“The Turkish automotive industryhas undergone an exciting transformation”
LMC Automotive provides intelligence and forecasts about the automotive industry and contributes to the development and growth of the industry through the activities it organizes. LMC Automotive has undergone a fast growth process due to increase of demand for information and is being represented in different parts of the world. Managing Director of LMC Automotive Pete Kelly says that the Turkish automotive industry has undergone an exciting transformation process in the last twenty years and gave information about how the industry has achieved change and transformation in Turkey and the world.
Could you please briefly introduce LMC Automotive to our readers?
LMC Automotive is a leading provider of automotive industry intelligence and forecasts. The company began through the acquisition of the Global Automotive Forecasting Group from J.D. Power and Associates in 2011, a group which has been engaged in market forecasts and analysis since the late 1980s. We are a therefore new company, but with a long and established history. We help OEMs, suppliers and other automotive industry participants in many aspects of their work whether this is part of strategic or tactical planning, keeping up to speed with the latest developments in the industry, or looking more deeply at individual customer needs with various special projects. Our company is headquartered in Oxford, UK and has a substantial presence in the US (Detroit), Continental Europe (Paris and Frankfurt), Thailand (Bangkok) and China (Shanghai). We are also represented through alliance partners in South America and Japan.
What are the latest projects of LMC Automotive?
LMC Automotive is going through a period of rapid development as industry demands for information seem to be on an ever-increasing path. We are adding new countries to our detailed analysis all the time – just recently Kazakhstan and the Ukraine, but also plans for Vietnam and Pakistan – and we are investing in more detailed and regular coverage in all of our products in vehicle sales and production intelligence, the engine and transmission sector, and in commercial vehicles. We are making major internal changes to position ourselves for further growth and for requirements that we know will emerge. We are right now just launching a new interactive delivery platform to enable our clients to get more value from our services. This is a very exciting period for our company.
“Last year was a good year, with the exception ofEurope, for the industry”
How would you assess 2012 for the automotive industry? How has the crisis in the EU shaped the automotive industry?
Last year was a good year, with the exception of Europe, for the industry. Many markets gained on the previous year's performance and these themes persist in 2013. The European crisis has challenged many industry players but the situation is complex. Europe's Premium OEMs – and some volume manufacturers – have not done badly, even though European sales have been hit hard. But some volume OEMs have been exposed as being overly reliant on Europe and this has to be addressed. What is also clear is that the crisis itself is only part of the problem: market share gains by the likes of Hyundai/Kia and the Premium OEMs have permanently reduced the share of some European OEMs. They can only address this issue through geographical diversification and this will take time. In this respect, and has often been the case, China is a target, but other emerging markets are now of sufficient size to be very interesting. Competition in these markets is going to intensify.
Could you please evaluate the latest situation in theUSA,Chinaand the BRIC countries in terms of automotive production and sales?
The US is still recovering well from the 2009 crisis and looks set for continued growth in the near term. The 2009 industry adjustment – bringing supply in line with lower demand – has led to a situation, now, of high capacity utilization. This is at the root of the many good financial results in North America though capacity constraints may soon begin to emerge as an operational problem.
Among the BRICs, the Chinese market stands out not just for its size but also its resilience. The recent change in political leadership may have some negative impact at the very high end – through curbs on what is seen as ostentatious wealth – but ongoing economic development away from coastal regions will continue to drive overall vehicle sales upwards. As ever with China, some caution needs to be exercised as margins of error can be high, but we remain optimistic about potential and the ability to realise that potential over the coming years.
The situation in other BRICs markets is more mixed for the short term. Russian vehicle demand, and growing local production, remain closely connected to events in Europe, while oil prices also have a strong impact on the economy. The Russian market has now recovered completely from the 50% crash in 2009 but we are cautious about fast growth in the near term – there are too many uncertainties in Europe. Brazil and India are in a similar situation but for somewhat different reasons. The potential is clearly there, especially in India, but recent economic softness may push the development curve into the future by a year or two. It is important to watch every new data point in these markets as they can turn very rapidly whenever the underlying demand drivers – primarily growth in income – change. So, BRICs-minus-China looks likely to be somewhat patchy in 2013 but we are more optimistic about the following years.
According to the data you have collected as a result of your research, what are the topical issues on the agendas of automotive manufacturers in the world? What are the most challenging issues for them?
There are many large challenges: from how the Japanese will respond in China after the islands dispute, to reducing recall problems relating to global use of critical components; to profitability problems in Europe.
In Europe, there is too much capacity, especially in high-income countries in the West. Some OEMs have a reasonable level of utilization in percentage terms but are still losing money as their cost base is too high – others have low utilization levelsanda high cost base. Yet closing plants is a painful and politically difficult process; it almost impossible in some cases. The likely actions will be capacity trimming over a longer period of time, possibly with some plant closures in addition to the ones already announced. Trimming is a form of salami slicing the productive capacity of plants, for instance removing one line from a large plant when a vehicle generation ends. It will take time (years) to implement.
