Automotive Insights

AUTOMOTIVE INSIGHTS

BEYOND MAINSTREAM 02.2014

BRAZIL RE- READY ARRANGING FOR RECOVERY RUSSIA IN BRIC CRISIS MODE

WHO WILL DRIVE FUTURE GROWTH?

CHINA THE WORLD'S POWER INDIA ENGINE WAITING IN THE WINGS B IN BRAZIL IT'S AN ART TO MAKE SURE THAT THE R MONEY THE MARKET YOU MADE TODAY IS IN THE 26% BELOW GOOD TIMES THE IS NOT GOVERNMENTAL LOST LONG-TERM IN THE BAD PLAN, TIMES. AND THIS GAP Antonio Roberto Cortes, WILL EXPAND CEO MAN TO 36% Latin America (WHICH IS 1.3 MILLION CARS) IN 2018. Presentation to the Russian government by Ford Sollers C WILL CHINA'S AUTO I MARKET BRIC GET BACK I EXPECT IS GROWING ON TRACK THE VERY FAST. ? AUTO I BELIEVE INDUSTRY 30 MILLION TO ANNUAL GET BACK SALES WILL ON ITS ALSO BE FEET REACHED AGAIN. QUITE SOON. Pawan Goenka, Matsui Xiuji, Executive Director, Deputy Mahindra General Manager, GAC Toyota

2 THINK ACT // AUTOMOTIVE INSIGHTS REARRANGING BRIC DRIVE-IN

Dear Reader,

Until a few months ago, it seemed as if growth in the BRIC automotive markets was unstoppable. But today the euphoria appears to be well and truly over. Auto- makers and suppliers in Brazil, Russia and India have seen demand weakening over time, and business has been disappointing. Indeed, China was the only market where the industry achieved a remarkable success: Its share of the global market almost tripled within one car generation, up from 9% to 26% between 2007 and

2014. China has therefore more or less single-handed- MARCUS BERRET ly generated the additional car sales our industry so Head of the Automotive desperately needed to survive the crisis and quickly Competence Center at Roland Berger return to pre-crisis levels. Strategy Consultants

With the precursors to slower growth already emerging in the core markets of Europe, the United States and Japan, automakers and suppliers need to know for sure whether they can rely on the BRIC markets in the future. The current edition of Automotive Insights ad- dresses this question. Our authors explain why we believe that Brazil and India are set to make a comeback. They identify risks the industry has to face in Russia. And they describe the challenges faced by automakers and suppliers in China's increasingly saturated market.

We hope you enjoy reading this issue.

THINK ACT // AUTOMOTIVE INSIGHTS 3

COVER & PAGE 2: VLADIMIR KRAMIN/FOTOLIA; ISTOCKPHOTO; EDITORIAL: ENNO KAPITZA REARRANGING BRIC CONTENTS THINK ACT // AUTOMOTIVE INSIGHTS // 02/2014

24 SPECIAL BRIC ISSUE 8

SPOTLIGHTS BRAZIL RUSSIA CHINA

2 DRIVE-IN 8 LOOKING FOR 18 STUCK IN THE 30 HOTSPOT CHINA Thought leaders on GROWTH CRISIS China's automotive the future of BRIC Adjustment rather than Russia is bringing up industry remains the crisis? The industry the rear of BRIC. Three BRIC growth champion. 6 THE WORLD is optimistic again. future scenarios BRICS 37 CREDIT IS KING A quick check of the 15 TURNING THE INDIA Auto financing is the emerging economies CORNER next big thing in China. An efficient approach 24 READY TO ROLL 40 IS LAMS THE for Brazilian suppliers Manufacturers and NEW BRIC? to bridge the standstill suppliers have taken a A snapshot of next- breather. Will India be generation growth back on track in 2015? opportunities

4 THINK ACT // AUTOMOTIVE INSIGHTS REARRANGING BRIC *WHO INVENTED BRIC? Jim O'Neill used the acronym for the first time in 2001 in a Goldman Sachs paper entitled "Building Better Global Economic BRICs". O'Neill is a British FOUR economist and former chairman of MARKETS Goldman Sachs Asset Management. – He viewed this group of relatively FOUR diverse countries as a single entity, positioning it as a counterweight to the OPINIONS G7 economies. Doing so created a How leaders in the symbol of the approaching shift in industry see global economic power away from the G7 states to emerging markets. future prospects for their region.

13 Santiago Chamorro on adjustment in Brazil 30

23 Thomas Sedran on his wishes for the Russian 48 market

TOPICS IN DEPTH ESSENTIALS 28 Ravindra Pisharody on 42 GLOBAL 46 CHINESE- 52 FAMOUS CARS the next stage of SUPPLIERS WESTERN King of Indian roads: development in GO BRIC POWER The Ambassador India A guideline for global ENGINES suppliers to reshape Why the acquired 53 FOOD FOR their BRIC activities Western firms also THOUGHT stand to benefit.

44 BRIC SUPPLIERS 54 AUTHORS 35 GO GLOBAL 48 BOUNTIFUL Contributors to this Liu Tao on Key facts about investors, HARVEST issue the difficult task of brand deal values and targets Agricultural equip- manage- ment is a big seller 54 ROLAND BERGER ment in China in BRIC countries. AUTOMOTIVE EXPERTS

THINK ACT // AUTOMOTIVE INSIGHTS 5 REARRANGING BRIC BRIC OVERVIEW

The four BRIC countries account for over a quarter of the world's land area and more than 40% of its population. Although geographically separated, with distinct histories and culture, they share a long list of common characteristics: large available labor force, rich resource deposits, a significant amount of foreign direct investment and high expectations concerning GDP growth.

Brazil Russia India China Germany

66% 7% 2030 6% SPECTACULAR CATCH-UP RACE 53.5 BRIC has taken over the lead in worldwide automotive sales volume from triad markets. Light vehicle sales [m units, %]

WHAT WILL BE LEFT 2002 2012 2019 RoW OF BRIC? IC? OR C? 56.6 79.5 103.4 Triad Growth in China and India is 21% 23% 22% BRIC expected to outpace world GDP between 2013 and 2030, but NOTE: Russia and Brazil will fall behind. Triad includes Western Europe GDP [USD bn] 21% (excl. Balkan states), Japan and the US; light 68% vehicles include 41% 35% passenger cars and light commercial vehicles.

57% 2013 10%

11%

20.4 43%

36% 75.4

22%

73%

11% 6 THINK ACT // AUTOMOTIVE INSIGHTS REARRANGING BRIC BRAZIL is the seventh largest RUSSIA is the eighth largest INDIA is the world's tenth CHINA's economy* is the 29.6 economy* in the world. It is economy* in the world. Oil and largest economy*, is the 19th second largest in the world, and the largest economy in Latin gas production and pipeline largest exporter and the 10th has been one of the fastest- America and the second largest projects have been a fundamen- largest importer. With 1.2 billion developing over the past 30 * by nominal GDP nominal by * in the Western hemisphere. tal cause of economic growth people, its retail market is one years. It also has the biggest Inflation and high production and a geostrategic lever in the of the fastest growing worldwide. manufacturing and technology costs make it hard for compa- country's relations with Europe India's growth has suffered from export markets worldwide. nies to maintain profitability. and Asia. The consequences a slump in infrastructure and Projected growth of 7% in The lack of competitiveness has of the Crimean crisis will have corporate investment which 2014 demands a new approach forced the automotive industry a major effect on automotive also had significant impact on for market development in 24.7 to focus on Mercosur markets. production in Russia. automotive OEMs and suppliers. the automotive industry.

LOWER ENTRY PRICES 22.7 In 2014 BRIC incomes are still comparably Disposable Entry-level price of low. Therefore the average price of the income 20 most popular cars [in USD p.a.] [average, in USD] most popular cars lags behind 20.8 1,000 7,600 markets like Germany. 5,000 13,400 7,000 14,200 16,000 9,000 14,800 28,700

Sources: Oxford Economics, Roland Berger

2030

142.6 THE WINNER IS … 38% CHINA MONUMENTAL SHIFT: Automotive markets in Brazil, BRIC WILL CONQUER Russia and India have seen dips THE WORLD ECONOMY or even significant declines, while the boom in China seems 2013 In 2013, the BRIC economies to be continuing. A closer look at represented 27% of global GDP. 2030 the different countries reveals a they will account for more than 38%. new quality of growth in China, GDP [USD bn] the hope for a more dynamic 62% future develoment in India and 27% Brazil and a rather conservative outlook for Russia. Light vehicle sales 2002-2019 [m units] World 5.3 BRIC 2002 2014 2015 2016 2019 4.3

3.6 3.6 3.6 3.6 3.2 3.2 3.0 2.8 2.9 2.6 2.7

1.4 THINK ACT // AUTOMOTIVE INSIGHTS 1.1 7 REARRANGING BRIC 0.8 7 BRAZIL LOOKING FOR GROWTH

Exhausting business: It's not just traveling salesmen at the Copacabana who need a survival strategy.

8 THINK ACT // AUTOMOTIVE INSIGHTS REARRANGING BRIC BRAZIL Looking for growth

The Brazilian automotive industry has the blues. But everybody agrees that this is a temporary phenomenon. Therefore, both car manufacturers and suppliers will need to find a way to master the lean years despite idle capacity.

BY STEPHAN KEESE p. 54 PHOTO: ANTONIO BARTUCCIO/SIME/SCHAPOWALOW; REUTERS/NACHO DOCE; GARY CALTON/PANOS PICTURES DOCE; GARY CALTON/PANOS REUTERS/NACHO BARTUCCIO/SIME/SCHAPOWALOW; ANTONIO PHOTO:

THINK ACT // AUTOMOTIVE INSIGHTS 9 REARRANGING BRIC BRAZIL LOOKING FOR GROWTH

figure will equal some 3.5 million units. The overall sluggish economy and uncer- Actual production will not exceed 3.5 tain financing regulations have slowed million units in the optimistic scenario down sales. Even governmental incentive and will likely equal 3.2 million units in a programs like planned fleet renewal are more conservative scenario. unlikely to drive the market back up. Even The reasons for these setbacks are so, in southern Brazil Chinese manufactur- known. The Brazilian economy depends ers such as Foton or Shiyan Yunlihong are too heavily on its domestic market. How in the process of expanding their manufac- dynamically and profitably Brazil's car in- turing facilities. In the end a tight market, a dustry grows hinges directly on domestic lack of growth and new players are leading consumption. Overall, consumer confi- to even fiercer competition. dence has suffered heavily over the past educed hours, mandatory vacations, two years – and this has dragged car PRODUCTIVITY Rclose-downs, forced leave and layoffs – sales down. High vehicle prices, high in- CHALLENGES the automotive industry in Brazil is cur- terest rates and restrictive lending are rently getting bad press in contrast to putting a damper on new car sales. One strategy to achieve the target volumes the past, when Brazil was typically a Truck manufacturers are suffering a for cars more quickly would be to push ex- poster boy for the global car industry. significant drop in sales as well. Even in an ports. Unfortunately, the models and parts After all, the country has the seventh optimistic scenario, the segment will not currently manufactured in Brazil are not largest economy in the world. Carmakers find its way back to 2011 levels by 2018. competitive on the world market. Key ma- had high hopes. They expected to sell five million cars here in 2014. With this in mind, over the past few years they have invested huge amounts in new facilities, product portfolios and dealer networks. But now growth is stagnating, and that's why the industry needs an effective survival strategy.

