By Tom DiChristopher
Demand for American cars has recovered more quickly in emerging markets than in developed countries since the recession. This year, that trend is likely to continue.
Last year, the value of American car exports worldwide outpaced the previous peak in 2008. Demand remains soft in Europe, but American car and automotive parts manufacturers stand to compensate with exports to emerging markets.
Many of those units are finding homes in China. Profits from U.S. car exports to China are up nearly 500% over the last five years, establishing the Asian powerhouse as the third most profitable market for U.S. vehicles.
The Middle East has also been a bright spot. American car factories sent 13 percent of their units to the region, up from 10 percent in 2007, according to research by Thomas Klier, senior economist at the Chicago Federal Reserve Bank.
Alabama-based MCM Custom Vehicles, a manufacturer of luxury after-market kits for GM trucks, has reaped the benefits of sales in Saudi Arabia and the United Arab Emirates.
Matt McSweeney, president, said MCM’s business was 80-90 percent domestic in 2007. By 2010, it was exporting 70 percent of its products. The ratio has evened out as the domestic car market has recovered, but McSweeny estimes 50-60 percent of his business remains abroad.
The United Arab Emirates, the 15th biggest importer of U.S. automotive parts, has become a lucrative market for the company.
“Their desire to have the bling, per se, that’s right up our alley. With the economy hurting here, and with gas going up, up, up — they don’t get anything but richer,” McSweeney said.
MCM recently outfitted two Cadillacs for customers in Nigeria. McSweeney would like to expand operations in Africa, but GM’s maintenance infrastructure isn’t large enough yet. And without more GM vehicles on Africa’s roads, McSweeney’s growth prospects on the continent are limited.
“It’s a parts and service issue more than willing buyer issue,” McSweeney said.
Last year, Nigeria cracked the top 10 list of most lucrative markets for American cars, up from number 16 in 2007.
Data from International Trade Administration, U.S. Dept. of Commerce
When it comes to exports, American factories are primarily profiting from sales of luxury vehicles. Since Americans buy a lot of high-priced cars, companies such as BMW, Mercedes and Volkswagon have set up manufacturing bases in the United States to be closer to their customers.
“We’re not exactly a low-cost country so if you’re looking for something smaller and lower there are a lot of other places it would be built,” said Tracy Handler, senior analyst at IHS.
Handler says that BMW has become a leading example of this trend. The company manufactures its X3, X5 and X6 models in Spartanburg, South Carolina. The plant exports 70 percent of its production.
Many of those luxury SUVs are going to China, but with other primary destinations in Italy, Canada and the United Kingdom, Spartanburg is exposed to the uncertainty in the economy this year, said Handler.
Daimler, which exports 53 percent of its Mercedes-Benz production from Tuscaloosa, Alabama, is in a safer position because its primary destinations are China, Germany and Russia.
Car exports to Russia registered the largest growth in profits between 2010 and 2011.
American-made Mercedes and BMWs – as well as Chevrolet and Ford trucks – are also finding customers in Brazil. Profits from car exports to Brazil have swelled over five years, from about $54.5 million to just over $400 million.
The market potential in Brazil is much larger, but high taxes keep foreign competitors from doing more business there. As Brazil’s economy continues to grow, however, the government may face pressure to abandon its policies and allow prices on imported luxury items to fall.
“Protectionist policies don’t tend to work long term,” said Handler.
At the same time that manufacturers are finding new buyers in emerging markets, the share of cars sent to NAFTA partners has continued to slip.
Car exports to NAFTA made up 64 percent of U.S. exports in 2007. Last year, they were 55 percent, said Klier.
Europe, too, accounts for a shrinking share. The continent imported 13 percent of U.S. car exports in 2011, down from 18 percent in 2007.
“When GDP is falling, it doesn’t help motor vehicle sales,” Klier said.
The losses in dollars have been substantial. While Germany remains the second largest purchaser of American cars, auto manufacturers made nearly $3 billion more in 2008 than they did last year.
Exports to Belgium, Finland, the Netherlands, Norway, Spain, Poland, and the Ukraine also remain below 2008 levels.
The move to establish global platforms for specific models stands to boost American exports when Europe does recover. This strategy also puts factories in a position to capitalize on strong recoveries in the domestic market.
“Long term we do expect to see some uptick in employment as the auto market as a whole comes back,” she said.