How to decide whether to create regional or global cars?
Chevrolet, Ford and Volkswagen recently announced their upcoming plans for emergent markets, and they’re different enough to warrant debating this topic once again
That decision became famous in the 1980s, when the first truly global cars were released: these come from projects developed to satisfy several markets almost unchanged. Regional projects, on the other hand, are supposed to please the customers of one particular group of countries and nothing else. The population of each country has very different preferences and needs, so focusing on each of them or not heavily influences the requirements a new car should fulfill. The aforementioned makers presented some information on how will they update part of their lineup over the next few years, but each one intends to do it in a different way.
Automakers have worked with those options in every possible way by now, so they’ve acquired enough experience to make some definitive conclusions. One is that, the higher a car model lies on the lineup, the more appropriate it’ll be to make it global. These cars usually sell in medium-to-low quantities, so makers can benefit from streamlining their production process. Besides, doing so means these cars are good enough to comply with several quality standards at once. Buyers usually see this as a highly positive attribute, which means these cars have a sales boost. Things only change on the opposite end of the spectrum, especially in emergent markets.
In countries like Brazil, China and India, the average car owner has lower income compared to that of Europeans and North-Americans, for example. Unfortunately, that forces them to accept products whose level of overall quality is equally low, especially regarding safety devices. Automakers tend to create low-cost cars specific to each region so as to use such breaches in each one’s demand and make them as cheap as possible while still capable of satisfying their target audience. Nevertheless, there are many ways to do that, but only some are appreciated. Figuring which ones is easy, but creating a car only with them usually isn’t.
Companies know that some ideas elicit better feedback than others, and they’re increasingly good at estimating how to quantify those differences when it comes to financial return. Parallel to that, one should remember that companies will always lean towards the most profitable solution. As a consequence, there are times when they’ll prefer to execute an unpopular project and obtain average reception than to spring for the most adored one and reach sales figures which, despite being larger, fail to compensate the bigger investment. Predictability is very valuable on all projects, but becomes even more in entry-level markets, where profit margins are low and buyers are heavily influenced by the final price.
According to the news, Chevrolet will update the platform dedicated to compact cars for emergent markets. The current one underpins Onix, Spin and the latest Cobalt and Prisma, whereas its replacement will update all those plus the Montana pick-up and two new models. Volkswagen will offer the up! and the Polo outside Europe with changes while keeping the Gol parallel to them. Ford, in turn, sells the Ka in many countries almost unchanged but will replace the Fiesta in the emergent ones with another model, created specifically for them. Such different strategies are highly expected to bring market performance which diverge just as much.
The root of this dilemma is simple: people dislike being poor, therefore dislike looking poor. Any features which go that way automatically make a car model less desirable, especially if there are competitors without them. We live in times of easy access to information, so people can see what’s being offered around the world. Even though a car model has characteristics which render it perfect to a given region, it’ll still be rejected if its maker sells an equivalent one with much better content in another region. After all, the regional model ends up seen as, literally, the poor man’s counterpart of the one offered elsewhere.
Remember when low-cost cars had unpainted bumpers and steel wheels, back in the 1990s? Most makers dropped items like those in the following decade because of their negative reception, but the concept behind them survived: the easiest way to make a car cheaper is to remove its items and/or to replace them with simpler ones. The level of technology available years ago was low, so that was the only resort for many companies. There was no such thing as properly investing in making entry-level cars because that would always require large sums of money, and that would force the company to charge more for the resultant products.
Volkswagen’s strategy is based on that. It brings the same models sold in Europe in order to gain prestige, but invest in partial changes. Some of these are focused on adapting the cars to the local preferences: the up! was stretched by few inches to better seat five passengers, while the Polo is expected to receive a front bumper with sportier design. Others are merely focused on cost cutting: there are fewer powertrain options and cabin items available, some parts are replaced by simpler ones, and visual updates can be either delayed or applied only in parts — the Brazilian up! was facelifted without the new tail lights of the German equivalent.
In nowadays, there’s a second, entirely different way to develop low-cost cars. Since they can reach high sales volumes in many countries, some companies have opted for creating an entirely new platform exclusively for them. It is usually capable of underpinning models of several urban categories, of complying with overall standards of pretty much all emergent markets, and of accepting different levels of equipment. Those projects are much more expensive, of course, but they spawn cars of higher quality, which makes them prone to sell much better, and each one can generate many models, be manufactured in many countries, and be used by several years. In the long run, this strategy brings higher financial profits and even some prestige to the automaker.
Chevrolet has always been a generalist brand but, since its main market used to be the North-American, it didn’t have models of its own which could properly compete in the generalist categories of emergent countries. Up to the 1990s, that was solved by offering models of other GM-owned brands with its own badge. However, since those models became increasingly sophisticated and expensive over time, Chevrolet resorted to devise its own low-cost platform. In a few years, it’ll move to the second generation and will be expected to underpin eight models. This way, the company manages to offer modern cars with overall content similar to that of its competitors while keeping their prices adequate to the standards of their market categories.
Those strategies are generally well-received mainly for mitigating that image of shabbiness. Anyone who researches a little bit knows that those are still low-cost cars, but they express that characteristic in manners which don’t directly displease their potential owners. The only problem with doing that was already mentioned here: working that way is not always viable. Ford’s solution, for example, consists of giving the current Fiesta a facelift only in emergent markets to keep it reasonably competitive for a few more years, then replacing it there with a different car model, while the European market (and the North-American, probably) receives Fiesta’s new generation, which was officially presented months ago.
Problems arise when one thinks of Fiesta’s history in emergent countries. The current generation, which debuted in 2008, enough improvements to enter a market niche above the typical compacts sold there and below the midsize category. Therefore, prestige gained importance among its sales arguments. While the facelifted car and its regional successor might have all the rational qualities to please their target audience, they will always be seen as the “cheap replacement for the car which became too fancy”. In other words, they’ll completely lack that prestige. Cost-oriented customers will still consider those cars, but those of any other types will certainly favor the competition.
The difficulties which emergent countries face make their automotive market operate like a reduced-scale version of that of developed countries: while both groups are receptive to low-cost cars, they are also equally sensitive to those which have prestige. The only difference is that, unfortunately, emergent markets usually charge equivalent prices for cars of lower level. As a consequence, manufacturers are correct to respect the differences of purchasing power, but wrong to ignore those which regard the demand for prestige. This is an abstract characteristic which makes any car model much more desirable to its target audience, so it definitely can’t be overlooked.
Fortunately, the number of people who are opposing to the negative applications of regional strategies is increasing. They’re no longer ignoring their emotional needs, so it’s becoming more and more difficult for manufacturers to sell cars which are heavily based on rational qualities, such as good value and cheap maintenance. Besides, it was already mentioned that information is now easily accessible. People are researching more before choosing their next car, so they will be aware of whatever resources a manufacturer might have used to make its product financially attractive, whether positive or negative. In nowadays, tricking the buyer is only possible if the they choose not to properly inform themselves.
Despite all that was mentioned, it is actually possible that Ford’s strategy prospers, especially when the time comes to replace the Fiesta with a regional project. The model might prove itself more adequate to the local requirements, and the potential buyers might not care that much about its weaker image. However, it’s still a product of different background, so it will elicit different opinions from press and public. Given that these opinions are usually difficult to change and last for a long time, Ford should take time and estimate whether taking a money-saver approach today will bring good or bad financial consequences in the affected regions over the next years.