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Nomura - Global Autos

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Nomura Global Picks: Kia, Honda, Astra Int’l

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									Global autos
AUTOS & AUTO PARTS
                                                                                                              EQ U I T Y R E S E A R C H




Nomura Global Picks: Kia, Honda, Astra Int’l                                                          September 14, 2012



Capture upside while limiting
downside risk from Europe

Global auto sales volumes to rise 6% y-y in both 2012F & 2013F                                        Research analysts
We forecast global auto sales volumes will grow 6% y-y in both 2012F and
2013F, but we anticipate large disparities between markets in terms of                                Japan Autos & Auto Parts
profit levels. We introduce our “weather-forecast” assessment of                                      Masataka Kunugimoto - NSC
automakers' profit prospects by market.                                                               masataka.kunugimoto@nomura.com
                                                                                                      +81 3 6703 1163

Higher exposure to the US/Southeast Asia will be an advantage                                         Anindya Das - NSC
                                                                                                      anindya.das@nomura.com
We think companies with high sales exposure to the buoyant US, Thai,                                  +81 3 6703 1164
and Indonesian markets are likely to see relatively robust earnings. On the
other hand, we expect weakness at firms largely dependent on Europe,                                  South Korea Autos & Auto Parts
where market conditions are tough in terms of both volumes and prices.                                Angela Hong - NFIK
                                                                                                      angela.hong@nomura.com
Our preferred global picks are Kia, followed by Honda and Astra Int’l                                 +82 2 3783 2360
For our preferred global picks, we recommend Kia Motors, Honda Motor,
and Astra International. Apart from valuation, our recommendations pay                                China Autos & Auto Parts
particular attention to:                                                                              Steve Man - NIHK

 The likelihood of growth in sales volumes feeding through to profits                                steve.man@nomura.com
                                                                                                      +852 2252 6225
   based on product competiveness and the market outlook over the next
   6–12 months, and
                                                                                                      India Autos & Auto Parts
 The extent of downside risks if the relatively high-risk European market                            Kapil Singh - NFASL
   were to contract more than we expect.                                                              kapil.singh@nomura.com
                                                                                                      +91 22 4037 4199


Fig. 1: Stocks for Action                                                                             Indonesia Autos & Auto Parts

                                                                                                      Wilianto Ie - PTNI
 Company name                     Ticker          Rating     Current price    Target price   Upside   wilianto.ie@nomura.com
 Kia Motors                   000270 KS             Buy       KRW 72,600     KRW 100,000       38%    +62 21 2991 3341
 Honda                          7267 JT             Buy         JPY 2,629       JPY 3,200      22%
 Astra International             ASII IJ            Buy         IDR 7,350       IDR 8,200      12%

Source: Nomura research, Pricing date is 12 September 2012




                                                                                                      See Appendix A-1 for analyst
                                                                                                      certification, important
                                                                                                      disclosures and the status of
                                                                                                      non-US analysts.
Nomura | Global autos                                                                  September 14, 2012



Contents
     3    Executive Summary                                 Research analysts
  




                                                            Japan autos & auto parts
     8    Global automobile demand outlook
  
                                                            Masataka Kunugimoto - NSC
                                                            masataka.kunugimoto@nomura.com
                                                            +81 3 6703 1163
     9    US autos: Recovery through 2014F
  
                                                            Anindya Das - NSC
                                                            anindya.das@nomura.com
     17   Europe: Yet to prune the deadwood                 +81 3 6703 1164
  



                                                            Daisuke Kuroda - NSC
                                                            daisuke.kuroda@nomura.com
     20   China: Growth dependent on GDP                    +81 3 6703 1199
  




                                                            South Korea Autos & Auto Parts
     26   Japan: Good times are over
  
                                                            Angela Hong - NFIK
                                                            angela.hong@nomura.com
     29   Korea: Marginal recovery in 2013F                 +82 2 3783 2360
  


                                                            Sangmyeong Kim - NFIK
                                                            sm.kim@nomura.com
     32   India: Growth to slow down in 2012-13F            +82 2 3783 2318
  




                                                            China Autos & Auto Parts
     38   Indonesia: Growth continues
  
                                                            Steve Man - NIHK
                                                            steve.man@nomura.com
     42   Thailand                                          +852 2252 6225
  

                                                            Michelle Lo - NIHK
                                                            michelle.lo@nomura.com
     47   Stock Picks                                       +852 2252 6195
  




                                                            India Autos & Auto Parts
     50   Kia Motors (000270 KS-Buy; TP: KRW100,000)
  
                                                            Kapil Singh - NFASL
                                                            kapil.singh@nomura.com
                                                            +91 22 4037 4199
     52   Honda Motor (7267-Buy; TP: JPY3,200)
  
                                                            Nishit Jalan - NSFSPL
                                                            nishit.jalan@nomura.com
     54   Astra International (ASII IJ-Buy; TP: IDR8,200)   +91 22 4037 4362
  




                                                            Indonesia Autos & Auto Parts
     55   Dongfeng Motor (489 HK-Buy; TP: HKD15.80)
  
                                                            Wilianto Ie - PTNI
                                                            wilianto.ie@nomura.com
                                                            +62 21 2991 3341
     57   Mahindra & Mahindra (MM IN-Buy; TP: INR964)
  




     61   Appendix A-1
  




                                                                                                      2
Nomura | Global autos                                                                       September 14, 2012



Executive Summary
We expect global auto sales volume to grow 6% y-y in both 2012F and 2013F, but we
anticipate large disparities between markets in terms of profit levels. Fig. 1 shows our
“weather-forecast” assessment of automakers' profit prospects by market.


Global auto sales: The US & Southeast Asia to drive growth
Industrialised economies: High margins in the US market
Amongst the industrialised economies, we expect the US to continue to provide
automakers with solid earnings growth. Unit sales are rebounding off exceptional
weakness to regain the 16mn level and we expect growth to continue. With production
capacity expanding only gradually after cuts of around 3mn vehicles led by the Detroit
Three in the wake of the financial crisis, incentives are also being held down. In stark
contrast, Europe is seeing a simultaneous contraction in volumes and intensifying price
competition amid a lack of progress in cutting capacity despite demand falling for five
straight years through 2012. We expect the market to remain difficult for most global
automakers given uncertainties over whether they will be able to push through plant
closures and layoffs in the face of political and social resistance. In Japan, the
government's eco-car subsidies have supported a favourable environment but the
allotted subsidies look likely to run out at the end of September. We expect a sharp
reactive decline in demand and deteriorating market conditions over Oct–Dec, followed
by gradual improvement thereafter. In Korea, sales recorded a temporary decline owing
to the strike at Hyundai and Kia, but we expect steady improvement from here on as
supply returns back to normal and tailwinds from the launch of new models including the
Kia K3 (Forte).
Thailand and Indonesia: buoyant among emerging markets
Among the emerging markets, conditions in Thailand and Indonesia are particularly
good. We believe both the countries have entered a phase of full-fledged motorisation as
their middle classes—people able to buy vehicles—have grown amid ongoing economic
development (source: Nomura Global Economics).
http://www.nomuranow.com/research/globalresearchportal/getpub.aspx?pid=446777.
With Japanese automakers having around 90% of both the markets, competition is
milder than in other emerging markets crowded with makers from Japan, Korea, the US,
and Europe. In particular, Toyota Motor, the market leader in both the countries, is
seeing structural benefits on the back of its strong cost competiveness and strong brand
image in the mass market, which, we think, is preventing the emergence of other cost-
competitive players. In Thailand, we expect growth to slow following the December 2012
end to tax rebates for first-time buyers, but we still anticipate favourable market
conditions to continue in 2013. In Indonesia, there has been almost no sign of any
impact on autos following the introduction of new rules for loan down payments in June,
and we expect market growth to be boosted by the upcoming launch of the government's
Low Cost Green Car project.
China: Near-term concerns over excess inventories
In China, demand growth has lagged capacity expansion, which has led to some excess
capacity. Dealer inventories have recently reached 80-85 days, well above the 45-60 day
level which we regard as a sound level. Amid expanded discounting by dealers,
automakers are incentivising dealers to maintain sales while also stepping-up their own
sales promotions. We expect automakers to leave cutting back sales volumes as their
last tactic to reduce excess inventories and, we think, margins are likely to deteriorate
somewhat industry-wide. From a longer-term perspective, we expect a low vehicle
penetration rate, exports growth, and emergence of the second-hand market to further
fuel demand growth. As a result, we are more optimistic about 2013 market conditions.
India: Generating profits in the passenger car segment remains difficult
In India, as in China, automakers’ margins are under pressure. While we expect ongoing
firmness in some segments such as utility vehicles and light commercial vehicles,
supported by new model launches, in the passenger car segment—which accounts for
two-thirds of the auto market (excluding large commercial vehicles)—we expect weak




                                                                                                           3
Nomura | Global autos                                                                       September 14, 2012


demand amid deterioration in the macro environment and rising fuel prices. With vehicle
prices also low, we expect earnings to remain under pressure. In Brazil, demand has
recently received a temporary boost from a reduction in the tax on Industrial Products
(IPI) for auto purchases, but if the tax break ends by end-October we would expect
market conditions to deteriorate on a reactive decline thereafter.

Fig. 2: Introducing Nomura HAWK
Nomura Handy Automotive Weather Kinetics

                                     Now              3 mths              12 mths

 US

 Europe

 Japan

 Korea

 Brazil

 Russia

 India

 China

 Thailand

 Indonesia

Source: Nomura research



Global stock selection
Our favourite global stock picks are Kia Motors, Honda Motor, and Astra
International
For our top global picks, we recommend Kia Motors, Honda Motor, and Astra
International. Apart from valuations, our recommendations pay particular attention to: 1)
the likelihood of growth in sales volume feeding through to profits based on product
competiveness and the market outlook over the next 6–12 months, and 2) the extent of
downside risks if the relatively high-risk European market were to contract more than we
expect.
Advantage: Companies with high sales exposure to the US/Southeast Asia
We think companies with a high sales exposure to the buoyant US, Thai, and Indonesian
markets are likely to record relatively robust earnings. On the other hand, we expect
weakness at companies largely dependent on Europe, where market conditions are
challenging in terms of both volumes and prices. In Japan, we anticipate market
deterioration from October 2012 through to around March 2013 owing to the end of the
¥300bn eco-car subsidy program in September 2012. In the Chinese and Indian
markets, volumes may expand slightly but we expect profitability to remain under some
pressure amid ongoing intense price competition.




                                                                                                           4
Nomura | Global autos                                                                                          September 14, 2012


Prefer low European exposure, or ability to offset slowing exports to Europe with
higher exports to other regions
With visibility on the macroeconomic outlook particularly poor for the European market,
we see potential downside risks to our current projections for that market (for 2012F, we
forecast a 7% y-y contraction in sales volume). In Europe, PSA, Fiat, GM, and Ford all
have substantial excess supply capacity, but it is unclear whether they will be able to
implement the large-scale capacity cuts essential for restoring profitability, bearing in
mind the political and social challenges in laying off staff.

Fig. 3: Volume exposure to Europe for the major OEMs in 2011
(million units)

                                                      9.0 mn
                                    8.2 mn
             Europe                                                                        7.4 mn


                                             5.7 mn

                                                                        4.5 mn
                                                                                 4.1 mn
                           3.6 mn
                                                                                                      3.1 mn
                  2.7 mn                                       2.5 mn
     2.0 mn
       59%


                   59%


                            57%


                                     41%


                                              22%


                                                       14%


                                                                12%


                                                                          11%


                                                                                   10%


                                                                                             8%


                                                                                                       4%
      Fiat    Renault PSA            VW      Ford      GM       Kia     Nissan Hyundai Toyota Honda

Source: ACEA, Company reports, Nomura estimates. Toyota, Honda & Nissan numbers are for FY 2012-Mar


Asian auto makers, as a whole, depend little on Europe and, in our view, face little risk
from a European slowdown. Among the Asian auto makers, we especially recommend
companies that 1) have very low European sales weightings, or 2) are able to offset any
slowdown in exports to Europe by expanding exports elsewhere. Among the former, we
highlight Honda and Astra International, among the latter Kia. Kia has been winning
customers from rivals in Europe thanks to its improving brand image and a boost from
new models, and with insufficient capacity to supply to the US and other markets outside
Europe, we believe it is positioned to offset any decline in exports to Europe by
increasing exports to other markets.
Preferred global pick: Kia Motors (000270 KS, Buy, KRW100,000 TP)
We expect Kia’s 2013F retail sales volume to grow 8% on new model launches and
improving plant productivity. Over the next 12 months, Kia plans to introduce four fully
revamped models and three face-lifted models globally, of which we are most positive
about the upcoming launch of K3. This is the company's largest-selling model,
accounting for 18% of Kia’s global sales and 32% of its Chinese sales. The K3 shares a
common platform with the Hyundai Elantra, which has already proved to be a hit in the
US and China and, with the K3’s impressive design, we think it should likely contribute to
volume growth and enhance Kia’s brand image. We expect the improved productivity
and extra working hours at Kia’s overseas plants to lead to 7%-plus growth in production,
despite the current global utilisation of 108%. We also forecast margins to continue to
expand on stabilised incentive spending and platform integration. We expect Kia to
maintain strong sales momentum in the US, Europe and emerging markets. Kia’s US
inventory level at end-August was around half the industry average, and with incentives
also low, we would expect it to have relatively good staying power even if markets were
to deteriorate. The company's retail sales in Europe have also remained firm despite
ongoing market contraction: Kia’s YTD August unit sales rose 24% vs. European auto
demand contracting 6%.
Preferred global pick: Honda Motor (7267 JT, Buy, JPY3,200 TP)
In light of current challenging market conditions, we take a positive view of Honda’s low
sales exposure to Europe and a correspondingly higher exposure to the buoyant US and
Southeast Asian markets. Despite the tough market environment in Japan, the company




                                                                                                                              5
Nomura | Global autos                                                                           September 14, 2012


has expanded its share of the mini-vehicle market with the N Box, a major hit, and we
look for this to partially offset a decline after the end of eco-car subsidies. In September,
the company launched the next generation Accord, its best-selling model in the US. It is
a major source of earnings, and we expect margins to improve as the company cuts
back on dealer incentives, following the launch. In motorcycles, the company has been
expanding its market share in India and Indonesia, and over the medium term, we look
for emerging markets to grow. We think the Fit/Jazz compact car will undergo a model
change in 14/3, and we expect the new model and its SUV and sedan derivatives to see
major improvements, including hybrid versions. We expect sales volumes of the Fit and
Fit-based compact cars to grow by 250,000 units per year in each of 14/3 and 15/3. We
also look for earnings improvement stemming from a large increase in the local
procurement ratio overseas following model changes in the Fit series. In North America,
the company expects to start production in Mexico in 2014, which should help boost
market share, in our view.
Preferred global pick: Astra International (ASII IJ, Buy, IDR8,200 TP)
Astra International generates around two-thirds of its profit from automotive and related
businesses. It has a strong distribution network, solid execution and dominant market
position with a 56% market share in cars and 57% market share in motorcycles in
Indonesia in 1H12, based on data from Gaikindo and AISI. Many automakers based in
China, India and Indonesia generate the bulk of their sales and profits in their home
markets, leaving them susceptible to changes in conditions in these markets. In the
Indonesian market, which is likely to remain strong, in our view, Astra International has
joint ventures with leading companies such as Toyota Motor and Daihatsu Motor in autos
and with Honda Motor and other manufacturers in motorcycles. While competition has
heated up in the Indonesian market, we expect Astra International to benefit from the
growth of Indonesia’s automobile market over the short- and medium-term as
motorisation takes hold in earnest. We also anticipate an improvement in its motorcycle
business with Honda Motor. The Indonesian motorcycle market contracted temporarily
due to the implementation of new regulations for down-payments in June. However, we
look for the Indonesian motorcycle market to bottom in September and head towards a
recovery, eventually underpinning earnings growth over the medium term.




                                                                                                               6
Nomura | Global autos                                                                                                                                                  September 14, 2012


Fig. 4: Valuation Sheet

                                              Mkt Cap                 Current         Target    Potential      P/ E           EV / EBITDA      P / BV             ROE          Div Yield
Company                             Ticker      ($mn)   Rating          Price          Price      Upside     12E       13E     12E     13E    12E       13E     12E     13E    12E     13E
India
Ashok Leyland                       AL IN       1,038   Neutral      INR 21.55      INR 26.00        21%    10.1x     10.8x    6.8x    6.8x   1.4x      1.3x   13.5%   11.8%   4.6%   4.6%
Bajaj Auto                       BJAUT IN       8,871     Buy     INR 1,693.35   INR 1,809.00         7%    16.5x     15.0x   10.9x    9.8x   7.5x      5.9x   45.6%   39.7%   2.4%   2.7%
Hero Motocorp                     HMCL IN       6,461   Neutral   INR 1,787.15   INR 2,128.00        19%    15.0x     14.0x    9.0x    8.1x   8.3x      6.2x   55.4%   44.5%   2.5%   2.5%
Mahindra & Mahindra                 MM IN       7,764     Buy       INR 762.95     INR 934.00        22%    14.6x     12.8x   10.3x    8.8x   3.0x      2.6x   20.7%   20.3%   1.8%   2.0%
Maruti Suzuki                      MSIL IN      6,384   Neutral   INR 1,220.20   INR 1,201.00        -2%    21.6x     18.1x   11.2x    8.8x   2.3x      2.1x   10.6%   11.4%   0.6%   0.6%
Tata Motors                       TTMT IN      15,195   Neutral     INR 263.25     INR 261.00        -1%     6.3x      6.0x    4.3x    4.0x   1.9x      1.5x   29.5%   24.6%   1.5%   1.5%
TVS Motor                         TVSL IN         325     Buy        INR 37.75      INR 87.00       130%     6.2x      4.8x    4.4x    3.4x   1.5x      1.2x   23.8%   25.0%   3.6%   4.2%
Average                                                                                              28%    12.9x     11.6x    8.1x    7.1x   3.7x      3.0x   28.5%   25.3%   2.4%   2.6%
Median                                                                                               19%    14.6x     12.8x    9.0x    8.1x   2.3x      2.1x   23.8%   24.6%   2.4%   2.5%

China
Brilliance                        1114 HK       4,786   Neutral      HK$ 7.36       HK$ 7.60          3%    12.8x      9.8x     N/A    N/A    3.2x      2.4x   25.3%   24.7%   0.0%   0.0%
BYD                               1211 HK       4,796   Neutral     HK$ 15.80      HK$ 13.00        -18%    44.2x     25.6x   11.0x    9.4x   1.4x      1.3x    3.1%    5.1%   0.0%   0.0%
Dongfeng Motor                     489 HK      11,244      Buy      HK$ 10.12      HK$ 15.80         56%     7.1x      5.8x    1.6x    0.5x   1.3x      1.1x   18.0%   18.4%   1.5%   1.7%
Geely Auto                         175 HK       2,826      Buy       HKD2.57        HKD3.90          52%    10.6x      7.6x   10.1x    6.7x   1.6x      1.4x   15.2%   17.9%   1.0%   1.4%
Great Wall                        2333 HK       6,808   Neutral     HKD18.76       HKD18.10          -4%    10.8x      9.9x    6.2x    5.1x   2.3x      1.9x   20.8%   19.2%   1.4%   1.5%
GAC                               2238 HK       4,569   Reduce       HKD5.52        HKD3.90         -29%    12.2x     11.5x     N/A    N/A    0.9x      0.9x    7.4%    7.4%   2.5%   2.7%
ZhengTong Auto                    1728 HK       1,244      Buy       HKD4.64        HKD5.10          10%    10.5x      8.3x    8.0x    6.4x   1.3x      1.2x   12.1%   14.3%   0.0%   0.0%
Zhongsheng                         881 HK       2,486      Buy      HKD10.10       HKD11.60          15%    17.9x     12.2x    9.7x    7.4x   2.0x      1.8x   11.3%   14.6%   1.0%   1.5%
Xinda                             1899 HK         435   Neutral      HKD2.21        HKD2.50          13%     9.1x      7.0x    3.8x    3.5x   0.5x      0.5x    5.8%    7.1%   2.2%   2.8%
Average                                                                                              11%    15.0x     10.9x    7.2x    5.6x   1.6x      1.4x   13.2%   14.3%   1.1%   1.3%
Median                                                                                               10%    10.8x      9.8x    8.0x    6.4x   1.4x      1.3x   12.1%   14.6%   1.0%   1.5%

Korea
Hyundai Motor                    005380 KS     56,731      Buy    KRW235,500     KRW320,000          36%     6.6x      6.2x    8.0x    7.3x   1.3x      1.1x   19.4%   17.5%   0.8%   1.0%
Kia Motors                       000270 KS     26,028      Buy     KRW72,600     KRW100,000          38%     8.2x      6.1x    7.2x    5.1x   2.1x      1.6x   26.0%   26.1%   0.7%   1.0%
Average                                                                                              37%     7.4x      6.1x    7.6x    6.2x   1.7x      1.3x   22.7%   21.8%   0.7%   1.0%
Median                                                                                               37%     7.4x      6.1x    7.6x    6.2x   1.7x      1.3x   22.7%   21.8%   0.7%   1.0%

Japan
Nissan                             7201 JT     39,821     Buy          JPY740         JPY920         24%     7.6x      6.4x    5.6x    4.7x   0.9x      0.8x   11.9%   12.7%   3.4%   4.3%
Toyota                             7203 JT    129,149     Buy        JPY3,200       JPY4,200         31%    11.2x      9.1x   10.0x    8.2x   0.9x      0.8x    8.1%    9.3%   2.3%   3.0%
Mazda                              7261 JT      2,273     Buy           JPY95         JPY135         42%    27.2x      7.1x    6.5x    4.1x   0.6x      0.6x    2.2%    7.8%   0.0%   2.1%
Daihatsu                           7262 JT      6,992   Neutral      JPY1,278       JPY1,400         10%     8.1x      8.1x    2.1x    1.9x   1.1x      1.0x   14.1%   12.8%   3.7%   3.7%
Honda                              7267 JT     60,834     Buy        JPY2,629       JPY3,200         22%     9.5x      8.2x    8.2x    7.2x   1.0x      0.9x   10.5%   11.2%   3.1%   3.5%
Suzuki                             7269 JT     10,422   Neutral      JPY1,447       JPY1,550          7%    11.9x     11.5x    2.0x    1.8x   0.8x      0.7x    6.5%    6.4%   1.0%   1.2%
Fuji Heavy Inds                    7270 JT      6,503   Neutral        JPY649         JPY620         -4%    10.4x      9.4x    4.6x    3.8x   1.0x      0.9x    9.9%   10.1%   1.4%   1.8%
Yamaha Motors                      7272 JT      3,303   Neutral        JPY737         JPY660        -10%    15.6x     12.4x    6.2x    5.2x   0.9x      0.8x    5.6%    6.7%   1.4%   1.6%
Average                                                                                              15%    12.7x      9.0x    5.7x    4.6x   0.9x      0.8x    8.6%    9.6%   2.0%   2.7%
Median                                                                                               16%    10.8x      8.6x    5.9x    4.4x   0.9x      0.8x    9.0%    9.7%   1.9%   2.5%

Indonesia
Astra International                 ASII IJ    31,071      Buy       IDR7,350       IDR8,200         12%    15.6x     13.6x   12.9x   11.7x   4.3x      3.7x   27.2%   27.1%   3.2%   3.7%
Indomobil Sukses International     IMAS IJ      1,660      Buy       IDR5,750       IDR8,500         48%    16.5x     12.0x   23.7x   16.0x   2.9x      2.4x   17.6%   20.4%   1.2%   1.7%
Average                                                                                              30%    16.1x     12.8x   18.3x   13.8x   3.6x      3.1x   22.4%   23.8%   2.2%   2.7%
Median                                                                                               30%    16.1x     12.8x   18.3x   13.8x   3.6x      3.1x   22.4%   23.8%   2.2%   2.7%

Source: Bloomberg, Nomura estimates. Priced as on 12 September 2012




                                                                                                                                                                                           7
Nomura | Global autos                                                                                                           September 14, 2012



Global automobile demand outlook
We think global automobile demand (in terms of volume) will continue to rise despite
marked disparities between regions. We expect y-y growth of 6% in 2012F after a 4%
rise in 2011. While we forecast double-digit growth in the US and Southeast Asia, we
expect European demand will shrink 7%. Even though we expect Japanese demand to
rise sharply in 2012, we think demand will shrink rapidly from September once eco-car
subsidies are withdrawn. These disparities in demand, which we expect to materialise in
the major global markets, are likely to result in variability in the near-term earnings of
automakers, depending on their regional sales weightings.


