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Emerging Markets Hold Promise for Auto Industry, but Technology Must Keep Improving

Posted in Posts, and Syllabus Schedule

Source: The Economist

As seen in the chart above, sales of automobiles have been growing most in China and as even more consumers in China’s vast interior are able to afford light vehicles this growth will continue. Yet if current car-makers are to survive, they must continue to modernize and improve their models with novel propulsion systems and smarter technology. Otherwise the problems of traffic congestion and air pollution in these emerging markets—and even elsewhere around the world—risk severely stunting the rise to ubiquity of the personal automobile.

New propulsion systems, including hydrogen and natural gas fueled engines, as well as smart technology that will make automobile collisions obsolete and manual parking unnecessary, are among the advancements which will allow the automobile industry to survive in the coming decades—driven by the emerging markets which hold “enough pent-up demand to keep the industry growing for many decades yet.”


  1. Certainly automakers expect relatively little growth in the US, Japan and Europe (absent cyclical swings) – though population growth of 1% per annum in the US adds up to an additional a potential increase in demand of 1.5 million units over the coming decade. (In contrast Japan and possibly Europe will see the population in the vehicle owning age brackets decline.) Until recently developing markets exhibited fast growth from a small base, and so in absolute terms the name of the game remained selling more in Europe and the US. No longer: the base in developing markets is huge, so even slower growth means big numbers in absolute terms. China is clearly the poster child for this, now the world’s largest market in sales and production – and in pollution and traffic deaths.

    That should cause us to pause and think: growth has been a function of rising incomes, not improving vehicle technology. Why would we expect the rest of the decade to be otherwise? At present alternative technologies don’t pay, at least for passenger cars. For example, full hybrids such as the Prius burden a car with two complete drivetrains, in terms of weight and cost. Few people’s driving habits are such that the fuel savings make buying one pay.

    Meanwhile gasoline-powered cars keep improving. Battery electric vehicles are even less cost effective. These technologies continue to improve. Start-stop alternators, some of which can be used to provide a modest boost to acceleration, are gradually migrating from small cars to full-sized ones and light trucks. The bottom line remains that they’re not suited to entry-level vehicles.

    Diesel is different, and in regions that don’t penalize it as a fuel they pay. Europe is the prime example; in France, the majority of new cars are diesel, including compact cars. Compressed natural gas (CNG) is found in many markets outside the US. In Japan taxis are already powered by it, and in Brazil having CNG on new cars is the norm. Other than the tank and some valves, a normal gasoline engine can run on CNG – indeed, in Brazil cars run on whatever is cheapest, which may vary by season and region between CNG and gas-alcohol mixtures that range anywhere from 100% gas to 100% ethanol. Now cars are best engineered for this up front: seals and hoses that are robust to both gasoline and ethanol cost more, so are not standard in the US, Japan or Europe. The overall cost is modest, nickel and dime stuff; most of the adaptation is via software.

    May 1, 2013
  2. oliver

    BMW believes that the market for luxury vehicles in China is maturing and has pegged expected growth in that market in the high single digits for this year. This projection may strike some as conservative given that last year the company’s sales increased 40%, however, it is important to keep in mind that Chinese economic growth is slowing and with the Chinese government eager to restructure the nature of its economy away from manufacturing, lower growth rates are to be expected.

    May 1, 2013
  3. tommd13

    China has experienced significant economic growth over the past three decades, but at the expense of the environment. Lax rules and regulations have made heavily congested areas very smoggy and almost unlivable at times. Recently in Beijing, the government strongly suggested people do not go outside unless it was absolutely necessary. This will begin to be a very tense topic of debate among the people and will be interesting to see how the government handles it.

    May 17, 2013

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