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ASIA: "India Automotive Monthly: Executive Summary" April 2011

ASIA: "India Automotive Monthly: Executive Summary" April 2011. 8-page report by J.D. Power Asia Pacific.

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back to index backASIAtalk September,  2005


Global Automaker Growth Strategies

Big bets and no margin for error

For all the challenges facing the automotive sector, growth in global assembly volumes is not likely to be one of them. According to the most recent PwC AUTOFACTS forecast, global light vehicle assembly is expected to grow from 60 million units last year to over 70 million units by 2012. This incremental 10 million units of annual output represents overall growth of 17%. Even more positive is the four-year compound annual growth rate, which at over 3% stands to be the strongest four-year period since the mid-1990s.

However, this gently upward sloping global topline disguises a number of harsh realities that will shape industry dynamics going forward. Simply put, not all automaker strategies will succeed in this environment, leading to an era of winners and losers in the auto sector. Helping this situation along are the big bets” that automakers and suppliers are making in terms of investment around the world.

The story begins with Asia-Pacific (defined to include Japan, Korea, China, India and the ASEAN) as the big winner in terms of light vehicle assembly growth, contributing almost half of the 10 million unit increase in vehicle output going forward. More specifically, China accounts for 30% (or three out of every ten incremental units of global assembly) on a contribution to growth (CTG) basis while India claims another 7%. For context, China and India's combined 37% CTG is equivalent to the next eight countries combined over the forecast period (2004-2012).

Driving this growth are the substantial investments or big bets” being made by the world's Global Eight automakers in these two countries. In fact, there will be a five million unit increase in auto manufacturing capacity in China alone between 2000 and 2012. Setting the pace of investment will be Hyundai and GM (adding a million units each), Toyota and VW (each adding 700K) and Renault-Nissan, Ford and Honda (each growing by 400K – 600K). Overall, China's capacity to manufacture light vehicles will expand by 70% through the forecast window, representing more than one out of every two incremental units of global capacity. That means capacity investment will outpace assembly growth, creating an output gap that will likely prompt export volumes as the offending” automakers try to avoid being placed in the loser” camp by way of underutilized assets (read: late-1990s South America).

India is a similar story, albeit on a smaller scale. The same Global Eight automakers will expand their collective capacity in India by over 800K units between 2000 and 2012. India's overall 40% growth in capacity ranks it third among auto producing countries, behind only China and Iran (a big bet in itself for Renault-Nissan).

Clearly, many of the world's global automakers (and suppliers) are counting on emerging markets like China and India (among several others) to provide the conditions necessary to sustain growth. Going forward, the success of each player will be defined by the size of the wager placed on each horse”. In a global industry where there is no margin for error, the magnitude of risk is obvious for those companies who have chosen poorly. To that point, it is instructive to understand where some of the world's automakers stand with respect to their big bets”:

GM and its alliance partners are expected to contribute about 23% of India's growth and 16% of China's growth, the largest of any automaker in either of these markets. At the same time, GM is likely to contribute only about 6% of North America's growth, out-gunned by each of the other Global Eight. As such, GM is betting on China and India for over 45% of its global growth, with North America accounting for less than 8%.

DaimlerChrysler (DC) is nearly absent from participating in meaningful growth in China and India, owing to the disintegration of its Asian automaker alliances. Instead, it is relying on North America for almost 60% of its overall growth, nearly double the contribution of China and India combined.

Ford (F) falls somewhere in between these extremes, contributing a well-balanced 10% growth to each China, India and North America. Within Ford, China and India together represent about 40% of its overall growth, while North America accounts for another 20%.

Hyundai (Hy) represents another sort of big bet in that it is placing a heavy wager on all three of these markets, representing nearly three-quarters of the company's overall growth. As such, Hyundai is poised to be a significant contributor within each market, with 23% CTG in India (level with GM), 20% CTG in N. America and 12% CTG in China.

On the surface, Toyota (T) is very similar to Hyundai, representing about 20% of the growth in both North America and India and about 12% in China. However, combined growth in these three markets represents only about half of Toyota's global growth.

Similarly, while Renault-Nissan (RN) is expected to contribute solidly to the growth in North America, China and India, overall growth in these three markets accounts for only 30% of the company's global growth going forward.

Interestingly, Honda's (Ho) growth profile is closer to Hyundai's than probably anyone would suspect. Although the automaker is a relatively small contributor to growth in any of the three regions, these markets will account for over two thirds of Honda's global growth to 2012.

Finally, VW (which resembles Renault-Nissan) will contribute between 5% and 10% of the growth in each of these markets. However, this is expected to represent only about a third of VW's overall growth.

From this analysis, it becomes clear there are a variety of conflicting big bets” being made around the world today that will determine who wins and who loses tomorrow. One thing is certain: a gently improving global topline will not, by itself, result in a rising tide lifts all boats” scenario. The real story is being played out on the individual market level among a set of highly competitive companies with a lot at stake.

Source: PwC AUTOFACTS "Executive Perspectives" - GAI

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