Industry Overview

8. INDUSTRY OVERVIEW 8. INDUSTRY OVERVIEW
Frost & Sullivan Malaysia Sdn Bhd (522293W) Suite C-ll-02, Block C, Plaza Mont’ Kiara, 2 Jalan Kiara, Mont’ Kiara, 50480 Kuala Lumpur,
Malaysia Tel: +603.6204.5800 Fax: +603.6201.7402 www.frost.com 1 OCTOBER 2013 The Board of Directors Berjaya Auto Berhad
No.7, Jalan Pelukis U1/46, Temasya Industrial Park, Seksyen U1, 40150 Shah Alam, Selangor, Malaysia
Dear Sirs,
Executive Summary of the Independent Market Research Report on the Automotive Industry in Malaysia and An Overview of the Automotive Industry in the Philippines for Berjaya Auto Berhad (“BAuto” or “Company”)
We, Frost & Sullivan Malaysia Sdn Bhd (“Frost & Sullivan”), have prepared the Executive Summary of the independent market research report on the automotive industry in Malaysia and an overview of the automotive industry in the Philippines (“Report”) for inclusion in BAuto’s Prospectus dated 18 October 2013 (“Prospectus”) in relation to the initial public offering and the listing of and quotation for the entire enlarged issued and paid-up share capital of BAuto on the Main Market of Bursa Malaysia Securities Berhad.
This research is undertaken with the purpose of providing an independent market research report on the automotive industry in Malaysia and an overview of the automotive industry in the Philippines.
Frost & Sullivan has prepared this Report in an independent and objective manner and has taken adequate care to ensure the accuracy and completeness of the Report. We believe that this Report presents a true and fair view of the industry within the limitations of, among others, secondary statistics and primary research, and does not purport to be exhaustive. Our research has been conducted with an “overall industry” perspective and may not necessarily reflect the performance of individual companies in the industry. Frost & Sullivan shall not be held responsible for the decisions and/or actions of the readers of this Report. This Report should not also be considered as a recommendation to buy or not to buy the shares of any company or companies as mentioned in this Report or otherwise.
For and on behalf of Frost & Sullivan Malaysia Sdn Bhd:
J4~~ Director 8. INDUSTRY OVERVIEW (Cont’d) © September 2013 Frost & Sullivan The market research process for this study has been undertaken through secondary or desktop research, as well as detailed primary research, which involves discussing the status of the industry with leading industry participants and industry experts. The research methodology used is the Expert Opinion Consensus Methodology. Quantitative market information could be sourced from interviews by way of primary research and therefore, the information is subject to fluctuations due to possible changes in the business and industry climate. This market research was completed in September 2013. This report is prepared for inclusion in BAuto’s Prospectus in relation to the initial public offering and the listing of and quotation for the entire enlarged issued and paid-up share capital of BAuto on the Main Market of Bursa Malaysia Securities Berhad. No part of this research service may be otherwise given, lent, resold, or disclosed to non­customers without our written permission. Furthermore, no part may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without our permission. Frost & Sullivan has prepared this report in an independent and objective manner and has taken adequate care to ensure the accuracy and completeness of the report. We believe that this report presents a true and fair view of the industry within the limitations of, among others, secondary statistics and primary research, and does not purport to be exhaustive. Our research has been conducted with an “overall industry” perspective and may not necessarily reflect the performance of individual companies in the industry. Frost & Sullivan shall not be held responsible for the decisions and/or actions of the readers of this report. This report should not also be considered as a recommendation to buy or not to buy the shares of any company or companies as mentioned in this report or otherwise. For further information, please contact: Frost & Sullivan Malaysia Sdn Bhd Suite E-08-15, Block E, Plaza Mont’ Kiara 2, Jalan Kiara, Mont’ Kiara 50480 Kuala Lumpur. Executive Summary of the IMR Report © Frost & Sullivan 2013 85 8. INDUSTRY OVERVIEW (Cont’d) TABLE OF CONTENTS
1 INTRODUCTION AND BACKGROUND 4 1.1 DEFINITIONS 4 1.2 INDUSTRY SEGMENTATION 4 2 ANALYSIS OF THE AUTOMOTIVE MARKET IN MALAySiA 6 2.1 DEMAND CONDITIONS 6 2.1.1 Market Size and Growth Trends 6 2.1.2 Market Drivers 12 2.1.3 Market Restraints , 15
2.2 SUPPLY CONDITIONS AND DEPENDENCIES 16 2.2.1 Automotive Manufacturing Industry in Malaysia 16 2.2.2 Product Substitution 17 2.2.3 Reliance and Vulnerability to Imports 18

2.3 COMPETITIVE LANDSCAPE 19 2.3.1 Competitive Structure and Landscape 19 2.3.2 Key Industry Players and Profiles 21 2.3.3 Market Share and Ranking 22 2.4 BARRIERS TO ENTRy 28 2.5 RELEVANT LAws AND REGULATIONS 30

2.6 INDUSTRY OUTLOOK AND PROSPECTS 36 3 OVERVIEW OF THE AUTOMOTIVE MARKET IN THE PHILIPPiNES 37 3.1 INTRODUCTION 37 3.2 DEMAND AND SUPPLY CONDITIONS 37 3.2.1 Market Size and Growth Trends 37 3.2.2 Supply Conditions 39 3.3 REGULATORY OVERVIEW 39 3.4 INDUSTRY PROSPECTS AND OUTLOOK 40 4 PROSPECTS AND OUTLOOK FOR BAuTO 41 Executive Summary ofthe IMR Report © Frost & Sullivan 2013 86 8. INDUSTRY OVERVIEW (Cont’d)

 

