Both China and India have very low auto penetration, with just 1% of Indians over the age of 14 owning cars and only 4% in China. That compares with 26% in Korea, 44% in the United States and 46% in Japan.
But what would it look like if everyone in China and India had a car?
For now, it might be more useful and realistic to look at auto penetration in China and India reaching just 10% of levels in America. That implies a 114% increase in the total number of cars in those countries, according to UBS. In terms of additional dollar sales, this would equal roughly 0.6 times global auto sales.
UBS product manager Simon Smiles found that average price of a car in these two markets is not as different from more developed markets as previously thought. Costs are approximately US$8,000 in India, US$14,000 in China, US$19,000 in Japan, US$21,000 in the European Union and US$28,000 in the United States.
However, if auto penetration in China and India reaches Korean levels, it would imply 1125% growth in the number of cars in China and India, or an additional 5.7x total 2009 global auto dollar sales, back-of-the-envelope estimates from Mr. Smiles show.
All global auto makers are potentially impacted and he calculated the long-term cash earnings growth rate implied at current stock prices for the roughly 20 companies UBS covers. What he found was that Peugeot, VW, Nissan and Renault have the lowest long-run implied growth rates at 6% compounded annually or lower.
Photo: Traffic on a busy road in the southern Indian city of Hyderabad (REUTERS/Krishnendu Halder)