In his report from the World Economic Forum in Davos, Mr Robinet says that by 2020, IHS forecasts that emerging markets such as China, Brazil, Eastern Europe, Middle East and South America will represent over 50% of global vehicle capacity share.

The firm said that tariffs and non-tariff barriers are the main decision driver for adding vehicle and powertrain production within these new walls. Previously, manufacturers would merely export from a home market, hoping to maintain strong facility utilisation. As recent as 2008, the vehicle sourcing interconnection between regions reached a high of 19% of total global output.  However, this has been declining steadily towards 15% of total today. 

By 2020, IHS forecasts that this could amount to a swing of over 4 million units not shipped between regions. Lost export opportunities by the developed markets.

The firm added that currency swings between key trading partners is also challenging industry and, as a result, are propelling vehicle manufacturers to shift vehicle and powertrain production closer to the sales destination.  Over the past decade, the US-Euro exchange rate had less than a 10% differential, however in the midst of this period there have been substantial swings, including a one time a decline of over 20% in a two year period. US to Yen exchange rate shifts have been even more pronounced.  In a hyper-competitive environment, changes in vehicle costs driven by currency are difficult to absorb into sticky vehicle prices.

IHS also said that the trend for platform consolidation is allowing new regions to build the same vehicles as the home market plants. Other factors driving increased production co-location are escalating logistics costs, reducing in-transit inventory and political leverage. Similar to the light vehicle market, emissions legislation is impacting deep sea shippers in a profound manner. 

The company added that, as has been witnessed in Western Europe, Canada and Australia of late, the elimination of production capacity is a matter of national economic welfare as thousands of jobs are at stake. Production capacity in these regions declined four million units over the past decade while emerging locations grew 29 million units – a startling shift with significant ramifications. These governments will be under intense pressure to increase incentives to maintain these facilities or run the chance of losing the footprint – a prospect which is difficult to absorb.  The fallout from a plant closures is immense.

ISH finally covers the issue of shifting automotive sourcing causing displacement. The firm says that vehicle production sourcing is ultimately determined by currency neutrality, logistics cost control and the improvement in global industry productivity versus the need to fill capacity back home.

The report concludes : ‘Looking forward, increasing competitiveness driven by uneven market growth and the myriad of costs/exposure impacting vehicle importation will drive most vehicle manufacturers to evaluate the risk of maintaining the status quo.  In turn, countries will increasingly bear the financial and social costs of this de-risking movement.’