Automotive Industry Review & Analysis

History and market volume overview

Automotive industry as a branch of engineering originated in the ‘80-‘90’s of the 19th century in France and Germany, and in the late 19th – early 20th century in England, Austria-Hungary (Bohemia and Styria), Italy, USA, Belgium, Canada, Switzerland, Sweden and the Russian Empire in light on the objective public need for mechanization of trackless land transportation (primarily military) and the displacement of muscle power of animals (and humans) from this field of human activity (Shasta & Keller, 1994; Tillemann, 2015). From the middle of the 20th century, automobile manufacturing refers to mature industries with high (and increasing) degree of monopolization and the rapid development of the Asian markets (Tillemann, 2015).

Since the 1980s, the global hegemony of the Big Three automakers, concerns from the USA (General Motors, Ford, Chrysler), began to lose its monopoly position, yielding, first and foremost, to Japanese concerns supplemented later by the intensive development of the South Korean automakers (Shasta & Keller, 1994). In the 1990s – early 2000s, car production was also significantly upgraded; electronic information technology and logistics gained wide spread, which allowed increasing productivity, introducing a Just-in-time supply system of components (Kanban), as well as expanding the options for individual cars specifications (Tillemann, 2015).

Under the pressure of competition, both large and smaller automakers repeatedly combined (and split) with others into national and transnational corporations and consortia, and increasingly placed their production in third countries (primarily in China). As a result, in 2009, due to the leading position in terms of the volume of foreign capital and the active anti-crisis fiscal and credit government support, China became a new global leader in automotive manufacturing and consuming (Gobetto, 2014). In 2013 and 2014, for the first time in the world history of auto industry of any country, China produced more than 20 million cars – 22.1 million and 23.7 million units respectively (Ernst & Young, 2013; Gobetto, 2014). The share of other countries of Asia and Oceania, such as Australia, Indonesia, Iran, Malaysia, Pakistan, the Philippines, Taiwan, Thailand and Vietnam has increased over the last 5 years by 4% (Gobetto, 2014). The countries of Central and Eastern Europe have strengthened their participation in the world production of vehicles from 5 to 6%, and India from 1 to 3% (Gobetto, 2014).

Currently, production of cars is set up in almost 50 countries, whereas the top 15 countries automakers include seven developing countries: China, South Korea, Brazil, Mexico, India, Russia, and Thailand (Gobetto, 2014). At the same time, the share of the top 15 countries automakers makes up for about 87% of the global production of cars, and more than 60% of the world production of motor vehicles belong to Western Europe, USA and Japan (Tillemann, 2015). Today there are more than 40 automotive companies, the largest of which are: the US Big Three – General Motors, Ford and Chrysler; European companies – Volkswagen Group, PSA Peugeot Citroen, Renault, Fiat, BMW; Japanese companies – Toyota, Nissan, Honda, Mitsubishi, Mazda; Korean – Hyundai-KIA, Daewoo, as well as Chinese Geely, Chery, Chang’an, Hafei, Great Wall, and others (Kings of the road, 2014).

Thus, the automotive industry is one of the leading sectors in the economies of developed countries and employs millions of people around the world. Its share in world exports of commercial goods is 12.5% (Bakan & Dogan, 2012). The automotive industry products account for nearly half of world oil consumption, 50% of the annual production of rubber, 25% of glass and 15% of steel production (Gobetto, 2014). Unsurprisingly, the share the automobile industry in GDP of rich countries makes about 10% (Bakan & Dogan, 2012).

Indeed, in recent decades, motorization of the world has been rather intense. For example, from 1996 to 2005 the growth rate of car production exceeded the population growth by almost twice (Tillemann, 2015). Today, such leaders of the automotive industry as Toyota and Volkswagen Group sell more than 10 million cars per year (Kings of the road, 2014). At the same time, in China alone about 23.5 million vehicles were sold over the past year, which is 6.9% more than the previous year’s results (Ernst & Young, 2015). Furthermore, during the first two months of this year, in China 3.43 million passenger cars were sold, including sedans, SUVs and minivans (Ernst & Young, 2015). As for the Old World, over the first two months of 2015 the registration of new passenger cars in the EU increased by 7% compared with the same period last year, reaching nearly 2 million units (Tillemann, 2015). Most major markets showed growth in the beginning of 2015: Germany (+4.6%), France (+5.3%), the UK (+8.3%), Italy (+12.3%), and Spain (+26.7%) (Ernst & Young, 2015). At the same time, the average life cycle of a car has globally increased either. While in 1990, the life cycle of a car was 6.5 years, in 1995 it increased to 8.5, and today an average of 12 years passes before the car gets to the wrecking yard.

