Automotive Industry Analysis

Automotive Industry

Background

The first introduction of the automobile revolutionized the way the people thought about travel. Since the introduction of the first automobile in Mannheim, Germany by Karl Benz in 1885 the automobile has taken over as the primary mode of transportation. There are “590 million passenger cars worldwide, roughly one car for every eleven people, as of 2002 (WorldMapper)”. After Karl Benz was granted his patent for his automobile he opened the first car company, Benz & Cie. Although there was many others trying to make the first automobile Karl Benz is credited with inventing the modern automobile. Approximately 25 Benz vehicles were built and sold before 1893. Daimler and Maybach founded Daimler Motoren Gesellschaft (Daimler Motor Company, DMG) in 1890 and under the brand name; Daimler sold their first automobile in 1892. It was not until 1902 when large-scale production-line manufacturing of affordable automobiles was debuted by Ransom Olds at his Oldsmobile factory. This concept was expanded later by Henry Ford beginning in the 1914.

As a result of Henry Ford’s forward thinking with the production process cars came of the line much faster than previously and took less man power to do so. Due to this innovation an individual could buy a Model T for four months pay, evidently bringing the automobile to the masses. By using the assembly line production, which made specialization of each worker more efficient and effective this business model was repeated worldwide. Development of automotive technology was rapid because of the large number of small manufacturers trying to fight for market share.

Current Production & Players

“The automotive industry is the industry involved in the design, development, manufacture, marketing and sale of motor vehicles (Wikipedia)”. Today the industry produces roughly 69 million motor vehicles, including cars and commercial vehicles worldwide. “In 2006 alone 16 million new automobiles were sold in the USA, 15 million in Western Europe, 7 million in China and 2 million in India (Wikipedia)”. Below is a graph showing different countries around the world and how many cars were produced (in the thousands). Chart

Production in the industry is worldwide and the competition is very tight between companies. The total number of car companies is only twenty but those twenty companies have many divisions and subsidiary companies which make up the rest of the car companies that we are used to seeing. Below is a table with the major companies and their subsidiaries.

The scope of the rivalry between companies within the industry is intense because of the industry being so consolidated. Having a limited number of players within the market and that the pie has not really been growing at a rapid rate. The number of rivals competing in the industry is just seven major companies. With the major companies having a line to meet almost all segments of the market. Competition is tight due to the lack of product differentiation. Many of the cars serve the same purpose and have many of the same features so distinguishing your product from the competition is hard. Many of the companies are trying to differentiate there products by adding special features such as side impact airbags, navigation systems and touch free controls; which is due in part to buyer demand for a safer and more enjoyable driving experience.

Since the rapid pace of this new industry manufacturer started to share parts with one another; resulting in larger production and lowering cost. For example “in the 1930’s LaSalles, sold by Cadillac, used cheaper mechanical parts made by Oldsmobile; in the 1950’s Chevrolet shared hood, door, roof, and windows with Pontiac; basically creating many subdivisions within the auto industry to produce input auto parts. Industries such as the tire, car electronic, auto parts industry sprang up to meet the demand of the car manufacturers. This resulted in a highly fragmented auto parts sector within the industry ranging from small time shops to multinational organizations part suppliers. By having such a fragmented sub industry it makes the relationship between the industry and its sub-industry very dependent on each other.

U.S. Auto Industry Sales & Players

The United States is the world’s largest consumer market for light vehicles, passenger cars and light trucks. For 2007, Standard & Poor’s expects new light vehicle sales in the United States to fall to about 16.1 million, compared with more than 16.5 million in 2005. According to the US Census Bureau, revenues (including service, insurance, and other items) for new car dealers in the United States totaled an estimated $683 billion in 2006. Standard & Poor’s estimates that sales of new vehicles accounted for more than 400 billion of that total and should exceed that amount again in 2007 and 2008. Here is a table to show the current leaders in production within the U.S. and a graph to show sales and production for the U.S. for the past decade.

As you can see the United States auto industry is dominated by the “Big Three” or General Motors, Ford Motors and Daimler/Chrysler. These three account for roughly a little over half of the production of cars and light trucks in the industry. What has currently started to happen in the recent years is that the Big Three are starting to lose market share to other rivals within the industry. In 2006 the Big Three accounted for 41.5% of light vehicle sales when compared to the top three foreign companies which accounted for 36.6% (Toyota, Honda, & Nissan). Overall the Big Three account for 54.9% of the U.S. market in 2006, according to Ward’s Automotive Reports. This was down from 58.2% in 2005, 60.1% 2004 and 61.8% in 2003. This trend is expected to continue but to taper off in the coming years. Here is a graph forecasting market share of the Big Three as well as the foreign car manufacturers for the years to come.

Sub-Industry

The sub-industry to the automotive industry is the auto parts industry. This industry is highly fragmented, consisting of many parts suppliers. It comprises for lines of business: original equipment manufacturing, replacement parts manufacturing, replacement parts distribution and rubber fabrication. Each subset affects the overall automotive industry