BRICs and Motors

'BRIC' countries (Brazil, Russia, India and China) will account for 40% of all near future growth in the car assembly market, according to PricewaterhouseCoopers. Meanwhile a report from Strategy Analytics predicts that competition in the industry will increasingly be centered around smart vehicle software and hi-tech features.

The four giant states grouped under the BRIC acronym are emerging as strong players in most manufacturing sectors, but the auto industry offers very specific challenges. BRIC countries' share of growth in manufacturing capacity will be even higher – as much as 52%. PwC says nearly all major global automakers are pursuing a BRIC strategy in some form as they attempt to gain competitive advantage by tapping the potential of these emerging markets.

The annual Global Automotive Financial Review includes summaries of financial data, trends and practices as reported by forty leading global vehicle manufacturers and suppliers, and anticipates 'massive structural changes' in the industry due to factors including high raw material prices and razor thin profit margins, plus intense global competition.

Steve D'Arcy, the consultancy's Global Automotive leader, comments: 'What makes the automotive industry so different is the additional dynamics of consumer tastes and demands, which vary so much from market to market. The challenge is responding to these with new strategies and products. Companies that maintain a 'business as usual' strategy or wait too long to act will find it extremely challenging to sustain momentum as the competitive environment transforms around them... [whereas] the winners will tend to be those companies that fully capitalize on the opportunities in emerging markets - from the perspective of both sales growth and cost reduction.'

Unsurprisingly, despite the use of the term 'BRIC' there are huge differences between the four states.

The Brazilian market represents one of the most challenging operating environments for global automotive manufacturers: intensively competitive, but with excess capacity, high rates of taxation and interest, weakening consumer purchasing power and a lack of adequate consumer financing tools. The market is unique in its domination by 'flex-fuel engines', running on gasoline, ethanol or any blend of the two. PwC says 'Soaring oil prices around the world are prompting many global markets to study the potential benefits of Brazil's experience, creating opportunity to export their vehicles, components and expertise.' However, Brazil has a key problem in the lack of robust local demand.

Russia's automotive market is described as one of the country's most dynamic sectors, with dollar value growth of 27% over the last three years. An attractive region for foreign investment, growth of local production of foreign brands looks set to increase by as much as 375% in the next seven years, which may force out Russian brands, caught between high value global brands and cheap vehicles produced by Chinese and other developing market manufacturers.

Almost every major global vehicle manufacturer is establishing assembly facilities in India – as well as design and research centres, in addition to its more established role as a low cost global sourcing destination. A reduction in the rate of excise duty on the manufacture of vehicles with engines under 1,200cc may propel India as a new global manufacturing hub for small cars. Challenges are inadequate infrastructure, rising input costs and a high level of corporate taxation.

China is the fourth largest auto producer in the world, after the US, Japan and Germany and should overtake Germany this year. In 2005 China contributed 23% of the global automotive industry's total growth. Domestic demand is strong with the Chinese 'middle class' earnings bracket ($7,400 to $14,800) growing fast - currently 50 million people and expected to triple by 2010. Changes in the perception of car ownership, coupled with soaring fuel prices, mean Chinese buyers are looking for more economical vehicles and prices are being forced downwards. Domestic brands are on the way up, challenging global automakers.

PricewaterhouseCoopers' web gateway is at www.pwcglobal.com .


Also out this week, a report from US researcher Strategy Analytics discusses the convergence of robotics research, developing autonomous vehicles, with state-of-the art 'smart' features being developed and deployed by auto suppliers and manufacturers. The report, Intelligent Vehicles: Applying Autonomous Vehicle Technologies to Automobiles, looks at the potential for the creation of smarter vehicles that can recognize their occupants, understand driver and passenger needs, continuously anticipate obstacles and problems, and inform or assist the driver to take appropriate action.

Strategy Analytics says automotive companies' piece-meal introduction of intelligent application solutions may not be the most effective approach. 'Automakers interested in developing smarter cars can learn a great deal from the US military's efforts to accelerate the development of autonomous vehicles' according to Neena Buck, VP of the Emerging Frontiers program at Strategy Analytics. Today's automotive offerings suffer from feature overload, with more and more computing devices on board cars - often because of competitive pressure, and often at the expense of the driver's understanding (and reaction time).

The report identifies 'a considerable knowledge gap between vehicle manufacturers, who are accustomed to feature-by-feature comparisons and incremental additions to cars, and developers of autonomous vehicles who have had to re-think the design of a vehicle from the ground up.' According to Ian Riches, Director, Automotive Electronics Service, 'More and more, competition within the automotive industry is going to be based on intellectual property and software built into vehicles, in addition to the physical design and visual appeal of the actual car. Vehicles with built in self-awareness, as well as ongoing situational awareness, are going to become increasingly commonplace, as high-end offerings in today's passenger cars migrate to all vehicles across the board.'

Strategy Analytics provides strategic and tactical support for business planners worldwide and is online at www.strategyanalytics .

All articles 2006-23 written and edited by Mel Crowther and/or Nick Thomas, 2024- by Nick Thomas, unless otherwise stated.

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