ROSY PAST – UNCERTAIN FUTURE

Production capacity in Brazil rose overall by 25% between 2011 and 2013. It's not just incumbents PSA, Renault, Nis- san and Fiat that have extended their production lines. Luxury carmakers such as BMW, Audi, Mercedes and Land Rov- er are kicking off production in Brazil, and even Chinese manufacturers (JAC and Chery) are setting up facilities in South America's biggest country. How- ever, in the meantime, companies have received the big wake-up call, as it's now become apparent that the market isn't growing as fast as anticipated. Assum- ing a more optimistic scenario, unit sales in 2016 will be about 3.7 million, and in a conservative environment this

10 THINK ACT // AUTOMOTIVE INSIGHTS REARRANGING BRIC 377

terials for the automotive industry such as aluminum and steel are up to 25% more Economic recovery at risk expensive in Brazil than elsewhere. Fur- Even in an optimistic scenario, both sales and production thermore, labor costs are too high, espe- of light vehicles* will fall behind high hopes of five million cially in relation to local productivity: units per year. What's more, Brazilian wages are growing Strong unions are getting their way. In recent years, during each individual round of much faster than producivity is. wage negotiations, they were able to push through wage demands that were higher than inflation. The result is that labor costs 3% at manufacturers have increased on aver- Car sales per year CAGR Labor costs vs. productivity [m units] [indexed 2002=100] 255 age by 9% annually since 2008, while sup- 1.5% pliers have had to pay their people 7% CAGR more each year. However, since labor costs have been rising faster than productivity,

Street view of São Paolo: Former economic wunderkind Brazil has to 4.2 deal with structural problems. 3.9 3.6 3.7 3.3 3.5 3.2 175

2013 2014e 2016e 2018e

125 2.1% 122 CAGR Car production per year 112 [m units] 0.5% CAGR 100

3.9 3.5 3.5 3.6 3.1 3.2 2.8

2013 2014e 2016e 2018e 2002 2006 2010 2014

Conservative Optimistic scenario Productivity Labor costs *Passenger cars and light commercial vehicles

Sources: ANFAVEA, IHS, Roland Berger Sources: Sindipeças, MDIC, Roland Berger

THINK ACT // AUTOMOTIVE INSIGHTS 11

PHOTO: EDUARDO MARTINO/PANOS PICTURES MARTINO/PANOS EDUARDO PHOTO: REARRANGING BRIC BRAZIL LOOKING FOR GROWTH

Sales talk: Many competitiveness has been steadily declin- planned increase in IPI tax (federal tax middle-class families ing. And it's unlikely the bargaining power levied on industrialized products and im- can't get their cars financed anymore. of Brazil's unions will decline in the fore- ports) has been suspended. seeable future: Unemployment is low and However, it now looks like the govern- the car industry is having severe problems ment has fully exhausted all its options. It finding skilled workers as it is. cannot slow down the increase in labor Devaluation of the real is also driving costs, there is insufficient investment to costs up, as all imported components are expand the infrastructure and it's consid- now considerably more expensive. ered politically unwise to eliminate import The Brazilian government is trying to cor- tariffs on raw materials. And there's an- rect the situation. After all, this sector other problem on the horizon: Argentina accounts for 13.3% of the country's GDP has technically gone bankrupt. The neigh- and employs 450,000 people. Key indus- bor to the south is one of the most im- try leaders met with government officials portant export markets for Brazil's auto in April 2014 to discuss actions. The re- industry. sult is that Brazil's government has now set up a guarantee fund designed to off- HOPING FOR set the effects of consumer loan defaults. STEADY GROWTH The government has also made things easier for financiers by dropping the mini- It's now time for car manufacturers and mum amounts that need to be deposited suppliers to take control of their own des- at the central bank. Furthermore, the tinies. First, they must improve profitability. A market with increasingly slower growth and more and more competitors is making the threat of idle capacity very real. However, there are ways to offset these effects. For example, by fully exploiting the opportunities offered by automation and streamlining all activities – especially at new sites – and making them more efficient. Manufacturers and suppliers will have to take a critical look at their level of vertical integration in Brazil. A lot of this is based on hope. Brazil has a healthy basis – with its population of almost 200 million people and abun- dant raw materials, it can be expected that the economy will recover at some point. But the question is: "When"?

Production in Brazil: Skilled workers are hard to find.

12 THINK ACT // AUTOMOTIVE INSIGHTS REARRANGING BRIC INTERVIEW SANTIAGO CHAMORRO "WE DON'T TALK ABOUT A CRISIS, WE CALL IT AN ADJUSTMENT."

The President of GM lot of people can't get financing for their cars. an actual crisis, the recovery window would Besides, soaring inflation is forcing car com- be five to seven years. Therefore, we expect do Brazil talks about new panies to compete with necessities such as 2015 to be probably flat, with no relevant ups consumer profiles, niche school, rent, home appliances, etc.. Car fi- or downs. experiences and General nancing installments are just another cost Are the measures taken by the Brazilian that have been going up along with other fam- government sufficient to support market Motor's biggest asset in the ily-related expenses. In addition, we have to recovery? The government wants to improve Brazilian market. deal with the discontinuation of tax subsidies the competitiveness of the Brazilian automo- (IPI), and there are new safety requirements tive industry: e.g. they plan to make cars more Mr. Chamorro, why is it so difficult to sell such as airbags and ABS brakes. As a conse- fuel-efficient and safer. And they are strength- cars in Brazil at the moment? Well, first of all quence, we even have to raise our prices. It's ening the position of retailers. This is positive we lack consumer confidence. It's at the low- clear that a lot of families are opting not to as it means important changes for consum- est level in years. There are many reasons for have a car anymore. ers. Incentives within the Inovar-Auto subsidy this: Interest rates are going up and banks How long will it take the Brazilian market to program have already brought significant have no appetite for rolling out credit, espe- recover from the crisis? We don't talk about progress in terms of fuel efficiency. However, cially in the private sector. Just 18 months a crisis, we call it an adjustment. Normally, measures like these lead to higher costs. They ago, 65% of credit requests were approved. whenever the Brazilian market feels an adjust- bring Brazil into an area of conflict between Nowadays the approval rate is only 40%. So a ment, it takes two years to recover – if it was the emerging consumer profile and the devel-

THINK ACT // AUTOMOTIVE INSIGHTS 13

PHOTO: PAULO FRIDMAN/CORBIS; REUTERS/NACHO DOCE; ILLUSTRATION: BEN TALLON/DIE ILLUSTRATOREN REARRANGING BRIC our suppliers who deserve attention and our commitment to improve logistic costs. GM do Brazil's portfolio is in the process of "NEW upgrading. What are the most important features? To put it in a nutshell: New products with modern technology are replacing older TECHNOLOGIES ones. They are more consumer-oriented. Fur- thermore, the quality that we can deliver to consumers has been improved. We also inte- NEED A grated the production of GM's models globally in order to cover all consumer needs. Onix, Prisma, Cobalt and Spin are products from a REASONABLE single platform. As a result, we are able to improve our industrial scale and our relationship with suppliers. In the future, this will happen Santiago Chamorro PRICE." more often. With a strong series of launches behind you, where do you see GM Brazil in the next 15 to 20 years? Brazil is an interesting mar- oped market portfolio. It's important to ob- tives. Even so, we had a good market share of ket and GM wants to stay a part of it. Today we serve cost-related aspects, otherwise we 16.8% in the first quarter of 2014. However, are the world's third largest GM Chevrolet op- can't take advantage of Brazil's demographic we need to address three important challeng- eration, right behind the US and China. Our bonus: a young population, a growing and es. First, increasing labor costs. These typi- sales network is one of our best assets. I think consuming middle class and good levels of cally increase faster than inflation. Rising la- we have the best relationship in the whole employment. So I think there is a lot of work to bor costs are ok, if productivity grows at the market and over the long term we'll become do on three fronts: taxes, easier credit access same pace. But this is not the case in Brazil. even closer with our partners. The Chevrolet and infrastructure. In the long run, this means we will lose com- brand is a strong asset in the Brazilian market You mentioned a conflict between the petitiveness and the ability to export globally. – maybe the strongest in the world. We be- emerging consumer profile and the devel- It's difficult to play in the global automotive lieve that the Chevrolet brand is the favorite of oped market portfolio. Is the Brazilian mar- arena if your exports are weak. We could learn Brazilians – and we want to reward them with ket ready for expensive technologies? Those from countries such as Mexico and Korea. good products. We were a pioneer in online technologies are good as long as it's possible They are very good at taking advantage of the sales, we were first to offer direct dialog with to buy them at a reasonable price. Take the global demand for vehicles. the mechanics, the first to customize vehicles example of air conditioning. In the past, about Apart from labor costs, what are the other (with the Celta in 2000) and we want to con- 40% of all cars had AC, but later that margin two challenges? The second challenge is to tinue to be the number one in key areas. To do increased to 60%, then 70% and now we have obtain a certain scale in local operations. so, it's important to have the support of com- it in almost 100% of our platforms. Over time, Regulations require having solid local produc- mitted employees who are able to understand the price of AC became affordable for Brazilian tion and a good level of localization, which the very important role they play in our great consumers. If this doesn't happen, they will means the ability to add local features to the company. remain niche experiences. Of course we have vehicle. To do this in a profitable way, scale is some examples of vehicles powered by alter- required. That means we need to support our native fuels. Some of the cost is reduced by suppliers in increasing their production vol- government subsidies, but the cost difference umes. Also, we will probably need to gain Santiago Chamorro was born in Bogota, Co is still too big compared to models with con- scale within our relationships: with fewer sup- lombia in 1969. He holds degrees in econo mics and finance, and participated in the ventional drivetrains. It will be difficult to sell pliers and optimized cost structures between CEO management program at ADEN Business such technology to Brazilian consumers. manufacturers and suppliers. The third chal- School in Bogota. Chamorro has been working Taking the perspective of General Motors – lenge is to reduce the cost of logistics. We for GM for 20 years now, where he has held what is currently putting the biggest pres- have a monoculture of truck transportation in positions in sales, service and marketing in Co- lombia, Chile, Brazil and the US. Since August sure on margins? At the moment, sales are a country that has eight thousand kilometers 2013, he has been President and Managing highly dependent on rebates and other incen- of coastline! And we have a strategic map of Director of GM's operations in Brazil.

14 THINK ACT // AUTOMOTIVE INSIGHTS REARRANGING BRIC Red lights: Brazilian consumers tend to postpone car purchases.

BRAZIL TURNING THE CORNER Due to low consumer confidence and high inflation rates, Brazil has become a tough market for automotive suppliers. Stuck in a cul-de-sac? Not if …

BY MARTIN BODEWIG p. 54

THINK ACT // AUTOMOTIVE INSIGHTS 15

PHOTO: MARTIN ROEMERS/PANOS PICTURES REARRANGING BRIC … suppliers focus on some effective restructuring levers to boost their performance and rightsize their domestic operations.

Caught in a jam: A symbol for the situation of the automotive industry in Brazil

he overall picture of the Brazilian automo- The "Custo Brasil", the costs associated crease local production rates for suppli- Ttive market is rather bleak. No wonder with Brazil's inefficient tax system, red ers, too. However, the big volume OEMs that high hopes have vanished in Brazil. tape, corruption and poor infrastructure, have long since reached a share of over Manufacturers and suppliers alike are became fully visible in the P&Ls. "Ino- 60% Overall, there is more and more suffering from low volumes and idle ca- var-Auto", a government incentive pro- strain on relations between suppliers and pacity, and the gap between labor costs gram offering significant tax reductions car manufacturers. The latter have be- and productivity development is becom- for OEMs that use 60% local content come very restrictive with price compen- ing more and more of a challenge. (among other criteria), is meant to in- sations. Brazilian suppliers that are part

16 THINK ACT // AUTOMOTIVE INSIGHTS REARRANGING BRIC BRAZIL TURNING THE CORNER

of a global supplier will have it easier than able. Production planning must be a top purely local companies. They have better management priority, especially in times Six levers of access to financing, technology and man- of downturn. agement support. With costs lowered and processes performance smoother and more efficient, it becomes HOW TO BOOST possible to adapt structural costs to the improvement PROFITABILITY AND OPERA- new reality. It is striking that much of the How Brazilian suppliers can TIONAL EXCELLENCE Brazilian supplier industry is still located combat declining margins. within high labor cost regions close to the Waiting for better days is definitely not an São Paulo metropolitan area, Campinas or option for Brazilian automotive suppliers, São José dos Campos area. A move to low- since forecasts for 2014/2015 see low cost areas within or outside the country is Sales and overall volumes and ongoing cost inflation. a clear option, especially for companies R&D In many cases, fast reaction is necessary with low technology and high labor con- 6 Revise product which means restructuring operations to tent. Now is the time to consolidate the portfolio lower the cost base and safeguard profit- number of plants, given the low degree of ability. When savings are difficult to capacity utilization. achieve, suppliers should focus on two Cutting overhead costs may seem like strategic priorities: achieve operational ex- old-school advice – but it is vital to the over- Overhead cellence and lower the break-even point. all success of the restructuring endeavor. 5 Optimize The basis for operational excellence is While many Brazilian suppliers have opti- overheads efficient sourcing. This is more than apply- mistically built up their overhead structures, ing self-evident purchasing levers like sup- because they expected years of growth and ply base consolidation and volume bun- profitability, these structures need to be dling or renegotiating with suppliers. challenged now. Consulting experience Instead, suppliers should think about spe- shows that a reduction of costs of 10 to Logistics cific levers. Localization compensates for 20% is feasible, just by adopting industry Improve 4 6 logistics the devalued currency and high importa- best practices. This may compensate for costs and tion costs. Insourcing fills up free capacity many of peculiarities in the Brazilian tax inventory and helps to retain the qualified workforce system. It is unfortunate, but in Brazil, cor- to eliminate the suppliers' margin and lo- porate functions that deal with taxes, im- gistics costs. ports or accounting tie up a lot of resources Production Lean production and automation in comparison to their global peers. Increase 2 3 Adjust plant comes next. Suppliers ought to reinforce Lastly, why not revise the product port- productivity footprint lean production principles, reducing lot siz- folio to improve productivity in the medium es and throughput times, thus ensuring term? Suppliers need to make clear-cut productivity even with lower volumes. Low decisions: If unprofitable projects cannot cost intelligent automation is a way to be turned around, they have to be eliminat- compensate for high labor cost increases. ed. Instead, new product categories with Purchasing In the long run, digital ("smart") production solid growth potential have to be identi- Achieve will add to the effect. fied. Environmental requirements and the purchasing excellence Logistics optimization is yet another demand for more comfort and safety will crucial task. Brazilian suppliers often foster new technologies – and market op- have high inventories. An excellent orga- portunities. As the challenges are complex, Increase Rightsize nization reduces downtimes, optimizes an unbiased analysis of the most promis- operational Brazil delivery routes and reduces stocks. Fo- ing levers and a central project manage- efficiency cusing on production planning is key – as ment organization is needed to make re- customer orders in Brazil are often unreli- structuring a success. Source: Roland Berger

THINK ACT // AUTOMOTIVE INSIGHTS 17

PHOTO: REUTERS/RODOLFO BUHRER REUTERS/RODOLFO PHOTO: REARRANGING BRIC Stalled: The domestic car industry is hit hard by the political and economic turmoil.

