A Global Love Affair a Special Report on Cars in Emerging Markets November 15Th 2008
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A global love affair A special report on cars in emerging markets November 15th 2008 CCarsCOV.inddarsCOV.indd 1 44/11/08/11/08 114:08:134:08:13 The Economist November 15th 2008 A special report on cars in emerging markets 1 A global love a air Also in this section Theme and variations To succeed in emerging markets, rich•coun• try carmakers have to tailor their strategies. Page 4 The home team Indigenous carmakers are working their way up. Page 8 Pile them high The cheap•and•cheerful end of the market. Page 11 Kings of the road Cheaper than four wheels, better than two feet. Page 13 The art of the possible Emerging markets are the car industry’s big hope. But it won’t be an The question is not whether the world can cope with three billion carsbut how. easy ride, says Matthew Symonds Page 14 HERE has rarely been a tougher time to sales in the BRICs, at around 14m, are likely Tbe a carmaker. Squeezed by the credit to overtake those in America, which are ex• crunch, rocked by the seesawing price of pected to be the worst since 1992. As recent• oil and now faced with a nasty recession as ly as 2005 America outsold them by over the banking crisis infects the real economy, 10m. By the end of this decade China, al• the traditional markets of North America, ready the world’s second•biggest market, western Europe and Japan, already slug• will probably overtake America’s sales of gish for several years, have all but packed 16m•17m in a normal year. In Brazil sales up. In America car sales are running at have increased by nearly 30% in each of about 16% below last year’s level. Detroit’s the past two years. Russia is likely to over• struggling big threeGeneral Motors, Ford take Germany as Europe’s biggest market and Chryslerhave just wrung a $25 bil• within the next two years, with sales of lion bail•out from Congress and could around 3.5m. Meanwhile, Tata’s $2,500 soon become just two. In Europe the de• Nano, due to be launched in early 2009, is cline has been less steep but the market is designed to do for India what the Model T now contracting. Sales in Japan this year Ford did for America 90 years ago. are expected to be the lowest since 1974. It is the irresistible combination of rap• However, not all is doom and gloom. id economic growth, favourable demo• Mature vehicle markets may be close to graphics and social change in the BRICs Acknowledgments Apart from those quoted in the text, the author would like saturation, but there is huge unsatised de• that is coming to the carmakers’ rescue and to thank the following for their help in the preparation of mand in the big emerging car markets of that is likely to account for nearly all their this report: Kumar Bhattacharyya of Warwick Brazil, Russia, India and China (the so• growth for the foreseeable future. America Manufacturing Group; Cecil Dewars of TVS; Richard Gadeselli of Fiat; David Herman and Nikolay Sobolov of called BRICs). Although not immune from has more than 900 cars (including light Severstal Auto; Andrew Lorenz of Financial Dynamics; Tom the rich countries’ troubles, they are likely trucks) for every 1,000 people of driving Malcolm and Irina Sharovatova of Ford; C. Narasimham of to su er much less. For one thing, levels of age. In the big western European countries Sundaram•Clayton; Jackson Schneider of ANFAVEA; Josef•Fidelis Senn of Volkswagen Brazil; Edoardo Spina of personal debt are far lower and a smaller and Japan, where public transport is better Morgan Stanley; and Carlos Tavares of Nissan. proportion of cars are bought on credit. For and population is denser, the gure is a lit• another, the BRIC economies have been tle over 600. But in Russia it is below 200, A list of sources is at expanding so fast that even a slowdown in Brazil about 130, in China around 30 and www.economist.com/specialreports should still leave them with growth rates in India less than ten. that look respectable to Western eyes. When times are hard, an American An audio interview with the author is at One measure of the BRIC countries’ family that already has two or three cars www.economist.com/audiovideo new importance to the car industry is that, will simply postpone buying a new one. recession or not, global car sales in 2008 But a potential customer in an emerging More articles about cars are at may still hit an all•time record of about market who has been saving for years to www.economist.com/cars 59m. For the rst time passenger•vehicle buy his rst car will still want to go ahead. 