ChinaandThailandare at the foreground
What is the current situation of the automotive industry worldwide?
Premium brands are doing very well and aspirational buyers worldwide want to own Premium vehicles. Product proliferation by Premium OEMs is increasing presence in smaller segments and creating problems for non-Premium volume OEMs in already-established Premium markets. The example of the sharp rise in Premium sales in China shows how strong volume growth in an emerging market translates, in just a few years, into increases in Premium share of the newly expanded market. Clearly, BMW stands out as a market leader in a number of respects but all of the Premium brands appear to be benefiting. In terms of geography, China stands out but this is not news to anybody. We assume China's rise will continue to be in evidence for years to come. Other markets that look likely to impress are India, ASEAN countries (especially Thailand and Indonesia), Brazil and some smaller East European countries which should continue to recover rapidly from the 2009 crisis.
For India, which we believe will be the next big market to expand in the coming years, it is important not to focus too heavily on the current short-term problems. Rapid growth in this now quite large Light Vehicle Market – 3.3 million units in 2012 – will likely only be delayed by near-term difficulties. Development will not be stopped. The fundamentals are very strong with very low levels of vehicle ownership now, and incomes passing through a threshold which will trigger large increases in sales to first-time buyers of new cars.
Which countries stand out in automotive investments?
Thailand has been a good example of a strong foreign investment location. Low (relative) labour costs are an obvious starting point for many new investments, as well as proximity to important growth markets. But then investment is also expedited by supportive national or regional governments who might help directly, in financial terms, or through infrastructural investment which eases the practical matters of production: factors such as modern and efficient infrastructure (roads, rail, shipping, supplier parks, etc.), not to mention the requirement for having an appropriately educated workforce. Once a country or region begins to be established for inward investment, a critical mass of activity can also help create a new hub and a virtuous circle may emerge. There are many other examples other than Thailand of course in Central & Eastern Europe, Mexico and so on.
“Electric vehicles' progress will be incremental”
We see many innovations in the automotive industry such as hydrogen, electricity and fossil fuel. What kind of future awaits the automotive industry in these fields? What kind of progress do you foresee for the industry in the upcoming five years?
Electrification is the major story in vehicle propulsion. Increased electrification will certainly happen but we are quite cautious about how quickly the share of full electric vehicles will rise as they currently struggle to pass the commercial test for consumers, and nor will they for a number of years based on the current and expected rates of battery performance improvement and cost reduction (among other factors). Governments are supportive but they will not fund this new outgrowth in the industry entirely – ultimately, electric vehicles will need to provide a commercial alternative to gasoline/diesel-only vehicles. Hybrid vehicles have demonstrated how this might happen and, from that example, it is clear that it will take a number of years. It is also important to note that the internal combustion engine will not stand still as it is now; it will also improve over time, so fully electrified vehicles will face serious competition. Electric vehicles are coming, but their progress will be incremental and not a revolution.
While propulsion systems will continue to develop this decade and next, in-car connectivity is clearly a rapidly emerging trend. How vehicles use the connective and processing power so effortlessly displayed on smartphones – but in the in-car environment – is going to be very interesting. Whether new options are embedded, allowing well-controlled design but being vulnerable to obsolescence, or are reliant on smartphones as a conduit for connectivity, will be interesting. OEMs may choose very different paths and their strategies are still forming. One thing is clear: consumers expect their smartphones to simply work without any specialist knowledge and they will have the same expectations in their vehicles.
Investors have been attracted by Turkey's well-educated workforce and R&D capabilities
What do you think about the Turkish automotive industry? What is the importance and the role of the Turkish automotive industry?
The Turkish automotive industry has undergone an exciting transformation over the past 20 years or so. Manufacturers with a long-standing historical footprint and a high dependence upon the local market have successfully diversified and now export most of the vehicles they produce, and they have been joined by a number of Asian OEMs keen to exploit the 1995 customs union between Turkey and the EU. The country's geographical position is a major advantage as it sits at the crossroads of the European Union and Asia, meaning that vehicle manufacturers are able to export to the Middle East, Asia and former CIS markets such as Russia and Kazakhstan as well as to Europe. Investors have been attracted by Turkey's well-educated workforce and excellent R&D capabilities and have access to a well-developed component sector. In spite of the current challenging market climate in Europe, vehicle producers have been continuing to add capacity in Turkey and the country should be considered a major contender for further investment in the future, particularly once European market prospects become more positive.
For more information, please contact LMC Automotive:
forecastingeurope@lmc-auto.com
Tel: +44 1865 791 737
http://www.lmc-auto.com/