1 INTRODUCTION AND BACKGROUND 1.1 Definitions The automotive industry encompasses companies involved in the design, development, manufacture, assembly, marketing and sale of motored vehicles. Motored vehicles are wheeled vehicles that run on their own engines, such as cars, buses, trucks and motorcycles. In Malaysia, the automotive industry largely consists of manufacturers, assemblers and distributors of motored vehicles.
1.2 Industry Segmentation Motored vehicles are generally divided into passenger vehicles, commercial vehicles and motorcycles. The scope of this report however will only focus on passenger and commercial vehicles, as SAuto is only involved in these two segments currently. All data quoted will exclude data pertaining to motorcycles.
Segmentation of Vehicles (Malaysia), 2013 Segment I Types of vehicles
Passenger Cars, 4X4, Sports Utility Vehicles (SUVs), Window Vans and Multi-Purpose Vehicles (MPVs) Commercial vehicles Passenger vehicles Trucks, Prime Movers, Pick-ups, Panel Vans, Buses and Others ——–‘ Source: Extracted from the fMR Report prepared by Frost & Suffivan In Malaysia, the automotive industry is dominated by the passenger vehicles segment, making up 88.0% of the total industry volume (“TIV”) in 2012. Sales of passenger vehicles have grown at a compound annual growth rate (“CAGR”) of 6.2% from 80,420 units in 1980 to 552,189 units in 2012. The TIV for new passenger vehicles in the first six months of 2013 was 275,991 units compared to 265,901 units in the same period of 2012, an increase of 3.8%. The local automotive industry is also classified according to manufacturer origin, whereby national and non-national vehicles compete within their own segments. This is due to the fact that national car manufacturers and assemblers enjoy greater incentives from the Government so as to encourage the development of the local automotive industry. As a result, national cars are more attractively priced as compared to non-national cars of similar specifications, making it challenging for non-national cars to compete directly with national models in terms of pricing. For the purpose of this report, Perodua and Proton shall be classified under national manufacturers. Executive Summary ofthe fMR Report © Frost & Sullivan 2013 87 8. INDUSTRY OVERVIEW (Cant’d) Industry Segmentation (Malaysia), 2013 Vehicles
Source: Extracted from the IMR Report prepared by Frost & Sullivan The automotive industry in Malaysia further segments the passenger vehicles category according to vehicle size. The local industry is dominated by vehicles in the A-segment (mini cars) and B-segment (small cars). The popularity of these segments is attributed to the fact that both segments are considered entry-level segments, and are typically more fuel efficient as compared to larger models. Passenger Vehicles Segmentation (Malaysia) Segment Definition I Examples _~~_~:~~-=~ —-~~~~-~a~~—r-~~-aPicant~_~~~~:da_~~~~E.~~~~~Myvi, Perodua ~i_va,sm~~ I C Honda City, Ford Fiesta, Mazda2, Nissan latio, Toyota Vios,BS t SI-egmen ma ars Proton Preve Medium Cars Honda Civic, Hyundai Elantra, Mazda3, Mazda3 MPS, Kia Forte,C-Segment Nissan Sylphy, Toyota Altis, Proton Inspira Honda Accord, Hyundai Sonata, Mazda6, Nissan Teana, ToyotaD-Segment Large Cars Camry, Proton Perdana, VolkswaQen CC E-Segment Executive Cars I Audi A6, BMW 5 Series, Jaguar XF, Mercedes E Class I———~———- –Udi A8, Audi TI, BMW 7 Series, Mazda MX-5, Mazda RX-8, F-Segment Luxury Cars Mercedes ClK, Mercedes S Class, Maserati Ouattroporte, ‘—______ __ Nissan 350-Z, Porsche 91_..:.1 _ ~ Multi-Purpose Honda Odyssey, Hyundai Grand Starex Royale, Mazda5,MPV Vehicles Mazda8, Perodua Alza, Proton Exora SUV Sports Utility Audi 05, BMW X5, Honda CRV, Hyundai Santa Fe, Mazda CX-Vehicles 5, Mazda CX-7, Mazda CX-9, Toyota Harrier, Nissan Murano
Source: Extracted from the IMR Report prepared by Frost & Sullivan BAuto distributes Mazda models in both passenger and commercial vehicle segments. Presently, only Mazda3 and Mazda CX-5 models are sold as completely knocked-down 8. INDUSTRY OVERVIEW (Cont’d) (UCKD”)1, while the remaining Mazda models are sold as completely built-up (uCBU,,)2 units in Malaysia. Segmentation of Mazda Vehicles (Malaysia) Segment I Types of Vehicles Passenger Cars: Mazda2, Mazda3, Mazda3 MPS and Mazda6  Passenger Vehicles  MPVs: Mazda5 and Mazda8 SUVs: Mazda CX-5, Mazda CX-7 and Mazda CX-9  Sports Coupes: Mazda MX-5 and Mazda RX-8  Commercial Vehicles  Mazda 8T50
Source: Extracted from the IMR Report prepared by Frost & Sullivan 2 ANALYSIS OF THE AUTOMOTIVE MARKET IN MALAYSIA 2.1 Demand Conditions 2.1.1 Market Size and Growth Trends The automotive industry in Malaysia has seen steady growth over the past 30 years, registering a CAGR of 6.0% for the years 1980 to 2012. In 1980, TIV was 97,262 units, and the volume has grown by 545.4% to reach 627,753 units in 2012. The TIV for new motor vehicles in the first six months of 2013 was 313,488 units compared to 301,269 units in the same period of 2012, an increase of 4.1 %. Proton’s entry into the automotive industry in 1985 with the introduction of the Proton Saga was marred by the 1985-86 recession. The recession saw a decrease in demand and an increase in prices of motored vehicles, caused by the appreciation of the Japanese Yen against the Malaysian Ringgit. Vehicle sales nevertheless picked up as the domestic economy recovered, contributing to Proton’s increased production and market share. As subsequent generations of the Proton Saga were introduced between 1986 and 1990, TIV increased to 181,877 units in 1991. With the introduction of the Perodua Kancil by Malaysia’s second national car manufacturer in 1994 and together with the growth of the economy, the local automotive industry was revived. As the Government’s support of the establishment of local assembly plants continued, vehicle sales flourished with the upsurge of CKD vehicles in the market. In 1997, TIV reached 404,837 units, almost three times the amount sold in 1992 which was only recorded at 145,084 units. 1 CKD units refer to vehicles that are imported in sets of disassembled modular parts. CKD units are assembled locally pn’or to being sold to the market 2 CBU units refer to vehicles that are imported in the fully assembled form 8. INDUSTRY OVERVIEW (Cont’d) However, the 1998 Asian financial crisis instigated a crash in vehicle sales, with the reduction of TIV by 59.5% from the previous year to just 163,851 units sold in 1998. Similar to the years following the 1985-86 recession, vehicle sales only picked up as the domestic economy recovered. The industry subsequently enjoyed steady growth over the next four years before TIV returned to the pre-1998 recession level of above 400,000 units. TIV dipped slightly from 434,954 units in 2002 to 405,745 units in 2003, as consumers withheld their purchases in anticipation of lower prices with the implementation of the Association of South East Asian Nations (ASEAN) Free-Trade Area (AFTA), along with the imminent launch of new models by Proton. In January 2004, Malaysia announced tariff reductions for CBU and CKD units under the Common Effective Preferential Tariff (CEPT)-AFTA scheme, whereby the import duty structure for cars within ASEAN was reduced to 20%. The enforcement of the CEPT-AFTA . scheme boosted the local demand for non-national cars, and TIV peaked at 552,316 units in 2005. Vehicle sales picked up again in 2008 but the effects of the international financial crisis resulted in a slight fall in TIV in 2009. The sUbsequent recovery of the domestic economy in 2010 led to a steady increase in new registered vehicles, with TIV reaching an all-time high of 605,156 units that year. Passenger and Commercial Vehicles Sales of passenger vehicles in Malaysia have consistently exceeded the sales of commercial vehicles, with 552,189 new units sold in 2012 and registering a CAGR of 6.2% over the years from 1980 to 2012. By contrast, commercial vehicles recorded sales of 75,564 units in 2012 and registering a CAGR of 4.8% over the years from 1980 to 2012. Both segments have similar patterns as exhibited by the TIV over the years from 1980 to 2012, with the sales of passenger vehicles moving almost in parallel with TIV. The number of new registered passenger and commercial vehicles dropped in 1985-1987, 1992, 1998 and 2006 due to unfavourable economic conditions. Although passenger vehicle sales and TIV bounced back in 2007, commercial vehicle sales fell drastically by 51% from 90,471 units in the previous year to 44,291 units. Vehicle sales in 2011 were 0.8% lower than the vehicles sales in 2010, due to the supply disruption caused by the tsunami in Japan and the flood in Thailand. During the first half of 2013, both segments registered positive growth compared to same period in 2012. The number of new registered passenger vehicles increased by 10,090 units (increase of 3.8% from Hi :2012) while the commercial vehicles segment increased by 2,129 units (increase of6.0% from H1:2012). I Company No. 900557-M I 8. INDUSTRY OVERVIEW (Cont’d) Newly Registered Vehicles by TIV, Passenger Vehicles and Commercial Vehicles (Malaysia), 1980-2012 700,000 600,000 500,000 400,000 300,000 200,000 100,000 o ……….-:,
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~~~~~~~~~~~~~~*~*&~~~~~~~~~~~~~~~~~~~~~~~0~~~~~~~~~~~~~~~~~~~~~~~~ • Passenger Vehicles I?<l Commercial Vehicles Source: Extracted from the IMR Report prepared by Frost & Sullivan Executive Summary of the IMR Report © Frost & Sullivan 2013 91 8. INDUSTRY OVERVIEW (Cont’d) National and Non-National Manufacturers National cars, Proton and Perodua have dominated the automotive industry due to the preferential duty structure and increased incentives to local manufacturers, giving the national cars a competitive edge in terms of pricing over the non-national manufacturers. The combined market share of national cars has remained steady at an average of just below 60% of TIV over the period from 2008 to 2012. Despite attempts to liberalise the industry, sales volume of national cars has remained strong over the period, largely due to dominance of the entry-level segments. Malaysia’s increasing gross domestic product (“GDP”) and gross national income (“GNI”) resulted in an upsurge of entry-level buyers, who in previous years would only be able to afford second hand cars. The combined sales of national cars by Perodua and Proton made up 52.6% of TIV in 2012. Total Sales Volume by National and Non-National Manufacturers (Malaysia), 2008-2012 400 2008 2009 2010 2011 2012 • National f2 Non-National
Source: Extracted from the IMR Report prepared by Frost & Sullivan Proton dominated the market share of national cars from the time of its entry into the automotive industry in 1985, up until 2006 when it was overtaken by Perodua. Perodua’s upsurge in sales was primarily attributed to the popularity of the Perodua Myvi. Total Sales Volume by National Manufacturers (Malaysia), 2008-2012 200 0 180 0 160E Q) 140E.2_ 120 g ~ 100 c ~::J 80 ClI en 60 cv….. 40 0 I­20
Executive Summary of the IMR Report © Frost & Sullivan 2013 92 8. INDUSTRY OVERVIEW (Cont’d) In Malaysia, non-national manufacturers largely consist of players from Japan, Korea and Germany. In 2012, the three leading non-national manufacturers of passenger vehicles in the country were Toyota, Honda and Nissan, who collectively held 61.9% of market share of sales of non-national passenger vehicles across all segments. Toyota has consistently been the market leader of non-national manufacturers from 2008 to 2012, where its best-selling models were Toyota Vios, Toyota Camry and Toyota Corolla Altis. However its market share has since fallen, largely due to competition in the B-segment and the multi-purpose vehicles (“MPV”) segment in 2009 and 2010. Toyota’s market share in the non-national passenger vehicle segment was 46.4%,38.2%, 35.9%, 36.1% and 33.4% in 2008,2009,2010,2011 and 2012, respectively. Honda has consistently held second place in the sales of non-national passenger vehicles from 2008 to 2012, with sales volume growing each year over the said period from 32,477 units in 2008 to 34,950 units in 2012, registering a CAGR of 1.9%. Honda’s market share was 17.2%, 22.6%, 22.5%, 13.5% and 15.7% in 2008, 2009, 2010, 2011 and 2012, respectively. The remaining non-national manufacturers, namely Nissan, Suzuki, Chery, Mitsubishi and Mazda have recorded steady growth trend in sales volume from 2008 to 2012. Volkswagen has notably increased its sales over the period, where sales volume recorded a CAGR of 93.9% from 920 units sold in 2008 to 13,003 units sold in 2012. Volkswagen’s augmented growth can be attributed to the recent launches of new models, strong sales of Volkswagen CC model, low interest rates and a 5-year warranty period. [The rest of this page is intentionally left blank] Executive Summary of the IMR Report © Frost & Sullivan 2013 93 I Company No. 900557-M I 8. INDUSTRY OVERVIEW (Cont’d) Total Sales Volume of Non-National Passenger Vehicles by Manufacturers (Malaysia), 2008-2012
