction of the Suzuki plant in Russia is continuing and while the start of production in late 2011 was expected, this has been delayed until late 2012. New models: there will be a facelifted Swift in 2013, and we expect the SX4 to be renewed at around the same time, but other than this there is no longer term indication of what new models will be made by Suzuki in Hungary. Suzuki will use a 1.6 litre Fiat diesel engine for a new model to be made at the Hungarian plant from 2013. Suzuki Production Outlook to 2016 Vehicle Country Start Segment Prod'n Next new Production Production Production Production Production

Group Marque Model range Plant 2007 Production 2008 Production 2009 Production 2010 Production 2011 Production type of model Outlook 2012 Outlook 2013 Outlook 2014 Outlook 2015 Outlook 2016

Suzuki Suzuki Jimny Pass. SUV Linares SP 2009+ 5,064 3,163 549 0 0 0 0 0 0 0 Suzuki Suzuki Grand Vitara Pass. SUV St Petersburg RU H1 10 2011 0 0 0 0 0 2,000 19,000 25,000 22,000 20,000 Suzuki Suzuki SX4 Pass. SUV St Petersburg RU H1 10 2011 0 0 0 0 0 0 7,000 18,500 15,500 13,500 Suzuki Pass. A Esztergom HU Q2 08 2008 2,327 47,064 41,500 34,500 15,500 15,000 10,000 35,000 45,000 41,500 Suzuki Opel Agila Pass. A Esztergom HU Q2 08 2008 0 64,660 50,500 27,897 28,124 23,000 12,500 0 0 0 H2 10, FL Suzuki Suzuki Swift Pass. B Esztergom HU Q1 05 2013, new 108,775 92,547 60,000 62,500 70,000 55,000 60,000 58,750 70,500 95,000 after 2016 Suzuki Subaru Justy Pass. B Esztergom HU 6,853 0 0 0000000 Suzuki Suzuki Ignis Pass. B Esztergom HU Q2 03 27,453 0 0 0000000 Suzuki Suzuki SX4 Pass. B‐SUV Esztergom HU Q2 06 2006 56,976 49,453 22,000 38,000 45,000 37,250 52,500 65,000 61,000 60,000 Suzuki Fiat Sedici Pass. B‐SUV Esztergom HU H2 06 2006 39,338 29,120 11,500 16,000 14,250 12,500 5,000 0 0 0 Suzuki Suzuki New models tbc Pass. B and C Esztergom HU 2012+ 2012= 0 0 0 0 0 0 0 12,500 19,000 26,500 Suzuki Suzuki Total 246,786 286,007 186,049 178,897 172,874 144,750 166,000 214,750 233,000 256,500

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Tata – Jaguar-Land Rover Work on building the factory is under way, the local council having given all the necessary go-aheads; these include funding being provided to create a new slip Key recent developments: 2012 has seen continued good news from JLR. For road off the M54 motorway to serve the factory site. example, it has switched its Halewood factory to a three-shift operation to meet demand for Evoque and Freelander. We think this will mean around 40,000 more Continuing the positive aura around JLR, we had the good news in early vehicles will be produced this year than we had previously thought. With other November that it will recruit a further 1,000 workers at Solihull to support the new new models projected in future years and ambitious plans for the new Defender, Range Rover, Range Rover Sport, Defender and other new models to be made we now expect just over 400,000 Land Rovers could well be made in the UK by there in the coming years. This will take employment at Solihull to around 5,000, 2016. an increase of 25%. This is on top of the c750 jobs to be created at the new engine plant in Wolverhampton. 2012 sees continued good news for JLR Strong financial results 2011 saw a number of major positive announcements for JLR as noted below. The good news has continued in 2012. This began with the move to three-shift Whereas 2009 saw a substantial fall in production volumes for both Jaguar and production at Halewood, a development which means 1,000 new jobs are being Land Rover, 2010 was a very positive year for the company. JLR reported H1 created there. 2010/2011 profits of nearly £0.5bn, compared to a £60m loss in 2009/10. This tuned into annual profits of over £1bn for 2010/11 and a similar result is expected Since this announcement, JLR has confirmed it will make the F-type 2-seater; this for the current financial year. will result in a £200mn investment in the Castle Bromwich factory, with a further 1,000 workers being taken on. Production will begin in mid-2013. The vehicle will Success at JLR is also behind recent strong financial results at Tata, its parent be shown at the Paris motor show in September. company. In Q3 2011, JLR revenue was £3.74b, up from £2.66bn in the same quarter in 2010. In addition, in March it was confirmed that JLR and Chery will set up a JV to make various JLR and indeed jointly branded products in China. Timing for the start of JLR’s Q3 results for the last nine-months featured: production awaits confirmation but it could be as soon as 2014. CKD assembly of  Revenue up 31% to £9.39bn. Freelander is also expected in Brazil by the end of 2013 or early 2014.  EBITDA up 33% to £1.57bn. JLR’s first engine plant  And net profit after tax up nearly 20% to £897mn. In September last year, JLR confirmed it would invest over UK£350mn in this new For the full year, Jaguar Land Rover has reported a 34% rise in profits after sales facility, creating 750 direct jobs and boosting or securing employment throughout hit a record high. In 2011-2012 the group made pre-tax profits of £1.5bn, up from the supply chain. The UK government is making a small, UK£10mn, grant. £1.12bn the year before. Pre-tax profits for the quarter ended 31 March were The plant will be located in Wolverhampton and will make 4-cylinder diesel and £530m, up from £299m for the same quarter last year. Revenues were up 51.5% petrol engines, reducing the company’s dependence on Ford which is currently the at £4.14bn. principal engine supplier to JLR. These engines will be fitted in small Land Q1 results, for April-June, also showed a positive picture – JLR’s global Rovers/Range Rovers and on the Jaguar range, on models up to the size of the volumes were up by over 34% year-on-year, with China reporting a rise of XF. Large engines are likely to continue to be sourced from Ford in the medium 91%. The main driver of growth was the Evoque which helped to push Land term. Rover sales for the quarter up by over 41% to nearly 72,000 worldwide.

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Jaguar, by contract was up by a rather more modest 3.8% to nearly 12,000 The new Range Rover is said to have been designed to have the same on-road units. dynamics as the XJ saloon, which would be a remarkable achievement if this target is met. Initial press reports suggest this objective has been met – and that In financial terms, JLR’s revenue for the April-June quarter was £3.64bn, the new model will be a truly class-leading model, taking the premium segment of versus £2.7bn a year earlier; this was a rise of nearly 35%. EBITDA for the the SUV market to a new level. Smaller engines will be offered, but it will retain quarter was £527mn, versus £362mn a year earlier. The continued the large V8 petrol and diesel engines. A hybrid is expected in 2013, with a plug-in production rise and expansion worldwide should see a continuation of this hybrid also due by 2015. very positive picture in the rest of the financial year. Following the new Range Rover, there will be the replacement for the Range Manufacturing news: as noted above, the main news of note includes: Rover Sport in 2015. This will be more visually differentiated from the Range  Moving Halewood to 24-hour working. Rover than the first model. The new Range Rover Sport will be made on the same  Confirming the F-type would be produced from 2013. L405 platform as the Range Rover (the current model is made on the Discovery platform). Thereafter, the new Freelander will come in 2015, based on the Evoque  And construction of the new engine plant in Wolverhampton which is now well platform, followed by the new Discovery in late 2015/early 2016. under way. It has also been reported that the existing Defender will be retained, notably in long New models: The very long-awaited F-type, the spiritual successor to the E-type, wheel base and commercial format until at least 2017 – it had been expected will be shown at the forthcoming Paris motor show, its launch having been production would stop by then but reports have suggested that this vehicle has expected at the Detroit motor show in January 2013. The F-type will come in been given an exemption from forthcoming pedestrian impact legislation; as a cabrio and coupe versions. Initial models will have a V6 petrol engine, with a V8 result, production can continue. expected, but a diesel remains uncertain. The new model will be built on the same platform as the XK; both vehicles will be made at Castle Bromwich. Quite when the new Defender will actually appear remains to be confirmed – we think it is likely in 2015, before the next Discovery, but JLR is taking its time to An estate version of the XF and a 4WD version of the saloon are expected shortly finish this new model. JLR has ambitious plans for this new model, citing the (the XF estate concept was shown at the Geneva motor show in March), with the Toyota Hilux/Landcruiser (c0.5mn upa) as its target competitors – whether the new XK now delayed until 2016. A SUV-crossover of the XF is also possible after Defender can really or quickly achieve sales of this order of magnitude remains to 2015. A small saloon, a long awaited X-type replacement is expected in 2015 or be seen, but that JLR is targeting this sort of range is indicative of the new possibly 2016. We expect a smaller 4-door version of the XF to appear as well, ambitions of the company and its owners. possibly in 2014, as a direct competitor to the 3-series. Jaguar executives have been speaking of the need to have a strong presence in the sub-£30,000 segment In addition, it is understood that Land Rover engineers are working on a Grand of the market Evoque, to fit between the Evoque and the Range Rover Sport; this would be a family-sized coupe SUV, similar to the BMW X6. A cabrio version of the Evoque Last year reports started to leak out regarding expansion of the Land Rover range. was shown in concept form at Geneva, but this seems unlikely to reach production. Following the Evoque, there will be a new Range Rover model in the second half Models below the Freelander and Evoque are also under consideration but remain of 2012, based on an all-new aluminium platform. This is understood to cut weight speculative for now, but quite probable for the latter part of the decade. by as much as half a tonne over the outgoing model. Around half of the vehicle’s body will be made of recycled aluminium and will include versions which will retail The expansion of the company’s product will also include filling in gaps which at over UK£100,000. currently limit its potential – for example in the USA, Jaguar is missing out on as much as 70% of its potential market for the XF because it does not have a 4WD

EUROPEAN CAR AND LCV PRODUCTION OUTLOOK REPORT September 2012 | Page 111

version, while in Europe the lack of a 2.0 litre diesel for the same model means a similar loss of sales. The latter gap will be filled with the forthcoming 2.2 litre diesel engine, while Jaguar has also confirmed an AWD version will be available for both the XF and XJ, targeted especially at the Snow Belt markets in the USA, Russia, Europe and China; for now the 4WD versions will not be offered in the UK. We understand electric Range Rovers are currently undergoing trials, but when any of these are signed off for actual production remains to be seen New model plans are summarised in the following table overleaf.

EUROPEAN CAR AND LCV PRODUCTION OUTLOOK REPORT September 2012 | Page 112

New models 2012 2013 2014 2015-2016 New Range Rover Jaguar F-type New Freelander New Jaguar XK (X151) Discovery facelift Jaguar CX75 super car New sub XF (X760) New Freelander XF estate Jaguar XJ hybrid New Range Rover Sport New Defender; Discovery production to start; possible additional model between Evoque and Range Rover Sport (Evoque XL?)

