JK's AIA Presentation

1
Attracting U.S. Automotive Investment in ASEAN
after Chinas WTO Accession
ASEAN Investment Area Council (AIA) Dialogue with
the US-ASEAN Business Council Hanoi,
Vietnam September 13, 2001 Jerry
Kania President, ASEAN Operations Ford Motor
Company
2
The Auto Industry is Key in Major Industrial
Economies

• Production and Sales of New Motor Vehicles Makes
  up 4 of US G.D.P.
• 1 out of every 15 American jobs is Auto-industry
  related, accounting for nearly 7 million American
  jobs, or 5 of total jobs.
• U.S. Exports of automotive products reached 74
  Billion last year, 12 of total U.S.
  (non-agricultural) exports.
• U.S. Auto Industry spends 20 Billion annually on
  research and development.

3
The Automotive Industry Imperative
The foundation of sustainability in the auto
industryis global competitiveness, which is a
functionof continued liberalization
Product DesignAnd Development
IntegratedManufacturing
ASEANToday
Low Value-added Limited Exports Low Technology
CKD
National
Global
Regional
Stages of Liberalization
4
ASEAN is an Important Automotive Market
Population 513 million GDP 820 Billion
Large Population Growing Middle Class
Source DRI
5
ASEAN Auto Growth Still Lags China

• ASEAN Industry Size Only Competitive if Viewed as
  One Region
• Low Motorization Rate in China Means More Room to
  Grow

6
Auto Manufacturers Have Invested Heavily in ASEAN
since 1995
Millions US ()
BUT
7
Vehicle Prices Drive Industry Volume, Which
Drives Global Competitiveness
As long as high taxes and tariffs keep vehicle
prices high, volume will continue to be
suppressed, keeping future investment away.
Proton
8
Limited Capacity Investment in ASEAN Until Plants
Are Filled
60 Viability Line
Capacity Utilization
AFTA Will Unlock Regional Volumes, Filling up
Todays Unused Capacity
Data Source DRI
9
Manufacturers Will Use AFTA to Rationalize
Manufacturing Starting in 2003
VIETNAM ?
10
CBU AICO An Example of Forward Thinking
Delivering Investment into ASEAN
Ford Thailand
Ford Philippines
PARTS

• BENEFITS
• Eliminates Duplicative Vehicle Assembly and
  Supply Bases.
• Controlled AFTA will increase investor
  confidence and reassure all players that AFTA
  will work!
• Major (Multimillion Dollar) Investment in Both
  Countries for New Products, possible because of
  Greater Economies of Scale.
• Win-Win for Both ASEAN Countries.

11
Reality Chinas Diverting Investment Dollars
From ASEAN
First Phase FDI is Over for Asian Auto
Markets Where Will the Second Phase Go?
Source Automotive Resources Asia
12
Chinas WTO Accession and Large Market are an
Investment Magnet
Automotive Investment in China is Directly
Related to Trade and Investment Policy
13
What Major Factors Determine Where U.S. Auto
Companies Invest?
14
China Automotive Investment and Capacity Building
Continues to Grow
(000) Units
127
150
110
60
220
630
525
Billions US ()
15
China Motorcycle Exports are an Early Warning to
ASEAN
Motorcycle Production in China, 1991-2000
DomesticDemand

• Motorcycle Exports Have Already Displaced Local
  Production in Vietnam and Indonesia.
• Vehicle Exports to Indonesia Have Already Begun.

16
Local Content Rules High Vehicle Taxes A Drag
on Investment
110
Economies of Scale Regional Integration
Naturally Drive to Higher Levels of Local Content
Low Vehicle Taxation Stimulates Vehicle Demand
and Production of Products Customers Want
17
Summary

• AFTA is key Regional Tariffs Must Come Down
• Most Critical Aspect of Growing Volume.
• Malaysias Delay Closes the Largest Passenger Car
  Market in ASEAN to Regional Integration,
  Potentially Until 2008.
• Meet WTO TRIMs Obligations Now
• Continuing TRIMs in Malaysia and Philippines
  Slows Down Global Competitiveness in Component
  Manufacturers and Prevents Regional Sourcing
  Integration for Components and Parts.
• Harmonize Vehicle Emissions/Safety Standards
• Harmonize External MFN Tariffs
• Will Result in Lower Cost CKD Imports China
  Drops to 10 in 2006!
• Modernize Vehicle Tax Policies
• Current Structures Actively Suppress and Distort
  What Consumers Want.

18
What Will Happen if ASEAN Liberalizes Regional
Automotive Markets?

• Become More Attractive for Foreign Investment.
• Competitive With China.
• Move Into Advanced Phase of Vehicle
  Manufacturing.
• High Value-Added Jobs.
• Exports!
• Global Competitiveness.

What Will Happen if ASEAN Does Not Liberalize
Regional Automotive Markets?
19
Attracting U.S. Automotive Investment in ASEAN
after Chinas WTO Accession
Thank You