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Changing Landscape in Automobile Market Induced by Global Economic Turmoil

Intensifying global economic turmoil is threatening automobile manufacturers and
part suppliers with worsening performance.
-A re-run of the 2008 financial crisis is looming, driven by concerns for potential double dip
in the US economy after its credit rating was downgraded by S&P last August and budget
crisis in PIIGS countries likely to spread into the Eastern Europe.
-Falling asset prices in bearish stock markets and rising oil prices may result in a shift in
consumer behaviors to delay new car purchases or turn to low-priced compact cars.
-Automotive part suppliers also face risks of shrinking orders and pressure from carmakers
to lower costs, but leading Korean part suppliers which are operating in foreign markets or
have exported directly to such markets have some opportunities.

Shift in Automobile Market Trend to Low-priced Compact Cars since 2008 Global
Financial Crisis
-Automobile manufacturers face the challenge of reinforcing product lineups to respond to
fuel regulations in countries around the world, and accordingly, by 2020, affordable small
car market will gain more momentum than eco-friendly vehicles with lower marketability.
-Motorization driven by low-priced small cars is particularly accelerating in emerging
markets where the ratio of automobile penetration to population is still low and income
level is rising.
-Given the forecast that automobile demand may not grow significantly in 2012 from the
immediate post-crisis period in 2008,  aggressive moves of US and Japanese carmakers
and Volkswagen are likely to fuel fierce competition in the market.

Impacts and Outlook for Korean Automobile Manufacturers

Enhancing Competitiveness of Local Carmakers
-Hyundai Kia Motors is likely to shield itself against non-systematic risks in case of
economic downturn by increasing local production in advanced and emerging markets
in a more balanced manner than its competitors of the big three US and Japanese carmakers.
-Local production, platform integration, compact car-focused line-up expansion, and
strategic model launch by region will boost its price competitiveness and help the carmaker
 to benefit from increased liquidity in the global market, contributing to maintaining sound profitability.
-Specifically, the Korean automobile manufacturer may benefit in terms of protecting profitability
by improving quality and brand competitiveness of its high-volume models and resulting reduction
of marketing and incentive costs.

Impacts and Outlook for Korean Automotive Part Suppliers

Opportunities and Threats for Korean Automotive Part Suppliers
-Sluggish sales of automobile manufacturers are highly likely to trigger pressure on
suppliers to lower prices, while shrinking orders may further dampen their profitability
with production line operation ratio going down.
-Although global economic downturn may pose a threat to suppliers owing to weak demand
for hybrid and electric vehicles, they are forecast to record steady growth in the long term.
-Part suppliers having advanced into foreign markets along with automobile manufacturers
are highly likely to enjoy  strong revenue growth with rising OEM exports to the big three US
carmakers and Volkswagen, benefiting from the fact that their Japanese competitors suffer
delay in turning production facilities back to normal operation.
-Local part suppliers will also benefit from FTAs whose conclusion has the effect of
immediately eliminating tariff on part exports.

Implications

-In 2012, Hyundai Kia Motors is forecast to maintain current level of performance based
on enhanced competitiveness, and may need credit expansion depending on their plans
for additional facility investment including construction of a production facility overseas
currently underway.
-Such business opportunities can be found particularly in Hyundai Mobis and Sewon
Precision Industry, its major suppliers which entered into foreign markets along with the
carmaker and may make further facility investment as they serve a wider market with
competitors suffering sluggish growth and enjoy advantages from FTAs.    
-Although eco-friendly part suppliers may suffer setbacks in the short term owing to
economic downturn, S&T Daewoo, PIlkor Electronics, Samwha Condenser Group,
Sungmoon Electronics and other relevant players are expected to offer business
opportunities in the mid to long-term with development of green vehicles highly
likely to continue.