The Production Outlook tables include provisional volumes for the new Jaguars, but these are provisional and some of the timings for these models have not been confirmed. Production allocation between Castle Bromwich, Halewood and Solihull has not been confirmed and there could well be a change in where vehicles are made; we expect news of this to become clear during 2012. Tata – Jaguar-Land Rover Production Outlook to 2016 Vehicle Country Start Segment Prod'n Next new Production Production Production Production Production

Group Marque Model range Series (platform) Plant 2008 Production 2009 Production 2010 Production 2011 Production type of model Outlook 2012 Outlook 2013 Outlook 2014 Outlook 2015 Outlook 2016

Tata Jaguar X type Pass. D X400/ CD132 Halewood UK Q1 01 2009+ 15,973 8,046 0 0 0 0 0 0 0 Tata Jaguar X type replacement Pass C/D New TBC UK H1 15 0 0 0 0 0 0 0 25,000 50,000 Tata Jaguar XD ‐ new sub XF 4‐dr Pass D/E X760 Castle Bromwich UK H2 14 0 0 0 0 0 0 1,000 25,000 40,000 Tata Jaguar F‐type/XE Pass. Sports C‐X16 Castle Bromwich UK H2 13 0 0 0 0 250 9,000 22,000 31,000 35,000 Tata Jaguar XF, plus estate from 2014 Pass. E X250 Castle Bromwich UK H1 08 43,792 27,236 34,396 31,295 33,000 38,500 41,500 50,000 52,000 H2 09 Tata Jaguar XJ / XJR Pass. F X350/ DEW98 Castle Bromwich UK H2 02 5,982 1,953 16,495 14,033 14,250 15,250 14,000 13,250 12,500 major FL Tata Jaguar XK / XK8 Pass. Sports X150 Castle Bromwich UK H1 06 2013‐4 6,949 4,530 5,565 4,604 3,500 3,000 6,000 8,500 9,250 Tata Jaguar Total 72,696 41,765 56,456 49,932 51,000 65,750 84,500 152,750 198,750 Tata Land Rover Freelander Pass. SUV L359 Halewood UK Mid 2006 2014 59,137 35,405 56,487 48,753 54,500 48,500 45,000 5,000 0 Tata Land Rover New Freelander Pass. SUV New Halewood UK H 1 15 2015 0 0 0 0 0 0 0 61,000 82,000 Tata Land Rover Range Rover Evoque Pass. SUV L358/486 Halewood UK H1 11 0 0 0 40,212 115,000 109,500 102,500 97,000 93,000 Tata Land Rover Discovery Pass. SUV L319 (T5) Solihull UK Q2 04 2011 FL 35,383 21,195 39,374 46,480 47,000 42,500 39,500 18,500 2,500 Tata Land Rover New Discovery Pass SUV L661 Solihull UK H2 13 0 0 0 0 0 0 0 15,500 45,000 Tata Land Rover Range Rover Sport Pass. SUV L321 Solihull UK Q2 05 2015 45,628 29,265 47,439 54,981 58,500 52,500 45,000 5,000 0 Tata Land Rover New Range Rover Sport Pass. SUV L405 Solihull UK H1 15 0 0 0 0 0 0 0 58,500 61,000 Tata Land Rover Range Rover Pass. SUV L322 Solihull UK H2 01 2012 23,786 15,173 24,563 30,848 11,500 0 0 0 0 Tata Land Rover New Range Rover Pass SUV L405 Solihull UK H1 12 0 0 0 0 25,500 54,000 57,000 53,000 51,000 Tata Land Rover New Defender Pass. &SUV L660 Solihull UK H1 11 0 0 0 0 0 0 0 25,000 65,000 Tata Land Rover Defender Pass. SUV Solihull UK 2015 22,345 15,543 17,233 19,825 16,250 17,500 16,000 12,500 10,000 Tata Land Rover Defender Comm.SUV Solihull UK 2015 1,868 0 0 0 0 0 0 0 0 Tata Land Rover Total 188,147 116,581 185,096 241,099 328,250 324,500 305,000 351,000 409,500 Tata Tata JLR Total 260,843 158,346 241,552 291,031 379,250 390,250 389,500 503,750 608,250

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Toyota In France Toyota has also confirmed that its French plant has returned to three- shift working in January 2012. To help in this regard, 800 new employees have Key recent developments: 2011 was not a good for Toyota to begun with, but by been taken on, with 18 month contracts; if sales are better than expected the three the end the year, a number of announcements were made which suggested that shift working arrangements and the 18 month contracts could be extended. This the tide was turning for the company in Europe. Indeed, 2012 looks set to be a good news regarding Yaris production counters the negative news from the PSA much better year for the company in Europe. JV (TPCA) in the Czech Republic where production of the Aygo (and PSA Since our last report the most significant news items concern expansion in Russia, equivalents) is being cut in 2012 – although this is really due to the natural decline replacing Fiat as PSA’s partner in medium van production in France and co- in production numbers for these models as they approach the end of their life cycle. develop a fuel cell technology and (separately) a sports car with BMW. More New versions will be made and this JV is regarded as very solid. specifically: Bad news stories now a thing of the past?  The Russian plant added its second shift from August and having made nearly A quick recap of the bad news stories of 2011 is worthwhile to situate the more 20,000 Camrys in the first seven months of the year, production of over 50,000 positive news for the company in context: just as Toyota was putting the negative units this year seems assured: affects of the 2010 recall saga behind it, it was hit – as were the other Japanese o A small car will be added to this plant in a couple of years. VMs – with the disruption caused by the earthquake and tsunami in Japan. In o In addition, from 2014, the Russian factory will add pressings and plastic Europe, this led to an immediate suspension of overtime from March onwards. injection mouldings for large parts, giving it the same vertically integrated Production had slowly begun to recover but in October, again along with other capacity as other Toyota plants in Europe. Japanese VMs, Toyota was hit by the floods in Thailand disrupting supplies of crucial components. In the end, the disruption from the Thai floods was not as  Toyota will start sourcing vans from the PSA-Fiat JV in 2013 and will then great as had been feared; there are few direct Toyota suppliers from Thailand, but replace Fiat as PSA’s partner in this venture; it will contribute to the €750mn there are several tier 2 suppliers, especially in electronics and audio systems. planned investment in the next model, although what Toyota’s exact contribution in financial or technical terms will be remains to be seen. 2010 had seen a slowdown in production in France and the mothballing of one of  In addition to the earlier announcement that BMW will supply 1.6 and 2.0 litre the assembly lines at Toyota’s Burnaston plant; this was despite the addition of the diesel engines to Toyota from 2014, the two companies also plan to work Auris hybrid to the UK plant. This line closure involved the loss of 750 jobs which together on fuel cell technology and in the development of a sports car. was achieved without compulsory layoffs. Whether the decline in volumes was a whether these two developments will have any implication for Toyota in reflection of the economic uncertainty or the recall problems affecting the company Europe remain to be seen. as a whole is difficult to determine – in all likelihood the fall in production was due to a combination of the two, but it certainly placed the UK plant under some strain Earlier good news for Toyota in Europe as production volumes fell. The Burnaston factory in the UK is now operating its one open line on two shifts 2010 did, however, see some good news at Toyota with the start of production of and will soon be close to its annual capacity 170,000 units; production of the new the Auris hybrid and confirmation that a hybrid vehicle will also be made in France, Yaris and its hybrid variant is now under way and production of the new Auris will a version of the next Yaris. Over €50mn has been invested to bring this second take place in the UK from later this year. The new Auris will be debuted at the European-made hybrid model to market. Paris motor show – and interestingly Toyota expects sales of the new Auris to be divided equally between the diesel, petrol and hybrid versions. Manufacturing news: as noted above, the UK plant will soon approach full utilisation of its single open line. The launch of the new Auris will result in around

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£100mn being invested in tooling and the creation of 1.500 new jobs over the next two years. The concentration of Auris production in the UK will also mean:  Burnaston will be the European centre for C-segment hatchback production. Toyota will make both the Auris and the Avensis on one assembly line.  The Turkish plant will become the centre of C-segment sedan production in parallel; total investment across the two factories will be €265mn. In Turkey, the new sedan will be made on the same line as the current Corolla Verso compact MPV. 400 new jobs will be added in Turkey.. In addition, just before the end of 2011, Toyota announced that Europe will become the global product planning centre for small cars, leading development for the Aygo, Yaris and Auris/Corolla segment vehicles. This is part of the company’s broad globalisation strategy, which specifically focuses on reducing its dependence on Japan. Production capacity is also being increased in Russia, reflecting the continued growth in this market which is in marked contrast to the rest of Europe:  In February 2012, Toyota confirmed it would invest 7bn Yen in its St Petersburg factory, adding stamping and plastic moulding capacity as part of a strategy to increase localisation of models made there. These new facilities will be operational from 2014 which is when we now expect a new small car to go into production in Russia.  In April a second shift was confirmed to increase production of the Camry; a further 600 workers will be taken on to make more Camrys. As noted at the start of this profile, Toyota has started this second shift in August.

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New models: these are summarised below: 2012 2013 2014 2015-2016 Yaris-based small hybrid None known New Aygo (could be 2013) Possible all-new Avensis All-new Auris (UK) / Corolla sedan (Turkey) New small B segment car in Russia Avensis – major facelift

The Production Outlook below shows a strong rise in Toyota production in 2012-13, largely because of the Yaris having two full years of production, plus the launch of the new Auris, and the expected extra model to be made in Turkey. In addition, we also include production of the Landcruiser in JV with Sollers. Toyota Production Outlook to 2016 Vehicle Country Start Segment Prod'n Next new Production Production Production Production Production

Group Marque Model range Series (platform) Plant 2007 Production 2008 Production 2009 Production 2010 Production 2011 Production type of model Outlook 2012 Outlook 2013 Outlook 2014 Outlook 2015 Outlook 2016

Toyota Toyota Aygo Pass. A B0 ‐ 590N Kolin CZ Q1 05 2014 106,982 108,127 101,000 82,911 90,788 76,500 70,000 60,500 95,500 102,000 Toyota Toyota Yaris Pass. B 316W Valenciennes FR Q1 06 2011 262,313 232,406 207,456 158,512 24,153 00000 Toyota Toyota Yaris Pass. B 020X Valenciennes FR H2 110 000125,000 195,000 205,000 202,000 199,000 201,000 Toyota Toyota Corolla Pass. C 340N Burnaston, Derby UK Q2 01 2007 11,839 0 0 0 0 0 0 0 0 0 Toyota Toyota Auris Pass. C 345 Burnaston, Derby UK H1 07 2012 120,317 102,588 50,212 68,687 57,411 29,000 0 0 0 0 Toyota Toyota Auris Pass. C New Burnaston, Derby UK H2 12 0 0 0 0 0 30,000 89,500 119,000 125,000 109,750 Toyota Toyota Auris Pass. C 131L Gebze TR Q1 07 2012 60,742 66,000 27,501 42,936 47,250 34,0000000 Toyota Toyota Corolla Verso Pass. C‐MPV 240N Gebze TR Q1 04 2009 100,874 60,594 0 0 0 0 0 0 0 0 Toyota Toyota Corolla Verso Pass. C‐MPV 681N Gebze TR Q3 09 2016 0 0 44,763 40,350 48,250 40,000 35,000 40,000 52,000 56,500 Toyota Toyota Corolla sedan Pass C Gebze TR H2 12 0 0 0 0 0 14,500 50,000 55,750 60,000 61,000 Toyota Toyota Avensis Pass. D 223W/ 352WW Burnaston, Derby UK Q1 03 2008+ 142,669 92,063 0 0 0 0 0 0 0 0 2016; major Toyota Toyota New Avensis Pass. D MC 445L Burnaston, Derby UK H2 08 0 18,678 77,193 68,367 70,735 69,000 64,500 59,000 75,000 90,000 FL 2011/12 St Petersburg or new Toyota Toyota New small BPass.B RU H1 14 2014 0 0 0 0 0 0 0 20,000 58,000 55,000 plant Toyota Toyota Camry Pass. E MC 045L St Petersburg RU H2 08 2008+ 0 6,275 8,310 15,000 14,500 52,500 65,000 62,500 60,000 58,250 Toyota Toyota Landcruiser Pass SUV Sollers RU H2 12 2012 0 0 0 0 0 3,250 20,000 30,000 28,750 26,500 Toyota Toyota Total 805,736 686,731 516,435 476,763 478,087 543,750 599,000 648,750 753,250 760,000

