Heavy traffic and huge opportunities emerging
The road ahead for the automotive industry leads toward car-hungry emerging markets.
The inevitable complexity is why DHL now has Automotive Competence Centers in China, as well as in emerging markets such as Brazil and South Africa.
China is now the world's biggest car market, and emerging economies already account for more vehicle sales than developed countries. To get a sense of the opportunity this represents, the U.S. has about 800 passenger vehicles for every 1,000 people, according to the World Bank, while China has only 85 cars per 1,000 people with more than four times the population. And that is just one emerging market: India has 18 cars per 1,000 people, and business is also booming in Russia, Brazil, South Africa, and other countries.
At the same time, emerging markets are also beginning to dominate car production. In 2009, emerging markets produced more cars than developed economies. So far, at least, this success does not seem to come at the expense of established car businesses as in North America and Europe, which have recovered from the recession. But the automotive business' road ahead, in terms of growth, mostly leads east.
It is becoming increasingly hard to identify what now qualifies as an "American" or "Chinese" car. In 2011, General Motors sold more cars in China than it did in the U.S. Some of these vehicles have brands like Buick, which has become more popular in China than it was for years in the U.S., while others have new ones like Wuling. But all of them use both American and Chinese technology, as well as components from all over the world.
"Manufacturers from a certain part of the world used to favor suppliers from the same part, but this is changing due to globalization and competition," says Fathi Tlatli, President Global Sector Automotive, DHL Global Customer Solutions & Innovation. "They'd rather work with the one that offers the right services at the right cost - especially since the technology inside cars is changing so rapidly - so a lot of manufacturers from elsewhere have come to China." The reverse is also happening. Last year China exported $13 billion in auto parts to the U.S., according to the consultants AlixPartners. Also in 2012, the Chinese auto giant Shanghai Automotive Industries opened a new office near Detroit, joining the carmaker Changan Automotive and parts suppliers like Brilliance Auto, which hope to sell more components to U.S. automakers.
Similar strategies are playing out all over the world. In India, Tata Motors uses Fiat's diesel engines, under a joint venture with the Italian company. Some automakers are even taking the next step and moving engineering and R&D near factories, so that a car produced in a certain market will be designed there as well - no matter where the company behind it is based. The aftermarket part business, which represents an important source of profit, is also moving east. The inevitable complexity is why DHL now has Automotive Competence Centers in China, as well as in emerging markets such as Brazil and South Africa.
Buyers are demanding
Companies in emerging economies do not just produce cars to be sold locally, though. Tata operates Jaguar and Land Rover in the U.K., China exports cars to developing markets worldwide, and companies in the developing world are beginning serious efforts to export vehicles to the U.S. and Europe. "You won't necessarily see a Chinese company with a particular model, you'll probably see it as a partnership," Tlatli says, "to help ease consumer acceptance. In the middle term, they will go into the high-end market. But brands aren't built overnight."
A globalized business will demand global manufacturing platforms, but individual models will still vary according to where they are sold. Different emerging markets have different tastes based on road quality, gasoline prices, and other factors.
In South Africa, the fastest growing market outside Asia, pickup trucks sell strongly. In addition, according to DHL's Global Connectedness Index 2012, some carmakers "have also designated particular regions or countries as 'hubs' for particular vehicle categories. India, for example, has been tagged as a 'small car hub'."
So if car buyers have one thing in common, it is that they are demanding. "In some emerging markets, people expect more," Tlatli says. "If you look at dealerships in those countries, some of them are spectacular."