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Emerging Markets To Drive Automotive Comeback

This article is more than 9 years old.

Detroit might actually be a desert of steel and and concrete if not for emerging markets.

Well, that's not entirely true. General Motors Detroit mostly manufactures and sells for the U.S. market. But if you're GM, or Ford, or Tesla, your growth story is somewhere else.

Thanks to Asia and Brazil, the median annual total shareholder return for automakers from 2009 to 2013 was 29%. Granted, that's coming up from a disastrous 2008 when General Motors briefly become Government Motors. But the automakers weren't the only industry requiring government bailouts. Banks needed a helping hand from Washington too. But when compared to 26 other global industries, automakers shareholder return is 8 percentage points higher, the Boston Consulting Group said in its 2014 automotive report card titled "A Comeback in the Making." The report came out late last month.

Rising incomes in the emerging markets saved GM as much as the Obama bailout did. Companies like Ford, Toyota and Honda also have developing countries to thank.

The Boston Consulting Group said that the foreign-based original equipment manufacturers, or OEMs in industry parlance, produced an annual median total shareholder return ranging from 36% to 49%. Meanwhile, the automakers that focused more on developed markets posted lower returns of 23% to 35% on the high end.

Stretched out over a five year period, emerging market based car makers dominate the growth story. China is in the lead, of course, with rising incomes and 1.4 billion inhabitants. Great Wall Motor Company, Brilliance China Automotive and Changan An Automobile were listed by Boston Consulting Group as the top 10 value creators from 2009 to 2013. Ford develops its China makes and models with Changan while BMW works with Brilliance.

The 28-page report noted that restructuring and M&A have also led to growth.

Tata Motors of India acquired Land Rover and Jaguar from Ford back in 2008. Italy's Fiat acquired Chrysler at a fire sale, keeping that brand alive and helping Fiat penetrate the U.S. market for small, city vehicles like its Fiat 500. Meanwhile, General Motors and Ford slimmed down by dumping nameplates that were not helping the bottom line. Besides Jaguar and Land Rover, Ford also sold Volvo to China. General Motors discontinued brands entirely, like Saturn, Oldsmobile and Pontiac.

The report says automakers must make "product innovation a priority". Restructuring and acquiring brands is not going to help with growth in the future as it did immediately post-crisis in 2008.

"Some industry players will need to undertake a broad restructuring of their value propositions...product portfolio, finances and governance to spur the growth-propelled innovation needed to serve a global marketplace in constant flux," the report authors wrote.

Shareholder Value Creators

A look at the car companies that returned the most to their shareholders between 2009 and 2013 thanks to rising sales and dividend programs. Passenger vehicle makers only. Ranked in descending order.  China dominates top 3 positions.

Mahindra & Mahindra -- India

Kia Motors -- South Korea

Tata Motors -- India

Fuji -- Japan

Changan -- China

Brilliance -- China

Great Wall -- China

Sources: Thomson Reuteres Datastream; Thomson Reuters Worldscope; Bloomberg; corporate annual reports; Boston Consulting Group analysis.