Car Deals

Gas prices that hover near $4 a gallon may have Americans questioning their love affair with their cars. But in the rest of the world, millions of upwardly mobile people are just beginning to feel four-wheeled “first love.”

Whether it’s a Muscovite driving a Chevy Niva or a resident of Mumbai purchasing her first Tata Nano, the demand for cars is skyrocketing. It took a century for the world to get to 500 million passenger vehicles on the roads. In the next 20 years, that number is expected to double to 1 billion, according to a recent report from J.D. Power and Associates.

The demand will come largely from the so-called emerging markets, led by Brazil, Russia, India and China. Already last year, for the first time ever, consumers in those nations bought more than half of the autos and light trucks sold in the world. Except for the United States and Canada, Chevrolet’s top 10 markets last year were all emerging nations.

That growth abroad has ramifications for American consumers. In the near term, it means more auto exports for U.S. and other established automakers. Thus, styling in the future may be driven by consumers in those nations, rather than by the tastes and preferences of U.S. drivers. In the long term, Americans may be choosing between a General Motors and a Chinese-made Geely.

There’s still “a fairly big gap” between South Korea, the latest country to storm the U.S. market, “and whoever the next big player might be,” says Bill Visnic, analyst and senior editor at Edmunds.com, an online auto research hub based in Santa Monica, Calif. But “China in particular has a really strong emphasis on improving their automobile manufacturing capabilities.”

The focus on China’s auto industry is particularly intense because of its market potential. In 2009, China passed the United States to become the world’s biggest auto market. By 2020, car sales in that Asian giant are expected to be double those in the United States.

That represents a huge opportunity for established automakers. While GM has been interring brands in North America (R.I.P., Oldsmobile, Pontiac, Geo, Hummer and Saturn), it’s been creating new ones in China, including Jiefang, a truck brand, and Wuling commercial vehicles, which join familiar nameplates such as Chevrolet, Cadillac and Buick. Volkswagen’s stated goal of becoming the world’s largest automaker by 2018 depends heavily on its success in these emerging markets, especially China.

China is hardly the only story. India’s Tata Motors has made a bold move to upgrade Indian commuters from their bicycles and motor scooters into low-cost cars designed and made domestically. The Tata Nano, a basic minicar that sells for about $3,000, has had a rocky debut, including a few that have burst into flames.

The Nano “has had quality problems, they’ve had legal problems … they’ve had a number of things go wrong,” says Alan Baum, principal of Baum & Associates in West Bloomfield, Mich., a market research firm specializing in the auto industry. “But [Tata] will get it right. [It's] a global company that is up to world standards.”

In Russia, well-known global brands are coming in to form joint ventures with Russian companies or going it alone, Baum says. “They’ve kind of left in the dust the Russian companies” such as Lada, which he calls “not quite ready for prime time.” Chevrolet sold 116,233 vehicles in Russia last year, up from 104,398 in 2009. The Chevrolet Niva is one of the most popular foreign models there.

The Brazilian market, dominated by European automakers, is also booming. Sales soared more than 10 percent in 2010 over 2009 to 3.3 million, the fourth straight year of increases.

While much of the world’s new middle class will be sliding behind the wheel of their first Ford or Volkswagen, it’s not clear when U.S. drivers will do the same with emerging-market nameplates.

The Chinese “thought they were going to do what the South Koreans did, [only] in a lot shorter time, and they’ve realized maybe it’s not that easy,” Baum says. With only 1 car per 40 people in China (compared with 1 per 1.2 people in the United States), there’s plenty of pent-up domestic demand for China’s automakers. “They’re practicing on themselves” before they enter the U.S. market, he says.

When demand for cars in China cools, “as it’s starting to do now, then I think they’ll look outside of China,” says Jeff Schuster, executive director of global forecasting at J.D. Power. There’s “no question” that China will be the next major player in the U.S. market, Schuster says. Chinese-made cars could be on U.S. roads in as little as five years.

Still, the Chinese must leap a daunting set of hurdles, including establishing a dealer network (or, more likely, partnering with an established brand), complying with U.S. safety regulations, and meeting U.S. consumer expectations for quality and features.

Thus, some of the first emerging-market vehicles to head to the United States in any appreciable numbers may come from Brazil and Argentina, which have strong sales of small trucks, a market that U.S.-based manufacturers have ignored in recent years, Visnic says.

Some of these home-grown automakers own foreign brands: China’s Geely (Volvo), China’s Hawtai Motor Group ($222 million invested in Saab) and India’s Tata (Land Rover and Jaguar). But Chinese- or Indian-made imports to the United States might not arrive under these luxurious brand names.

“You want to be careful,” Visnic says. “These brands are premium brands. There’s only so far down the price ladder that you want to extend a brand that has a premium history and reputation.”

What we’re seeing now, Baum says, is the tail wagging the dog. The Buick LaCrosse was developed in large part to make it attractive to Chinese, not American, buyers. “Buick is now designing a lot of its products with China in mind,” he says, “and then saying, ‘OK, now, what do we do to change them for North America and for Europe?’ ” Click to write a comment or read comments about this post. MinnPost.com Full RSS Articles brought to you by: MinnPost Young Professionals Network EDAM Summer Conference scholarships available to young pros

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