Russia STUCK IN THE CRISIS

18 THINK ACT // AUTOMOTIVE INSIGHTS REARRANGING BRIC RUSSIA STUCK IN THE CRISIS

Russia was expected to become the largest automotive market in Europe. This forecast proved to be too optimistic. And there doesn't seem to be much light at the end of the tunnel. We have composed three scenarios to Russian citizens: Hoping that economic sanctions won't last for a long time. illustrate the situation more clearly.

BY UWE KUMM, JÜRGEN REERS AND JURI WAGENLEITNER p. 54 hings aren't what they used to Shadows first appeared in 2009, when be: In the past Russia was the global financial crisis heavily hit Rus- among the core growth re- sia's optimism. The market was cut by gions for almost every car half to 1.5 million vehicles. Quick recov- manufacturer. Its economy ery followed until 2012, but in 2013 the wasT booming with up to 8% growth in market dropped again by 6% due to the GDP per annum, fired by soaring com- overall economic slowdown. And in 2014, modity prices. Some 140 million people as a result of political and economic had growing personal incomes which changes the market declined about 13% they were willing to spend on cars. They between January and September. loved modern vehicles, preferably foreign STUCK IN THE CRISIS brands. They were also fond of larger THE POWER models and sport utility vehicles, which OF PREDICTIONS provided high margins for the manufacturers. As a consequence, the yearly vol- With a roller-coaster pattern of the auto- ume of the automotive market increased motive market in the past and the current by two million vehicles between 2003 ambiguity about political and economic and 2013. developments, predictions have become

THINK ACT // AUTOMOTIVE INSIGHTS 19

PHOTO: CHRISTOPHER MORRIS/VII/CORBIS; GEODAKYAN ARTYOM/ITAR-TASS PHOTO/CORBIS ARTYOM/ITAR-TASS MORRIS/VII/CORBIS; GEODAKYAN CHRISTOPHER PHOTO: REARRANGING BRIC 3.6 Optimistic scenario

more difficult than ever. Therefore, we de- previous expectations of over four mil- 3.2 cided to use scenario techniques. We lion vehicles sold per year by 2020. Baseline scenario have built three market scenarios, reflect- ing key trends and risks. PESSIMISTIC SCENARIO. In this scenario we expect that the political conflict 2.8 BASELINE SCENARIO. Projections by will escalate further, although we do not Pessimistic scenario the government and leading institutes assume that import bans on vehicles or share the estimate that the Russian econ- components will be introduced. In any omy will not grow faster than 2% per year case, this would trigger even tougher po- on average until 2020, which is a moder- litical and economic sanctions against ate increase in real GDP for an emerging the Russian economy, leading to its isola- market. In this scenario we assume that tion. Conditions like these would impact political conflicts will persist in the short Russian export revenues and state bud- term. But we do not expect a further es- gets on federal and regional levels. Eco- calation or more severe economic sanc- nomic stagnation would be the conse- tions by the EU or the US against Russia. quence, at least in the medium term. And As the low growth rates go hand in hand in this case it is likely that the market with a large budget deficit, the govern- would not exceed three million vehicles ment will not be able to support the auto- sold per year by 2020, basically stagnat- motive market sufficiently. In light of this ing at the pre-crisis level. situation, we expect the market to decline None of these scenarios is as positive by 12% in 2014. After that a quick recov- as the previous forecasts, which were de- ery is likely and the market will return to veloped five, three or even only one year pre-crisis levels of 2.9 million vehicles ago. It becomes clear that the times of sold in 2017. For 2016-2020, we expect double-digit growth rates are over. Russia stable annual market growth of 3.5%, is still a long-term attractive market due to leading to a total market volume of 3.2 its size, but it will remain volatile, with high million vehicles. downside risks, and the upside will be much lower than previously expected. And OPTIMISTIC SCENARIO. We assume all this is detrimental to local vehicle pro- that the market in 2014 will decline by duction in Russia, which in dire need about 10%. But we expect faster recov- strong and stable domestic sales volumes. ery to pre-crisis levels. Also the number of vehicles sold by 2020 will be slightly THE DIFFICULT TASK OF higher than in the baseline scenario – COMPETITIVENESS 2008–2013 2014–2020 at 3.6 million vehicles. To achieve this, Light vehicle sales per year [m units] several developments would have to In the mid-2000s, the Russian govern- take place: political conflicts have to ment realized that the automotive indus- Sources: IHS, Roland Berger be resolved, the economy has to grow try was a backbone of manufacturing and faster, structural reforms must be car- a basis for re-industrialization in the fu- ried out and Russia would need to in- ture. It started a policy of protective mea- vest more in infrastructure. In addition, sures, including high import duties. At the Setback support measures for the market are same time it set up localization obliga- High hopes of 4 million expected, including subsidized car tions rewarded by subsidies for local pro- loans and regulations that prohibit us- duction. The idea was to create demand cars sold by 2020 are no age of old vehicles – just to name a few. for localized content, in order to trigger longer realistic – even in In our optimistic market scenario, how- the development of several adjacent in- our optimistic scenario. ever, we still stay significantly below dustries. Foreign manufacturers received

20 THINK ACT // AUTOMOTIVE INSIGHTS

REARRANGING BRIC PICTURE ALLIANCE/DPA PHOTO: RUSSIA STUCK IN THE CRISIS

incentives for increasing the share of val- changing environment. It has to be pro- ue created in Russia. This strategy proved tected because Russia's structural prob- to be successful in the beginning. lems have become even worse. 1 Unfortunately, Russia's entry into the In 2013, the share of imported cars World Trade Organization (WTO) in 2012 amounted to about 30% of the domestic was not in line with the interests of the sales volume. We expect this number to LOW SCALE EFFECTS automotive industry. The import duties on grow to over 50% in the longer term. Es- Compared to other regional markets such cars will have to be reduced from 25% in pecially production of models in Russia as Europe, Brazil or India, the domestic sa- 2012 to 13 to 15% in 2018. In addition, with volumes below 25,000 units per year les volumes in Russia are lower and more all preferential effects (reduced duties on cannot compete with plants in other re- volatile. They are not sufficient to produce significant economies of scale. At the same components import, localization obliga- gions, even with subsidies in the amount time, unlike Europe or India, the Russian tions, etc.) will have to cease by then. To as of today. Upcoming model replace- automotive industry is not able to reach take the edge off the worst effects for the ments will not make their business case scale via large export volumes. Today fewer automotive industry, Russia quickly intro- and justify the needed investments in than 120,000 Russian vehicles are exported, mainly to CIS countries (Common- duced a scrappage fee on vehicle imports production plants and supplier tooling wealth of Independent States, former Sovi- – a measure which turned out not to com- upgrades, if capacitiy is available in the et Republics). These volumes are going to ply with WTO regulations. In order to com- home regions. According to our esti- decline in the future, as ongoing tensions pensate for the scrappage fee, annual mates, a total of 600,000 cars or almost with the second-largest export market Uk- subsidies worth two billion Euros were 25% of forecast production volume could raine will most likely have negative effects. approved. This program is expected to be at significant risk of being imported by last for three years, but there is still a 2020 – instead of being produced locally. need for annual approval from the parlia- As a consequence, Russian contract ment within the regular budget process, manufacturers (e.g. Avtotor, Sollers) will 2 which puts the subsidy program at risk of suffer greatly, because they have fo- being reduced or at least not extended. cused on low volume models and limited The market is already suffering from the contract durations. Several production HIGH PRODUCTION COST Russia has never been a low-cost country, neither for car manufacturers nor for suppliers. Without trade barriers and incentives At risk: Many local produc- by the government, the overall cost base is tion sites may be downsized not competitive due to low productivity, a or even shut down. high labor fluctuation rate, poor infrastructure and rising energy costs.

INFERIOR POSITION COMPARED TO INTERNATIONAL HUBS Russian customers prefer the same models as their European, US or Asian peers. Al- most every international car manufacturer produces the same model in its home country, usually in much larger quantities. Available capacity in the home country of manufacturers make Russian plants compete versus incremental cost base, especially if new investments in local production and localization are required in Russia.

THINK ACT // AUTOMOTIVE INSIGHTS 21 REARRANGING BRIC RUSSIA STUCK IN THE CRISIS

sites in Russia will be at risk of being Cost disadvantage downsized or even shut down. Unemploy- ment will increase, reducing tax revenues Local production in Russia is not competitive without and tightening the budget situation. Low- significant subsidies. er vehicle production volumes will make 1,520 the business case for domestic and for- Cost effects of local production vs. CBU imports [EUR/car]1) 1,160 eign suppliers even less attractive, leading to a reduction in Russian activities or a revision of current plans to invest in 620 Russia. As a result, also Russian manu- 2014 facturers like AvtoVAZ will have difficul- Current 1)Calculated for international 60 subsidy level ties in obtaining high-quality compo- manufacturers with local 50,000 25,000 10,0002) nents at competitive prices, thus facing production vs. European cost level; Without volumes relate to single models any subsidies the risk of a continued loss of market 2)Production of cars per year 2020 share versus low cost competition from -500 China and thus increasing the pressure Source: Roland Berger on the downward cycle.

THE TIME FOR ACTION -1,360 IS NOW

We see a significant risk of the Russian automotive industry entering an irreversible Loss of value creation process of deindustrialization. Without More than 50% of the 3.2 million cars sold in Russia fundamental changes to cope with WTO will be imported in 2020. 593 obligations and strong efforts to modern- expected ize the economy, there is little room to Market structure 2013 vs. 2020 break out of this trend. However, the con- ['000 units]* Local 593 sequences can be mitigated if appropriate at risk production measures are implemented immediately. 2013 1,228 What Russia needs is a long-term strategy 2020 at risk 1,064 and support for the industry beyond 2018, certain which is aligned with key stakeholders and again provides clear long-term economic 856 benefits for local production in Russia – for 766 manufacturers and suppliers. A majority of industry participants still strongly believe 565 in the long-term potential of the Russian 507 market, and are willing to actively shape the change. However, if the industry doesn't turn around soon, they would be well ad- vised to thoroughly review their Russia strategy and reduce the risks of Russian Russian cars, Foreign cars, Foreign cars, operations. local production local production local imports For further information on the impact of economic * LCV sales not considered sanctions in the wake of the Ukraine crisis, please take a look at our "Economic scenario update 2014" Sources: IHS, Roland Berger p. 53

22 THINK ACT // AUTOMOTIVE INSIGHTS REARRANGING BRIC INTERVIEW THOMAS SEDRAN "Russia continues to be an important but challenging market."

How will the automotive indus- The head of Chevrolet and Cadillac Europe explains why try in Russia develop over the Russia (still) has top priority for General Motors. short term? We had two consec- Mr. Sedran, what makes the utive years of declining industry Russian automotive market so volumes. And the market dynam- cilities. According to this, we ported by the government. The unique? Well, Russia is quite dif- ics in the first half of 2014 look plan to increase our annual local automotive industry is still deal- ferent from the rest of Europe. quite similar to the same period production capability to up to ing with a low purchasing power There are some 300 vehicles for last year. According to the Asso- 350,000 vehicles. In exchange of consumers in the Russian every 1,000 people in Russia, ciation of European Business Au- privileges on import duties for provinces, especially in small which is well below the quota of tomobile Manufacturers Commit- our components are granted. An towns and villages. They need most European countries. The tee, the automotive market in integral part of our Russia strat- personal transportation urgent- country is huge, but public trans- Russia will further weaken in the egy is a major program to devel- ly, but they don't have enough portation is limited and underde- second half of 2014. Russia con- op our local suppliers as well as money to buy a new car. veloped. Hence, individual trans- tinues to be an important but to attract our global supplier And what about the third wish? portation is and continues to be challenging market. However, we partners to Russia. Finally, I would appreciate more essential for the Russian popula- believe in the long-term growth of If you could have three wishes competitive Russian suppliers. tion. Also there are a lot of used the Russian automotive market to solve current challenges for Despite competitive wage struc- cars on the roads – ten years and and consider this to be a top pri- GM in Russia, what would they tures, the prices for parts from older – which will need to be re- ority market for General Motors. be? First, I would appreciate Russian suppliers are still signifi- placed in the near future. Does the government support more favorable economic condi- cantly above world market stan- How do local conditions affect your commitment? The govern- tions. As an example for the dards and represent a major business? Take the extreme cli- ment is in general willing to fos- Russian market you have a vola- roadblock for more localization mate in Russia: Heavy snow and ter the automotive industry – es- tile national currency, the Rus- and exports from Russia. ice in winter and very hot sum- pecially local manufacturing sian ruble, which just this year mers. Many roads are of poor activities. In 2012, we signed an increased our cost of business Thomas Sedran is President and Managing Director of Chevrolet and quality and some urban areas agreement with the Russian gov- in Russia significantly. The only Cadillac Europe. Previously he was a don't even have any. This combi- ernment under the provisions of way to react is to increase local- Member of the Board of Adam Opel AG and held leading positions at nation of conditions, for example, Regulation 166 (Contract of In- ization and try to have most of Roland Berger Strategy Consultants has fueled the segment of SUVs dustrial Assembly). We have the supply base in the ruble and Alix Partners. Sedran holds a in the past. It tripled from 2009 committed ourselves to expand- zone. My second wish is quick master's degree and a Ph.D. in Busi- ness Administration. He was born in to 2013. ing our local manufacturing fa- market recovery, ideally sup- Augsburg, Germany in 1964.

