The New World for the Automakers – Are they prepared?

The future of the auto world is changing rapidly. And the Western auto-makers have missed the boat! What is required are economical cars with high fuel efficiency sold in emerging markets. That is the segment where the growth is.

Recent history suggests that many Western automakers will fail to respond effectively.

The problem with most of the companies is that they make strategies based on mathematical models and not on personal experience! In 1995, I had gotten hold of research reports by McKinsey and KPMG on the future of the Indian auto industry. The cars that were predicted to dominate were the Corolla sized sedans by both the consultants. I was shocked! All these ivory tower folks needed to do was go out on the road in India and they would know how foolish their results were. And I was right. The largest selling Indian cars have been the smaller variety as this Strategy+Business report suggests!

So the three main trends that will affect the future of Auto Industry – Social Mobility in the Emerging Markets, Environment, and Expanding Lower End Markets.

• Social Mobility. In emerging markets, especially if the building of roads and fuel infrastructure continues, individual mobility and job opportunities will increase. This in turn will accelerate both the democratization and the industrialization of China and India.

• Environmental Impact. It’s still not clear whether emerging-country policymakers will take energy availability and environmental concerns into account as they promote growth. Why should they, since environmental concerns are a secondary issue in most developing countries? To date, many leaders in these nations have argued that they cannot afford the luxury of environmental accountability (particularly for greenhouse gas emissions and their impact on global climate change). This is a source of worry for many experts. China is already second only to the United States as a consumer of energy and producer of greenhouse gases. If driving habits in China, India, and other emerging nations duplicated those in the U.S., the environmental impact could be catastrophic.

• An Expanding Lower-End Auto Market. India’s best-selling small car is currently the Maruti Alto, which sells for less than 210,000 rupees (about US$4,500), and manufacturers there are aggressively developing automobiles that will sell for about half that amount. The cars that become popular in emerging markets will deliver necessities rather than creature comforts: A typical car manufactured in India or China may have a plastic shell, a rudimentary motor, good brakes, and a stout suspension to handle unpaved roads, but no airbags.