How The BRIC Stacks In The Automotive Business
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By Sangeet Agarwal:
The BRIC block has emerged as the economic power house of growth for the automotive industry through the last decade. What started as an exploration of new/extra markets for car sales in the early 90s has gone on to become the mainstream market of the new millennium. Supported by attractive macro-economic factors such as growing economic activity, urbanization, rising household incomes, developing credit markets and very low car density, the BRIC countries currently make up for the top 7 automotive markets globally.
Since the global financial crisis in 2008 the light vehicle sales in China have experienced an enormous average growth of above 40% until 2010. Also in the same year China overtook USA to become the world’s largest consumer of cars.
Although, in the recent years, the growth of light vehicles sales have come down, the market in first half of 2012 witnessed a modest growth of 2.2% over the same period last year. For the remaining period of 2012, the market is likely to see a similar trend, partly due to regulations like new vehicle registration limits, imposed in certain municipalities. Guangzhou has just become the fourth city in the country to initiate measures to curb the number of cars on its roads, following in the footsteps of Shanghai, Beijing and Guiyang. Even so, the light vehicle sales volume is expected to post a healthy growth of 8 % over last year standing at approx. 18.9 million units in calendar year 2012.
Brazil is currently the 4th largest automotive market in the world holding market share of approximately 4.5 % of global sales. In 2011, Brazil sold close to 3.42 million light vehicles and is estimated to grow by 2.6% for 2012 which may be an optimistic figure if 2012 half yearly sales are taken into consideration. However the past couple of months tell a different story having seen record sales. For July 2012, the sales of passenger cars and light trucks were around 22% higher than previous year, standing close to 3.5 lakh units. Factors contributing to this phenomenal growth included a cut on the tax on locally manufactured products, and the government’s move to lighten bank deposit requirements, in exchange for better terms on automotive loans.
A market we are closest to, the Indian auto industry is likely to lead the remaining countries (Brazil, Russia & China) in terms of growth in 2012 vis a vis 2011. The first half of 2012 has seen India grow by 12.9% in light vehicle sales. A long list of new product launches lined up for this festive season will keep India’s growth engine chugging along.
Even though the market has experienced some beating in recent times due to high interest rates and the staggering petrol hike, India’s growth story of the automobile industry will remain intact. Huge investment announcements from multinational giants like Toyota, Mercedes towards India and countless others following suit will keep India’s incredible growth story a trending topic in the Automobile Industry.
Russia may stand 4th among the BRIC but the growth in recent times have outpaced Brazil and China. In 2011, the sales of cars grew by an impressive 40% translating it to one of the fastest growing market in the world. The Scrappage scheme was seen as one of the major driver for Russia’s Growth Story. The Scrappage Scheme which gives a discount of 50,000 Rubles for a purchase of new car if a car more than 10 years old is recycled, is an example of innovative policy making by the Russian government. Vehicle Sales for 2012 is estimated to touch ~ 2.9 millions helping the market grow by 9% over the previous year.