The Third World war starts here

Gavin Green on the battle to capture emerging countries' car markets

Car makers treat the Third World rather like Marie Antoinette dealt with the peasantry. But instead of cake, they consume cast-offs.

For years, they've been pulling the same old trick; when cars get too slow, too anti-social, too unsafe or simply too unsexy, Western or Japanese makers pension them off to a Third World or Communist market where, supposedly, they don't know any better. And because the people there clamour for transport - any ground transport that's better than horses or feet - they buy. And the car makers continue to turn a tidy profit.

Eastern Bloc countries have been the favoured dumping grounds for old Fiats. They still make "new" 1950s Morris Oxfords in India - known as the Hindustan Ambassador. Romania recently agreed to build Austin Maestros, which were dreadful when first launched in Britain 15 years ago (and they haven't got any better with age).

But all that is about to change. According to Paolo Cantarella, chief executive of Fiat, CNN and other international TV channels are to thank. "Developing countries can see what sort of cars Europeans or Americans drive," he said. "They want the same."

They're about to get it. Fiat recently launched the first-ever Western- standard car specifically for Third World markets. The Palio, about the size of a Punto, is now the second best-selling car in Brazil (behind a local version of the last generation VW Golf) and is responsible for a massive boom in Fiat sales there. Brazil is now Fiat's second biggest car market, after Italy. A four-door version of the car is about to be made in Argentina. Palios will also be built in Venezuela, India, Morocco, South Africa, Egypt, Poland and Turkey. By the end of the millennium, Fiat hopes to add China and Vietnam to that list.

China, whose car market is expected to quadruple in the next seven years, is being seriously courted by nearly all the world's car makers. European makers already active in China include Volkswagen (the Chinese number one) and Peugeot but, invariably, they serve up old timers. The Chinese are more discerning now: the newcomers to China, without exception, will be the making this year's models.

Fiat's former boss for international operations, and now head of Latin America, Giovanni Razelli, says that China may be the biggest prize, but India is safer and, at least in the medium term, a faster growing market. Mercedes has just opened a new assembly operation there, to build the old model E-class, and Fiat is about to start work on a new greenfield site which will make the Palio.

Brazil, says Razelli, is also a market with enormous potential. "It has a strong and thriving middle class, and already has a car market almost as big as Britain's, France's or Italy's," says Razelli. "Within five years, it will be considerably bigger."

General Motors now makes its latest-model Corsa small car in Brazil (but thankfully without the Ruby Wax ads), Ford makes Fiestas and Audi will shortly begin production of its new A3 baby car. Volkswagen, Brazil's biggest car maker will make next year's brand new Golf in Brazil, soon after production starts in Europe. Just to prove how keenly European makers are targeting South America, Mercedes is about to set up shop to make its new A-class baby car on a greenfield site. The A-class is unveiled next spring at the Geneva Show, and will probably be the most advanced car on sale in Europe - let alone in South America.

In Eastern Europe, the competition is even hotter. Fiat, traditionally the region's biggest car maker has been making cars in Poland for 75 years and is to expand its Polish operations to build the Palio (it already makes all Cinquecentos there). GM and Volkswagen are expanding massively. The most surprisingly ambitious maker of all in the region though is probably the Korean company Daewoo. It recently bought a 60 per cent stake in state- owned FSO in Poland, and is expanding in Romania. It sells out-of-date cars, but that will change when new Daewoos emerge from Korea next year.

Meanwhile the Palio - a modern, handsome but conventional little hatchback - goes from strength to strength in Brazil, its first market. Fiat's decision to make a "world" car for developing markets, with only minor differences from country to country, was greeted with surprise by other car makers. How can they ignore North America, Western Europe or Japan - the world's biggest car markets? But increasingly, the decision is being seen as a master stroke. By the year 2000, Fiat expects to sell one million Palios a year. That would make it the world's best selling car.