Emerging markets like China, India have become the new auto hubs: Dunne & Company

In 1980, Europe and North America generated 83% of global auto sales. By 2009, it had fallen to 51%. By 2020, it is expected to dip to 35%. Asia, which will drive this shift, is expected to account for 65% of global car sales by 2020. This West to East shift is seen redefining the way the sector is structured. And with the emergence of China as the largest car market, many changes have already been triggered.

Michael Dunne, president of Hong Kong-based investment advisory firm, Dunne and Company, that specialises in Asia's car markets, says China will have far too much capacity in a few years and will push exports to emerging markets. The key challenge for Indian manufacturers will be to find ways to reduce cost, he says. In an interview with Malini Goyal, Dunne speaks on the future of the global auto industry. Excerpts:

What's your take on the auto world's centre of gravity shifting from West to East?

I don't think people have absorbed the fact yet that the world's centre of gravity in auto production and markets has already shifted to Asia. Today, the four countries - Japan, Korea, China, and India - produce and sell over 30 million cars. You can put Asia easily at 35 million plus, which far surpasses the US and Europe.

What does it mean for Asian car market?

Everybody is trying to become stronger in this market. Even as that happens Asia must come to terms with massive amount of fuel demand, national security and environmental concerns. There must be a steady shift to smaller fuel-efficient vehicles and thrust on alternative energy.

What future trends do you see in Asia?

China will have far too much capacity. By 2015, it is looking at a capacity of 40 million cars and trucks.
At best Chinese demand will absorb 25-30 million. They will push exports, already up 50% this year, to emerging markets. In 2011, they are looking at 0.5 million exports, which should go up to 2-3 million by 2015.

How would you stack up Indian auto companies vis-a-vis the Chinese?

Chinese companies believe in first shoot and then aim. Indian firms are more strategic in their approach. Chinese firms can manufacture at much lower costs. But Indians have to now find ways to reduce costs - that will be their challenge.

Small car is the flavour. Help us get a sense how globally it is playing out?

The real issue is not so much the size but the fuel efficiency of new engines. Customers look for space and comfort. Companies that can power slightly larger and more spacious vehicles with small, gas-sipping engines will enjoy an edge. Look at VW's development of a brand new very fuel efficient 1.4 litre engine to power many of its subcompact and compact cars.

Structurally, how does India's car market compare with China?

China has developed a genuine car culture in a span of less than 10 years. People are crazy about car ownership and are willing to spend lots of money on a new car. There 90% of purchases are still settled in cash. Look at luxury -- half of Audi A6 models sold globally are sold in China. The largest market in the world for the Mercedes S Class is China. Indian consumers still think of cars mostly as practical tools. This difference in cultural attitudes helps explain why the Chinese market for cars is six times larger than India.