THINK ACT // AUTOMOTIVE INSIGHTS 23

ILLUSTRATION: BEN TALLON/DIE ILLUSTRATOREN REARRANGING BRIC INTERVIEW WITH TATA's Gaining ground: The Indian automotive industry is expected to grow faster in the next few years. RAVINDRA PISHARODY INDIA p. 28 READY TO ROLL AGAIN

24 THINK ACT // AUTOMOTIVE INSIGHTS REARRANGING BRIC INDIA READY TO ROLL AGAIN

Here, volumes will not be the problem, but profits may prove to be elusive due to the massive global overcapacity that has been put on the ground in China. Some indicators show that the dy- namics of the Indian market was stabi- lized in recent years. Low economic The growth of the Indian growth, investment blockage and red tape have stunted growth in passenger, automotive market leveled off commercial and off-road vehicles. In financial year 2014 capacity utilization for in recent years. Manufacturers passenger vehicles has fallen significantly. When market leaders Maruti Suzuki and suppliers used the respite (capacity utilization of 80%) and Hyundai (capacity utilization of 93%) are not taken to work on costs and export into account it was lower than 60%. In readiness. New government commercial vehicles, capacity utilization initiatives will help India get has fallen to a painfully low level of 40%. back on track in 2015. MOVE THE METAL Low capacity utilization puts pressure on BY WILFRIED AULBUR p. 54 organizations to "move the metal". By pushing sales activities like special incentives for customers and sales people, special editions or promotions, automotive companies can protect market share and volumes. Reduced profitability is of- gainst all odds, the Indian au- development are higher aspirations, bet- ten the consequence. This is compound- tomotive industry has made ter infrastructure, and increasing living ed by an extremely competitive Indian its presence felt globally. standards and disposable income. industry environment, which allows ra- Starting from humble begin- zor-thin margins especially for many sub- nings at the time of liberaliza- ALL LIGHTS ARE GREEN scale players in the passenger vehicle Ation in 1991, India is today the sixth larg- and commercial vehicle segment as well est motor vehicle producer globally and Across all segments we see solid growth. as their dealers. the third largest market in Asia. Besides Passenger vehicles will reach about five Despite the recent weakness, nearly four-wheelers, the country boasts the million sales by 2020. Commercial vehi- all international players bet on India's fu- world's largest tractor market and second cles should see a solid growth of 10% per ture by setting up substantial operations largest two-wheeler market. India's sup- year on average to reach about one million in the country. The capacity expansion of pliers are rapidly upgrading skills and units by 2020. Two-wheelers are likely to car manufacturers has grown by 12% per scale to leverage this opportunity. Some achieve sales volumes of 30 million units year on average since 2009. Over the last have already transformed themselves with scooters growing twice as fast as mo- 14 years, foreign direct investments (FDI) into global powerhouses. torcycles. Conservative estimates for trac- in the automotive sector have amounted India's promise and long-term poten- tors, a segment that still depends heavily to about 4.5% of total FDI inflows into In- tial is undeniable. By 2025 the motoriza- on the monsoon season, put growth rates dia. Private equity companies have also tion rate will increase fivefold. At 72 vehi- at 7% and the volume at around one mil- managed to unlock investments in Hero cles per 1000 inhabitants, the country's lion units in 2020. India's construction MotoCorp, International Tractors, Agile motorization rate will be 60 to 70% higher equipment market will grow at 10% per Electric, Alliance Tires, Endurance, Avtec, than that of China in 2010. Driving this year to reach about 90,000 units in 2020. and others.

THINK ACT // AUTOMOTIVE INSIGHTS 25

PHOTO: SANJIT DAS/PANOS PICTURES SANJIT DAS/PANOS PHOTO: REARRANGING BRIC INDIA READY TO ROLL AGAIN

Robust Export gap Export shares of domestic carmakers remain low. growth [% of total sales] All segments of the Indian 32.5% average for 9% Maruti Suzuki automotive market global OEMs are expected to take off. Sales forecast [CAGR and units sold in 2020]

3% Tata Motors 3% Mahindra & 1% Ashok Leyland 14% Mahindra Auto components

12% Two-wheelers 30 m Sources: SIAM, Roland Berger

12% Innovation race Passenger Indian OEMs have made significant R&D investments in the last decade. vehicles [% of net revenue] 4.98 m

4.75% 10% 3.9% Commercial 2.41% 2.28% vehicles 0.98% 1.27% 1.17% 1.4% 0.95 m 0.31% 0.36% 10% 0.29% Construction equipment Average for Tata Motors Mahindra & Maruti Ashok Hero 0.09 m global OEMs, Mahindra Suzuki Leyland MotoCorp 7% 2013 Tractors 1.05 m 2004 2013

Sources: SIAM, LMC, IHS, ACMA, Roland Berger Sources: Bloomberg, Roland Berger

26 THINK ACT // AUTOMOTIVE INSIGHTS REARRANGING BRIC The challenges of the last five years have not been only negative for the country; they also triggered some important structural changes. Increased competition and low capacity utilization for domestic sales have forced multinational companies and local players to actively leverage India as a vehicle export hub. Besides better fixed-cost degression, exports provide higher margins and therefore support domestic business of car manufacturers as Close to gridlock: India's motorization rate will increase fivefold by 2025. well as the balance of payments of the country. In the financial year 2014, global car manufacturers on average exported centage of revenue have risen dramati- ments. As a first step, factors not critical 32.5% of their total sales out of India. For cally for Ashok Leyland, Maruti Suzuki, to safety – such as increasing ground domestic car manufacturers the corre- Mahindra & Mahindra and Tata Motors. clearance for Indian vehicles, localization sponding number is 7%, which is poised Tata Motors has even reached levels in of non-critical parts, etc. – must get devel- to grow due to an increased export focus line with its global peers. opment clearance locally to avoid endless of Maruti Suzuki. iterations between the local team and In addition, the country's fascination INDIAN INVENTION overburdened headquarter engineers in with the newest and latest models has MACHINE the US, Europe, Japan or South Korea. resulted in a much stronger focus of do- Further drivers of strengthening local ca- mestic companies on research and devel- Many multinational companies have real- pacity are constant price pressure and opment (R&D), driving constant product ized that local R&D expertise enables local exchange rate volatility. Subsequently, upgrades. R&D investments as a per- teams to react faster to market develop- several car manufacturers are leading the

Under construction: India's infrastructure is making a great leap forward. PHOTO: QILAI SHEN/PANOS PICTURES; STEVE RAYMER/NATIONAL GEOGRAPHIC/CORBIS

THINK ACT // AUTOMOTIVE INSIGHTS 27 REARRANGING BRIC INTERVIEW RAVINDRA PISHARODY

way by developing clear strategies to build Mr. Pisharody, after a challeng- vehicle variation capability in India and to ing environment in 2013 and leverage this capacity globally. Some, like 2014, how will the Indian auto- BharatBenz, have even developed specific motive industry develop over vehicles for the local market and in the the next two years? The begin- process changed long-held paradigms of ning of 2014 marked the lowest the parent company. point in sales that we had seen in Going forward, not only the long-term a very long time. Overall, we are but also the short to medium-term oppor- cautiously optimistic about the tunities in India look positive. The previ- current financial year ending ous government cleared several thousand March 2015. The Indian economy crores' worth of projects in the last year of will recover in late 2014 and gain their tenure. If the new government can momentum in the beginning of ensure swift execution of these projects, 2015. This positive development it will have a positive impact on the econ- will be reflected in the automo- omy. The Supreme Court lifted the ban on tive sector. We have already seen mining iron ore in Goa and put an annual signs of recovery in medium and cap of 20 million tonnes on excavation, heavy commercial vehicle vol- which again is a relevant step in reviving umes over the past two to three the economy. The solid majority of the months. We expect this trend to new government and its announcements continue. In the beginning of and actions so far clearly indicate deci- 2015, even stronger year-on-year sive pro-growth action, which is sorely growth is possible – of course needed. The task of the hour is to build on "Restarting some of this effect is due to the this momentum via decisive reform. fact that we are starting from a Growth and the virtuous cycle that it low level. drives need to be nurtured and supported the Will this recovery be sustain- rather than taken for granted as the last able? We should see a greatly government has clearly shown. improved situation starting in economic the second quarter of 2015. In- BRIGHT OUTLOOK dia will return to growth across all categories in the automotive Sales of medium and heavy commercial engine" industry for reasons that have vehicles are picking up, which typically is a been widely discussed in the 6 to 9 month lead indicator for the econo- Tata's Executive Director, Commercial Vehicles, press. What is interesting to my and private consumption. Footfalls in explains how the automotive industry in note is the fact that despite the dealerships are increasing. The Index of India can reach the next development stage. current downturn, people have Industrial Production (IIP) grew at 3.4% af- continued to move up the inter languishing for a long time around zero, come ladder. and inflation seems to be slowly coming What is the government's role in down. With the right focus, driving India's pushing the Indian economy? It growth to 5 to 6% GDP in the financial year is important for the government 2015 (which ends in March 2016) seems to recognize that positive senti- feasible. A return to growth rates of around ment is not enough. There is a 7 to 8% in financial year 2016 is what we dire need to restart the invest- expect. India's automotive industry seems ment cycle, and push manufac- to be ready to roll again. Fasten your seat- turing and mining. This will ulti- belts and enjoy the ride. mately encourage new vehicle

28 THINK ACT // AUTOMOTIVE INSIGHTS REARRANGING BRIC "Compared purchases and improve replace- like Brazil, Thailand or South Afri- and last mile transportation via ment economics which, in turn, ca, it's clear that we have severe to Brazil three- and four wheelers. will lead to a much more positive deficiencies in our road infra- How will the footprint of Tata mood among financers who play structure, ports, electricity, etc. or South Motor's commercial vehicle a crucial role in the automotive which need to be addressed. We segment look like in the future? industry. There is a lot of latent also need clarity on the overall Africa, Well, the current exchange rate is demand that has built up during business environment for the au- favorable for our export business. the past few years. Consumer de- tomotive industry in India. This we have So if we look at our current prod- mands are still high and consum- means, for example, lifting mining uct lineup, we have a wide range er sentiment is optimistic. A large bans as soon as possible. This is deficien- of world-class products suitable part of this is due to the aware- crucial not only from a commer- for markets such as Asia Pacific, ness created by the media and cial vehicles point of view, but cies in the Middle East, Africa, Latin the internet. Fast action by the also in terms of safeguarding en- America and parts of Europe. In new government can turn this la- ergy sources and ensuring a pos- many of these regions, we are a tent demand into an opportunity itive balance of payments. our infra- well-known brand name, and all to restart the economic engine. Are there also measures af of them are projected to grow Is the new government ready to fecting the industry's balance structure." fast. We can easily penetrate unleash this potential? We be- sheets more immediately? Yes, these markets – either through lieve the new government is well think of financing, assets and exports or, if necessary, industri- aware of the challenges that they taxes: A more level playing field al operations on the ground. are facing and we may see some between non-banking financial Even with our currently limited new policies. Probably some de- companies (NBFC) and banks is footprint, we are already among cisions that were not beneficial desirable. Banks currently have sumption picks up again, we will the global top five commercial for the country will be reversed. an edge over NBFCs. NBFCs, but see significant activity in the vehicles companies. Our old leg- Do lessons learned from the re- the latter are crucial for vehicle fi- small commercial vehicles sec- acy products had success in cent financial crisis offer guid- nancing, as is a concerted effort tor. Small commercial vehicles these markets markets, but since ance on how to reignite growth? to push banks to increase their are being bought by entrepre- we believe that much more is Not really. The global financial support of the automotive sector. neurs who want to improve their possible, we will invest in prod- crisis of 2008 and 2009 didn't What else could help? We need lot in life. Many of these small ucts and capacity. With our new have a major impact on India as a good incentive for scrapping operators have never owned a products and a strong focus on the Indian banking system was older vehicles. The market would vehicle before, so you can imag- international markets, we clearly largely isolated from global receive a significant boost if all ine how important financing is have what it takes to improve this events. The downward movement commercial vehicles 15 years or here. Another very promising sec- positioning in the future. we are talking about here started older were replaced. This would tor is the bus industry. About in 2012 and was driven by a lack also help the environment and 80,000 buses are currently sold of growth that was felt immedi- improve traffic safety. The new in India each year. However, the ately in commercial vehicle sales. government could look at some potential is at least ten times Regarding the business envi- European initiatives from 2008 higher. Unfortunately, the govern- ronment for automotive com and 2009 for guidance. Other ment policy on mass transport is Ravindra Pisharody joined Tata Motors in 2007 as Vice President panies in India – are there spe factors include extending the ex- neither clear nor consistent. Commercial Vehicles (Sales & cific actions the government cise duty reduction, implement- State transport undertakings Marketing). He is a member of should take? I'll just name a few. ing accelerated depreciation for can't increase prices due to polit- the board of various Tata Group We need to encourage invest- commercial vehicles, keeping ical constraints and, as a conse- Companies. Before joining Tata ments in infrastructure, con- diesel prices in check and en- quence, they don't have the Motors, he worked with Castrol Ltd., a subsidiary of BP, and with struction and manufacturing. We forcing bus body safety. funds to upgrade their fleets. In- Philips India, a subsidiary of the shouldn't try to compete with de- Looking across segments, dia urgently needs an integrated Dutch company, in various roles. veloped markets in these areas. where do you see exciting mobility concept for the cities Pisharody is an alumnus of IIT, But even compared to countries growth opportunities? As con- that links metro railways, buses Kharagpur and IIM, Kolkata.

