Emerging Consumers: Crazy for Cars
The emerging world remains a key target market for the automotive industry, with low ownership rates in a range of economies. Even if some cyclical momentum has been lost, ownership rates are on the rise, especially in China and Turkey. These are some of the key findings from the latest Emerging Consumer Survey from Credit Suisse.
It was back in 2009, when China overtook the US to become the largest car market in the world. And the appetite of Chinese consumers hasn't become smaller ever since. According to the latest Emerging Consumer Survey from the Credit Suisse Research Institute, China still shows the strongest purchasing intentions among all the emerging markets, reflecting its progression up the GDP per capita curve.
The numbers provide a clear picture: Since 2010, when Credit Suisse published its first Emerging Consumer Survey, car ownership in China has been growing at an annual rate of 13 percent. Turkey is also moving up the curve rapidly with a growth rate of 6 percent during the last five years. At the same time, ownership rates have remained broadly stable in other regions. In the case of Saudi Arabia, with a ownership rate of almost 100 percent, this is no major surprise.
India and Indonesia: Two Rather Than Four Wheels
The story is very different in India and Indonesia, where the ownership rates are relatively low. In India, only 19 percent of the households own a car, which is half as much as in China. In Indonesia, the ownership rate is even lower, at 7 percent. This means that those two markets are a source of great potential, however, two hurdles exist for now. First, India and Indonesia are still low in the GDP per capita curve. We are not at the tipping point when larger ticket discretionary spending typically kicks in. Second, these countries to an extent still lack the "hard" infrastructure (roads etc.) to enable car penetration to expand beyond the already-congested major cities. India's ongoing road program, however, will steadily address this in rural areas. At present, it remains more a story of two wheels than four for these huge structural growth markets.
Young Chinese Will Drive Future Growth
China is not only the largest car market in the world, it also shows a unique customer profile. In China, it is the younger generation who exhibits the highest income and income growth. As a consequence, the strongest market segment for growth in ownership is the 18–29 year old bracket. 43 percent of respondents now have a car in their household, up from 22 percent in 2010. Most of these young consumers are first-time buyers, which guarantees a strong future growth in the Chinese car market. For car manufacturers, understanding the brand preferences of these consumers will be key.
The survey shows a certain degree of brand "stickiness" in the emerging markets. Brands with the largest market shares still tend to be the most referred to (e.g. VW in China, Fiat in Brazil and Maruti in India). We are not seeing much in terms of the breakthrough of new brands. Brands, such as VW, have even been able to strengthen their position among the most desirable brands. An exception to the rule is Russia where the biggest selling brand, Lada, only came in third in terms of responses as to its likely future purchase.
Local Brands Still Outperform Premium Brands
Despite the rapidly growing incomes in emerging markets, the position of premium car brands is relatively low in the list of brands most likely to buy. None of the top five brands in any country included a premium brand. In China, BMW came in behind Hyundai, and Mercedes-Benz was only 24th on the list. Audi, the most desirable premium brand in Brazil, India and Russia, is only 13th on the list in Brazil; 8th in India, and 7th in Russia. This isn't really surprising, given the relatively low income levels in most emerging markets. Moreover, where income levels are low, the development of the car industry will be among the local brands. The lowly penetrated market of India underlines this fact, with the dominance of a brand such as Maruti. However, as income levels rise, premium brands will find their place typified by the international marques. Indeed in a country, such as India, the likes of Maruti and TATA hold greatest sway among the low/middle income consumers, the edge increasingly emerges with Honda and Hyundai and with TATA dropping markedly.