~~ e,<:\ o’l) o~ ~’l) o’l) ~~ .~ ~’l) ‘b-~ 0’ ~v~ o,’l) e,~ ~o 0f…”” o~ 2f ‘b-‘V <j)0 <Q…. ~’l) ~0 ~(§~ vv::’ ~~”” e,v 0~ .”-.o~ ~’l)~ *O~~ .\’~ ~ e,cf .~””v ‘1i~ ~~ (J0 df’o~ ~ ~~ ~e,<;’ X’~ .2008 .2009 lZl2010 g2011 E32012 Note: ‘Others include Audi, Chevrolet, Citroen, Ford, Land Rover, Lexus, Maybach, Mini, Porsche, Renault, Saab, Smart, Subaru and SsangYong Source: Extracted from the IMR Report prepared by Frost & Sullivan Executive Summary of the IMR Report © Frost & Sullivan 2013 94 8. INDUSTRY OVERVIEW (Cont’d) 2.1.2 Market Drivers Rising Income Levels of Consumers Malaysia’s TIV has risen steadily along with GNI at current prices over the past 32 years from 1980 to 2012. Despite Malaysia’s small population size, the demand for motored vehicles has been increasing steadily. This can be attributed to the nation’s economic growth, whereby families are able to afford more than one car and entry level buyers are able to buy brand new cars instead of second hand. Malaysia’s economy has shown signs of recovery following the recession caused by the 2008 international financial crisis. The economy contracted by 1.7% in 2009, but has since picked up again, registering an annual growth rate of 7.2%. New Government plans and 10th programmes such as the Malaysia Plan (“10MP”), Government Transformation Programme (“GTP”) and Economic Transformation Programme (“ETP”) were unveiled in 2010 to alleviate Malaysia into a high-income nation and high-productivity economy. GNI at Current Prices and TIV (Malaysia), 1980-2012 1,000 ‘2 §1 900 :0 800 ::ii: 700 ~ :rl 600 u.;: 0-500 …. l:Ql 400 …… ::s 300 u …. (II 200 Z <.!) 100 0 900 800 700 ]I600 ‘2 ::s 500 00 E400 >i=300 200 100 0
Source: Extracted from the IMR Report prepared by Frost & Sullivan Inefficient Public Transport System The pUblic transport system in Malaysia consists of bus, railway and taxi services. However, the current system is neither fUlly developed nor well-integrated. Public transportation is largely considered to be inefficient and unreliable, and suffers from insufficient capacity as it is not able to cater for the growing population. Furthermore, within the Klang Valley, the Light Rail Transit (“LRT”) and monorail systems are concentrated in Kuala Lumpur (“KL”) city centre, while a large portion of the surrounding suburbs have yet to be integrated into the routes. Outside the Klang Valley, the LRT and monorail systems are mostly underdeveloped, where the public is only able to rely on buses and taxis as means of public transportation. Within the Executive Summary of the IMR Report 8. INDUSTRY OVERVIEW (Cont’d) Klang Valley, buses are widely known to be unreliable, infrequent and overcrowded. Furthermore, bus routes are limited to high-traffic commercial and residential areas, where there is lack of buses that transport commuters from far-reaching and newly developed housing neighbourhoods to the city centres or LRT stations. In light of this, most people choose to drive instead of taking public transport, driving the demand for passenger vehicles. The urban rail system in Malaysia is largely concentrated within the Klang Valley, with other parts of the country still relying on buses as the main mode of pUblic transport. The RapidKL LRT lines, Keretapi Tanah Melayu (KTM) Komuter lines, Kuala Lumpur International Airport (KLlA) Transit and KLiA Ekspres systems connect Greater KL to the city centre, while the KL Monorail line only runs through the heart of KL. However, a large portion of the surrounding suburbs such as Damansara Utama, Cheras and Puchong have yet to be integrated into the routes. Commuters are consequently dependent on buses or taxis as a mode of transportation to get to the nearest stations. In addition, the rail system is not well integrated, with most interchange stations between the various lines not conveniently located within close distance of each other. Although the Government has plans of improving the Klang Valley urban rail system with the Mass Rapid Transit (“MRT”) project, it is only expected to be completed in December 2016. The average daily ridership of the various railway lines in Malaysia has seen little growth over the years 2005 to 2011. The average daily ridership on the PutraJine, Starline and KTM Komuter lines have grown at a CAGR of 2.1 %, 2.7% and 2.4% respectively over the years 2005 to 2011. The slow growth indicates that the urban railway system is still not a preferred mode of transport among Malaysians. Railway Average Daily Ridership Statistics (Malaysia), 2005-2011*
2005 60,478,717 45,718,504 30,921,510 137,118,731  f—_—-‘-2-‘–‘0-‘–0_6__–+5_6-‘-,7_4_7-,-,1_4_4~l 49,890,248 35,974,974 142,612,366 __ 2007 56,012,669 15~349,571 36,959,339 146,321,579  2008 58,168,337 51,006,653 36,537,338 145,712,328  2009 54,960,889 50,039,829 34,682,719 139,683,437  2010 57,845,426 51,572,177 35,047,933 144,465,536  2011 68,398,561 53,568,672 35,598,901 157,566,134  2.3%2.4%CAGR 2005-2011 2.1% 2.7% ——————————————‘——–­
Note: ‘Latest available ridership data is until 2011 Source: Extracted from the IMR Report prepared by Frost & Sullivan Taxis, like buses, are also unreliable and infrequent. Hailing taxis outside town centres can be challenging as taxis are known to avoid the suburbs. Furthermore, taxi drivers are quite selective of passengers based on their destination, and thus passengers who wish to travel to a quieter part of town might find themselves unable to get a taxi. Executive Summary of the IMR Report 8. INDUSTRY OVERVIEW (Cont’d) Malaysia’s Car-Centric Culture Malaysia is known to exhibit a car-oriented culture, whereby most Malaysians in general still prefer to drive rather than to use public transportation or to carpool. This can be attributed to the rising income of consumers and relatively low price of fuel, which is subsidised by the Government. The convenience of driving one’s own car still appeals to the Malaysian public. Furthermore, in Malaysia, cars are also seen as a determinant of social status, as the number and the type of cars owned is perceived by others as a sign of wealth. Consequently, these cultural factors are seen to collectively drive the automotive industry forward. According to the latest data made available by the Road Transport Department (JPJ), the number of private vehicles per 1,000 people in Malaysia has increased at a CAGR of 5.5% over the years 2005 to 2011 from a ratio of 244.5 private vehicles for every 1,000 people in 2005 to 336.9 private vehicles for every 1,000 people in 2011. The trend of increased ownership of private vehicles is expected to continue, with the Malaysia Automotive Institute projecting TIV reaching 1 million units by year 2020. Number of Private Vehicles per 1,000 Population (Malaysia), 2005-2011
Note: Private vehicles refer to all vehicles registered for private use and may include commercial vehicles Source: Extracted from the IMR Report prepared by Frost & Sullivan Promotional Activities Automotive companies engage in extensive marketing and promotional campaigns to create awareness and excitement over their brand models, especially during the launching of a new prodUCt. Marketing activities such as advertisements, roadshows, sponsorships, media pUblic relations and social networking play a significant role in determining the sales volume of manufacturers. In addition, automotive companies also engage in activities such as end-of­year discounts, sale of demo cars, trade-ins and free maintenance to further entice consumers to buy more cars. At times, automotive companies may also engage in market entry study to improve their car sales especially for new models. Brand positioning is a key factor in gaining a competitive edge over other manufacturers. By adding value in terms of performance, high quality and safety standards, and as a lifestyle statement, manufacturers will be able to tap into the appropriate market segment to boost sales. Mazda identifies itself with its ‘Zoom-Zoom’ tagline, focusing on engineering vehicles that bring fun and exhilarating driving experiences to its customer. As such, Mazda cars attract buyers who value quality, performance and a sporty appeal. These marketing and promotional campaigns are important drivers for the industry, influencing consumers to purchase more cars or trade up to bigger and more premium models. Executive Summary of the IMR Report © Frost & Sullivan 2013 97 8. INDUSTRY OVERVIEW (Cont’d) 2.1.3 Market Restraints High Tariffs for Non-National Cars National cars have been given protection by the Government for the past 28 years since the. entry of Proton into the local automotive industry. The dominance of national cars such as Proton and Perodua is a direct result of lower prices as compared to non-national cars, brought about by preferential tax treatment and protectionist policies of the National Automotive Policy (“NAP”). High import duties imposed on CBU and CKD units (30% for CBU and 10% for CKD for imports from Most Favoured Nations\ in addition to excise duties and sales tax, essentially restraints the imports of non-national cars, thereby restricting the choices of consumers. Despite excise duty being the same for all manufacturers whether national or non-national, the NAP mandates that cars consisting of a certain amount of local content as well as local activities (such as local research and development activities) will be eligible to receive incentives from the Automotive Development Fund and Industrial Adjustment Fund. Hence, although national car manufacturers such as Proton and Perodua are still subject to the same level of high excise duty as their non-national counterparts, both companies get substantial rebates because of their high investment in the local automotive industry. The lifting of the Manufacturing license (“ML”) freeze under the NAP review on selected vehicle segments (cars with engine capacity of 1,800cc and above and on-the-road price of RM150,OOO and above, hybrid and electric cars, pick-up trucks, commercial vehicles and motorcycles with engine capacity of 200cc and above) for manufacturing and assembling activities will only open up the market for segments that do not directly compete with Proton and Perodua. In addition, the open Approved Permits (“AP”) issued for every imported vehicle amounts to RM10,OOO each, further expanding the price gap between national and non­national cars. The protection given to the national car manufacturers has resulted in non-national cars sold in Malaysia to be priced higher as compared to other countries. For example, a Mazda3 2.0 Sedan sells for approximately RM75,377 (USD22,800) 4 in the United States and approximately RM11 0,1 05 (THB1,064,OOO) 5 in Thailand. In comparison, the Mazda3 2.0 Sedan is priced at approximately RM120,675 in Malaysia, almost double the price in the United States and approximately RM10,OOO higher than in Thailand. 3 Most Favoured Nations refer to member countries of the World Trade Organisation (WTO). 4 Currency exchange used: 1 United States Dollar (USD)=RM3.306, as at 23 August 2013. Source: Bank Negara Malaysia (BNM) 5 Currency exchange used: 100 Thai Baht (THB)=RM10.3482, as at 23 August 2013. Source: Bank Negara Malaysia (BNM) Executive Summary of the IMR Report

