Issue 2: Fall 2004 : The Automotive Industry

Modern Global Automobile Industry

Today, the modern global automotive industry encompasses the principal manufacturers, General Motors, Ford, Toyota, Honda, Volkswagen, and DaimlerChrylser, all of which operate in a global competitive marketplace. 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.¹

Industry specialists indicate that the origins in the expansion of foreign commerce in the automobile industry, date back to the technology transfer of Ford Motor Company's mass-production model from the U.S. to Western Europe and Japan following both World Wars I and II.² The advancements in industrialization led to significant increases in the growth and production of the Japanese and German markets, in particular. The second important trend in industrial globalization was the export of fuel efficient cars from Japan to the U.S. as a result of the oil embargo from 1973 to 1974.

Table of Contents

Introduction
Automotive History
Global Automobile Industry
    North American Market
    European Market
    East Asian Market
Automobile Manufacturing
Retail
Company Research
Statistics
Associations
Industry News and Analysis
Electronic Resources

Increasing global trade has enabled the growth in world commercial distribution systems, which has also expanded global competition amongst the automobile manufacturers. Japanese automakers in particular, have instituted innovative production methods by modifying the U.S. manufacturing model, as well as adapting and utilizing technology to enhance production and increase product competition.

There are a number of trends that can be identified by examining the global automotive market, which can be divided into the following factors:³

Global Market Dynamics - The world's largest automobile manufacturers continue to invest into production facilities in emerging markets in order to reduce production costs. These emerging markets include Latin America, China, Malaysia and other markets in Southeast Asia.

Establishment of Global Alliances - U.S. automakers, "The Big Three" (GM, Ford and Chrysler) have merged with, and in some cases established commercial strategic partnerships with other European and Japanese automobile manufacturers. Some mergers, such as the Chrysler Daimler-Benz merger, was initiated by the European automaker in a strategy to strengthen its position in the U.S. market. Overall, there has been a trend by the world automakers to expand in overseas markets.

Industry Consolidation - Increasing global competition amongst the global manufacturers and positioning within foreign markets has divided the world's automakers into three tiers, the first tier being GM, Ford, Toyota, Honda and Volkswagen, and the two remaining tier manufacturers attempting to consolidate or merge with other lower tier automakers to compete with the first tier companies.

1st Tier Company Mergers - Volkswagen-Lamborgini; BMW-Rolls Royce
2nd Tier Company Mergers - Chrysler-Mercedes Benz; Renault-Nissan-Fiat
3rd Tier Company Mergers - Mazda-Mitsubishi; Kia-Volvo

This section presents literature that examines three major automotive markets in North America, Europe and East Asia. This material is intended to provide a thorough examination of industry trends, structure, and the effects of global market dynamics of the automotive industry within each region, as well as their interrelationships, followed by literature researching the East Asian automotive market.

Research on The Modern Global Automobile Industry

This study examines the origins, consequences, and trends of globalization in the motor vehicle industry, with chapters on transplants from Japan, US recovery, the DaimlerChrysler merger NAFTA, Mercosur, and the development of the motor vehicle industry in China and India. Book review by Book News, Inc.

This highly topical book brings together some of the world's leading specialists on the global car industry who discuss the ins and outs of the faster lane of regionalism at a time that the world is reassessing the ins and outs of globalization. It provides a thorough and up-dated mapping of the worldwide geography of the car industry, in the triad regions (Europe, North America and Japan), and in the emerging countries and regions. Review by Books In Print.

An analysis of the basic factors affecting trends in consumption, production, and trade in the motor vehicle industry, as well as competiveness of the U.S. motor vehicle industry in domestic and foreign markets. This report covers the period 1997-2001.

This work examines the automotive industry, making recommendations for change and improved industry performance. Review by Books In Print.

This paper examines the global reorganization of the automobile industry and the direction of its global strategies; The role of economies of scale in the global reorganization and the production sytems of various models and quantities; and the direction of global structural change in the automobile component industry.

