Global automotive industry

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        The global automotive industry develops, markets, plans and sells motor vehicle components and motor vehicles around the world. Approximately more than 70 million motor vehicles were produced world wide in the year 2008 which mainly comprises of commercial vehicles and cars.

        The automobile market in 2007 showed a upward growth with sales of 71.9 million vehicles sold worldwide, out of which 22.9 were in Europe, 19.4 million in Canada and USA, 4.4 million in Latin America, 21.4 million in the Asia-Pacific region and 2.4 million in Middle East respectively. The markets in India, China, Brazil and Russia saw the most rapid growth. Japanese and the American markets were in the state of saturation during this period.

        In 2007, there were 806 million cars and commercial vehicles on the road worldwide. Especially in India and China, these numbers are increasing at a faster pace. In the recent years, global passenger car industry are affected by unsustainablity, efficiency, poor service and affecting the health of the people. Due to these negative reasons, there are certain number of people who least like to buy a car in these years.

        In the recent years, this industry is facing downturns because of reasons like rising oil prices, changes in the customer's buying attitude and increase in raw material costs. Due to these reasons, most of the major players in this industry are postponing their present plans and shutting down their low income plants worldwide. This inturn has caused roughly about 2 million job losses in this sector this decade.


        The Global passenger motor vehicle industry is huge and has a very big growth potential in the near future. In this report, we confine our analysis to four well-established passenger motor vehicle companies in the world. They are DaimlerChrysler, Ford, General Motors and Volkswagen.

Daimler Chrysler seems to be standing first regards to its revenues and demand which has steadily been increasing over the recent years. It is also in the plans of expanding to the global markets in the years to come. Defending this good position, it has marked the books for its future success. Volkswagen, on the flip side has some tough years to come in the field of sales and revenues. Volkswagen's primary goal is to build its “people car” which is being prevented by other players who offer the similar quality substancially at lower prices. The negative aspects of age, size, aging workforces and old business, production and corporate structures will make Ford and General Motors to feel the pressure in achieving their goal in the next few years.

        The other four Asian manufacturers with international markets are Hyundai, Honda, Nissan and Toyota. Of these four companies, Toyota is projected to be a excellent prospect in the future as it is relatively young and has the potential to create unique production and development practices, thus reducing the production cost and increasing the profitability of the company. Innovation in this field has brought Toyota a lead player in the hybrid passenger car manufacturer. Because of the quality and design of the manufacturing facilities available in Toyota, its brand image is recognized worldwide. On the other hand, Honda has showed steady and reliable growth in the passenger car industry. While Honda is not as advanced or trend-setting as Toyota, but it focuses its interest in new markets by creating innovative new products considering the environmental restrictions and demands. Honda will most likely reap profits than any of the big 3 (DaimlerChrysler, Ford and GM) companies in the future. The other two passenger car manufacturers, Nissan and Hyundai are not as stable as Toyota or Honda but promises to show a uptrend in the coming years. Nissan has suffered in the past relating to it revenues and sales, but with its new management, it has posted excellent improvements by implementing new strategies to move up to the next level. Hyundai Motor Company is also in the upswing by expanding its sales in the international markets. This allows Hyundai to take advantage of the new and emerging markets like India and other developing countries.

        The other asian players, Maruthi Udyog and Shanghai Industrial Company are in a critical position of loosing their markets because of the fierce competition by the other large global companies which are entering these markets. These asian companies are particular about their approach in the respective countries. The recent economic meltdown in these countries could prove fatal for these companies in terms of sales and revenue. The trend in India will will stand for Maruthi Udyog company, because of the strong middle class population in this area. Maruthi is successful in this region because they focus on this population by producing fuel effiecient, quality and low cost cars for this market. Although it will take another five years to achieve their goal and stabilization if they continue their success. On the other hand, Chinese market will depend on how well the Shanghai Motor company's management is positioned to face the new opportunities, fluctuations in the emerging markets and changing customer demand.

        These big companies can change their focus on International Expansion of their brands. International expansion has a good potential for growth in the automotive industry. Roughly in the U.S., there are 750 cars for 1000 people,543 in Japan and the United Kingdom has 426 respectively. On the other side, countries like Brazil, Indonesia and India have a count of 81, 21 and 12 respectively. China has got only 10 cars for 1000 people. In terms of these numbers the latter three are unsaturated markets and can provide a massive growth. China, in recent years has started to focus on International expansion. In 2003, China has sold over 4.44 million cars up from 21. million in 2001. But this trend has slowed down to some extent when the growth rate was only 12% in 2005 compared to 34% in 2003. These figures are considerably higher than Detroit. We have to see whether this growth will spread in emerging markets like South America, Africa and India in the future. And it is also not sure whether these markets will be captured by the local companies or the several of the large multinational automotive corporations or by joint ventures between the two.