8. INDUSTRY OVERVIEW (Cont’d) Impact from Recurring Economic Slowdowns The amount of sales registered by the automotive industry is largely influenced by economic conditions, both on the local and global front. TIV dropped during the recession in 1985-86 and the 1998 Asian Financial Crisis, along with the credit crunch in 2008-09. Uncertain global economic climate leading to unstable fuel prices also led to a drop in TIV, as exhibited in 1992 during the Persian Gulf War. Conversely, a healthy and growing economy will result in TIV recording healthy growth.

2.2 Supply Conditions and Dependencies 2.2.1 Automotive Manufacturing Industry in Malaysia Prominent Local Automotive Industry
Total production volume, along with passenger and commercial vehicles production, grew during the early years of the 2000s, but dipped in 2003 due to lower demand of passenger vehicles as consumers withheld purchases in anticipation of lower prices of vehicles following the implementation of AFTA in the following year. Subsequently, production volume surged and peaked at 563,408 units in 2005, but increases in domestic fuel prices led to a fall in demand in 2006 and 2007. Passenger and commercial vehicles were reclassified in 2007, whereby 4X4 vehicles were then categorised under passenger vehicles, resulting in the sudden drop of commercial vehicle production and the apparent increase in passenger vehicles production that year. Production then picked up in 2008, but the delayed effects of the 2008 international financial crisis led to another fall in production volume in 2009. The local economy has since recovered, with total production volume reaching an all-time high of 569,620 units in 2012. The production volume for the first half of 2013 reached 293,511 units compared to 282,060 units in the same period last year, an increase of 4.1 %. Total Production Volume (Malaysia), 2001-2012 600 CIl E 500 ::s ;g _400
c.l!!0’­:;:;()§ 300 ::so -g g 200 …. ‘-­a.. J9 100 o I­o
Executive Summary of the IMR Report 8. INDUSTRY OVERVIEW (Cont’d) Diversified Local Component Manufacturing Sector The development of the national automotive industry has led to the growth of the local automotive component sector, with inter-linkages to various manufacturing subsectors. Automotive component manufacturers produce a wide range of components, from metal body panels, brake parts, engine parts, rubber parts, electrical and electronic parts and steering and transmission parts. Local and foreign companies produce components for both local and export markets, including China and Thailand. Availability of Raw Materials, Heavy Equipment and Machinery The local automotive industry utilises raw materials such as steel, rubber, plastic and fabric, as well as specialised equipment and machinery for the manufacture and assembly of vehicles. All these raw materials are readily available in Malaysia, whereas specialised equipment and machinery are typically sourced from abroad. The local steel industry is closely tied with the local economic climate, and has seen steady growth over the past decade, albeit a fall in 2008-09 due to the economic recession. As a result of the international financial crisis, the rubber, plastic and textile industries have also performed steadily, with room for further growth. Import Duty Structure The import duty structure determines the supply of CBU cars from abroad. Higher import duty deters the import of cars due to the reSUlting higher prices. Malaysia’s import duty structure for motored vehicles is considerably high, making imported vehicles much more expensive as compared to the locally manufactured vehicles. Nevertheless, in line with AFTA and World Trade Organisation (WTO) requirements, the Government has lowered the import duty in order to Iiberalise the local automotive industry. Import duty for CBU vehicles from Most· Favoured Nations has been reduced to 30%, while duty for CKD and multi-sourcing parts cars are currently at 10%. In line with AFTA requirements, the import duty on cars originating from ASEAN countries was reduced from 5% to 0% in 2010. These reductions will promote the imports of non-national cars, thereby increasing the supply of cars available to the market. 2.2.2 Product Substitution Motored vehicles are largely seen as a necessity in Malaysia, with vehicle sales exhibiting an upward trend over the past 20 years. The primary substitute for owning a vehicle would be the public transport as a means of getting about. Generally, the pUblic transport infrastructure in Malaysia is largely underdeveloped and not well integrated. The Government has planned the Klang Valley MRT project under the Greater Kuala Lumpur -Klang Valley Public Transport Masterplan to integrate with the LRT, Monorail, KTM Komuter and intralinter-city busses to alleviate traffic congestion in the Klang Valley region. Upon completion in Executive Summary of the IMR Report 8. INDUSTRY OVERVIEW (Cont’d) December 2016, the MRT project aims to carry approximately 400,000 commuters daily. This may negatively impact the automotive industry especially for city dwellers in Klang Valley region in the long-term. Another alternative mode of transport would be motorcycles, though this may not serve directly as a substitute for cars as motorcycles are in a different vehicle segment altogether. Motorcycles are largely targeted at the lower income segment of the population, and are inconvenient in terms of transporting many passengers or a large amount of goods.

 

2.2.3 Reliance and Vulnerability to Imports The automotive industry is relatively dependent on imports. The dependence on imports is distinctively apparent among the non-national manufacturers. CBU units are fully imported from abroad, while CKD units assembled locally also largely consist of imported components. The reconditioned car segment, which is the import of second-hand vehicles, is also fUlly dependent on imports, though the segment is mostly skewed to the premium markets. National manufacturers have minimal dependence on imports, whereby most vehicle parts and components are sourced from established local vendors. Imports are limited to critical parts and components such as engine parts and tyres. Non-national manufacturers distribute both CKD and CBU units. CKD units assembled locally are dependent on imports of CKD packs6 from the foreign original equipment manufacturer (“OEM”), which mainly consist of engines, metal body parts and transmission system. Critical non-safety parts such as rims, radio, carpet and seats are usually sourced locally. On the other hand, CBU units are fully imported from the foreign OEM. Hence, reliance on imports is dependent on whether the vehicle is in the national or non­national segment. The importation of vehicles in Malaysia is subject to the relevant duties and tariffs, and is regulated by the AP system, which is further elaborated in Section 2.5 ­Relevant Laws and Regulations. However, beginning 1 June 2011, imports of used auto parts and components into Malaysia are banned by the Government, as stated in the NAP Review 2009. [The rest of this page is intentionally left blank] CKD packs refer to packs that contain CKD parts and components Executive Summary of the IMR Report 8. INDUSTRY OVERVIEW (Cont’d) 2.3 Competitive Landscape 2.3.1 Competitive Structure and Landscape The landscape of the industry has evolved since the 1960s, from one that was previously solely importing vehicles from abroad, to setting up assembly operations and parts manufacture, to producing the first national car and to establishing a large network of automotive industry players today. Currently, there are three main categories of players in the local automotive industry: manufacturers, assemblers and distributors. Manufacturers are involved in the design, production, manufacture, marketing and selling of motored vehicles. Assemblers are involved in the assembly of CKD parts that are sourced from abroad as well as local suppliers. CBU cars are imported wholly from abroad and distributed locally by the distributors and dealers. Selected Manufacturers and Assemblers of Motored Vehicles (Malaysia), 2013 Manufacturer/Assembler I Brand I
cania (Malaysia) Sdn Bhd Scanra ——————————-_..————————————_.._———­Swedish Motor Assemblies Sdn Bhd Volvo, Tuah —_.._-_.._————_.._——————-,—–_.._————–­~Tan Chong Motor Assemblies Sdn Bhd I Nissan, Renault l._ _ ~ _
Source: Extracted from the IMR Report prepared by Frost &Sullivan Executive Summary ofthe IMR Report 8. INDUSTRY OVERVIEW (Cont’d) Selected Distributors of Motored Vehicles (Malaysia), 2013 Distributor : .. . III!
If~;~~~ti~~iorporation ! . Isuzu, Hicom . ‘I KMA Marketing Sdn Bhd I Tuah !-~~::-M:to~~~:;~~i~::d:–… ..,~::~~i~~-M~;;;~–r~~=:~:~::’-­!BM;~:~~S~~..~~~~~-;-: .. BM~/~~~ ._–… ·I~~f:f~~i M;t;~s Malaysia -rMit~~~~Shi -.-.-­1__. .__ ..-…. –…-_.-.-_ -…. –.–­.1 ……… —.——-..–.–.. —~ ……..–..—-..–.–..-j IChery Alado Automobile I Chery , N K’ Sd Bhd K’ I;Sdn Bhd i aza la n la 1~~’iiv;s-‘;’;~-;Sd~1 SsangYong_. ~~~h,,-=-_~;,G~~~=
!·—·–·”·—“—~-·~’~-·”–·–·–··-‘·-·–r—–····_ ..,.._-~ IDaihatsu (M) Sdn Bhd I Daihatsu IIPerodua Sales Sdn Bhd i Peroduar—..—-..·..—t—..–..-..—..·r—-..·-·—-·+­–i I~~~r~~;an Chong Motor I Nissan, Renault IProton Edar Sdn Bhd ! Proton I L-+ …”__ ,I …______! –_—J IE b’l Sd Bhd ‘ A d’ Sime Darby Auto ConneXion I Ford, Land Rover, II uromo I n I u I SdnBhd IAlfaRomeo ! ~—_·–_….——–..-..—_….—-..T-··———-·-·—-~ -·–··——–·—-·-+——·-1 i.. NAZA Q t Sd Bhd i Ch I t iSuzuki Malaysia Automobile I S k’ I ; ues n I evroe SdnBhd ! uzu I I r· –..—·—..–·-·–..———–·——·–· 1·-·-· —-..—-..··..—··-,——————-;..–j-· I~~nno ~~tors (Malaysia) ‘Hino TC Subaru Sdn Bhd i Subaru I I~~~~~(~~~~y~i~) ~d~~~~ -~~~-~.~… I UMW ~~~~~~’~~tor Sdn Bhdl~~~~~~-,~~~~~–..–I I -..~—-..:. ———-.. ——-. —1′ I,——————————-. –.–..——1’—————————————···1!——-..—.. -. ——.——————-. ——-…….. ! –.—.——I I~~~~~a~~~m:h~arby I Hyundai, Inokom IIIUSF-Hicom (M) Sdn Bhd I Mahindra I ,———..·—-·..-..—,..-·——··-·—..·-..—-·..-··——·11——-..——–.———-.—‘1——-.-…….–.–.-..—–,
Ilsuzu Malaysia Sdn Bhd IISUZU 1″\’VOIVO Car Malaysia Sdn Bhd I Volvo I lI;eB~r~~~~ 1~~~_:]~~~n.::;MalaY”a I~wa~ _~
Source: Extracted from the IMR Report prepared by Frost & Sullivan The competition level in the automotive industry is high, with manufacturers, assemblers and distributors representing 39 motored vehicle brands competing in various segments of the industry. Players generally compete based on branding, pricing, quality, design and after sales services. Competition in the industry is largely divided among: • National and non-national brands
• Segmentation based on vehicle size