Strong demand in the US and Southeast Asia

Fig. 5: Global automobile demand forecasts
We expect the US to remain one of the prime growth drivers over the next few years
 (mn units)                                        CY2006            2007             2008     2009    2010     2011   2012E   2013F       2014F
 US (PC+LCV)                                          16.56          16.15           13.24    10.43   11.59    12.78   14.37   15.42       16.35
 y-o-y change                                        -2.6%          -2.5%         -18.0%     -21.2%   11.1%   10.3%    12.4%   7.3%        6.1%
 Western Europe (PC)                                  14.76          14.79           13.56    13.67   12.98    12.80   11.84   11.96       12.34
 y-o-y change                                         1.8%           0.2%            -8.3%    0.8%    -5.0%    -1.4%   -7.5%   1.0%        3.2%
 Eastern Europe (PC)                                    1.06          1.21            1.18     0.86    0.80     0.76    0.76    0.77        0.80
 y-o-y change                                         3.6%         14.6%             -2.6%   -27.2%   -7.1%    -4.6%   0.1%    1.5%        3.0%
 Total Europe (PC)                                    15.82          16.00           14.74    14.52   13.78    13.56   12.60   12.73       13.14
 y-o-y change                                         1.9%           1.2%            -7.9%    -1.5%   -5.1%    -1.6%   -7.1%   1.0%        3.2%
 Total Europe (LCV)                                     2.10          2.24            2.01     1.42    1.54     1.65    1.60    1.63        1.70
 y-o-y change                                         0.8%           6.6%         -10.6%     -29.4%   8.6%     7.4%    -3.0%   2.0%        4.1%
 Total Europe (PC +LCV)                               17.92          18.25           16.75    15.94   15.32    15.21   14.21   14.37       14.84
 y-o-y change                                         1.8%           1.8%            -8.2%    -4.8%   -3.9%    -0.7%   -6.6%   1.1%        3.3%
 Japan (PC + LCV)                                       5.74          5.35            5.08     4.61    4.96     4.21    5.18    4.78        4.81
 y-o-y change                                        -1.9%          -6.7%            -5.1%    -9.3%   7.5%    -15.1%   23.0%   -7.6%       0.5%
 Korea (PC+LCV)*                                        1.16          1.22            1.15     1.39    1.46     1.47    1.45    1.49        1.52
 change y-o-y                                         1.9%           4.8%            -5.4%   20.9%    5.1%     0.6%    -1.5%   2.5%        2.0%
      Brazil (PC+LCV)                                   1.86          2.37            2.71     3.04    3.37     3.47    3.72    3.64        3.82
      change y-o-y                                   12.9%         27.6%             14.1%   12.4%    10.8%    3.0%    7.0%    -2.0%       5.0%
      Russia (PC+LCV)                                   1.92          2.59            2.92     1.47    1.91     2.65    2.89    3.15        3.39
      change y-o-y                                   24.1%         35.4%             12.4%   -49.7%   30.5%   38.7%    9.0%    9.0%        7.5%
      India (PC+LCV)**                                  1.57          1.76            1.75     2.24    2.87     3.07    3.41    3.94        4.53
      change y-o-y                                   22.1%         12.1%             -0.6%   28.0%    28.2%    6.9%    11.0%   15.6%      15.0%
      China (PC+LCV)                                    7.18          8.78            9.36    13.62   18.04    18.53   19.20   21.71       23.01
      change y-o-y                                   24.8%         22.3%             6.6%    45.5%    32.5%    2.7%    3.6%    13.1%       6.0%
      Thailand (PC+LCV)                                 0.68          0.63            0.62     0.55    0.80     0.79    1.20    1.27        1.39
      change y-o-y                                   -3.0%          -7.5%            -2.5%   -10.8%   45.8%    -0.8%   51.0%   6.0%        9.5%
      Indonesia (PC+LCV)                                0.32          0.43            0.61     0.49    0.76     0.89    1.02    1.17        1.33
      change y-o-y                                  -40.3%         36.2%             39.9%   -20.0%   57.3%   16.9%    13.6%   15.0%      14.0%
      Malaysia (PC+LCV)                                 0.49          0.49            0.55     0.54    0.61     0.60    0.65    0.68        0.74
      change y-o-y                                  -10.9%          -0.7%            12.5%    -2.1%   12.8%    -0.8%   8.0%    4.7%        3.0%
 Emerging markets (PC+LCV)                            14.02          17.07           18.51    21.94   28.37    30.02   32.08   35.56       38.22
 yoy change                                          16.6%         21.7%             8.4%    18.6%    29.3%    5.8%    6.9%    10.8%       7.5%
 Others (PC+LCV)                                      12.35          13.52           13.44    10.43   12.62    13.50   14.43   15.38       16.31
 y-o-y change                                         5.9%           9.5%            -0.6%   -22.4%   21.0%    7.0%    6.8%    6.6%        6.0%
 Global Registrations (PC+LCV)                        67.75          71.55           68.17    64.75   74.31    77.20   81.71   87.00       92.05
 Change                                               3.8%           5.6%            -4.7%    -5.0%   14.8%    3.9%    5.8%    6.5%        5.8%
* Korean registrations exclude imported cars (c. 5% of total auto market in Korea)
** Indian registrations refer to FY. Eg. 2012E refers to FY ending 31 Mar, 2013
Source: Autodata, WARD’s, CAAM, SIAM, ACEA, Fourin, Nomura estimates




                                                                                                                                               8
Nomura | Global autos                                                                                                                         September 14, 2012



US autos: Recovery through 2014F
We believe the US light vehicle market should continue its V-shaped recovery till 2015F,
driven by healthy replacement demand and growth in the driving population. A post-crisis
trifecta of favourable conditions: pent-up demand, easy credit and a tight used car
market has led to continued strength in underlying new vehicle demand.


V-shaped recovery on track, to exceed 16mn units in 2014F
We retain our 2012F light vehicle demand forecast at 14.4mn units, up 12% y-y. We see
2013F ending with 15.4mn units sold, up 7% y-y and 2014F at 16.4mn units sold, up 6%
y-y. This is based on our estimate for real GDP to grow 2.2% in 2012F and 1.9% in
2013F, with no major decline in the unemployment rate. This would still leave vehicles
per (1,000) capita at 801 (versus 825 in 2007), according to our estimates. We believe
that the surfacing of healthy replacement demand after insufficient trend sales in 2008–
09, coupled with continuing growth in the driving population, should result in annual y-y
sales growth in the US light vehicle market through 2014.
Current recovery driven by pent-up demand, easy credit, and high used car prices
We believe an unusual post-crisis trifecta of favorable conditions has led to the continued
strength seen in underlying new vehicle demand, despite the recent softness in
macroeconomic conditions. First, we see a vehicle fleet that has aged rapidly over the
past few years, creating high pent-up demand.

Fig. 6: 5-yr change in average vehicle age and auto sales                        Fig. 7: 5-yr change in average age and PV/LT age trends
An ageing fleet indicates rising pent-up demand                                  Rapid ageing over the past few years means it’s time to slow down
                 5y change in average age (total parc) (LHS)                                       5y change in average age (total parc) (RHS)
 (yrs)                                                     (mn units)            (yrs)             Passenger cars (LHS)                                  (yrs)
                 Total Light Vehicle Sales (RHS)
                                                                                                   Light Trucks (LHS)
 0.0                                                              21
                                                                                 12                Total Light Vehicle (LHS)                               1.2
 0.2                                                                        19
                                                                                 11                                                                        1.1
 0.4                                                                        17   10                                                                        0.9
 0.6                                                                        15     9                                                                       0.8
 0.8                                                                        13     8                                                                       0.6
 1.0                                                                        11     7                                                                       0.5
 1.2                                                                        9      6                                                                       0.3

 1.4                                                                        7      5                                                                       0.2
       1975
       1977
       1979
       1981
       1983
       1985
       1987
       1989
       1991
       1993
       1995
       1997
       1999
       2001
       2003
       2005
       2007
       2009
       2011




                                                                                   4                                                                       0.0
                                                                                    1970       1977       1984       1991       1998       2005
Source: US Department of Energy, Ward’s Automotive, Autodata, Nomura estimates   Source: US Department of Energy, Ward’s Automotive, Autodata, Nomura estimates


The US auto market has averaged around 15m units annually since the 70s, with sales
ranging from 11mn units to 17mn units a year (based on data from Autodata). If we look
at the 5-year change in average vehicle age vs. total vehicle sales, we notice that auto
sales tend to pick up when the 5-year change in average age (the red line in Fig. 6
above, on an inverted scale) approaches 1 (i.e. faster aging), and auto sales tend to
bottom out when this difference gets closer to zero (i.e. slower ageing). In the past, we
see two clear instances of such a scenario: the early 1980s and early 1990s US
recessions saw auto sales fall, with the 5-year change in average vehicle age continuing
to increase as a result over the next couple of years, before reversing course when the
change in age approached the 1-year mark. Subsequently, the fleet aged at a slower
pace before the cycle began all over again. We are now in a market where the average
age of the vehicle fleet was 10.8 years in end-2011. Five years ago, in end-2006, this
was 9.7 years, with the fleet ageing quite rapidly over the past three years. In Fig. 7
above, the red bars mapped to the right-hand axis represent the 5-year change in
average vehicle age. As seen in the chart, this 5-year change now stands at 1.1 years,
which is close to the historical high. If we go by past trends, then we should again see
strong replacement demand driving auto sales in 2012 and 2013.




                                                                                                                                                                  9
Nomura | Global autos                                                                                                                                                                                         September 14, 2012



Fig. 8: Net effect: incentives received and loan interest paid                                                                                   Fig. 9: Vehicle SAAR & banks’ willingness to make loans
Low rates and stable incentives effectively discount the price of a car                                                                          Willingness to make consumer instalment loans remains elevated
                                Average Incentive                                                                                                             willingness to make installment loans (net % of respondents)
   ($)                                                                                                                                                        (LHS)
                                Cumulative interest paid on $22,000, 60-mth loan                                                                  40                                                                       20
                                                                                                                                                              SAAR, m units (RHS)
  4,000                         Incentive minus Interest paid                                                                                     30                                                                         18
  3,000
                                                                                                                                                  20                                                                         16
  2,000
                                                                                                                                                  10                                                                         14
  1,000
      0                                                                                                                                            0                                                                         12
 -1,000                                                                                                                                          -10                                                                         10
 -2,000                                                                                                                                          -20                                                                         8
 -3,000                                                                                                                                          -30                                                                         6
 -4,000                                                                                                                                          -40                                                                         4
 -5,000                                                                                                                                          -50                                                                         2
 -6,000                                                                                                                                          -60                                                                         0
          Aug-98
                   Aug-99
                            Aug-00
                                     Aug-01
                                              Aug-02
                                                       Aug-03
                                                                Aug-04
                                                                         Aug-05
                                                                                  Aug-06
                                                                                           Aug-07
                                                                                                    Aug-08
                                                                                                             Aug-09
                                                                                                                      Aug-10
                                                                                                                               Aug-11
                                                                                                                                        Aug-12



                                                                                                                                                       Q1
                                                                                                                                                       Q1
                                                                                                                                                       Q1
                                                                                                                                                       Q1
                                                                                                                                                       Q1
                                                                                                                                                       Q1
                                                                                                                                                       Q1
                                                                                                                                                       Q1
                                                                                                                                                       Q1
                                                                                                                                                       Q1
                                                                                                                                                       Q1
                                                                                                                                                       Q1
                                                                                                                                                       Q1
                                                                                                                                                       Q1
                                                                                                                                                       Q1
                                                                                                                                                       Q1
                                                                                                                                                       Q1
                                                                                                                                                       Q1
                                                                                                                                                       Q1
                                                                                                                                                       Q1
                                                                                                                                                       Q1
                                                                                                                                                       Q1
                                                                                                                                                       Q1
                                                                                                                                                       90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 1112

Source: Bankrate.com, US Federal Reserve, Autodata, Nomura estimates                                                                             Source: Nomura, based on US BEA and US Federal Reserve Board data


Second, an extended period of low interest rates, coupled with easy credit availability, is
another factor that has been proving to be a tailwind for the auto market. The Fed’s
sustained low interest rate policies have driven down interest rates on typical
USD22,000, 60-month new car loans to below 3.5% from over 7.5% in late-2009. The
average incentive level, on the other hand, has been hovering at around the USD2,600-
level during this time. The black line in Fig. 8 above represents the excess of incentives
received at the time of purchase of a car over the cumulative interest paid out during the
tenure of a 60-month auto loan. In other words, when the black line is below zero, it
effectively denotes a “mark-up” to the price of a car, from the buyer’s point of view (since
the incentive received is not sufficient to cover the total interest that the buyer is required
to pay for the loan). However, in the current low interest rate regime, the black line has
moved into positive territory quite convincingly, as the incentive received more than
covers up the cumulative interest payout. Looked at another way, this is the same as
offering an extra discount on the price of a car. For the car buyer, this is manifested in
the monthly loan payment falling from around USD440 in late 2009 to around USD400
now (a 9% savings in outgo), according to our calculations.
The third and final observation concerns used car prices, which remain elevated due to
supply constraints. This can be attributed to used car inventories falling as supplies dried
out: fewer new cars sold in 2008 and 2009 meant that the used car market was seeing
fewer returns coming in after the expiration of 24- and 36-month leases, which constitute
a major part of the supply. We believe this supply bottleneck has started to ease slowly,
but it should probably take another three months before the situation normalises and
used car prices gradually ease by around 5% from 2013; although by historical
standards, prices would still remain high.
2012: Back to (almost) square one in terms of market share splits
From an overall market perspective, we think 2012F will end up being a year of
“normalisation”. 2011 had too many ups and downs – the biggest of which was the
impact from the Japan quake – that makes comparisons with 2012 so far, quite difficult.
However, one obvious theme that is being played out this year is the return of the
Japanese OEMs to the market in full force with replenished stocks. As a result, we
expect the Japanese OEMs to gain back some, though not all of the market share that
they lost to the other players in the market.




                                                                                                                                                                                                                                  10
Nomura | Global autos                                                                                                                                          September 14, 2012


Fig. 10: Market share forecasts for the major OEMs in the US


   21%
                                                                                                                                                               GM

   19%                                                                                                                                        18.4%
                                                                                                                                                               Ford
   17%
                                                                                                                                                  15.5%
   15%                                                                                                                                                         Toyota
                                                                                                                                              14.0%

   13%
                                                                                                                                                               Chrysler
                                                                                                                                              11.0%
   11%
                                                                                                                                             10.4%             Honda
     9%                                                                                                                                        8.6%

                                                                                                                                                  8.4%         Nissan
     7%

     5%
                                                                                                                                                               Hyundai + Kia




                                                                                                                                        Q3 '12E

                                                                                                                                                     Q4 '12E
          Q1 '09

                   Q2 '09

                            Q3 '09

                                     Q4 '09

                                              Q1 '10

                                                       Q2 '10

                                                                Q3 '10

                                                                         Q4 '10

                                                                                  Q1 '11

                                                                                           Q2 '11

                                                                                                    Q3 '11

                                                                                                             Q4 '11

                                                                                                                      Q1 '12

                                                                                                                               Q2 '12
Source: Autodata, Nomura estimates




                                                                                                                                                                               11
Nomura | Global autos                                                                                                                                                     September 14, 2012


General Motors
North America to continue to generate solid profits
Having got rid of its excess capacity, legacy costs and unsustainable economic practices
following the restructuring of its operations in the US, we expect GM should continue to
generate solid earnings from its North American operations. In a sign of the changed
times, we find that GM has actually lowered the average incentive spend in the US
market in Jan-Aug 2012 to USD3,181 per unit (from USD3,251 per unit in the
comparable 8-month period in 2011), despite seeing its market share slip by 1.9pps
during the period, as the Japanese OEMs have returned to the market following their
supply-related disruptions in 2011. This is one indication that the company is focusing on
profitability over market-share, and it bodes well for the entire industry, in our view.
A successful franchise requires a strong dealer body. In this aspect, GM was severely
constrained prior to its restructuring – having the largest dealership network compared
with its competitors, but with one of the lowest sales per dealership. In 2007, GM’s
average sales per dealer was 275 units vs. Toyota’s 1,810 (Fig. 11). Since a dealership’s
profitability is directly dependent on the sales it generates, low per store sales meant GM
had to sustain substantial costs to sustain an uncompetitive network. This was remedied
to an extent, with the restructuring, which resulted in savings of around USD2.5bn
annually through reductions in direct dealer support and other structural cost savings.
We estimate that by end-2012, GM’s average sales per dealer would be at 332 units vs.
Toyota’s 1,428 (Fig. 12).

Fig. 11: Sales efficiency for the major OEMs in 2007                                        Fig. 12: Sales efficiency for the major OEMs in 2012F

                                      18,000                                                                                      18,000
                                                                                 GM
                                                                                            No. of dealership outlets in the US




                                                                                                                                                                               GM
                                      16,000
No. of dealership outlets in the US




                                                                                                                                  16,000
                                      14,000                                     Ford                                             14,000                                       Ford
                                                   3.8
                                      12,000                                     Chrysler                                         12,000                                       Chrysler
                                      10,000
                                                                                                        (2012E)




                                                                                                                                  10,000
                                                                                                                                                     2.6                       Toyota
             (2007)




                                       8,000       2.1                           Toyota
                                                                                                                                   8,000
                                       6,000             2.4                                                                       6,000       1.6                             Honda
                                                                                 Honda
                                       4,000                                                                                       4,000             2.3                       Nissan
                                       2,000                                     Nissan
                                                         0.8 1.1 1.6   2.6                                                         2,000                   1.3 1.4 2.1         Hyundai/
                                          0                                     Hyundai/                                              0                       1.2              Kia
                                                                                Kia
                                               0     500 1,000 1,500 2,000 2,500                                                           0     500 1,000 1,500 2,000 2,500
                                                   Sales per dealership (2007)
                                                                                                                                                Sales per dealership (2012E)
Source: Automotive News, Autodata, Nomura estimates                                         Source: Automotive News, Autodata, Nomura estimates


GM’s North American operations have also benefited from a rationalisation of its
manufacturing capacity, following the industry-wide restructuring. This has resulted in a
substantial reduction of its fixed costs and a lower breakeven point for GMNA. Fig. 13
shows that the breakeven point has been lowered from around 1,050,000 units per
quarter to 650,000 units now. This leaves GM in a much better position to tackle cyclical
downturns.




                                                                                                                                                                                          12
Nomura | Global autos                                                                                                                                                        September 14, 2012


Fig. 13: GM North America                                                                   Fig. 14: GM Europe

                                    1,200                                                                                       360
                                                                                                                                            3Q 09 to 2Q 12
 Quarterly Production, '000 units




                                                                                             Quarterly Production, '000 units
                                    1,100                                                                                       340
                                    1,000
                                                                                                                                320
                                     900
                                     800                                                                                        300

                                     700                                                                                        280
                                     600
                                                                          1Q 07 to 2Q 09:                                       260
                                     500                                  Old GM
                                                                          3Q 09 to 2Q 12:                                       240
                                     400
                                                                          New GM
                                     300                                                                                        220
                                       (5,000)   (3,000)    (1,000)     1,000      3,000                                          (1,000)            (500)             0              500

                                                  Quarterly EBIT adjusted, $mn                                                                      Quarterly EBIT adjusted, $mn
Source: Company data, Nomura estimates                                                      Source: Company data, Nomura estimates


For 3Q 2012F, we estimate GMNA sales at USD20.4bn, down 7% y-y, commensurate
with a lower market-share y-y in the US and a lower proportion of trucks in the sales mix.
EBIT-adjusted is estimated at USD1.7bn, or a margin of 8.4% for the North American
business. In terms of product launches, the 2.5L 2013 Malibu mid-size sedan would be
the most significant. However, given that it is being launched in September, we believe
the full impact will be seen only from 4Q.
GM Europe will continue to suffer in 3Q and we estimate EBIT-adjusted losses of
USD0.4bn on sales of USD4.6bn. We expect GM Europe to end the year with USD1.4bn
in total losses, EBIT-adjusted. Given the weak outlook for the region, we estimate
capacity utilisation to be around 55% for the quarter. We believe GME will continue to
remain a drag on overall profitability for the company, in the absence of any capacity
cuts.
GM International Operations: China accounts for a majority of the earnings for the
division, with GM’s exposure coming mostly via its long standing Chinese JVs.
GM South America should see some tailwind from some of the recent new product
launches like the new Cruze compact sedan, and from market growth due to the
reduction in IPI in Brazil. However, we believe this will not be enough to offset higher
costs and stiff competition in the region. As a result, we estimate an EBIT-adjusted loss
of USD0.2bn on sales of USD4.4bn for the third quarter.




