The Staggering Growth of E-Commerce
Internet and Mobile Penetration
Correlation of GDP and Motorization Rate
Carmudi's Report on the Booming Automotive Industry in Emerging Markets examines the current and future state of the automotive industry in the emerging world. As the leading online car classifieds operating in twenty emerging countries, our report provides a detailed look into the global state of automotive sales and how car purchasing behaviors have changed due to the drastic increase of internet and mobile penetration, rising GDP, and the emergence of a middle class.
The findings in this report are the result of quantitative surveys conducted online with both car buyers and car dealers across Asia, Africa, Middle East and Latin America, and in-depth interviews with industry influencers across the world.
Using historical data from more developed markets, and analyzing how those factors impacted the automotive market in those regions, we seek to provide a glimpse into the future of automotive sales and motorization rates in emerging countries.
65% of global consumers plan to buy a new or used car in the next 24 months. Latin America and Middle East/Africa will have the strongest auto demand 75%, followed by Asia 72%.
Over half of online consumers in North America (56%) and half in Europe plan to buy a new or used car in the next two years.
When it comes to new cars, purchase intent is strongest in Asia, where 65% of respondents say they will buy new in the next two years, compared with 7% who plan to buy used cars.
In Latin America, 47% of respondents say they will buy a new car, while 28% plan to buy used. Similar ratios are found in Middle East and Africa (45% new vs. 30% used) and North America (34% new vs. 22% used).
Growth of global E-Commerce in new markets has notably outdone more mature markets such as U.S., U.K., Japan, and Western Europe. Emerging countries in Latin America, Middle East, Africa and Asia have shown the strongest market base and fastest regional growth since 2011.
E-Commerce sales are expected to skyrocket by 20.1% in 2015, reaching up to $1.5 trillion.The primary contributors to this growth are the rapid expansion of online and mobile user bases in emerging markets (as documented in the visualization above), new shipping and payments options, and major brands expanding to more new international markets. Recent E-Commerce statistics show that 40% of worldwide Internet users, which amounts to more than 1 billion online buyers, have purchased products and goods online via desktop, mobile, tablet and other devices and is projected to continuously grow.
In 2014, consumers in Asia made E-Commerce purchases totaling $525.2 billion, which was significantly higher than E-commerce purchases in North America, which reached $482.6 billion. Meanwhile, E-Commerce sales in Latin America reached $799.2 billion, and in the Middle East sales are expected to rise from $9 billion to $15 billion by the end of this year. Recent signs of developments in the African region have raised projections of B2C E-Commerce sales to double-digit numbers in billions by 2018.
In more developed markets, auto E-Commerce has grown at such a staggering rate that now as many as 80% of new car and almost 100% of used car customers begin their car shopping experience online. There is no reason to doubt that emerging markets will rapidly catch up to these figures. Evidence of this phenomenon can be seen when looking at automotive Google Search Queries (provided by Google). The Year over Year search growth is astonishing, particularly in Africa.
A 2013 McKinsey report on Automotive Retail Innovation states that auto dealers are no longer the primary source of information, especially for consumers between 18 and 34. Up to 90% of consumers in this group use a mix of OEM and dealer sites, forums, blogs, and social media to gather information and compare prices and offers before making their final decision. Taking to the internet to research and purchase cars shows no signs of slowing down.A global study released by Accenture in April 2015 concluded that 75% of drivers polled would consider working through the entire car-buying process online.
With internet and mobile penetration significantly growing in emerging markets, the rate of moving the car shopping experience online is beginning to mirror that of Western Markets. In the Philippines, one of the top five countries in internet and mobile penetration, almost 80% of car buyers use the internet to conduct research on a car before making a purchase.
The trend between GDP Per Capita and level of car ownership relies heavily on a country’s economic development. Countries with low GDP per capita are seen to have a similarly lower level of car ownership as only few people, even the wealthy ones, are able to afford a car. Countries with greater population density tend to continuously improve on the public transport system and infrastructure, leading to a lower need for private cars or other types of vehicles. In other emerging markets, where the public transport system and infrastructure improvements are growing slowly, and safety standards are not being met, there is a greater incentive for people to opt for their own vehicles rather than rely on public transportation.
The IMF recently projected that the growth of GDP in emerging markets will be substantially higher than in developed economies, within the next five years.
According to the IMF, vehicle ownership accelerates quickly when countries reach an income level of about $2,500 per capita. This rapid growth continues until it reaches the cap, which is about $10,000 per capita. At that income, U.S. per capita vehicle ownership levels hit about 800 per 1000 residents, while European and other OECD countries have around 650-800 vehicles per 1000 residents. China and India, with GDP per capita figures about $7,500 and $3,300, are right in the middle of the rapid motorization phase with vehicle ownership in both countries growing at an explosive rate. The above chart offers a look at the correlation of GDP and motorization rates in our Asia and Africa markets.