Overall, almost 55% of world exports of automotive products falls to the European Union, including about one-third of exports within the Union (Gobetto, 2014). The second largest exporter of automotive products in the world is North America with the share of about 20%, with about 83% thereof is the exports inside North America (Gobetto, 2014). Third place belongs to Japan (13%). Nearly half of its exports, Japan sends to countries in North America, 20% to Asia, and 18% to Europe (Gobetto, 2014). In the last decade, the intensive growth in the share of exports of automotive industry products show such countries as Korea, Mexico, Brazil, China, Turkey, Thailand, South Africa, Australia, and Argentina (Ernst & Young, 2015). The main importers of automotive products are European Union countries with the share of 44.1%; 22.2% falls to the United States; 6% of world automotive products is imported by Canada. Japan accounts for only 1.4% of imports of the automotive industry products (Ernst & Young, 2015; Gobetto, 2014).

Thus, due to the saturation of the market with cars, sales problem has occurred, which caused the need to reduce costs, optimize production, while significantly improving the design of the car and expanding the model range. 

Market segmentation and competition

Different countries of the world have different historically set-up and currently applied segment classification systems of passenger cars that use different parameters as the basis of classification: dimensions, useful volume of the cabin, weight, capacity or power of the engine, a place in the consumer market, etc. Thus, for example, classification of Economic Commission for Europe is focused more on the segmentation of the target market rather than a description of any specific characteristics of the vehicle; frames between segments are blurred and are not limited to parameters like size or weight (Shasta & Keller, 199415). Segmentation factors also include parameters such as price, type, range of options and other settings.

In general, the market for passenger cars is divided into the following segments (Tillemann, 2015): 1) Mini cars (classified as minicompact car in USA, up to 85 cubic feet); 2) Small cars (sub-compact cars, subcompacts, 85-99.9); 3) Medium cars (compact cars, 100-109.9); 4) Larger cars (mid-size cars, intermediates, 110-119.9); 5) Executive cars (full-size cars, 120 cubic feet and more); 6) Luxury cars; 7) Sport coupés; 8) Multi-purpose cars (minivans and MPV); and 9) Sports utility (SUVs).

At the same time, specific concept cars within the same segment can have very different characteristics, use different technology and a range of options depending on the manufacturer. Every manufacturer is free to choose the means to meet the needs of the target audience of a particular segment of the market, as a rigid designation of a set of characteristics can seriously hinder an effective market analysis. Therefore, sometimes to refer to cars taking “transitional” position between segments, the “+” symbol can be used: B+, C+, etc. For example, new generation Nissan Almera built on the platform of Renault Logan is declared by the manufacturer as the B+ segment sedan, and it corresponds to this exact market niche (image, positioning, pricing level) – although by dimensions and weight, it comes very close to the cars of C or even C+ segment, but it is significantly inferior to them by the technical level and the level of equipment.