National and non-national brands The two national car brands in Malaysia are Proton and Perodua. Due to preferential treatment provided by the Government to encourage the development of the local automotive industry, national cars are priced significantly lower than non-national cars, Hence, national Executive Summary of the IMR Report 8. INDUSTRY OVERVIEW (Cont’d) and non-national cars typically compete within their respective segments of the industry. National cars largely cater to entry-level and mass market consumers. Alternatively, there is a high variety of non-national brands competing within various segments in the market. The non-national segment is largely dominated by manufacturers from Japan, with Toyota and Honda as the two leading manufacturers in terms of sales volume. Segmentation based on vehicle size In Malaysia, passenger vehicles are segmented according to size, with vehicles competing in 8 segments in the market ranging from mini cars to luxury cars, MPVs and SUVs. This report will focus on competitors that compete directly with Mazda in the automotive industry in Malaysia, Le. in the non-national 8, C, D, MPV and SUV market segments. 2.3.2 Key Industry Players and Profiles The key industry players that compete with the Mazda brand and 8Auto are as follows.
Key Industry Players in the Non-National Non-Premium B, C, D, MPV and SUV Segments Automotive Brands/Distributors Chery! Chery Alado Automobile Sdn Bhd Mitsubishi! Mitsubishi Motors Malaysia Sdn Bhd Chevrolet! NAZA Quest Sdn Bhd Nissan! Edaran Tan Chong Motor Sdn Bhd Ford! Sime Darby Auto ConneXion Sdn Bhd Peugeot! Nasim Sdn Bhd Honda! Honda (Malaysia) Sdn Bhd SsangYong! Competitive Supreme Sdn Bhd ~———–_._———_. .. _———–Hyundai! Hyundai Sime Darby Motors Sdn –~ Suzuki! Suzuki Malaysia Automobile Sdn Bhd Bhd
Inokom! Hyundai Sime Darby Motors Sdn Bhd Toyota! UMW Toyota Motor Sdn Bhd Kia! Naza Kia Sdn Bhd Volkswagen! Volkswagen Group Malaysia Sdn Bhd Mazda! Bermaz Motor Sdn Bhd -.._—-­
Source: Extracted from the IMR Report prepared by Frost & Sullivan Executive Summary of the IMR Report 8. INDUSTRY OVERVIEW (Cont’d) 2.3.3 Market Share and Ranking In Malaysia, Mazda vehicles compete in the B, C, D, MPV and the sports utility vehicle (“SUV”) segments within the non-national passenger vehicles segment for the non-premium market. Mazda vehicles have proven to be resilient to changing market conditions, with sales for most models generally increasing over the period of 2008 to 2012. Despite the drop in TIV in 2009, along with sales volume within the various segments due to effects of the 2008-09 international financial crisis, Mazda cars enjoyed an increase in sales volume in 2009, and continued to grow strongly in 2010 and 2011. Mazda’s growing popUlarity is greatly attributed to the brand’s competitive strengths and increased public awareness generated by its promotional and marketing campaigns. Since Bermaz took over from Cycle & Carriage Bintang Bhd as the sole licenced distributor and retailer of Mazda vehicles in Malaysia in February 2008, Mazda’s market share in the non-national passenger vehicles segment has increased from 0.3% in 2008 to 2.7% in 2012. Mazda’s market share of non-national passenger vehicles against other automotive manufacturers from Japan has also increased from 2.6% in 2010 to 4.0% in 2012. Mazda’s Market Share in the Non-National Passenger Vehicle Segment (Malaysia), 2008-2012
BMazda Others Source: Extracted from the IMR Report prepared by Frost & Sullivan B-Segment The B-segment (small cars) represents the largest market segment for non-national non­premium passenger vehicles. The B-segment is the only segment among the non-national passenger vehicle segments to record an increase in sales in 2009, largely due to the increase in demand for less expensive cars during times of economic hardship. Executive Summary of the IMR Report 22 8. INDUSTRY OVERVIEW (Cont’d) The 8-segment can be further broken down based on price range. Mazda2 competes in the RM70,000 to RM100,000 price range for 8-segment vehicles, which also includes other 8­segment vehicles it directly competes with such as Honda City, Nissan Sentra, Suzuki Swift and Toyota Vias. This price range excludes 8-segment vehicles such as Honda Jazz, Peugeot 308 and Volkswagen Golf, which are priced higher than Mazda2. Mazda2 entered the local market in April 2010 and recorded sales of 1,827 units that year. In 2011, Mazda2’s market share in the 8-segment within the price range of RM70,000 to RM100,OOO was 3.7%. Total Sales Volume of Non-National B-Segment Vehicles within the Price Range of RM70,000 -RM100,000 (Malaysia), 2008-2011* II Total Sales Volume (units) I CAGRIModel -200l3~~!-20~-2010 -2011-~! 2008~2011 (%) Chevrolet Aveo 1.4 165 80 38 N/A-19,722Honda City 1.5 9,743 19,944 10,995 4.1 1,317 670 753Hyundai Accent 1.5 367 (34.7) -I Ford Fiesta 1.4/1.6″ 493 4,207 753.3**-I1,827 2,063 12.9**–IMazda2 1.5A 3,529 2,272 1,245Nissan Latio 1.6″ 843 (38.0) 1,749Nissan Sentra 1.6/1.8 2,032 1,566 1,064 (19.4) 28Peugeot 207 1.6 121-1,664 670.9***II 3,816 3,683I Suzuki Swift 1.5/1.6 4,915 5,128 10.4I 485Suzuki SX-4 Sedan 104 90 2 (73.2) 29,38732,710 33,674 29,820 (3.0)~TOyota Vios 1.5 64,E)66·····58,07653,416 56,153 1.1 <I .. Total ….. ….. Notes: • Latest available breakdown data by models is until 2011 •• Growth Rate 2010-2011 ••• CAGR 2009-2011 1\ Includes both sedan and hatchback variants ‘-‘ denotes no sales volume recorded for the year as the model has not entered the market Source: Extracted from the IMR Report prepared by Frost & Sullivan Market Share of Mazda2 by Non-National B-Segment Vehicles within the Price Range
Note: *Latest available breakdown data by models is until 2011 Source: Extracted from the IMR Report prepared by Frost & Sullivan 8. INDUSTRY OVERVIEW (Cont’d) C-Segment The non-national C-Segment for medium sized vehicles is led by Honda Civic, Toyota Corolla Altis, Nissan Sylphy and Mazda3. The C-segment can be further segregated based on the price range Mazda3 competes in, which falls between RM100,000 and RM130,000. This price range includes Mazda3’s direct competition such as Honda Civic, Mitsubishi Lancer, Nissan Sylphy and Toyota Corolla Altis, and eliminates other lower priced C-segment vehicles such as Chevrolet Cruze, Hyundai Elantra and Naza Forte. In 2011, a total of 13,695 units of non-national C-segment vehicles within a price range of RM100,000 to RM130,000 were sold in Malaysia. Within this price range, Mazda3’s market share has grown more significantly over the period, more than tripling from 0.9% in 2008 to 3.5% in 2009, to 4.8% in 2010 and rising further to 10.0% in 2011. Mazda3 represents Mazda’s largest market share within an overall segment for all its models in 2011. Total Sales Volume of Non-National C-Segment Vehicles within the Price Range of RM100,000 -RM130,000 (Malaysia), 2008-2011* Model I Total Sales Volume (units) CAGR 2008 2009 ~2008·2011 (%) 156 223 162 I 267Ford Focus 1.8/2.0 19.6 ___ __. .. __ __ 1…_ __ __._._._ _ .._ Honda Civic 1.8/2.0 8,598 7,437 8,880! 4,548 (19.1)I 171 580 1,090 1,376 100.4Mazda3 1.6/2.0/MPS** I–‘-‘-‘. .-t—-.–. —-.-~-,-:-._—­MitsubishiLancer1.6/2.0 1,534 959 1,512 i 516 (30.5) -~:o;~~~~~i~~S1~/T8-” …_…~:~~_.-..-. -···_~~~:-:·–_····_;:·~:·:—-··t-~:~~~-“‘-“-“-“‘-“–;’~’:~5″””‘—-‘-­… ….. Tbtai …. 18,660 16,650 22,651’ 13,695 (9,8), Notes: ” Latest available breakdown data by models is until 2011 “” Mazda3 MPS price falls in the RM175, 000 -RM185, 000 range. However, the car size is still deemed to be within C-Segment. Source: Extracted from the IMR Report prepared by Frost & Sullivan Market Share of Mazda3 by Non-National C-Segment Vehicles within the Price Range of RM100,OOO -RM130,OOO (Malaysia), 2008-2011*
Note: “Latest available breakdown data by models is until 2011 Source: Extracted from the IMR Report prepared by Frost & Sullivan Executive Summary of the IMR Report 8. INDUSTRY OVERVIEW (Cont’d) D-Segment The D-segment for large cars is heavily dominated by Toyota Camry and Honda Accord, within the non-national non-premium D-segment in 2011. However, Hyundai Sonata and Nissan Teana have displayed tremendous growth from 2008 to 2011, due to the recent launches of the new generation of both models in 2010 and 2011. Sales of Mazda6 have increased steadily over the period, growing by 165.8% from 222 units sold in 2008 to 590 units in 2011. Market share also doubled within the period, increasing from 1.1 % in 2008 to 2.9% in 2011. It is noted that in 2009, Mazda6 along with Peugeot 407 were the only two models in the segment to register an increase in sales, whilst sales of other models in the segment, along with total sales volume of the segment, declined that year. Total Sales Volume of Non-National D-Segment Vehicles (Malaysia), 2008-2011* . . Total Sales Volume (units) I CAGR Model. ~-0GI–_J 0 .. ~ 2008 \-20~~c!(.\.,,010/>il 2011 12008-2011(10) Honda Accord 2.0/2.4/3.0/3.5 7,349 6,0527,327 (15.2)4,487—-+——–1——-+—-‘—–1——-‘——-”——-1 1,141Hyundai Sonata 2.0/2.4 207 141 2,928 141.8 529Mazda6 2.0/2.3/2.5 222 341 590 38.5 Nissan Cefiro 2.0/3.0 142 34 N/A 487Nissan Teana 2.3 13 84,430** 598.5.—+—–/—_.-+-‘——-\———\ 513Peugeot 407 2.0 208 435 252 6.6
7,575 (16.0)IToyotaCamry.2•.0/2A 12,774 8,715 (1.1).20,262li.T()tal ‘. ~0,915 15,726 Notes: * Latest available breakdown data by models is until 2011 **include Nissan Teana 2.0/2.3/2.5/3.5 ‘.’ denotes no sales volume recorded for the year Source: Extracted from the IMR Reporl prepared by Frost & Sullivan Market Share of Mazda6 by Non-National D-Segment (Malaysia), 2008-2011 2011 2010 2009 2008
0% 20% 40% 60% 80% 100% II Mazda6 Others
