A saleswoman shows a Toyota to a customer at a show room in Jakarta, Indonesia. Auto sales in Indonesia are rapidly approaching 1 million per year; that number is expected to climb to about 1.73 million in 2020. (Adek Berry / Getty Images)
Dozens of smaller countries have a cumulative potential to one day sell more vehicles per year than established markets like Europe and the U.S., according to a study released Tuesday by the Boston Consulting Group.
Eighty-eight countries, excluding the likes of automotive powerhouses like the U.S. and China, could combine to account for 21 million annual auto sales by 2020 — approximately one-fifth of all sales worldwide — but only if automakers make a coordinated effort to diversify products for those small markets.
“This is the last frontier of the automotive world,” said Nikolaus Lang, lead author of the study. “There is no other region.”
Most of those countries will contribute insignificant volumes, but nearly three-quarters of those projected 21 million annual sales will come from 15 main countries scattered across the globe.
Brazil, Russia, India and China — known as the BRIC nations — are usually regarded as the countries with the biggest potential for automakers to sell more cars and increase profits. But the growth rate of the group of 88 countries identified by BCG as “Beyond BRIC countries” could match or beat the growth rate in all four of the BRIC nations.
The top 15 countries in that group could contribute more than 400,000 annual vehicle sales apiece to the global total.
And many of the countries with sales volumes below 10,000 are clustered, or located in a group in one of four primary regions, that the accruing volume will be significant enough for automakers to set up manufacturing sites if they haven’t already.
The challenges facing automakers when entering or expanding in some of the nontraditional countries include the need to modify existing vehicles to meet specific countries’ needs.
Many automakers have taken a global approach to vehicles to keep development costs low, changing aspects of vehicles in large markets to meet consumer demands in larger markets and to meet local regulations. But many of the smaller countries may have differing needs, and automakers will lose a bit of cost-saving edge when making vehicle variations.
For example, Toyota Motor Corp. adjusted the appearance for its Avanza minivan that it sells in Indonesia.
One of the changes to the Avanza includes another two inches of ground clearance because of regular flooding that occurs in the streets of Indonesia.
Sales in Indonesia could climb from 1 million to about 1.73 million annually by 2020, meaning automakers can achieve better scale — the cost of mechanical adjustments will be less on a per-vehicle basis — but not to the extent they can in larger markets.
“Even when they grow they will never be at scale,” said Xavier Mosquet, global lead of BCG’s automotive practice.
Other challenges facing automakers — particularly U.S. automakers like Ford Motor Co., General Motors Co. and Chrysler Group LLC — are the political implications of doing business in nontraditional markets.
Auto sales in Iran, for example, could reach 1.54 million by 2020, but Detroit automakers are unlikely to score market share because of political tensions between Iran and the U.S.
Import and export tariffs will also play a factor, Mosquet said, though he said regional tariffs — instead of country-by-country tariffs — could help speed the process of automotive growth, particularly when it comes to developing a supply base across a cluster like Northern Africa.
“These clusters are the most likely next step in terms of tariff-free zones,” he said. “This is why you have to organize your supply chain around the cluster first.”