Recruiting in China

With U.S. auto sales forecast to hit a 10-year low in 2008, Detroit's Big Three carmakers are aiming to rev up sales in emerging markets.

Developing nations will account for more than 75% of the auto industry's unit sales growth over the next decade, says market research firm CSM Worldwide. Most will come from the BRIC countries: Brazil, Russia, India and China.

General Motors GM, Ford F and, to a lesser extent, Chrysler hope to grab a big slice. But they're in for a battle with other global giants as well as local firms like India's Tata Motors TTM, which is close to buying Ford's Jaguar and Land Rover brands.

Competition is fiercest in developing countries with their own local producers, says Maryann Keller, head of a Greenwich Conn.-based auto consultancy. China and India are examples.

But emerging markets without local automakers -- Brazil, Thailand and Poland -- also make attractive targets for global giants and newcomers.

"It isn't going to be just the Japanese, Americans and Europeans competing for (developing world) sales, it's going to be Korean, Chinese and Indian carmakers as well," Keller said. "The automotive world is opening up to greater competition from new emerging companies we've never heard of. And there's no reason to assume foreign companies are going to dominate in Russia, China or India."

GM has a top-three market share position in China, Russia and Brazil. In 2007, GM's sales increased 74% in India, 18% in China, 19% in Latin America and the Middle East, and 9% in Europe.

Toyota and GM were neck-and-neck in 2007 global sales. Toyota has been gaining ground in China. Toyota also opened a factory in St. Petersburg, Russia, late last year. The plant will produce 50,000 cars a year, Toyota says.

"The debate going forward is whether GM's lead over Toyota in BRIC countries is sustainable," said Lehman Bros. analyst Brian Johnson.

Toyota TM has forecast combined sales of 900,000 vehicles in China and Russia for 2008, a jump of almost 40% from last year.

In BRIC countries, Ford only ranks among the top three foreign companies in Russia.

GM and Ford are well-positioned for global growth, says Michael Robinet, CSM's VP of global vehicle forecasts.

"GM is doing well in the BRIC countries. It's focusing more assets on Russia and India," he said. "Ford is getting stronger in China and it's well-established in Brazil."

Chrysler has yet to make a dent in emerging markets. But it's announced a goal to double overseas sales over the next four years.

"Chrysler is trying to catch up," said Bruce Belzowski, auto analyst at the University of Michigan's Transportation Research Institute.

He points out that Chrysler largely lost its global reach when parent Daimler sold more than 80% of its stake in Chrysler to private equity firm Cerberus Capital Management.

"Daimler is gone now," Belzowski said. "Chrysler is trying to build a B-size (subcompact) car with Chery (Automobile) for China's market."

It's a large and growing market. CSM estimates China's auto sales will grow 60% to 10.9 million by 2013, up from 6.8 million last year.

Among foreign suppliers in China, Volkswagen leads with 18% market share, followed by GM at 10%.

Toyota overtook Korea's Hyundai for third in 2007, says Tim Dunne, analyst at J.D. Power & Associates.

Japanese automakers have gained share in China, Dunne says, while European firms have held steady. The combined share of U.S. automakers slipped in 2007, he says.

Chinese firms such as Chery had almost 30% of the market last year, with Japanese companies at 28%.

Chasing The Nano

CSM forecasts India's auto market will more than double from current levels to 4.16 million cars by 2013.

Korea's Hyundai leads foreign automakers with about 14% market share in India. GM and Ford trail with 4% and 3%, respectively.

Ford on Jan. 8 said it would spend $500 million to set up a small car factory in southern India. Overall, it's investing $875 million in the country.

GM is spending $350 million to set up its second factory in India.

Both GM and Ford face an uphill battle vs. India's Tata, which holds 23% of the market. Tata rolled out the world's cheapest car -- the $2,500 Nano -- in early January. The Nano is said to get 50 miles per gallon but lacks power steering and power brakes.

Tata expects to sell 250,000 Nanos a year in its home market. Within three years, Tata plans to export its low-cost, no-frills car to other developing countries.

Analysts say Ford is aiming to produce a car for India's market with a $7,500 sticker price. GM is said to be working on a sub-$5,000 car intended for emerging markets.

What About Profits?

Ultracheap cars might win Detroit's Big Three market share, but their profitability is questionable, Keller says. "The growth is in small vehicles, but nobody is going to make money on these (ultracheap) cars."

Meanwhile, Chinese consumers are already trading up. The average car in China costs about $15,000 vs. $27,000 in the U.S., Dunne says.

Aside from BRIC countries, other fast-growing auto markets include Thailand, Indonesia, Mexico, Poland and Ukraine. Sales also are rising fast in Africa and the Mideast.

While overseas markets beckon, GM and Ford will stay under attack in the U.S.

"Every carmaker still wants to come into the U.S.," Keller said. "Why? Because we buy big expensive cars."