Automobile manufacturing industry


Automotive industry in terms of B2C market

Characterization of market operations in Automotive Industry

The automobile manufacturing industry includes all sales of cars, light trucks, the increasingly popular SUVs as well as light commercial vehicles. Once, a desirable commodity for the rich, automobiles has long been a part of the mainstream. Now, in some markets, most families own two or more vehicles.

The automobile manufacturing market is almost entirely made up of the large multinationals, and consolidation in the industry is increasing. It is estimated that the six leading manufacturers, General Motors, Ford, Toyota, DaimlerChrysler, Volkswagen, and Renault, accounted for almost 70% of worldwide production of automobiles. Despite declining growth, most producers have managed to maintain healthy profits, giving manufacturers grounds to feel hopeful that growth will pick up.

Globalization opened new doors for the automobile industry and due to this within the automotive industry has seen through many new technological innovation as well as marketing innovation, brining new untapped frontiers and new markets and crossing over domestic markets.

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In the past few years, similar to other industry like electronics apparel and consumer goods, automotive industry has also share the similar trend of growth, like FDI, global production and cross border trade have increased since the 1980's.

Higher market saturation in the domestic market and the recent emergence of third world potential markets like India, Brazil and China, and its attractive low - cost skilled labor has attracted huge FDI's, mergers, partnership, joint ventures with other local companies by the large Automotive industry in exploiting the market by setting up production facility to supply these Foreign markets as well as its own domestic market.

Over the year new automobile companies emerge as a global player from these developing markets, making a global reach and to exploring new market horizons by these companies in the developed market. As it can be clearly seen with the recent events in the year 2008, a high profile purchasing took place of a well known automobile brand Jaguar and Land rover by the Indian Automobile Giant TATA motors from Ford Motors.

It has become imperative to see that with the recent events, we can deduce that Globalization in matter of fact is taking place in both sides of the world. Moreover the With new emerging key player entering the global market by acquiring lead brands and innovating cheaper alternatives as compared to the major players shows aggressiveness in entering the established market.

In the US domestic market, incentives continued to be a major factor in the automobile market, although they haven't stopped volumes in the region from declining year-on-year since 2001. The strengthening economy in the US helped to ease pressure on prices, but with such high levels of competition among the big players, there was a possibility that process will by no means rocket even if the brightest of economic forecasts would have won the day.

The 'big three' automotive manufacturers, GM, Ford and DaimlerChrysler, were experiencing their greatest threat from Japanese manufacturers, which were attempting to match the American and German offerings with lower-priced models at every turn. Sales were worst hit among lower-priced brands, which cater to lower waged buyers who are often the first to suffer during a downturn.

In between 1999-2002 there was steady volume growth, economic conditions had value growth rates fall to under one percent. Volumes and values have bounced back a little in 2003, but the key drivers of the market have remained the same.

However by year end 2006, the United States proved to be the most lucrative region, in terms of market segmentation, accounting for 38.4% of the sector's global value. In comparison, Europe generated a further 29.3% of the sector's global revenues.

The global automobiles industry's growth rates fluctuated over 2004-2007 periods, and affected by the global economic downturn, the industry plummeted in value in 2008 to give a negative growth.

The global automobiles industry generated total revenues of $1,784 billion in 2008, representing a compound annual rate of change (CARC) of -0.8% for the period spanning 2004-2008. In comparison, the European and Americas industries reached respective values of $476.6 billion and $548.4 billion in 2008.

Automobile manufacturers' sales proved the most lucrative for the global automobiles industry in 2008, generating total revenues of $1,698.5 billion, equivalent to 95.19% of the industry's overall value.

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The value of global automobiles industry shrank by 19% in 2008 to reach a value of $1,784.3 billion.

The global automobiles industry grew by 6.6% in 2008 to reach a volume of 104.5 million units.

The compound annual growth rate of the industry volume in the period 2004-2008 was 6.6%.

Asia-Pacific accounts for 35.8% of the global automobiles industry's value. In comparison, Americas accounts for a further 30.7% of the industry's revenue. Which is quite noticeable as in the year 2006, Asia-Pacific accounted only 23.3% of the global automobile industry's value. United States lost a significant percentage of the global automobile industry value as comparison to Europe which accounted 29.3% in the year 2006.