The expansion of the range and international flows of automotive products is greatly influenced by the efforts of consolidated TNCs. Factually, under severe competition and the growing globalization of markets, it has become almost impossible to survive in the automotive market for most corporations remaining completely independent. For example, in the early 1990s, a world leader in the production of cars, the concern General Motors, united the brands under its control in a single system producing Buick, Cadillac, Chevrolet, Pontiac, Oldsmobile, and Holden. Then, GM acquired Adam Opel in Germany, Vauxhall in Britain, and Saab in Sweden. In 1998, GM increased its stake in the Japanese company Isuzu to 44% and in Suzuki up to 10%. In 2002, GM acquired a 42% stake of the bankrupt South Korean firm Daewoo. Previously, GM also controlled Oldsmobile, Pontiac, Hummer, Saturn, Asüna, Acadian, and Geo. Today the concern General Motors includes the following brands: Alpheon, Buick, Cadillac, Chevrolet, GMC, Holden, Opel and Vauxhall. In addition, GM partially owns Fiat Auto SpA of Italy (Fiat, Alfa Romeo, Lancia, Ferrari, Maserati), Fuji Heavy Industries Ltd. (Subaru), Isuzu Motors Ltd. (Isuzu), Suzuki Motor Corp. of Japan (Suzuki), GM Daewoo Auto & Technology Co. of South Korea (Daewoo) (GM Official Website, 2015).

The second largest car manufacturer in the United States, concern Ford, acquired in the UK a group of companies producing Jaguar, Aston Martin, and Land Rover. In 2000, Ford began producing cars under Volvo brand, acquired in Sweden, in Belgium and the Netherlands, and since 2001 also in Malaysia, Thailand and Botswana. The structure of Ford Motor Company includes the following brands: Ford, Lincoln, Edsel (1958-1960), Mercury (until 2011), Merkur (1985-1989), Meteor (1949-1976), Monarch (1946-1961). In addition, Ford has control over the Japanese company Mazda, AutoAlliance International, AutoAlliance Thailand, Aston Martin, Ford Lio Ho, Ford Performance Vehicles, Ford Sollers, Getrag Ford Transmissions, Jiangling Motors and Otosan (Ford Official Website, 2015).

The combined group created in 1998 through the merger of the German Daimler-Benz and US Chrysler produces cars under brands Mercedes, Chrysler, Jeep, Dodge, Smart, Ram Trucks, Mopar, SRT, Eagle (1987-1998), Imperial (1955-1975 ), DeSoto (1928-1961), Plymouth (until 2001), Fiat (USA). In addition to the manufacturing passenger cars and light commercial vehicles, the Group acquired a production capacity of trucks and buses in Canada. The merger strengthened the position of both partners both in Europe and in North America (Chrysler Official Website, 2015).

The French company Renault in 1999 acquired 36% shares of the Japanese company Nissan. Currently, Renault and Nissan have developed system for the unification of the platforms for the production of cars. Nissan’s association with Renault has allowed it to increase the sales of its products using the channels of Renault. Renault, in turn, gained the opportunity to use the Nissan dealer network in Japan and its spare capacity in the US, Mexico and Asia (Groupe Renault Official Website, 2015).

In its turn, Concern Volkswagen Group also acquired the capacity to produce expensive brands of cars: Lamborghini and Bugatti in Italy, and Rolls-Royce in the UK. In addition, it closed its branch in the United States and moved the mass production to its plant in Mexico for the realization of the released products in the markets of North America and Europe. In 2001, the Volkswagen Group launched the production of cars under Bentley brand and continues to expand the market due to multi-brand policy. In general, the structure of the Volkswagen Group includes brands of different European countries: Volkswagen, Audi AG, Automobili Lamborghini S.p.A., Bentley Motors Ltd, Bugatti Automobiles S.A.S., MAN, Volkswagen Nutzfahrzeuge, Scania AB, SEAT S.A., Skoda Auto a.s., Volkswagen Marine, Porsche and Ducati Motor Holding S.p.A. In addition, all the major brands reached unprecedented sales figures in 2014. For the Volkswagen brand, it was the tenth consecutive record year: sales rose by 1.6% to 6.12 million units. Audi sales rose by 10.5% and amounted to 1.74 million pieces, Skoda increased by 12.7%, which allowed the Czech car factory for the first time in its history to produce more than 1 million cars, Porsche demonstrated growth by 17% to almost 190,000 sports cars and SUV in luxury segment (Volkswagen AG Official Website, 2015).

In general, the rise in motor fuel price and global pollution, contemporary consumers tend to buy more fuel-efficient vehicles. Thus, for instance, the portion of cars with diesel engines intensively increases in the last few years, especially in the developed countries of Europe. Along with this, a new and promising market segment is represented by automobiles running on alternative ecologically friendly sources of energy.

