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 / Winter 2006 / Issue 45(originally published by Booz & Company)


One Billion New Automobiles

• 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. In adapting vehicles for the narrow streets of emerging nations, manufacturers could change the world’s conception of what a car looks like, down to whether it must even have four wheels. Even today, in countries such as Thailand, it’s possible to see a family of seven balanced on the back of a motorbike; to such families, a three-wheeled, three-seated vehicle would seem positively luxurious.

• New Pressures on the Auto Industry. As manufacturers develop in emerging markets to serve the millions of new vehicle owners there, they could follow the path that Japanese and Korean carmakers have paved to bring their products to established markets. The basic vehicle model of the emerging economies could be adapted for other nations, offering fuel efficiency and unprecedented low prices, with a few extra tweaks like the additional safety features that established markets require.

China and India are already exporting cars to the Middle East, Africa, and Eastern Europe; these markets can act as testing grounds for penetration into North America and Western Europe. Eventually, China and India could become the world’s leading producers of small cars and of vehicles that use alternative fuels. India’s motor vehicle industry may, in particular, surprise the rest of the world. It benefits from access to a large population of skilled engineers, a 60-year history, and the world’s fastest-growing major automotive market. Indian manufacturers such as Bajaj and TVS currently produce more two-wheeled vehicles (such as motorcycles and motor scooters) than those of any other nation except Japan. Indian automakers, including M&M, Maruti, Hindustan Motors, and Tata, currently make about 1 million automobiles per year, of which about 80 percent are small, fuel-efficient cars well suited to relatively low-income consumers living in relatively dense urban areas anywhere in the world.

Recent history suggests that many Western automakers will fail to respond effectively. U.S. manufacturers have focused on large cars and trucks, and European car companies have focused on performance. Both groups have thus missed opportunities to develop economical cars with high fuel efficiency and the selling point of reducing dependence on foreign oil.

If all the current automotive trends accelerate, many companies will see their value chains overhauled, not just in the auto industry but in every sector. Nations around the world will suffer the consequences of increased pollution and greater global competition for fuel. And the automobile as a product will be transformed. Those manufacturers and suppliers that start planning now for a new wave of upstart competition will be the most likely to thrive in the next automotive environment.

Author Profiles:

Bill Jackson ([email protected]) is a senior vice president with Booz Allen Hamilton in Chicago. He works on major organizational change programs, including restructurings, post-merger integrations, and growth, for a variety of industrial clients, especially in the global automotive industry.

Vikas Sehgal ([email protected]), a principal with Booz Allen Hamilton in Chicago, works with clients on strategies for innovation and emerging markets.
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