Presenting challenges and opportunities to automotive suppliers
There has been a great deal of media coverage regarding the growth in new vehicle demand in the BRIC countries, with much of that growth taking place in China. This is related to a growing Chinese middle class with growing net worth, which is creating a market of many first-time new vehicle buyers.
However, there has been less attention provided to the rapidly growing light vehicle assembly volumes in China as automakers are expanding capacity to meet the demand for new vehicles. This trend has a significant impact on component suppliers shipping products to these newly constructed assembly plants. Over the past 10 years, China light vehicle assembly volumes grew 592% from 2.5 million in 2002 to an anticipated 17.5 million vehicles this year (2012), which amounts to 34% of all vehicles produced in the world. To put this into perspective, this year China will produce more vehicles than all of North America (14.5 million vehicles) and Western Europe (13.1 million vehicles).
Polk anticipates this trend to continue as demand for new vehicles continues in China. Our forecast for China light vehicle assembly in 2022 is over 30 million vehicles, which will account for over 42% of all vehicles produced in the world.
This trend puts significant pressure on automotive component suppliers to invest in China as they hope to benefit from this growth. Many suppliers anticipated this significant growth in China and have invested in plants and engineering capabilities. These early movers into China are benefiting from their investment plans, in the form of market share growth and higher profits. For example, China represented 95% of total light vehicle assembly growth between 2007 and 2012. During this period, suppliers to Chinese assembly plants were able to benefit from this growth and off set significant market declines in other regions during the global recession.
However, many suppliers who were late to invest in China are not benefiting from this growth. As a result, they will likely struggle to maintain global market share as most organic vehicle assembly growth will continue to take place in China. Polk anticipates China will contribute 38% of total light vehicle assembly growth between 2012 and 2022.
This stresses the importance of having a global growth strategy. It also shows the importance of working with a forecast provider like Polk, who can assist suppliers in developing a global business plan. However, identifying future trends is only part of the equation. Suppliers must use forecasted trends as they execute strategic plans and allocate capital resources to pursue growth.
Posted by Anthony Pratt, Director, Forecasting (06.27.2012)