Toyota Motor Corporation accounts for 12.8% of the global automobiles industry's value. In comparison, General Motors Corporation accounts for a further 8.9% of the industry's revenue.

The automobile manufacturers market consists of the sale of passenger cars and light commercial vehicles, while motorcycles market consists of all classes of on- and off-road motorcycles including scooters and mopeds.

In order to analyze the global automobiles industry, market players will be taken to include manufacturers of new cars, light commercial vehicles, and motorcycles. Independent dealers and distributors will be taken as buyers. Buyers in the car and motorcycle and light trucking sectors of the automobile industry tend to be large companies with significant financial power. Buyer power of dealers is weakened by the brand strength established by many of the top market players.

An increase in raw material costs in recent years has put pressure on both market players and suppliers. The diverse markets in which suppliers operate reduce their reliance on the automobile industry. Barriers such as stringent government regulations, high fixed costs and exit barriers hinder new entrants to the market.

Competition in the industry increased as a direct result of the economical downturn. In order to analyze the global automobiles industry, market players will be taken to include manufacturers of new cars, light commercial vehicles, and motorcycles.

Independent dealers and distributors will be taken as buyers. Manufacturers enter into contracts with authorized dealers, agreeing to sell specified product lines at wholesale prices. Buyers may be an authorized dealer for a number of manufacturers. Typical financial strength of such buyers is high, meaning that they can make large purchases and put pressure on market players to reduce prices.

Brand strength serves to weaken buyer power considerably.

Many of the top market players have established strong, popular brands. Buyers are likely to enter into contracts with certain manufacturers in order to meet consumer demand and boost their own sales.

A number of market players have integrated forward into retailing as well as manufacturing their automobiles, putting pressure on buyers. Moreover, a number of retailers are franchised dealerships that have contracts with one player.

Such retailers are highly dependent on one market player, thus buyer power is reduced. For example, Toyota owns a number of dealers, although it does continue to sell to independent retailers. Furthermore, a number of retailers have become franchised dealerships that have contracts with one manufacturer.

Such retailers are highly dependent on one market player, thus buyer power is reduced. Overall, buyer power in the global automobiles industry is moderate.

Inputs to the global automobiles market include a variety of raw materials, assembled and semi-assembled components, energy, freight and transportation. The raw materials consist primarily of steel, aluminum, resins, copper, lead, and platinum group metals.

Suppliers such as steel and aluminum manufacturers are often large companies who supply to a wide variety of industries, reducing their dependence on the automobile manufacture market. Supplier power is strengthened further by the fact that the automobile industry requires raw materials of high quality.

However, market players rarely rely on one supplier for the majority of their inputs. Reliance on suppliers is kept to a minimum by using a wide range of companies. For example, Toyota and Honda ensure that no single supplier accounts for more than 5% of purchases of major inputs. Overall, supplier power is assessed as moderate. Entry to the automobile industry is unlikely to be successful on a small scale.

Significant capital is required in order to set up large-scale production plans - production is generally carried out on a mass scale. Moreover, entry to the market requires significant intellectual property.

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Entry to the market is further hindered by the difficulty in gaining access to distribution channels. Dealers and distributors generally stock well-established branded automobiles, in line with consumer demand. Moreover, the top market players, such as General Motors, hold licenses to use numerous patents, copyrights and trademarks.

Engineering and technical expertise are also essential, and companies must be able to carry out continual research and development in order to compete with existing market players. Moreover, many governmental standards and regulations relating to safety, fuel economy, emissions control, noise control, vehicle recycling, substances of concern, vehicle damage, and theft prevention are applicable to new motor vehicles, engines, and equipment manufactured for sale in the US, Europe and elsewhere.

In addition, manufacturing and other automotive assembly facilities in the US, Europe and elsewhere are subject to stringent standards regulating air emissions, water discharges, and the handling and disposal of hazardous substances. The likelihood of new entrants is assessed as moderate overall.

Used cars are the most significant substitute threatening players in the new cars market. The volume of vehicles sold on the used car market exceeds that of the new cars market. However, as the affordability of new cars continues to increase, the threat to the market from used cars decreases.