The collapse of the credit markets in the 2008 global financial crisis wreaked havoc on the automobile sector, pushing many of the world's leading carmakers into economic turmoil. However, three years on and the industry is reporting good news again, largely due to its a key role in stimulating Asia’s markets.
“Asia, through its ups and downs, is still growing compared with other world regions,” says Hafiz Mirza, the UN Conference on Trade and Development's (Unctad's) chief of the investment issues section. “Asia is a key regional player and because of the sheer size of automobiles in both Asia and the global economy, the automobiles sector will inevitably play a role in this growth.”
Japan-based Mitsubishi Corporation became the top inward investor into Asia between January 2011 and October 2011, and four of the top 10 companies that accounted for 4% of all investment projects were carmakers, according to data from greenfield investment monitor fDiMarkets.
Furthermore, Japanese carmakers Toyota Motor and Honda Motor Company were the top two largest Asian transnational corporations that generated the greatest share of greenfield-related employment in the region in 2010 and 2011, according to data from Unctad’s investment trends monitor. Toyota led in employment creation, and Unctad found that Asia as a region captured 67% of all the new jobs it generated globally from the greenfield investments it made during this period.
“A lot of investment in the automotives sector is driven by growing vehicle demand in the region, linked to a developing middle class and rising incomes,” says Anna-Marie Baisden, head of autos analysis at data and analysis provider Business Monitor International. “We are seeing something of a virtuous circle. We can certainly expect to see more investment through to 2015, particularly as Asia is a key region in the global strategy of many companies.”
Indeed, Asia is growing in economic clout. While some developing markets face what could develop into an economic malaise, Asia’s market-friendly policies and its economic openness are pull factors that are attracting huge corporates, and these are in turn stimulating its markets, says Rahul Ghosh, head of Asia research at Business Monitor International. “With the US flirting with recession, the eurozone lurching from one sovereign crisis to the next, we expect Asia will embark on an acceleratory growth path from 2013 onwards,” says Mr Ghosh.
Consequently, as economic growth creates a demand for big ticket items such as cars, Ms Baisden maintains that this will lead companies to invest in local production to satisfy this demand, contributing to further economic growth within Asia. “The added advantage of autos investment is that it has a knock-on effect for related businesses. For example, new vehicle plants will create demand for suppliers, distributors and servicing providers,” she says.
While Asia’s economies continue to set the pace for global GDP growth, a figure that is 7% in 2011 according to the International Monetary Fund, the automobile sector will play a crucial role in sustaining this virtuous cycle within the region’s markets.