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Volkswagen (incl. Porsche) 2.66mn units worldwide. Despite the downturn, European sales were up 2.3% to 1.25mn units; taking Germany out of this total, West European sales fell by nearly Key recent developments: the most important recent news is that Volkswagen is 6%. finally about to take full control of Porsche. At the beginning of July it was confirmed that Volkswagen will buy the remaining 50.1% of Porsche’s automotive Sales in Central and Eastern Europe however rose by 32% in the first four months business that it does not already own. The integration of the two companies is of 2012. Sales in Asia Pacific also rose, by 16.5% for the first four months, with now proceeding at a rapidly increasing pace. China rising nearly 16% and India up 17%. North American sales were up 23% in the four months to April. VW-Porsche integration will help positive financial history continue At a brand level, Volkswagen passenger cars sales were up 9.4% in the first four 2011 saw the Volkswagen group go from strength to strength with regular months, while Audi saw a rise of nearly 125; Skoda’s rise was nearly 10%, while announcements about new investments, record sales and increasing production. Seat saw a fall of 13.3%. VW commercial vehicles sales were up 6.1% for the first Although GM may once again be the no.1 vehicle manufacturer globally in terms of four months, another record. units made, the VW group arguably has much more momentum and dynamism. This was especially clear from various H1/2012 announcements. Q2 and H1 Positive H1/2012 results For H1 as a whole, the Volkswagen brand sold 2.79mn cars, a rise of 10.2% on H1/2011. June itself was up 13.7% year-on-year. Interestingly, despite the Q1 economic problems in the region, Volkswagen actually managed to achieve At the group level, the company reported operating profit for Q1 of 10.2%, well European sales in H1 by 3.1% in total; sales interested European VMs and above analysts’ expectations. Moreover it is expecting to exceed 2011’s revenue consumers alike, excluding Germany, fell by 4.7%, while deliveries to Central and for 2012 – it is now projecting annual revenue of well above 2011’s €159bn – Eastern Europe rose more than 45%, while those in Russia rose more than 78%. owing to the boost which will come from MAN being consolidated into group Germany saw deliveries rise 2.1%. figures. The full integration of Porsche into Volkswagen Group accounts will not In financial terms, the highlights of the latest results are: take place until next year.  Q2 revenue up 19.2% at €48bn, on unit sales up 13.4% Q1 deliveries were just over 2.2mn units, 11.1% above the Q1/2011 figure. In  H1 revenue was up to €95.4bn, 22.6% up on H1/2011 terms of divisional sales figures, the following key highlights are worthy of note:  The automotive division's revenue rose 23.7% in H1 top €85.8bn – with the  Volkswagen Passengers Cars delivered 1.36mn vehicles, against 1.23mn in increase driven by a combination of volume related and exchange rate factors, Q1/2011, a rise of 10.5%. plus model mix improvements.  Audi’s rise was nearly 11% to just over 348,000 units. In terms of the individual divisions and the different brands within the group for H1:  Skoda rose nearly 12% to nearly 243,000 units.  Volkswagen Passenger Cars saw sales rise from 2,207,000 to 2,416,000 units,  Seat’s deliveries fell by 11.6% to just over 80,000 units. with revenue up from €36.2bn to €39.3bn year-on-year, while operating  While VW commercial vehicle sales rise by nearly 8% to almost 131,000. This earnings were up only modestly from €2.13bn to €2.21bn – the small rise was actually a record for VW’s commercial vehicles division. attributed to the high costs of the switch to the new MQB platform which will These excellent Q1 figures continued in April; the group reported a 6% rise in April underpin the new Golf amongst other models. deliveries, meaning that the year-to-date figures for January-April were up 8.6% to

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 Audi saw a significant revenue rise year-on-year, from €14.8bn to €17,25bn,  The Volkswagen, Audi and Skoda brands were all profitable throughout last and operating earnings rise from €2.5bn to nearly €2.9bn. year, but SEAT and Bentley continued to make losses; the situation at SEAT  Skoda saw revenue fall from €3.29bn to €2.98bn, although its earnings rose did improved somewhat during 2011, even though it is loss-making, reporting from €412mn to €449mn. a loss of €101mn versus a loss of €218mn in the first nine months of 2010.  Seat, by contrast, saw both a fall in revenue – from €1.84bn to €1.46bn – and  Audi’s operating margin rose from 9.4% to 12.1% in 2011; total Audi revenue a loss, albeit a smaller one than a year earlier – the H1/2011 loss was €42mn, reached €44bn, a rise of over 24%, on the back of unit deliveries rising over a slight improvement on the €48mn loss a year earlier. 19%. Operating income was over €5bn, a rise of over 60% on 2010’s level. The main reason behind this rise was the rising revenue attributed to the  Bentley reported a significant rise in revenue, from €460mn to €705mn and a A6/A7/A8 & Q7 which accounted for 38% of sales in 2011 vs. 25% in 2009. profit of €57mn, compared to a loss a year earlier of €17mn. Porsche’s 2011’s results were also impressive; in fiscal 2011, Porsche’s revenue  And the commercial vehicle division (essentially Volkswagen vans) reported a slightly reduced revenue, €2.625mn versus €2,710mn a year earlier, but a was €10.9bn, with an operating profit of €2.05bn. small rise in profits to €242mn, from €235mn. Investment focused on cutting emissions Details on the latest situation at Porsche will be provided in the next report (we are At the Geneva motor show, VW group chairman, Martin Winterkorn, confirmed currently awaiting the latest full year results for Porsche – these are made up to what the €62bn investment budget would cover, ie: the company will focus on August – and could be the last separate results before the Porsche numbers are investment in increasingly fuel efficient vehicles, new powertrains and technologies fully integrated into Volkswagen. and environmentally-friendly production systems at its factories. A further €14bn will also be invested in China. The investment will be used to meet the following 2012 continues the excellent results of 2011 targets: The key highlights of VW’s 2011 results were:  Reducing CO2 emissions across its product range by 30% by 2015.  A rise of over 25% in revenue to €159bn, reflecting a 15% rise in volume sales,  Ensuring new models are 10-15% more fuel efficient than their predecessors. to 8.36mn units.  A 25% improvement in the “environmental compatibility” of the production  A rise in operating profit of nearly 58% to €11.7bn, with a doubling of pre-tax process across the group by 2018, specifically consuming 25% less energy profits to €18.93bn. and water and reducing waste and emissions also by 25%. All of this confirms that the group is very much on track to become the biggest VM  A 40% reduction in greenhouse gas emissions by 2020. worldwide by 2018, in both sales and profits. Its dynamism and confidence is  Investing €600mn in renewable energy. exemplified by its plans to invest €62bn in new models and take on no fewer than 50,000 more staff over the next 5-6 years. One of the key aspects of VW’s future The success of VW’s investments in low emissions technology was emphasised by growth in the next few years will be the application of its new platforms across the chairman Martin Winterkorn at the company’s recent AGM – he noted how VW’s majority of its vehicles programmes. The new MQB platform, which is being used European fleet already achieves a CO2 level of 137gm/km, 27g less than in 2007. first on the new A3 and which also be used on the new Golf, is expected to deliver The group’s target of 120g/km remains in sight. cost savings of around 20% for example. Significant investment announcements in 2011 In terms of the different group brands, the following highlights are worth noting: In addition to these broad objectives, VW announced the following in the H2/2011:

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 Ensuring all models made on the MQB platform have alternative powertrains, Mexico, with production (almost certainly of the Q5) due to begin in 2016 at an especially electric powertrains. The company has also designated 2013 as the initial rate of up to 175,000 upa.. year of e-mobility – that said, EV production in China will not actually start until Corporate issues still being resolved 2014. By 2018, Volkswagen expects to make 100,000 EVs in China.  Confirmation that the new Audi A3 will herald a major revamp of the At a corporate level, there are a number of other issues which we have referred to company’s technology and manufacturing basis: in past reports which still need to be recorded here: o The A3 is the first vehicle to be made on the new MQB platform which will  The shareholding dispute with Suzuki has now entered into the arbitration underpin as many as 3.5mn small and mid-sized cars per year, a strategy phase – a resolution should be found during 2012, but there is no guarantee designed to cut production costs by as much as 20% and assembly time as to how long this will take and whether either side will accept the London by 30%. This in turn will help lift the group’s margins to 8% by 2018. court’s first judgement without a further fight. o The total cost of modifying production lines to build the new platform at  And finally, the infamous “VW Law” is understood to be the subject of an EU Wolfsburg, Zwickau and Ingolstadt will be as much as €500mn per factory. review – currently, the German state of Lower Saxony has veto rights over the company’s ownership over above its 20% ownership state, something which o Significant investment is also under way to make the A3 in Hungary: the EU regards as anti competitive and wants to get removed. . This includes adding a press shop, body shop and paint shop (hitherto painted bodies had been delivered by train from Germany to the Manufacturing news: reference to the expansion in China has been made above, assembly hall at Gyor). as has news of the Audi plant in Mexico and expansion in Hungary, and the start of Skoda production at the GAZ facility in Russia. . Pre-production will start in late 2012 and the plant will be in full ramp- up mode in 2013 – capacity will be 125,000 upa, for both the TT and Other news includes the following: the new A3.  Confirmation that Audi has chosen San Jose Chiapa as the location for its  Confirmation of €1.5bn investment in VW Slovakia over the next five years; factory in Mexico; this is in the state of Puebla, so it will be quite near to the few details have been released so far, but one of the areas that will receive a existing Volkswagen factory. Construction work will begin in mid-2013, large chunk of the investment will be the welding hall at Bratislava and a although preparation of the land will start later this year. Production at the welding research centre will also be set up in the country. Further investment 150,000 unit plant is due in 2016. The Q5 SUV will be the first model to be may yet be needed in Bratislava if demand continues at current levels of the made there new Up!  VW has confirmed it will build an engine plant at Kaluga, on the same site as Expansion in China continues its car plant – this factory will make EA211 engines from 2015 and will supply both the Kaluga plant and the GAZ factory which is also going to make some Speaking at the company’s AGM, VW chairman, Martin Winterkorn, spoke of the VW models. Production of engines in Russia is necessary for VW to comply €14bn being invested there and the opening of at least four plants – in Foshan, with the local content rules of Decree 166. Yizgheng, Ningbo and Xingjian initially with more to follow – by 2016.  Assembly of the Amarok pick-up will begin in Hanover in June this year, with And more investment elsewhere in the world … full year capacity of around 40,000 units. Winterkorn also noted how production of the Skoda Yeti at the GAZ plant in Nizhny  The possibility that production of MAN-VW vans could begin in 2016, ie when Novgorod has now started; he also confirmed that Audi would build a plant in the production contract for the Crafter with Mercedes comes to an end.

