Automotive Industry Overview

Statistical overview

     Automotive industry is growing year after year. Developed market saturation prompts car manufacturers to search for new markets within the developing countries. The rise of the middle class in these emerging economies is a par with the demand of personal vehicles. Engines of growth in 2014 are new members of European Union, Chile and Colombia.
Source: SkotiaBank
Source: Thomson Reuters
     Automotive market has its peculiarities — it’s seasonal. Sales tend to increase from April to June and decline from November to January.
     The largest source of revenue for automobile manufacturers are in the B2C consumer sector. Commercial fleet sales (B2B) are also significant source of gross income (roughly 20% of total sales).
     Although car companies update and renew their models every year, not every update fit the same mold. It could be makeover/facelift (which is mostly redecoration or addition of non-vital features) or complete redesign (when company changes vital parts of the vehicle). The second option is much more costly, as it requires significant expenditures in R&D, testing and certification.

     Significant portion of revenue could come from additional services, that car companies present. That could be warranties and financial services (e.g. leasing).

Porter’s 5 Forces

Threat of new entrants:

    It may seem, that it’s nearly impossible to come and start car manufacturing from scratch, being competitive. However, recent example shows, that it’s not so. Moreover, oversea manufacturers (Chinese and Indian mostly) tend to expand to new markets, increasing competition pressure.

Power of Suppliers:

     Old wisdom will tell us that it will be almost impossible to get into the automobile manufacturing marke. It certainly takes tremendous financial investment and as such, rather difficult to start from scratch. It is a very competitive market that deters many of those who are looking to get into the market.
     Despite all this, recent example shows, that it’s not so. Chinese and Indian manufacturing companies are challenging this old notions. Their products are targeting emerging markets and slowly gaining market shares. The increase competition are being felt my incumbents  such as VW and Renault  all around these EMCs prompting them to adopt new market strategies in order to alleviate the pressure nd remain leaders in their domain.  mostly) tend to expand to new markets, increasing competition pressure.

Power of Buyers:

     Consumers have certain bargaining power, as they always can find alternative for one vehicle, probably of foreign origin. However, they typically don’t buy cars in large quantities, which diminishes their buying power.

Availability of Substitutes:

     Car manufacturers compete not only with each other, but with other means of transportation as well. Consumers may switch to motorcycles, trains, buses, Segways or even bicycles, all of which are much more suitable for cities. Ever-increasing fuel prices tend to influence buying decisions even more and not in favour of automobiles.

Competitive Rivalry:

     As automotive industry is highly capital intensive, it’s makes profit margins tend to be small. In such situation, handful of car manufacturers easily finds itself in an olygopolistic situation, when they always try to avoid price-based competition.

Current trends

     Rising fuel prices force car manufacturers to focus on production of highly efficient low-consumption engines and develop hybrid technologies. Some companies experiment with alternative energy sources, like hydrogen fuel-cells and bio-fuel.
     But most obvious and inevitable future for car industry are electric engines. Being much more effective in every way, electric-powered cars have one significant setback — their batteries. The one, who’ll develop technology that’ll make re-charge as fast and easy as re-fuel will thrive.
     The other field of development are connected cars. Car companies introduce new features, that connect vehicles to the internet and to each other, which helps avoid traffic jams and even collisions. Self-parking cars, adaptive cruise-control and even autopilot are no longer science fiction. Additional benefit of such systems is amusement of driver and passengers, that comes together with numerous multimedia systems of connected cars.


SkotiaBank — Global Auto Report [PDF]
Kurmann&Partners — 2013 Automotive Report [PDF]

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