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 booming economic expansion and growth of the middle class, the Philippines automobile industry showed a stellar performance throughout last year and early 2015. First quarter of 2015 sales reached 62,882 units, breaking the 60,000 unit record for the first time.
The Asean Automotive Federation, reporting on the first half of 2014, noted that the Philippines is the fastest-growing automobile market in the region, ahead of Singapore, Malaysia, Indonesia and Vietnam. Higher income, plus easier financing, have contributed to stronger sales, especially in private cars.
As we reported above, an increased GDP correlates with a strong motorization rate. In Southeast Asia, according to the Philippine Daily Inquirer, an average income of $2,600 triggers a rapid increase in motorization. Thailand and Indonesia reached this threshold in the last decade. The Philippines achieved it a year ago, and is now beginning a strong push to motorize.
With healthy and sustainable economic growth, coupled with strong consumer purchasing power, the Philippines is becoming an increasingly attractive prospect for car manufacturers. In 2014, the Philippines grew 6.1% and is expected to reach around 7% by the end of 2015. The IMF reports that this growth is attributed to more Filipinos joining the labor force and rising investments.
By mid-2014, according to Internet World Stats, the Philippines had over 44M internet users. Growth was catalyzed, in large part, to improved access to broadband services, extensive smartphone penetration, and widespread use of social media.
During the last four years, internet access grew by 500%, the highest rate in Southeast Asia. The Philippines also leads in “Time Spent on the Internet”, according to We Are Social’s Digital Report in January, 2015.
Compared to a global average of 4.4 hours per day, Filipinos spend an average of 6.3 hours per day online via laptop and 3.3 hours per day via mobile.
As reported above, car sales are booming in the Philippines. 73.3% of car dealers surveyed reported seeing an increase in sales in the last year.
Based on the Carmudi Car Buyer Survey, we found that the largest influencers on purchasing decisions are online sources, including Manufacturer sites, dealer sites, general internet searches, and online classifieds such as Carmudi. Consumers also report being influenced by offline platforms including auto expos. Many buying decisions in the Philippines are influenced by a blend of both online and offline platforms.
Amado L.F.B. Del Rosario, Corporate Affairs Director at PGA Cars, Inc. explained, “ Easy access to the world wide web is now a reality with the widespread use of affordable smartphones and data plans from telecom companies. The internet has made available a whole wealth of information to customers, making them more knowledgeable of the varied choice of brands and options available. Customers are now coming to the showroom with a definite idea of what car they want and their choice of colours, trims, and accessories. The visit to the showroom is becoming the last stage of the buying cycle. The showroom visit gives the buyer an opportunity to get more intimate with their choice of car model by sitting inside the car and possibly test driving it. In a way the use of the internet has narrowed down the selection process and has shortened the buying cycle.”
Car dealers in the Philippines have become more digital when it comes to advertising their listings. Our study found that 66.7% of car dealers in the country are majorly focused on advertising their listings through the Internet. Online classifieds are also seen as a great way to advertise car listings, with over 46% of car dealer survey participants currently advertising their car listings on online classifieds. Car dealers in Philippines are aware of the potential that social media has, with over 33% reporting active social media use.
Facebook, arguably the most popular social media platform is used by over 53% of car dealers in the Philippines to advertise their listings. Dealer sites and Instagram are also a preferred option to advertise car listings with over 13% and 6% of Filipino car dealers actively using both.
Social Media is king in the Philippines with a 33% annual growth in number of active mobile social accounts. A report produced by Tigercub Digital attribute the boost to increased digital engagement, strong economic growth, and favorable (young and dynamic) demographics.
While most of the importers of mass volume brands are predicting a growth of at least 10% this year, the premium luxury segment is expected to be flat with no sales growth. To spur the growth of this segment, I would like to see set in place - a business and economic climate that will result in the emergence of a strong middle class and increased buying power of customers, level playing field amongst importers that does not give unfair price advantage to a selected car companies by way of preferential (zero) duty tariff rates, and an end to policies that cause customers to go low profile and shun the purchase of luxury cars.