External Analysis of Automotive Industry

The automobile industry is an extremely large and complex industry that is made up of many different businesses that all share a part in the manufacturing, sale, service and financing of automobiles. This industry makes up a large part of the United States economy as well as the world economy, and therefore is important to understand. To understand the automotive industry it is best to look at the industry, market, and competition that shapes it.

Industry The automotive industry is a business sector that produces and sells automobiles to a number of different outlets. The categories of automobiles that the automotive industry produces are sedans, minivans, SUV’s, light trucks, and pick up trucks. The automotive industry is tied to many other industries.

These industries produce products used in the automotive industry as well as products that are very similar to the ones that the automotive industry produces. Examples of similar industries include but are not limited to truck and bus manufacturing as well as the trailer and motor home manufacturing industry.

Other similar industries include those that produce the pieces and parts necessary to manufacture and maintain the automobiles that the automotive industry produces. For example, industries such as metal production, rubber, textile, plastics, glass, and petroleum are all necessary to the production of automobiles and therefore are related industries.

The automotive industry is one of the largest industries in the world according to sales revenues, and its well-being is extremely dependent on the economy. This became apparent when the economy took a large downturn and the automakers suffered greatly. The automotive industry makes up a large and important part of the U.S. and world economy with total sales revenues of over two trillion dollars annually (First Research, 2012). As mentioned earlier the health of the automotive industry and a healthy economy are tied very closely together.

The recession that occurred in 2008 demonstrates this with car and truck sales decreasing from 16.1 million units in 2007 to 13.2 million units in 2008. As the recession continued to affect the amount of disposable income that the American population had available to spend on automobiles, the number of automobiles sold in the U.S. in 2009 decreased even further to 10.4 million units. To put this massive loss of sales during the recession in perspective, total sales of automobiles in units sold decreased by over thirty percent. This massive loss of sales contributed to General Motors and Chrysler both declaring bankruptcy in 2009 (Plunkett Research, 2012).

The automotive industry is a mature one in that it is over 100 years old and is a vitally important part of the economy here in the United States as well as the larger world economy. Another reason that the automotive industry is classified as a mature industry is the presence of a stable base of manufacturing companies that remains fairly consistent in its numbers coupled with long established processes for production (IBIS World, 2013). Current trends factor greatly into how a mature industry such as the automotive industry operates and what it produces.

Understanding current societal trends and responding to these trends is an absolutely essential part of the automotive industry. Companies such as Ford and General Motors are constantly working to create automobiles that address trends such as getting better gas mileage, emitting less harmful emissions, and having automobiles that are practically priced and available to a large majority of consumers.

Other trends that members of the automotive industry must address include automobile size, market penetration, decline of Japanese manufacturers, and the current trend of automobile companies merging. Automakers have begun to merge and work together in order to capitalize on specific strengths possessed by certain automakers. The goal of this recent merging trend is to create less expensive but higher quality automobiles by combining resources and technologies (Kacher, 2012).

The automotive industry must contend with a number of economic issues that greatly affect how the industry operates. Large economic factors such the amount of disposable income of consumers, general economic health, and interest rates for car loans all greatly affect the automotive industry. When interest rates on loans are low consumers are much more likely to purchase automobiles, making interest rates one of the largest economic factor that affects the automotive industry. A statistic that illustrates this is that in 2012 automobile sales rose by 13% because of low interest rates coupled with a steadily improving economy (Wright, 2013).

As mentioned earlier another economic factor that affects the sale of automobiles is the amount of disposable income that a consumer possesses. Consumers are far more likely to purchase a vehicle when they have more disposable income available (W. Scott Bailey, 2012).

The automotive industry is often at the mercy of many different political issues that directly correlate to how an automotive company operates. Most of the political issues that affect the automotive industry stem from governmental and environmental agencies pressing the automotive industry to manufacture vehicles that operate efficiently with less environmentally harmful emissions. An example of this is CAFE or corporate average fuel economy which sets minimum miles per gallon standards that a companies fleet of automobiles must meet if that company wishes to avoid large penalties imposed by the government (First Research, 2013).

CAFE regulations combined with EPA regulations on emissions create financial hurdles that companies in the automotive industry must overcome. Other political issues that affect the automotive industry come in the form of dealing with human resource matters such as hours, wages, benefits, and retirement plan related pensions. Pensions and healthcare benefits in particular cost the automotive industry great deals of money (First Research, 2013).

Technology is and always has been vital to success in the automotive industry. History shows that the automakers with the best handle on the latest technology have a large advantage over less innovative competitors. Consumers demand the latest and greatest technology in there automobiles to keep up with a constantly advancing technological world. Henry Ford was at the forefront of innovation and technology when he created the assembly line model to produce high quality automobiles efficiently.

Today, automakers use technology to make cars more fuel efficient, less harmful to the environment, safer, and more fun to drive. Years ago electronic technology had no place inside of a car, where as now electronics account for 25% of a cars value. Many experts believe this number will soon rise to as high as 40%. Available now in many vehicles are innovations such as rear view cameras, voice activated features, self-parking, and engines that run solely off of electricity (Driving Change, n.d.)

Market The automotive industry in the United States has a global market that is segmented into multiple different pieces. The largest of these segments is exports, which account for 48.2% of automotive sales. Following that is dealers with 15.1%, wholesalers with 13.8%, rental companies with 13.5%, and the government with 9.4%. All of these segments combine to create a 90.7 billion dollar industry (IBIS World, 2013).

