• Thursday, July 18, 2024
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BusinessDay

Cars in emerging markets

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Cars imported into Nigeria increased to 268,026 in 2012 from 231,423 in 2011, according to Nigeria Ports Authority (NPA). Unfortunately, the NPA figures do not break down the figures into type, marque or age.

Analysts contend that emerging markets are “the big prize” for the sale of light cars, representing half of the sales of the big seven car manufacturers. This movement toward emerging markets began five years ago. However, the expectation is that growth will slow down to 83 million cars in 2013. In 2012, sales jumped to 81 million from 69 million in 2007, a 17-percent increase. A considerable number (8.47 million) of the additional 11 million cars were sold in emerging markets.

India, the home country of Tata, a conglomerate that manufactures cars, has been a boon for small cars; 1.6 million were sold in India in 2012. To succeed, “cars for this market must be built from the ground up, frugally not cheaply. It takes a special engineering mindset to do it successfully”.

Suzuki Swift, Tata Indica, Nissan Datsun are indicators of the rise of small cars. Frost & Sullivan, a consultancy, says “Tata, Renault and Suzuki are expected to account for about 50 percent of the global low-cost car production by 2013”.

Dacia, “Renault’s profit machine”, is a low-cost brand; out of Europe it is sold at a premium (€8,000, a mark-up of more than 20 percent). Analysts at Morgan Stanley say the operating margin of Dacia is the stuff of premium brands. For Carlos Tavares, COO of Renault, “Dacia is really a cash cow for the company” – the company plans to sell one million units in emerging markets like Russia and Latin America. They also note that Renault is 10 years ahead of the curve with plans for a €2,300 brand built for BRICS, India and South Africa. Renault is described as “masters of frugal engineering” coupled with its platform scale and geographical presence in emerging markets through alliances.

The small revolution is also changing the business of original equipment manufacturers (OEMs). Toyota is investing to expand its already global presence further, into Africa, with its $2 billion purchase of CFAO, a distribution company with outlets across the continent. European and other Japanese and American companies are investing huge amounts to make India their hub for low-cost cars.

Analysts reckon Volkswagen and Toyota will produce low-cost cars ranging from $5,000 to $7,500. “Toyota plans to use low-cost materials and design and engineering techniques from its low-cost project on all its existing businesses,” according to Frost & Sullivan.

Carmakers and their suppliers are developing new technologies and business models attuned to the characteristics of small cars. Small cars are lighter and fuel-efficient. Alternative materials, e.g., plastics, lightweight alloys and composites are being manufactured. Suppliers are also upgrading motorcycle spare parts.

The re-organisation of the industry is an opportunity for spare parts suppliers and after-sales service providers, e.g., MP3 car stereos. These opportunities, however, come with challenges. Carmakers and their suppliers will have to contend with price completion, perceptions about quality, performance and brand image.