Note: *Latest available breakdown data by models is until 2011 Source: Extracted from the IMR Report prepared by Frost & Sullivan Executive Summary of the IMR Report 8. INDUSTRY OVERVIEW (Cont’d) MPV Segment The non-national MPV segment experienced a decline in sales since 2008, largely attributed to the entry of national cars into the MPV segment. The launch of both Proton Exora and Perodua Alza in April and November 2009 respectively, led to a large decline in sales of non­national non-premium MPVs. The non-national MPV segment can be further segregated based on price range. Mazda5 and Mazda8, along with their direct competition such as Honda Stream, Mitsubishi Grandis and SsangYong Stavic are priced between RM150,000 and RM200,000, thereby exclUding other MPVs outside this price range such as Nissan Grand Livina, Toyota Avanza, Toyota Innova and Honda Odyssey. Within the price range of RM150,OOO to RM200,OOO, Mazda5’s market share increased from 5.3% in 2008 to 10.0% in 2009, then fell to 4.4% in 2010 before rebounding to 17.3% in 2011. Mazda8’s market share increased from 7.7% in 2010 to 21.9% in 2011. Hence, in 2011 Mazda held a collective market share of 39.2% within the non­national non-premium MPV segment with the price range of RM150,OOO to RM200,000. Total Sales Volume of Non-National MPV Segment within the Price Range of RM150,000 -RM200,000 (Malaysia), 2008-2011* 1,446 (26.3) Mazda5 118 144 l————————+—-:-=:—–+-1—-,–:–:-­IMazda8 i Mitsubishi Grandis 671 575 832 1—————————————————–.——-.——————–­i SsangYong Stavic 6 Notes: • Latest available breakdown data by models is until 2011 •• Growth Rate 2010-2011 43.3 –141.0**—–1 (12.1) I ‘-‘ denotes no sales volume recorded for the year as the model has not entered the market Source: Extracted from the IMR Reporl prepared by Frost & Sullivan Market Share of Mazda5 and Mazda8 by Non-National MPV Segment within the Price Range of RM150,000 -RM200,000 (Malaysia), 2008-2011*
0% 20% 40% 60% 80% 100% • Mazda5 & Mazda8 Others Note: • Latest available breakdown data by models is until 2011 Source: Extracted from the IMR Reporl prepared by Frost & Sullivan 8. INDUSTRY OVERVIEW (Cont’d) SUV Segment There are various types of SUVs with different sizes and functions, such as crossover SUVs, compact SUVs, mid-sized SUVs and full-sized SUVs. Both Mazda CX-? and Mazda CX-9 are considered crossover SUVs, built on a car or MPV platform and displaying features attributed to a typical SUV. The segment could be further segregated based on price range of between RM150,000 to RM350,000. This price range includes Mazda’s competitors in the MPV segment such as Honda CR-V, Hyundai Tucson, Kia Sportage and Nissan Murano, while excludes Nissan X­Trail, SsangYong Rexton and Volkswagen Touareg. Mazda CX-? recorded a market share of 0.4%,2.0% and 2.2% for 2009,2010 and 2011 respectively for the SUV segment within the stipulated price range. Mazda CX-9’s market share grew from 1.4% in 2008, then increased to 1.9%, but then declined to 1.3% in 2010 despite an increase in sales volume that year. In 2011, Mazda’s CX-9’s market share stood at 1.2%. Total Sales Volume of Non-National SUV Segment Vehicles within the Price Range of RM150,000 -RM350,000 (Malaysia), 2008-2011* Il2..:d Total Sales Volume (units) J CAGRModel I 2008–!-~-2010·-‘–1-201-1-i 2008·2011 (%) , II ————-._————–­iHondaCR-V–_._-_._,.–··-4~304..-·-r·–3~474—·-,. -4,107″”’-­5,543  (1.5)  I Hyundai Tucson 2.0  139  153 -­ 972  245  20.8 ,.  jlnokom Santa Fe 1.J..:~g.z,.,.·_……·___________ Kia Sportage  495 ————-­316  186 ——————-­636  225 ———_.._—-­143  540 ——————-­231  2.9 —————_.._—–_..­(9.9)  I Mazda CX-7 2.3 po–­I Mazda CX-9 3.7  27 :–‘128  218  199  171.5** -­ 146  106  2.0  Mitsubishi Pajero .._——–..__._._-_._—_._. Nissan Murano  -..__._–_…._–­3  -._-_..•_—–,—–­24  1,424 –_•…_-_.._-­72  1,571 —“—_. 39  10.3*** ._—~———–­135.1  Toyota Fortuner f–.  1,633  1,798  1,895  1,761 -­ 2.5 –_.- Volkswagen Tiguan  29  86  117 I 210  93.5  ….•. ·····T.otal …….  <7ig33…•..•. <.  :6;651  10,~44  ..;I,y4;1.  7.8
Notes: * Latest available breakdown data by models is until 2011 ** CAGR 2009-2011 *** Growth Rate 2010-2011 ‘.’ denotes no sales volume recorded for the year as the model has not entered the market Source: Extracted from the IMR Report prepared by Frost & Sullivan Executive Summary of the IMR Report 8. INDUSTRY OVERVIEW (Cont’d) Market Share of Mazda CX-7 and Mazda CX-9 by Non-National SUV Segment Vehicles within the Price Range of RM150,000 -RM350,000 (Malaysia), 2008-2011 *
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% • Mazda CX-7 & Mazda CX-9 Others Note: • Latest available breakdown data by models is until 2011 Source: Extracted from the IMR Report prepared by Frost & Sullivan 2.4 Barriers to Entry High Capital and Operational Expenditures
The hfgh costs associated with capital and operational expenditures serve as a significant barrier to entry into the local automotive industry. High capital investments required for manufacturers and assemblers include the initial cost of purchase of equipment, machinery and infrastructure such as land, manufacturing/assembling plant, administrative office, showroom and storage compound. For example, Proton’s car assembly plant in Proton City, Perak, required an investment of RM1.8 billion. Operational expenditures required to run operations include costs incurred for logistics, personnel, maintenance, overheads and import duty payment for non-national cars. For car distributors such as Bermaz, the bigger concern will be on the high amount of working capital required to operate the business, especially to purchase the vehicles from the principal OEM. For instance, distributors will require a minimum capital of RM50-60 million per model? to purchase two quarters worth of stock in order to meet customers’ demand. As distributors bring in more models to the domestic market and as sales volume increase, the required operational costs required will also increase accordingly. These capital and operational costs require a steady flow of operating income, usually generated from a healthy stream of sales. It is noted that without the proper industry 7 Based on the assumption that on average, each car is priced at RM70,000 and quarterly sales amount to approximately 400 vehicles per quarter Executive Summary of the IMR Report 8. INDUSTRY OVERVIEW (Cont’d) knowledge, distributors will not be able to communicate the strengths and appeals of the brand’s range of cars to the consumers. Hence, new entrants may face difficulty in obtaining steady financing to ensure sustainability in the market. EstablishedlWide Distribution Network An established/wide distribution network is key in ensuring that a brand’s range of vehicles reaches all of its intended target market. This will involve distributors appointing dealers in appropriate locations throughout Malaysia to supply and promote their vehicles to the consumers. By establishing a wide range of distribution channels, other players looking to enter the industry will be deterred. An effective distribution network requires time and financial resources to establish. Long­standing players such as Proton and Perodua, along with the leading non-national brands like Toyota, Honda and Nissan have had many years to establish a wide-ranging distribution network across Malaysia, with Proton Edar Sdn Bhd as the leading distributor with 300 appointed dealers in all states nationwide. Newcomers such as Volkswagen Group Malaysia Sdn Bhd (Volkswagen) and Sime Darby Auto ConneXion Sdn Bhd (Ford), both of which began operations in 2008 have 19 and 45 appointed dealers respectively nationwide. Number of Dealerships of Selected Automotive Brands/Distributors (Malaysia), 2012 Brand/Distributor .. . … Proton/Proton Edar Sdn Bhd 300 –..–…—–..–…—-..—–.-.———.—-.———–·-1;—————–·————–Perodua/Perodua Sales Sdn Bhd ‘ 180 N’issan/EdaranTan”Chong .Motor Sdn”Bhd~—-‘—–~t-_·,,-“—‘——‘-‘·r17′–·–··_·——­NK’ . -., _~”_.__.,” “‘_~ ,~._~_~~_~”__.,’~ __~_~ ~_”~_.~ ••_.~.’-“‘ _ Hyundai/Hyundai-Sime Darby Motors Sdn Bhd 113 .-T~y~~7iJ ~~”.T ~~~_~~.~MO. iO~~~n ~h~__”’.’,~=~.~~–‘=—~~~~ti –~~.:~~:.. ~.~~~—–… -9.1–~~~==~~··—~l: I Honda/Honda (Malaysia) Sdn Bhd 66 ._———-._——_._—~._–_ …,,~-~-~–“.,-,~,–,–_.._~._,~._——~——,–“”-<~._._~ …_­Mazda/Bermaz Motor Sdn Bhd . . 63 ‘Ford/Sime DarbYAutoCon·neXi()n~·Sdn..Bhd-.. ——r—..–….–·45………—.—-I
—–_._.—-_.__. -_….~._-~-~.~. -“-..~…. —_.._.._.._._-_.—–]VolkswagenNolkswagen Group Malaysia Sdn Bhd L 19 _..J Note: *The/wmber is based on’Information reiiTeved from respective distributors’ websites. This list should not be regarded as exhaustive. Source: Extracted from the IMR Reporl prepared by Frost & Sullivan Executive Summary of the IMR Report 8. INDUSTRY OVERVIEW (Cont’d) Reputable and Established Track Record For importers and distributors of non-national vehicles, a reputable track record is essential in building and maintaining a strong working relationship with the principal OEM. Principal OEMs will commonly be apprehensive in entering into agreements with new players who lack or have limited market knowledge, posing a challenge to new entrants who will need time and opportunity to establish the necessary credentials. A well-established track record is especially important for contract assemblers of non-national CKD vehicles. Local assemblers must possess the required skill, knowledge and technology to properly assemble non-national cars in line with the international quality standards that are expected from a foreign motored vehicle. Hence, new entrants will be deterred as they will need time to gain the confidence of the principal OEMs. 2.5 Relevant Laws and Regulations The local automotive industry is governed by a number of policies and agreements, both local and international, as well as laws and regulations to ensure safety of users. In addition, the Government has put various incentives in place to encourage the development of the local automotive industry. AP System The AP for motored vehicles is an import licence issued by the Ministry of International Trade and Industry (MITI) for the importation of motored vehicles into Malaysia, subject to the laws and regulations stipulated under the Customs Act 1967. An AP is required for the import of all new or used CBU and CKD motored vehicles, including motorcycles and commercial vehicles. Companies that are eligible to apply for an AP are: • Companies holding existing allocation of AP for CBU vehicles
• Franchisee of CBU vehicles
• Local assemblers of CKD vehicles
• Non-AP holders importing the following:
o Classic cars more than 25 years of age
o Temporary/permanent imports of motored vehicles for the purpose of research and development (R&D), exhibitions, grand prix, gifts and contribution
o Motored vehicles to be used by ministries, government departments, statutory bodies and non-governmental organisation (NGOs)