1 2 A special report on cars in emerging markets The Economist November 15th 2008 zil. Volkswagen, the market leader in Chi• Much to catch up on 1 na, believes it will soon be able to chal• Crossover point 2 Car ownership per 1,000 population of driving age lenge Toyota as the world’s biggest Car sales*, m 2007 carmaker. In Russia Renault has taken a 20 0 200 400 600 800 1,000 25% stake in the country’s biggest local car• United States maker, AvtoVAZ, and its Logan is the rst United States of a new wave of global low•cost cars. 15 Western Europe Makes such as Mercedes, BMW and 10 Japan even Bentley and Ferrari are now common sights on the streets of Moscow and Shang• Russia hai. As Mr Jonas points out, emerging mar• 5 Brazil kets account for more than a third of the BRIC countries China world’s rich but only about 15% of luxury• 0 2000 01 02 03 04 05 06 07 08† India car sales. These markets have much in common, Sources: Morgan Stanley; *Includes MPVs, SUVs Source: Morgan Stanley The Economist † but each is also remarkably di erent. In and LCVs Forecast China buyers turn up their noses at small 2 As Carlos Ghosn, the boss of the Renault• cars. The market is still dominated by joint dwindling oil supplies, fuel prices are Nissan alliance, put it at this year’s Beijing ventures with foreign rms, but the stron• bound to rise in the long term. motor show: Nothing can stop the car be• gest local manufacturers are rapidly ex• Infrastructure is another big worry. In ing the most coveted product that comes panding production. China new highways are being built on with development. Russia still has a sizeable indigenous in• much•needed agricultural land. In India dustry, but many of its products hark back nearly half the trac runs on just 2% of the The new champions to the old Soviet Union. Like the Chinese, country’s roads. In the megacities of the No wonder that all the big carmakers are Russians like high and wide SUVs. By con• developing world, from São Paulo in Brazil ghting like rats in a sack to win the largest trast Brazilians prefer their cars small. India to Mumbai in India, cars often move at less piece of the action. Already, emerging mar• has established itself as an exponent of than walking speed, stuck in trac jams. kets have made the di erence between life what car•industry executives call frugal According to Mr Ghosn, the only way to and death for some of the most famous engineeringinnovation in the cause of give people the cars they want without names in the industry. GM could not have ultra•low cost. Diesel engines are almost wrecking the planet is to move quickly to survived the terrible battering it is getting unknown in emerging markets other than producing zero•emission vehicles, proba• in America without the meteoric growth it India because poor•quality diesel fuel is bly powered by batteries. Nothing else is seeing in China. Thanks in large part to associated with trucks. In Brazil nearly all will prevent the world from exploding, he the BRICs, a record 65% of GM’s sales in the new cars are able to run on ethanol. says. Others in the industry may quietly rst quarter were outside America. Despite the social and economic bene• agree, but they are less condent that the When Italy’s Fiat was in danger of going ts that widespread car ownership brings, technology to power them will arrive in out of business a few years ago, its Brazil• its spread in developing countries has time and at an acceptable price. And only ian operation came to the rescue. Adam Jo• raised fears about its environmental conse• governments can build the roads that will nas of Morgan Stanley, a bank, estimates quences, especially carbon emissions that accommodate so many more cars. For the that 65% of its net income last year came have climate•changing e ects. Given a rap• world’s carmakers the road ahead is full of from emerging markets, mostly from Bra• idly growing world car population and opportunities, but also many risks. 7 Theme and variations To succeed in emerging markets, rich•country carmakers have to tailor their strategies HE carmakers that have so far done Each BRIC market is di erent, and carmak• home demand but also of becoming a big Tbest from the emerging•market boom ers have had to employ di erent strategies exporter. The bait to attract foreign carmak• are the ones that placed their manufactur• to succeed in them.