The Middle East car sales market is predicted to grow twice as fast in comparison to markets in North America and Western Europe between 2012 and 2022. Forecasts of Light Vehicle (LV) sales in the Gulf Cooperation Council (GCC), the largest economic structure in the Middle East, will surge 25% to nearly 1.75 million due to strong economic growth mainly attributable to increased oil prices and private sector activity, plus low interest rates and government spending.
In Saudi Arabia, where almost 48% of households consist of six or more people, there is high demand for SUVs and other large family cars. Regardless of the driving ban on women, car sales in Saudi reached 750,000 in 2013, a 6% increase from 2012, spurred by the rising levels of disposable income. Saudi Arabia’s vehicle market is by far the Middle East’s largest market and is dominated by Japanese brands.
The Kingdom has a market worth of more than $22 billion and remains the largest importer of cars and automotive parts in the Middle East.
In the UAE, new vehicle sales growth reached 16.7% in 2013 according to the Business Monitor International. Outlook remains upbeat on the prospects for new car sales across 2015 that will reach the 425,000 mark or a 5.1% growth. Vehicle sales are expected to continue to rise following the plea made by the Ministry of Economy for car dealers to lower prices. Their goal is to diminish the price disparity between local cars and imported cars within the Gulf region through unofficial and unrecognized channels.
Despite being two of the most influential countries in the Middle East, the United Arab Emirates (UAE) and the Kingdom of Saudi Arabia (KSA) have significant differences in their economic environments. The UAE has an open economy that comes with a gigantic annual trade surplus and high income per capita. Efforts to diversify the economy have cut down the portion of oil and gas-based GDP output down to 25%. Real GDP growth in the UAE is projected to reach 4% this year and 3.8% in 2016. Over three decades, the UAE has undergone profound transformation, from its desert roots to a wealthy state with high standards of living following the discovery of oil. Investment in job opportunities and infrastructure expansion by the government has scaled up, resulting in larger private sector involvement.
However, in 2015, growth projections for the UAE have been lowered by the IMF, triggered by lower oil production. The IMF predicts only a 3.5% increase in economic growth in 2015 and 2016, respectively.
The government of the oil-based economy of Saudi Arabia has strong control over most of the region’s economic activities. Saudi Arabia’s oil accounts for around 16% of petroleum reserves worldwide, ranking as the largest petroleum exporter and a leading player in the Organization of Petroleum Exporting Countries (OPEC). The petroleum sector accounts for 90% of export revenue, 80% of budget revenue and 45% of GDP. In 2013, the Kingdom’s oil output dropped around 1.6% and weighed negatively on the GDP of the oil sector, which declined by 1%, the largest deflation over the past 5 years. Most importantly, construction, manufacturing and trade has driven the non-oil private sector up to a 5.97% year-on-year increase. Growth of non-oil private sectors will continue to drive the Kingdom’s economic growth outlook in the coming years.
Based on Carmudi’s Car Dealer Survey, only 28% of car dealers in the Middle East reported an increase in sales as a result of the changing economic climate and changing infrastructure in the region, while 52% reported that sales have decreased over the past twelve months. The other 20% of car dealers reported no changes in car sales over the last year.
Carmudi’s Car Buyer Survey found that 62% of car buyers report using the Internet to search for information on cars before they made a purchase. This is by far the major influencer. Only 13.8% of car buyers reported looking at a dealer’s site online, and 10.3% reported viewing car manufacturer sites as a tool of reference before purchasing a car. 10.3% of survey participants using Carmudi as a platform to gather information before making a sound decision. Only 6.9% listed social media and blogs as an influence.
Middle Eastern car dealers are flocking to the internet to reach potential consumers. Our study found that 88% of car dealers surveyed report using the internet to advertise to customers. 52% of the car dealer survey participants are actively using social media to reach customers. 20% are actively using dealer sites to reach their customers and 16% are currently advertising their car listings on the Carmudi platform. 12% are actively using forums or other online classifieds as a means of outreach.
Facebook, arguably the most popular social media platform, is used by over 28% of car dealers in the Middle East to advertise their listings. Car dealers in the Middle East are also starting to use Instagram (12%) and Twitter (8%) as means to reach out to buyers.
UAE market is a very attractive place, which can lead to even higher limits of sales. The factors like liberal economic environments and high level of competition can offer good deals to customers. Also, finance offers from banks can be good instruments for higher sales. I think only good quality and commitment to customers can be the major factor which will affect future car sales.