North American Automotive Market

The automobile manufacturing industry is one of the largest industries within the U.S., and is a vital engine for the U.S. economy contributing greatly to employment and productivity. Reports indicate that motor vehicle production represents over 5 % of the U.S. private sector GDP.⁴ The U.S. is the world's largest producer and consumer of motor vehicles with production reaching 12.2 million units in 2002. ⁵ The U.S. automotive industry continues to experience on-going organizational and technological change, and have taken steps to increase its global presence by expanding global alliances and seeking greater collaboration with other U.S. automakers.

The Big Three U.S. automakers makeup approximately 76 % of U.S. passenger vehicle production, while Japanese automakers, Toyota, Honda, Nissan, Mitsubishi, Subaru, Isuzu represents 18 %, and European automakers, BMW and Mercedes (division of Daimler-Chrysler) make up nearly 2 %.⁶

Unlike the Japanese and European automotive markets, the U.S. does not rely significantly on foreign exports. The U.S. auto trade relies mostly on its own domestic market, and to some degree on the Canadian market. Canada is the largest market for U.S. vehicle exports with subsidiaries of U.S. automakers accounting for most of the imports. Integration of the U.S. and Canadian automotive industry dates back to the U.S.-Canadian Automotive Products Trade Agreement established in 1965.

The U.S. Big Three automakers continue to invest billions of dollars into the Canadian market, which has resulted in Canada becoming a global leader in automotive engineering. All of Canada's passenger vehicle production is located in Ontario due to its close proximity to Detroit.

Research on the North American Automotive Market

A comprehensive, and authoritative encyclopedia that covers American cars from 1930 to 2002 and includes Chrylser, Ford, and GM, plus major independents, such as Duesenberg, Hudson, Checker, Shelby, and others. Also includes more than 3,500 photographs. The publication provides a comprehensive portrait of the workers and machines that contributed to developments in American automotive history.

This study discusses General Motor's North American Enterprise Model, a system dynamics model of the North American automotive market, and examines the corporation and its marketplace, as well as production functions, such as engineering, manufacturing, marketing, and external competition.

Author examines the evolution of the U.S. automobile industry and industry consolidation. The paper focuses on the developments leading up to the concentration of the U.S.'s Big Three firms around Detroit, Michigan.

This study identifies a dramatic decline in volatitlity of U.S. GDP growth beginning in 1984, and attempts to correlate various sources of the decline in volatility, specifically by studying the U.S. automobile industry.

Drawing on rarely used archive material and recent interviews with industry officials, this book examines the radical changes which have affected automobile production in recent years. Review by Books in Print

Also available online to patrons onsite at the Library of Congress via netLibrary.

This book examines the responses of unions and workers to regional integration and restructuring in the automobile industry in North and South America.

European Automotive Market

The European Union is made up of 15 member states, and any European country applying for membership. The EU is the world's largest automotive manufacturing region and the world's largest market.⁷ The European automotive industry represents approximately 9 % of the EU manufacturing sector.⁸ The European automotive industry is considered a leader in the global market with integrated operations consisting of: research, design, development, production and sales. The European automotive market is comprised of a concentrated and sophisticated global network, which includes joint-ventures, cooperatives, productions and assembly sites.⁹ EU automotive industry producers have a combined output that exceeds that of the U.S. and Japan, however no one individual EU country produces more than its U.S. or Japanese competitor.

The importance of the automotive industry on the economies of individual EU countries varies country to country. According to recent reports, Germany, Sweden, France and Spain automobile production represents approximately 10 % of total manufacturing, while the average for the EU is about 8 % ¹⁰ The EU's largest automotive producer is Germany estimated at 30 % of EU's total production, followed by France at 19 % and Spain at 17 %, and the United Kingdom at 10 %. ¹¹ These countries are the largest automotive markets in the region.