                                                                                                                                                                                            13
Nomura | Global autos                                                                                                                                    September 14, 2012


Fig. 15: General Motors quarterly financials & forecasts

 ($bn, except w here stated otherw ise)         1Q 11      2Q 11      3Q 11       4Q 11      1Q 12      2Q 12     3Q 12E     4Q 12E          2011      2012E      2013E
 Aut o mo t ive
 Global Production (000 units)                  2,327      2,400      2,221      2,319      2,424       2,393      2,291      2,416        9,267       9,524     10,027
   Global Production Ex cluding JVs             1,618      1,707      1,506      1,509      1,632       1,607      1,492      1,560        6,340       6,291      6,433
   GMNA                                           786        824        740        739        862         837        744        761        3,089       3,204      3,242
     Cars                                         284        308        267        286        321         327        304        320        1,145       1,273      1,314
     Trucks                                       502        516        473        453        541         510        439        441        1,944       1,931      1,928
   GME                                            344        326        270        249        292         230        230        255        1,189       1,007      1,005
   GMIO                                           966      1,003        968      1,104      1,067       1,095      1,065      1,159        4,041       4,386      4,803
     Consolidated                                 257        310        253        294        275         309        266        303        1,114       1,152      1,210
     JVs                                          709        693        715        810        792         786        799        856        2,927       3,234      3,593
   GMSA                                           231        247        243        227        203         231        253        241          948         927        977

 To t al Aut o mo t ive Revenues                 35. 9      39.0       36. 3       37.6       37. 3      37. 1      33.3       34. 5       148.9       142. 2     143. 8
 By Region:
   GMNA                                          22.1        23.1       21.9       23.1       24.2       22.9        20.5       20.9         90.2       88.5        89.5
   GME                                            6.9         7.5        6.2        6.3        5.5        5.9         4.6        5.1         26.8       21.2        20.2
   GMIO                                           5.2         6.4        6.3        6.9        6.1        6.9         6.0        6.8         24.8       25.8        27.2
   GMSA                                           3.9         4.4        4.4        4.2        3.9        4.2         4.4        4.2         16.9       16.8        17.2

 EBIT (adjusted) by Region
   GMNA                                            1.3        2.2         2.2        1.5        1.7        2.0        1.7         1.6          7.2        7.0        7.3
   GME                                             0.0        0.1        (0.3)      (0.6)      (0.3)      (0.4)      (0.4)       (0.4)        (0.7)      (1.4)      (1.1)
   GMIO                                            0.6        0.6         0.4        0.4        0.5        0.6        0.3         0.3          1.9        1.7        1.8
   GMSA                                            0.1        0.1        (0.0)      (0.2)       0.1       (0.0)      (0.2)       (0.2)        (0.1)      (0.3)      (0.1)

 EBIT (adj) Margin by Region
   GMNA                                           5.7%       9.7%      10.0%        6.5%       7.0%       8.6%       8.4%        7.8%         8.0%       7.9%       8.2%
   GME                                            0.1%       1.4%      -4.7%       -9.0%      -4.6%      -6.1%      -7.8%       -8.4%        -2.8%      -6.7%      -5.7%
   GMIO                                          11.3%       9.0%       5.8%        5.4%       8.7%       8.0%       5.2%        4.8%         7.7%       6.7%       6.6%
   GMSA                                           2.3%       1.3%      -1.0%       -5.4%       2.1%      -0.5%      -3.8%       -4.1%        -0.7%      -1.7%      -0.6%

 Operating Income (EBIT)                           1.2        2.3        1.6        1.2         1.4        1.6        1.1        1.1          6.3        5.2         6.4
 EBIT Margin                                      3.4%       5.9%       4.5%       3.1%        3.8%       4.3%       3.3%       3.2%         4.2%       3.7%        4.5%
 EBITDA                                            2.8        3.9        3.1        2.6         2.9        3.1        2.6        2.6         12.4       11.2        12.7
 EBITDA Margin                                    7.7%      10.0%       8.5%       6.9%        7.6%       8.3%       7.9%       7.6%         8.3%       7.8%        8.8%

 Financial
 Financial Revenues                               0. 3        0.3        0. 4       0.4        0. 4       0. 5        0.5        0. 5         1.4        1. 9        2. 0
 EBIT (adjusted)                                  0.1         0.1        0.2        0.2        0.2        0.2         0.2        0.2          0.6        0.8         0.9

 To t al Co mpany
 To t al Revenues                                36. 2      39.4       36. 7       38.0       37. 8      37. 6      33.7       34. 9       150.3       144. 1     145. 8
 Operating Income (EBIT)                           1.3        2.5        1.8         1.3        1.6        1.8        1.3        1.3          6.9         6.1        7.3
 EBIT Margin                                      3.7%       6.2%       4.9%        3.5%       4.3%       4.8%       3.9%       3.7%         4.6%        4.2%       5.0%
 EBITDA                                            2.9        4.1        3.3         2.8        3.1        3.3        2.9        2.9        13.1        12.2       13.8
 EBITDA Margin                                    8.1%      10.4%       8.9%        7.4%       8.2%       8.9%       8.5%       8.3%         8.7%        8.5%       9.5%
 Net Profit                                        3.4        3.0        2.1         0.7        1.3        1.8        1.5        1.4          9.2         6.0        6.5

Note: 2012 estimates do not include a special charge in the second half towards a salaried pension plan buyout for GMNA. Co expects a one-time pre-tax special charge of $2.5-
3.0bn ($3.0-4.0bn after tax). Due to the magnitude of the pension obligations being settled, the amount could be outside this range when the transactions are completed.
Source: Company data, Nomura estimates




                                                                                                                                                                            14
Nomura | Global autos                                                                                                                                                    September 14, 2012


Ford Motor
North America hums along, but Europe still needs work
Ford benefited from the restructuring of the US auto industry, like GM, shedding capacity
and eliminating high fixed costs, which led to a sharp drop in the breakeven point for its
North American operations. Fig. 16 below shows that Ford North America’s breakeven
point has been cut from a quarterly level of approximately 800,000 units to around
500,000 units now. This equates to a capacity utilisation level of 66%, which leaves
sufficient buffer for the company to ride out any sharp falls in auto demand in the market.

Fig. 16: Ford North America                                                               Fig. 17: Ford Europe

                                   900                                                                                       440




                                                                                          Quarterly Wholesales, '000 units
                                                                                                                                        1Q 10 to 2Q 12
Quarterly Wholesales, '000 units




                                   800
                                                                                                                             405
                                   700

                                   600                                                                                       370

                                   500
                                                                  1Q 09 to 2Q 12: post                                       335
                                                                  restructuring
                                   400
                                                                  1Q 07 to 4Q 08: pre
                                                                  restructuring
                                   300                                                                                       300
                                     (3,000)   (1,500)       0         1,500      3,000                                         (500)       (250)         0           250         500
                                                 Quarterly EBT adjusted, $mn                                                                   Quarterly EBT adjusted, $mn
Source: Company data, Nomura estimates                                                    Source: Company data, Nomura estimates


Ford has also benefited from its decision to shift away from its dependence on large, full-
size pickups and truck based SUVs to smaller cars and car-based crossovers. Given the
changes in current customer preferences towards smaller, more fuel efficient vehicles,
we believe Ford is now in a better position to compete in high-volume segments like the
highly competitive mid-size sedan segment with its soon-to-be launched next generation
Fusion and the compact SUV segment with its new Escape.
For 3Q 2012, we estimate Ford’s North American operations to turn in USD19.0bn in
sales, and an EBT of USD1.9bn, with an operating margin of 10.1%. With the new
Fusion being launched almost at the tail end of 3Q, we expect most of the incremental
earnings from the new model to start to flow in from 4Q.
Ford Europe is likely to continue to be loss-making, given that we expect capacity
utilisation of only around 55% or production of 320,000 units, much below our estimated
breakeven level of 370,000 units for the quarter (Fig. 17). We estimate 3Q sales at
USD6.1bn with loss before taxes of USD0.4bn. For the year, we expect losses to total
USD1.2bn in Europe. We believe the situation in Europe will remain challenging, with
Ford Europe’s recently announced accelerated product launch schedule only being able
to ameliorate the situation to an extent.




                                                                                                                                                                                        15
Nomura | Global autos                                                                                                                                  September 14, 2012


Fig. 18: Ford Motor quarterly financials and forecasts

 ($bn, except w here stated otherw ise)            1Q 11      2Q 11      3Q 11      4Q 11      1Q 12      2Q 12     3Q 12E     4Q 12E         2011      2012E      2013E
 Automotive
 Who lesales (000 unit s)                         1, 246     1,366      1, 218     1,236      1, 198     1, 238     1, 195     1, 250        5,066      4, 881     5,126
   Ford North America                                615       736         642       693         651        719        675        716        2,686      2,761      2,875
   Ford South America                                114       135         133       124         118        119        110        105          506         452       470
   Ford Europe                                       415       402         339       332         331        306        292        297        1,488      1,226      1,239
   Ford Asia Pacific Africa                          102        93         104        87          98         94        118        132          386         442       543

 Aut omo t ive Re venues                            31. 0      33. 5      31.0       32. 6      30.5       31. 3      29. 9      31. 8       128. 2     123.5      129. 7
 By Region:
   Ford North America                               18.0       19.4       17.9       19.7       18.6       19.7       19.0       20.5         75.0        77.9      82.3
   Ford South America                                2.3        2.9        3.0        2.7        2.4        2.4        2.1        2.0         11.0         8.8       9.0
   Ford Europe                                       8.7        9.0        7.8        8.3        7.3        7.0        6.0        6.1         33.8        26.4      25.4
   Ford Asia Pacific Africa                          2.1        2.1        2.4        1.9        2.3        2.3        2.8        3.1          8.4        10.4      13.1

 EBT before non-   recurring it ems                  2. 4       2. 4       1.5        0. 7       1.9        1. 5       1. 4       1. 3         6. 9        6.2          7. 7
  North America                                      1.8        1.9         1.6        0.9        2.1        2.0        1.8        1.6          6.2         7.5          8.0
  South America                                      0.2        0.3         0.3        0.1        0.1        0.0        0.0       (0.1)         0.9         0.0          0.1
  Europe                                             0.3        0.2        (0.3)      (0.2)      (0.1)      (0.4)      (0.5)      (0.3)        (0.0)       (1.3)        (0.9)
  Asia Pacific / Africa                              0.0        0.0        (0.0)      (0.1)      (0.1)      (0.1)       0.1        0.1         (0.1)       (0.0)         0.5


 Operating Income (EBIT)                              2.1        1.9        1.2        0.5        1.5        1.3        1.3        1.2          5.8        5.4       7.3
 EBIT Margin                                         6.8%       5.6%       3.9%       1.7%       5.0%       4.2%       4.5%       3.7%         4.5%       4.3%      5.6%
 EBITDA                                               3.0        2.8        2.1        1.4        2.4        2.2        2.3        2.1          9.3        9.0      11.1
 EBITDA Margin                                       9.6%       8.3%       6.8%       4.4%       8.0%       7.1%       7.5%       6.6%         7.3%       7.3%      8.6%

 Financial
 Financial Revenue s                                 2. 1       2. 1       2.0        2. 0       1.9        1. 9       1. 9       1. 9         8. 1        7.6          7. 8
 Underlying EBT                                      0.7        0.6        0.6        0.5        0.5        0.4        0.4        0.4          2.4         1.7          1.5

 Total Company
 Tot al Revenues                                   33. 1      35. 5       33.0       34. 6     32.4        33. 2     31. 8       33. 7       136. 3     131.2      137. 6
 Operating Income (EBIT)                             2.7        2.4         1.6        1.0       1.9         1.7       1.7         1.6          7.8        6.8        8.7
 EBIT Margin                                        8.3%       6.8%        5.0%       2.8%      5.8%        5.1%      5.2%        4.7%         5.7%       5.2%       6.3%
 EBITDA                                              4.0        3.7         3.0        2.4       3.4         3.2       3.2         3.1        13.1       12.9        15.2
 EBITDA Margin                                     12.2%      10.4%        9.1%       6.9%     10.5%        9.6%     10.1%        9.2%         9.6%       9.8%      11.1%
 Net Profit                                          2.6        2.4         1.6      13.6        1.4         1.0       1.1         1.0        20.2         4.5        5.7
 Net Profit before Exceptionals                      2.0        2.0         1.4        0.8       1.6         1.2       1.1         1.0          6.1        4.9        5.7

Note: Ford Europe wholesales exclude sales by unconsolidated Russian and Turkish JVs, Ford Asia Pacific Africa wholesales exclude sales by unconsolidated Chinese JVs
Source: Company data, Nomura estimates




                                                                                                                                                                          16
Nomura | Global autos                                                                                September 14, 2012



Europe: Yet to prune the deadwood
Excess capacity and weak demand continue to drag down profitability of most major
players in the European auto market (including CEE, but excluding Russia). We expect
total demand to continue to fall for the fifth straight year, ending 2012 at 14.2mn units,
down 7% y-y. Over the following two years, we estimate sales to rise only marginally to
14.4mn in 2013F (+1% y-y) and 14.8mn units by 2014F (+3% y-y).


Headed for another year of falling sales
The European auto market continues to be challenging for most global automakers
operating in the region. In the first seven months of 2012, passenger car sales in
Western Europe fell 7% y-y, amidst an increasingly gloomy consumer outlook as the
region’s lingering debt crisis continued to show no signs of any painless resolution. In
fact, sales data for July showed that the situation has continued to worsen, with sales in
the region slipping 8% y-y. The relatively resilient and important German market
recorded a 5% y-y fall in July, the second such decline in three months. The second
largest market in the region, the UK, has compensated to an extent, with sales up 3.5%
y-y in the year-to-July. However, seven-month sales in most of the other major auto
markets in Western Europe – France (-14% y-y), Italy (-20% y-y) and Spain (-10% y-y) –
do not raise hopes of a recovery on the horizon. As a result, we maintain our forecast of
a 7% y-y decline in total auto sales in Europe (including CEE, but excluding Russia),
where we see 2012F ending with 14.2mn units. Given the uncertain outlook for the
region, we do not expect sales to recover meaningfully over the next two years. For
2013F, we expect demand to grow marginally by 1% y-y to 14.4mn units, after falling for
each of the past five years.
High European exposure proves to be a drag for mass-market automakers
Amidst the current situation, with the exception of Volkswagen (VW) & Hyundai/Kia,
mass market automakers with a significant exposure to Europe have been seeing
plunging sales and high fixed costs either eating away a significant chunk of their profits
or are reporting quarterly losses. In this scenario, we believe that Asian automakers, with
their lower sales exposure to the region, are comparatively better positioned to ride out
the storm
Luxury/premium brands have fared better than the rest

Fig. 19: Luxury segment began to recover in 2010 while mass market still languishes
European market (millions units)
  13.3 mn        13.4 mn         12.2 mn      12.3 mn
                                                           11.5 mn       11.2 mn               19%
                                                                                18%
                                       17%
                         16%                                     16%
           16%
                                                    15%
                                                                                      5.6 mn


        2.5 mn        2.6 mn         2.5 mn       2.2 mn       2.3 mn        2.4 mn
                                                                                         1.3 mn


      2006          2007           2008         2009          2010          2011      2012 Jan-
                                                                                          Jun
                 Mass-market               Luxury / Premium             Luxury share of total

Source: ACEA, Nomura estimates


The ongoing slowdown in European vehicle sales has not affected all segments of the
market equally. If we look at historical sales trends and compare the market structure as
it existed before the financial crisis of 2008 and the developments after that, we see that
the mass-market segment continues to remain under pressure. On the other hand, the




                                                                                                                    17
Nomura | Global autos                                                                                                                                                 September 14, 2012


luxury / premium segment has bounced back smartly after a sales dip seen in the
immediate aftermath of the crisis in 2009.
As a result, the share of the luxury / premium segment has grown to 19% of the overall
passenger car market in the first six months of this year, up from a 2-percentage point
drop to 15% in 2008 and higher than the 16% level seen in pre-crisis 2007 (see Fig. 19).
Since the overall auto market has shrunk during this time, this growth has naturally come
at the expense of the mass-market automakers who have been left struggling to match
capacity with insufficient demand for their vehicles. To remedy this situation, the mass-
market players have resorted to a bruising strategy of price cuts in order to move cars
from dealerships. In the absence of capacity cuts however, this has only led to margins
getting wiped out and capacity utilization at assembly plants falling below breakeven as
the underlying demand has simply vanished.

Fig. 20: Market share splits in 2007                                  Fig. 21: Market share splits in 2010                         Fig. 22: Share splits in Jan-Jun 2012



                                                                         Kia
                                                VW                       2%                                      VW                   Kia
  Kia                                           18%                                                                                                                           VW
                                                                                                                 20%                  2%
  1%                                                                                                                                                                          23%

                            Others                                     Hyundai               Others                                                      Others
 Hyundai                     20%                                         2%                   18%                                                         19%
                                                                                                                                    Hyundai
   2%
                                                                                                                                      3%
                                         European 4          PSA       Honda              Asian
                         Asian                                          1%                                 European 4                                 Asian            European 4
 Honda                                      50%              13%                          12%
                         12%                                                                                  54%         PSA       Honda              13%                52%
  2%
                                                                                                                          14%        1%                                               PSA
                                                                       Nissan                 US                                                                                      13%
                                  US                                                                                                                       US
 Nissan                                                                  3%                  16%
                                 18%                                                                                                                      16%
  2%                                                                               GM                                               Nissan
                                                      Fiat              Toyota     8%                                                 3%         GM
                    GM
                    9%                                9%                 4%                                       Fiat                           8%                           Fiat
   Toyota
                                                                                          Ford                    9%                  Toyota                                  7%
    6%                       Ford       Renault                                                                                                         Ford
                                                                                           8%         Renault                          4%                          Renault
                              9%          9%                                                                                                             8%          9%
                                                                                                       11%




Source: ACEA, Nomura research                                         Source: ACEA, Nomura research                                Source: ACEA, Nomura research

Note: “Others” includes all the remaining European, US and Asian brands


The exceptions
The story at VW, a notable exception, is a little different. As seen from the charts above,
VW has steadily gained market share in Europe, adding a full five-percentage points to
its already market leading 18% in 2007 – to reach its current tally of a 23% share in the
first half of 2012, further consolidating its position in the European auto market. Despite
selling 41% of its vehicles in Europe, VW continues to be profitable while its other
European peers, such as Fiat and PSA, have struggled.

Fig. 23: VW’s PV share in the five major European markets                                         Fig. 24: PV market size in the 5 major European economies

                Germany                                                          35.9%                 3.5 mn

        32.5%                                                                                                                   Germany                                       3.2 mn


                                                                                 24.8%                                     Italy
                                                                                                       2.4 mn
                    Spain                                                                                                                                                      2.2 mn
        21.1%
                                                                                 19.3%                 2.0 mn                                                                1.9 mn
                                        United                                                                           France
                                                                                                                                                United
                                       Kingdom                                                                                                                                 1.8 mn
        14.9%                                                                                                                                  Kingdom
                                                                                                        1.6 mn                     Spain
                                                                                 13.1%
     11.8%                                                   France
                                                                                  12.6%                                                                                       0.8 mn
            10.8%                       Italy
  2006              2007               2008                  2009     2010         2011             2007                2007       2008        2009               2010               2011
Source: Marklines, Nomura research                                                                Source: Marklines, Nomura research


This can be attributed to VW’s high exposure to the more resilient German market,
where VW’s market share gains, all through the financial crisis and beyond, has helped
VW weather the storm better (see Fig. 23, 24). Additionally, the weak Euro has helped




                                                                                                                                                                                            18
Nomura | Global autos                                                                            September 14, 2012


VW to benefit from higher export volumes, compared with its more Euro-centric peers.
This has, in turn, led VW to sustain its spend on R&D and new product launches, while
the others have held back or delayed new product introductions, citing difficult market
conditions. The resulting virtuous cycle has only served to allow VW refresh its products
on schedule and steal further market share away from its rivals.

