According to data published by OICA (the International Organization of Motor Vehicle Manufacturers), global vehicle production – from passenger cars to heavy trucks and buses – grew by 3.1% in 2011, reaching an all-time record of almost 80 million units. Full yeardata for 2012 was not available at the time of writing, but as the US market recovers, and the European market declines, the BRICS nations continue to outperform their individual regions. At the same time, Asia and parts of Africa show strong potential, and OEMs and suppliers are beginning to make long-term strategic moves out of Europe to focus their operations on these growth markets.
Megatrends spoke to Yves van der Straaten, OICA’s Secretary General and Technical Director, about how he sees the global automotive industry developing in 2013 and beyond.
Automotive industry sales and production are moving very clearly away from Europe, and into emerging markets. Is this because Europe as a market is declining or because of growth in other markets – and why do you think this is happening?
That trend has been ongoing for a couple of years, and has accelerated over the last ten years. Right now we are in the middle of a huge crisis in Europe, but even if Europe was a growth market, the growth is often extremely limited, while the emerging markets are new markets. And if you simply look at the number of cars per 1,000 inhabitants, in Europe we are at 500 or more. In countries like Asia, excluding Japan and Korea, they are well below100. We are looking at figures like 30, 40, 50 vehicles per 1,000 inhabitants, so of course the growth potential is largely in these countries and not any more in Europe or the US, although the US in 2012 did pretty well. In terms of production moving to these emerging markets, you produce where you sell, and since the sales are moving there, so too is the production. It avoids the burdensome and expensive logistics of producing in Europe and shipping to China, for example. There is also the issue of labour and material costs etc., which, in Western Europe, are far more expensive than in these emerging markets. If we had to use European prices in China plus transport, logistics costs, etc., it would simply not be feasible.
OICA data published in 2012 showed Asia as the source of 40.6 million vehicles, up from 16.5 million units 20 years ago. How do you see Asia continuing to evolve?
Take China, for example: in 2012, we saw the growth curve in that major market slowing down. In the past we had growth figures of 20%, 30% per year. It’s always difficult to give a figure, but the latest forecasts I have seen for China 2013 indicated growth of between 5-10%.
But that’s still growth that many other markets can only dream of…
Exactly. It’s still quite a positive development and I would call it a sustainable development.
By sustainable, do you mean that the market in China will continue to grow at 5-10% over the next ten years? It’s impossible to give a precise forecast. But across the region as a whole, such a growth will be long-term. We always talk about China, but India is a huge market that also enjoys growth of 5-6% on an annual basis.
I think India is rather different. Simply looking at the increase in GDP per inhabitant, the increase was dramatic over the last ten years in China, but now that growth is much slower. It’s still growing, of course, but the growth is less dramatic in India than in China. And GDP per capita and number of sales, well, these two figures go hand in hand. It’s all about purchasing power.
What role do you think Africa will play as a market over the next ten years?
Africa is growing quite nicely, particularly South Africa, where the expectation for 2012 was a market of something like 635,000 vehicles – that’s a growth of more than 11%. Of course, the figures compared to China are low but it is still growth, and what we have seen over the last couple of years is that South Africa tends to attract the other surrounding countries in the same movement. When there is growth in South Africa, then there is also growth in other sub-Saharan countries. That seems to be an interesting development, even though the absolute figures are rather small in comparison to other markets.
Do you see the unrest in the Middle East and North Africa as something that could hinder any potential growth in the region over the next ten years?
I am sure it will, because of the uncertainty about what will happen at a political level in North Africa. The problem is simply that nobody knows. But Renault opened a plant in Morocco just a couple of months ago, and is looking at Algeria as well, so there is still confidence in these countries. There is some vehicle manufacturing in Egypt, but those factories slowed down during the Arab spring, and in 2011 they were at minus 30% compared to 2010. I don’t have the figures for 2012 yet, but I suspect that there will be quite a significant reduction due to the political unrest. 2012 might be a little better than 2011 because a new government is in place, but now there is some unrest again.
You mentioned the ‘build where you sell’ concept: it’s becoming increasingly important for reasons of logistics, currency exchange rates and the movement of goods between free trade and non-free trade areas. How much movement do you expect to see in emerging markets as a result of the build where you sell strategy?
