The next big auto market
It isn’t China.
And the Chinese are there first.
While some American and Western European auto manufacturers have been focusing on China and, to a lesser extent, India and Malaysia as emerging industrialized nations with rapidly growing appetites for automobiles, the new Chinese auto manufacturers, such as Chery, are focusing on Africa as the next big market.
In the past, the supply of autos to Africa has come mostly from exports of used cars from Europe. But Chinese manufacturers have moved into Africa and are selling new cars at prices below that commanded by used European models. An example is the Chery QQ, pictured, which sells for between $4000 and &6000 in China.
The African market is important to China because African countries do not have the safety and environmental regulations found in Europe and other countries. Chinese automobiles usually cannot meet those standards, so the Chinese manufacturers are closed out of many of the best world automotive markets.
Chinese companies are also setting up manufacturing facilities in countries that have had little industrial infrastructure. Chery, for example, has begun to manufacture its products in Egypt.
The developments in the African market have interesting consequences. Africa has been a large market for used European cars, so the new competition is undercutting that market to some extent. Moreover, it is putting Western automakers on notice that they need to team up with low-cost manufacturers to penetrate the market in still-emerging countries or develop low-cost cars of their own. Renault has responded by creating the Logan, which retails for about $3,000 in Africa. Renault is also negotiating with an Indian auto manufacturer, Mahindra & Mahindra, to develop an even less expensive car. Nissan is also negotiating with Mahindra & Mahindra to the same end.
Though the Journal’s article focuses on the Chinese, the manufacturers best positioned to move into Africa may actually be those in India. India’s automobile industry is both established and growing, and its products are of higher quality than those from Chinese manufacturers.
Regardless of which country’s manufacturers get the best toehold in Africa, there is a lot to absorb and comprehend in all of this and it has a direct bearing on what the future will be for the automobile in the United States. The increased world-wide demand for automobiles inevitably means an increased demand for oil, and increasing gasoline prices. It also means that auto manufacturers are faced with world-wide competition from low-cost producers who didn’t exist a decade ago. These manufacturers may initially compete in places like Africa. But, as these manufacturers become more sophisticated, they are likely to look to the established markets in Europe and the United States as outlets for their products.
In turn, that makes it essential for established auto manufacturers to focus now on these new markets. They will need to be forces in those markets to compete in the future, not only in those markets, but in their home markets. They will need to be producing in those places to be able to compete world-wide.
The emerging world-wide market for extremely inexpensive automobiles is vast. As the manufacturers of vehicles in emerging countries improve their manufacturing capabilities and the quality of their products, the demand for their cars is likely to grow in the West. There is probably a market in Europe and, perhaps, even the United States for autos that are extremely inexpensive, compared to the prices commanded by even the least expensive current offerings.
In the 1950’s, American automakers believed there would be no market for an inexpensive, barebones import. The Volkswagen Beatle proved them wrong.
There’s no reason to believe that it can’t happen again.