Emerging Markets Growing in Popularity as Competition Increases

What do you as an automaker when traditionally strong markets start to slip in sales? There are two options, either reduce capacity or find a new place to sell cars. GMGMUnited States of America, 1998 > present8 models
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and PSA PeugeotPeugeotFrance, 1882 > present120 models
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-CitroënCitroënFrance, 1919 > present94 models
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are working with the first strategy, and VolkswagenVolkswagenGermany, 1938 > present98 models
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and NissanNissanJapan, 1932 > present159 models
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-RenaultRenaultFrance, 1898 > present189 models
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are the leaders of the second. 

Emerging markets, which generally consist of South East Asia, including India, Eastern Europe, including Russia, and North Africa, although South America is also sometimes included.

The problem leading to the move to emerging markets is multi-faceted. It is no secret that sales are falling in Europe. Sales in Japan are forecasted to stay roughly stagnant in the coming years. China is still growing, but it is expensive to get into. The Chinese Government levies tariffs of at least 25% on imported cars, which forces automakers to partner with a Chinese company and build a factory there to break into the market. North America is also still growing, but safety and emissions rules make it very expensive to break into.

That only leaves emerging markets where cars have to be cheap to sell. There is one advantage though. Getting people to buy into a brand while they are young, can lead to more brand loyalty as they grow older and have more money. The limited numbers of used cars available in emerging markets also make these cars more attractive to buyers. 

Volkswagen already offers low-cost cars in South America and China and is considering creating a new brand specifically for emerging markets. The new Volkswagens for emerging markets will not debut before 2016. 

Renault-Nissan is even further ahead. Renault's DaciaDaciaRomania, 1966 > present11 models
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brand is sold cheaply in Europe and for high profit margins elsewhere. The company just bought a controlling stake in AvtoVAZVAZRussian Federation, 1966 > present8 models
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with the intention of using its Russian factories to build the DatsunDatsunJapan, 1931 > 198636 models
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brand that will be even cheaper at around €2,300.

"Dacia is really a cash cow for the company," said Renault Chief Operating Officer Carlos Tavares.

Low-priced cars are not as simple as pumping out basic transportation. Even buyers in emerging markets will not buy a car of poor quality or without decent features. For instance, the rebadged Dacias in India come with a second air conditioning system for the rear seats. 

If markets do not rebound in Europe soon, there is a slight possibility that these cars originally meant for emerging markets could be sold in Western Europe as well. 

Source: Automotive News Europe (1,2)