China - Inchcape

Tan Suan Phon
Managing Director
Inchcape China

Market Overview
Population
1.34bn
Language
Mandarin
Currency
Chinese yuan
(renminbi RMB) (¥)
Capital City
Beijing
GDP
US€5.9 trillion
Source: IMF
Since the introduction of market-based economic reforms in 1978, China has become the
world's fastest growing major economy

Commercial Overview
Fast growing
economy
Strong trade
surplus but aiming
at more domestic
oriented
Consistently
medium low
unemployment
Strong
manufacturing
base
Largest population
base
China is the major contributor to the
recovery of world economy. Now the
second largest economy in the world
China is stimulating domestic demand
to make the economy more domestic
consumption-oriented instead of
export-driven
Unemployment is at government
acceptable level
Largest manufacturing base in the
world, 20% of world output
China is still the world’s largest country
by population
2005-2010 2010-2015
GDP growth (CAGR) 21.1% 11.2%
Population (CAGR) 0.5% 0.5%
Unemployment rate ~4.0% ~4.0%
Inflation ~6.0% ~6.0%
Source: IMF

Automotive Overview
Largest population
base in the world
1.34 bn
Low level of car
penetration

China’s economy continues to grow
GDP per capita 2008 - 2015
000’ US dollars
Source: IMF

China’s economy continues to grow
Tier 1: above $60bn
Tier 2: $30bn
Tier 3a: $15bn income driven
Tier 3b: $14-28bn population driven
Tier 4: $10bn
Tier 5: below $7bn

…and expected to be even larger in 2020
Above $1,000bn
Between $500bn - $1,000bn
Between $100bn - $500bn
Below $100bn
China GDP in 2020 by provinces
(projected): a union of secondtier
developed and top-tier
developing countries

China Car Market – Big and Growing
2010
1.9M
2015 2.7M 55.4%
2010
17.0M
2010
2015
10.4M
11.6M 11%
2010
3.1M
2015 3.6M 15.7%
2015 25.1M 47.4%
2010
4.9M
2015 4.8M 4%
Global Total Industry
Volume
2009 vs. 2015
2010
2.7M
2015 4.9M 79.2%
2010 3.3M
2015 4.2M 27.8%
Source: Global Insight

Total Industry Volume 2008 - 2015
Million vehicles
Source: Global Insight

China Passenger Car Market by segment
000’ vehicles
CAGR (2010-15)
18%
8.4%
4.8%
Luxury
Premium
Volume
Volume
Source: Global Insight (PC and LCV)

Luxury demand driven by wealth creation
1 million USD millionaires
No. 2 USD billionaires in the world
# of Billionaires in 2010
USA 413
CHINA 115
Russia 101
Others 581
Distribution of millionaires in China in 2010
Total 1,210

China: Luxury Car Market
000’ vehicles
China will be the 2 nd largest luxury Passenger
Car market in the world from 2013
Source: Global Insight

Car Parc 2008 - 2015
Millions vehicles
Car Parc Units '000 35,496 44,321 51,199 58,735 66,934 75,794 85,306
Population millions 1,335 1,341 1,348 1,355 1,362 1,368 1,375
Cars/'000 Population 26
33 38 43 49 55 62
Source: JD Power/IMF

Inchcape China Strategy
3 Steps to build scale in the premium end of the market
China’s large size means scale needs to be focused on a regional basis
2007 2010 2011 2016 2016
2020>>>
Step 1 Step 2 Step 3
Establish local presence,
recruit strong
management team and
prove retail economics
Scale up presence in
targeted regional markets
with our preferred OEM
brand partners
3 sites 20 sites
Accelerate expansion

Retail Centres Step 1

Retail Centres

Retail Centres

Retail Centres

Our top 5 Priorities
Growing
market
share
Growing
aftersales
Improving
margin
Controlling
working
capital
Selective
capital
expenditure

Operational focus on our top 5 priorities to deliver our
Customer 1 st strategy
Growing
market
share
Leverage OEM new product launches and
programs
Leverage car shows and customer lifestyle
events to drive quality traffic
Raise the bar on Customer Service Standards
Drive referrals from existing customers and
aftersales customers
Traffic
Leads/Traffic
Test drives/Traffic
Order/ Traffic
Growing
aftersales
Data mining of existing customers service
records
Build partnerships with Insurance to drive B&P
business
Raise the bar on Customer Service Standards
Leverage Vehicle Health Check
Enquiries
Booking/Enquiry
Intakes/Enquiry

Operational focus on our top 5 priorities to deliver our
Customer 1 st strategy
Improving
margin
Weekly price setting and tracking by model
Improve penetration of accessories, F&I
Weekly tracking of margins for aftersales
Control utilities, consumables costs
Controlling
working
capital
Inventory cover to maintain at lower than 1.5 months
Maximize usage of Supplier Finance with minimum interest
charge
Negotiate better payment terms with miscellaneous suppliers
Selective
capital
expenditure
No major investments planned in existing sites
Focus on preferred brands and cities

We are now executing Step 2 of our China Strategy
2016 Vision
To operate 20 premium 4S
sites
Scale up China presence in
targeted provincial markets
with our preferred OEM brand
partners

China: an attractive opportunity for Inchcape
800
Vehicle density per 1,000 adults
600
400
200
0
India
China
Russia
Brazil
UK
Italy
France
USA
Germany
Japan
0
Source: JD Power, IMF
10,000 20,000 30,000
40,000
GDP per Capita (US$)
50,000

Inchcape China
China’s economy will continue to grow from strength to strength
Low car penetration ensures that the automotive industry has significant growth potential
Increasing affluence will drive the luxury car market segment to grow even faster
Inchcape China is well positioned and ready to take advantage of this attractive
opportunity:
Tested the retail unit economics,
Built a local organisation,
Localised our operating processes
We are confident that building a portfolio of scale retail businesses, with our core brand
partners in the fast growing premium segment is the right expansion strategy for Inchcape
China