Asia and North America are by far the two largest consumers of automobiles. Out of the 62 million automobile sales in 2012 North America accounted for 16.97 million, while Asia accounted for 24.24 million. Europe, the third biggest, accounted for 11.65 million automobile sales in 2012. These numbers show that North America and Asia account for 66% of automobile sales in 2012 and are by far the largest buyers of automobiles (Carlos Gomes, 2012). These numbers should be kept in mind by automotive manufacturers when marketing and designing new automobiles, so that they can most effectively tailor there automobiles to these large and constantly growing markets.

The consumer segment of the automobile industry is mainly made up of persons with a medium to high level of disposable income. A recent trend shows that older customers are beginning to account for a larger portion of automobile consumers. These 35 and up consumers are a growing segment of automobile purchasers for a variety of reasons. One main reason being that more and more of the population has begun to attend college, which delays them in beginning careers.

Consumers are waiting until they have the disposable income provided by a career before they purchase a car. Another reason for this age shift trend is that consumers between the ages of 18 to 34 show much less interest in buying a car than previous generations. It seems that “generation y” looks for different faster and simpler venues of purchase than most automakers can provide. Until the automotive industry can change the way it sells automobiles it will continue to lose this age segment of the population (Brad Tuttle, 2012).

Competition The automobile manufacturing industry is an incredibly competitive industry. Competition comes in the direct form of manufacturer versus manufacturer, but also comes in indirect forms such as public transportation. The largest eight automobile manufacturers compete directly with each other. These manufacturers include Toyota, General Motors, Volkswagen AG, Ford, Hyundai-Kia, Nissan, Honda, and Chrysler. Each company attempting to carve its own niche in the market by creating new innovative products that best the competition.

Currently Toyota commands 15.6% of the U.S. market with General Motors and Ford in second and third place. General Motors and Ford command 15.3% and 12%, respectively, of the U.S. automotive market (IBIS World, 2013). General Motors and Ford have been steadily working to build back their recession-damaged companies to the automotive powerhouses they once were.

Indirect competition plays a large role in the overall competition that is involved in the automotive industry. Different modes of transportation such as public bus systems, subway systems, and air travel all pose as threats to the automobile industry. Each different mode of transportation takes away a segment of potential automobile consumers. As plane ticket prices decrease, and gas prices continue to climb, air travel continues to increase as a competitor to the automotive industry. Many people view flying as a safer, easier, and cheaper mode of transportation.

Another form of indirect competition that has seen an increase in popularity is self-powered transportation such as walking, or riding a bicycle. One reason for the recent increase of popularity in self-powered modes of transport is the trend of going green, while also getting some exercise in. Many environmentally conscious consumers choose self-powered transportation because of the drastic reduction in emissions they create. Consumers get exercise while using zero fossil fuels to get to their destination.

Conclusion The automobile industry is an extremely large and multi-faceted industry with many different factors that affect how it operates. It is an industry that makes up a large part of the United States economy, as well as the world economy. Recent events have changed the automotive industry and the manufacturers that it is made of. In light of these recent events such as the recession and other topics that were discussed, it seems more important than ever to understand this industry that plays such a large part in our economy.

References

Auto Industry Transformation: Driving Change. (n.d.). Driving Change: Greening the Automotive Workforce. Retrieved January 22, 2013, from http://www.drivingworkforcechange.org/autoindustry.asp.

Automobile Industry Research Center. (2012, October 18). Plunkett Research. Retrieved January 21, 2013, from http://www.plunkettresearchonline.com/ResearchCenter/Trends/display.aspx?Industry=1.

Automobile Manufacturing. (2012, October 22). First Research. Retrieved January 21, 2013, from http://mergent.firstresearch-learn.com/industry.aspx?chapter=0&pid=276.

Bailey, W. (2012, December 20). Auto industry could be hit hard by fiscal cliff, analyst says. San Antonio Business Journal. Retrieved January 22, 2013, from http://www.bizjournals.com/sanantonio/blog/2012/12/auto-industry-could-be-hit-hard-by.html.

Gomes, C. (2012, December 27). Global Auto Report. Global Economic Research. Retrieved January 21, 2013, from http://www.gbm.scotiabank.com/English/bns_econ/bns_auto.pdf.

Kacher, G. (n.d.). Ten Trends That Are Steering The Auto Industry's Future - Automobile Magazine. New Cars & Car Reviews, Concept Cars & Auto Shows - Automobile Magazine. Retrieved January 21, 2013, from http://www.automobilemag.com/features/news/1206_ten_trends_that_are_steering_the_auto_industrys_future/viewall.html.

Tuttle, B. (2012, August 9). Will Millennials Change How Cars Are Bought and Sold? | TIME.com. Business & Money | The latest news and commentary on the economy, the markets, and business | TIME.com. Retrieved January 21, 2013, from http://business.time.com/2012/08/09/will-millennials-change-how-cars-are-bought-and-sold/.

Market Research Reports & Analysis | IBISWorld US. (n.d.). Market Research Reports & Analysis | IBISWorld US. Retrieved January 21, 2013, from http://clients1.ibisworld.com/reports/us/industry/default.aspx?entid=826.

Wright, R. (2013, January 3). US auto industry shrugs off uncertainty. World business, finance, and political news from the Financial Times. Retrieved January 22, 2013, from http://www.ft.com/intl/cms/s/0/d70c59e6-55b1-11e2-bdd2-00144feab49a.html#axzz2IZuImJqq.