Fig. 25: Market shares of the three main luxury/premium segment players
Audi has stolen market share away from Daimler over the past several years



                                                                                     34%
          Daimler

     32%
     31%
           BMW                                                                        30%


                                                                                      27%
                  Audi


     25%
   Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
       2006              2007        2008           2009           2010      2011     2012
Source: ACEA, Nomura research


The other leg up for VW has come from having a luxury brand like Audi in its portfolio.
Audi has naturally benefited from the recovery seen in the luxury car segment, as
pointed out earlier. In addition to tailwinds from a growing market, Audi has also
managed to gain market share during this period, at the expense of Daimler (Fig. 25).
On the other hand, the Korean automakers’ have been successful in Europe by following
a strategy of localising their products, setting up assembly plants in lower-cost countries
like Slovakia and the Czech Republic, and offering new models tailored to European
preferences. The Korea-EU FTA also helped provide a fillip to Hyundai/Kia’s sales and
profitability. In contrast, the Japanese automakers have had to battle the stubbornly
strong yen, which made exports from Japan quite uncompetitive. The end result is that
between 2007 and now, the two Korean automakers combined have wrested 2pps in
market share away from the Big Three Japanese OEMs (see Fig. 20, 21, 22).
No easy solutions
The weak European outlook has led to some of the OEMs to temporarily idle plants in
the region. This is at best a short-term solution, only nibbling away at the periphery of
costs. However, given the structural overcapacity in the region, we believe a more
permanent solution in the form of decisive steps to reduce capacity is required, even
though we do not see that happening to the extent required, given the difficulties in
shutting down entire plants. For example, we estimate that Ford would need to sell a little
less than 1.5mn units to attain breakeven in Europe. Given our projection of a 14.4mn
market in 2013F, this would equate to roughly a 10% market share, a jump of 2pps from
current levels, just to reach a point of no-profit-no-loss. That is a tall order, given the
current pessimism surrounding the European auto market.
Restructuring plans announced, but uncertainties remain
We estimate capacity utilisation in Western Europe would be around the 65%-mark in
2012F, with utilisation levels in France, Spain and Italy being particularly low. This is well
below the breakeven capacity utilisation level of 75-80% for automakers. Four
carmakers: GM, Ford, PSA and Fiat are trying to reduce capacity in Europe by 200-500K
units each. PSA has already announced that it plans to close its Aulnay plant in 2014
and reduce capacity at Rennes. GM/Opel has negotiated with its works council to cut
hours at its German Ruesselsheim plant and close the Bochum plant by 2016. However,
until we see an improvement in macro conditions, Europe will continue to be a source of
concern for automakers exposed to the region.




                                                                                                                19
Nomura | Global autos                                                                                                                                                                                                                           September 14, 2012



China: Growth dependent on GDP
Autos are a cyclical business in China, like elsewhere. The 1H unit sales data indicate
that passenger vehicle sales are in the mid-single-digit, which aligns with our expectation
of 6.4% growth y-y for 2012F. Our 2013F unit sales growth rate is currently at 12.7%, but
uncertainty over the prospects of global economic growth, Chinese exports and
manufacturing continue to linger. Industry earnings are still marred by price degradation
and relatively high inventories.

The Chinese auto market has significantly outgrown China GDP growth due to the
relative size of the auto market. Today, the market is as big as developed countries and
we estimate the gap between China auto sales growth and China GDP will likely narrow.
Cyclicality of the Chinese auto industry has been driven by global as well as Chinese
policies. Strong demand growth in the early 2000s was primarily the result of China's
entry into the WTO. Substantial government stimulus directed at the auto industry led to
significant growth at the end of the same decade. Going forward, we expect Chinese
auto sales growth, on average, is unlikely to exceed the GDP growth rate, given the size
of the China auto industry.

Fig. 26: China PV growth rate likely to track closer to GDP growth
Growth rate differential between PV unit sales trend and China GDP
   (%)
    70
    60
    50
    40
    30
    20
    10
     0
   (10)
   (20)
           Dec-06




                                           Sep-07
                                                    Dec-07




                                                                                 Sep-08
                                                                                          Dec-08




                                                                                                                           Sep-09
                                                                                                                                     Dec-09




                                                                                                                                                                 Sep-10
                                                                                                                                                                          Dec-10




                                                                                                                                                                                                        Sep-11
                                                                                                                                                                                                                   Dec-11
                                 Jun-07




                                                                       Jun-08




                                                                                                                Jun-09




                                                                                                                                                        Jun-10




                                                                                                                                                                                             Jun-11




                                                                                                                                                                                                                                       Jun-12
                      Mar-07




                                                              Mar-08




                                                                                                   Mar-09




                                                                                                                                               Mar-10




                                                                                                                                                                                   Mar-11




                                                                                                                                                                                                                              Mar-12




Source: CEIC, CAAM, Nomura research


Fig. 27: China auto sales vs. China GDP
China auto sales vs. China GDP

   (%)                                                                                                                                                           GDP (LHS)
   16                                                                                                                                                            PV Growth (RHS)                                                       80%
   14                                                                                                                                                                                                                                  70%
   12                                                                                                                                                                                                                                  60%
   10                                                                                                                                                                                                                                  50%
    8                                                                                                                                                                                                                                  40%
    6                                                                                                                                                                                                                                  30%
    4                                                                                                                                                                                                                                  20%
    2                                                                                                                                                                                                                                  10%
    0                                                                                                                                                                                                                                  0%
          Dec-06



                                        Sep-07
                                                 Dec-07



                                                                            Sep-08
                                                                                     Dec-08



                                                                                                                  Sep-09
                                                                                                                            Dec-09



                                                                                                                                                        Sep-10
                                                                                                                                                                 Dec-10



                                                                                                                                                                                            Sep-11
                                                                                                                                                                                                      Dec-11
                               Jun-07




                                                                   Jun-08




                                                                                                       Jun-09




                                                                                                                                               Jun-10




                                                                                                                                                                                   Jun-11




                                                                                                                                                                                                                            Jun-12
                    Mar-07




                                                          Mar-08




                                                                                              Mar-09




                                                                                                                                      Mar-10




                                                                                                                                                                          Mar-11




                                                                                                                                                                                                                 Mar-12




Source: CEIC, CAAM, Nomura research




                                                                                                                                                                                                                                                               20
Nomura | Global autos                                                                                                                                                                          September 14, 2012


Regional peculiarities
Automakers managing inventories
Inventories have begun to pile up in China as the automakers had aggressive capacity
expansion and targets for 2012. Deceleration in economic growth in China further
impacted demand. Year-to-July, passenger vehicle sales totaled 8.1mn units, up 5.9%
y-y. Inventory days have reached 80-85 days in July. A healthy number of inventory days
should be between 45 and 60 days, in our view.
OEMs have a two-prong approach to managing inventories. First is to manage
production and second is to manage demand with incentives. We are already seeing
incentives from OEMs to dealers. While the automakers will eventually manage
production if market demand does not improve, we actually do not expect a lot of
revisions to production targets at the OEM. Instead, we believe OEMs will give more
flexibility to dealers to allocate autos in their networks to optimise profitability, advance
rebate payments, and longer payment terms for vehicle purchases. Additionally, OEMs,
along with their dealership network, will run more promotions.
Early rebate payments, incentives, or any financial incentives to the dealer network are
likely to be passed through to the end customers, in our opinion. Dealerships prefer to
turnover their inventories as rapidly as possible. Unlike auto dealers in more developed
auto markets, dealers in China still generate a large part of their profits from new car
sales, rather than the after-sales business. Therefore, slower auto demand growth will
have an adverse effect on profits through the entire auto value chain. We do not expect
profits to shift from one part of the auto industry to another.
Long-term industry risk: Government restrictions on new car registrations
Furthermore, some local governments like the ones in Beijing and Shanghai have been
attempting to reduce the number of vehicles in highly dense cities to reduce traffic
congestion and pollution via specific license restriction policies. Beijing has implemented
license plate restrictions in 2011 while Shanghai had started restricting the issuance of
license plates back in 2000.
Recently, Guangzhou also implemented restrictions on new car registrations. August
was the first month that people in Guangzhou had to obtain license plates by lottery or
auction with an annual target of 120k units per year versus 220-240k units in 2011. GAC
management guided that the impact of such restrictions would be approximately 0.3% of
its total sales in 2012F, but they are more concerned about the spread of similar
restrictions to other cities. We share the same view.

Fig. 28: Inventory days at dealers                                                                                                   Fig. 29: Implications of other cities follow restrictions
Inventories reached 80 days In June                                                                                                  * Cities with restrictive policies in place
  Inventory days                                                                                                                                               2010 Vehicle Ownership Ratio    % of 2011 China
                                       Inventories at auto dealers reached 80 days                                                                                   (vehicle/ 1000 persons)         auto sales
 100                                   in June, which is highest point this year
                                                                                                                                      Beijing*                                          231               2.0%
  90
                                                                                                                                      Chengdu                                           226               2.7%
  80
                     PV inventory (dealer)                                                                                            Guangzhou*                                        198               1.8%
  70
  60                                                                                                                                  Suzhou                                            198               2.1%
  50                                                                                                                                  Hangzhou                                          181               1.8%
  40                                                                                                                                  Shenzhen                                          161               2.0%
  30                                                                                                                                  Shanghai*                                         134               2.4%
  20                                                                                                                                  Nanjing                                           131               1.3%
  10                                                                                                                                  Tianjin                                           122               2.2%
   0                                                                                                                                  Chongqing                                          96               1.8%
                Jun-09
                         Sep-09
                                  Dec-09


                                                    Jun-10
                                                             Sep-10
                                                                      Dec-10


                                                                                        Jun-11
                                                                                                 Sep-11
                                                                                                          Dec-11


                                                                                                                            Jun-12
       Mar-09




                                           Mar-10




                                                                               Mar-11




                                                                                                                   Mar-12




                                                                                                                                      Total                                              63              20.0%

                                                                                                                                     Source: Nomura research

Source: China Association of Auto Manufacturers, Nomura research


We see limited impact on China’s overall passenger vehicle sales if the number of cities
implementing similar restrictive policies in unison remains limited. We believe luxury cars
sales are more impervious to restrictions, as in the case with Beijing and Shanghai. Most




                                                                                                                                                                                                              21
Nomura | Global autos                                                                                                            September 14, 2012


luxury cars are being sold as replacements for the owners’ previous vehicles. Given that
the owners of passenger cars are allowed to reuse their existing registration, we believe
the impact on luxury car sales will be minimal. Car buyers tend to buy a relatively more
expensive vehicle as the cost of registration rises.


Current state
Auto sales to remain soft for 2012F; margin contraction for OEMs and dealers
We expect auto sales for the rest of 2012F will remain soft. Hence, we maintain our
2012F unit sales growth forecast of 6.4% y-y and 12.7% for 2013. After automakers and
dealers reported their 1H12 results, we saw gross and operating margins contract across
the sector aggregately.
1H12 gross margins of automakers and dealers fell back to below the 2H10 level of
17.2% and 8.9%, respectively. Some automakers were able to maintain relatively stable
gross margins due to unique fundamentals. For example, the 5 series from Brilliance
(1114 HK, Neutral, HKD7.60) JV with BMW was tabled to contribute higher margins and
the SUV-sector focus of Great Wall (2333 HK, Neutral, HKD18.10) helped maintain
margins.
Dealerships’ new sales margins declines were partially offset by increasing contribution
from higher margins on after-sales services. Aggregate new auto sales gross margin
was 5.2% down from 6.7% a year ago versus after-sales service gross margin of 46.1%
up from 44.5% a year ago. As new car sales remain the core business (~90% of sales),
weak new auto sales remains a looming concern.

Fig. 30: We expect China PV unit sales to grow                      Fig. 31: Automakers’ margins are coming down moderately
We still believe in 6.8% growth y-y in 2012F and 12.7% in 2013F     Aggregate GP and operating margins
  ('000)                         2009                     2010                    Gross profit margin             Operating profit margin
1,800                                                                20%
                                 2011                     2012
                                                                     18%
1,600                            2012E                                                            18.8%      17.8%      17.6% 17.4% 17.2%
                                                                     16%
1,400                                                                                    15.9%
                                                                     14%       15.3%
1,200
                                                                     12%
1,000
                                                                     10%
  800
                                                                      8%
  600                                                                 6%                              7.1% 8.1%       7.8%               7.1%
                                                                                                                                7.2%
  400                                                                 4%
  200                                                                                     4.3%
                                                                      2%         3.7%
     0                                                                0%
           Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec                    1H09      2H09     1H10      2H10      1H11      2H11      1H12

Source: China Association of Auto Manufacturers, Nomura estimates   Source: Company; Note: Includes Dongfeng, Geely, Great Wall, and BMW JV, SAIC,
                                                                    Chongqing Changan, FAW Car




                                                                                                                                                     22
Nomura | Global autos                                                                                                                                September 14, 2012


Fig. 32: Dealerships margins back to the 2H10 levels                                 Fig. 33: Dealerships margin breakdown
Aggregate GP and operating margins                                                   Aggregate new auto sales and after-sales services margins
                                                                                                               After-sales service GP margin (LHS)
               Gross profit margin                Operating profit margin
12%                                                                                                            New vehicle sales GP margin (RHS)
                                                                                      (After-sales service)                                          (New auto sales)
                                                                                      50%                                                                        12%
10%
                              10.0%                     9.7%                                                                                            46.1%
                                                                9.7%                                                       48.5%
  8%                  8.9%                8.9%                            8.9%        45%                                                                        9%
                                                                                                                   46.8%
           8.0%                                                                                                                      44.5% 44.9%
                                                                                                43.9%
  6%                                                                                                     42.6%
                                                                 6.1%                 40%                                          6.7%     6.4%                 6%
                                                     5.9%                                                          6.4%
                       5.1%        5.0% 5.1%                                                              5.5%
  4%                                                                      4.9%                                             5.3%                           5.2%
            3.9%                                                                      35%        4.0%                                                            3%
  2%

  0%                                                                                  30%                                                                        0%
         1H09       2H09      1H10      2H10        1H11        2H11    1H12                  1H09 2H09          1H10     2H10 1H11        2H11       1H12

Source: Company; Note: Includes Baoxin, Zhongsheng, ZhengTong, and Yongda            Source: Company; Note: Includes Baoxin, Zhongsheng, ZhenTong, and Yongda




Dynamics
Auto penetration remains low
Despite being the biggest auto market in the world, China’s auto penetration rate lags far
behind that of developed nations. China’s vast number of lower-tier cities remains
relatively untapped, and automakers are expanding into these regions. On our estimates,
China’s penetration rate is approximately 69 vehicles per 1,000 people, while for
countries like the US, it was 802 vehicles per 1,000 people and Japan recorded 616 per
1,000 people in 2011.
Exports continue to grow at high double-digits
After slowing during the 2009 financial crisis, we expect exports to continue to grow
significantly as domestic automakers look to tap new markets. We also expect exports to
constitute a greater percentage of total sales. Exports of passenger vehicles accounted
for 3.3% of the number of passenger vehicles sold in China in 2011. We have seen
exports grow exponentially and we expect them to be a key long-term driver for the
growth of China’s automobile industry. However, if the yuan appreciates against the
dollar, it should lead to a slowdown in Chinese automobile exports.

Fig. 34: Passenger vehicle exports

                                PV unit sales (LHS)                     PV y-o-y growth (RHS)
 (Unit sales '000)              PV half-yr growth (RHS)                                     (Sales growth)
  500                                                            476                                100%
                                                        89.2%
  450                                                                                79.2%                80%
  400           348                                                                                       60%
                                                                  68.3%                       344
  350                                                                                                     40%
                                                  283
  300                 23.1%                                                    262
                                                                                              30.9%       20%
  250
                                                                                                          0%
  200                          150
  150                                                                                                     -20%

  100                                                                                                     -40%
   50                                -57.0%                                                               -60%
     0                                                                                                    -80%
               2008           2009            2010               2011     YTD Jul-11 YTD Jul-12

Source: China Association of Auto Manufacturers


Emergence of the used-car market
According to China Automobile Dealers Association, 1.1mn second-hand vehicles traded
hands in China in 1Q this year, which was up 24.7% y-y. Growth was strongest in Tier-1




                                                                                                                                                                        23
Nomura | Global autos                                                                                                                                            September 14, 2012


cities where the phasing out of subsidies and traffic restriction measures appear to have
led to the spike in used-car sales. Other measures such as tax relaxation for second-
hand purchases are also prompting demand in the used-car market.


Dynamics
With a larger base, China’s sales are still growing
As mentioned earlier, volume growth has been slower this year versus last year.
Between 2005 and 2011, the CAGR for sedans, crossovers, SUVs, and MPVs had been
24.0%, 18.1%, 42.2%, and 21.0%, respectively. Between 2011 and 2013, we expect the
CAGR for sedans, crossovers, SUVs, and MPVs to be 8.2%, 10.2%, 17.9%, and 5.8%,
respectively. This is probably the effect of a much larger base along with a decelerating
economic situation in China. Interestingly, the SUV mix has been expanding from 4.9%
in 2005 to 11.2% in 2011. However, sedans continue to be the main constituent (~70%
of all passenger vehicles) in the passenger vehicle mix. Going forward, we think the
popularity of SUVs will continue as evident in other mature markets. We believe that
much like the “soccer mom” phenomena in the US, a similar trend will follow in China,
where young families prefer SUVs over other types of vehicles to accommodate the
needs of their children. As disposable incomes continue to rise and the number of
middle-class families increases, SUVs for families or luxury SUVs will be popular
amongst the young generation, we think.

Fig. 35: PV unit sales breakdown                                                                 Fig. 36: PV mix
We expect SUVs to have the highest growth rate                                                   SUVs are gaining traction
                    Sedan                  Cross               SUV                    MPV                              Sedan         Cross       SUV        MPV
 (Unit sales '000)                                                                                          4.0%   3.7%    3.6%    2.9%   2.4%    3.2%    3.4%       3.3%   3.2%
                                '05-11 CAGR                        '11-13F CAGR                  100%
 12,000                                                                    Sedan 8.2%                      4.9%    4.4%    5.7%    6.6%   6.4%
                                                                                                                                          9.6% 11.2% 12.3% 12.9%
                                                                                                   90%
                                                                                                                 17.8% 15.7% 15.8% 18.9%
 10,000                                                                                            80%     20.9%                         18.1% 15.6% 14.9% 15.8%
                        Sedan 24.0%                                                                70%
   8,000
                                                                                                   60%
   6,000                                              MPV
                                                      21.0%
                                                                                                   50%
                                             SUV
   4,000                                     42.2%                                                 40%
                                                                                                           70.2% 74.0% 75.1% 74.7% 72.3% 69.1% 69.8% 69.5% 68.1%
                                                                                   Cross 10.2%     30%
   2,000              Cross 18.1%                                                  SUV 17.9%
                                                                                   MPV 5.8%
                                                                                                   20%
       0                                                                                           10%
             2005

                      2006

                             2007

                                    2008

                                              2009

                                                     2010

                                                            2011

                                                                   2012F

                                                                           2013F




                                                                                                    0%
                                                                                                           2005 2006 2007 2008 2009 2010 2011 2012F2013F
Source: China Association of Auto Manufacturers, Nomura estimates                                Source: China Association of Auto Manufacturers, Nomura estimates



Pricing
ASPs have been on a steady decline amid intensifying competition and declining costs
from economies of scale. As more new models and brands crowd the market, ASPs
have been coming down. While many consumers in the market are still first-time buyers,
information flow on the Internet and public resources is readily available for consumers
to pick and choose from. In addition, domestic production has become more efficient
leading to reduced cost of production; as a result, ASPs have declined steadily.
Recently (in 1H12), automakers and dealers have been cutting prices to move vehicles
and meet sales targets. Automakers’ aggressive capacity expansion over the past two
years and over-optimism, coupled with slowing demand, have resulted in excess
inventory. This resulted in downward pressure on ASPs. Prices of SUVs have been
stickier because we believe that end-users have a higher purchasing power despite the
current challenging economic environment. Low- to mid-end vehicles and domestically
made vehicles have a more challenging ASP battle to fight off, in our view.




                                                                                                                                                                                   24
Nomura | Global autos                                                                                                                                                     September 14, 2012


Fig. 37: Luxury SUVs on the rise                                 Fig. 38: PV price index by type
                                                                 Cheshi price indices for domestic-made passenger vehicles
                          Entry-level luxury    Mid-end Luxury    (Indexed Jan '04 = 100)
 50%                      Luxury SUV            Premium Luxury    110
 45%
                                                                  100
 40%
 35%                                                                90

 30%                                                                80
 25%                                                                70
 20%                                                                                        Medium Class
                                                                    60
 15%                                                                                        High Class
                                                                    50
 10%                                                                                        Luxury
  5%                                                                40




                                                                         Jan-04


                                                                                  Jan-05


                                                                                                     Jan-06


                                                                                                              Jan-07


                                                                                                                                 Jan-08


                                                                                                                                                   Jan-09


                                                                                                                                                             Jan-10


                                                                                                                                                                               Jan-11


                                                                                                                                                                                         Jan-12
                                                                                   Jul-04


                                                                                            Jul-05


                                                                                                               Jul-06


                                                                                                                        Jul-07


                                                                                                                                          Jul-08


                                                                                                                                                    Jul-09


                                                                                                                                                                      Jul-10


                                                                                                                                                                                Jul-11


                                                                                                                                                                                                  Jul-12
  0%
                2009                 2010         2011

Source: Nomura research                                          Source: CEIC




Competition
As foreign brands enter the market via JVs with local automakers and imports, we also
note that domestic brands have grown to gain market share from only 17.9% in 2000 to
29.7% in 2011. Some of these automakers such as Great Wall, Geely, and BYD, have
become competitive in both the local market and overseas. We believe this is a result of
their increased sophistication in manufacturing cars as well as improving market
knowledge. The top seven brands, which make up 47% of the Chinese passenger
vehicle market, are still dominated by foreign brands. It would be challenging, in our
view, to create brands that are equally competitive vs. some of these foreign brands
which have been around for years and had a head-start in technology and branding.
However, with the growing market share of domestic brands, we believe domestic
players are gradually taking shape as well.

Fig. 39: Domestic vs. foreign brands                             Fig. 40: Top 15 market share by brands in 2011


  (No. of vehicles sold mn)                                                                                                                                  Volkswagen
                                                                                                                                                                14%
  14                                                                               Others
                                                                                    30%                                                                                   Toyota
  12                      Foreign
                                               29.7%                                                                                                                       6%
  10                      Domestic                                                                                                                                             Nissan
    8                                                                                                                                                                            6%
                                                                     FAW
    6                                                                 2%                                                                                             Hyundai
                                                                  Suzuki                                                                                                6%
                                               70.3%               2%
    4                                                                                                                                                             Buick
                                                                       Audi                                                                                        5%
    2                                                                  2%       Ford
                    17.9%                                                        2%                                                                                      Chevrolet
                    82.1%                                                                                                               Honda                              5%
    0                                                                    Great Wall                     BYD         Kia
                                                                            3%                                                     Chery 5%
                     2000                      2011                                                     3%          4%              4%

Source: Nomura research                                          Source: Nomura research




                                                                                                                                                                                                           25
Nomura | Global autos                                                                                                                                                                                        September 14, 2012



Japan: Good times are over
In Japan, the government's eco-car subsidies have supported a favourable environment
but the allotted subsidies look likely to run out at the end of September. We expect a
sharp reactive decline in demand and deteriorating market conditions over Oct–Dec,
followed by gradual improvement thereafter.