For one, you are certainly less prone to variations in exchange rates. And it’s a question of logistics: your suppliers follow you usually to the place you are producing and assembling, so there’s a whole supply chain establishing itself once you set up an assembly plant somewhere. But I think it’s simply a question also of long term stability. These are really the main reasons. The cost factor, the logistics of course, and in any case, more and more you have a skilled workforce wherever you set up a plant, and even if that workforce is not yet totally skilled and trained, well, you have your own training programmes to train your future employees and so on, and that works quite well. So I think it’s really a long term solution rather than shipping vehicles from one part of the world to another.
Two key markets where OEMs are investing are Brazil and Mexico. What prospects do you hold for South America as a region?
Mexico is a key country, and from there you benefit from NAFTA. There is also the advantage of the Brazilian market, which is huge, but in some countries, sometimes political and fiscal legislation may or may not attract investments. The fiscal legislation introduced in Brazil, for instance, resulted in a movement attracting local investment, including by those manufacturers which were not yet assembling locally.
Do you see South America as a powerful automotive region over the next ten years?
Yes, but with regular peaks and troughs, as we have seen in the past. If you look at history, these markets in South America have always been very unstable, but purely economically they are on a growth path.
Before the global economic crisis, Russia was talked about as being a market larger than Germany. How do you see the performance of Russia again over the long term?
I would say that Russia is once again in line to overtake Germany, and I would be tempted to say probably before 2020.
We’ve talked about the emergence of the BRICS and about the recovery of the US market; now we should address the slowdown in Europe. The interesting phenomenon in Europe is that the mainstream OEMs are struggling, but the premium OEMs are not. How do you interpret this?
The premium manufacturers’ customers are less sensitive to the effects of an economic crisis. Mass-market manufacturers like Fiat, Peugeot or Renault are suffering because they have a different class of customer. How long this crisis will last, nobody knows. We [OICA] had a tour de table among our major members two months ago and, certainly the Europeans, including Germany, are extremely cautious about making forecasts for 2013. December 2012 sales results in Germany were down by around 15%. The German market resisted quite well throughout 2012, declining by 2.3%, but December was really very bad. So I am curious to see the figures for January. But if it continues on the same trend then Europe is off to a bad start in 2013, including Germany.
The US market peaked at around 17 million units in 2007. It collapsed to 10.5 million, and it’s now back up to around 14.5 million, with an optimistic outlook of 15.5 million for 2013. Trend analysis indicates the market could reach 17 million units in 2017. Do you think that Europe should accept a new normal? Are the current levels a new normal for Europe or do you think this is just a peak and trough?
I can only say that I hope it is not. Western Europe, or the EU-27, used to be at around 15 or 16 million. 2012 ended at around 12 million. That’s definitely not a result which is satisfactory for us. And taking that into account then what do you do with the plants? You have huge overcapacity. I’m not saying overproduction, because of course you are not going to produce vehicles that you won’t sell, or at least you try to reduce that gap as much as possible, but the overcapacity is clearly there for most of the manufacturers in Europe. Not all of them, but most of them.
Do you see the emergence of megacities as a significant factor in the automotive industry?
The growth of megacities will definitely play an important role. It will affect transport, and how we fulfil transport needs. Offering a good transportation system might conversely introduce a deterrent to purchasing a vehicle. Cars might become something for people in extra-urban or rural areas, where there is no alternative to your own private transport. But megacities will definitely experience increasing congestion problems, and they could slow down the new vehicle markets in countries with megacities. Look at what is happening in China, where Beijing and Shanghai are operating a lottery system for the right to purchase a vehicle. If and when other cities in other countries introduce similar policies, we will be watching very closely. But trying to predict what kind of effect this could have on the new vehicle market is difficult.
What is the feeling among OICA members of what 2013 means for the industry? And how do you see global vehicle sales developing over the next ten years? Several Tier One suppliers have individually said they expect sales to reach 115 million globally by 2020. Do you agree with that forecast?
Yes, that’s the figure that I have seen regularly as well. Whether it will be 100 or 115 million, I don’t know. But, in any case, on a global scale I am still rather optimistic that the figures will continue to grow, simply because the demand is there. Looking at the forecast for some of the key markets, South Africa is expected to grow by 8% in 2013. In Korea, we expect 3-4%. For Japan, I don’t know, but based on 2012, I am cautiously optimistic. We just mentioned the US, the latest forecasts I have seen for 2013 are between 14.8 and 15.4 million, so let’s say 15 million units. And the demand for vehicles is growing worldwide. Of course, there are major disparities among and between regions and countries, but on a global scale I think the 100 million unit mark should indeed be passed before 2020.