Wheeling and Dealing Economics of Prices in Automobiles

It is suggested that the globalization of the automotive industry, has greatly accelerated during the last half of the 1990’s due to the construction of important overseas facilities and establishment of mergers between giant multinational automakers (Hiroaka, 2001). And, there’s no reason that they could repeat that achievement.

Globalization and the current mergers in the automobile industry has been correlated with today’s controversies over high petrol prices and fuel-guzzling SUVs in the huge American market. According to The Economist (September 8, 2005), this picture of the automobile industry only offers a partial detail of what future holds for industry as a whole:

It may well be fully mature in markets such as North America, Europe and Japan, where over-capacity continues to sap profitability. But globally the industry is set for huge expansion with the motorisation of China and India. Within a few years China will replace Japan as the second-largest national market after America. Some experts predict that over the next 20 years more cars will be made than in the entire 110-year history of the industry.
In the same report, Garel Rhys, director of the Centre for Automotive Industry Research at Cardiff University in Britain, enlightened that this growth will create the need for 180 new factories, each producing 300,000 cars (and light trucks) a year-in effect, almost doubling the production capacity of the global industry to over 110m units annually. Thus, today’s car plants will need to be "renewed, retooled, refurbished and replaced to remain competitive. There is nowhere for the inefficient to hide."
Automobile manufacturing is an industry in which it is difficult to achieve optimized procurement, production and sales on a global scale. Yet in the period from 1998 to 1999, major assemblers began to form strategic partnerships based on capital relationships, and since then there has been an accelerating trend toward the creation of structures that allow manufacturers to supply a diverse range of vehicles tailored to consumer needs in markets throughout the world.
For vehicle assemblers to develop their global operations efficiently, they need to balance the merits of centralization as a strategy for achieving economies of scale, with localization, which is the key to the supply of products that match national and regional needs. Three additional requirements for the development of global strategies are the clustering of internationally competitive suppliers, the establishment of management systems to support global operations, and the use of IT networks.
To note, great achievements have been copped by the European automobile industry. According to the Trade Issue Website, in 2001 alone, the European – Automobile Industry achieved a world wide turnover of 452 BN , of which 271 BN in Western Europe, providing direct employment to 1.1 Million people in the EU (1.6 Million world wide) to which another 11 to 12 Million directly or indirectly supported jobs can be added. Thus the sector involves roughly 8.5% of the EU’s active workforce.
The EU-15 motor vehicles industry (manufacturers and suppliers) represents about 9% of the EU manufacturing sector in terms of value added (operating profit).
EU-15 exports of motor vehicles reached 59 BN in 2001, representing 6% of the value of total extra EU-15 exports.
Tax revenues from the motor vehicle industry amount to about 334 BN , i.e. 15% of EU governments revenues and 4% of EU GDP, excluding oil

You Might Also Like