Market trends and future performance

Indeed, the acceleration of scientific and technological progress, which started at the end of the 20th century, has generated several profound qualitative changes in the automotive industry on a whole and the technical leap in the design of a car itself. In recent years, the main directions in the development of the automotive industry are the transition to automated driving; reduction in the weight of a vehicle; the significant reduction in fuel consumption through the use of new fuels; implementation of measures to reduce emissions and background noise; as well as the diversification of the model series both in quality, price and functional purpose parameters. More specifically, the most important trends in the global automotive industry involve special attention to rising security and improving traction properties of cars, “intellectualization” of vehicles as a whole, as well as improving the environmental and economic performance of the internal combustion engine (by implementing catalytic converters and diesel engines of the new generation, new types of fuels, including biofuels), and the creation of hybrid systems (internal combustion engine + electric motor + battery) (Tillemann, 2015; Gobetto, 2015; Ernst & Young, 2015). In the latter case, the huge role is played by the governments currently establishing more stringent environmental standards for vehicle emission.

Thus, today, several companies, including Toyota, Lexus, VW, Mercedes-Benz, and Honda, have already entered the segment with selling automobiles running on hybrid fuel and electric motors. The main advantage of hybrid cars is the reduction in fuel consumption and harmful emissions, which is achieved by a full automatic control mode of engines operation through using the onboard computer, timely shutdown of the engine while in traffic, and the ability to continue driving without its launch, on battery power exclusively, as well as the more complex mechanism of recuperation by using of electric engine as the generator to replenish the battery charge (like in Honda Civic Hybrid, Mercedes-Benz C 300 BlueTEC Hybrid, Lexus GS 450h, Toyota Camry Hybrid, etc.) (Tillemann, 2015). In their turn, electric motor cars are able to be solely electric-powered, and rechargeable from the electrical outlet, like General Motors EV1, Toyota RAV4 EV, Chevrolet Volt, and Nissan LEAF. There are also multiple actively developed projects of vehicles on hydrogen fuel cells (BMW Hydrogen 7, Mazda RX-8 hydrogen), air (Peugeot 2008 Peugeot 2008 Hybrid Air, Citroën C4 Cactus Airflow 2L), and solar energy (Tillemann, 2015).

The appearance of opportunities for new technologies and new markets segments is also associated with the possible appearance of new players attracted by these opportunities. As Enrst&Young report (2015) claims, new producers will come to the market from other niches, driven by the advances in technology and consumer needs that are yet unmet. Thus, for instance, the segment of premium electric cars has recently witnessed the entrance of a new company Tesla Motors, whose main investors were Google founders Larry Page and Sergey Brin, and the founder of SpaceX and PayPal Elon Musk. In additions, to entering 2015 with over 10,000 Model S orders and 20,000 Model X reservations, Tesla has also been effective in developing its Supercharger project, charging stations for electric vehicles, enabling to make long trips. As of 2015, the main transport corridors are already covered across the USA, and it is now possible to get from one coast to the other. Besides, the charging chain is now also being developed across Europe and Asia; and it is expected that Western Europe and Japan will be covered by the end of 2015, as well as the east coast of China and Australia (Tesla Motors Official Website, 2015).

Furthermore, Elon Musk has also revealed his plans on expanding production in Europe starting with the launch of Tesla Model E budget version. The appearance of such potential substitutes surely adds extra competition pressure and risk for original equipment manufacturers and their business focus. Moreover, non-automotive companies are now starting providing services such as advanced car entertainment systems, mobility integration, car-sharing, usage-based “black-box” insurance setting premiums basing on real-time driving performance, and even electric vehicle integration (Ernst & Young, 2015). The evolution of these new business models generates unprecedented changes in the conventional automotive value chain.

At the same time, the biggest problem in the modern automotive industry is the issue of recycling discarded vehicles or their batteries. Some countries have already adopted standards and laws that require regulating the disposal process and supporting full awareness of the materials used. A significant step in this direction was the creation of a single international information system IMDS. Today, over 20 members of the global automotive industry are the members of the IMDS, and yet the problem is far from solution (Tillemann, 2015; Ernst & Young, 2015).

