Toyota expects tougher road
For several years, carmakers have been reaping the benefits of explosive growth in emerging global markets, even as U.S. sales have tanked.
That may be changing.
On Thursday, Toyota Motor Corp. said it was cutting its worldwide sales forecast for 2009 by 7%, to 9.7 million cars and light trucks. And although a bleak U.S. sales picture is mainly to blame, 300,000 of the revision comes from international markets, including a 150,000 cut in Asia, which has been among the world’s fastest-growing regions in recent years.
Other indications that growth in countries like China and Brazil may not keep up its double-digit pace could have grim implications for automakers. Toyota, Volkswagen AG, General Motors Corp. and Ford Motor Co. have bet heavily on emerging markets in recent years, boosting production and marketing to catch a piece of the action.
GM, for example, now relies on foreign markets for about 59% of its sales by volume, with a substantial portion of that -- and nearly all growth -- in emerging markets.
“The developing world is not going to keep up the frenzied pace we’ve seen,” said analyst Rebecca Lindland of research firm Global Insight.
Her company predicts that the volume of car and light-truck sales in South America, which increased 27% last year, will grow 13.5% this year and just 6% in 2009.
Russia, up 31% in 2007, is on pace for 27% growth this year, but Global Insight predicts it will reach only 12% next year. And Eastern Europe, another hot spot, should see 13% growth this year, down from 18% last year, Lindland said.
But in the U.S., Global Insight forecasts auto sales will decline 10% this year and 2% in 2009.
Experts point to a variety of reasons for the emerging slowdown. First, many of the problems facing the U.S. economy are affecting other economies as well -- and in some cases even more dramatically. Some countries, including Argentina, are being hit by double-digit inflation, while others are known for economic and monetary policies that are unfavorable to foreign investment.
Additionally, the unpredictable nature of developing economies, from unstable governments to reliance on high prices for commodities and raw materials, makes any long-term bet hazy.
“Russia is flush with cash because the price of oil is high,” said Peter Morici, a business professor at the University of Maryland and former chief economist at the U.S. International Trade Commission. “But if the price of oil doesn’t keep going up, the growth won’t be there anymore.”
On top of that, some developing countries are showing early signs of saturation as the emergence of the middle class slows.
Some of this unpredictability is already in evidence. China, which has seen car sales grow more than 20% annually for the last three years, has been a hotbed of investment from carmakers. Pairing with domestic partners, Toyota, GM and Ford have built plants to meet what has been seen as an insatiable desire for automobiles in the world’s most populous nation.
But in July, Chinese car sales rose just 6.8% compared with the same month last year, the smallest such gain in two years. And through the first six months of 2008, China’s auto market grew only at a 17% clip, the slide attributed to increasing gasoline taxes designed to mitigate pollution.
“These markets have seen some pretty strong growth,” said GM spokesman John McDonald. “But these countries aren’t exempt from the direction of the global economy.”
Even with the prospect of a slowdown in those markets, automakers have little choice but to compete for a piece of the emerging action.
U.S. auto sales are deeply troubled, and Western Europe is now showing signs it has come down with at least some of the economic illnesses afflicting America. GM and Ford are wallowing in near-record losses, and Toyota -- which also considers the U.S. its prime marketplace -- is seeing its fortunes wane. This month it reported its worst profit decline in five years.
Meanwhile, an increasing number of automakers, lured by the prospect of growth, are reaching into developing markets. That only makes competition even stiffer.
“It’s hardly a secret that those are the countries where you need to be,” Lindland said. “But it’s a symbolic event when a company like Toyota revises forecasts for those regions. It shows that nobody is immune.”