Market likely to shrink once eco-car subsidies are withdrawn;
risk of structural decline in earnings from mini vehicles
Eco-car subsidy budget of ¥300bn likely to be used up by September
The eco-car scheme that provides subsidies of ¥100,000 for registered cars and ¥70,000
for mini vehicles commenced on 20 December 2011 with a budget of ¥300bn, of which
only ¥18.1bn was left as of 7 September 2012. The budget is likely to be completely
used up by September.
In Japan, the government's eco-car subsidies have supported a favourable environment
but the allotted subsidies look likely to run out at the end of September. We expect a
sharp reactive decline in demand and deteriorating market conditions over Oct–Dec,
followed by gradual improvement thereafter.
Market likely to contract sharply in 13/3 H2 as a result of demand being pulled
forward for both registered cars and mini vehicles
We expect sales of both registered cars and mini vehicles to fall sharply once eco-car
subsidies are withdrawn, forecasting registered car sales of 1.45mn vehicles (down 20%
y-y, down 11% h-h) and mini vehicle sales of 860,000 vehicles (down 14% y-y, down
13% h-h) in 13/3 H2 (Figs. 9 and 10). We do not envision falling sales of models for
which there are waiting lists, such as the Toyota Aqua and Prius Alpha, the Honda N
Box, the Mazda CX-5, and the Fuji Heavy Impreza, and we also expect the release of
new models, such as the Nissan Note, the Suzuki Wagon R, and the Toyota Crown, to
provide a boost to H2 sales. Overall though, many people look to have purchased cars
before the eco-car subsidies ran out, on which basis we think the market will contract
sharply thereafter. This is likely to have a particularly large impact on Daihatsu Motor and
Suzuki Motor, which respectively generated 66% and 67% of their operating profits from
the Japanese market in 12/3. Although the three largest Japanese automakers have high
overseas sales weightings and will be able to offset declines in Japan with growth on
overseas markets, Toyota Motor is likely to be hit harder than its two largest rivals
because it has the largest Japanese market share of the three.

Fig. 41: Japanese mini vehicle market (quarterly basis)                                                           Fig. 42: Japanese registered vehicle market (quarterly basis)

 ('000 units)                                                                                                      ('000 units)
                                                                    997 990
                997                                                                           950                   2,000
1,000                     934
                                                                                                     Toyota
                                          921                                860 850                                1,800
  900 896              875                       864                                                                         1,838
                                                                                                                                         1,784
                                                                                                                                                            1,630
                                                                                                                                                       1,817 1,450
                                                                                                                                                                      1,650
                                                                                                                                                                                                                        Other
                                                                                                     Mazda          1,600
  800                               778                                                                                                       1,677
                                                       765                                                                                                        1,380
  700                                                         692                                    Mitsubishi     1,400 1,588 1,543 1,398                                                                             Subaru
                                                                                                                                   1,349         1,295
  600                                                                                                               1,200                            1,248                                                              Suzuki
                                                                                                     Subaru
  500                                                                                                               1,000
                                                                                                                                                                                                                        Mazda
  400                                                                                                Nissan           800
                                                                                                                      600                                                                                               Nissan
  300
                                                                                                     Honda
  200                                                                                                                 400                                                                                               Honda

  100                                                                                                Suzuki           200                                                                                               Toyota
    0                                                                                                                   0
                                                                                                                                   10–3


                                                                                                                                                10–3


                                                                                                                                                             10–3


                                                                                                                                                                          10–3


                                                                                                                                                                                       10–3


                                                                                                                                                                                                    10–3


                                                                                                                                                                                                                 10–3




                                                                                                     Daihatsu
                                                                                                                             4–9


                                                                                                                                          4–9


                                                                                                                                                       4–9


                                                                                                                                                                    4–9


                                                                                                                                                                                 4–9


                                                                                                                                                                                              4–9


                                                                                                                                                                                                           4–9
          4–9


                       4–9


                                    4–9


                                                 4–9


                                                              4–9


                                                                           4–9


                                                                                        4–9
                10–3


                             10–3


                                          10–3


                                                       10–3


                                                                    10–3


                                                                                 10–3


                                                                                              10–3




          FY07         FY08         FY09         FY10         FY11 FY12E FY13E                                                FY07        FY08         FY09         FY10         FY11 FY12E FY13E

Source: Japan Mini Vehicles Association data, Nomura estimates                                                    Source: Japan Automobile Dealers Association data, Nomura estimates


Honda's share of mini vehicle market doubles y-y to 16% in Apr–Aug
Honda has been posting particularly strong growth in sales of minivehicles and there is a
growing risk of market contraction after the eco-car subsidies are withdrawn, will result in




                                                                                                                                                                                                                                 26
Nomura | Global autos                                                                                            September 14, 2012


even fiercer competition between automakers and lower margins. As Figure 43 shows,
Honda's market share had been falling for a long time, but the extremely successful
launch of the roomy N Box in December enabled it to double its share of the mini vehicle
market from Apr–Aug 2011 to Apr–Aug 2012. The N Box was Japan's top-selling mini
vehicle for five straight months between April and August. Honda launched an N Box
spinoff in July and intends to launch another new model in the fall, on which basis we
expect its market share to remain as high as in Apr–Aug in 13/3 H2 too.

Fig. 43: Share of the Japanese mini vehicle market (monthly basis)

   40%


   35%
                                                                                                                 33% Daihatsu

   30%                                                                                                             32% Suzuki


   25%


   20%
                                                                                                                   17% Honda
   15%


   10%
                                                                                                                   7% Nissan

     5%                                                                                                          3% Mitsubishi
                                                                                                                   3% Toyota
     0%                                                                                                               3% FHI
          J A J O J A J O J A J O J A J O J A J O J A J O J A J O J A J O J A J O J A J O J A J
              2002        2003         2004        2005         2006   2007   2008   2009   2010   2011   2012
Source: Nomura, based on Japan Mini Vehicles Association data


Stiffer competition after Nissan/Mitsubishi’s new mini vehicle launch in 14/3 Q1
Lower-ranked mini vehicle manufacturers have been stepping up new product launches
in Japan, having previously not been that active in recent years. Honda and Toyota have
been increasing their market share since 13/3, while Nissan and Mitsubishi are
scheduled to launch a jointly developed mini vehicle in 14/3. As a result, we think, the
two top-ranking mini vehicle producers, Daihatsu and Suzuki, will struggle to maintain
their large market shares over the medium term. Having steadily increased its market
share in recent years via superior product appeal, including fuel efficiency gains, we
expect Daihatsu will likely lose market share over the next 12 months in the absence of
any notable product launches. Meanwhile, Suzuki lost market share in 13/3 H1 because
it offered only minor discounts on its mainstay Wagon R, which was at the end of its
product cycle. Although we expect the launch of the new Wagon R along with other
models to halt some of the decline in its market share in 13/3 H2, we think it will struggle
to maintain its market share over the medium term. With Nissan and Mitsubishi also
likely to enter the mini vehicle market in 14/3 Q1 with a model they have developed
together, competition is likely to get even fiercer, we think. Although margins have yet to
deteriorate thanks to the temporary boost provided by eco-car subsidies, they could well
do so once the market shrinks from 13/3 H2 through 14/3 H1.
Aggregate sales guidance looks far too optimistic
We expect overall mini vehicle sales to rise only 10% y-y to 1.85mn vehicles in 13/3, well
below the aggregate guidance of 19% growth. Weaker-than-expected sales and higher
incentives per vehicle as a result of fiercer competition could well result in lower profits
from Japanese operations at Daihatsu and Suzuki from 13/3 H2 and we think that
margins will keep on falling y-y in 14/3 too (Figure 45).




                                                                                                                                 27
Nomura | Global autos                                                                                  September 14, 2012


Fig. 44: Mini vehicle sales guidance, Nomura & JAMA forecasts (full-year basis)

                                                                                        (’000 units)
                                                                       FY13/3F
                                                FY12/3       Co's   Change in volume       % y-o-y
 Daihatsu Motor                                    560       602                  42           8%
 Suzuki Motor                                      516       560                  44           9%
 Honda Motor                                       166       356                 190        115%
 Fuji Heavy Industries                              92        51                 (41)        -45%
 Mitsubishi Motors                                  91        84                  (7)         -8%
 Toyota Motor                                       17        60                  43        244%
 6 cos total                                     1,442     1,713                 271          19%

 Nomura estimates (total demand)                1,689      1,850                 161           10%
 JAMA forecast (total demand)                   1,689      1,750                  61            4%
Source: Company data, JAMA, Nomura estimates


Fig. 45: Operating margins for Japanese operations of Daihatsu and Suzuki


   8%                    Daihatsu Motor              Suzuki Motor
   7%

   6%

   5%

   4%

   3%

   2%

   1%

   0%
             FY07          FY08          FY09       FY10        FY11     FY12E         FY13F

Source: Company data, Nomura estimates




                                                                                                                      28
Nomura | Global autos                                                                                                             September 14, 2012



Korea: Marginal recovery in 2013F
2012 car demand is likely to end up edging down 3% y-y due to the high-base effect in
2010-11 and weak domestic consumption. We expect 2013F demand to edge up by 2%
and remain at a solid level of 1.53mn on the back of new model launches by Korean
OEMs and customers wishing to benefit from the lowered ASP of the European cars as a
result of KR-EU FTA.


Demand down 8% YTD in August due to a lack of new models
and labour disruption, but sales to recover post-September
Improvement in 4Q: impact of major new model launches to pronounce
We expect Korea's 2012F auto demand to edge down by 3%. As expected, Korea's auto
demand declined 8% YTD August as new models of major volume cars were either
launched in mid-year or are scheduled to be launched in late 4Q. The labour disruption
at Hyundai and Kia extended from May to August has also affected supplies of some key
models. Given that HMC/Kia's labour union has agreed on the labour conditions while
HMC's SantaFe and Kia's revamped K3 model will likely boost demand, we expect 4Q
Korean auto sales to pick up to record positive y-y growth. We also think that the
government’s VAT cut on auto purchases until end-2012 could temporarily help demand,
but the impact is likely to be limited at pushing forward 2013 demand to 4Q12.
Preference for smaller cars to continue
Korea's demand for cars below the compact segment has outweighed that for large cars
since the Asian financial crisis. We expect the trend to continue into 2013, given
consumers' sensitivity to fuel efficiency and Kia's launch of the revamped K3 model in
mid-September.

Fig. 46: Korea auto demand trend
 ('000 units)
                                  Korea retail sales (LHS)                    Growth (RHS)
  2,000                                                                                                                    30%

                                                                                                                           20%
  1,000
                                                                                                                           10%

       0                                                                                                                   0%

                                                                                                                           -10%
 (1,000)
                                                                                                                           -20%

 (2,000)                                                                                                                   -30%
                                                                                                   2012E

                                                                                                           2013F

                                                                                                                   2014F
             2000

                    2001

                           2002

                                    2003

                                           2004

                                                  2005

                                                         2006

                                                                2007

                                                                       2008

                                                                              2009

                                                                                     2010

                                                                                            2011




Source: Korea Automobile Manufacturers Association, Nomura estimates




                                                                                                                                                 29
Nomura | Global autos                                                                                                         September 14, 2012


Fig. 47: Korea demand growth by segment
  30%
                          A+B+C           D+E+F
  25%

  20%

  15%

  10%

    5%

    0%

   -5%

 -10%
             2005         2006        2007           2008   2009   2010      2011       2012F
Source: IHS AutoInsight



Despite worrisome consumption, 2013 demand to edge up on
new models
2013 demand estimated at 1.53m or +2%
We estimate 2013F auto demand to recover slightly to reach 1.5mn, or +2%, driven by
pent-up demand for new models and customers wishing to enjoy the reduced tax for
European cars. We note that Korea's 2010-11 auto sales remained at the highest level
since 2000 due to strong demand for key volume models. 2012 sales seem to take a
breather but still look likely to remain at a solid level of 1.5mn, and we expect some of
the face-lift models and revamped small-car models to be launched in end-2012 to
support 2013 demand.
HMC/Kia to sustain market share, Renault Samsung to continue to struggle
With customers' increasing loyalty for the HMC/Kia brand in the Korea market, we expect
both HMC and Kia to sustain market share in 2013 at around 80%. For the remaining
20% share, we forecast GM Daewoo and Ssangyong to marginally gain market share on
the back of strength in the compact car and SUV segments, respectively, while Renault
Samsung will likely continue to struggle due to a lack of new models and the company's
restructuring efforts.

Fig. 48: Korea auto market share (as of YTD 2012)                         Fig. 49: Korea market share trend


                           RS       SY                                     55%
                           4%       3%
                                                                           50%
                GMD
                11%                                                        45%
                                                                           40%
                                                                           35%
                                                            HMC
                                                            47%            30%
                                                                           25%
                                                                                                                                  HMC
                                                                           20%
                                                                                                                                  Kia
                                                                           15%
                 Kia
                35%                                                        10%
                                                                                 2000      2002     2004     2006   2008   2010   2012F

Note: As of August 2012                                                   Source: Company data, Nomura estimates
Source: Korea Automobile Manufacturers Association




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Nomura | Global autos                                                                     September 14, 2012


Fig. 50: Korea market: New model launch schedule

                           1H12               2H12                  2013          2014
 HMC                    Santa Fe                                                Sonata
                                                                               Genesis
 Kia                         K9    Sorento face-lift   YP (new Carnival)        New K7
                                               K3                  Soul     New Sorento
                                       K7 face-lift             Carens
                                                              K5 facelift
                                                        Sportage facelift
Source: Company data




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Nomura | Global autos                                                                                                    September 14, 2012



India: Growth to slow down in 2012-13F
In line with the slowdown in GDP growth (Nomura estimates 5.8% in FY13F compared
with 6.5% in FY12), we expect most auto categories to remain slow. We expect some
segments like cars to remain weak, despite a low base last year. We expect 5% volume
growth for cars in FY13F.

We expect commercial vehicles will be heavily impacted by the slowdown in industrial
production, and expect volumes to decline by 10% in FY13F. Even two-wheelers volume
growth is likely to slow down to 5% from 14% last year, we estimate.
UVs (including vans) and LCVs will be the key drivers of industry growth on the back of
new launches – some of them in new segments. We expect 25% growth for UVs and
20% growth for LCVs in FY13F.

Fig. 51: India - Industry demand forecasts

 ('000 units)                                  FY07            FY08               FY09      FY10     FY11     FY12    FY13F        FY14F
 Total domestic sales                         9,727            9,284              9,374    11,834   14,984   16,853   17,827       19,519


 Passenger vehicle                            1,380            1,536              1,528     1,901    2,466    2,530    2,759        3,194
 Cars                                         1,077            1,202              1,219     1,527    1,984    2,015    2,116         2455
 Utility Vehicles (incl Vans)                    303             334                308      374      482      514      643           739


 Commercial vehicle                              468             498                409      585      728      889      962         1,091
   Heavy                                         276             271                182      245      323      348      313           345
   Light                                         192             227                227      340      406      541      649           746


 Two wheelers                                 7,879            7,250              7,437     9,349   11,790   13,434   14,106       15,234


 y-o-y change (%)
 Total auto sales                              13.8             (4.6)               1.0     26.3     26.6     12.5      5.8           9.5


 Passenger vehicle                             20.8            11.3                (0.5)    24.4     29.7      2.6      9.1          15.8
 Cars                                          22.0            11.7                 1.5     25.2     29.9      1.6      5.0          16.0
 Utility Vehicles (incl Vans)                  16.5            10.0                (7.6)    21.4     28.9      6.6     25.0          15.0


 Commercial vehicle                            33.4              6.4              (17.8)    42.9     24.6     22.1      8.2          13.4
   Heavy                                       33.6             (1.8)             (32.9)    34.4     31.9      8.0    (10.0)         10.0
   Light                                       33.0            18.1                 0.1     49.7     19.3     33.3     20.0          15.0


 Two wheelers                                  11.7             (8.0)               2.6     25.7     26.1     13.9      5.0           8.0
Source: The Society of Indian Automobile Manufacturers (SIAM), Nomura estimates



Passenger vehicles - UV segment has been quite strong and
has gained market share
While we expect overall PV growth to remain slow at only 9% in FY13F, UVs are
expected to grow much rapidly. We note that UVs (excluding vans) volume growth has
been around 60% over the past few months. Also, UVs share of volumes has been on an
increasing trend – having increased to 28% in Aug-12 up from 15% in FY12. This has
been helped by 1) new launches in new segments, eg. M&M's XUV 500 and Maruti's
Ertiga; 2) a shift in consumer preferences, and; 3) regulated diesel price as most SUVs
run on diesel. We expect the growth rate to sustain with more expected new launches
such as a smaller SUV from M&M, Renault's Duster and Ford's Eco sport.
Given the slowing economy and steep increase in petrol price, lower-end car demand
has been hurt the most. The share of entry-level cars (including the Nano) has dropped
to around 17% in Aug-12 from 23% in FY12 and that of Hatchbacks (including premium
hatchbacks) has dropped from 42% to around 27%, based on data from SIAM.




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Nomura | Global autos                                                                                                 September 14, 2012


Given this trend, we expect M&M could be one of the key beneficiaries due to its high
market share in the UV space, while MSIL could get hurt given its high exposure to the
lower-end car space.
Risk from imposition of higher excise duty on diesel vehicles
There is a risk of higher excise duties being imposed on diesel vehicles to compensate
for the higher subsidies on diesel. However, we do not see any significant impact on
industry volume growth if the additional excise duty is up to 2-3% of the vehicle price.
However, if the government decides to impose a higher duty on diesel vehicles (low
probability in our view), there could be a risk to our volume growth estimates for the UV
segment.

Fig. 52: Passenger vehicles - UV segment has witnessed strong growth; now accounts for 28% of the PV industry

                                               y-o-y growth                                  Segmental market share
 Segment/Company                FY12   Apr-12 May-12   Jun-12   Jul-12 Aug-12   FY11   FY12 Apr-12   May-12 Jun-12     Jul-12   Aug-12
 Nano                            6%     -20%    31%       3%     68%    -16%     3%     3%      4%      4%      3%        3%       4%
 Entry                           1%     -10%    -2%       4%     -16%   -36%    20%    20%     16%     17%     18%      15%       13%
 Maruti                         -11%    -30%   -21%      -8%     -29%   -52%    82%    72%     60%     66%     69%      70%       58%
 Hyundai                        54%     58%     73%      44%     49%     22%    18%    28%     40%     34%     31%      30%       42%


 Hatchback                      -14%     -6%   -24%     -18%     -13%   -12%    32%    27%     23%     19%     22%      22%       27%
 Maruti                         -25%    -17%   -47%      -9%     -28%   -27%    44%    39%     38%     32%     44%      36%       36%
 Hyundai                        -24%    -37%   -40%     -44%     -31%   -31%    22%    20%     17%     18%     15%      15%       15%
 TTMT                            8%     63%     -1%     -35%     51%      5%    13%    17%     15%     14%     13%       22%      18%
 Ford                           -10%     -3%   -16%     -15%     -11%    21%    11%    11%     12%     12%     12%      12%       15%
 GM                              8%     -15%    -6%      19%     -27%   -20%     9%    12%     11%     12%     14%      12%       11%
 Honda                                                                           0%     2%      8%     12%      1%        4%       5%


 Premium hatchback              20%      39%    28%      28%     72%    -29%    13%    15%     18%     18%     17%      15%       10%
 Maruti                          9%     83%     57%      66%    3182%   -89%    48%    44%     53%     55%     50%      41%        5%
 Hyundai                         -2%     -6%     4%       7%     38%     44%    27%    22%     20%     21%     24%      28%       49%
 Volkswagen                             -10%   -42%     -10%      0%     -7%    10%    11%      9%      6%      8%      13%       15%
 Toyota                                                          -11%   -30%     0%     9%      6%      7%      7%        8%      12%


 Sedan                          16%      16%    26%      43%     19%    -22%    18%    20%     21%     23%     22%      21%       18%
 Maruti                          -2%    16%     34%     342%    127%    -64%    33%    28%     38%     40%     35%      31%       12%
 Hyundai                        66%    124%      6%      24%      -3%    15%     9%    13%     16%     13%     15%      14%       17%
 Toyota                         214%    -20%    25%     -19%     -16%    16%     5%    13%     10%     11%     11%      11%       14%
 TTMT                           -12%    -31%   -20%     -46%     40%    -29%    22%    17%      9%      7%      7%       17%      12%
 Volkswagen                     85%     -32%   -10%       5%     -46%   -48%     5%     7%      5%      5%      6%        4%       5%
 Honda                          -26%    19%     89%     -56%     -54%   -58%    13%     8%      5%      8%      3%        5%       9%
 Nissan                                                                          0%     3%      5%      6%      8%        6%       9%


 UVs                            15%      59%    65%      50%     71%     84%    13%    15%     18%     19%     20%      24%       28%
 Mahindra                       19%     32%     31%      33%     32%     41%    58%    60%     50%     52%     52%      48%       45%
 Toyota                          7%     87%    123%      42%     36%     45%    22%    20%     21%     21%     22%      18%       18%
 Maruti                                                                          0%     0%     14%     18%     15%       16%      15%
 TTMT                            9%      8%      1%      24%    117%     68%    14%    13%      9%      7%      9%       11%      10%
 Renault                                                                                                                           7%
 GM                             21%      2%    -47%     -57%      -5%    16%     6%     7%      5%      2%      2%        4%       5%
Source: SIAM, Nomura research




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Nomura | Global autos                                                                                                               September 14, 2012


Fig. 53: Indian car market – player-wise market share (%)


                           MSIL                      Hyundai                     TTMT                       Toyota
  60                       Ford                      Honda                       Volkswagen

  50                50.8      51.4       50.9      51.7      51.0      51.4      52.2      50.1      48.7
                                                                                                               42.5        40.7
  40

  30

                                         17.7      17.9      18.1                          20.6
  20                19.1      18.6                                     18.0      20.0                18.1      19.2 20.4
                    14.7      15.5       17.3                          13.9                13.2
                                                   17.1      16.6                13.2                12.9      12.8 11.8
  10

    0




                                                                                                                      FYTD13
             FY03


                       FY04


                                  FY05


                                            FY06


                                                      FY07


                                                                FY08


                                                                          FY09


                                                                                    FY10


                                                                                              FY11


                                                                                                        FY12
FY13YTD is Apr-Aug 2012
Source: The Society of Indian Automobile Manufacturers (SIAM), Nomura research



MHCVs - Downcycle to continue
A slowdown in IIP will likely impact Medium and Heavy Commercial vehicle (MHCV)
demand in our view. Hence, we expect a 10% decline in MHCV volumes in FY13F.
While the passenger MHCV segment has been performing well, with 13% growth in
FY13 so far, we expect volumes in goods segment to continue to decline sharply in
FY13F. The FY13 YTD decline in the goods segment is 16% y-y.