Thus we confine our analysis to Daimler Chrysler, General Motors, Ford Motor Company and Volkswagen as major four passenger motor vehicle companies in the world.


        Porter has indentified the five forces which influence the global passenger car industry. They are: (1) internal rivalry; (2) threat of substitutes; (3) barriers to entry; (4) buyer power and (5) Supplier power. Porter's five forces helps us in understanding the major forces which influences this segment of automobile industry.


        Despite of the higher concentration of these four brands namely General Motors, Ford Motor Company, Daimler Chrysler and Volkswagen in United states denotes the lesser competition in the passenger car segment. These numbers do not tell the complete story about these manufacturers. Global automotive industry is no longer reaping grounds for these premium companies (GM, Ford and Daimler Chrysler)as there is a fierce competition in the global markets and in United States. This makes the premium companies to create innovative marketing strategies and plans of entering the global markets. The recent day trend in the automotive industry is distribution of competition and conglomeration of the mature markets. This trend is going to be remarkable in the years to come. This trend started long back in 1990s when American, European and Japanese companies initiated the mergers. Until 1989, Ford Motor Company had acquired some companies like Jaguar, Aston Martin, Land Rover and Volvo. Chrysler and Daimler-Benz Corporation merged in 1998. On the other hand, General Motors and Volkswagen have also taken over some smaller companies. Honda and Toyota, the Japanese car makers entered the United States in 1980's and fairly held their focus on the growing market share. The fierce competition and rivalry has been mainly because of the diversity, management strategies and the principles associated with them. The well established markets of United States and Western Europe showed a down turn in their market share. Now these companies should gather momentum and prevent the losses in these massive markets. The companies should turn their focus mainly in the developing countries of China and India as the growth potential is huge. Investing in these booming markets would inturn reap handsome rewards and recognition from the customers.

        The companies like Ford and General Motors which are large production companies in terms of revenue are also some of the least profitable companies. This is mainly due to the lack of well-planned cost structures within their competitors. The high cost in these companies can be partly due to the inefficient production, distribution practices and the health care cost that they follow. Daimler Chrysler and Volkswagen on the other hand which does not posses any labor unions are benefited from the flexible cost structures by lowering the overall labor cost.

        The huge size of GM and Ford Motor Company doesnot relate to the revenues of the respected companies. In 2004, GM and Ford lead the market in terms of production, roughly manufacturing about 15 million units and 8 million units respectively. But at the end 2004, Ford and GM ran lowest of operating margins in the industry. This sudden down turn is mainly due to poor management and partly due to the principles of older, well-established organization than younger and flexible foreign companies.

        The large corporations pride and marketing success lie in the distribution of its different management brands. This trend is prevailing in the present markets where older brands have joined the central managements. For example, Dodge products are managed and marketed better by Chrysler Group in the U.S than the central management of Daimler Chrysler from Stuttgart. This comes to a conclusion that local management understands the customer and the brand as whole.

        On the other hand, instead of focusing on the local market segments, smaller producers have focused attention on underserved markets. This in-turn has helped them to top the market share. There are, two clear examples of effectively identifying smaller and underserved markets. Development of first hybrid vehicles have helped Honda and Toyota to be market leaders in this segment than the Ford or GM. Another example is that of Honda, which is not able to compete with Mercedes in the high-end luxury sedans .This is due to the brand image and prestige of the Mercedes in this segment.

        The important principle of management in all industries is Focused Strategy, but its demonstration in clear in the automobile industry. Focused Strategy in the management of Toyota has been mainly in the field of production efficiency, whereas the large companies like Volkswagen and Ford have been trailing behind with their attempts at moderation. Ford and GM which have not focused their strategies in responsiveness and consumer needs have been considerably less successful than other companies like Toyota which thrives for consumer needs.