THINK ACT // AUTOMOTIVE INSIGHTS 29

ILLUSTRATION: BEN TALLON/DIE ILLUSTRATOREN REARRANGING BRIC Powerful stance: In Chinese mythology the dragon stands for power, divinity and the emperor.

30 THINK ACT // AUTOMOTIVE INSIGHTS REARRANGING BRIC HOTSPOT CHINA

Hotspot CHINA

e believe clearly for opposed to the previous 15 years when anybody working in the the bulk of growth was generated in the automotive industry, if country's coastal areas. Not only GDP, there's one place to be, but also disposable incomes will increase it's China. This quote by and contribute to higher sales in the pas- WHubertus Troska, head of Daimler AG's senger vehicle market. Simultaneously, Greater China operations, is not an isolat- market inefficiencies such as bottlenecks ed view. In fact, the automobile industry in the supply chain will be eliminated. China's automotive industry has in China has become and will stay the This will lead to lower car prices and fuel the most positive outlook of all hottest spot for the automotive industry the development of the mass market. BRIC markets. It benefits from a worldwide. In the past, the passenger ve- However, there is still huge untapped po- stabilizing economic environ- hicle market experienced a period of out- tential. As an example, relative to total ment and still shows potential standing growth. Over the last decade, population, there are about ten times for further market growth and car demand in China often surged 30 to more car owners in Western Europe than new business opportunities. 40% annually. Those days of hypergrowth in China. are now over. However, the world's big- The political environment in China is BY JUNYI ZHANG, RON ZHENG, gest car market will likely sustain the mo- stabilizing. This is improving the quality of AND FANNY CAO p. 54 mentum it regained in 2013, supported life, which means people can afford to by a range of governmental economic think about buying a car rather than just stimulus actions. And in the future we ex- about everyday basic needs. The Chinese pect the Chinese car market to expand at a government is supporting the automobile slower but more stable pace. Sales vol- industry with subsidies, cheap loans and umes can reach almost 30 million units in tax incentives. They are also funding re- 2019, meaning the market will grow by 7 to search and development and building 8% in the next two to three years, after- new facilities and car-friendly infrastruc- wards may drop to annual rates of 2 to 3%. ture such as highways or bridges. The There are various factors that support government's efforts to relieve urban con- our estimates: GDP growth will be robust, gestion by establishing traffic engineering but it will have a new quality, e.g. it will systems is also making car ownership a come from China's interior provinces, as more pleasant experience.

THINK ACT // AUTOMOTIVE INSIGHTS 31

PHOTO: FOTOLIA PHOTO: REARRANGING BRIC Furthermore, there are significant improve- China. There are three types of brands on ments in fuel efficiency and lightweight the market. First: Purely domestic brands materials. For customers this means a re- such as Geely, Great Wall or Chang'an, duction in running costs, which can also which are produced by Chinese compa- help drive demand. nies. The second type are domestic If we take a closer look at the brands produced by joint ventures pattern of the segments and with foreign manufacturers, e.g. brands in the Chinese passenger Venucia (Nissan and Dongfeng), ex- car market, we can see signifi- clusively for the Chinese market. The cant discrepancies. third type are produced by joint ventures In general, there is a trend towards but designed for the global market by the bigger cars with better quality and more foreign partner. The first two – Chinese and sophisticated technology. The big win- domestic joint venture brands – have al- ners are sports utility vehicles (SUV). We ways struggled to keep up with their big- expect that their share of the passenger ger, richer global rivals. car market will rise from 13% in 2011 to Only one out of five cars manufac- 16% in 2015. Their target group is the tured used to be Chinese (purely domes- upper middle class in China, especially tic or "JV domestic"). In order to support young affluent buyers, seeking to further development, the Chinese gov- demonstrate their individuality by owning ernment has enacted various measures a special car. Manufacturers of compact to push domestic brands. The goal of the cars (C segment) will also experience a new edition of Automobile Industry De- slight increase in demand. velopment Policy is to stipulate domestic This has to do with higher disposable brand establishment as a requirement to incomes and the fact that the market is expand production facilities. And the maturing. Fewer smaller and city cars will Central Government Procurement Center be sold by 2015. While many Chinese pre- has clearly stated that at least 50% of viously bought models such as the Suzuki newly acquired government cars have to Swift or Toyota Yaris as their first car (A/B be domestic. segment), they now wish and are able to Meanwhile, a lot of Chinese players upgrade and buy, for example, a Chevrolet are actively pushing strategic transfor- Cruze (C segment). Furthermore, most car mation in order to catch up to their West- buyers previously came from China's big- ern peers: They are tailoring their models gest cities. However, these compact cars to specific market segments, focusing on also now meet the needs of families and building their own USP and upgrading customers outside of the metropolitan ar- R&D and technology capabilities. These eas, for example in the provincial capitals efforts are beginning to pay off. Industry such as Chengdu or Sichuan. analysts claim that the quality of Chinese brands is improving. They also expect DOMESTIC BRAND better sales due to many new models in DEVELOPMENT – A LONG the pipeline of leading Chinese automak- ROAD TO SUCCESS ers: CS75, CX20 from Chang'an, H2, H7, H9 from Great Wall Haval, etc.. In 2020, While in the past decade Western models we estimate that around 40% of all cars were an absolute must-have, the land- manufactured in China will be domestic, scape is about to change. Customers are while one out of ten will be domestic starting to appreciate domestic cars more. Intertwined: brands made by joint ventures. Today the The knot stands We need to take a closer look to under- for infinity, longev- share of domestic and JV domestic is stand what domestic means in the case of ity and continuity. about 30%.

32 THINK ACT // AUTOMOTIVE INSIGHTS

REARRANGING BRIC FOTOLIA PHOTO: HOTSPOT CHINA HOW THE CHINESE MARKET IS CHANGING 5% MPV** 17% Large family cars 3% Executive and luxury cars New models, 16% SUV* new buyers 8% City cars Market segment development for private vehicle market, 2006-2015 11% Small cars [in % of total light vehicle market] 44% Compact cars 4% MPV** * Sport utility vehicles 21% Large family cars ** Multi-purpose vehicles 3% Executive and luxury cars 6% SUV* 2015e 8% City cars

23% Small cars 18.2m

35% Compact cars

4% MPV** 19% Large family cars 2% Executive and 2006 luxury cars SECOND- 13% SUV* HAND BOOM 5% City cars Growth of used car market and forecast 13% Small cars [million units, in %]

CAGR 43% Compact cars STABILIZING GROWTH Light vehicle sales and 8.0m year-on-year growth [million units, growth 2009-2014 and 2014-2018 in %] 2011

17.3m 15.7% 23.4m 6.5% 3.2m 2014

1.4m 2018 17% 18% 20%

Sources: IHS, Roland Berger 2008 2013 2018e 2023e

THINK ACT // AUTOMOTIVE INSIGHTS 33 REARRANGING BRIC HOTSPOT CHINA

The signs of maturing business can also be found in related markets. Every third car buyer in China has purchased at least one car in the past. And also the time before a consumer buys his or her next car is getting shorter. This means the supply of quality low-mileage secondhand cars is improving. And now that a secondhand luxury car segment is emerging, this will provide an attractive option for more cost-conscious consumers looking to buy such cars.

NEW OPPORTUNITIES IN RELATED MARKETS

What this development means is that while new cars sales are slowing down, the market for used cars is about to take off. The used car market has tripled from 1.4 million units in 2008 to 3.9 million in 2014. And an expected average growth rate of almost 20% through 2023 indi- cates that 18 million used cars will be sold by 2023. Independent dealers currently dominate the market. But most manufacturers are investing in a network of certified secondhand dealers. As the market ma- tures, certified dealers will be the domi- nant players, offering not only used cars, but also services and spare parts. In a Ready to jump: The tiger stands for maturing market, secondhand car sales bravery as well as the drive to achieve goals and make progress. are an important source of profit for dealers as well, because gross profits are 25% higher than the profits from new car sales. OEMs are increasingly able to tap the potential of synergies between CHANG'AN CASE STUDY pared to an average of RMB 40,000 to their various secondhand car business- 50,000 (approx. EUR 5,000) in 2012. es, such as through financial leasing or Besides improving manufacturing qual- Average monthly sales also increased: company car sales. In the future we also ity, the number one Chinese manufac- from 17,000 units to 32,000 units. By expect innovations in C2C car transac- turer is focusing on branding to be able 2016, Chang'an will manufacture 15 tions; for example, e-commerce plat- to go head-to-head with foreign play- domestic brand models on four platforms where consumers can buy and sell ers. The company recently announced forms. It is also promoting its own tech- their used cars. Ultimately, the growth of its new brand slogan during the 2014 nology development. A global R&D the secondhand car market will also help Beijing Auto Show: promoting sales footprint is unfolding with its interior solve the challenges resulting from struc- through an "interactive experience". In design center in Yokohama (Japan), tural changes in the automotive business 2013, Chang'an launched 14 new prod- chassis research center in Detroit (US) in China as a whole. Such growth can ef- ucts in the RMB 80,000 to 90,000 (ap- and a powertrain manufacturing center ficiently absorb excess production ca- prox. EUR 10,000) price range com- in Nottingham (UK). pacity and reduce inventory levels.

34 THINK ACT // AUTOMOTIVE INSIGHTS REARRANGING BRIC INTERVIEW LIU TAO

"The technology gap between joint venture and self-owned brands has been narrowing in recent years."

The head of product planning at SAIC Motor Passenger Vehicles talks about the catch-up race of Chinese brands.

Mr. Tao, the automotive brand landscape in China is very unique. What will be the biggest threat to the first group, the domestic self- Why? Well, it is divided into different groups: Brands like Roewe, Geely owned vehicle brands? I think the joint venture brands pose a very severe and Chery are domestic, owned by Chinese companies. Another con- threat. In the past two or three years, domestic self-owned brands have sists of players like Hyundai, Nissan, Mazda, and Skoda, who are suffered greatly, especially due to joint venture brands' lower prices. Take owned by joint ventures of foreign and Chinese companies. compact models like the Roewe 550 and its competitor, the Chevrolet

THINK ACT // AUTOMOTIVE INSIGHTS 35

PHOTO: FOTOLIA; ILLUSTRATION: BEN TALLON/DIE ILLUSTRATOREN TALLON/DIE BEN ILLUSTRATION: FOTOLIA; PHOTO: REARRANGING BRIC INTERVIEW LIU TAO