Fig. 54: Relationship between MHCV volume growth and delta IIP
  (Nos)                                            Domestic MHCV Sales (LHS)                                            (Nos)
 350,000                                           delta_IIP (RHS)                                                             20
                                                                                                                               18
 300,000
                                                                                                                               16
 250,000                                                                                                                       14
 200,000                                                                                                                       12
                                                                                                                               10
 150,000                                                                                                                       8
 100,000                                                                                                                       6
                                                                                                                               4
   50,000
                                                                                                                               2
         0                                                                                                                     0
                Apr-84
                Apr-85
                Apr-86
                Apr-87
                Apr-88
                Apr-89
                Apr-90
                Apr-91
                Apr-92
                Apr-93
                Apr-94
                Apr-95
                Apr-96
                Apr-97
                Apr-98
                Apr-99
                Apr-00
                Apr-01
                Apr-02
                Apr-03
                Apr-04
                Apr-05
                Apr-06
                Apr-07
                Apr-08
                Apr-09
                Apr-10
                Apr-11
                Apr-12
               Apr-13F




Source: Government data, Nomura estimates




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Nomura | Global autos                                                                                                                                        September 14, 2012


Fig. 55: Indian MHCV segment – player-wise market share (%)

                                                 TTMT                            AL                        Eicher
     70
                     63.5         63.9         65.1                      63.0                                   63.2         59.6
     60                                                     61.9                      61.2         62.5
                                                                                                                                          59.3
                                                                                                                                                      54.6
     50
     40
     30              29.0         27.6                                   27.8         27.8
                                                            27.1                                   25.9                      25.8
                                               24.0                                                             23.4                      23.3 25.5
     20
                                                                                                                             9.4
     10                                        7.7          7.5
                                                                         6.8          8.3
                                                                                                   7.2
                                                                                                                8.6                       10.7 12.3
                     5.4          5.7
      0
              FY03


                           FY04


                                        FY05


                                                     FY06


                                                                  FY07


                                                                               FY08


                                                                                            FY09


                                                                                                         FY10


                                                                                                                      FY11


                                                                                                                                   FY12


                                                                                                                                             FYTD13
FY13YTD is Apr-Aug 2012
Source: The Society of Indian Automobile Manufacturers (SIAM), Nomura estimates



Two-wheeler industry - Growth to remain slow; HMSI gaining
market share
After recording strong growth over the past three years (22% CAGR over FY09-12F),
two-wheeler volumes have slowed down considerably (~7% growth) over the past five
months. Our checks suggest that growth in retail demand has been even slower and a
large part of dispatch growth has been led by channel filling with inventory levels
reaching four weeks for some players. We believe that if demand remains slow during
the festival season (Oct-Nov), possibly due to weak monsoons or a sluggish economy,
growth in dispatches will come down further.
Overall, we expect volume growth of 5% in FY13F for the two-wheeler industry. We
expect growth will be largely led by robust volume growth at HMSI; the market share of
incumbents, especially a weaker franchise like TVS Motors, will be at risk, in our view.
HMSI is gaining market share driven by increased capacity and new launches
Post its separation from HMCL, Honda (HMSI) has highlighted aggressive expansion
plans to increase its market share in India. HMSI is looking to increase its presence in
the entry- and mid-segment through new launches (it launched Dream Yuga, a 110cc
bike in May-12).
The company has already increased its capacity to 2.8mn units (from 1.6mn units in
FY11), which it aims to increase further to 4mn units by mid-CY13. This, coupled with its
new launches, has led to strong volume growth for the company – its volumes have risen
by more than 50% over the past 4-5 months. HMSI’s market share increased to around
20% in July-12 (18.3% in FYTD13); up from ~15% in FY12. In our view, as its new plant
gets commissioned and volumes pick-up for new launches (Dream Yuga), HMSI has the
potential to further increase its market share in FY14F.




                                                                                                                                                                            35
Nomura | Global autos                                                                                                                            September 14, 2012


Fig. 56: Indian two-wheeler segment – Player-wise market share (%)
    (%)                           HMCL                BJAUT                      TVS             HMSI
   60
                                                                  49.0       48.2
   50                                              44.8                                   44.7       45.2      43.8
             41.2      41.2          41.2
   40

   30                  26.3          26.6
             23.7                                  23.2
                                                                             19.1         20.5       19.1
                                                                  17.3                                         17.8
   20
                                                                                                               18.5
   10                                                             13.7                               14.9
                                                   12.0                      12.8         13.2
             8.3        8.0          8.8
     0
             FY05     FY06           FY07          FY08       FY09          FY10          FY11      FY12      FYTD13

FY13YTD is Apr-Aug 2012
Source: The Society of Indian Automobile Manufacturers (SIAM), Nomura estimates


HMCL likely to be most impacted due to higher presence in entry and mid
segments
We believe HMCL will be the most impacted by increased competition from Honda in the
entry- and mid-segment motorcycles space, as it has the highest market share in these
segments. HMCL is the market leader in both the segments – with around 50% market
share in the economy (entry) segment and around 70% share in the executive (mid)
segment. Together, these two segments account for more than 80% of the company's
revenue, as per our calculations.

Fig. 57: HMCL - Market leader in entry- and mid-segment motorcycles
 Volume mix
 HMCL                   2QFY10        3QFY10         4QFY10         1QFY11        2QFY11       3QFY11       4QFY11    1QFY12   2QFY12   3QFY12   4QFY12   1QFY13
 Economy                       9.2          14.9           13.6           15.5          16.2       14.0       14.3      13.9     14.3     14.7     16.4       17.0
 Executive                    85.5          80.5           80.0           78.3          77.8       79.2       77.9      80.5     79.1     80.3     77.8       78.7
 Premium                       5.3           4.6            6.4            6.2           5.9        6.8        7.8       5.6      6.6      5.1      5.8        4.3
 Total                     100.0           100.0          100.0          100.0         100.0      100.0      100.0     100.0    100.0    100.0    100.0     100.0
 Market share
 HMCL                   2QFY10        3QFY10         4QFY10         1QFY11        2QFY11       3QFY11       4QFY11    1QFY12   2QFY12   3QFY12   4QFY12   1QFY13
 Economy                      46.8          45.2           43.4           44.6          46.8       46.2       46.6      44.7     43.0     45.6     45.4       48.7
 Executive                    76.3          70.4           68.1           66.8          64.6       69.1       68.2      67.7     68.2     69.5     69.8       68.9
 Premium                      21.3          16.7           19.2           19.2          18.6       19.9       23.7      21.4     20.6     16.8     19.1       15.7
 Overall                      63.9          57.3           54.9           54.2          53.1       55.8       56.3      56.5     55.2     56.3     56.2       56.6
Source: CRISIL, Nomura research


BJAUT is relatively better placed due to market and product diversification
We believe that due to a relatively weaker franchise (compared with HMCL), the entry-
and mid-segment motorcycles of BJAUT may be affected more by the likely increased
competition from Honda over the next 2-3 years. However, given its presence in the
three-wheeler segment and higher exports contribution, only around 50% of revenue and
40% of EBITDA come from the domestic motorcycles business, as per our calculations.
Therefore, we believe BJAUT is relatively better placed than HMCL, if Honda becomes
more aggressive and gains market share. Furthermore, even within the domestic
motorcycle space, BJAUT has a higher market share in the premium segment, which we
believe will be least impacted by higher competition. The premium segment accounts for
around 50% of BJAUT’s domestic two-wheeler revenue, compared with only 5-10% of
revenue for HMCL.




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Nomura | Global autos                                                      September 14, 2012


Fig. 58: BJAUT - Revenue and EBITDA breakdown by segment
 Revenue breakdown (%)                   FY11    FY12F     FY13F   FY14F
 Domestic 2-wheelers                      55.7    50.5      48.3    47.5
 Domestic 3-wheelers                       7.2     7.1       6.5     6.3
 Exports                                  30.4    35.3      38.3    39.5
 Others                                    6.6     7.1       6.9     6.8
 Total                                   100.0   100.0     100.0   100.0


 EBITDA breakdown (%)                    FY11    FY12F     FY13F   FY14F
 Domestic 2-wheelers                      49.7    41.6      37.4    37.2
 Domestic 3-wheelers                      10.6     9.8       9.6     9.1
 Exports                                  26.9    35.2      41.4    42.3
 Others                                   12.7    13.4      11.6    11.4
 Total                                   100.0   100.0     100.0   100.0
Source: Company data, Nomura estimates




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Nomura | Global autos                                                                                   September 14, 2012



Indonesia: Growth continues
Indonesia car sales continue to hit a new high despite government efforts to tighten
underwriting standards for car loans through a higher down payment requirement (ie,
loan-to-value [LTV] regulation). We believe car sales in Indonesia are set for sustainable
strong growth in the long term, driven by the country’s low car ownership rate, rising
affordability and young population. In our view, the best-positioned players in this market
are companies with strong commitment to invest and develop products that suit
Indonesian consumer lifestyles.

Astra International is the best proxy to the Indonesian automotive market, in our view,
with 56% market share in 1H12. Astra is the sole distributor of Toyota, Daihatsu, Isuzu,
UD Trucks, Peugeot brands. It is also an authorised dealer for BMW in the country.
Indonesia’s other listed automotive company, Indomobil, distributes Nissan in the
country. In our view, Indomobil is an attractive stock for investors looking for a high
growth profile and a challenger to the dominance of Astra Intl. Nissan market share in
Indonesia has increased from 1.3% in 2006 to 6.4% in 1H12. Nissan is investing
USD400m in Indonesia to expand its production capacity and increase local content,
according to the company.

Fig. 59: Indonesia domestic monthly car sales (last = 102,512 units in Jul12)

    (Units)
                                                 Total market - domestic
   120,000

   100,000

     80,000

     60,000

     40,000

     20,000

           0
               92      94        96       98        00       02       04        06       08   10   12

Source: Gaikindo (The Association of Indonesia Automotive Industries), Nomura research



Low penetration set base for long-term growth
Despite strong car sales growth in the past few years (23% CAGR 2006-11), car
ownership in Indonesia is still low at 3.5% (35 cars/1,000 people), implying the potential
for continuous growth ahead. Rising incomes, strong economic growth (GDP growth of
6.4% in 1H12), a relatively low interest rate environment (the current Bank Indonesia rate
of 5.75% is near a 10-year low), and high availability of consumer financing facilities
have been the key drivers for demand.


Competition and the upcoming low-cost green car (LCGC)
The fast-growing market is attracting competition. Many brands are trying to increase
their presence in Indonesia and have launched new products, opened new dealers and
are investing in production capacity. Competition in the automotive sector continues to
intensify as market size expands. With intensifying marketing campaigns and the
introduction of new products to complete product line ups, especially in the high-volume
segment, we believe automakers’ commitment to this market is also on the rise with
several car producers announcing new investments to either expand production capacity
or increase local content.




                                                                                                                       38
Nomura | Global autos                                                                           September 14, 2012


Note that unless the car has 40% local or Asean content, Indonesia’s import tariff will be
high, pushing up selling prices. Suzuki, Daihatsu, Toyota, Nissan, Honda, and GM have
recently announced plans to invest and expand their production capacity in Indonesia.
We have also seen an increase in marketing activities by Ford and Mitsubishi in the
passenger car (Mitsubishi is the leader in commercial vehicle but weak in passenger car
segment, based on Gaikindo data).

Fig. 60: Market share (YTD July 2012)

                                             Others
                                   Isuzu      9.2%
                                   3.2%
                               Honda                                          Toyota
                                5.3%                                          37.5%
                            Nissan
                             6.4%


                            Suzuki
                            10.1%


                                 Mitsubishi                             Daihatsu
                                  13.5%
                                                                         14.8%

Source: Gaikindo (The Association of Indonesia Automotive Industries)


The upcoming Low-Cost Green Car (LCGC)
The LCGC refers to small-engine cars (700cc-1200cc) that will be priced at less than
IDR100mn per unit (USD10,000). For comparison, the price of Indonesia’s current best-
selling car is around USD16,000 per unit. The LCGC is required to have high fuel
efficiency of 20-22km/litre vs. the current average of best-selling cars is around
12km/litre.
The LCGC will create a new market segment, in our view, that could account for half of
car sales, effectively doubling the car market size in less than five years. For
comparison, the best-selling Avanza/Xenia that created a new market segment in low-
price MPVs now accounts for nearly 30% of market volume and nearly half of Astra’s
sales volume, based on data from Gaikindo.
Four automakers – Nissan, Toyota/Daihatsu, Suzuki, and Honda – have obtained the
license/approval to produce LCGCs, but the actual launching of the LCGC is still pending
issuance of government issuing regulations that will waive or reduce the luxury tax
imposed on LCGCs to bring selling prices down.
To participate in the LCGC business, the automaker needs to have a strong investment
commitment in Indonesia. Based on our discussions with industry expert and media
news reports, we believe the government is likely to require localization of component
parts at around 80% in three years (vs the current requirement of 40% local content to
benefit from lower import tariff). The high local-content requirement will serve as a barrier
to entry for new competitors that do not have a strong manufacturing base in Indonesia,
we expect.
The introduction of LCGC in Indonesia will change the market share outlook, in our view,
as we expect Toyota/Daihatsu is likely to lose some market share (38% (Toyota) and
15% (Daihatsu) in 1H12). It is unlikely in our view that Toyota/Daihatsu will be able to
maintain such a strong dominance in the LCGC market given the four producers will
launch their products all within 12 months in the new market segment. We note that
Toyota/Daihatsu requires a very long (ie, more than 5 years) lead time when it launched
its two best-selling products (Toyota Kijang and Toyota Avanza/Daihatsu Xenia) that
have allowed it to dominate the Indonesian market.




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Nomura | Global autos                                                                                         September 14, 2012


Fig. 61: Market share trend

  45%                     Toyota                      Daihatsu
                          Mitsubishi                  Suzuki
  40%
                          Nissan                      Honda
  35%                     Isuzu
  30%
  25%
  20%
  15%
  10%
    5%
    0%
         96    97    98    99    00    01    02    03    04    05    06     07    08     09   10    YTD
                                                                                                   11 Jul12

Source: Gaikindo (The Association of Indonesia Automotive Industries), Nomura research



Recent regulation that affect car and motorcycle sales
We believe Indonesian automotive sales in the near term are driven by three key factors:
availability of consumer financing, the launch of new high-volume products such as
LCGC, and the regulatory environment. .
Barring any major external shake up, Nomura’s bank analyst believes the banking
system in Indonesia is healthy with a strong capital base (17.8% CAR and 16% tier-1
capital of 16%), low bad debt (gross NPL of 2.33%), and low non-resident assets and
liabilities. Our bank analyst believes Indonesian banks (through financing companies)
are keen to continue growing the system’s consumption loans, which have already
grown by 20.3% y-y in 1H12, given such loans carry higher margin vs. corporate loans.
On the other hand, Bank Indonesia and Ministry of Finance are trying to manage system
risk through the loan-to-value (LTV) regulation effective from 15 June 2012. The new
regulation set a minimum down payment of 20-25% for motorcycle financing and 25-30%
for car financing. This compared to the previous practice (unregulated) of 5-10% down
payment for motorcycle financing and 10-15% for car financing.
Although the LTV regulation has begun to weigh on motorcycle sales, based on AISI
data, it has not halted the rising demand for cars: Motorcycle sales were down 8.7% y-y
in 1H12, while Jul 12 sales volume was down 21.5% y-y. Car demand, meanwhile,
remains strong post LTV implementation; Jul 12 sales growth was 1% m-m (15% y-y)
and Jun 12 sales were up 7% m-m (+45% y-y). The strength of car sales is a positive
surprise, in our view, as it is seen across brands.
We will be watching sales numbers in Sept and Oct 2012 as those are the typical months
post Moslem Eid peak season in Indonesia.


Motorcycles – dominated by Honda and Yamaha
The motorcycle market has turned from an oligopoly market into a nearly duopoly market
as the aggressive move by Yamaha and lack of good response from Suzuki have lead to
Suzuki losing market share to Yamaha. Even Honda, at one point, nearly lost its market
leadership position to Yamaha. If it was not for Honda’s strong new product line up, solid
distribution network and lack of new product of Yamaha in 2010-2011, Honda might have
faced an even more challenging time in defending its market share, in our view.




                                                                                                                             40
Nomura | Global autos                                                                                                                             September 14, 2012


Fig. 62: Market share trend – Motorcycle (last Jul 2012)

  80%                                                                    Astra Honda
                                                                         Yamaha
  70%
                                                                         Suzuki
  60%

  50%

  40%

  30%

  20%

  10%

    0%
         00      01      02     03      04      05      06     07      08     09    10      11      12

Source: AISI (Indonesian Motorcycles Industry Association), Nomura research


Motorcycles remain one of the cheapest and most efficient transportation modes in
Indonesia. Poor public transportation infrastructure has kept the demand for motorcycles
robust, as it pushes commuters to buy motorcycles as soon as they can afford a down
payment (monthly instalments are less of a concern, since the cost of taking a bus/taxi to
work would make up for it, in our view).
The recently implemented LTV regulation had a negative impact on motorcycle sales
which declined ~22% y-y (+7% m-m) in Jul12, a step down from the already weakening
motorcycle sales trend in the past few months.
The impact of the LTV regulation is fully reflected in the motorcycle market because of
the weaker purchasing/saving power of this segment’s customers, in our view. We
expect sales volume to bottom in Aug/Sep 2012 before bouncing back to 10-15% below
the original trend line. This shift to lower potential volume is structural, in our view.
Competition is tight in the motorcycle business but remains relatively consolidated with
Honda and Yamaha comprising ~90% of the market. We expect limited change with the
two names likely to remain major players in Indonesia’s motorcycle market.

Fig. 63: Indonesia domestic motorcycle sales                                       Fig. 64: Indonesia motorcycle market share

  ('000 units)
  800                                                                                                                Others
                      Domestic motocycle sales                                                             Suzuki     1.8%
                                                                                                            6.1%
  700                 Year average
  600

  500

  400
                                                                                          Yamaha
  300                                                                                      34.9%                                                  Astra
                                                                                                                                                  Honda
  200
                                                                                                                                                  57.1%
  100

     0
         00 01 02 03 04 05 06 07 08 09 10 11 12
Source: Indonesian Motorcycle Industry Association; Nomura research                Source: Indonesian Motorcycle Industry Association; Nomura research




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Nomura | Global autos                                                                             September 14, 2012



Thailand
Among the emerging markets, conditions in Thailand and Indonesia are particularly
good. We believe both countries have entered a phase of full-fledged motorisation as
their middle classes—people able to buy vehicles—have grown amid ongoing economic
development.


Auto sales in Thailand were hit hard by the 2011 Japan quake
and Thai floods
Automobile sales in Thailand slid to 193,000 units in Apr-Jun 2011 as a result of sharply
reduced output by Japanese automakers following the March 2011 earthquake. In Jul-
Sep 2011, Thai sales recovered to 239,000 units as output levels normalized. First-time
buyers of new vehicles (pickup trucks and passengers cars of 1.5l or lower) became
eligible for an excise tax rebate of up to THB100,000 (USD3,200) under a new program
launched in September 2011 that boosted car buying sentiment among the Thai middle
classes. The tax rebate was expected by the market to trigger a substantial increase in
demand, but sales fell sharply in Oct-Dec 2011 partly as a result of reduced output
following the floods, coming in at 123,000 units (down 50% y-y), in our view.