Conclusion

The analysis showed that the production of cars in the world is increasing annually. A substantial portion of the global production of cars is carried out by companies in Western Europe, the USA, and Japan, but in the last decade, their share in the direct manufacturing of the automotive industry products has declined significantly due to moving the automobile plants to developing countries. In addition, building cross-border chains with the rational use of local advantages, the largest TNCs reduce the cost of production of automotive products and bring facilities closer to areas of consumption. Asian brands have been quite active in the global automotive market lately due to the stagnation of the economy of Western Europe and the United States and the increasing demand for affordable small cars. China is the leader of automobile production and consumption. At the same time, the major exporters and importers of automotive products are the countries of the European Union.

In the keen competition, automobile manufacturers come together in unions consolidating their efforts to implement technological progress and meet the market needs and technological requirements. However, in terms of rapid technological progress, it cannot protect them from the emergence of new competitors. In general, when forming the value chain in the process of restoration, motor companies must focus on the aspects such as increasing profitability and sustainable development, financial and operational flexibility, investments in new technologies, and actualizing opportunities in the emerging markets.

 

References:

Bakan I., & Dogan, I.F. (2012). Competitiveness of the industries based on the Porter’s diamond model: an empirical study. International Journal of Research & Reviews in Applied Sciences, 11(3), pp. 441-455.

Chrysler Official Website. (2015). Chrysler Heritage. Retrieved from http://www.chrysler.com/en/this-is-chrysler/history/

Ernst & Young. (2013). Mega trends in China’s light vehicle industry. PDF. Retrieved from http://www.ey.com/Publication/vwLUAssets/Mega_trends_in_Chinas_light_vehicle_industry/$FILE/GAC%20_CHINAMegatrends_FINAL.pdf

Ernst & Young. (2015). Mega trends in the light vehicle industry. EY Online. Retrieved from http://www.ey.com/GL/en/Industries/Automotive/Eight-mega-trends-in-the-light-vehicle-industry

Ford Official Site. (2015). Company. Retrieved from http://corporate.ford.com/company.html

GM Official Website (2015). Company. Retrieved from http://www.gm.com/company/aboutGM.html

Gobetto, M. (2014). Operations Management in Automotive Industries: From Industrial Strategies to Production Resources Management. Springer.

Groupe Renault Official Website. (2015). Our alliance with Nissan. Retrieved from http://group.renault.com/en/our-company/a-group-an-alliance-and-partnerships/our-alliance-with-nissan/

Kings of the road. (2014). The Economist Online. Retrieved from http://www.economist.com/news/business/21593468-size-not-everything-mass-market-carmakers-it-helps-kings-road

Shasta, T., & Keller, M.N. (1994). The Automotive Industry. AIMR: CFA Institute.

Tesla Motors Official Website. (2015). Updates. Retrieved from http://www.teslamotors.com/blog

Tillemann, L. (2015). The Great Race: The Global Quest for the Car of the Future. Simon & Schuster.

Volkswagen AG Official Website. (2015). History. Retrieved from http://www.volkswagenag.com/content/vwcorp/content/en/the_group/history.html

The terms offer and acceptance. (2016, May 17). Retrieved from

[Accessed: February 4, 2023]

"The terms offer and acceptance." freeessays.club, 17 May 2016.

[Accessed: February 4, 2023]

freeessays.club (2016) The terms offer and acceptance [Online].
Available at:

[Accessed: February 4, 2023]

"The terms offer and acceptance." freeessays.club, 17 May 2016

[Accessed: February 4, 2023]

"The terms offer and acceptance." freeessays.club, 17 May 2016

[Accessed: February 4, 2023]

"The terms offer and acceptance." freeessays.club, 17 May 2016

[Accessed: February 4, 2023]

"The terms offer and acceptance." freeessays.club, 17 May 2016

[Accessed: February 4, 2023]
close
Haven't found the right essay?
Get an expert to write you the one you need!
print

Professional writers and researchers

quotes

Sources and citation are provided

clock

3 hour delivery

person