        Automobiles are considered as expensive long-term investments for the customers. So the companies should focus on producing well-respected brands and products. Brand power is difficult and takes much longer to build in any markets. The success of motor companies like Toyota, Nissan and Honda in U.S. market are the main examples of brand power. Until 1980s, their products were not existent in the U.S. market, but the present scenario is that out of 100 passenger motor vehicles in U.S., 35 are the products manufactured by those successful companies. Daimler Chrysler on the other hand maintain a consistent performance in the markets because of the tradition of the quality brands they establish. Their brands include Dodge and Mercedes which have received sustained customer satisfaction in the quality brands market.

The internal rivalry in the passenger motor vehicle industry is further increased by high fixed costs in manufacturing of cars and low switching cost for customers when buying different brands and models.


        Although there are several other forms of transportation available, the automobile segment provides the utility, the independence and value offered by them. Therefore the threat poised on the automobile industry is fairly low. On the other hand, the switching cost associated with using different other mode of transportations like train may be more in terms of time consumed (i.e., independence), convenience and utility (e.g. storage capacity). But in terms of costs, train is cheaper than the automobiles.( for example., round train trip fare for Sydney would be less expensive than the fuel cost associated on the similar round trip with the automobile, the other cost includes daily parking, car insurance and maintenance would which make the automobile transport more expensive than other transportation methods available). This small example should be considered with the highly populated areas of urban regions. In these areas, the other substitutes available are walking, mass transit, bicycles etc which can be less costly than the automobiles. So only to some limit, alternative modes of transports are preferred. And also there are social and cultural beliefs that prevent people from owning automobiles in some parts of the world. Many countries are not remote or mobile as U.S., they are limited by geography, race, class or religion. So the need of personal transport is not important in many parts of the world. “a car in every garage” is the dream of American nationals. But this is uncertain or not the world currently needs. Although the global automotive manufacturers are working hard to change the focus of the people by increasing the sales and production of automobiles in the world. In the recent years, their prospect is positive. The people who live in society with good and improved infrastructure like roads and fuel stations will tend to own a vehicle.


        The barriers to entry in the automotive industry is real and exists. The initial capital required for a new company to establish the manufacturing facility is very high. The aspect of the new company to produce efficient and cost effective products are out of bounds. The manufacturing facilities in the automotive industries are quite modernized and specialized. These facilities in the event of failure makes it very difficult to be rendered back to normal. Even though the barriers to entry is high, the established companies like Ford, GM and Volkswagen are entering the new markets with partnerships or mergers or through acquisitions with other companies. In 1980s, barriers to entry in United States was quite low when the U.S. companies partially invited the Japanese makers by failing to produce quality and cost effective products in the low price markets.

Through globalization, these large automotive companies have ventured into foreign markets and reaped the benefits. The same degree of threat exist for the new companies to enter in the undeveloped markets of Asia, Africa and South America. The new companies entering these markets can become successful against their rivals if they are well aware of the local knowledge and expertise. The threat of entry is low because the global companies like Ford, Volkswagen or GM are not well established in these local markets. And if any new company which would prove to be successful in these markets could be acquired by any of the global automobile majors.


        The supplier and buyer relationship in the automotive industry is focused on relationships and not bid by pricing.

“The company has focused strategic relationships with 125 suppliers, who are integrated fully into the development of products and objectives...these relationships play an important role in putting the company at a competitive advantage. Suppliers are able to provide the technology and know-how essential in producing quality products.”(

        The relationship between buyer and suppliers in the industry prove advantageous to the buyers. The powerful buyers in the automobile industry generally dictate their needs and requirements to the suppliers. The characteristics that make the buyers more powerful in the automotive industry are:

  • There is no rapid growth in the companies manufacturing automotive parts, but the large companies like Ford and General Motor in U.S. have roughly shipped about 90% of the automotive parts form these manufacturers.
  • These automotive parts are needed commodities and can only be used on the automobiles.
  • Acquisition of automotive manufacturers can occur. For example in 2005 Ford acquired the struggling automotive part maker Visteon.

On the other hand when comparing the relationship between the automobile industry and its unique customers, the purchasers of finished vehicles, the power slips in the favour of the ultimate customers. Customers are considered as the greatest power because standard nature of the automotive community and their power to choose between the other competing brands. However, the automotive industry remains marginally powerful because of the large customer to manufacturers ratio. This segment of the automobile industry is dynamic and keeps changing day-to-day. With this five forces to guide, keeping the history of the companies as experience it can be assured to say that the automobile industry in passenger motor vehicle industry will continue to change and grow in the future.