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 Production of the new Skoda Rapid (the production version of the  Various hybrids, Audi having decided against a range of full EVs now: MissionL/VisionD concept cars) will begin later this year. This will sit between o A6 and A8 hybrids in 2012. the Fabia and Octavia. Interestingly the Skoda factory will also make the Seat A3 plug-in hybrid in 2014. Toledo version of this model; this model will also be made in China. o o And A4 and Q7 plug-in hybrids in 2015. Other than these announcements, there have been no significant changes to European manufacturing operations since our last report. Skoda: Readers are referred to previous reports for further information on previously  Replacement Yeti by 2018, but with heavy facelift before then. announced investments outside Europe.  Octavia Scout (4WD version), also by 2018. New models: the most important new model of 2011 was the new small car, the  New Rapid (to sit between Fabia and Octavia – this will also be made by Up! Production ready versions of the vehicle were shown at the Frankfurt motor Skoda and sold as the new Seat Toledo. show and production started soon after. The programme, the first of the New Small Meanwhile, Lamborghini has announced plans to add what it calls an “everyday” Family (NSF) series, includes SEAT and Skoda versions; an electric version has model to its line-up; this will be sold alongside the Gallardo and the new Aventador been confirmed for 2013. Brand specific plans for the immediate future include: which has replaced the Murcielago. It has also been confirmed that a Lamborghini Volkswagen: SUV will be added around 2016. And at the Geneva motor show, Bentley showed the concept version for its own super-luxury SUV; we expect this will be introduced  Golf 7, end of 2012 around 2015/16.  Golf Variant BlueMotion and e-Golf, 2013 Porsche will launch the Macan small SUV in 2013 and this will be followed by  Golf plug-in hybrid and Golf Plus, 2013/4 further models in due course – we expect a small saloon ie a mini Panamera  Golf cabrio (CC), 2015 amongst others, although these are likely to appear after 2016.  Cross-Polo, due late 2013/early 2014. The Production Outlook which follows shows that:  Passat Alltrack (4WD).  Volkswagen brand production is rising strongly; near term growth is being  Cross-Golf, after 2016 driven by rising production in Russia (of a wide variety of vehicles), the introduction of the Up (and its SEAT and Skoda siblings); as the we move  Coupe version of Tiguan, once new Tiguan has been launched in 2013; the further into the middle of the decade, the second Russian plant and the new Tiguan will include a 3-row version for the US and China. widening of the Up! range will drive much of the next phase of growth.  Jetta CC (a smaller version of the Passat CC), from Mexico.  By the end of the forecast period we expect Volkswagen production in Europe Audi: (including Russia) will be in the range of 2.7mn units, a c660,000 rise over the  Q2 from late 2013 2007 level. At Audi the growth will come from smaller cars especially, eg A1 and Q2, plus the widening Q range. By 2016, we expect Audi production in  New Q3 in 2017, including a Seat version. Europe to be close to 1.6mn units, a rise of more than 60% on the 2007  Q4: 2015. volume. The main growth in Audi production will occur from 2014 onwards  New Allroad A4 in 2014-5. when the next A4 starts and the Q models really widen the Audi brand to other markets.  Q5/Q6 and Allroad A6 in 2014-5.

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 SEAT production (without the Q3) so expected to grow just modestly, but at full production rates, the Q3 will add around 100,000 units to the SEAT factory at its peak. However, Seat (excluding the Q3) will see a fall of around 14% in 2012, and while this fall will probably have been made up by the end of the period under consideration, SEAT is not going to be getting back to its 2007 levels in the near term, at least not in terms of Spanish production – the brand remains Volkswagen’s biggest problem.  At Skoda, production will increase by around 350,000 upa between 2010 and 2016, driven by the addition of a new model (Rapid) between Fabia and Octavia and the addition of a Skoda MPV and a second SUV by around 2015. Skoda will also experience significant growth in Russia, China and India in the coming years. Porsche production should top 200,000 by 2014, subject to Cajun volumes being at the upper end of expectations and sales of the core 911 and Cayenne ranges also holding up well.

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New models are summarised in the table which follows: 2012 2013 2014 2015 2016 Completion of Up! launch 2-seater VW Up! Caddy replacement Golf VII (provisional) Audi A8 New Golf Electric version of Up! Golf hybrid Passat CC Audi Q4 and Q6 – Audi A3 Golf Variant, electric version of Phaeton Tiguan could be 2015 New RS4 estate, S6 Golf Audi A2 Transporter Porsche Panamera Start of new SEAT Leon Golf Plus & Touran New and A5 start A4 All-road Skoda Yeti programme, including Altea New Audi Q7, S7 & S8 Audi TT, R8 & Q5 New Skoda Superb, incl. cross- Golf CC, with a lot of replacement Skoda Fabia SEAT Ibiza over version viruses around Skoda Rapid/Seat Toledo starts Skoda Rapid and Seat Toledo Skoda Roomster SEAT Exeo Porsche Boxster and Cayman, production at full tilt New Porsche, super-car above New Cayenne and Bentley SUV Panamera coupe (928) Porsche 918 Spyder 911 Audi Q2 New Continental Flying Spur Porsche Macan (small SUV previously known as Cajun) Note that the yellow cells in Volkswagen table indicate changes to historic volumes in Poland; they do not affect the overall picture but have been highlighted for convenience.

VW Group Production Outlook to 2016 – by brand

Production Production Production Production Production Group Marque 2007 Production 2008 Production 2009 Production 2010 Production 2011 Production Outlook 2012 Outlook 2013 Outlook 2014 Outlook 2015 Outlook 2016

Volkswagen Volkswagen 2,026,602 2,054,283 1,835,493 2,124,741 2,369,789 2,527,500 2,559,500 2,613,250 2,693,150 2,690,500 Volkswagen Audi 974,706 1,019,616 931,007 1,148,791 1,369,401 1,353,300 1,335,400 1,497,750 1,515,500 1,596,600 Volkswagen Seat 412,937 379,834 293,548 344,054 351,140 303,250 326,250 329,250 343,250 369,500 Volkswagen Skoda 621,626 614,999 541,189 558,735 583,000 674,400 710,300 687,000 721,000 779,000 Volkswagen Lamborghini 2,580 2,424 1,253 1,227 1,738 2,350 2,600 2,800 3,200 4,000 Volkswagen Bentley 10,000 7,692 3,596 4,792 7,528 9,575 10,325 10,400 12,300 12,400 Volkswagen Porsche 107,170 96,721 75,637 95,529 127,165 143,000 150,168 171,650 190,100 192,750 VW Group ALL 4,155,621 4,175,569 3,681,723 4,277,869 4,809,761 5,013,375 5,094,543 5,312,100 5,478,500 5,644,750

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Volkswagen Vehicle Country Start Segment Prod'n Prod'n End Next new Production Production Production Production Production

Series (platform) Group Marque Model range Plant of 2007 Production 2008 Production 2009 Production 2010 Production 2011 Production type of model Outlook 2012 Outlook 2013 Outlook 2014 Outlook 2015 Outlook 2016

