Carlos Ghosn is "Dead-On" In His Assessment of Both Foreign and Domestic Automotive Market Growth

Implications: The significance or the emerging markets in Russia, India, China, and Brazil should not be underestimated by any automotive OEM who wants to experience significant growth in the future. In addition, the implication that raw material sourcing and pricing as well as manufacturing and logisitcs cost control will be the focus of tremendous OEM attention is accurate. Finally, the prediction that U.S. sales will remain flat and will shift in types of vehicles sold should prove true.

Analysis:  I do think that Carlos Ghosn, in one discussion with students at Korea University in Seoul, has given a fair assessment of the appropriate focus and strategies for growth for the automotive OEM sector.
The focus will be four world economies that are experiencing a significant transformation of  average wages and salaries, as well as continuing to developed a diversifed portfolio of export products and markets. From there, it becomes simple mathematics since people with new found purchasing power will certainly purchase cars. Currently Russia has about 140 cars per 1000 people, China about 20 cars per 1000 people, and India with about 8 cars per 1000 people. Comparatively, Germany has about 850 cars per 1000 people and Japan has almost 500 cars per 1000 people. Then we factor in population, with China, India, and Russia accounting for 40% of the planet's population. If China, alone, were to reach the level of Japan, this would mean more than 572 million automobiles. And the surge is just now beginning. Last year was a global automotive record year, with more than 70 million units sold.

Most of the serious OEM players in China and Russia in particular are experiencing 12 to 20 percent sales gains year over year since 2005. and there is no sign that it will let up. India and Brazil are following, with tremendous growth as well. While the U.S. languishes and will continue to have flat or slightly increasing sales, the emerging markets are ripe for manufacturing, marketing, and sales. Those automakers who have more of a global sales presence, and also have global platforms will see the greatest growth and financial benefit. Those manufacturers who are too US or Western Europe centric and who have U.S. dedicated platforms will suffer the most. For example, forget about the full sized pick-ups and SUV's, and watch compact pick-ups and moderate sized SUV will experience global growth. Entry level and small car sales growth will be most explosive. In addition, luxury marques, with a global presence, will do better than those that are only US or Japanese market focused. So expect strong growth for Mercedes, BMW, Audi, Rolls Royce, Bentley, and Porsche more so than Cadillac or Acura. Expect to see the sales of these luxury marques in China and Russia surpassing the sales in the U.S. and in Western Europe.

In addition, Carlos is right regarding the focus on raw material prices. Commodity components will continue to get hammered on price, forcing the manufacturers to make wise decisions on how to source raw materials, and where to manufacture the parts. I would also expect to see more consolidation and acquistion among these Tier One companies. Examples would be companies producing plastic injection molded hang-on parts, interior trim conponents, metal components, rubber components, hoses, lines, and common components. Exceptions will be manufacturers producing components that do not transport well and have high variant mix, such as glass and tires.

Those suppliers producing components for the innovative and value added features should experience less pressure, but will have to differntiate themselves with R&D to deliver the best, most innovative products to the OEM's. Examples of such components would be Infotainment content - Harman, Fujitsu, Ibiquity, NXP, Wavecom are examples of suppliers; Chipsets / ECU / MCU content - Freescale, Atmel, SMSC, Inova are examples of some of those suppliers; Active Safety - Gentex, FLIR, Autoliv, Mobileye, Continental Teves are examples of some of those suppliers; and finally fuel systems and alternative fuel system systems suppliers - Mitsubishi and IHI for turbochargers, Robert Bosch and Continental for fuel system components, and a myriad of battery suppliers are examples of these suppliers.  These suppliers will continue to cooperate with OEM's through the varied consortiums such as M.O.S.T., Flexray, and LIN consortiums.

Carlos, you are right. The Korean students received the ultimate automotive industry elevator speech.