Cruze, as an example. The price of the Cruze was RMB 100,990 (EUR Can you think of a solution to this challenge? The breakthrough will 12,000) when it launched a few years ago. Now, it costs RMB 80,400 come when products and technologies are improving. Roewe has to (EUR 9,500), and there is no wiggle room for the Roewe 550 to lower its pick up speed in this innovation process. The Roewe 550 was launched price to match. Another example is the Roewe 350 and its competitor, the in 2008 and the Skoda Octavia hit the market at the same time. At first, Skoda Rapid. The price of the Rapid is now about RMB 66,000 (EUR customers liked our cars better than the Skoda Octavia. In 2010, Sko- 7,800), which is similar to or even lower than the price of the Roewe 350. da launched a new model, and just put out another one earlier this year, Thus, price adjustments of joint venture brands have squeezed our market but we are still selling the same Roewe 550 model. The reason for this share significantly. lack of speed lies in the organization of our R&D department. Joint Who are Roewe's main competitors in China? Domestic brands like venture brands always have global R&D centers, which enable them to Geely or Chery differ too much from Roewe in their pricing strategies to make full use of their shared R&D pools, and they do not have to devel- be competitors. Rather, the main competitors to Roewe and all our self- op all the parts themselves. We, on the other hand, have to develop all owned brands are second-tier joint venture brands, such as Hyundai, our engines, platforms and electronic systems on our own. Thus, what Nissan, Mazda, Skoda, Chevrolet, and so on. we need is this type of shared global R&D center to achieve economies Why have prices of joint venture-owned brands decreased so quick- of scale and lower costs. ly? The most effective strategy for a joint venture brand is to have sev- What goals do you have for Roewe in this difficult environment? We eral generations of models in the market at the same time. They can hope to elevate our brand image and, as a result, implement premium cover all relevant market segments simultaneously. This is the case for prices. To do this, we launched the Roewe 950, a flagship product that Ford and Hyundai. Their models have a lot in common, e.g. production will strongly position the brand in the future. platforms, which creates cost advantages. What kind of resources does Roewe need to get to the same level as Does the demand pattern for cars differ in different Chinese re- its foreign peers? First, we should learn advanced technology from gions? The picture is quite mixed. Although demand in first- and sec- joint venture brands in order to develop our products' competitiveness. ond-tier cities, for example Chengdu in Sichuan province, is decreasing, Second, we should master the popular platform modules to lower costs demand in fifth- and sixth-tier cities, for example Handan in Shandong and thereby enhance our price competitiveness. Third, we should focus province, is growing at a rate of over 10%. The latter even saw a growth on channel expansion, innovation and the after-sales market to en- rate of over 14% in January, February, and March 2014, although experts hance our competitiveness in channels and services. Last but not had forecast only about 10%. least, we should make full use of the brand advantage from foreign What does that mean for domestic brands? Overall, China has huge partners to develop our brand's competitiveness. demand for cars, but most of the demand is dominated by joint venture brands, while demand for domestic brands is shrinking. With a declining market share, we are facing massive pressure on brand marketing costs. Joint venture brands can afford high marketing costs thanks to their revenue growth, but the pressure is severe on our side, especially in first-tier cities. It will push us into a vicious cycle, which may be very Liu Tao graduated in Automotive Engineering at Jilin University, China. dangerous for us in the future. From 1997 to 2004 he worked at the Shanghai Automotive Engineering What are the main reasons for the problems of self-owned brands Institute, where he was involved in the acquisition negotiation project you described? The technology gap between joint venture and self- of Ssangyong and Rover. He joined SAIC in 2005, first on the passenger owned brands still exists, but has been narrowing in recent years. For vehicle project, now responsible for product planning. example, we have made significant progress since 2006, and now our Roewe is a vehicle brand created by the Chinese automaker SAIC Motor automotive parts system is the same as the Shanghai Volkswagen's. in 2006. Shanghai Auto bought the rights to the designs of two Rover However, foreign brands are still more popular than ours, because al- models shortly before the UK carmaker collapsed. The brand name "Rov- though our products have the same level of quality, customers have not er" was not included in the deal, so SAIC had to develop a new name for realized it. Therefore we are still losing market share. the models based on the acquired technologies.

36 THINK ACT // AUTOMOTIVE INSIGHTS REARRANGING BRIC CHINA CREDIT IS KING

New financing models: Car buyers no longer have to rob their piggy banks. Credit is king Many Chinese car manufacturers, banks and other players are starting to dabble in auto financing. Now the market is beginning to really pick up speed. Leasing is the up-and-coming business in both the passenger and corporate customer segments. BY JUNYI ZHANG AND STEPHAN BUEB p. 54

THINK ACT // AUTOMOTIVE INSIGHTS 37

PHOTO: ISTOCKPHOTOPHOTO: REARRANGING BRIC Promising futures: The fish stands for affluence, wealth and prosperity. 2018e

2014e 6,443 1,047 3,164 291 2013 2,514 117 2012 1,954 92 2011 1,623 21 2010 1,267 12 2009 775 1 2008 401 0

Rapid growth Use of car financing will more than double by 2018. ['000 units]

Financial leasing Loan

Sources: IHS, expert interviews, Roland Berger

38 THINK ACT // AUTOMOTIVE INSIGHTS REARRANGING BRIC CHINA CREDIT IS KING

Car manufacturers and dealers have realized that auto finance services are a good way to promote sales. Therefore, more and more car manufacturers and large dealer groups (e.g. Pang Da, Guanghui) are offering financing services. But also regional and national banks (e.g. Minsheng, ICBC and Bank of China) are starting to enter the auto finance business. In the leasing segment, long-term contracts are still more popular than short-term contracts. But as business becomes more professional, this is starting to change. Independent leasing companies like market leader Tongyue Leasing are role models for new When the Chinese buy cars today, the vast majority pays cash. players. Those operators have the reputation of being more flexible While currently 70% of cars are financed in developed coun- than banks, but at the same time bear a higher entrepreneurial risk. tries, only 17% are financed in China. The core business of Another interesting phenomenon of the Chinese market is auto financing has existed for less than twenty years. When the grey leasing. In Shanghai, Beijing and other major leasing mar- People's Bank of China issued its "Auto Finance Regulations" kets, complex government regulations (concerning licensing re- in October 1998, banks were allowed to offer auto financing quirements) are holding back the development of the car leasing services for the first time. Due to its nascency, the auto financ- market. As a consequence, due to the huge demand for car leasing market structure in China is very different from other mar- ing, many companies are operating without official licenses. kets. One characteristic is that leasing does not yet play a significant role. Most Chinese leasing companies do not offer COMMERCIAL VEHICLES: operating leasing at all (in which the lessee returns the vehicle A HIGHER STARTING POINT back to the lessor after a short period of time). The reason for Commercial vehicle financing is already relatively well established. this is that most players have no experience with fleet manage- Some 75% of all heavy duty trucks and 15% of all vans are fi- ment or used car sales. nanced. In the corporate segment the development of interest However, the future of the business is very promising, with rates is a key factor in determining the progress of financing ser- expected growth of over 30% from 2013 to 2017. Several new vices. There is substantial demand among small and medi- auto finance companies have been recently founded, e.g. For- um-sized enterprises as well as individual owners for leasing prod- tune Auto Finance (a joint venture of Banco Santander and ucts, because their credit rating is usually low, making loans JAC) or Geely-BNPP Auto Finance. Since 2009, the share of expensive, whereas dealer guarantees mean financing is an at- cars financed by loans has doubled. The leasing segment in tractive option. particular is expected to experience dynamic growth. In 2018, We expect demand to go up in the various product seg- of all financed cars, more than 15% will be leased, compared ments. Sale and leaseback offers might become an interesting to only 5% in 2013. option for corporate customers in the future, as the tax burden for leasing companies was reduced in December 2013. Oper- PASSENGER CARS: ating leasing is also becoming more attractive because of low- NEW BUYERS – NEW SUPPLIERS er annual payments, more flexibility and better value adding In the passenger car market the number of financing contracts services. Here the business still needs the backing of the regu- will increase annually by 25%, which highlights the fact that car latory authorities. financing is growing faster than actual passenger car sales (11% Banks still own the highest share of the commercial vehicle annually). But what is driving this dynamic development? The loan market. However, leasing companies with OEM backing are auto financing segment is being pushed by a shift in customer active in the leasing market, while independent leasing companies preferences. Today's car buyers are younger; they have more mostly provide truck leasing. Domestic companies with manufac- purchasing power and are more open-minded towards more turer backing (e.g. Dongfeng and Sinotruk) are pushing financial modern ways of spending money than buyers ten years ago. The leasing services in the market. In contrast, it is difficult for interna- Chinese middle class increasingly considers a car an integral tional car manufacturers to get a foot in the door: Only Daimler and part of their standard of living. VW Financial Services have obtained the required licenses.

THINK ACT // AUTOMOTIVE INSIGHTS 39

PHOTO: ISTOCKPHOTOPHOTO: REARRANGING BRIC IS LAMS THE NEW

BRIC?L = Latin America, A = Africa, M = Middle East, S = South East Asia

40 THINK ACT // AUTOMOTIVE INSIGHTS REARRANGING BRIC LAMS THE NEW BRIC? Growth regions & champions Due to the mixed outlook for the BRIC regions, automotive manufacturers and suppliers need to find next generation growth markets. We have taken a look beyond BRIC – and our snapshot shows hotspots. Car sales, 2013 and 2019 ['000 units; CAGR in %]

4,850 4,250 3,950 3,651 3,418 3,430 2013 TOP GROWING COUNTRIES 2019 Middle Eastern and Asian countries 2,650 lead LAMS. 2,136 Development, 2013-2019 ['000 units] CAGR PRODUCTION SALES Mexico + 1,484 Iran + 570 Thailand + 665 Indonesia + 540 Indonesia + 597 Turkey + 272 3.6% 3.6% 4.8% 2.3% Iran + 558 Mexico + 211 LATIN AFRICA MIDDLE SOUTH EAST Turkey + 268 Colombia + 161 AMERICA EAST ASIA

TOP 5 TOP 5 TOP 5 TOP 5 Mexico South Africa Turkey Thailand Argentina Algeria Iran Indonesia 17% Other established OEMs Chile Egypt Saudi Arabia Malaysia 20% Emerging market OEMs Colombia Morocco UAE Philippines Peru Nigeria Israel Vietnam 18% Toyota (incl. Daihatsu) 3% Renault 4% Mitsubishi 8% Hyundai-Kia MARKET SHARE OPPORTUNITIES 5% Honda Toyota will dominate the 7% General Motors LAMS markets in 2019. For manufacturers 7% Nissan Car sales and production >> Identify future strategic growth 5% Ford [market share] regions 6% Volkswagen Group >> Understand customer requirements, technology level SALES and regulation, pricing and 19% Other established OEMs import barriers 9% Emerging market OEMs >> Define implications for product 18% Toyota (incl. Daihatsu) portfolio and production 4% Renault footprint 4% Mitsubishi >> Develop sales network in growth countries, stand out 4% Hyundai-Kia with new sales models 6% Honda 10% General Motors For suppliers 7% Volkswagen Group >> Identify future production 10% Nissan locations of key (target) customers 9% Ford >> Understand locally produced platforms, technology and product requirements PRODUCTION >> Understand import restrictions and policies, export opportunities >> Define implications for footprint Sources: IHS, Roland Berger research

THINK ACT // AUTOMOTIVE INSIGHTS 41 REARRANGING BRIC HOW Reshaping GLOBAL SUPPLIERS GO emerging markets BRIC

Suppliers from industrial countries have to rethink their emerging markets footprints. Asking the right questions can help to find the right combination of BRIC and next-generation markets.

BY STEPHAN KEESE p. 54

Milling machine: New patterns for automotive suppliers 42 THINK ACT // AUTOMOTIVE INSIGHTS REARRANGING BRIC GLOBAL SUPPLIERS GO BRIC

lower growth in China, uneasi- intensive components is increasingly being ness in Russia and economic, shifted to Vietnam or Cambodia, while raw currency and industry uncer- Carving out a material-intensive components continue tainties in Brazil and India. to be produced in China, leveraging the Toss markets like Mexico, Thai- new footprint country's lower aluminum and steel prices. Sland or Indonesia into the discussion and In order to actually build a com- Final assembly occurs in Thailand, due to you have the perfect recipe for total confu- petitive and sustainable footprint, the country's strong production growth sion on how to prepare a supplier footprint suppliers need to answer these forecast over the coming years. for the next decade. Defining the future questions: In South America, suppliers are start- footprint is not easy for suppliers from in- ing to look at Paraguay for relocating la- dustrial countries. While China was the 1. What does my product mix look like? bor-intensive components, including fab- ideal location to supply the world for many What products are suitable in each region rics and wire harnesses. Central America is over the long run? years, recent labor cost developments and gaining importance as a new supply region It's important to consider that customer re- high logistics costs and complexity have quirements and OEM product platforms are for NAFTA, and North Africa could become reduced the country's attractiveness as an changing and today's cash cows may become the next low-labor-cost region to supply Eu- export hub for the automotive supply in- obsolete as vehicle platforms upgrade. Other rope. Even the Middle East is emerging as a dustry. India with its deficits in logistics global products within one's own portfolio new hub for energy-intensive components infrastructure and difficulties in success- may need to be launched and can lead to a such as aluminum castings. significant head start on the competition. fully leveraging its factor cost advantages, At the same time, former attractive still has not managed to successfully posi- 2. What target customers do I want to sup- best-cost countries have become difficult tion itself as an export hub. Brazil's high ply and where will my customers produce to maintain. Argentina is suffering from production costs and unstable currency which vehicles in the future? an unofficial 40% inflation rate and se- development have negated any competi- Manufacturer footprints tend to change over vere import restrictions. Formerly attrac- time, relevant products and platforms evolve, tiveness advantages the country had 7 to tive low-labor-cost country Ukraine is rap- plant allocations that become outmoded. Be- 10 years ago. And Russia has never been ing close to manufacturer locations is usually idly losing attractiveness as a result of very suitable as an export hub, with many beneficial in terms of logistics costs and lead recent political disputes with Russia. Tur- other countries being more attractive. times, but labor, material and energy costs key was once considered the next emerg- As such, global suppliers searching may not allow a co-location for logistically ing supply hub for the EU, but recent eco- for an ideal setup for their future global non-critical parts. nomic and political developments have production strategy need to look beyond 3. How can I best utilize the factor cost ad- put many investments on hold. the traditional Triad and BRIC markets. vantages that each market offers? But how can suppliers shape this new Having a strong BRIC footprint cannot be Modularization and standardization are be- global/regional footprint structure? Be- the answer in and of itself. Most BRIC coming increasingly important for suppliers fore they start, suppliers need to align footprints have turned from the original as well. A central module production facility their strategic priorities. Capacity target may generate huge scale benefits despite export-driven locations to the local mar- utilization needs to be defined for the en- being located in a high-cost country. Logis- kets. To bring down production costs, tics streams between plants are often seen tire plant network in order to know if ca- new locations and smarter approaches as waste, but a smart "hub and spoke" foot- pacity needs to be built up (growth case) need to be defined. print structure can combine the various cost or scaled back (restructuring case). Struc- Today, in light of the advantages of- advantages along the value chain. tural costs must be understood, including fered by best-cost countries and in order At the end of the day, each company's foot- the underlying drivers. print is unique since each company's prod- to wean themselves off their dependence uct/customer mix is unique. Looking at com- Few companies have consolidated on individual markets, suppliers are start- petitors makes sense to define cost targets plants just to save a few dollars on plant ing to consider "smart regional footprint for one's own footprint. But copy and paste is security or cafeteria costs. But combining structures". These network structures rarely a good idea. With a consistent ap- tool shops, maintenance and paint shops combine the advantages of several coun- proach to define the future footprint strategy, can produce real benefits. Finally, the av- suppliers can gain the upper hand in the end- tries within a region or sometimes even erage labor costs of the current network less battle for best costs and best products across regions to offer the best possible by leveraging the best locations. should be compared with that of the com- mix of factor costs. petition in order to set targets and under- This is leading to the emergence of stand competitive advantages and disad- new locations. In Asia, production of labor- vantages.