4 seater Up! (and 2‐seater from Volkswagen Volkswagen Pass. A MHB Bratislava SK H1 11 0 0 0 0 20,000 152,000 171,000 175,000 180,000 172,500 2013) Volkswagen Seat Mii (Up!) Pass. A MHB Bratislava SK H1 11 0 0 0 0 0 1,500 35,000 42,500 47,000 44,000 42,000 Volkswagen Skoda Citigo Pass. A MHB Bratislava SK H1 11 0 0 0 1,500 36,500 51,000 55,000 51,000 49,000 Volkswagen Volkswagen Polo Pass. B A04 Bratislava SK H1 01 2008 53,972 0 0 0 0 0 0 0 0 0 Volkswagen Volkswagen Polo Pass. B A04 Pamplona SP H1 01 2009 228,462 259,000 90,765 0 0 0 0 0 0 Volkswagen Volkswagen Polo Pass. B A05 Pamplona SP H2 09 0 92 152,735 365,695 353,353 316,000 305,000 295,000 280,000 305,000 Volkswagen Volkswagen Polo MPV/SUV Pass. B A05 Pamplona SP H2 10 0 0 0 0 0 0 5,000 40,000 55,000 49,000 Volkswagen Volkswagen Polo Pass. B A04 Brussels BE H2 06 2009 46,888 53,177 39,749 15,000 0 0 0 0 0 0 Volkswagen Volkswagen Golf VPass.CA5/ PQ35 Brussels BE H2 03 17,573 0 0 0 0 0 0 0 0 0 Volkswagen Volkswagen Golf VPass.CA5/ PQ35 Zwickau / Mosel DE 2009 193,246 128,409 160,111 11,648 0 0 0 0 0 0 Volkswagen Volkswagen Golf VI ‐ switch to Golf VII in 2013 Pass. C A6 Zwickau / Mosel DE H2 09 0 0 0 171,924 171,000 75,000 0 0 0 0 Volkswagen Volkswagen Golf VPass.CA5/ PQ35 Wolfsburg DE H2 03 2009 287,810 315,057 383,021 33,626 0 0 0 0 0 0 Golf VI (incl. cabrio ‐ final assembly Volkswagen Volkswagen at Karmann); switch to Golf VII in Pass. C A6 Wolfsburg DE H2 08 0 0 0 325,565 405,500 181,000 30,000 0 0 0 2013‐4 Volkswagen Volkswagen Golf VII Pass. C MQB Wolfsburg/Mosel DE H2 13 2013‐14 0 0 0 0 0 295,000 525,000 550,000 541,000 535,750 Volkswagen Volkswagen Tiguan (Golf SUV) Pass. SUV Wolfsburg (Euro 5000) DE H1 07 2014 16,401 151,028 143,680 183,371 199,000 239,000 219,500 205,000 201,000 213,000 Volkswagen Volkswagen Golf Plus Pass. C PQ35 Wolfsburg DE H2 04 Q1 10 2010FL 111,917 92,565 106,320 7,126 0 0 0 0 0 0 Volkswagen Volkswagen Golf Plus FL Pass. C PQ35 Wolfsburg DE H1 13 0 0 0 81,382 95,000 84,500 10,500 0 0 0 Volkswagen Volkswagen Golf Plus 2 Pass C PQ36 Wolfsburg DE H1 13 H1 13 0 0 0 0 0 0 44,500 98,000 121,000 105,000 Volkswagen Volkswagen Jetta/Bora Pass. C PQ35 Mlada Boleslav CZ 0 1,627 1,633 4,340 275 250 250 0 0 0 Volkswagen Volkswagen Touran Pass. C‐MPV A5/ PQ35 Wolfsburg (Euro 5000) DE Q1 03 2010 FL 187,900 135,762 106,888 80,828 0 0 0 0 0 0 Volkswagen Volkswagen Touran Pass. C‐MPV A5/ PQ35 Wolfsburg (Euro 5000) DE Q1 13 0 0 0 31,639 114,000 44,500 0 0 0 0 Volkswagen Volkswagen Touran Pass. C‐MPV MQB/VW368 Wolfsburg (Euro 5000) DE Q1 13 0 0 0 0 0 42,000 119,000 121,000 115,000 109,500 Volkswagen Volkswagen Passat Pass. D PQ46 Emden DE Q1 05 Q4 2010 252,792 188,989 142,082 123,027 0 0 0 0 0 0 Volkswagen Volkswagen Passat Pass. D PQ46 Zwickau / Mosel DE Q1 05 Q4 2010 141,189 125,242 52,210 46,332 0 0 0 0 0 0 Volkswagen Volkswagen Passat Pass D PQ47 Emden & Zwickau DE Q1 2012 0 0 0 45,409 291,000 245,000 235,000 219,000 255,000 251,000 Volkswagen Volkswagen Passat Pass. D PQ46 Mlada Boleslav CZ 392 642 394 786 0 000 0 0 Volkswagen Volkswagen Passat Pass. D PQ47 Mlada Boleslav CZ 0 0 0 0 700 1,000 1,000 750 650 500 Volkswagen Volkswagen Passat CC Pass. E PQ46 Emden DE Q3 07 2015 154 47,169 59,932 76,901 69,000 72,500 62,500 46,500 68,500 72,000 2011 FL, Volkswagen Volkswagen Phaeton Pass.E D1/VW611 Dresden DE Q4 01 5,711 6,189 4,071 7,477 11,000 11,500 11,000 12,500 13,000 12,000 2013 New Volkswagen Volkswagen Eos Pass. Sports A5 Setubal PT H1 06 2014‐5 55,559 43,578 17,880 22,775 22,511 12,500 10,500 9,000 20,000 25,000 Volkswagen Volkswagen Scirocco Pass. Sports A5 Setubal PT Late 2008 2014‐5 83 20,537 47,277 45,230 42,481 37,500 33,000 29,500 39,000 46,500 Volkswagen Volkswagen Sharan Pass. MPV VW418 Setubal PT H2 06 2011 23,808 19,703 14,643 23,229 14,968 000 0 0 Volkswagen Volkswagen New Sharan Pass. MPV T5 Setubal PT H1 11 0 0 0 0 35,000 53,000 51,000 45,000 41,000 36,500 T5/PL75/VW759; VW766 Volkswagen Volkswagen Touareg Pass. SUV in 2010 Bratislava SK H2 02 2010 72,455 62,229 29,576 26,966 0 0 0 0 0 0 T5/PL75/VW759; VW766 Volkswagen Volkswagen Touareg Pass. SUV in 2010 Bratislava SK H2 10 0 0 0 20,861 72,000 80,000 72,500 71,000 67,000 70,000 Full Prod Volkswagen VW and Skoda Various models Pass. Various Various Kaluga RU 1,198 62,234 48,012 94,944 135,000 150,000 165,000 175,000 180,000 173,250 2009 2012 or Volkswagen VW and others Various models Pass. Various Various GAZ RU 0 0 0 0 0 35,000 70,000 90,000 95,000 101,000 2013 Volkswagen Volkswagen Caddy Comm.Van PQ35 Poznan PL Q4 03 2014 142,226 155,741 127,291 137,180 157,976 169,000 159,000 155,000 152,000 149,000 Volkswagen Volkswagen Transporter Comm.Van T5 Poznan PL Q1 04 2010 24,810 18,738 10,802 12,020 19,025 17,250 15,750 14,000 13,000 11,500 Volkswagen Volkswagen Transporter Comm.Van T5 Hanover DE Q2 02 2010 162,056 166,575 96,421 129,460 138,000 125,000 115,000 120,000 125,000 129,000 Volkswagen Volkswagen Amarok Pick‐up Comm.PU Hanover DE 07/05 0 0 0 0 0 17,500 35,000 40,000 36,000 32,500 Volkswagen Volkswagen Total 2,026,602 2,054,283 1,835,493 2,124,741 2,369,789 2,527,500 2,559,500 2,613,250 2,693,150 2,690,500 VW ALL Total 4,155,621 4,175,569 3,681,723 4,277,869 4,809,761 5,013,375 5,094,543 5,312,100 5,478,500 5,644,750

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Audi Vehicle Country Start Segment Prod'n Prod'n End Next new Production Production Production Production Production

Series (platform)

Group Marque Model range Plant of 2007 Production 2008 Production 2009 Production 2010 Production 2011 Production type of model Outlook 2012 Outlook 2013 Outlook 2014 Outlook 2015 Outlook 2016

Volkswagen Audi A1 Pass. B PQ25 Brussels BE H2 09 2008 0 0 226 51,937 117,566 135,000 125,000 109,000 102,500 115,000 Volkswagen Audi Q2 Pass B‐SUV PQ25 Brussels BE H2 13 2013 0 0 0 0 0 0 15,000 55,000 78,000 80,000 Volkswagen Audi A2 Pass B PQ25 Ingolstadt DE H2 12 2012 0 0 0 0 0 0 0 75,000 25,000 30,000 Volkswagen Audi A3 Pass. C A5 Brussels BE 2010 12,087 31,762 23,562 17,002 0 0 0 0 0 0 Volkswagen Audi A3/RS3 (RS3 assembly at Gyor) Pass. C A5/PQ35 Ingolstadt DE Q3 04 H2 10 2010 218,828 171,863 173,177 169,610 170,316 000 0 0 Volkswagen Audi A3 Pass. C MQB/A6/ VW368 Ingolstadt DE H2 10 2010 0 0 0 0 7,000 185,000 201,000 205,000 209,000 213,000 Volkswagen Audi A4 Pass. D B7/PL46 Ingolstadt DE Q4 00 Q4 07 2008 274,195 54,252 0 0 0 0 0 0 0 0 Volkswagen Audi A4 Pass. D B8 MLB Ingolstadt DE Q4 07 2014 9,702 228,288 205,126 232,900 285,000 238,000 205,000 235,000 244,000 260,000 Volkswagen Audi A4 Pass. D B8 MLB Neckarsulm DE Q4 07 2014 2,209 79,589 70,054 67,458 38,000 25,000 23,000 47,500 60,000 64,000 Volkswagen Audi A4 cabriolet Pass. Sports B7 Rheine (Karmann) DE H2 2006 23,641 16,790 2,409 0 0 0 0 0 0 0 Volkswagen Audi A4 Allroad Pass. B8 MLB Ingolstadt DE H1 09 2014 0 0 9,291 10,788 10,537 9,750 8,250 9,000 11,500 12,000 Volkswagen Audi A5 incl. RS5 Pass. Sports B7 Ingolstadt DE H1 2007 2014‐5 25,554 57,324 69,471 90,016 91,299 92,500 89,000 69,000 83,000 87,000 Volkswagen Audi A5 cabriolet Pass. Sports B7 Neckarsulm DE H2 09 2015 0 326 15,388 20,924 20,459 20,000 12,500 14,500 19,000 22,000 H2 11 FL, Volkswagen Audi A6 Allroad Pass. SUV C6 Neckarsulm DE H2 06 16,340 10,283 4,104 5,551 3,036 0 0 0 0 0 New 2014 Volkswagen Audi A6 incl. RS6 Pass. E C6 Neckarsulm DE Q1 04 Q1 11 229,590 210,652 177,599 206,734 141,888 000 0 0 Volkswagen Audi A6 Pass. E C7 MLB Neckarsulm DE Q2 2011 2011 0 0 0 0 100,000 225,000 206,000 189,000 183,000 179,000 Volkswagen Audi A6 Allroad Pass E C7 MLB Neckarsulm DE H2 2011 2011 0 0 0 0 0 7,000 9,000 8,000 7,000 6,000 Volkswagen Audi A7 Pass. E C7 MLB Neckarsulm DE H2 09 0 0 251 8,496 37,301 34,500 32,500 29,500 28,500 28,250 Volkswagen Audi A8 Pass. F D3/PL63 Neckarsulm DE 2010 22,182 20,140 8,009 4,701 0 0 0 0 0 0 Volkswagen Audi A8 Pass. F D4 ‐ MLB Neckarsulm DE H1 10 0 0 590 17,734 38,542 42,000 45,000 41,000 39,000 38,750 Volkswagen Audi TT Coupe Pass. Sports A5/PQ35 Gyor HU Q3 06 2013‐4 40,417 31,101 18,010 20,413 19,704 18,000 15,500 25,500 26,000 22,500 Volkswagen Audi TT Roadster Pass. Sports A5/PQ35 Gyor HU Q3 06 2013‐4 16,349 10,688 4,811 5,804 5,804 7,000 6,000 6,250 7,250 7,100 Volkswagen Audi A3 cabrio Pass. Sports A5/PQ35 Gyor HU Q2 07 216 16,570 9,782 12,309 14,050 12,250 0 0 0 0 New A3 cabrio and other A3 Volkswagen Audi Pass. C MQB/A6/ VW368 Gyor HU H1 13 0 0 0 0 0 2,500 50,000 85,000 80,000 76,500 derivatives Volkswagen Audi R4 Pass Sports Neckarsulm DE H2 16 0 0 0 0 0 0 0 0 0 2,000 Volkswagen Audi R8 Pass. Sports Gallardo Neckarsulm DE Q2 08 2014 6,000 5,656 2,101 3,485 3,551 2,800 2,650 4,000 5,250 5,000 Volkswagen Audi Q3 Pass. C‐SUV A5 Martorell, Barcelona SP H2 09 0 0 0 108 19,654 85,000 95,000 89,500 82,500 75,000 Volkswagen Audi Q4 Pass SUV MLB/B6 Leipzig DE H2 16 0 0 0 0 0 0 0 0 0 12,500 Volkswagen Audi Q5 Pass. SUV B6 Ingolstadt DE H2 07 2014/5 0 20,324 109,117 155,052 191,987 162,000 147,000 141,000 150,000 160,000 Volkswagen Audi Q6 Pass SUV Q7 Bratislava SK H2 15 0 0 0 0 0 0 0 0 5,000 30,000 Volkswagen Audi Q7 Pass. SUV T5/PL75 Bratislava SK Q4 05 2014 77,396 54,008 27,929 47,769 53,707 50,000 48,000 60,000 70,000 71,000 Volkswagen Audi Total 974,706 1,019,616 931,007 1,148,791 1,369,401 1,353,300 1,335,400 1,497,750 1,515,500 1,596,600 VW ALL Total 4,155,621 4,175,569 3,681,723 4,277,869 4,809,761 5,013,375 5,094,543 5,312,100 5,478,500 5,644,750

