Just as Ford is finishing up its sale of Jaguar and Land Rover to the Indian firm Tata, the brands are experiencing a renaissance in sales. JLR posted profit of $443 million in the most recent quarter, something it rarely achieved while under Ford ownership. It is now exploring building cars in China, something Volvo, another former Ford brand, is also exploring.
At Nissan, a move in the value of the dollar versus the yen by one yen in either direction is worth around 18 billion yen, or $219 million, of Nissan's operating profit on an annualized basis. That's why the carmaker announced recently plans to dramatically reduce the number of exports from Japan and production increases in plants outside Japan. Nissan joins Toyota and Honda, as all Japanese automakers have said it is difficult to export cars from Japan profitably when the Yen falls below 90 to the dollar (it is currently at 82). Production of the Micra (above) will shift to India, the Micra to Thailand, the Juke to U.K., and the Rogue to Tennessee.
The World Bank predicts that the number of middle-class Africans, whose income exceeds their basic needs, will rise to 43 million by 2030 from 13 million in 2000. That growth extends to Nigeria, the most populous country in Africa and a budding economic powerhouse. The average income per capita is $2700, meaning that most Nigerians can only afford used cars. This has led to a booming used car import industry, and the establishment of used cars as status symbols for middle class Nigerians.
Volvo is a Swedish car company with a Chinese shareholder and a German CEO. The company already builds a small number of cars in China for the Chinese market, but is now considering a major ramp-up in production in a new assembly plant (in Chengdu, where it's owner Geely has a major new plant), not just for the Chinese market, but also for the export market including the U.S. Currently, American consumers readily purchase made-in-China consumer goods, but no one is selling a made-in-China automobile yet, and there is some concern that Volvo's customers may shy away from a Chinese-made vehicle. This strategy is being driven partly by the desire to reduce currency risk. Volvos produced in Sweden and Belgium are priced in Euros, and the exchange rate has eaten into Volvo's profitability. The Chinese currency, the yuan, is pegged to the dollar and would provide Volvo with more protection from exchange rate swings.
Toyota has a problem. The automaker, a leader in hybrid cars, is heavily reliant on neodymium (above, being mined), a rare earth metal that is used in magnets. All electric cars rely on magnets in their motors. These rare earths are mined almost exclusively in China (China makes 95% of the world's neodymium), making Toyota highly reliant on a supply chain that is vulnerable to import quotas, export tariffs (up 67% last year), political upheaval, and outright bans. The price for these metals has soared recently as China orders more production to stay within China. Toyota is forced to explore a new type of motor that doesn't rely on these metals.
While Korean automakers are selling hundreds of thousands of cars in the U.S., U.S. automakers aren't experiencing nearly the same level of success in South Korea, where Korean brands dominate more than 97% of the domestic market. This has long been a sore point for U.S. automakers and unions, who argue that the U.S. market is too open for Korean exports while the Korean market remains relatively close. The proposed U.S.-Korea Free Trade Agreement may solve these problems, and negotiators have come to agreement on a key number of points that may see more U.S. cars in South Korea soon.
At the G20 summit meeting in Seoul, President Obama failed to reach an agreement with South Korea over the last two sticking points in a proposed US-Korea Free Trade Agreement. The sticking points are autos and beef, both of which face a tough time in the Korean market. Both sides have set themselves a deadline of weeks (not months) to finalize a deal that may mean better market access for Ford to the South Korean market.
China has built more than 30,000 miles of expressways in the last decade. Auto sales were up 46% last year to 13.6 million vehicles, and there are expected to be 200 million vehicles on the road by 2020. Business models that started in the U.S. fifty years ago to capitalize on this new car culture are taking off in China. From McDonald's drive-in's (there are currently 105 with 100 more planned for each of the next three years) to suburban strip malls to big box retailers to hotels to tourism to parking lots to commercial radio stations, the domestic car culture is driving big investment -- and big profit potential -- for these industries.
German automaker Volkswagen says it wants to overthrow Toyota to become the world's biggest carmaker. In order to do that, it has to do something to improve its sales in the U.S., which at 2.2% market share are behind even Kia. Now, VW says it's about to do something it's never done before -- tailor its cars for mainstream American driving tastes.
When Chinese car manufacturer Geely bought Swedish car manufacturer Volvo, it announced plans to expand the Volvo brand in China, where it is currently tiny (selling only 24,000 cars last year, in a market of over 13 million). Yesterday, Geely group chairman Li Shufu revealed much more ambitious plans -- Volvo will build as many as three assembly plants in China, each capable of producing 100,000 cars a year, and all for sale in China. This would cement Geely as one of China's largest auto makers, and may position the ambitious Chinese company for global growth.
