By Aida Sevilla-Mendoza
Philippine Daily Inquirer
FORD MOTOR CO.’S sale of its Jaguar and Land Rover brands to India’s Tata Motors Ltd. for $1.7 billion is just one sign of a big shift in the global auto industry.
That an Asian manufacturer producing the world’s cheapest car, the $2,500 Nano, would buy two luxury British marques from an ailing US giant automaker is ironic enough. It could only mean that Tata intends to become a global player, using Jaguar and Land Rover’s advanced technologies to challenge high-end competitors like BMW, Mercedes-Benz and Audi.
Ford, which lost more than $15 billion in the past two years, sold Jaguar and Land Rover at a loss to help fund its restructuring effort after having spun off assets such as the Hertz car rental agency and Aston Martin.
Ford is not the only one in trouble. General Motors lost $39 billion in 2007, the largest deficit to be posted by a US carmaker. Like Ford and GM, Chrysler has negotiated with the United Auto Workers to cut production levels to reduce inventories rather than close more US assembly plants.
2008 may be the worst year in a decade for the US auto industry. J.D. Power and Associates, the marketing firm, cut its annual forecast from 15.7 million to 14.95 million vehicles, which would be the lowest sales level since 1995. The credit turmoil, high gasoline prices, the housing crisis and the looming recession are slowing sales. Auto finance companies, afraid to repeat the mistakes of subprime lenders in the housing industry, are generally declining to make risky car loans.
The problem is that many auto manufacturers depend on the US market for more than half of their profits. Toyota said it may miss its sales target of 9.85 million because of the stronger yen vis-à-vis the US dollar and slumping sales in the United States, Europe and Japan. Nissan reported an 11 percent drop in profit for the fiscal year ending March 2007, its first since Carlos Ghosn took over as CEO in 1999.
Growth in the US car market in the next six years will be nearly flat, up 1.5 percent to 17.9 million vehicles by 2014, according to CSM Worldwide Inc., a global auto market research firm. In contrast, the emerging markets are expected to account for some 76 percent of all global auto sales growth during the next six years.In that period, CSM forecasts vehicle sales in China to shoot up 7.3 percent, India up 15.5 percent, Russia up 6.2 percent and Brazil up 5.7 percent. In short, global auto sales growth is shifting from the developed to the developing countries.
No wonder GM, Volkswagen, Toyota, Fiat, Honda, Hyundai, etc. are relying on Asia and Latin America for profits. In China, annual economic growth averaging 9.6 percent over the past five years has made cars affordable to more people. Total auto sales in China jumped 21.84 percent to 8.79 million units in 2007.
GM’s joint ventures in China will spend $1 billion a year over the next five years to keep up with the explosive growth in China’s auto industry. GM, which along with Volkswagen established an early foothold in China, will sell more than one million Cadillacs, Buicks and other models there in 2008, a more than 150-fold increase in sales over a decade.Nissan is trying to offset its US losses by boosting sales in Russia, India and China but is lagging behind in Russia and India. Nissan, which has a joint venture with Dongfeng Motor Group, expects sales in China to increase this year to 500,000 vehicles. Nissan plans to introduce three new models in China this year, including the crossover SUV Qashqai. Nissan is building a plant in Russia, where Toyota has already started production.
Note that large or midsize cars sell well in China, while in India, mini cars are in demand. This means that even if their sales volumes soar in India, car manufacturers reap smaller profits than from bigger vehicles that sell in the United States. Not surprisingly, Suzuki and Hyundai are prospering in India.But multinational automakers also face keen competition from homegrown manufacturers in the emerging markets. Although they may have joint ventures with the multinationals, Chinese manufacturers like Shanghai Automotive Industry (SAIC), Chery Automobile Co., Geely Automotive Holdings, Dongfeng Motor Group, Great Wall Motor and BYD Automobile make and sell their own independent brands, just as Tata Motors and Mahindra & Mahindra Ltd. do in India. Some have even begun exporting and have plans to enter the US market.
So here’s the big shift: while global players are turning to the emerging markets for profits they can no longer realize in the United States, Europe and Japan, domestic manufacturers in these nations are building up their own auto industry with technology transferred by the multinationals through joint ventures. Quid pro quo!
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Don’t miss the opening of the Manila International Auto Show at 10 a.m. Thursday at the World Trade Center when precision driver Russ Swift shows off his spectacular driving skill. See you there!