SEAT Vehicle Country Start Segment Prod'n Prod'n End Next new Production Production Production Production Production

Series (platform)

Group Marque Model range Plant of 2007 Production 2008 Production 2009 Production 2010 Production 2011 Production type of model Outlook 2012 Outlook 2013 Outlook 2014 Outlook 2015 Outlook 2016

Volkswagen Seat Ibiza Pass. B PQ24 Martorell, Barcelona SP Pre 02 2008 172,209 91,114 14,827 0 0 0 0 0 0 0 Volkswagen Seat Ibiza Pass. B PQ25 Martorell, Barcelona SP H2 08 2014 0 101,356 158,890 188,083 190,000 172,500 155,000 149,500 165,000 190,000 Volkswagen Seat Cordoba Pass. B PQ24 Martorell, Barcelona SP Pre 02 2008 29,747 20,351 4,868 0 0 0 0 0 0 0 Volkswagen Seat Toledo Pass. C PQ35 Martorell, Barcelona SP Q1 05 4,744 5,407 571 0 0 0 0 0 0 0 Volkswagen Seat Leon Pass. C PQ35 Martorell, Barcelona SP Q3 05 120,630 96,761 66,373 79,462 81,000 5,000 0 0 0 0 Volkswagen Seat New Leon Pass. C PQ36 Martorell, Barcelona Sp Q1 12 0 0 0 0 0 62,500 125,000 153,500 150,000 147,500 Volkswagen Seat Altea Pass. C‐MPV PQ35 Martorell, Barcelona SP Q1 04 71,365 54,542 32,792 43,351 42,000 26,500 15,000 0 0 0 Volkswagen Seat Exeo Pass. D PQ46 Martorell, Barcelona SP 2009+ 0 21 9,012 23,108 20,000 15,250 12,500 10,000 16,000 22,000 Volkswagen Seat New Alhambra Pass. MPV PQ46 Setubal PT H2 09 0 0 0 7,050 18,140 21,500 18,750 16,250 12,250 10,000 Volkswagen Seat Alhambra Pass. MPV PL44 Setubal PT H2 09 14,242 10,282 6,215 3,000 0 0 0 0 0 0 Volkswagen Seat Total 412,937 379,834 293,548 344,054 351,140 303,250 326,250 329,250 343,250 369,500 VW ALL Total 4,155,621 4,175,569 3,681,723 4,277,869 4,809,761 5,013,375 5,094,543 5,312,100 5,478,500 5,644,750

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Skoda Vehicle Country Start Segment Prod'n Prod'n End Next new Production Production Production Production Production

Series (platform)

Group Marque Model range Plant of 2007 Production 2008 Production 2009 Production 2010 Production 2011 Production type of model Outlook 2012 Outlook 2013 Outlook 2014 Outlook 2015 Outlook 2016

Mlada Boleslav & Volkswagen Skoda Fabia Pass. B PQ24 CZ H1 05 93,998 0 0 0 0 000 0 0 Vrchabli Mlada Boleslav & Volkswagen Skoda Fabia Pass. B PQ25 CZ H2 05 2013 153,246 244,269 247,980 181,123 195,000 205,000 185,000 169,000 205,000 229,000 Vrchabli Volkswagen Skoda Rapid (MissionL)/Seat Toledo Pass B/C PQ25 (AO+) Mlada Boleslav CZ H2 12 2012 0 0 0 0 0 22,000 102,500 108,000 97,500 89,500 Mlada Boleslav & H2 04 new Volkswagen Skoda Octavia Pass. C SK351 (A5) CZ 277,181 275,545 187,696 218,621 185,000 000 0 0 Vrchabli model Volkswagen Skoda Octavia Pass. C SK351 (A5) Bratislava SK H1 08 0 18,393 18,666 10,000 0 0 0 0 0 0 Mlada Boleslav & Volkswagen Skoda Octavia Pass. C SK361 (A6) CZ H2 11 0 0 0 0 20,000 245,000 239,000 225,000 206,000 195,000 Vrchabli Volkswagen Skoda Superb Pass. D SK451 Kvasiny CZ 2008 21,326 9,000 000 000 0 Volkswagen Skoda Superb Pass. D SK461 Kvasiny CZ H1 08 2015 0 18,257 24,872 65,964 69,000 71,000 69,000 64,000 60,000 55,750 Volkswagen Skoda Yeti Pass. B‐SUV SK2XX Kvasiny CZ H1 09 0 0 19,670 52,552 76,000 89,000 79,000 75,000 69,500 62,000 Kvasiny, switching to Volkswagen Skoda Roomster Pass. B‐MPV SK2XX CZ H1 06 2013/14 69,637 43,247 39,664 27,729 35,000 39,500 33,000 28,000 22,500 40,500 Vrchabli 2011 Volkswagen Skoda C‐MPV Pass C‐MPV TBC TBC CZ H1 15 0 0 0 0 0 0 0 0 25,000 60,000 Volkswagen Skoda SUV Pass SUV TBC TBC CZ H2 15 0 0 0 0 0 0 0 15,000 31,000 42,500 Volkswagen Skoda Praktik Comm.B LCV SK2XX Kvasiny CZ H2 06 6,238 6,288 2,641 2,746 3,000 2,900 2,800 3,000 4,500 4,750 Volkswagen Skoda Total 621,626 614,999 541,189 558,735 583,000 674,400 710,300 687,000 721,000 779,000 VW ALL Total 4,155,621 4,175,569 3,681,723 4,277,869 4,809,761 5,013,375 5,094,543 5,312,100 5,478,500 5,644,750

Lamborghini and Bentley Vehicle Country Start Prod'n Next new Production Production Production Production Production

Group Marque Model range Plant 2007 Production 2008 Production 2009 Production 2010 Production 2011 Production type of model Outlook 2012 Outlook 2013 Outlook 2014 Outlook 2015 Outlook 2016

Volkswagen Lamborghini ALL, inc SUV from 2016 Pass. IT 2,580 2,424 1,253 1,227 1,738 2,350 2,600 2,800 3,200 4,000 Volkswagen Lamborghini Total 2,580 2,424 1,253 1,227 1,738 2,350 2,600 2,800 3,200 4,000 Arnage/Azure/Brooklands/ Volkswagen Bentley Pass. Crewe UK Pre 02 728 755 233 320 1,145 1,200 1,150 1,050 925 875 Mulsanne Volkswagen Bentley New SUV Pass. Crewe UK 2015 0 0 0 0 500 2,900 3,750 Volkswagen Bentley Continental GT/Supersports Pass. Crewe UK H2 03 2012 2,148 2,702 1,291 1,481 3,240 2,625 2,900 3,050 3,150 2,900 Volkswagen Bentley Continental GT/Supersports cabrio Pass. Crewe UK H2 06 2014 4,849 2,410 719 1,080 793 2,925 3,025 2,750 2,400 2,125 Volkswagen Bentley Continental Flying Spur Pass. Crewe UK H1 05 2014 2,275 1,825 1,353 1,911 2,350 2,825 3,250 3,050 2,925 2,750 Volkswagen Bentley Total 10,000 7,692 3,596 4,792 7,528 9,575 10,325 10,400 12,300 12,400 VW ALL Total 4,155,621 4,175,569 3,681,723 4,277,869 4,809,761 5,013,375 5,094,543 5,312,100 5,478,500 5,644,750

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Porsche Vehicle Country Start Segment Prod'n Next new Production Production Production Production Production

Series (platform) Group Marque Model range Plant 2007 Production 2008 Production 2009 Production 2010 Production 2011 Production type of model Outlook 2012 Outlook 2013 Outlook 2014 Outlook 2015 Outlook 2016

Volkswagen Porsche Boxster Pass. Sports 987 Uusikaupunki (Valmet) FIN Q2 05 2012 10,392 8,056 4,172 1,444 0 0 0 0 0 0 Volkswagen Porsche Boxster Pass. Sports 987 Stuttgart DE 2012 0 0 3,462 5,657 6,250 00000 Stuttgart (also at Volkswagen Porsche Boxster Pass. Sports 988 DE H2 11 2011 0 0 0 0 0 9,500 12,250 14,250 12,500 10,500 Karmann if necessary) Volkswagen Porsche Cayman Pass. Sports 987 Uusikaupunki (Valmet) FIN H2 06 2012 12,634 8,089 6,242 4,941 2,015 0 0 0 0 0 Volkswagen Porsche Cayman Pass. Sports 987 Zuffenhausen, Stuttgart DE H2 06 2012 3,900 2,500 0 d 0 0 Volkswagen Porsche Cayman Pass. Sports 988 Karmann DE H2 11 2011 0 0 0 0 1,500 10,750 11,500 11,750 10,500 Volkswagen Porsche 911 Pass. Sports 997 Zuffenhausen, Stuttgart DE Q1 05 2011 38,840 32,344 22,110 19,834 15,250 7,000 3,000 0 0 0

Volkswagen Porsche 911 Pass. Sports 991 Zuffenhausen, Stuttgart DE Q1 110 0006,000 20,500 25,500 30,000 28,750 27,500 Volkswagen Porsche Panamera Pass. Sports 997 Leipzig DE Q3 07 0 0 10,465 24,060 28,500 26,500 24,000 20,250 19,000 25,500 Volkswagen Porsche Panamera coupe (928) Pass. Sports 997 Leipzig DE H2 11 2011 0 0 0 0 3,250 4,500 7,000 6,250 5,750 4,500 Volkswagen Porsche Mid engine super car Pass Sports New Zuffenhausen, Stuttgart DE H2 13 2013 0 0 0 0 0 0 0 250 1,000 750

Volkswagen Porsche 918 Spyder Pass Sports 991 Zuffenhausen, Stuttgart DE H2 12 2012 0 0 0 0 0 0 168 400 350 0 Volkswagen Porsche Macan Pass. SUV Q5 Leipzig DE H2 10 0 0 0 0 0 0 3,000 28,750 45,000 43,500 Volkswagen Porsche Cayenne Pass. SUV E1 Leipzig DE Q4 02 2010 45,304 48,232 29,186 39,593 62,000 71,000 64,500 60,000 66,000 70,000 Volkswagen Porsche Total 107,170 96,721 75,637 95,529 127,165 143,000 150,168 171,650 190,100 192,750 VW ALL Total 4,155,621 4,175,569 3,681,723 4,277,869 4,809,761 5,013,375 5,094,543 5,312,100 5,478,500 5,644,750

EUROPEAN CAR AND LCV PRODUCTION OUTLOOK REPORT September 2012 | Page 126

Other VMs:

Aston Martin There has been no significant recent corporate news regarding Aston Martin since we reported that it will invest an unspecified sum in its historic Newport Pagnell base; this will mainly focus on restoration, repair and customisation, plus a new dealership at the facility. Aston Martin has secured the funding it needs to develop its next range of models. These are due to come onto the market from 2015, with full-scale engineering starting in early 2012. In June 2011, the company secured a bond of £304m for this programme, but it is also understood that Aston Martin will actually look to access a platform from another company, possibly Daimler’s alloy platform underpinning the SL and SLS, rather than develop an all-new platform itself. Ahead of the new platform which will see an all-new DB9 in 2015, the Rapide will be facelifted in 2012, along with other models made on the existing VH platform – this will include a number of cosmetic changes, as well as modifications to ensure these vehicles comply with new US FMVSS regulations on pedestrian impact, applicable from autumn 2012. The idea of sharing a platform with Daimler is not new, as reports of a shared platform for the and Maybach have appeared regularly in the recent past. Nothing definitive has been reported on this issue since the rumours first appeared in the press. A new DBS will now appear late in 2012 and this will be visually differentiated from the DB9. Aston Martin has joined the increasing commitment of VMs to production in the UK with the decision to move production of the Rapide from Austria to its factory in Gaydon. It had planned to make the Rapide in Austria for eight years, but gave a one year notice period in June 2011; this coincided with a reduction in output – to just 25 a week, or a maximum of 1,250 a year, compared to the planned 2,000 per year when the vehicle was announced in 2007/8. Production of the Cygnet, based on the Toyota iQ, started in April 2011; the vehicle has been described by Aston Martin as “tailor-made for the city” – all Cygnets will offer a very high degree of customisation and personalisation. In addition, press reports at the start of the year suggested that the company was in talks with Daimler over sharing a new platform to develop a luxury Aston Martin alongside the next Maybach. Talks are ongoing and we would expect an announcement if something were to develop in this area during the course of the year. The credit rating agency, Standard & Poor’s, has announced that it has assigned a BB- rating for Aston Martin’s long term corporate bonds (of £304mn) which were issued earlier in the year. S&P noted that Aston Martin reported a rise in revenue of 36% in 2010, with an EBIT margin of 6%. In the long term, Aston Margin may have an IPO, but this is unlikely for at least 2-3 years we understand. Aston Martin Production Outlook to 2016 Vehicle Country Start Segment Prod'n Next new Production Production Production Production Production

Group Marque Model range Series (platform) Plant 2007 Production 2008 Production 2009 Production 2010 Production 2011 Production type of model Outlook 2012 Outlook 2013 Outlook 2014 Outlook 2015 Outlook 2016

Aston Martin Aston Martin Vantage Pass. Sports VH/AM305 Gaydon UK Q3 05 2014 4,772 3,426 1,153 1,427 1,596 1,400 1,100 1,250 1,650 1,900 Aston Martin Aston Martin Virage Pass. Sports VH Gaydon UK Q2 11 0 0 0 0 763 375 325 300 350 250 Aston Martin Aston Martin DB9/DBS Pass. Sports VH Gaydon UK Q1 04 2015 2,436 3,061 1,322 1,276 657 450 350 225 0 0 Aston Martin Aston Martin New DBS Pass. Sports VH Gaydon UK H2 12 2012 0 0 0 0 0 200 500 1,000 800 700 Aston Martin Aston Martin New DB9 Pass Sports New platform Gaydon UK H1 15 0 0 0 0 0 0 0 0 850 1,700 Aston Martin Aston Martin Lagonda Pass Sports Merc GL? Gaydon UK H1 14 2014 0 0 0 0 0 0 0 750 1,000 1,350 Aston Martin Aston Martin Rapide Pass. Tourer VH/AM803 Graz (Magna) AU 2009‐2010 0 0 0 1,498 853 380 0 0 0 0 from mid Aston Martin Aston Martin Rapide Pass. Tourer VH/AM803 Newport Pagnell UK 000 0 0 125 400 600 500 425 2012 Aston Martin Aston Martin Vanquish Pass. Sports VH Newport Pagnell UK 2009 165 0 0 0 0 25 50 25 0 0 Aston Martin Aston Martin Cygnet Pass. A/B iQ Gaydon UK 2011 0 0 0 0 558 275 325 400 350 325 Aston Martin Aston Martin Total 7,373 6,487 2,475 4,201 4,427 3,230 3,050 4,550 5,500 6,650

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Geely Volvo of a commitment to keep employment at the Ghent plant at current levels until at least 2015. Background – new Chinese owners and focus on China A further 1,000 workers will be recruited in Sweden, mostly in product development Geely bought Volvo from Ford in August 2010. Large scale series production of and engineering. This is a sure sign of confidence in the future under Geely. Volvos in China is a certainty within the next two to three years, possibly even Employment will rise by 600 by the end of 2011 at the two Volvo plants in Europe, sooner. In addition Geely says it will expand its own production network beyond to meet strong demand. The Swedish plant saw seen hourly production rise from China. Within the next 5 years, it will build as many as 15 plants outside China, 52 to 57 units in Q3/2011. Interestingly in August it was announced that the one of which will be in Turkey and will be used as a bridgehead for introducing the production rate at Gothenburg would now fall, from 57 to 52 units an hour! Geely brand into Europe itself. Manufacturing overview More immediately, there will be two Volvo plants in China, in the western city of Chengdu (to be operational by 2013) and the north-eastern city of Daqing In terms of Volvo’s current vehicle manufacturing arrangements, these are as (approval for which is expected in 2012). The new plants are part of the ambitious follows: plan to raise Volvo sales in China to at least 200,000 upa by 2015. The Chengdu  Gothenburg, Sweden: V60, V70, XC70, S80. plant will include an engine and a plant. Initial capacity across the  Ghent, Belgium: C30, S60, XC60 and the S40/V50; the planned XC30 will two Chinese plants will be c200,000 vehicles, but this could be raised to 350,000 also be made here, as will the new V40 which replaces the S40/V50. (The upa in the future; annual capacity for 250,000 engines will also be installed. XC30 could yet be called XC40). The next year or so will be very important in charting Volvo’s medium term future –  Uddevalla, Sweden: C70; Volvo announced earlier in the year that it will take the new Volvo chief, Stefan Jacoby, has spoken of achieving worldwide sales of full control of this factory, from Pininfarina; this factory had been operated as a 800,000 by 2020. Achieving this will require not just substantial sales in China, the JV since 2003. It is now wholly owned by Volvo; we had understood that home market of its owners, Geely, but also raising the sales of its core models in Volvo intended to close the factory in around March 2012. Now we traditional markets by a significant percentage. One route to achieving this could understand C70 production is continuing and will do for the foreseeable future be transforming the current XC60 and XC90 into a full XC brand; such an idea has – production could however move to Gothenburg in the future been quoted in the industry press, but we may have to wait until the end of 2012 before Volvo’s plans for this range become clear. New model plans Additional employment Although now firmly part of Geely, as we noted previously, Volvo’s detailed product plan have been in a limbo-like state for some time. Although the V40 was A sure sign of Volvo’s confidence regarding the future came in late November launched at the Geneva motor show, and the XC30(40) programme appears to be 2011 with reports that it would boost employment by as much as 10,000 by 2020 – proceeding, the company has not released details on its new models along the most of these people will be taken on in China. lines which had been expected last year at the Frankfurt motor show. Earlier in 2011, Volvo had announced it was taking on an extra 270 workers to We had understood that that plans for the S40/V50 replacement had been delayed increase production levels at the Ghent plant in Belgium, having earlier added 500 for at least 18 months so that sufficient engineering resources can be allocated to workers to cope with demand for the XC60 and also to help with production of the the all-new small SUV, XC30(40), which wants to bring out by mid-2013 – and for new S60. Confirming the company’s long term commitment to Belgium, Volvo has the new platform strategy to be finalised (see below). However, behind the scenes, secured a €198mn loan from the Flemish regional government – this is on the back Volvo decided to change tack and bring the new V40 out quicker than previously indicated. We also now understand that the C30, which we had thought would

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stop production this year, will be retained until 2015. One of the variants of the Other interesting areas of technology simplification which will follow include reduce V40 will be an SUV like vehicle, smaller than the XC60, and to be called either the number of different fuel tanks used by Volvo from 50-60 to just three; and a XC40 or XC30. new platform will underpin all models from the S60/V60 up to the XC90. Some indications of the future direction for Volvo under Geely had come at the Financial results – disappointing H1 results Shanghai Auto Show in April 2011, when the first concept Volvo produced under Volvo Car actually still reports separate financial information from Geely and its Geely management was shown. Called “Universe”, this is intended show the new results for H1/2012 are not especially pleasing. Although the January-June period human-centred design language of future “large and luxurious” Volvos. The recorded a 3.9% year-on-year rise in revenue, to over SEK65.3bn (nearly $9.8bn), Universe is not actually based on a specific vehicle platform, because the vehicle this was largely due to positive exchange rates. Unit sales actually fell by 4.1% to platform and engine strategy had not been finalised by the time of the Shanghai just over 221,000 and EBIT collapsed from SEK1.52bn to SEK329mn – and net show. profits in H1/2011 of SEK1.2bn were transformed into a loss of SEK254mn in However, the Universe concept gave a good indication as to the future of direction H1/2012. for Volvo. The concept’s interior features touch screens rather than conventional In addition to the general economic uncertainty, Volvo also attributed the losses to switch gear and has been designed to be “tranquil and lounge-like”, with detailing the costs associated with the change from S40/V50 to V40. Sales in the US were such as blue and white porcelain on the steering wheel and shift lever. Whether down by nearly 5% in the period, and in Europe they were down by over 9%; the this will be retained in the production model remains to be seen. modest rise of 1.7% in China, while welcome, hardly made a dent in the falls It is likely that the Universe – and other new models – will be built on what Volvo experienced in the more established markets. calls its Scalable Platform Architecture (SPA); this platform is intended to provide We expect the rest of 2012 and indeed 2013 to be tough for Volvo; although the the basis for models form the S40 replacement up to the long wheel base version V40 will be at full production rates later this year, several other models are in the of the S80 which is being developed for the Chinese market. Full details on the declining phases of their life cycles and a new round of model introductions from Scalable Platform Architecture were due to be unveiled at the Frankfurt motor 2014 onwards will, along with the expected recovery from that point, be required show in September, but Volvo was somewhat reticent at the time and further for Volvo to grow once more. details will follow in due course.

We are now much more positive for Volvo’s production than we have been for some time – the commitment from Geely is beginning to pay off and we now see Volvo production climbing above 500,000 during the period covered by this Outlook. In August Volvo announced a new global brand strategy, under the banner “Designed Around You”. This was announced in China, home of the company’s owners, Geely. Little detail was provided at this announcement with the company suggesting that details will be forthcoming at the Frankfurt motor show. One interesting aspect of the new Volvo strategy which has become public is the decision that all engines from 2014 will have a maximum of 4-cylinders. Volvo is moving to lightweight, reduced CO2 emissions and smaller cars; 3-cylinder engines are under consideration for the C30 replacement and similar sized cars.