There are over 20 vehicle manufacturers in the EU, with the largest automakers producing multiple brands, such as General Motors, Ford, DaimlerChrysler, Volkswagen, Fiat and Peugot Citroen. There are also independent automakers, such as Porsche, BMW and Bertione. The last 10 years has shown an overall increase in vehicle production for the EU auto industry, along with Extra-EU exports accounting for approximately 20 % of total production.¹²

Like the other markets in the global automobile industry trade, the EU auto industry has experienced significant restructuring and consolidation, which includes mergers, such as ChryslerDaimler-Benz; GM acquisition of Saab; Ford's acquisition of Jaguar and Volvo's passenger car division; BMW's take over and then sale of Rover; and Volkswagen's acquisition of Bentley, Lamborgini, SEAT and Skoda.¹³ There continues to be co-production efforts and supply arrangements among the EU automakers, as well as with foreign partners outside of the European Union.

Research on the European Automotive Market

This report is accessible on the European Union website EUROPA, and provides an overview of the automotive sector for the EU market. The information includes facts and figures, and a general analysis of the EU auto market.

This paper quantifies the competitive effects of removing vertical restraints, based on the recent proposals to liberalize the selective and exclusive distribution system in the European automobile market.

This publication presents a systematic description and analysis of the internationalization of strategies that are being pursued by European automobile manufacturers, suppliers, and dealers.

This work presents an analysis of some of the changes that have transformed the automobile industry in the last 30 years illustrating some of the most significant consequences of globalization. Review by Books In Print.

This quarterly publication provides analysis and forecasts of vehicle sales and production for each of the 17 countries, analysis of vehicle manufacturers and markets, interviews with leaders of Europe's auto industry and producitivity trends.

An examination of the political aspects of the integration of the European automobile industry. The book also discusses the role the European automakers played in role influencing the institutions of the European Union. Synopsis by Books In Print.

East Asian Automotive Market

The Asian motor vehicle market is comprised of three 'core' markets, Japan, South Korea and China. The Korean and Chinese automotive markets continue to grow rapidly, with many analysts predicting that the Korean and Chinese markets will surpass that of Japan within a decade. ¹⁴

The Asian financial crisis during the late 1990's slowed down the demand and production of the auto industry, and did not reach pre-currency crisis levels until 2000. However, with the continued strong production growth of the automotive industry in Asia, analysts suggest that the Asia/Pacific region will be a driver of industry growth worldwide.¹⁵ As the automotive manufacturing industry continues to grow in Asia, foreign investment has begun to increase substantially in Asia over the last several years. U.S. and European automakers have targeted the region to not only establish a greater presence in the Asian marketplace, but also to expand its production capacity in Asia. In addition, there have been undertakings by both the U.S. and European automakers to collaborate with Asian automakers.

Japan's Automobile Industry

The automotive industry represents a significant portion of Japan's economy, representing 13 % of its total manufacturing output and 10 % of employment. ¹⁶ Japan is home to 11 automobile manufacturers consisting of: Toyota Motor Corp., Honda, Nissan, Mazda Motor Corp., Isuzu Motors, Ltd., Suzuki Motor Corp., and Fuji Heavy Industries, Ltd., and Daihatsu Motor Co. Each of these automakers have manufacturing operations in the U.S. except Suzuki and Daihatsu. However, Suzuki is part of a joint-venture with GM, which is located in Canada.

Japan is also the third leading producer of motor vehicles after the U.S. and the EU. The U.S. is the largest market for Japanese vehicle exports, however, automobile production has fluctuated downward over the last several years in Japan.¹⁷ Like the auto industries in the other regions, the industry has also experienced major restructuring, which is the a result of a downturn in domestic demand. Japanese automakers have responded to stagnate domestic economic conditions by reducing production capacity through plant closures, and have offered equity ownership to foreign automakers to receive financial and managerial assistance. GM has equity in Suzuki and Subaru and controlling interests in Isuzu; Ford has majority equity in Mazda; DaimlerChrysler has majority equity control in Mitsubishi; and Renault has controlling interests in Nissan.¹⁸

The Japanese automotive industry relies heavily on exports with imports making up a much smaller percentage of auto trade. German automaker imports account for the greatest percentage of imports at nearly 70 %.¹⁹ However, trade barriers on foreign automotive imports in Japan have often created problematic trade relations with U.S. automakers and U.S. trade policy officials.

