The largest of the four strategic clusters of Beyond BRIC auto markets (as measured by projected new-vehicle sales for 2020) is also the most culturally diverse. The Emerging Mideast cluster incorporates Turkey on the European border, the markets of the Gulf Cooperation Council (GCC) in the south, Pakistan in the east—and many different (and different types of) markets in between.
It will have 700 million inhabitants—10 per-cent of the world’s population—by 2020. It will also gain increasing wealth as its GDP per capita is projected to grow 3 percent annually from 2010 through 2020. Yet these advantages must be considered alongside the cluster’s disadvantages: the effects of sanctions against Iran and latent political uncertainty following the Arab Spring.
While this is a heterogeneous regional cluster, with individual markets growing at widely differing speeds, the long-term potential of the region as a whole is beyond any doubt.
As one industry expert told us, “Markets like Turkey, Saudi Arabia, and Iran have to be on the list of every high-volume car manufacturer taking a long-term perspective.”
Our projections for the Emerging Mideast, illustrated in Exhibit 3, foresee the following:
- The Emerging Mideast will grow 5 percent annually though 2020, creating a market of 5.8 million new-vehicle sales—making it a larger market than Brazil, which is projected to have 5.2 million.
- Iran, Saudi Arabia, and Turkey will account for more than 60 percent of total sales in this cluster.
- Saudi Arabia, with a growing population and rising wealth, will expand fastest, growing 7 percent annually through 2020.
Customers and Competition. Diverse customer preferences across the Emerging Mideast cluster are shaped by the region’s widely varying cultures and population groups.
- Iranians opt for smaller A-segment cars; this segment accounts for 35 percent of the market.
- Turkish customers prefer the B- and C-segment cars, which are compacts and sedans. Combined, these two segments hold 54 percent of the Turkish market. At the same time, tax incentives for private buyers make commercial vehicles remarkably popular; these command a 17 percent share of the market.
- Saudi buyers prefer bigger cars such as SUVs and pickup trucks; combined, these two segments currently account for 35 percent of new-vehicle sales. Among these buyers, acute price awareness and functionality are the top areas of focus.
Especially in Saudi Arabia, status is a significant factor in shaping consumer choices. The vehicles most popular with consumers are spacious and affordable cars—and, increasingly, vehicles with status-enhancing features and accessories such as alloy rims, audio options, and tuned bumpers.
The competitive landscape varies across the markets in the cluster.
- Iran is a highly concentrated market: the traditional top brands—Kia, Peugeot, and Renault—captured more than 75 percent of the country’s market share in 2012. Multinational OEMs might retreat from Iran in response to U.S. sanctions; this could position Iran Khodro, a strong local CKD player, to gain further importance through its work with alternative partners such as emerging-market OEMs.
- Turkey is dominated by European players and their auto models.
- Consumers in Saudi Arabia are strongly influenced by Asian and U.S. brands.
Localization. The Emerging Mideast’s production capacity is concentrated in Turkey and Iran. The cluster’s total output of 2.4 million units in 2012 is projected to rise to 3.6 million in 2020, but the retreat of major international OEMs from Iran clouds the forecasts.
One probable consequence of the trends and developments is that Turkey will gain importance. A number of reasons make this likely:
- Turkey will build on progress already achieved through large government incentives, free trade with the European Union, and continuous public investments in infrastructure.
- Turkey’s automotive production clusters in Istanbul and Bursa are being developed systematically, and they already deliver significant output. (See Exhibit 4.)
- Led by Renault, Fiat, and Ford, many major OEMs have already established a presence in Turkey. Initially, many sought to use Turkey as an export hub for Europe, but more and more companies are also using their Turkish operations to reach the Mideast and North Africa.
Turkey’s potential is enhanced by a supply base that has grown alongside OEM development over the past decade. Today, the nation has more than 4,000 components manufacturers, and they produce almost all the critical automotive parts. Of these suppliers, about 70 percent are small or midsize enterprises.