"Detroit" heading to Asia?
Leather upholstery suppliers to the automobile industry have suffered greatly as auto sales have fallen worldwide. But, ‘Help is on the way’, and it’s coming from China.
Many leading tannery groups had exclusive contracts with western automobile manufacturers. These tanneries have suffered almost terminal misfortunes as vehicle sales plunged in the developed economies.
However, in China and India during this period, auto sales soared by 25% and 20% respectively on a year-on-year basis. Many of these vehicles, especially in China, were kitted out with leather upholstery. In the US and Europe, 25% of new vehicles enjoy the luxury of leather seating. In China, even for mid-range automobiles, this figure is substantially higher at between 40% - 50%.
India’s auto market - around 2.5 million cars and light trucks a year - is still much smaller than either China or the US. However, its growth rate makes it comparable to the Japanese or German markets.
China – at 8 million vehicles and growing (it may well make the 10 million mark this year) – was already half as large as the US in 2008, and is continuing to advance in size. In the first six months of 2009, 5 million new passenger vehicles were sold in China. The US was selling on average 16 million units per year but that is due to decline to around 10/11 million.
Heavy traffic in Beijing The "Cash for Clunkers" (Car Scrappage in Europe) programme gave an artificial boost to demand in the US and Germany especially. Now, China could well overtake the US as the biggest consumer of new vehicles, since there are many more first time buyers. Indeed, the used car market is practically non-existent in these early stages of development.
Global automobile sales are undergoing a major reorientation towards Asiaand away from the US and Europe. This will have an enormous effect on the structure of the sector and, of course, the tanneries which supply the leather to the carmakers.
Looking ahead
Although General Motors (GM) has the model range to compete in the US it is in China where, in a joint venture with Shanghai Automotive Industry, it expects to sell 1.4 million vehicles in 2009, and at a profit.
Japanese and Korean manufacturers will continue to dominate their domestic markets. Such companies as Honda, Toyota, Hyundai and Kia Motors will also do well in the US and Europe, and in countries where they have been able to establish viable local manufacturing operations and lower labor costs.
Other margues catering for the upper-end of the market, such as Mercedes and BMW will likely maintain their appeal, but helped greatly by having manufacturing capacity in China.
But it will be the players from China and India who are destined to be the big market-share gainers on a global basis.
India’s Tata Motors is one of the best known of the newly emerging global auto elite. Tata’s US$2,500 for-the-masses "Nano" car has been well received.
The Nano could well be Henry Ford’s "new" Model T or the Weimar Republic’s Volkswagen Beetle!
In fact, China has around 50 car manufacturing companies. Several, such as Chery, Geelong, SAIC, Great Wall, Beijing Auto, and Brilliance Chinese Auto are substantial.These companies and those in India should be the new targets for tanneries specializing in auto leather upholstery.
The conclusion is that tanneries interested in maintaining a foothold in this lucrative market will have to look even more closely at the East. They will be obliged to follow the auto industry’s journey there in an effort to sell to the emerging carmakers in India and more importantly China.
Next week’s All China Leather Exhibition (ACLE 2009 2 - 4 September in Shanghai) will give the leather industry an indication of the recovery potential of the sector. A special invitation has been sent out by the exhibition organisers – APLF and China Leather Industry Association - to all car manufacturers in China to attend and see for themselves what worldwide tanners have to offer.
The author thanks Martin Hutchinson of "Money Morning" for some of the information contained in this article.
Leather upholestry for car Nano car
