The auto industry is highly concentrated. The top 10 global
automakers account for roughly 80% of the worldwide production
and nearly 90% of total vehicles sold in the U.S.
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In January 2013,
General Motors Company
) led with an 18.7% market share in the U.S., followed by
Ford Motor Co.
) with a 15.9% market share,
Toyota Motors Corp.
) with a 15.1% market share, Chrysler-Fiat with a 11.3% market
Honda Motor Co.
Nissan Motor Co.
) at the last spots with 9.0% and 7.8% market shares,
Toyota recaptured the sales crown from General Motors by selling
9.75 million vehicles globally in 2012, which exceeded GM's sales
of 9.29 million vehicles. Germany 's
) came third with sales of 9.07 million vehicles for the year.
Toyota's victory can be attributed to its impressive product
lineups and marketing initiatives.
Toyota lost its No.1 position to GM in 2011 after gaining the
title from GM in 2008. The loss of crown was driven by declining
reputation due to a series of safety recalls as well as negative
impact from natural disasters in Japan and Thailand in 2011.
However, the automaker had vowed to regain the top position by
increasing its dependence on the non-U.S. markets, especially the
high growth emerging markets.
To remain competitive, the automakers will need to design
vehicles that will cater to consumers in both mature and emerging
markets while manufacturing them at low-cost using the most
For example, Ford has undertaken "One Manufacturing" strategy,
which aims at producing multiple models from plants across the
world in order to save production costs and fast adaptation to
changes in consumer tastes. The automaker anticipates producing
4.5 models at each of its plants by 2015, up from 3.6 models
Further, the automakers are concentrating on offering more
optional features (which will save money on gas) even on the
small and less gas-guzzler vehicles in order to attract buyers.
The sale of optional features is helping them offset lower profit
margins for small cars relative to large trucks.
The automakers continue to shift their production facilities from
high-cost regions such as North America and the European Union to
lower-cost regions such as China, India and South America.
According to a study by CSM Worldwide, China and South America
together are projected to represent more than 50% of growth in
global light vehicle production in the auto industry from 2008 to
The role of governments is highly significant. Governments in all
major countries have become active auto industry players. Their
energy and environmental policies will be strongly responsible in
molding the auto industry in the coming years.
In late 2011, 13 major automakers, including Ford, GM, Chrysler,
), Jaguar/Land Rover, Kia, Mazda, Mitsubishi, Nissan, Toyota and
Volvo, have signed letters of commitment with the U.S. Government
to upgrade the fuel economy standard of cars and light-duty
trucks to 54.5 miles per gallon (mpg) by 2025.
The new standard is more than double the Corporate Average Fuel
Economy (CAFE) standard of 24.1 mpg. It is expected to save 12
billion barrels of oil and curtail oil consumption by 2.2 million
barrels per day, which accounts for half of the oil imported by
the U.S. from OPEC countries on a daily basis.
The new standard also aimed at reducing carbon pollution to 163
grams per mile of CO2. With this, more than 6 billion metric tons
of greenhouse gas will be curbed over the time span of the
program, which accounts for more than the amount of carbon
dioxide emitted by the U.S. in 2010.
Pent-Up Demand and U.S. Market Recovery
Strong pent-up demand due to aging vehicles on the U.S. roads
along with falling unemployment rate have been the key factors in
driving the auto sales in the U.S. Average age of vehicles on
U.S. roads increased to 11.3 years in January 2013 from 10.8
years in 2012. Banks were also friendlier as they offered greater
access to loans with lower interest rates.
Auto sales in the U.S. grew 13.4% to the five-year high of 14.5
million vehicles in 2012 including a 9% rise to 1.4 million in
December last year. Further, in January 2013, auto sales rose
14.2% to 1.04 million vehicles that translate into a seasonally
adjusted annual rate (SAAR) of 15.3 million units for the year,
up about 1 million units from 2012.
GM expects a 7% rise in industry sales in 2013. Meanwhile, Ford
predicted an 8% gain in the year, which reflects more than
threefold rise compared with the overall economic growth of
2%-2.5% forecasted by the automaker.
Asia Promises High Growth
The Asian countries, especially China and India, are expected to
account for 40% of growth in the auto industry over the next five
to seven years being the rapidly growing economies. According to
Global Insight -- a U.S. based provider of economic and financial
information -- 14.7% of growth is expected to come from India and
8.3% from China by 2013.
Ford anticipates global sales to expand by 50% to 8 million
vehicles by 2015 given the potential growth in Asia, mainly China
and India; and rising demand for small cars. The automaker
anticipates small cars to account for 55% of the total sales by
2020 compared with 48% presently. One third of the small car
sales are expected to come from Asia.
The Chinese automakers have been struggling hard to enhance their
global profile by upgrading their technology to meet
international standards. Meanwhile, Indian automakers are also
sallying into international markets by introducing their
innovative products that could meet consumers demand abroad.
