Demand From Emerging Markets Helps Automakers

There's a huge demand for cars in developing countries. The Economist magazine describes Brazil, Russia, India and China as "the car industry's big hope." Matthew Symonds, the lead author of the report, tells Steve Inskeep that such countries represent growth opportunities for Detroit's Big Three automakers.

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STEVE INSKEEP, host:

Even with all the disasters it faces, the auto industry has one area where sales appear to be growing. There is a huge demand for cars in developing countries. The Economist magazine describes Brazil, Russia, India, and China as the car industry's big hope. The lead author of The Economist report is Matthew Symonds, who's on the line from London. Welcome to the program.

Mr. MATTHEW SYMONDS (Industry Editor, The Economist): Yeah, hi. Good morning.

INSKEEP: How big is demand in emerging markets like that?

Mr. SYMONDS: Well, one way of looking at it is that those four countries you named, they will have sales this year larger than that of North America. Going back only about three or four years ago, there was a 10 million difference.

INSKEEP: Well, haven't we been talking about a possible or likely or even existing global recession? Wouldn't they be affected by that?

Mr. SYMONDS: They are being affected by it. There has been a distinct slowdown. I mean, if you look at the last three years, those markets had been growing by about 30 percent a year. This year, they'll probably come in around 15 percent, and most of that slowdown has happened in the last two or three months. But what I think is certain is that they will pick up again very strongly. And there is a very simple reason for that. There is huge pent-up demand.

If you think that in China only about 30 out of every 1,000 people of car-driving age owns a car. In the U.S. it's about 900. And yet at the same time, these people are getting more wealthy. And when their incomes reach about $5,000 a year, the first thing that they want to do is to go out and buy a car.

INSKEEP: Are these countries in the phase that the United States was in, in the early part of the 20th century, where nobody had a car and suddenly everybody had to have a car?

Mr. SYMONDS: I think that is quite a good analogy. There is a difference, of course, in that they can, sort of, look around and know what big car economies look like. And of course, that's another reason why, you know, they want cars, because they associate cars with affluence.

INSKEEP: So if this market is so huge, can the U.S. automakers that are in so much trouble look to overseas markets and say this is the salvation of the company? We can become profitable again using overseas sales.

Mr. SYMONDS: Well, I think if it hadn't been for overseas sales, probably these companies would already have gone under. I mean, well over 60 percent of GM sales are outside North America now. And unlike in North America where GM has stumbled and made some big mistakes, outside North America they have played a good game. I mean, for example, they have 10 percent of the Chinese market, which in another five or six years time will be bigger in absolute terms than the U.S. market. The Chinese market has virtually, kind of, exponential potential, and, you know, GM has a very strong position there.

INSKEEP: Are U.S. companies going to be able to stay competitive in these overseas markets, or is there a point at which Toyota is going to eat their lunch, as it seems to be doing in the U.S.?

Mr. SYMONDS: While Toyota on the whole moved into these markets a little later, there's no reason to suppose that Toyota won't be successful as well. But the position that GM and Ford have is looking extremely good. And the good products coming mainly from Europe and Asia, rather than from North America, look as if they're going to do extremely well.

INSKEEP: And just coming back to that bankruptcy question. You said that without the overseas markets, GM and Ford, companies like that, might already have gone under.

Mr. SYMONDS: Yeah.

INSKEEP: Can they return to profitability using these overseas markets without necessarily a huge recovery in the United States?

Mr. SYMONDS: I think that they can certainly be profitable, powerful companies with significantly smaller market shares in the U.S. because they're going to be able to ride this much bigger growth curve elsewhere.

INSKEEP: Matthew Symonds works for The Economist magazine. Thank you very much.

Mr. SYMONDS: It's a pleasure.

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