Vol 3 (2006) - Issue 4

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Automotive Globalisation Takes No Prisoners

The global automotive industries are in a state of flux, some might claim revolution. New car prices, in real terms, are falling steadily at perhaps 2-3% per year. Costs are being forced down throughout the supply chains. If the players do not adapt, the result will be bankruptcy – or at least a migration to Chapter 11 in the United States. This overview of industry developments in the US market highlights some of the pressures and issues impacting on the sector globally, and their strategic implications.
The automotive industries are currently involved in a policy of globalisation with the result that traditional players (both nations and manufacturers) are being challenged in terms of costs and modus operandi. At the same time, new nations are joining the industry and new players have begun to emerge. The established players not only have higher costs in their historic locations but they are subjected to ever greater governance and transparency requirements in the US and in Europe.
The overall situation is not helped by there being an estimated 20-25% excess in installed manufacturing capacity in the global automotive industries.
With any move towards globalisation, it is impossible for the automotive industry to see itself in isolation. The price of oil escalating beyond USD 70 per barrel has made the more fuel-efficient European and Japanese automobiles very attractive to US buyers. At the same time, the rise in the price of steel has greater effect on the cost of the larger style vehicles produced in the US, given their higher steel content.
From a US perspective, the picture gets still more complicated when we consider the high quantity of semi-finished and finished goods bought in from China with its under valued yuan. In the short term, the cheap yuan has helped US manufacturers to hold down prices through importing under-priced components. If, as expected, the Chinese begin to lift the value of the yuan, there will be resultant inflationary pressures on costs and therefore on end-user prices. In a hyper- competitive marketplace dealing with this will take skilful management.
So what are the other new sector-specific pressures? And who are the stakeholders that are bringing different pressures to bear on the automotive industry globally and in the US in particular? This analysis is primarily of the car manufacturers (‘OEMs’ – original equipment manufacturers) and component suppliers, largely leaving retail distributors aside as a separate market.
Drivers for change
Figure 1 below highlights a cross section of the main macro-economic drivers for change currently influencing the automotive industries. Whilst this analysis is focused on the US, given the global nature of the industry much of it has pan-global application.
The high level analysis shown in Figure 1 isolates key pressures working on the automotive industries in the US.