THINK ACT // AUTOMOTIVE INSIGHTS 43

PHOTO: ZORAN KOLUNDZIJA/GETTY IMAGES ZORAN KOLUNDZIJA/GETTY PHOTO: REARRANGING BRIC BRIC SUPPLIERS GO GLOBAL

HOW BRIC A SPOTLIGHT SUPPLIERS GO ON BRIC SUPPLIERS' GLOBAL M&A ACTIVITIES More and more often, automotive suppliers from BRIC countries are entering global markets via mergers and acquisitions. There are good reasons for doing this: They are able to attain technological know-how and can enter new markets more quickly. China is leading the movement, but investors from Brazil and India are testing the waters in industrialized automotive markets such as Europe or the US.

EUROPE US/CANADA 6 (885 m)

2 (158 m) 1 (1,317 m) 1 (undis 6 closed) (479 m) Top investors and targets The largest deal of the last 4 years was conducted by Brazil; most-wanted targets are in US, the Netherlands and Germany. Selected deals [value m USD]

1,317 1 lochpe-Maxion Hayes Lemmerz Brazil US BRAZIL

644 2 AVIC Electromechanical Hilite International In a nutshell Systems Germany China What automotive players 465 should know: 3 Bejing E-Town International Nexteer Automotive Investment & Delvelopm., US 7 Tempo International (1,042 m) > Emerging market suppliers are stepping China up their efforts to globalize, which means 455 they are looking for attractive targets in tri 4 Motherson Sumi Systems Peguform India Germany ad markets. > Their aim is to drive their regional expan 373 5 Beijing Automotive Inalfa Roof Systems sion while strengthening their technologi China Netherlands cal expertise. 257 > Compared to the past, emerging market 6 Wanxiang A123 China US suppliers have significantly profession- alized their deal processes and post-mer Joyson Electronics 232 Preh 7 ger management. China Germany

44 THINK ACT // AUTOMOTIVE INSIGHTS REARRANGING BRIC 2 RUSSIA (95 m) GO WITH Huge appetite THE FLOW Today the global deal landscape of automotive China takes the lion's share of suppliers cannot be imagined without BRIC players. global investment activities. Number and sum of deal values1) [USD] Number of deals Sum of deal values1) [USD] 2010 27 TOTAL 1,336 m 112 deals USD 9,797 m 2011 32 3,162m JAPAN 2012 17 1,780 m 2013 24 15 2,719m (1,513 m) 20142) 12 Number of deals 800m Published value of deals The main shopper is ... 1 China is outperforming other (7m) BRIC countries in M&A activities CHINA (cross-border deals). Sum of deal values1) 56 2010-07/2014 [share %] (4,223 m) 30 15 Brazil India

1 55 (5 m) China

Number of deals [share %] INDIA 6 26 Brazil India 13 (55 m) THAILAND 68 China 1 (18 m) 1)Only published values 2) Data for January-July 2014 SINGAPORE Sources: Thomson Reuters, Roland Berger

THINK ACT // AUTOMOTIVE INSIGHTS 45 REARRANGING BRIC HOW BRIC Chinese-western SUPPLIERS GO power engines GLOBAL

Car engine: A new arrangement sometimes fosters efficiency. 46 THINK ACT // AUTOMOTIVE INSIGHTS REARRANGING BRIC BRIC SUPPLIERS GO GLOBAL

Chinese companies are continuing to buy top European automotive suppliers in order to close the technology gap. Experience shows that the acquired firms also stand to benefit.

Rapid development of the Chinese automo time, it was obvious that the industry motive suppliers. To date, however, three tive market has split the corporate land would take too long to accumulate all factors have evidently worked in favor of scape into two distinct sides. On the one the knowledge it needed on its own. Chinese companies: First, their analysis hand, Western auto groups are successful Buying up the missing skills and com and purchase processes are very profes ly exploiting the new and constantly grow petencies was therefore the next logical sional and efficient – meaning, in prac ing sales opportunities in the Middle King step. China's central government gave tice, that they are usually faster and more dom. On the other hand, the sheer pace of powerful backing to indigenous compa competent than other potential buyers. market development is making it difficult nies by incorporating the strategy in its Second, the Chinese are willing to pay for Chinese OEMs and suppliers to build five-year plans. good money and generally submit the the product and process technology they Given this scale of support, the wave best financial offers. Third, they can at urgently need on their own. of Chinese purchases quickly gathered tract European management teams with The consequences of this imbalance momentum and traditional Western Euro the promise of broad and fast access to are clear: While the Chinese car market pean suppliers found themselves in the the Chinese market. now accounts for nearly a quarter of the hands of new owners. New investors from They have indeed kept their word, global market volume, the country's na China thus turned a new page in the his implementing market-oriented growth tive auto industry still falls far short of tory of companies such as Germany's strategies for the whole of the newly the 25-percent mark in both vehicle pro SaarGummi (Chongqing Light Industry & merged entities. And the European com duction and the high-end technology Textile), Preh (Joyson) and KSM Castings panies acquired in this process have supply business. (CITIC Dicastal), as well as Dutch manu done well in the new arrangement. Ac facturer Inalfa (Beijing Hainachuan Auto cess to both markets and capital bene CHINA PLAYS motive Parts). The list of cooperative ven fits them by facilitating further growth. CATCH-UP tures and mergers is still growing Occasional European fears that such constantly – a dynamic development that mergers could see factories and even As far back as 2011, Roland Berger pre shows no sign of coming to an end. entire research and development cen dicted that the Chinese supply industry ters transferred to Asia have proven un would target selective strategic merg BENEFITS TO founded so far. The brain drain is staying ers and cooperative ventures in an at BOTH PARTNERS within limits. Chinese buyers are target tempt to overcome its competitive dis ing the strategic objective of bridging a advantage. (The title of the study was Chinese investors' success in the M&A technology gap, therefore they are doing "Chinese appetite – Emerging market business is no coincidence. Indian, Japa everything in their power to retain and players are buying into the European nese and other players are also interest build on the knowledge base provided auto supplier industry.") Even at that ed in technology-driven European auto by their new European subsidiaries.

THINK ACT // AUTOMOTIVE INSIGHTS 47

PHOTO: PAWEL GAUL/GETTY IMAGES REARRANGING BRIC Technology upgrade: India is a huge market opportunity for advanced agricultural equipment.

BOUNTIFUL HARVEST

48 THINK ACT // AUTOMOTIVE INSIGHTS REARRANGING BRIC BOUNTIFUL HARVEST

The BRIC he BRIC markets, which drive markets for growth rates are expected to differ signifi- global growth, have their own cantly. While the Chinese market is ex- set of rules and success fac- agricultural pected to grow by 5% annually, Brazil will tors. Product characteristics see a declining market in 2014 in the differ from those of advanced equipment wake of strong growth and pre-buy ef- markets,T and technology penetration fects in recent years, and will not return to rates vary among the BRIC markets remain attrac- 2013 levels before 2020. themselves. Customer loyalty is typically lower than in advanced markets, and tive to manu- A DIVERSIFIED TERRAIN reaching economies of scale by combin- FOR AGRICULTURAL PLAYERS ing global volumes is critical. facturers from In 2013, half of the world's agricul- The Brazilian agricultural equipment mar- tural equipment was sold in Brazil, Rus- industrial ket still is only mid-sized compared to the sia, India and China. We expect the mar- other countries. Nevertheless, agricultur- ket in these regions to grow by about 5% countries – al vehicle manufacturers from industrial- annually until 2020. The size and growth ized countries addressed this market very potential of these markets have long at- but flexible early on due to its high level of technolo- tracted the attention of manufacturers gy, which allowed the use of vehicles from industrialized countries. However, modular adapted from mature markets. The ongo- leading players in mature markets – ing conversion of the "cerrados" into companies such as John Deere, CNH, strategies cropland also promotes the further devel- AGCO, CLAAS Group, SAME Deutz-Fahr opment of mega-farms that require and Kubota Corporation – have so far are needed. high-powered tractors and combines. made only slow inroads into China and Russia is the smallest BRIC market. India compared to their success in Brazil BY SEBASTIAN GUNDERMANN, NORBERT After over a decade of negative growth and Russia. DRESSLER, WALTER RENTZSCH following the collapse of the Soviet Union, AND JOACHIM WAGNER p. 54 the agricultural equipment market is fi- DRIVERS OF nally set to recover. The level of technical FUTURE GROWTH development is already high. Today, Western-style equipment is already used The Chinese and Indian markets are still on about 25% of farmland. About 70% of dominated by domestic players such as equipment is worn out, so demand for re- Foton Lovol and First Tractors in China placements is strong. However, the grow- and Mahindra & Mahindra and TAFE in ing political tension between Russia and India. The slow progress in BRIC coun- its Western partners, plus local capital tries of OEMs from mature markets is shortages, put the market growth poten- likely because meeting buyers' needs tial at risk. and lower cost positions in the volume India is the world's largest producer segments is a challenge, as the require- of low-cost and budget tractors. However, ments differ greatly from the standards the domestic market is almost exclusively in mature markets. factors such as farm revenues, crop pric- low cost, low power and low technology. To get a clear picture of the market es, arable land size, government support In India 85% of all farms are smaller than potential, it is not enough to look just at and exchange rates have to be taken into two hectares, and they are expected to trends in population growth and per capi- consideration. These factors vary among shrink even further. Therefore most farm- ta food consumption. Many economic the BRIC markets. As a consequence ers do not have an incentive to buy trac-

THINK ACT // AUTOMOTIVE INSIGHTS 49

PHOTO: ERIC MARTIN/FIGAROPHOTO/LAIF PHOTO: REARRANGING BRIC BOUNTIFUL HARVEST

tors or combines equipped with advanced hand has traditionally been served by technology. However, a new trend of cus- OEMs through imports. tom hiring centers has emerged. Farmers To reduce costs, improve quality and can use more advanced equipment Toolkit for shorten the time-to-market, almost all shared by communities. This may be a OEMs from mature markets have started growth opportunity for players from in- BRIC markets to develop modular toolkit strategies dustrialized countries. How to tackle a diverse set of that involve sharing product architec- In China, shrinking arable land, water agricultural equipment markets tures and technologies across multiple shortages and recurring natural disas- using a flexible approach. segments and machines. However, ters challenge the food supply given a these toolkits are typically designed to PRODUCT STRATEGY population that is still growing. The loss address the more mature markets first > Can one modular concept be applied to of agricultural land creates a need for multiple regions? and only a few selected segments in higher yield per unit. China has a large > How can local and regional requirements emerging markets. Success in BRIC mar- number of farms, but they are on aver- be incorporated without losing the econo- kets depends on meeting regional mar- age the smallest within the BRIC coun- mies of scale offered by global standardiza- ket requirements, including price level, tries in terms of area. The government tion? and having a local production footprint. has begun to modernize agricultural PRODUCT ENGINEERING OEMs now face the challenge of how to equipment in order to keep food prices > Can a single global modular concept be extend their modular concepts without at acceptable levels, and these initia- extended far enough to cover both mature losing the benefits of a global concept. tives are driving the growth potential for and emerging markets, or are individual Finding answers to these questions agricultural vehicle manufacturers in designs required? will enable success in BRIC markets – as > Who is responsible inside the organization China. Domestic manufacturers have indeed in mature markets. The guiding for the design of new vehicles (engineering launched technological projects to re- lead for components of the modular toolkit principle when developing a global modu- spond to this trend. The start of large- and responsibility for regional adaptations)? lar strategy should be as follows: How can scale farming projects will also speed up the cost-saving potential of the global technological improvements. SUPPLY CHAIN MANAGEMENT platform design best be utilized? > What does an optimized global supply Experience from areas such as the chain that considers local content require- HOW TO MAKE ments look like? commercial vehicle segment shows that THE MOST OF IT > Which components should be sourced OEMs must take a holistic view of the val- locally? ue chain. Cost savings realized in the de- All four BRIC markets are at least partial- sign phase are often eaten up in down- ly protected by import tariffs and local MANUFACTURING FOOTPRINT stream processes. Typical cost drivers > How does the footprint have to change to content requirements for local produc- that need to be avoided when developing leverage modular synergies? tion. To meet the local content require- > Is local production needed or is an import global platforms include unclear design ment in Brazil (60% of weight and value), strategy sufficient? ownership between regions, resulting in global OEMs have localized at least the long lead times for engineering changes, production of powertrain and drivetrain QUALITY MANAGEMENT and overdesign of products where local components as well as body parts. In > Can quality expectations be achieved by market requirements are unknown. relying on local specifications? India, the low price points of local equip- > Do global quality standards need to be set Fully understanding the specific mar- ment and strong competition from do- and monitored? ket requirements, clearly defining inter- mestic manufacturers mean that local faces, ensuring that designs are scalable production is also necessary in order to ORGANIZING PRINCIPLES and properly allocating functional re- compete in the market. Most of the ma- > What does a global organization look like? sponsibilities are key success factors. If > What are the key processes and which jor OEMs have started local production designed and implemented properly, adaptations are needed to ensure global in China as well. However, Chinese state modularity? global modular concepts can help OEMs subsidies for farmers to upgrade their master some of the challenges posed by equipment favor mainly Chinese prod- the BRIC markets and benefit from their ucts. The Russian market, on the other growth potential.