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Volvo’s new model programme is as follows:

2012 2013 2014-2015 V60 plug in hybrid XC30/XC40 – and other new models to be Further new models to be confirmed – possibly V40 to replace S40 and V50 confirmed mostly in the smaller vehicle segments, including a V90 large estate like vehicle ie variants on the V40, including sedan and coupe versions

The Production Outlook table which follows shows production increasing slightly in 2013, following the expected low point this year, owing to full production rate being reached on V40. As noted above, we think it will take a further round of new models for Volvo to have sufficient momentum to climb above 500,000 units’ annual production in Europe. There may be a small decline in some models’ European production due to switching production to China, although if the new Chinese plants are delayed, then European production could be maintained at higher levels. Volvo wants to double sales globally to 800,000 upa by 2020; we do not think this can happen without major expansion outside Europe. It may be that production in Europe could increase above what is shown here, but Volvo is still a relatively small player and doubling sales, even with the backing of Geely, will not come easily or quickly. We have included a line for “various new models” from 2013 – the total volumes here are provisional but have been included to give some recognition to the fact that we expect a broadening of the Volvo line up in Europe from 2013, even if the models and their launch timings have yet to be confirmed. We expect production to be split between Belgium and Sweden, but for now we allocate all of this production to Sweden. Geely Volvo Production Outlook to 2016 Vehicle Country Start Segment Prod'n Prod'n End Next new Production Production Production Production Production

Series (platform)

Group Marque Model range Plant of 2007 Production 2008 Production 2009 Production 2010 Production 2011 Production type of model Outlook 2012 Outlook 2013 Outlook 2014 Outlook 2015 Outlook 2016

Geely Volvo C30 Pass. C Y279 Ghent BE H1 07 2012+ 0 0 0 11,779 26,167 20,000 16,000 8,000 2,500 0 2013 or Geely Volvo XC30/40 Pass C‐SUV Y556 Ghent BE H2 12 0 0 0 0 0 0 8,000 22,000 26,000 29,000 2014 Geely Volvo V40 and variants New Ghent BE Q4 12 0 0 0 0 0 17,750 80,000 85,000 81,500 77,000 Geely Volvo S40 Pass. C Y276 Ghent BE Q3 04 2015 tbc H2 15 0 0 0 7,800 17,360 6,500 0 0 0 0 Geely Volvo V50 Pass. C Y280 Ghent BE Q3 04 2015 tbc H2 15 0 0 0 18,428 46,045 22,500 0 0 0 0 Geely Volvo V60 Pass C Y283 Gothenburg SE H1 11 0 0 0 12,956 50,668 57,500 52,000 49,000 46,500 44,250 Geely Volvo S60 Pass. D CD3XX/ Y283 Ghent BE H2 10 0 0 0 24,032 76,500 59,500 55,000 54,000 52,000 51,000 Geely Volvo V70 Pass. D P26/ Y285 Ghent BE Q2 00 Q2 07 2007 0 0 0 0 000000 Geely Volvo V70 Pass. D P26/ Y285 Gothenburg SE Q2 00 Q2 07 2007 0 0 0 0 000000 Geely Volvo V70 Pass. D CD3XX/ P2X Gothenburg SE Q2 07 2014 0 0 0 21,810 35,928 29,500 21,000 29,500 48,500 52,000 Geely Volvo S80 Pass. E P3X/Y286 Gothenburg SE Q2 06 2013‐14 0 0 0 5,770 12,907 12,250 17,500 28,000 31,000 29,500 Geely Volvo XC60 Pass. D‐SUV P1/Y359 Ghent BE Q1 08 0 0 0 36,446 100,645 109,500 102,500 91,500 87,000 80,000 Geely Volvo XC70 Pass. SUV est. P26 Gothenburg SE Q3 00 Q2 07 2007 0 0 0 0 000000 Geely Volvo XC70 Pass. SUV est. CD3XX/ P2X Gothenburg SE Q3 07 0 0 0 8,328 26,853 20,750 19,500 18,500 17,250 16,500 Geely Volvo XC90 Pass. SUV P28 Gothenburg SE Q2 02 2011FL 0 0 0 15,020 40,860 33,500 22,000 20,000 59,000 67,000 Geely Volvo Various other models Pass Various Gothenburg SE H1 13 0 0 0 0 0 0 5,000 25,000 50,000 55,000 Geely Volvo C70 CC Pass. Sports Y281 Uddevalla SE Q3 05 2012‐3 0 0 0 2,734 9,593 7,500 4,000 0 0 0 Geely Volvo New C&0 Pass. Sports Y281 Gothenburg SE H2 13 2013 0 0 0 0 0 0 2,500 10,000 12,000 10,500 Geely Volvo Total 0 0 0 165,103 443,526 396,750 405,000 440,500 513,250 511,750

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Mitsubishi The key news at Mitsubishi is that production of the Colt and Outlander will come to an end at the end of 2012. Mitsubishi has sold the factory to the bus company, VDL: BMW had apparently been considering contracting production of Minis here – we now think this is unlikely in the extreme. The only remaining Mitsubishi production in Europe will be the Outlander production at the PSA JV factory in Russia. Mitsubishi Production Outlook to 2016 Vehicle Country Start Segment Prod'n Next new Production Production Production Production Production

Group Marque Model range Series (platform) Plant 2007 Production 2008 Production 2009 Production 2010 Production 2011 Production type of model Outlook 2012 Outlook 2013 Outlook 2014 Outlook 2015 Outlook 2016

Mitsubishi Mitsubishi Colt Pass. B Z Born NL Q2 04 2012‐2013 61,692 54,137 43,129 26,907 23,750 18,000 Production due to end in December 2012 Mitsubishi Mitsubishi Outlander Pass. SUV Outlander Born NL H2 08 0 6,168 7,491 21,118 17,025 12,000 Production due to end in December 2012 Mitsubishi Mitsubishi Outlander & PSA variants Pass. SUV Outlander Kaluga ‐ PSA JV RU H2 10 0 0 0 4,250 12,000 20,250 40,000 45,000 43,000 42,500 Bairo Canavese Mitsubishi Mitsubishi Colt cabrio Pass. B sports Z IT Q1 06 4,741 2,830 0 0 0 0 0 0 0 0 (Pininfarina) Mitsubishi Mitsubishi Total 66,433 63,135 50,620 52,275 52,775 50,250 40,000 45,000 43,000 42,500

SAIC MG MG vehicles had been due to resume assembly at Longbridge in late 2010, although in practice production only took place in 2011, since when no vehicles have been reported as made at Longbridge. We now think all MGs will be made in China and the likelihood of assembly resuming, even at modest volumes, at Longbridge is very low indeed. SAIC MG Production Outlook to 2016 Vehicle Country Start Segment Prod'n Production Production Production Production Production

Series (platform)

Group Marque Model range type Plant 2007 Production 2008 Production 2009 Production 2010 Production 2011 Production of Outlook 2012 Outlook 2013 Outlook 2014 Outlook 2015 Outlook 2016

SAIC MG MGF Pass. Sports PR3 Longbridge UK H2 08 0 468 88 0 0 0 0 0 0 0 SAIC MG MG6 Pass. C Longbridge UK H2 10 0 0 0 0 1,315 0 0 0 0 0 SAIC MG MG Total 0 468 88 0 1,315 0 0 0 0 0

Saab-Spyker Introduction – latest situation – the end of the road for Saab – or rebirth as an EV manufacturer? Having been placed in bankruptcy protection in Q3 2011, no resolution regarding ownership and new funding had been found by December, so the company has filed for bankruptcy. Saab’s future was sealed when GM announced it would block the sale of Saab to the Chinese; GM has pre-emptive rights over the technology in Saabs and has refused to sanction a change of ownership at Saab of which it disapproves. An attempt to save Saab by the Turkish-backed finance company, Brightwell, failed because GM did not want to license any technology to this entity, nor did it want to make the 9-4X SUV for a new owner of Saab.

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The Dutch sports car maker, Spyker, or rather its shareholders, had bought Saab from GM, although the deal included GM holding US$326m worth of redeemable preference shares in Saab. Despite the bullish statements from the new owners after they bought the company, Saab continued to lose money and when production came to a halt when it could not pay suppliers, the writing was really on the wall. The Chinese companies Youngman and Pang Da wanted to buy Saab, initially providing around €50mn to keep the company going; the total price to be paid for the business was said to be around €100mn. However, this deal, like the proposed takeover by Brightwell, also failed. Our Production Outlook had originally assumed that a future would have been found for Saab; for now we have left the historic information in the report and will reactivate coverage of Saab if it is eventually saved, no matter how unlikely that may seem. For now the future for Saab production is shown as zero and highlighted in pink below; this will be changed if Saab is revived. Saab has now been taken over by a consortium which intends to make electric vehicles there – we remain doubtful as to the viability of this plan, with almost no detail having been released in terms of timing and actual models. For now we leave this a zero production for the future, but will revise this in future reports when relevant and reliable information is available. Saab Production 2010-2011 – earlier production included in GM Vehicle Country Start Segment Prod'n Production Production Production Production Production

Group Marque Model range Plant 2007 Production 2008 Production 2009 Production 2010 Production 2011 Production type of Outlook 2012 Outlook 2013 Outlook 2014 Outlook 2015 Outlook 2016

Saab Sypker Saab 9‐3 Pass. D Trollhattan SE Q1 10 0 0 0 19,481 9,636 0 0 0 0 0 Saab Sypker Saab New 93 incl. cabrioPass.DTrollhattanSE0 000 000000 Saab Sypker Saab 9‐3 cabrio Pass. D Graz (Magna) AU 0 0 0 2,526 1,495 0 0 0 0 0 Saab Sypker Saab 95 Pass. E Trollhattan SE Q1 10 0 0 0 8,756 2,424 0 0 0 0 0 Saab Sypker Saab 92 Pass. C Trollhattan SE H1 140000 000000 Saab Sypker Saab Total 0 0 0 30,763 13,555 0 0 0 0 0

Other Chinese VMs Chery was due to have started production in Turkey by the end of 2011, but this will now begin in H2/2013, a year later than expected; meanwhile Great Wall also delayed the start of production at its 50,000 upa JV in Bulgaria until February this year. Chery and Great Wall Production Outlook to 2016 Vehicle Country Start Segment Prod'n Production Production Production Production Production

Group Marque Model range Series (platform) Plant 2007 Production 2008 Production 2009 Production 2010 Production 2011 Production type of Outlook 2012 Outlook 2013 Outlook 2014 Outlook 2015 Outlook 2016

Chery Chery Various Pass Various Various Turkey TR 0 0 0 0 0 0 5,000 40,000 70,000 86,000 Chery Chery Total 0 0 0 0 0 0 5,000 40,000 70,000 86,000 Great Wall Great Wall Various Pass. Various Various Bulgaria BU 0 0 0 0 0 7,500 32,000 42,500 44,000 46,500 Great Wall Great Wall Total 0 0 0 0 0 7,500 32,000 42,500 44,000 46,500

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