Emerging economies take the stage as industry recovers

By Michael Robinet (China Daily)
Updated: 2010-04-24 06:53

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A salesman checks a car in Seoul, South Korea. Combined output from Japan, South Korea, the US, Australia and Western Europe is expected to remain virtually unchanged from 2010 to 2016. [Bloomberg]

Location shift

By 2016, light vehicle production in developing markets, mainly BRIC, is expected to grow by a compound annual growth rate of over 7 percent as new buyers emerge driven by increasing personal incomes.

Developed markets are anticipated to increase at less than half this, as vehicle sourcing shifts to developed markets.

Through 2016 developed and developing markets will share production equally, emerging markets thereby coming to play a crucial role in the growth of the global light vehicle industry.

Production in China grew to over 11 million light vehicle units in 2009 thanks to government stimulus and an expanding economic base.

This production is projected to rise to over 13 million units for 2010 and over 19 million in 2016, a rise of 70 percent from 2010.

Within the other BRIC countries, each member will grow at its own pace depending on variants in customer base and the economy.

Increased domestic demand driven by a more stable economy combined with a low dependence on petroleum due to rising alcohol production gives Brazil a solid base for future expansion.

Total volume in South America, where Brazil accounts for more than 85 percent of demand and output, is forecast to rise 10 percent in 2010.

Easier access to credit and integration of new capacity will allow for a 44 percent rise to over 5.7 million units by 2016.

A key source for global offerings, India's output volume is slated to rise over 60 percent to 2016 from 2010, reaching a level of over 5 million units from 3.1 million today.

Other developing markets will be late bloomers, due to their reliance on petroleum, with its erratic prices, for economic expansion.

Russia is not expected to recover from the production decline of 2009 until 2013-14 at the earliest.

Production in 2016 is forecast to reach 2.2 million units, up over 230 percent from 2009's low.

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Developed markets such as North America and Western Europe will rebound by 2016 as developing markets mature thereby boosting global sales.

The continued shift of vehicle sourcing to lower cost trade partners will place substantial pressure on older, established facilities in the future.

Four regions are key to this change. Combined output from Japan/South Korea, US/Canada, and Australia and Western Europe is expected to remain virtually unchanged from 2010 to 2016.

The growth in the overall market is, however, expected to rise 36 percent during this time period. Proliferation of global platforms in developing nations, pressure to reduce cost, reducing trade boundaries and the growing standards of quality across production sources has evened the playing field for new locations such as Eastern Europe, Thailand, Mexico and India.

The 2008 to 2009 industry slowdown was pivotal in bringing about this shift as it hammered developed nations, giving developing regions a chance at catch-up.

The jagged pace of regional rebounds and the relative regional share of each of the global manufacturers will be a major determinant of the pace of change and success in the future.

If the last two years are any indication, increasing market competitiveness and sourcing shifts will not abate but usher in more alteration of the industry in the years to come.

The author is vice-resident of CSM Worldwide Corp, a US auto industry consulting firm.