Summary
Reports of the auto industry's death, and even the perception of decline are greatly exaggerated. Look beyond its current challenges and you can see increasing levels of productivity and innovation. And, most important of all, a wave of accelerating economic development in many countries that will, sooner or later, produce immense new demand for personal mobility.
Analysis
To grasp these dynamics, we must first understand the automobile market, not as it is often perceived, but as it really is. Millions of people around the world are making their way into cities and seeking autos as a means to a better life. The momentum may have slowed in 2008 and 2009, but it hasn't vanished. Recent research shows that the global customer base for autos falls into three broad categories, based primarily on which country they live in.
The Rapidly Emerging Economies (REEs) Consist of the so-called BRIC nations (Brazil, Russia, India and China) and a group of other relatively wealthy developing nations. Millions of family's in these countries are making or contemplating the purchase of their first automobile.
The Lower-Growth Economies (compared to the REEs) consist of about 100 nations with relatively impoverished populations and poor economic prospects. However, their political leaders are interested in building up the middle class and see personal mobility as a major stepping stone.
The Mature Economies include the established industrialized nations in North America, Europe and Japan. Population growth and vehicles replacement rather than economic growth will determine the market for automobiles there.
These three groups add up to an enormous amount of market potential. Estimates suggest that more than 370 million additional vehicles could be sold by 2013 and more than 715 million by 2018. But business models in the auto industry are not currently equipped to handle these increases. During their first 100 years, vehicle manufacturers grew used to applying a single approach to building and selling vehicles around the world. They sold these vehicles through similar franchised dealer networks, with 80 percent of automotive sales and production based in the U.S., Japan and Europe.
Now however, the auto markets are becoming far more diverse and complex than those of previous decades.
Competition is also becoming much more intense. The global automotive industry began in North America and Europe and, in the 1970's, expanded to Japan, followed by Korea in the 1980s. Now OEMs from China, India, and perhaps other emerging nations will be sources of supply and customers around the world.
Not all of today's automakers will survive this transition, but those that innovate appropriately will enjoy the prospects of hundreds of millions of new customers.
Jack Sayer consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
