While overcapacity problems have been around for years, this has not stopped car makers from investing huge amounts of money in new plants around the world. Sales in the established markets of western Europe, the US and Japan have been slow for some time, and the emerging markets of Latin America, eastern Europe and Asia have been seen as offering the greatest potential for profitability and growth.

In south America, huge capacities were built in Brazil and Argentina in the 1990s. Much of this was left idle when the economies suffered at the end of the decade. Although sales are improving, they are well below the record levels of the 1990s and overcapacity remains an issue.

China has been facing the same situation. Eager to position themselves for the widely anticipated growth of the Chinese market, all of the world’s car makers invested massively in new plants. A new study by KPMG shows that while car sales in China remain strong, most industry commentators are concerned about overinvestment.

The most recent beneficiary of the rush to new markets has been Iran, where passenger car sales are predicted to exceed one million within the next decade. Renault, PSA/ Peugeot-Citroën and Hyundai are already assembling cars there, and Volkswagen announced in July that it will assemble more than 20,000 cars there, starting in December this year. Most significantly, Renault announced in early October that it plans to locate production of its low-cost Logan model in Iran, with the goal of producing 300,000 cars by 2006. While it is too early to compare Iran with Brazil or China, the pattern seems familiar.

Andreas Dressler is a director of KPMG’s Global Location & Expansion Services.
E-mail: ADressler@kpmg.com

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