Czech truck maker Tatra plans to export its way out of financial trouble by increasing its exposure in emerging markets, a decision which backs up BMI’s optimistic outlook for growth in the BRIC countries.
Tatra’s decision is highly strategic. We forecast that, as North America continues to lose its one-time leading share of the market, BRIC countries (Brazil, Russia, India and China) will account for over 35% of total global auto sales by 2014, more than double the 16% in 2005.
Tatra has singled out India, Russia and Brazil as priority markets, which showcases the strength of truck demand in these countries.
Brazil happens to be our pick in Latin America. We predict truck sales in the country will grow over 50% between 2009 and 2014, mostly as a result of increased economic activity in preparation for the 2014 FIFA World Cup and 2016 Olympics Games in Rio de Janeiro.
In India, we expect the overall commercial vehicle segment to grow a more robust 86% in the same period, on the back of the country’s domestic demand-driven economy, surging investments in infrastructure and higher credit growth.
Our outlook for Russia is more cautious, however. We see its reliance on the energy sector as a key macroeconomic risk weighing on the stability of the country’s growth. Nonetheless, we expect the truck market to have recovered to sales of nearly 56,300 units by 2014, matching 2007 sales levels, but still lower than the record 67,400 units sold in 2007.
Ignoring China for the time being also makes sense for Tatra. Recent growth in the country’s auto market has mostly come on the back of increased passenger car sales. Growth in the commercial vehicle segment is limited to light commercial vehicles, which are desirable in rural areas.
Tatra has indicated it will seek growth opportunities in Saudi Arabia, Australia and Canada. The first two are in the top 10 in BMI’s Business Environment Ratings for the auto industry globally, scoring particularly well in the ‘Risk’ indicator, which looks at regulatory and competitive issues in a market and its broader Country Risk forecast.
As a first step in its expansion strategy, Tatra will focus on setting up assembling units in Russia or another CIS state, with the view to avoiding local import duties.
In India, we expect the firm to benefit from its joint venture (JV) Tatra Vectra Motors, formerly called Tatra Trucks India. Established in June 1998, the JV acts as a manufacturing base for the firm in India.
We expect Tatra to find it more of an uphill task in Brazil, however. The Brazilian truck segment is heavily competitive, dominated by the German firms MAN and Mercedes-Benz and Italian company Iveco, which all produce vehicles locally. In contrast, Tatra’s presence is limited ar present to small number of exports.
Nevertheless, we expect the strategy to be capable of achieving its core aim of improving the company’s finances. Tatra posted losses of CSK1.3bn (US$66.5mn) last year and is reportedly in its worst financial position of the last 50 years. Tatra’s director, Ronald Adam, has said the crisis year of 2009 was ‘a struggle for survival’
(Business Monitr Intrnational August 2010 report)