Automotive inSIGHTS 1/2007 - Roland Berger

6 | Automotive Insights | Low Cost Cars
ferences are two of the most important success factors.
Market selection involves evaluating the regulatory environment,
economic situation and consumer behaviors,
as well as the activities of other OEMs. Further success
factors include adapting vehicles for local markets,
operating platform strategies, extensively standardizing
components and production processes, choosing low cost
locations. To determine which country presents the highest
potential and is most favorable for low cost car production,
it is important to examine each individual market.
In the US, the low cost car segment is expected to grow
to 0.7 million vehicles by 2012
The fi rst low cost car ever made in the USA was Henry
Ford‘s Model T. In its last year of production, the Model T
costed USD 380 – the equivalent of USD 4,200 at today‘s
prices. But cars have become less afford able over time.
Between 1980 and 2003, the average vehicle selling
price rose by 2.2 percent per annum, growing faster than
all but the top 5 percent of US family incomes. At the
same time, high fuel prices are driving down demand for
large SUVs while boosting sales of small cars.
Through 2012, the entry level car segment in Western
Europe will grow by only 0.3 million vehicles
Despite Western Europe‘s prosperity, car prices have outgrown
the wages. As a result, many consumers are becoming
more and more willing to compromise on comfort,
basing car purchase decisions mainly on price instead.
One vivid illustration of this phenomenon is the unexpected
success of Renault‘s Dacia Logan. New models in the
low cost, entry-level segment have considerable potential
if they are fuel-effi cient and inexpensive to run.
Domestic entry-level sales in the Japanese automotive
market are expected to grow from 2.5 million vehicles
in 2006 to 2.6 million vehicles in 2012
Entry-level vehicles in Japan fall into two categories:
Compact cars with engine displacement between 1,000
cc and 1,300 cc and "Kei" or sub-compact cars with
engine displacement of less than 660 cc. The entry-level
vehicle segment, including sub-compact cars, accounted
for 43 percent of the passenger car market in 2005, a
slight increase from the 41 percent market share in 2001.
Japan presents an interesting contrast to other vehicle
markets in that the trend seems to be moving from larger
to smaller vehicles. Foreign OEMs who aim to take advantage
of this trend are nevertheless likely to face numerous
challenges, given the strength of domestic OEMs.
We expect China to be the strongest growth market, with
a volume of 2.6 million entry-level cars by 2012
Currently, the cheapest cars in the world are produced
and sold in China, with MSRPs for many models starting
below EUR 3,000. In China, the upper starting price limit
for A segment cars is around EUR 4,000.
> China‘s entry-level segment is growing rapidly and
represents one third of the market
> The quality of Chinese production is improving and
the market still has plenty excess capacity
> Local Chinese OEMs are gearing up for exports to
developed markets
Global sales forecast of A/B-segment vehicles ('000 units)
4.2%
455 582
Mexico
2006
8,7%
428 705
USA
3.9%
1,204 1,513
Brazil
0,8%
5,471 5,756
Western Europe
4.1%
17,685
13,935
7.8%
726 1,138
Eastern Europe
8.7%
226 441
Russia 1)
7.6%
980 1,519
India
13.4% 133 216
1,243 2,640
China
16.3%
42 104
Thailand
8.4%
South Korea
6.4%
265 385
Malaysia
0.6%
2,508 2,599
Japan
2012
A/B Worldwide
1) For Russia comparison of 2006 vs. 2014 CAGR 2006-2012 Source: J.D. Power; Roland Berger market model