Fig. 65: Thai quarterly auto sales volume (lhs) and y-y growth (rhs)
Sales abnormally high in Apr–Jun 2012, but likely to remain strong
   ('000 units)
                                                                                     395
  400                                                                            352       150%
                                                                             350   352
                                                                 327 305 315   321
                                                               278 290 295 310
  300                                            244                                       100%
                                                    239 239
               180
                                182   200             193
  200        162 162                190                                                    50%
           154      160 154   135 167
         138          140   124                             123
                          108
  100                                                                                      0%


     0                                                                                     -50%
          2007 Q1
          2007 Q2
          2007 Q3
          2007 Q4
          2008 Q1
          2008 Q2
          2008 Q3
          2008 Q4
          2009 Q1
          2009 Q2
          2009 Q3
          2009 Q4
          2010 Q1
          2010 Q2
          2010 Q3
          2010 Q4
          2011 Q1
          2011 Q2
          2011 Q3
          2011 Q4
          2012 Q1
          2012 Q2
         2012 Q3E
         2012 Q4E
         2013 Q1E
         2013 Q2E
         2013 Q3E
         2013 Q4E
         2014 Q1E
         2014 Q2E
         2014 Q3E
         2014 Q4E




Source: NNA, Nomura estimates


Apr-Jun 2012 sales hit a record-high 327,000 units on normalized output and
rebate benefits
Production returned to normal for Japanese automakers from Jan-Mar 2012, with the
exception of Honda, whose Ayutthaya plant (annual production capacity: 240,000 units)
was damaged in the floods. Based on NNA data, Thai sales accordingly recovered to
278,000 units that quarter. In Apr-Jun, sales rose 69% y-y to a record-high of 327,000
units. This reflected not only the resumption of production by Honda in Thailand in late
March, but also a host of other factors, in our view, including (1) growth in demand amid
favorable economic conditions in Thailand, (2) a boost to demand from the first-time
buyer rebate scheme, (3) the working down of back orders that had piled up as a result
of supply shortages in the wake of the floods, and (4) post-flood reconstruction demand.
Sales abnormally high in Apr–Jun, but likely to remain at around 300,000 units in
Jul–Sep onward
Although we think sales were abnormally high in Apr-Jun 2012 due to the working down
of back orders and other one-time factors, we expect them to remain strong at around
300,000 units in Jul-Sep, Oct-Dec, and Jan-Mar 2013 as the range of low-priced
compact cars has broadened and the middle class, with rising income, are better placed
to purchase vehicles.
We project that auto sales in Thailand will rise 51% y-y to 1.2mn units in CY12F and a
further 6% to 1.27mn units in CY13F. First-time buyers that purchase a vehicle before




                                                                                                                 42
Nomura | Global autos                                                                            September 14, 2012


the end of 2012 will be eligible for the tax rebate even if the vehicle is not delivered until
2013. The scheme is therefore likely to provide a boost to sales in 2013 H1, too, we
expect, easing the impact of its expiry at end-2012. We also expect another tailwind for
CY13F in the form of increased production capacity by automakers, which we expect to
spur growth in sales of popular models for which supply had been restricted.
Little possibility of oversupply even after first-time buyer rebate scheme ends
Japanese automakers' market shares in Thailand fluctuated sharply between April 2011
and March 2012 owing, we believe, to the effects of the Japanese earthquake and Thai
floods; however, they have returned to normal levels since Apr–Jun 2012. The sales
environment is highly favorable for all the automakers at present, in our view, with orders
outstripping supply and extensive backlogs still to be worked through, based on data
from NNA. We expect the current excessive shortage of supply to be eliminated by Apr–
Jun 2013, but we think automakers' plant capacity utilization rates will remain high in
view of robust demand for compact cars and 1t pickup trucks for the export market. As
such, we look for the leading automakers to continue benefiting from favorable market
conditions.

Fig. 66: Share of Thailand auto sales (quarterly basis)


                      Toyota (incl. Hino)     Isuzu                      Honda
   50%                Nissan                  Mazda                      Mitsubishi

   40%

   30%

   20%

   10%

    0%     2012 Q3 QTD
                2006 Q1
                2006 Q2
                2006 Q3
                2006 Q4
                2007 Q1
                2007 Q2
                2007 Q3
                2007 Q4
                2008 Q1
                2008 Q2
                2008 Q3
                2008 Q4
                2009 Q1
                2009 Q2
                2009 Q3
                2009 Q4
                2010 Q1
                2010 Q2
                2010 Q3
                2010 Q4

                2011 Q2

                2011 Q4
                2012 Q1
                2012 Q2
               2011 Q1

               2011 Q3




Source: NNA data, Nomura research


Vehicle ownership in Thailand likely to increase sharply if economic growth
continues
Thailand's per-capita GDP amounted to USD5,394 in CY11 while vehicle ownership per
1,000 people stood at just 168 units in CY10, based on data from NNA. Within the auto
industry, motorization tends to start when per-capita GDP reaches USD3,000–USD5,000
and vehicle ownership then expands in step with economic development. We believe
that a continued robust expansion of the Thai economy would fuel strong growth in
automobile demand over the medium term.




                                                                                                                43
Nomura | Global autos                                                                             September 14, 2012


Fig. 67: Vehicle ownership per 1,000 people and per-capital GDP (US dollar basis)


 (No. of vehicles owned per 1,000 people)
 800                                                                     United States
 700
                                                                  United Kingdom
 600                                                                                Japan
 500
                                                                          Germany
 400
                          Malaysia                   Korea
 300         Mexico         Russia
 200      Thailand
                         Brazil
 100     Indonesia Turkey
               China
    0
      0 India     10,000                    20,000           30,000       40,000         50,000
                                             Per-capita GDP (USD)

Note: Data as of CY10
Source: Nomura, based on IMF, WARD’s data


Thailand now seen as the "Detroit of the East" thanks to benign labor relations
and concentration of suppliers
Automakers have moved to expand production capacity in Thailand likely in view of its
comparatively stable labor relations and concentration of suppliers. We look for
production capacity to grow from 1,425,000 units in CY06 to 2,640,000 units in CY12F.
We see production volume reaching 2.29mn units in CY12F, putting Thailand in the
world's top ten auto producers, behind only China, Japan, Korea and India in Asia and
ahead of France and Spain, and also reinforcing the country's moniker as the "Detroit of
the East".
Capacity ramp-ups led by Japanese automakers
Honda doubled annual capacity at its Ayutthaya plant from 120,000 to 240,000 units in
2008, while the Mazda-Ford joint venture AAT opened a new passenger car plant in
2009, increasing capacity by 100,000 to 275,000 units. Toyota expanded annual
capacity at its Ban Pho plant, which produces the Hilux and Fortuner models, from
120,000 to 220,000 units in 2011, lifting its total capacity in Thailand from 550,000 to
650,000 units. Toyota plans to build a second Gateway plant in 2013 that will increase
capacity at its Gateway plants by 70,000 units to 290,000, and to resume output at Thai
Auto Works (production scale: 20,000 units) for an overall expansion of capacity to
760,000 units, according to the company. Mitsubishi Motors opened a third plant with
capacity of 150,000 units in 2012 in parallel with the start of concentrated production of
its new Mirage compact car in Thailand. It plans further expansion in 2013, taking its total
annual capacity in Thailand to 500,000 units. Isuzu is due to increase its capacity from
250,000 to 400,000 units in fall 2012, according to the company. We expect Thailand to
become an increasingly important location for Japanese automakers both as a market
and as a production base for compact cars and pickup trucks.




                                                                                                                 44
Nomura | Global autos                                                                                                             September 14, 2012


Fig. 68: Major production capacity expansion plans (CY11–13)


                                                                        Remarks                                                   Annual capacity
 Company                    Date              Plant                     (Production capacity is annual basis)                          ('000 units)

 Toyota                  CY11 Sep             Ban Pho                   Capacity expanded by 100,000 units                               550→650

                         CY12 May             Gateway no. 1             Capacity expanded by 20,000 units                                650→670

                                                                        Restart of plant shuttered since late May 2010, with
                                Dec (plan)    Thai Auto Works                                                                            670→690
                                                                        capacity of 20,000 units
                                                                        Construction of no. 2 plant to raise capacity by 70,000
                         CY13 Jun (plan)      Gateway no. 2                                                                              690→760
                                                                        units
                                                                        First Thai plant built. Capacity of 10,000 units by Sep
 Suzuki                  CY12 Mar             Rayong                                                                                         0→25
                                                                        12, growing to 25,000 from Oct
                                                                        Expansion to 100,000 units planned for CY17,
                                                                        supported by eco-car project regulations

 Mitsubishi              CY11 Dec             Laemchabang nos 1, 2      Capacity expanded by 40,000 units                                200→240

                         CY12 Mar             Laemchabang no. 3         No. 3 plant built, capacity increased by 150,000 units           240→390

                                                                        OEM production of Nissan Navara started, capacity of
                                Apr           Laemchabang no. 1                                                                          390→450
                                                                        60,000 units
                                                                        Capacity to be expanded to 200,000 units at no. 3
                         CY13 Jun             Laemchabang no. 3                                                                          450→500
                                                                        plant that makes the Mirage
                                                                        Capacity for 1t pickup trucks expanded by 20,000
 AAT                     CY12 Apr             Rayong no. 1                                                                               275→295
                                                                        units

 (Mazda/Ford)                                                           Vehicle types are Mazda BT-50 and Ford Ranger

 Ford                    CY12 May             Rayong                    Ford-only plant producing the Focus                                 0→150

                                                                        OEM production for GM discontinued, capacity down
 Isuzu                   CY11 Aug             -                                                                                          300→250
                                                                        50,000 units
                                                                        Construction of no. 2 plant with capacity of 100,000
                         CY12 Sep (plan)      Gateway nos 1, 2          units; no. 1 plant capacity also to be raised by 50,000          250→400
                                                                        units

Source: Fourin, MarkLines and NNA data, company data, Nomura research




                                                                                                                                                 45
Nomura | Global autos                                                                                     September 14, 2012



Fig. 69: Thai production volume by automaker

 ('000 units)              Other                             Ford
 3,000                     GM                                Suzuki                                120%
                           Honda                             AAT                         2,660
                           Nissan                            Isuzu
 2,500                                                                        2,288                100%
                           Mitsubishi                        Toyota
                           Utilization (RHS)
 2,000                                                                                             80%
                                                          1,646
                                   1,394                            1,457
 1,500                  1,287                                                                      60%
             1,188
                                               999
 1,000                                                                                             40%

   500                                                                                             20%

      0                                                                                            0%
             CY06       CY07       CY08        CY09       CY10      CY11      CY12F     CY13F

Source: Fourin, MarkLines and NNA data, company data, Nomura estimates


Fig. 70: Thai production capacity by automaker


  ('000 units)     Other           Ford            GM              Suzuki
  3,000                                                                                          2,760
                   Honda           AAT             Nissan          Isuzu              2,640
  2,500            Mitsubishi      Toyota
                                                                           2,065
                                                              1,975
  2,000                                           1,815
                                      1,695
                           1,575
              1,425
  1,500

  1,000

    500

      0
              CY06         CY07       CY08        CY09        CY10         CY11    CY12F         CY13F

Source: Fourin, MarkLines and NNA data, company data, Nomura estimates




                                                                                                                         46
Nomura | Global autos                                                                                 September 14, 2012



Stock Picks
For our top global picks, we recommend Kia Motors, Honda Motor, and Astra
International. Apart from valuations, our recommendations pay particular attention to: 1)
the likelihood of growth in sales volume feeding through to profits based on product
competiveness and the market outlook over the next 6–12 months, and 2) the extent of
downside risks if the relatively high-risk European market were to contract more than we
expect.


Global preferred picks
Our three preferred global picks in the auto sector, in order of preference, are as
follows:

Fig. 71: Stocks for Action
 Company name                     Ticker         Rating      Current price    Target price   Upside
 Kia Motors                   000270 KS            Buy        KRW 72,600     KRW 100,000       38%
 Honda                          7267 JT            Buy          JPY 2,629       JPY 3,200      22%
 Astra International              ASII IJ          Buy          IDR 7,350       IDR 8,200      12%

Source: Nomura research, Pricing date is 12 September 2012


Kia Motors (000270 KS-Buy; TP: KRW100,000)
We expect Kia’s 2013F sales to grow 8% on new model launches and improving plant
productivity. Over the next 12 months, Kia plans to introduce four fully revamped models
and three face-lifted models globally, of which we are most positive about the upcoming
launch of K3. This is the company's largest-selling model, accounting for 18% of Kia’s
global sales and 32% of its Chinese sales. The K3 shares a common platform with the
Hyundai Elantra, which has already proved to be a hit in the US and China and, with the
K3’s impressive design, we think it should likely contribute to volume growth and
enhance Kia’s brand image. We expect the improved productivity and extra working
hours at Kia’s overseas plants to lead to 7%-plus growth in production, despite the
current global utilisation of 108%. We also forecast margins to continue to expand on
stabilised incentive spending and platform integration. We expect Kia to maintain strong
sales momentum in the US, Europe and emerging markets. Kia’s US inventory level at
end-August was around half the industry average, and with incentives also low, we
would expect it to have relatively good staying power even if markets were to deteriorate.
The company's retail sales in Europe have also remained firm despite ongoing market
contraction: Kia’s YTD August unit sales rose 24% vs. European auto demand
contracting 6%.
Honda Motor (7267 JP-Buy, TP: JPY3,200)
In light of current challenging market conditions, we take a positive view of Honda’s low
sales exposure to Europe and a correspondingly higher exposure to the buoyant US and
Southeast Asian markets. Despite the tough market environment in Japan, the company
has expanded its share of the mini-vehicle market with the N Box, a major hit, and we
look for this to partially offset a decline after the end of eco-car subsidies. In September,
the company launched the next generation Accord, its best-selling model in the US. It is
a major source of earnings, and we expect margins to improve as the company cuts
back on dealer incentives, following the launch. In motorcycles, the company has been
expanding its market share in India and Indonesia, and over the medium term, we look
for emerging markets to grow. We think the Fit/Jazz compact car will undergo a model
change in 14/3, and we expect the new model and its SUV and sedan derivatives to see
major improvements, including hybrid versions. We expect sales volumes of the Fit and
Fit-based compact cars to grow by 250,000 units per year in each of 14/3 and 15/3. We
also look for earnings improvement stemming from a large increase in the local
procurement ratio overseas following model changes in the Fit series. In North America,
the company expects to start production in Mexico in 2014, which should help boost
market share, in our view.




                                                                                                                     47
Nomura | Global autos                                                                                                                           September 14, 2012


Astra International (ASII IJ,-Buy, TP: IDR8,200)
Astra generates around two-thirds of its profit from automotive and related businesses. It
has a strong distribution network, solid execution and dominant market position with a
56% market share in cars and 57% market share in motorcycles in Indonesia in 1H12,
based on data from Gaikindo and AISI. Many automakers based in China, India and
Indonesia generate the bulk of their sales and profits in their home markets, leaving them
susceptible to changes in conditions in these markets. In the Indonesian market, which is
likely to remain strong, Astra International has joint ventures with leading companies
such as Toyota Motor and Daihatsu Motor in autos and with Honda Motor and other
manufacturers in motorcycles. While competition has heated up in the Indonesian
market, we expect Astra International to benefit from the growth of Indonesia’s
automobile market over the short- and medium-term as motorisation takes hold in
earnest. We also anticipate an improvement in its motorcycle business with Honda
Motor. The Indonesian motorcycle market contracted temporarily due to the
implementation of new regulations for downpayments in June. However, we look for the
Indonesian motorcycle market to bottom in September and head towards a recovery,
eventually underpinning earnings growth over the medium term.

Fig. 72: Share price performance (US dollar basis)
                       3M USD Adjusted Returns (%)                             6M USD Adjusted Returns (%)                         12M USD Adjusted Returns (%)
                Fiat                                 33       Great Wall                                 20         Great Wall                                 76
          Renault                                 20     Hyundai Motor                                 9      Fuji Heavy Inds                               48
     Volkswagen                                  19                 M&M                              4                Renault                               48
             Volvo                               19     Fuji Heavy Inds                              4           Tata Motors                                46
          Daimler                              15            Kia Motors                            1                     Volvo                           31
        Great Wall                             15                     Fiat                       1               Volkswagen                              30
       TVS Motor                               14                Toyota                          2                         Hino                          30
              M&M                            10            Volkswagen                            2                         MAN                          27
        Bajaj Auto                           10                      Hino                       3                  Geely Auto                           25
  Fuji Heavy Inds                          8                       Volvo                        4                         Isuzu                         24
           Scania                          7                     Nissan                       7                        Scania                          23
    Maruti Suzuki                          7                     Scania                       8                        Toyota                          20
           Toyota                          7                    Renault                     10                              Fiat                      18
          Porsche                         5             General Motors                      10                        Daimler                        15
  General Motors                         5                       Honda                     12                          Honda                         14
           Honda                         4                          Isuzu                  13                          Nissan                        14
          Sinotruk                       4                    Bajaj Auto                   13                  Hyundai Motor                         13
     Tata Motors                         4                     Daihatsu                   14                              BMW                       9
              BMW                       3                      Brilliance                 15                  General Motors                       6
               Hino                     2                       Porsche                   15                          Porsche                      4
   Hyundai Motor                       2                 Hero Motocorp                   16                                BYD                    3
               BYD                     2                        Sinotruk                 17                        Kia Motors                     1
  Yamaha Motors                        1                            BMW                 18                                 Ford                   1
           Nissan                    0                    Maruti Suzuki                 18                           Daihatsu                   2
         Brilliance                 1                           Daimler                 18                      Maruti Suzuki                  3
         Daihatsu                  2                                 Ford               19                             Suzuki                  5
               Ford                3                                 MAN               20                           Bajaj Auto                7
           Mazda                   3                       Tata Motors                 20                             Sinotruk                8
       Kia Motors                  3                                SAIC               21                            Brilliance               9
              Isuzu              6                           TVS Motor                23                                  SAIC             15
               MAN             9                                 Suzuki               23                                  M&M              17
   Hero Motocorp               9                             Geely Auto               24                            Dongfeng               17
       Geely Auto              9                                 Mazda               26                        Weichai Power              22
   Weichai Power              10                         Weichai Power              27                        Yamaha Motors              28
           Suzuki             10                              Dongf eng            29                          Ashok Leyland            29
              SAIC         14                                        BYD          32                           Hero Motocorp            31
      Peugeot SA           15                           Yamaha Motors             33                                       GAC          31
               GAC      21                               Ashok Leyland           34                                    Mazda           36
   Ashok Leyland       23                                            GAC       40                                  TVS Motor         46
        Dongf eng      24                                   Peugeot SA       46                                   Peugeot SA       59
     MSCI World                              11            MSCI World                              2             MSCI World                           16
         Average                       1                       Average                    15                         Average                      4

Source: Bloomberg, Nomura research, priced as on 11 September 2012




                                                                                                                                                                    48
Nomura | Global autos                                                                             September 14, 2012


Regional Top Picks

Fig. 73: Our regional top picks
 Region       Company name            Ticker    Rating   Current price    Target price   Upside
 Japan        Honda                 7267 JT       Buy       JPY 2,629       JPY 3,200      22%
 Korea        Kia Motors          000270 KS       Buy     KRW 72,600     KRW 100,000       38%
 China        Dongfeng Motor         489 HK       Buy       HKD 10.12       HKD 15.80      56%
 India        Mahindra & Mahindra     MM IN       Buy      INR 762.95      INR 934.00      22%
 Indonesia    Astra International     ASII IJ     Buy        IDR 7,350       IDR 8,200     12%
Source: Bloomberg, Nomura research




                                                                                                                 49
Nomura | Global autos                                                                          September 14, 2012



Kia Motors (000270 KS-Buy;
TP: KRW100,000)
Strong growth momentum to continue into 2013F
We estimate Kia’s 2013 global retail sales growth at 7% on the back of rising plant
productivity in the Korean and overseas plants. Over the next 12 months, Kia plans to
introduce four fully revamped models and three face-lifted models globally, which we
think will likely result in the company’s low global inventory and help maintain over-100%
plant utilization. Our revenue growth assumption for 2012/13F is more bullish than
consensus at 18%/9%, vs. consensus 13%7%, as we believe new model launches in
2H12/2013F should continue to drive Kia's volume momentum and lead to faster
improvement in ASP.


K3 to drive volume momentum in 2013F
We expect Kia’s volume momentum to continue into 2013, given the launch of the K3
(now Forte) model. Forte is Kia’s largest volume model globally, representing 18%/32%
of Kia’s global/China sales, and the company targets to sell 450k units in 2013F, +35-
40% y-y. In particular, Kia’s China target is 120k, +25-30% higher than 2012F sales.
Given K3 is the largest volume model for Kia in China, we think the success of K3 is key
to protecting against any downside risk to Chinese margin for 2013F. We are positive on
the outlook, as K2 has paved the way for the Kia brand. YTD K2 sales grew 2.6 times,
placing the model among the top 3 best-selling subcompact cars in China and
representing 6.3% of market share in the B-segment.


2013 margin to remain firm although 3Q12 margin is likely to
slow
Our margin assumptions have been ahead of consensus in the past few quarters, and
we expect Kia’s 2013F margins to continue to expand on improving brand perception
and platform integration. Factoring in a potential labour disruption, we forecast the 3Q
OPM to fall to below a 9% level, but expect 4Q margin to recover to close to 10% on
strong seasonality and the launch of the K3 model. We estimate 2013 earnings will
improve 11%, as we expect global production to grow +7% y-y and the company
continues to increase the platform integration ratio to 90% by end-2013F, from 74% as of
2Q12.

Fig. 74: Kia: Global retail sales trend
  ('000 units)
                          KR      China     US     Canada      W.Europe     ROW
  3,000

  2,500

  2,000

  1,500

  1,000

    500

       0
            2004      2005     2006      2007    2008   2009    2010      2011   2012F 2013F

Source: Company data, Nomura estimates




                                                                                                              50
Nomura | Global autos                                                                                   September 14, 2012


Fig. 75: Kia: Global sales volume breakdown by model


                                 Others                              Pride/K2
                                  16%                                  18%

                          Soul
                           7%

                                                                              Sportage
                       Sorento                                                  14%
                         9%



                        Morning/Ray                                     K5
                           11%                                         13%
                                           Forte
                                           12%
Note: August 2012 YTD
Source: Company data


Fig. 76: Kia: OP/OPM trend

   (KRWbn)                                OP (LHS)             OPM (RHS)
   6,000                                                                                          12%

   5,000                                                                                          10%

   4,000                                                                                          8%

   3,000                                                                                          6%

   2,000                                                                                          4%

   1,000                                                                                          2%

        0                                                                                         0%

  -1,000                                                                                          -2%
             2004       2005     2006     2007     2008      2009   2010   2011 2012F 2013F

Source: Company data, Nomura estimates


Fig. 77: Kia: New model launch schedule

                1H12                     2H12                   2013                2014
 Kia            K9                       Sorento face-lift      YP (new Carnival)   New K7
                                         K3                     Soul                New Sorento
                                         K7 face-lift           Carens
                                                                K5 facelift
                                                                Sportage facelift
Source: Company data




                                                                                                                       51
Nomura | Global autos                                                                         September 14, 2012



Honda Motor (7267-Buy; TP: JPY3,200)
Operating margin rebounded to 7.2% in 13/3 Q1 as output
returned to normal
Operating profits rose 7.8-fold y-y to ¥176.0bn in 13/3 Q1 as the impact of natural
disasters faded and output returned to normal. The operating margin also rebounded
sharply, to 7.2%. Underlying earnings were even higher, given that (1) costs in North
America were swelled by higher incentive costs for the mainstay Accord, which is about
to be revamped, and heavy advertising costs for the Acura and other new releases and
(2) production costs in Southeast Asia, where output rose, were higher than normal as
Honda flew in parts from Japan in order to get production up and running as quickly as
possible.


