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 fu- ture. The current edition of Automotive Insights ad- dresses this question. Our authors explain why we be- lieve 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 18 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 in dus try 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 sup pliers 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 SUPP LI ERS WESTERN King of Indian roads: develop ment 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 inves tors, 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 character- istics: 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 eco nomy*, 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 techno logy 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 com parably 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.