In late 2012, Ford announced plans to boost exports of its engine
production from India by shipping them for the first time to
Europe. Currently, the automaker exports 40% of its Indian-made
engines and 25% of its Indian-made cars to 35 countries. The
company's plan to rev up Indian exports is in line with its
capacity expansion programs in the country. The company expects
to manufacture 450,000 cars and 600,000 engines in India by 2015.
Ford already pumped in $2 billion to build manufacturing
facilities in India. However, it is still lagging behind Hyundai
Motor and Maruti Suzuki India Ltd, which occupy the lion's share
in the Indian car market.
Auto sales in China had grown at a double-digit pace since 1999,
except in 2008 when the global economic crisis crept in. In 2009,
China overtook the U.S. as the biggest auto market in the world
by sales volumes when the Beijing government introduced a
stimulus package, including tax incentives for small cars. China
accounted for a third of light vehicle sales growth in the last
However, the incentives were scrapped in 2011 and the Beijing
government imposed quotas on new car registrations in order to
control the traffic congestions. In 2012, sales in China grew
4.3% to 19.3 million units, including a 7.1% gain in December to
1.8 million units. Despite being higher than the 2011-level of
2.5%, sales growth is lower than the 8% growth projected by China
Association of Automobile Manufacturers (CAAM) as well as the
double-digit growth in 2009 and 2010.
The lower-than-expected growth was attributable to a sluggish
economy, rising fuel costs, weak Japanese automakers sales owing
to a conflict between Beijing and Tokyo over a group of
uninhabited islands in the East China and drastic steps take by
few major cities to curb traffic congestion and emission level.
Auto sales in the country are expected to improve if the
government renews some of its policy incentives that helped the
country overtake the U.S. as the biggest auto market. It is
rumored that the government would soon resume paying subsidies to
rural consumers who are willing to trade in old vehicles for new
and fuel-efficient vehicles.
According to CAAM, auto sales in China are expected to rise 7% to
more than 20 million vehicles in 2013, led by strong demand for
passenger vehicles and economic recovery. The association
believes SUVs will remain the fastest-growing segment in the year
while commercial vehicles will record a moderate gain in sales.
Although automakers continue to focus on shifting their
production facilities to new regions driven by cost and demand
factors, developing the supplier networks remains one of the
greatest challenges faced by them. Existing suppliers to
automakers often lack the financial strength to expand capacity
in new markets. On the other hand, auto parts suppliers are
sensitive to technology transfers to local third parties, which
can give rise to low-cost competitors.
Since 1999, more than 20 of the largest global auto parts
suppliers have filed for bankruptcy. The financial condition of
the majority of auto market suppliers continues to deteriorate,
resulting from a historically weak demand and high dependence on
Thus, despite the government's sizable investment in the
industry, it is likely that there will be auto parts suppliers
who are unable to restart operations due to a lack of sufficient
working capital even as automakers start production. According to
the Original Equipment Suppliers Association, 12% of the auto
industry suppliers do not have sufficient working capital to
support a 10%-25% expansion in production.
High dependence on automakers makes the auto market suppliers
vulnerable to several maladies, primarily pricing pressure and
production cuts. Pricing pressure from automakers constricts
parts suppliers' margins. On the other hand, production cuts by
automakers driven by frequent market adjustments negatively
affect their operations.
Some of the auto industry suppliers who have a high reliance on a
few automakers such as General Motors, Ford, Chrysler and
American Axle and Manufacturing
Goodyear Tire and Rubber Co.
Future of Green Cars Looks Bleak
Rising fuel prices and global warming have turned attention to
the auto industry that either rely less on traditional fossil
fuels or use cheaper renewable sources of energy. Thus, "green"
alternatives such as fuel-efficient electric vehicles (EVs) and
hybrid vehicles will attract consumers in the affluent countries
while flex-fuels such as ethanol and natural gas will be highly
demanded in the emerging auto markets due to their suitability
with the local climate and resource base.
Despite the U.S. Government's continued effort to promote
plug-in-hybrids or EVs, the future of green cars looks bleak, at
least in the near future.
Globally, the hybrid market is ruled by Toyota (which includes
the highly acclaimed Prius) and Honda (includes Civic and Insight
hybrids). Meanwhile, other automakers such as Ford, General
Motors and Nissan are also aggressively pursuing a plan to push
hybrid sales. Some of the well-recognized "green" cars include
the Ford Focus, GM Volt, Nissan Leaf and
) smart USA micro EV. U.S. is the largest hybrid car market in
the world with sales accounting for 60%-70% of global hybrid
Many leading automakers took steps in the last one and half years
to push green car technology. In late 2011, Ford and Toyota have
signed a memorandum of understanding on the equal product
development collaboration for developing a gas-electric hybrid
engine for pickup trucks and sports utility vehicles (SUVs),
which is expected to be marketed by the end of this decade.