50 THINK ACT // AUTOMOTIVE INSIGHTS REARRANGING BRIC 616 FOUR COUNTRIES 566 DIFFERENT SETTINGS

Agricultural BRAZIL businesses 64ha Average farm size [hectares] and RUSSIA 5m number of farms [million] 995ha 0.5m 1.2ha 129m 0.5ha 252m INDIA 892 866 CHINA Growth prospects 646 657 Motorized agriculture equipment production Technology in BRIC countries level ['000 units] Engine power of agricultural equipment ['000 units]

46 43

92 kW 24 80 170-250 12 13 14 45 250-400 7 29 4 2 5 2014 100-170 0 0 0 0 2020 BRAZIL RUSSIA INDIA CHINA 20-100 BRAZIL RUSSIA INDIA CHINA

Sources: Agricultural businesses: Brazilian Institute of Geography and Statistics (IBGE), CIS farm statistics, China National Bureau of Statistics, Indian Ministry of Agriculture, Roland Berger; Growth prospects: Roland Berger; Technology level: Roland Berger

THINK ACT // AUTOMOTIVE INSIGHTS 51 REARRANGING BRIC FAMOUS CARS AMBASSADOR THE KING OF INDIAN ROADS or nearly 60 years, India's roads bustled with the ubiquitous Hin king of Indian roads" or simply "Amby". F dustan Ambassador. In May 2014- After all, the Ambassador holds a cer the country's first carmaker ceased tain amount of sentimental value as its production because of financial prob - endearing bulbous shape and sturdi lems. The Ambassador was manufactu - ness embody much of old India. It was a red by Hindustan Motors of India from - - favorite among both taxi drivers and po 1957 to 2014. It experienced very few liticians, and tourists are still eager to changes during its lengthy production - experience the car's anachronistic flair. run. However, people liked to make jo The Amby has also developed a cult fol kes about its questionable quality: - lowing among many prosperous Indians, "The only thing that doesn't make a - who are busy collecting and faithfully sound in an Ambassador is the horn!" restoring old Ambassadors. Even the This didn't affect the Ambassador's popular British television series Top popularity much. It's now a classic, Gear hailed the Amby as the "World's affectionately known by many as "The Best Taxi". Still an eye-catcher in every city and a true ambassador of India! 75% was the market share in India held by the Ambassador until the early 90s. 30,000 Ambassador taxis are still on duty in Kolkata.

The Amby: beloved like a member of the family

52 THINK ACT // AUTOMOTIVE INSIGHTS REARRANGING BRIC RECENTFIND ISSUES OF AUTOMOTIVE INSIGHTS AND OTHER Food for thought RB MAGAZINES ON: Take a deep dive and find out more in related articles, www.rolandberger.com/ studies and magazines by Roland Berger authors. media/magazines/

Economic scenario: Impact of economic Automotive Insights sanctions against Russia 01/2014: Focus on trends The European Union's sanctions against Russia The first issue of Automotive Insights in affect a broad range of industries – one of them 2014 emphasizes upcoming trends for the is the automotive sector. As our survey found, industry. We also look at the important role of marketing and how to make the most of more than half of the respondents believe the insights regarding customers. In an inter- crisis will last for a considerable time and think view with board member Luca de Meo, we that it will also have a substantial negative effect learn about Audi's best practices in market- on economic growth especially in Germany. ing, sales and distribution. Our experts also We explore the different forms of sanctions and analyze topics such as the fleet manage- their possible impact; for example, on investment market in BRIC countries, the importance of the automotive industry for ments and exports. We also formulate a number economic development in India and forceful of recommendations, providing guidance for competition in China. companies as they decide on their own strategy for dealing with the sanctions. Engineering services outsourcing: Spotlight on Europe and China Automotive Japan: New sales channel concepts Automotive manufacturers have to deal with technology complexity, which is driving We are looking at two global macrotrends: Firstly, the move engineering spend. Our focus is the com- from a platform strategy to a more flexible modular architec- petition between Europe and China. From ture system of manufacturing. As a result, models can be this perspective, we shed light on relevant updated faster and more easily. Secondly, the revolution in megatrends and political requirements that drivetrain technology: The industry is shifting from gasoline are reshaping the market for engineering and diesel combustion engines to ones powered by electri- services outsourcing (ESO). Taking into city, natural gas or hydrogen. Our experts analyze the impact account the different trends and impact on saturated markets with Japan serving as a reference case. drivers of the ESO market helps both manufacturers and engineering service partners define the right strategies in this dynamic environment. Truck aftersales: Roadmap to excellence Online automotive parts sales: The rise of a new channel Excellence in the commercial vehicle after- Our study analyzes the potential of online business sales business is becoming more important for car parts sales. While today the share of online is as margins in new truck sales are eroding. 16%, we estimate that it will grow with a 7 to 8% CAGR In this study, we have identified three in the next few years. By 2025, about one fifth of busi- important areas for action: customer needs ness will be done online – a sales volume of EUR 3.6 management, price/strategy differentiation billion. To evaluate opportunities within the automotive and customer relationship management. aftermarket universe, the study analyzes the three We also propose the "aftersales excellence dimensions – customers, products and channels – cube" as a comprehensive tool for analyzing for strategic fit and defines success factors for each. activities in this business.

THINK ACT // AUTOMOTIVE INSIGHTS 53

PHOTO: ATAL LOKE/PANOS PICTURES LOKE/PANOS ATAL PHOTO: REARRANGING BRIC SERVICE

ls LAMS the new BRIC? Czech Republic AUTHORS Stephan Keese, Partner Roland Zsilinszky For more information about the Phone +55 11 3046-7111 Phone +420 2 102195-51 topics covered in this issue, [email protected] [email protected] please contact our contributors: Reshaping emerging markets France Stephan Keese, Partner (see above) Sebastien Amichi The world BRICS Phone +33 1 53670-479 A spotlight on BRIC suppliers' [email protected] Stephan Keese, Partner M&A activities Max Blanchet Phone +55 11 3046-7111 Stephan Keese, Partner (see above) Phone +33 1 53670-479 [email protected] [email protected] Chinese-Western power engines Looking for growth Stephan Keese, Partner (see above) Germany Stephan Keese, Partner (see above) Marcus Berret Bountiful harvest Brazil: Turning the corner Phone +49 89 9230-8737 Sebastian Gundermann, Partner [email protected] Martin Bodewig, Principal Phone +49 89 9230-8142 Dr. Wolfgang Bernhart Phone +55 11 3046-7111 [email protected] Phone +49 89 9230-8909 [email protected] Norbert Dressler, Partner [email protected] India: Ready to roll again Phone: +49 711 3275-7420 Alexander Brenner [email protected] Phone +49 89 9230-8511 Dr. Wilfried Aulbur, Partner Dr. Walter Rentzsch, Project Manager [email protected] Phone +91 22 3953-7502 Phone: +1 248 729-5128 Norbert Dressler [email protected] [email protected] Phone +49 89 9230-8511 Russia: Stuck in the crisis Joachim Wagner, Consultant [email protected] Phone +49 89 9230-8228 Philipp Grosse Kleimann Eduard Cherkin, Principal [email protected] Phone +49 89 9230-8511 Phone +7 495 225 76 45-0 [email protected] [email protected] Sebastian Gundermann Jürgen Reers, Partner ROLAND Phone +49 89 9230-8511 Phone +49 89 9230-8113 [email protected] [email protected] BERGER Jan-Philipp Hasenberg Juri Wagenleitner, Project Manager Phone +49 89 9230-8511 Phone +49 89 5485-8919 AUTOMOTIVE [email protected] [email protected] COMPETENCE Felix Mogge Hotspot China Phone +49 89 9230-8737 CENTER [email protected] Junyi Zhang, Principal Jürgen Reers Phone +86 21 5298 6677-123 For more information on our Phone +49 89 9230-8909 [email protected] projects worldwide, please [email protected] Ron Zheng, Project Manager contact our local experts: Dr. Thomas Schlick Phone +86 21 5298 6677-163 Phone +49 89 9230-8737 [email protected] [email protected] Fanny Cao, Principal Austria Phone +86 21 5298 6677-850 Great Britain Rupert Petry [email protected] Phone +43 1 53602-101 Robert Thomson [email protected] Phone +44 20 3075-1103 Credit is king [email protected] Junyi Zhang, Principal Belgium Phone +86 21 5298 6677-123 Greater China Didier Tshidimba [email protected] Phone +32 2 6610-317 Andreas Männel Stephan Bueb, Project Manager [email protected] Phone +86 21 5298 6677-860 Phone +86 21 5298 6677-836 [email protected] [email protected] Croatia Junyi Zhang Vladimir Preveden Phone +86 21 5298 6677-860 Phone +43 1 53602-301 [email protected] [email protected]

54 THINK ACT // AUTOMOTIVE INSIGHTS REARRANGING BRIC SERVICE

Hungary North America Frigyes Schannen Marc Winterhoff PUBLISHER Phone +36 1 30170-70 Phone +1 248 729-5116 [email protected] [email protected] Roland Berger Strategy Consultants GmbH Thomas Wendt India Automotive Competence Center Phone +1 248 729-5116 Mies-van-der-Rohe-Str. 6 Dr. Wilfried Aulbur [email protected] 80807 Munich Phone +91 22 3953-7502 Germany [email protected] Romania +49 89 9230-0 Codrut Pascu www.rolandberger.com Italy Phone +40 21 30605-00 Roberto Crapelli [email protected] Person in charge Phone +39 02 29501-257 according to German press law [email protected] Russia Marcus Berret Andrea Marinoni Eduard Cherkin Phone +39 02 29501-291 Phone +7 495 225 76 45-0 Leading author [email protected] [email protected] Stephan Keese Paolo Massardi Phone +39 02 29501-218 Singapore Editors [email protected] Thomas Klotz Dr. Cornelia Geißler (Project management) Phone +65 6597 4566 Japan Johann von Georg [email protected] Christian Weber Dr. Satoshi Nagashima Jan-Philipp Hasenberg Phone +81 3 35876-385 South America [email protected] Stephan Keese Design Yuzuru Ohashi Phone +55 11 3046-7111 Blasius Thätter (Art Direction) Phone +81 3 35876-697 [email protected] Silke Kampfmeier (Design) [email protected] Martin Bodewig Susanne Nips (Photo editor) Akio Okamura Phone +55 11 3046-7111 Phone +81 3 35876-385 [email protected] Printing [email protected] Thomas Kunze Pinsker Druck und Medien, München Dr. Martin Tonko Phone +55 11 3046-7111 Phone +81 3 35876-657 [email protected] Circulation [email protected] 2,500 Keisuke Yamabe South Korea Phone +81 3 35876-695 Soosung Lee Disclaimer [email protected] Phone +82 2 2288-0003 Opinions expressed in this magazine do not [email protected] Malaysia necessarily reflect the views of the publisher. Sweden Some of the content contained in the pub- Anthonie Versluis lication is subject to third-party copyrights. Phone +60 3 2203-8600 Per I. Nilsson The copyright of third parties is expressly [email protected] Phone +46 31 75755-14 indicated in the text where applicable. [email protected] Middle East Per M. Nilsson Tobias Plate Phone +46 31 75755-10 Phone +973 17 5679-23 [email protected] [email protected] Michael Wette Switzerland Phone +41 43 336-8630 Sven Siepen This magazine has been printed on FSC®- [email protected] Phone +41 43 336-8671 certified paper. This certificate supports [email protected] Netherlands responsible forest practices, meeting the standards of the Forest Stewardship Council René Seyger Turkey (FSC®). Phone +31 20 7960-608 Doruk Acar [email protected] Phone +90 212 37146-40 [email protected]

THINK ACT // AUTOMOTIVE INSIGHTS 55 REARRANGING BRIC THE NEW BRIC ORDER: CIBR