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.
With improving road infrastructure and greater household purchasing power in Bangladesh, used car sales are set to accelerate over the next five years. In fact, Bangladesh is among the leading importers of reconditioned cars. The motorcycle still remains the dominant vehicle type in Bangladesh.
However, political turmoil earlier this year has cost Bangladesh around $2.2 billion in losses, according to the World Bank. Strikes and violence have prevented businesses from operating as usual.
The Asian Development Bank predicts that Bangladesh’s growth rate will, by 2016, reach a promising 6.4%, despite the larger economic toll arising from political unrest. Still, the outlook appears promising, and with the political situation gradually stabilizing, they forecast strong future growth which will boost consumer and investor confidence. Purchasing power of the middle class increased as they spent more on non-essential goods like cars, helping to transform the economy.
Businesses and households in Bangladesh are no longer limited to the physical presence of a store to exchange goods and services. They, too, enjoy the benefits of virtual shopping malls. A study by the Boston Consulting Group and Telenor maintain that, by 2020, there will be 18 million internet subscribers in Bangladesh. Approximately 32% of households will have at least one subscription, and business adoption will be around 66%.
Based on Carmudi’s Car Dealer Survey, car dealers were divided when it came to car sales during the past year. 40% saw no change, and the remaining 60% were equally split, at 30% reporting seeing an increase in sales, and 30% reporting seeing a decrease. One possible explanation is the competitive dealer marketplace. Khaan M. Saakib Us Salehin, Marketing Head, Automotive Division, RANGS Group, explains, "Due to high stock, the competition is now more intense, the best deals that auto-importers must make will be bigger, faster, riskier, and fraught with complexity." Another factor could be the recent periods of instability.
Ahmed Nafiz Naihan, Executive Director of Progress Motors described how the market is “slowly recuperating from the negative periods of January and February when many showrooms couldn't even open due to the political instability, demonstrations and riots.”
Based on the Carmudi Car Buyer Survey, we found that the majority of respondents have moved to the digital world for researching and purchasing cars. Online classifies were the most widely used with 70% of respondents saying these platforms were highly influential in their decision making. In addition, 20% said internet searches, and 10% listed dealer sites as a major influencer. Traditional media - in this case, newspaper classifieds - were selected as a major influencer by 40% of respondents.
Bangladeshi car dealers are becoming more digital when it comes to reaching their buyers. Our study found that 70% of car dealers in the country are focusing on reaching their customers through online classifieds. Car dealers in Bangladesh are starting to become aware of the potential of social media, with 20% reporting that they are currently using social media. Even with the shift to online, car dealers in Bangladesh are still comfortable with advertising listings through Newspaper Classifieds with 50% reporting that they still focusing on newspapers.
Bangladesh has entered a big transition by using both offline and online media. Facebook, arguably the most popular social media platform, is used by over 50% of car dealers in Bangladesh to advertise their listings. Car dealers have not started using dealer sites, Twitter and Instagram for advertising purposes to their clients.
Car sales will grow significantly only when the tax rate reaches a tolerable state. If the current tax structure remains same then high quality small cars sale will increase.