 

8. INDUSTRY OVERVIEW (Cont’d) There are several types of APs: • Open AP
An Open AP allows awarded companies to import any brand of motored vehicles. Prior to the NAP Review, Open APs were issued free of charge, but effective from 1 January 2010, a fee of RM10,OOO will be imposed for every Open AP issued. The money will be channelled into a fund to assist Bumiputera companies to venture into automotive and other businesses.
• Franchise AP Franchise APs are issued to companies that have established agreements with the principal OEM to be the sole distributor of a certain brand. Franchise AP holders are given a quota of APs to be issued each year (Le. number of cars allowed to be imported), determined by the agreement set out with the principal OEM. The Franchise AP is valid for as long as the agreement between the Franchise AP holder and the principal OEM is
in force. Since 2006, no new Franchise APs for new motored vehicle brands has been awarded, but companies will only be allowed to take over Franchise APs from current AP holders.
• CKDAP

CKD APs are awarded to companies with an existing contract assembly licence from MITI and a valid contract assembly agreement with the principal OEM. There is no yearly allocation on the amount of APs issued for the import of CKD vehicles. CKD APs are issued free of charge. AFTA In January 1992, ASEAN member states decided to liberalise trade within the region. In order to do so, they decided to extensively remove barriers by creating the AFTA. Its main mechanism was the CEPT, which covers manufactured and agricultural products in the Inclusion List8. The member nations, which at that time included Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand (known as ASEAN-6) decided to reduce tariffs within a period of 15 years beginning 1st January 1993, whereby the final effective tariffs were agreed to be within the 0% and 5% range. Vietnam, Laos, Myanmar and Cambodia who joined ASEAN later on were given additional time to bring down the tariffs of products in the Inclusion List. The Inclusion List refers to products which ASEAN member states are ready to commit to eliminate import duties, quantitative restrictions and non-tariff barriers. Executive Summary of the IMR Report 8. INDUSTRY OVERVIEW (Cont’d) Under the CEPT, a product would be eligible for concessional tariff if it has a 40% ASEAN content. In September 1994, ASEAN member states agreed to accelerate the implementation schedule of the CEPT plan and shortened the time frame from 15 years to 10 years such that by January 2006, all CEPT products would have a tariff of 0% to 5%. Initially when AFTA was implemented in 1993, only a few automotive products were identified for inclusion in the CEPT. However, in line with the accelerated implementation schedule, the rest of the automotive products were brought into the CEPT’s ambit in April 2000. In January 2010, import duty for vehicles meeting AFTA requirements was subsequently reduced to 0%. NAP and NAP Review On 22 March 2006, the NAP was introduced to expedite the required transformation and integration of the domestic automotive industry into regional and global industry networks. The NAP was aimed at increasing the liberalisation of the industry to facilitate global competitiveness. The NAP was established as the main driver for the strategic directions of the automotive industry under the Third Industrial Master Plan (IMP3), 2006-2020. The NAP intended to maximise the long term contribution of the domestic automotive industry to the national economy and at the same time to benefit the consumers. Thus, the Government set out the following objectives for the automotive industry: • To create a competitive and viable domestic automotive industry, in particular the national car manufacturers
• To promote Malaysia as a regional automotive hub, focusing on niche areas
• To encourage a sustainable level of value added activities and improve domestic capabilities
• To increase the level of exports of vehicles along with components and parts that are competitive in the global markets
• To promote competitive Bumiputera participation in the domestic automotive industry
• To protect the interests of consumers in terms of value for money, safety and quality of products and services in the industry

The specific policy instruments to achieve the above objectives are as follows: 1. Streamline of excise duty structure
2. Gazetted values of imported cars
3. Reduce ASEAN CEPT import duty to 5% for qualifying vehicles
4. Grants from Industrial Adjustment Fund (IAF) made available to all companies that create significant economic contribution
5. New MLs to be issued once domestic over-capacity issues is resolved

Executive Summary of the IMR Report 8. INDUSTRY OVERVIEW (Cant’d) 6.. AP system to be phased out by 31 December 20209 7. Vehicle Type Approval (VTA) processes and procedures to be implemented On 28 October 2009, the Government announced a review of the NAP, which came into effect on 1 January 2010. The NAP Review introduces new policies and measures that are expected to provide significant contribution to the overall growth of the industry and the cou·ntry. Greater emphasis will be put in place to attract both local and foreign investments in high value-added manufacturing activities. The new measures introduced under the NAP Review are as follows: 1. Lifting of ML freeze on selected vehicle segments
2. TaxlDuty: Promotions of exports of value-added products
3. Promotion of green technology
4. Provision of soft loans/grants
5. New standards to enhance vehicle safety
6. Amendments to the AP system
7. Establishment of a strategic partnership for Proton

One of the most significant measures of the NAP Review for non-national manufacturers is the opening up of the ML for manufacturing and assembling in selected vehicle segments: cars with engine capacity of 1,800cc and above and on-the-road price of RM 150,000 and above, hybrid and electric cars, pick-up trucks, commercial vehicles and motorcycles with engine capacity of 200cc and above. The new measure is aimed at attracting new investments and expanding existing investments in high value-added manUfacturing activities. There will be no equity conditions imposed on the ML, hence foreign manufacturers will be allowed to hold 100% equity in firms. The Government is expected to announce a further review of the NAP by 2013 to address the trends and technological advancements of the global automotive industry to facilitate growth. Incentives The Government has outlined various incentives in order to encourage investment in the local automotive industry. Issuance of Open AP for used vehicles (i.e. commercial, passenger and motorcycles) to cease by 31 December 2015 and Franchise AP to cease by 31 December 2020 Executive Summary of the IMR Report 8. INDUSTRY OVERVIEW (Cont’d) Tax Incentives Among the major tax incentives being offered are: • Pioneer Status (“PS”) with partial/full exemption from the payment of income tax for 5 or 10 years
• Investment tax allowance (“ITA”) of 60% of qualifying capital expenditure incurred within 5 years from the date the first capital expenditure was incurred
• PS with full tax exemption from payment of income tax for 5 years or ITA of 60% of qualifying capital expenditure incurred within 5 years deducted against 100% of statutory income for the manufacture of automotive component modules
• Incentives for industrial linkage
• Incentives for R&D
• Incentives for training
• Incentives for export
• Incentives for International ProcuremenURegional Distribution Centres
• Special package of incentives (pre-package/customised) are granted for selected projects.

National Budget Budget 2009 In line with global trends toward the usage of fuel efficient and environmental friendly vehicles, the Government’s budget for 2009 introduced several incentives to drive the development of the local automotive industry towards greener technology. These incentives include: • 100% exemption of import duty and 50% exemption of excise duty for the import of new hybrid cars with engine capacity below 2,OOOcc.
• Reduction of road tax structure for diesel-powered vehicles for private use.

Budget 2010 The budget for 2010 was revealed several days before the release of the NAP Review (2009). Some of the incentives announced include: • As the fuel subsidy was being utilised by individuals who were not eligible to enjoy the sUbsidy, the Government introduced a plan to implement a fuel subsidy management system to determine an individual’s eligibility, to be incorporated with the use of the MyKad.
• A new insurance and Takaful scheme will be introduced for motorists.

8. INDUSTRY OVERVIEW (Cont’d) • A fee of RM 10,000 will be imposed for every Open AP issued from 1 January 2010 onwards, where a portion of the proceeds will be directed to the automotive sector of the “Dana Pembangunan Bumiputera”. Budget 2011 The BUdget 2011 saw many new incentives for the local automotive industry, including: • Import duty and excise duty for hybrid and electric cars and motorcycles with engine capacity below 2,OOOcc are fully exempted until 31 December 2011.
• Toll charges for highways managed by PLUS Expressways Berhad will not be raised for the next 5 years.
• The Government will implement a mandatory B5 programme, i.e. blending biofuel with diesel in Putrajaya (1 June 2011), Melaka (1 July 2011), Negeri Sembilan (1 August 2011), Kuala Lumpur (1 September 2011) and Selangor (1 October 2011).
• The Klang Valley MRT project will commence work in 2011. The project, which is expected to be completed in 2016, aims to integrate the MRT with other modes of public transport, such as buses and taxis, provide an efficient transport system that will reduce travelling time and increase public transport usage.
• BUdget for improvement of rural roads -Sabah and Sarawak to receive an allocation of RM2.1 billion for the bUilding and upgrading of rural roads while Peninsular Malaysia will receive RM696 million.
• 100% exemption of excise duty on national vehicles for those with physical, hearing and speaking disabilities who are able to drive.

Budget 2012 The Budget 2012 introduced new incentives to boost the demand for automotive industry as well as to steer the industry towards green technology. These incentives include: • Extension of the exemption period of import duty and excise duty for new CBU hybrid and electric cars until 31 December 2013.
• 100% sales tax exemption on the purchase of new locally manufactured cars that are used as budget taxis or hire-cars.
• Budget taxis or hire-cars that are sold or the ownership is transferred after 7 years of registration will enjoy the exemption of excise duty and sales tax.
• The abolishment of road tax on bUdget taxis and hire-cars.
• 2% interest rate per annum subsidy for 2 years on loans for financing the purchase of new locally manufactured cars used as bUdget taxis and hire-cars.
• The purchase of new locally made cars to replace bUdget taxis and hire-cars aged more than 7 years will enjoy RM3,OOO assistance and RM1,000 for 10 years and above.