Earnings likely to benefit from Q3 from release of new Accord
and return to normal production costs in ASEAN
Although profits could fall somewhat in Q2 because of startup costs for the new Accord
in the US and a fall in the number of operating days at plants, we think earnings will keep
on rising substantially from Q3 as the new version of the Accord makes a full-scale
contribution and production costs return to normal in Southeast Asia. With a new
minivehicle scheduled for release in the fall, we envision only a limited decline in
Japanese sales momentum at Honda despite the expiry of eco-car subsidies in early
September.
Whereas some observers are concerned about whether Honda will retain its
technological edge and remain cost competitive, we think that perceptions could well
change over the medium term, as (1) the company's technological edge, including in
hybrid vehicles, results in higher sales volumes for the Fit/Jazz and other compact cars
derived from it, thereby driving profit growth, and (2) variable costs improve markedly on
cost savings generated by increased local sourcing of parts and materials.


Accord incentives should decline due to full model change
from September 2012
Honda launched the new Accord, which is fitted with a next-generation powertrain
technology called Earth Dreams, in September 2012. Although the new model will
feature a direct-injection engine system and CVT, the company has targeted both strong
product appeal and low cost, achieving the same top class fuel efficiency as the GM
Chevy Malibu Eco and Ford Fusion without using the turbochargers or mild hybrids they
feature, which are too costly for mass-produced models.
In the midsize sedan segment, in addition to Honda, many other carmakers including
Nissan Motor, Mazda Motor, GM, and Ford are due to make full model changes in 2012,
and we expect competition for market share to intensify. Gaining market share will not be
easy for any manufacturer. However, we expect selling costs to decline, because (1) like
the Toyota Camry, the Honda Accord has considerable brand strength and a substantial
sales volume track record, and as such we anticipate a certain amount of replacement
demand, and (2) the new model will be more appealing than current models owing to the
introduction of a new powertrain and improved fuel efficiency. Following the launch of the
new model, the currently extremely high per-vehicle incentive of USD3,500-USD4,000
(Autodata estimate) will be more than halved, reducing the all-company average by
around USD400.




                                                                                                             52
Nomura | Global autos                                                                                                                                                                                                                                    September 14, 2012


Fig. 78: Model-wise incentives (per vehicle) in the US
The incentive for the Accord is high, atUSD$3,500-USD4,000, but is slated to fall from September 2012, coinciding with a model redesign
   (USD)
                                                          Accord                                        Civic                                        CR-V                                     Odyssey                                          Pilot
   4,500

   4,000

   3,500

   3,000

   2,500

   2,000

   1,500

   1,000

     500

         0
             Jan-08




                                                 Sep-08
                                                          Nov-08
                                                                   Jan-09




                                                                                                       Sep-09
                                                                                                                 Nov-09
                                                                                                                          Jan-10




                                                                                                                                                              Sep-10
                                                                                                                                                                       Nov-10
                                                                                                                                                                                Jan-11




                                                                                                                                                                                                                    Sep-11
                                                                                                                                                                                                                             Nov-11
                                                                                                                                                                                                                                      Jan-12
                                        Jul-08




                                                                                              Jul-09




                                                                                                                                                     Jul-10




                                                                                                                                                                                                           Jul-11




                                                                                                                                                                                                                                                                 Jul-12
                      Mar-08
                               May-08




                                                                            Mar-09
                                                                                     May-09




                                                                                                                                   Mar-10
                                                                                                                                            May-10




                                                                                                                                                                                         Mar-11
                                                                                                                                                                                                  May-11




                                                                                                                                                                                                                                               Mar-12
                                                                                                                                                                                                                                                        May-12
Source: Autodata data, Nomura research


Fig. 79: Monthly sales (rhs) and individual market shares (lhs) in the overall Indian motorcycle market
Honda poised for further growth in market share following launch of Dream Yuga
   (%)                                           Total 2-Wheelers                                               Bajaj                                Hero                                TVS                                 Honda                               ('000 units)
   60                                                                                                                                                                                                                                                                  1,500


   50                                                                                                                                                                                                                                                                     1,250


   40                                                                                                                                                                                                                                                                     1,000


   30                                                                                                                                                                                                                                                                     750


   20                                                                                                                                                                                                                                                                     500


   10                                                                                                                                                                                                                                                                     250


     0                                                                                                                                                                                                                                                                    0
         Jan-06



          Jul-06
         Sep-06
         Nov-06
         Jan-07



          Jul-07
         Sep-07
         Nov-07
         Jan-08



          Jul-08
         Sep-08
         Nov-08
         Jan-09



          Jul-09
         Sep-09
         Nov-09
         Jan-10



          Jul-10
         Sep-10
         Nov-10
         Jan-11



          Jul-11
         Sep-11
         Nov-11
         Jan-12



          Jul-12
         May-06




         May-07




         May-08




         May-09




         May-10




         May-11




         May-12
         Mar-06




         Mar-07




         Mar-08




         Mar-09




         Mar-10




         Mar-11




         Mar-12




Source: Society of Indian Automobile Manufacturers data, Nomura research




                                                                                                                                                                                                                                                                                  53
Nomura | Global autos                                                                        September 14, 2012



Astra International (ASII IJ-Buy;
TP: IDR8,200)
We like Astra International for its long-term growth potential and its strong market
leadership in Indonesia’s automotive market. It dominates both the car and motorcycle
market and has a strong relationship with its principals such as Toyota, Daihatsu, Honda
Motorcycle and more. Although it is seen as a diversified group, about two-thirds of its
earnings still comes from automotive and related sectors (automotive financing and
insurance). We believe Astra should capture the largest portion of the fast-growing
domestic pie despite rising competition.
Although we expect sales volume to bottom in coming months, the experience from 2006
and 2009 showed that Astra’s share price bottomed out ahead of a volume recovery. In
the long run, we expect Astra’s car sales to be 45% higher in 2014F vs. 2011 on the
back of the introduction of ultra-low-cost cars, rising affordability and a growing middle
class in Indonesia.
Regulatory and competition risks are well flagged as the loan-to-value (LTV) regulation
has taken effect and slowed motorcycle sales (minimum impact on car sales so far – a
positive surprise to us). We believe the impact of LTV regulation on sales volume should
be temporary. In the longer run, LTV regulation should provide a healthy base for growth
as it improves loan book quality, in our view.
Our target price of IDR8,200 is based on a target P/E of 15x our FY13F EPS of IDR543,
which implies a P/B of 4.2x and is in line with our forward NAV per share estimate of
IDR8,180. We believe the market has discounted slower earnings growth and soon will
look to 2013 and 2014 for a better growth profile as the underlying market demand for
car and motorcycle sales remains strong.

Fig. 80: Earnings breakdown of Astra International (1H12)

                                         Others
                                          3.9%        2-wheelers
                          Agribusiness                  14.7%
                             7.9%

                     Heavy
                   equipments
                     19.3%



                                                               4-wheelers
                                                                 30.5%


                            Financial
                            services         Auto components
                             18.6%                 5.2%

Source: Company info




                                                                                                            54
Nomura | Global autos                                                                                                        September 14, 2012



Dongfeng Motor (489 HK-Buy;
TP: HKD15.80)
We expect Dongfeng’s 2012F unit sales growth to outpace that of the overall passenger-
car industry. We believe Dongfeng’s high utilisation rate helps the company maintain its
margins, while new models to help sales growth in 2013F. Thus, we think that recent
multiple contractions appear to be overdone. Donfeng’s forward P/E is around 5.2x,
down from as high as 18.0x in late 2010 to early 2011. We believe the current valuation
is unjustified given Dongfeng’s strong line-up of brands (eg, Dongfeng Nissan and
Dongfeng Honda) and full suite of vehicles.
Dongfeng has been among the top automakers in China, especially with Nissan and
Honda JVs and the CV business. With its scale and diversified car segments, we
estimate revenue growth of 18.8% in 2013F.

Fig. 81: 2011 turnover breakdown                                         Fig. 82: 2011 PV sales volume by brand
PV-related sales were 73% of total 2011 sales                            Dongfeng Nissan and Honda make up 74% of total sales volume
                                     PV Engine &
                                      other parts   Other                                                                 Dongfeng
                     SUV
                                        8.8%        0.8%                                                                    PSA
                    16.4%                                   Heavy duty                                                     24.5%
                                                              trucks
                                                              10.4%
          MPV                                              Medium
          6.1%                                              trucks
                                                            1.7%
                                                        Light trucks
                                                           3.8%               Dongfeng                                          Dongfeng
                                                                               Nissan                                            Honda
                                                       Buses                   58.4%                                             15.5%
                                                       6.8%
            Sedan
            40.9%
                                                     CV Engine &
                                                                                                                       Self owned
                                                      other parts
                                                                                                                         brand
                                                        4.3%
                                                                                                                          1.6%

Source: Company data                                                     Source: Company data


Dongfeng has a high capacity utilisation rate of near 100%, with Dongfeng Honda over
120% and Nissan around 100%. Dongfeng was able to maintain its gross margin just
over 19% amid difficult 1H12 inventory conditions in China. However, the company
recorded lower operating and net profit margins in 1H12, due to increasing promotional
expenses and a weaker-than-expected CV business. We believe the second half of 2012
will be similar to 1H12, but upside to PV sales should come from new models at Nissan,
in our view.
Our target price of HKD15.80 implies a 2013F P/E of 9.0x and P/B of 1.65x. The shares
are currently trading at around 5.2x P/E and 1.0x P/B for 2013F. We believe Dongfeng
will record an earnings decline in 2012F and recover to 22.3% y-y growth for 2013F.
We use a blended forward P/E and P/B to derive our target price. Forward P/E captures
earnings growth while P/B captures strength of the company’s return to shareholders.
The shares are trading at trough valuation. In the last three years, Dongfeng has traded
in the range of 6-18x forward P/E.




                                                                                                                                            55
Nomura | Global autos                                                                            September 14, 2012


Fig. 83: Dongfeng – 2013F Sales and margins expected to improve

 (CNYmn)                                             2011          2012E      % diff    2013F              % diff


 Unit sales ('000)                                    526            472     -10.3%       494               4.6%
 ASP (CNY)                                         56,637          50,984    -10.0%     53,800              5.5%
 Commercial vehicle sales                          29,809          24,058    -19.3%     26,563             10.4%


 Unit sales ('000)                                  1,646           1,879     14.1%      2,244             19.4%
 ASP (CNY)                                         50,673          49,132     -3.0%     50,143              2.1%
 Passenger vehicle sales                           83,428          92,330    10.7%     112,523             21.9%


 Unit sales ('000)                                  2,173           2,351      8.2%      2,738             16.4%
 ASP (CNY)                                         52,118          49,504     -5.0%     50,802              2.6%
 Vehicle sales                                    113,237         116,388      2.8%    139,087             19.5%


 Engine and parts                                  17,204          17,654      2.6%     20,230             14.6%


 Corporate and others                               1,047           1,204    15.0%       1,385             15.0%


 Total Revenues                                   131,488         135,246      2.9%    160,702             18.8%


 Gross profit                                      26,437          26,339     -0.4%     31,108             18.1%
 GP margin                                         20.1%           19.5%    -0.6%-pt    19.4%            -0.1%-pt


 Operating profit                                  11,578          10,719     -7.4%     13,383             24.8%
 OP margin                                           8.8%           7.9%    -0.9%-pt     8.3%            0.4%-pt


 Other income                                       1,799           1,880      4.5%      2,137             13.7%


 Net profit                                        10,528           9,972     -5.3%     12,196             22.3%
 NP margin                                           8.0%           7.4%    -0.6%-pt     7.6%            0.2%-pt
Source: Company data, Nomura estimates




                                                                                                                56
Nomura | Global autos                                                                     September 14, 2012



Mahindra & Mahindra (MM IN-Buy;
TP: INR964)
Strong long-term story at attractive valuations
Automotive – Strong volume growth across segments
Despite a slowdown in industry volumes, FYTD13 volumes in M&M's auto segment have
increased by 22% y-y driven by strong growth in both UVs (up 34% y-y) and LCVs (up
22% y-y). Growth in the UV segment has been driven by 1) the launch of XUV500 – the
model has a waiting period of 4-5 months; 2) a shift in consumer preferences (UVs now
account for 26% of domestic passenger vehicle segment volumes from 13% in FY11;
and 3) the regulated diesel price as most SUVs run on diesel. MM has announced it will
launch a smaller Verito and a new compact SUV over the next 3-6 months which we
think should lead to continued growth in the segment. We expect 21% volume growth in
UVs in FY13F and around 4% growth in LCVs/pick-ups.
Expect improvement in tractor volumes from Jan 13
We believe that tractor volume growth will remain weak (down by ~25% y-y) over Sep-
Oct 12 due to the high base effect of last year. We expect tractor volume growth to
improve from Jan-13 onwards. The impact of a potential drought in FY13F should be
mitigated by high food prices. We expect a 5% decline in tractor volumes in FY13F. Even
if volumes decline by 10%, we estimate such a decrease would impact core EPS
estimates by only 2-3%.
Steady margins in farm equipment segment reflect pricing power
Despite weak tractor volume and a rise in the excise duty in Mar 12, M&M has been able
to maintain margins in the farm equipment segment, indicating its pricing power and
effective cost control. We expect standalone EBITDA margins of 11.2% in FY13F for the
company as we build in some dip in margins from 1QFY13 levels (11.8%) due to an
expected decline in tractor volumes.
Key likely beneficiary of potential increase in fiscal stimulus in FY14F
General elections are scheduled in India around May 2014. In FY14, there could be a
sharp rebound in agri GDP (6% to 7% growth is possible, as per Nomura India
Economics team), driven by election-year spending. We note that government increased
rural spending in FY09 prior to elections that year. M&M would be big beneficiary from
any fiscal stimulus to the rural economy in FY14, in our view.
Limited impact expected from new launches in the UV segment
We do not see any significant negative impact ahead for M&M's existing UVs from
potential upcoming new launches in the SUV space from models such as Ford EcoSport,
Chevrolet MPV, Nissan Evalia and Renault Duster. Similar to what happened with the
Maruti Ertiga, we believe a launch of these models may create a new segment
altogether, taking away some market share from cars, rather than competing with
existing M&M line with engine sizes of more than 2L.
Valuation appears attractive at current levels
MM's core business is trading at around 9x our FY14F EPS (M&M + MVML) of INR61.2,
well below historical average of 12x. We believe that valuations should improve, as we
expect tractor demand should pick up from Jan-13 onwards. Reiterate our BUY rating
with a PT of INR934.




                                                                                                         57
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                                       58
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                                       59
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                                       60
Nomura | Global autos                                                                                                          September 14, 2012



Appendix A-1
Analyst Certification
We, Masataka Kunugimoto, Anindya Das, Daisuke Kuroda, Angela Hong, Sangmyeong Kim, Steve Man, Michelle Lo, Kapil
Singh, Nishit Jalan and Wilianto Ie, hereby certify (1) that the views expressed in this Research report accurately reflect our
personal views about any or all of the subject securities or issuers referred to in this Research report, (2) no part of our
compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this
Research report and (3) no part of our compensation is tied to any specific investment banking transactions performed by
Nomura Securities International, Inc., Nomura International plc or any other Nomura Group company.


Issuer Specific Regulatory Disclosures
The term "Nomura Group Company" used herein refers to Nomura Holdings, Inc. or any affiliate or subsidiary of Nomura Holdings, Inc. Nomura
Group Companies involved in the production of Research are detailed in the disclaimer below.



Issuer name                       Ticker                   Price          Price date    Stock rating   Sector rating   Disclosures
Kia Motors                        000270 KS                KRW 73,400     13-Sep-2012   Buy            Not rated       A10,K9
Dongfeng Motor                    489 HK                   HKD 9.89       13-Sep-2012   Buy            Not rated
Honda Motor                       7267 JP                  JPY 2,622      13-Sep-2012   Buy            Bullish         A6,A9,A11
Astra International               ASII IJ                  IDR 7,300      13-Sep-2012   Buy            Not rated
Bajaj Auto                        BJAUT IN                 INR 1714       13-Sep-2012   Buy            Not rated
Ford Motor Company                F US                     USD 10.21      12-Sep-2012   Not rated                      A4,A6,A9
General Motors                    GM US                    USD 23.13      12-Sep-2012   Not rated      Not rated
Mahindra and Mahindra             MM IN                    INR 755        13-Sep-2012   Buy            Not rated


A4   A Nomura Group Company had an investment banking services client relationship with the issuer during the past 12 months.
A6   A Nomura Group Company expects to receive or intends to seek compensation for investment banking services from the issuer in the next
     three months.
A9   Nomura Securities International Inc. makes a market in securities of the issuer.
A10 A Nomura Group Company is a registered market maker in the securities / related derivatives of the issuer.
A11 A Nomura Group Company holds 1% or more of any class of common equity securities of the issuer.
K9   Nomura Financial Investment (Korea) Co., Ltd. is a liquidity provider (LP) or LP & issuer for ELW which the underlying is KIA Motors
     (000270.KS), and holds 90,474,190 warrants as of 13-Sep-2012.

Previous Rating

Issuer name                                                                         Previous Rating                Date of change
Kia Motors                                                                          Neutral                        06-Jul-2009
Dongfeng Motor                                                                      Not Rated                      15-Jun-2012
Honda Motor                                                                         Neutral                        19-Jun-2012
Astra International                                                                 Neutral                        13-Jun-2012
Bajaj Auto                                                                          Neutral                        10-May-2012
Ford Motor Company
General Motors
Mahindra and Mahindra                                                               Not Rated                      27-Mar-2009




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Distribution of ratings (US)
The distribution of all ratings published by Nomura US Equity Research is as follows:
43% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; 21% of companies with this
rating are investment banking clients of the Nomura Group*.
51% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; 9% of companies with this
rating are investment banking clients of the Nomura Group*.
6% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; 0% of companies with this
rating are investment banking clients of the Nomura Group*.
As at 30 June 2012. *The Nomura Group as defined in the Disclaimer section at the end of this report.


Distribution of ratings (Global)
The distribution of all ratings published by Nomura Global Equity Research is as follows:
46% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; 40% of companies with this
rating are investment banking clients of the Nomura Group*.
43% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; 46% of companies with
this rating are investment banking clients of the Nomura Group*.
11% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; 21% of companies with
this rating are investment banking clients of the Nomura Group*.
As at 30 June 2012. *The Nomura Group as defined in the Disclaimer section at the end of this report.

Explanation of Nomura's equity research rating system in Europe, Middle East and Africa, US and Latin America
The rating system is a relative system indicating expected performance against a specific benchmark identified for each individual stock.
Analysts may also indicate absolute upside to target price defined as (fair value - current price)/current price, subject to limited management
discretion. In most cases, the fair value will equal the analyst's assessment of the current intrinsic fair value of the stock using an appropriate
valuation methodology such as discounted cash flow or multiple analysis, etc.

STOCKS
A rating of 'Buy', indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of 'Neutral',
indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of 'Reduce', indicates that
the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of 'Suspended', indicates that the rating, target
price and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances
including, but not limited to, when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the company.
Benchmarks are as follows: United States/Europe: please see valuation methodologies for explanations of relevant benchmarks for stocks,
which can be accessed at: http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx; Global Emerging
Markets (ex-Asia): MSCI Emerging Markets ex-Asia, unless otherwise stated in the valuation methodology.

SECTORS
A 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next 12 months. A 'Neutral' stance,
indicates that the analyst expects the sector to perform in line with the Benchmark during the next 12 months. A 'Bearish' stance, indicates that
the analyst expects the sector to underperform the Benchmark during the next 12 months.
Benchmarks are as follows: United States: S&P 500; Europe: Dow Jones STOXX 600; Global Emerging Markets (ex-Asia): MSCI Emerging
Markets ex-Asia.

Explanation of Nomura's equity research rating system in Japan and Asia ex-Japan
STOCKS
Stock recommendations are based on absolute valuation upside (downside), which is defined as (Target Price - Current Price) / Current Price,
subject to limited management discretion. In most cases, the Target Price will equal the analyst's 12-month intrinsic valuation of the stock,
based on an appropriate valuation methodology such as discounted cash flow, multiple analysis, etc.
A 'Buy' recommendation indicates that potential upside is 15% or more. A 'Neutral' recommendation indicates that potential upside is less than
15% or downside is less than 5%. A 'Reduce' recommendation indicates that potential downside is 5% or more. A rating of 'Suspended'
indicates that the rating and target price have been suspended temporarily to comply with applicable regulations and/or firm policies in certain
circumstances including when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the subject company.




                                                                                                                                                      62
Nomura | Global autos                                                                                                           September 14, 2012


Securities and/or companies that are labelled as 'Not rated' or shown as 'No rating' are not in regular research coverage of the Nomura entity
identified in the top banner. Investors should not expect continuing or additional information from Nomura relating to such securities and/or
companies.

SECTORS
A 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive
absolute recommendation. A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation of the stocks
under coverage is) a neutral absolute recommendation. A 'Bearish' rating means most stocks in the sector have (or the weighted average
recommendation of the stocks under coverage is) a negative absolute recommendation.


Target Price
A Target Price, if discussed, reflect in part the analyst's estimates for the company's earnings. The achievement of any target price may be
impeded by general market and macroeconomic trends, and by other risks related to the company or the market, and may not occur if the
company's earnings differ from estimates.




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Nomura | Global autos                                                                                                                                    September 14, 2012


Disclaimers
This document contains material that has been prepared by the Nomura entity identified at the top or bottom of page 1 herein, if any, and/or, with the sole or joint
contributions of one or more Nomura entities whose employees and their respective affiliations are specified on page 1 herein or identified elsewhere in the
document. Affiliates and subsidiaries of Nomura Holdings, Inc. (collectively, the 'Nomura Group'), include: Nomura Securities Co., Ltd. ('NSC') Tokyo, Japan;
Nomura International plc ('NIplc'), UK; Nomura Securities International, Inc. ('NSI'), New York, US; Nomura International (Hong Kong) Ltd. (‘NIHK’), Hong Kong;
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