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The Automotive Industry and the Madonna Dilemma

Automotive Business Review – October Issue 

The hangover from the global recession of 2008 and the steady growth of emerging economies have played havoc with global supply and demand patterns in the automotive industry. Brands, big and small, are all juggling their arsenal in the continued battle to remain relevant as they pull out the stops to address demand from evolving markets. Key trends straddle the developed and emerging markets, and between these two main markets noteworthy switches are now defining the automotive sector.abr

Brands, big and small, are all juggling their arsenal in the continued battle to remain relevant as they pull out the stops to address demand from evolving markets. Key trends straddle developed and emerging economies, and for these, noteworthy switches now define the automotive sector.

Changes in consumer tastes, production facilities and innovation technologies are just some of the trends shaping the industry. This translates into a need for motoring brands to keep their eye on the ball with constant research and to ensure that global and local trends are tracked, analysed and fed back into strategies.

There’s been a flip in tastes between emerging markets and developed markets. Developed markets once had a higher demand for luxury vehicles before the recession, but now there’s a preference for more basic cars. The emerging regions, at whom mostly entry level cars were targeted, are showing a higher demand for luxury brands. This change is set to grow in the coming years as emerging markets grow while developed markets continue to downsize.

For emerging economies, a growing middle class is behind the increase in demand for high-end vehicles. The uniqueness of the middle class is its increasing purchasing power. For the automotive industry, this group is displaying this power in its affinity for luxury brands. In a survey conducted by KPMG, 66% of BRICs respondents (a cross section of consumers, brand owners and car industry players), see an increase in appetite for luxury cars in emerging markets. This preference for luxury brands is however not only a price point issue.

In the same study, 83% of BRICs respondents also rated comfort as a major factor when buying a car. This shows that emerging markets favour luxury brands because of the famed design that these brands are associated with. The need being fulfilled here is not only that of status but quality (a well-designed vehicle).

Porsche is one such brand that is responding to this shift. With sales growth in Q1 2013 amounting to more than 60% of 2009’s total sales in China, the brand is taking innovation up a notch. Porsche is currently designing a luxury SUV specific for the Chinese market, the Porsche Cajun, which is expected to be launched in 2014. With this launch, Porsche is projecting that China will, from 2014, become its biggest market, overtaking the US.

The other side of the coin is playing out differently. Developed markets’ spending habits are still influenced by the recession of 2008, and consumers are downsizing when purchasing cars. For these markets simple, basic cars with great fuel efficiency are in demand. Longevity of vehicles also ranks high up there as an important purchase motivator. The idea of course is to spend as little
as possible, and mobility is no exception to this new economic lifestyle.

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