Executive Summary of the IMR Report 8. INDUSTRY OVERVIEW (Cont’d) 2.6 Industry Outlook and Prospects Sales volume is a key driver of the automotive industry. Frost &Sullivan estimates that TIV in Malaysia will grow from 627,753 units in 2012 to approximately 728,749 units in 2016, registering a CAGR of 3.8% over the same period. TIV is expected to be driven by the rising income level of consumers, inefficient pUblic transport system, Malaysia’s car-centric culture and promotional activities undertaken by the various manufacturers and distributors. These factors will collectively drive TIV, and consequently the automotive industry forward. Frost & Sullivan anticipates higher growth in TIV for the period 2013 to 2016 as the Government has planned to liberalise the local automotive industry by allowing greater foreign participation to position Malaysia as a regional automotive hub as set out in the NAP, thereby leading to a likely fall in car prices and greater demand. As such, Frost & Sullivan estimates that TIV will increase by 3.8% to 651,608 units in 2013, by 3.8% to 676,369 in 2014, by 3.9% to 702,071 units in 2015 and by 3.9% to 728,749 units in 2016 on the back of the liberalisation of the industry. Projected TIV (Malaysia), 2012-2016F 740 720
700 680 660 640 >i= 620 600 580 560
Notes: F = forecast Source: Extracted from the IMR Report prepared by Frost & Sullivan [The rest of this page is intentionally left blank] Executive Summary of the IMR Report 8. INDUSTRY OVERVIEW (Cont’d) 3 OVERVIEW OF THE AUTOMOTIVE MARKET IN THE PHILIPPINES 3.1 Introduction The Philippines is a sovereign state in Southeast Asia located in the western Pacific Ocean. In 2011, it has a population of approximately 94.9 million, with a total GOP of US$ 224.8 billion. The Philippines has one of the lowest car ownership in the world, at approximately 9 cars per 1,000 people. Cambodia, Laos, Myanmar and the Philippines are the only countries within ASEAN that adopted the right-hand traffic system10. Most of the automotive manufacturers in ASEAN countries such as Indonesia and Malaysia tend to produce only right-hand drive vehicles11 to achieve economies of scale. Therefore, most of the CBU vehicles imported into the Philippines tend to be sourced from countries like Japan and Thailand instead, which produce both types of vehicles. Countries with left-hand traffic vs. countries with right-hand traffic
Source: Extracted from the IMR Report prepared by Frost & Sullivan 3.2 Demand and Supply Conditions 3.2.1 Market Size and Growth Trends The automotive market in the Philippines has seen steady growth with vehicle sales increasing from 99,541 units in 2006 to 156,649 units in 2012, registering a CAGR of 7.9% during the period. In 2011, new vehicle sales only registered 141,616 units, a drop of 15.9% from the previous year. The decline in new vehicle sales in 2011 was largely due to the disruption of supplies for automotive vehicles caused by two major natural disasters in the key supplying countries -the Japan earthquake on March 2011 and Thailand flooding in July 2011. Many of 10 Right-hand traffic system refers to regulations requiring all vehicles to drive on the right side ofthe road. 11 Right-hand drive vehicles refer to vehicles that drive on the left side of the road. Executive Summary of the IMR Report 8. INDUSTRY OVERVIEW (Cant’d) the automotive manufacturers in these countries experienced major damages to their facilities resulting in operation shutdown for several months. Nevertheless, the market showed recovery by the 10.6% vehicle sales growth in 2012, albeit still below the pre-disaster figure in 2010. Vehicle Sales by TIV (Philippines), 2006 -2012 —————~
180,000
2006 2007 2008 2009 2010 2011 2012 Source: Extracted from the IMR Report prepared by Frost & Sullivan Vehicle Sales by TIV (Philippines), 2006 -2012
The automotive market growth in the Philippines was largely driven by the demand in commercial vehicles. In 2012, commercial vehicles sales comprise 69.1% of TIV. The growth in the commercial vehicles segment was the highest compared to other segments. Between 2006 and 2012, commercial vehicles sales recorded a CAGR of 10.0%, as compared to the passenger vehicles which recorded a CAGR of 3.9% during the same period. In 2012, vehicles sales in the Philippines recovered 10.6% to reach 156,649 units as compared to 156,649 units in 2011. Executive Summary ofthe IMR Report 8. INDUSTRY OVERVIEW (Cont’d) Vehicle Sales by Passenger Vehicles and Commercial Vehicles (Philippines), 2006 ­2012  Y  Passenger Vehicles  Commercial Vehicles  ear  (units)  (units)  2006  38,479  61,062  _”.._._….-.–..  ._~__~__’_~~…m_T>Wo~~  ~_.•_,..” ……_~~~_.__~,_••” __…,..><>;”•.”…….~,_,~ ••••~_._~ ……._….,,_…~ m”,,”,,,J,,,n_.,  ~~__,_,,,,~_~_~.__~_.~•.,,._~__••__  2007  41,213  76,690
==-_~~2~~8-~=~~’__=-=1=~~~~~=”-’44’:~25~~-_=~:~=-_ .._-~.~~ .. ‘··~~~-=~~:.==80, 024:====:—–·. -_._-_._-~.~~:_——_ _-+–_ __ ~.~~~–_ _.._._._–_ ~~~~~~ .._—-_._ __._­-=–~-=~ ~~-=-_=-1–··_-~:{:4~ _=l ·sc;~2~oi~~~±EE==~i2_:1LJb{[,·-·S1~~;~2~d
Source: Extracted from the IMR Report prepared by Frost & Sullivan 3.2.2 Supply Conditions CBU vehicles versus CKD vehicles The production of CKD vehicles in the Philippines has been decreasing since 1997. The current free trade agreements between Philippines and Japan as well as the agreements within ASEAN such as CEPT-AFTA tend to favour importation of CBU vehicles rather than local assembly. This importation was facilitated by the implementation of tariff schemes such as the CEPT under the AFTA. The commitment by the Philippines Government to lower tariff barriers to zero in 2010 (from 5.0%) has made importing CBU vehicles into the country more affordable as compared to assembling CKD vehicles in local assembly plants. The open trade regime has resulted in the sales of CBU vehicles to grow from approximately 5.0% in 2000 to approximately 51.0% in 2009. In 2011, about three-fifths of all the vehicles sold in the Philippines market were imported. Hence, the automotive industry in the Philippines is expected to continue to focus on importing and selling CBU vehicles within the next 5 years, rather than assembling them in the country. 3.3 Regulatory Overview
The executive order provides for a comprehensive industrial policy and Executive Order No. 156 directions for the Motor Vehicle Development Program and its implementing guidelines. ———–.————-_..———_._-_.._—_…_—————–:-1 The executive order allows for importation of brand new motoredExecutive Order No. 264 vehicles. The executive order prohibits the importation of all types of used motored Executive Order No. 877-A vehicles, parts and components, except those that may be allowed under certain conditions. Executive Summary of the IMR Report 8. INDUSTRY OVERVIEW (Cont’d) 3.4 Industry Prospects and Outlook The Philippines GDP per capita is expected to grow at a CAGR of 5.5% over the 2013-2017 period. Given that the car ownership level in the Philippines is one of the lowest in the world (9 cars per 1,000 people), the demand for passenger cars is expected to remain strong due to the strong correlation between car ownership and GDP per capita. Generally, as countries grow wealthier, the car ownership level tends to rise exponentially as shown in the chart below. With a population of approximately 94.9 million in 2011, Philippines hold plenty of promise for the automotive industry especially the passenger vehicles market as it enjoys a growing middle class. GDP per capita (USD) vs. car ownership per 1,000 people, 2011 ;;; 70,000 U) 2­.l9 60,000″is. nl ..Llstralia <II 50,000 c-o.. • Jap/in ~nited States• Singaporec 40,000 ~ GermanyC) • U . ed Kingdom • New Zealand 30,000 20,000 10,00~~ ,, I al \ 500 600 700 \ , , ” ——–Car ownership level per 1,000 people
Source: Extracted from the IMR Report prepared by Frost & Sullivan [The rest of this page is intentionally left blank] Executive Summary of the IMR Report 8. INDUSTRY OVERVIEW (Cont’d) 4 PROSPECTS AND OUTLOOK FOR SAUTO The automotive industry in Malaysia has come a long way since it began in the 1960s, when cars on the roads were fully imported. The industry has evolved from motored vehicle assembly and components manufacturing, to the establishment of national manufacturers, and the design and development of Malaysia’s own vehicles and CamPro engine. Frost & Sullivan expects that TIV in Malaysia will continue to grow from 627,753 units in 2012 to reach 728,749 units in 2016 at a CAGR of 3.8%. Sales of vehicles are expected to be driven by several factors, including the rising income levels of consumers, inefficient public transport system, Malaysia’s car-centric culture, the promotional activities undertaken by the various industry players and the introduction of new models in the market. The A-segment (mini cars) and B-segment (small cars) are expected to remain as the leading segments in the next few years, especially due to the launch of the new Perodua Myvi, which is likely to see good consumer acceptance among entry-level buyers. The A and B-segments presently dominate the local automotive market due to the lower price and greater fuel efficiency, and this trend is anticipated to continue over the next few years. However, with Malaysia’s economy expected to register further growth, Malaysian consumers are also expected to trade-up to larger and more expensive models in the B, C and D-segments. Sales in the C-segment will likely be driven by the launch of new models such as Honda Insight and Proton Inspira. The introduction of new vehicles and face-lifts is anticipated to increase competition in the Band C-segments. Incentives given by the Government are likely to generate high interest in hybrid vehicles (below 2,000cc) such as Honda Insight and Toyota Prius. The automotive industry in Malaysia is expected to further develop and move towards liberalisation, whereby the Government has introduced the NAP in 2006 and NAP Review in 2009 to facilitate these changes. Both the NAP and NAP Review aim to expedite the required transformation and integration of the domestic automotive industry into regional and global industry networks. The NAP Review has also stipUlated various policy instruments to encourage both local and foreign investments in high value-added manufacturing activities. Mazda vehicles have proven to be resilient to changes in the economic climate, whereby sales of Mazda cars in Malaysia have generally increased from 2008 to 2011. In particUlar, for the year 2009, Mazda cars enjoyed an increase in sales volume despite the drop in TIV and sales volume within the various segments that year. Mazda cars have gained popularity in the local Malaysian market, with market share within the non-national passenger vehicle segment doubling from 0.3% in 2008 to 0.7% in 2009, then almost tripling to 2.1% in 2010. Mazda’s market share continued to increase from 2.5% in 2011 to 2.7% in 2012. Mazda’s increasing popularity is greatly attributed to the brand’s competitive strengths and increased public awareness of the various models offered, generated by promotional and 8. INDUSTRY OVERVIEW (Cant’d) marketing campaigns. Mazda identifies itself with its ‘loom loom’ tagline, focusing on engineering vehicles that bring an enjoyable driving experience in an affordable manner. As such, Mazda has positioned itself as a brand that attracts buyers who value quality, performance and a sporty appeal. Mazda’s market share within the non-national passenger vehicle segments it competes in, namely the B, C, D, MPV and SUV segments has generally increased each year from 2008 to 2011. Mazda’s launch of the Mazda2 in April 2010 marked its entry into the entry-level B­segment (small cars) in Malaysia, and the response from the public was positive with sales figures reaching 1,827 units that year (2,063 units in 2011). The A-segment (mini cars) and B­segment (small cars) dominate the national TIV, largely attributed to the lower cost of the cars in these segments, which are typically more fuel efficient as compared to larger models. Frost & Sullivan expects this trend to continue, with the Mazda2 well positioned to tap into the increasing growth potential of the mass market segment of passenger vehicles. The local assembly of the Mazda3 model has also resulted in lower prices, and demand is expected to increase and further improve Mazda3’s market share in the C-segment for non­national passenger vehicles. In 2011, Mazda3’s market share within the C-segment for non­national vehicles priced between RM100,000 to RM130,000 was recorded at 10.0%, Mazda’s highest market share within a segment that year. With more models expected to be assembled locally, Mazda’s sales can be expected to record augmented growth in the future. Following the growth of Mazda car sales in Malaysia, Bermaz had entered into a joint venture agreement with Mazda Japan to undertake a manUfacturing programme to increase local assembly and manufacturing activities in Malaysia. Pursuant to the joint venture agreement, the Mazda CX-5 SUV will be assembled locally commencing in 2013. This will enable the cost of CX-5 models to be reduced and priced more attractively in the SUV segment The automotive industry in the Philippines continued to strengthen. In 2012, the sales of passenger vehicles and commercial vehicles recorded annual growth of 7.7% and 12.0% respectively. The zero tariff has made importing CBU vehicles into the country more affordable as compared to locally assembled CKD vehicles. BAP, a 60%-owned subsidiary of BMIL, which in turn is a wholly-owned subsidiary of Bermaz is expected to benefit positively in the Philippines market as its main focus is largely on the sales of passenger CBU vehicles. Executive Summary of the IMR Report

 

 

 

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