South Korea's Automobile Industry

Presently in South Korea, there are seven automobile manufacturers, which include: Hyundai, Daewoo, Kia, Samsung, Asia Motors, Jinda, and Ssanyong. South Korea is the world's third largest automobile exporter, exporting 41 % of its total motor vehicle production, with roughly 35 % of the exports going to the U.S.²⁰ South Korea is the 6th largest automobile market, however imports makeup less than 1 % of motor vehicle trade in the domestic market. Prior to 1987, foreign auto imports were prohibited and Japanese automotive imports were not permitted until 1999. South Korea's automotive industry has also experienced restructuring. In 1999, Hyundai acquired Kia and Asia Motors, and sold 10 % of its equity to DaimlerChrysler in 2000; Daewoo purchased 52 % equity in Ssanyong in 1998; and GM purchased 42 % equity of Daewoo; and in 2000, French automaker Renault purchased Samsung Motors.

Currently, South Korea has no independent auto manufacturers. DaimlerChrysler and Hyundai Motor Co., have formed an alliance in which DaimlerChyrsler will acquire a 10 % equity in Hyundai.²¹ Korean automakers have made efforts to join in collaborative ventures with foreign automakers and sold significant portions of its equity in order to continue to operate in the domestic market, as well as receive financial assistance. Industry specialists suggests that in order to become more competitive and efficient in both the domestic and foreign markets, Korean automakers must consolidate platforms domestically and with foreign partners; create strategies that more efficiently utilize regional sourcing; and enhance production and production platforms, as well as supply networks.²²

China's Automobile Industry

China's automobile industry continues to grow rapidly. It is projected that by 2010, China will become one of the world's largest automobile markets with domestic production reaching 5 million units.²³ The automobile industry in China is composed of 120 vehicle manufacturers, employing nearly 2 million workers.²⁴

The FAW Group is China's first large-scale motor vehicle producer, which has an agreement with Volkswagen to produce Jetta's and Audi sedans. The second largest automaker is the Dong Feng Motor Corporation with three major production facilities in the Hubei province.

The Shanghai Motor Group, the third largest automotive producer in China, began producing cars during the 1960's. It established a joint-venture with Volkswagen in the 1980's that has contributed to the increase in automobile production in China's domestic market.

Government officials in China have initiated policies that are intended to encourage the continuing development of China's domestic automobile manufacturing industry. Nevertheless, there are significant trade barriers for foreign competitors in the way of tariff policies that are applied to foreign auto imports. This restrictive trade environment has contributed to the serious problem of illegal imports of foreign cars into China.

Despite China's growing auto industry, industry productivity lags behind the other Asian competitors, and it lacks the ability to conduct research and development, relying on its foreign partners to develop new vehicles. Chinese automakers are presently creating new policies and methods through foreign joint-ventures to continue the development of China's automotive industry, but at this stage, China's automotive industry still remains underdeveloped both technically and managerially. These conditions present a significant challenge for China's automotive industry, and it is expected to take a considerable amount of time before China becomes a global competitor in the automotive market.

Research on the East Asian Automotive Market

This book explores Japanese investment in Europe and Southeast Asia, in relation to the automobile industry.

This book argues that this is not entirely the case due to the heterogeneity of firms and the diversity of strategies pursued. It highlights the diversity and forms of internationalization and the preference for regionalization rather than globalization that has occurred over the past decade. This book looks specifically at the American and Asian car industry. Synopsis taken from OCLC's WorldCat database.

This paper explores the role of foreign automakers - particulary the Big Three (General Motors, Ford, and DaimlerChrysler) - in transferring technology, which have helped in modernizing China's automobile industry.

A quarterly publication that provides analysis on the vehicle and components industries of China, India, South Korea, Malaysia, Indonesia, Phillipines, Taiwan, Thailand and Vietnam.

This report provides an overview of the major trends taking place in the automotive industry across the world, with an emphasis on the Asian market.

Explains the seemingly contradictory trends toward global integration and national balkanization since World War II as a bifurcation of economic and political borders. The author examines the three countries' relationship involving government-economic relations, and the global automobile trade.

References