In August 2012, Ford revealed its plan to invest $135 million to
develop key components, including advanced battery systems, for
its next-generation hybrid-electric vehicles. The automaker is
looking forward to double its battery-testing capabilities to 160
individual battery-test channels by 2013. Ford aims to reduce
cost of its current hybrid system by 30% compared with its
previous-generation system. It also plans to triple production
capacity of electrified vehicles by 2013.
GM also plans to manufacture a luxury electric car dubbed ELR
based on the technology used in its Volt plug-in hybrid for its
Cadillac brand as a part of its long-term goal to become a leader
in the fuel-efficient vehicles market. The automaker intends to
manufacture 500,000 vehicles per annum by 2017 that will include
some from of electric technology.
The vehicles would mainly include plug-in hybrids such as
Chevrolet Volt, apart from pure electric vehicles such as
Chevrolet Spark EV that will go on sale in 2013. The company also
plans to push its eAssist system technology in its new vehicles.
The eAssist system boosts fuel efficiency by 25% in
However, the industry has witnessed some notable adverse
developments in the drive for green technology. In January 2013,
the U.S. Department of Energy (DOE) backed off President Barack
Obama's stated goal of putting 1 million electric cars on the
road by 2015 due to weaker than expected demand for plug-ins/EVs.
According to Hybridcars.com, plug-in/EV sales constituted a
meager 3.3% of the overall sales in the U.S. in 2012.
The weak demand for plug-ins/EVs has led some lithium-ion battery
makers file for bankruptcy protection in 2012. They include
MA-based A123 Systems Inc. and NY-based EnerDel, despite both
being DOE grant recipients (A123 - $249.1 million; EnerDel -
$118.5 million). It also led another DOE grant recipient (in
fact, the third largest with $161.0 million), Dow Kokam, to be
written down by chemical behemoth
), who jointly operated the entity with TK Advanced Battery LLC
Since November 2009, Toyota recalled about 20 million vehicles
globally, surpassing all other automakers. Few months back, the
automaker had announced a major worldwide recall of 7.43 million
vehicles that included more than a dozen models manufactured
between 2005 and 2010. The recall was related to faulty power
window switches in the vehicles that can cause fire because they
did not have grease applied properly during production.
In 2012, the Transportation Department of U.S. slapped a fine of
$17.35 million on Toyota due to late response regarding a defect
in its vehicles to safety regulators as well as late recall of
those vehicles. According to the department, it was the maximum
allowable fine under the law for not initiating a recall in a
timely manner. The latest fine adds to $48.4 million imposed by
the U.S. government on the company in 2010 due to late recall of
millions of defective vehicles.
Toyota would also need to pay $1.1 billion to settle a
class-action lawsuit related to complaints of unintended
acceleration in its vehicles. According to a plaintiff lawyer,
the settlement is one of the largest in a lawsuit in the history
of automotive industry. The lawsuit blamed Toyota's defective
electronic throttle-control system rather than floor mats and
sticky accelerator pedals for unintended acceleration, resulting
in a crash. The settlement would pacify 16 million owners of
Toyota, Lexus and Scion of model years 1998 to 2010.
In the spate of recalls following Toyota's, other automakers'
recalls also came into the limelight. They include Chrysler,
Ford, GM, Honda and Nissan. Among them, GM recalled most
Economic Crisis in Europe
The present Eurozone financial crisis has adversely affected the
operations of many global automakers, especially GM and Ford, who
have a significant exposure to the market. Car sales in Europe
continued to be low owing to weak consumer confidence on the back
of a weak economy triggered by the crisis.
According to the European Automobile Manufacturers' Association
(ACEA), car sales in Europe reached its lowest level of 12.05
million units in 2012 since 1995, indicating a year-over-year
decline of 8.2% due to the sagging demand for cars, as highly
indebted banks were reluctant to finance new car purchases for
customers. The decline was the steepest in the Eurozone, where
car sales dipped 11.3% to roughly 9 million units, according to
Car sales in December last year fell for the straight 15th month
and at the fastest pace since October 2010. As many as 799,407
vehicles were sold during the month, falling short of the
2011-level by 16.3%.
Most of the major EU markets registered a double-digit fall in
sales in December. Sales tumbled 14.6% in France, 16.4% in
Germany, 22.5% in Italy and 23.0% in Spain. The U.K. was the only
market that came up with sales growth of 3.7% in the month.
The U.S. automakers General Motors and Ford saw the steepest
decline in sales among all the major automakers operating in the
continent. Each of their sales shrank 27% in December. Meanwhile,
Japanese automaker Honda sales slipped 6.7% in the month.
Among the European automakers, Volkswagen -- the biggest in
Europe -- recorded a 15% decline in sales in December, driven by
a 20% fall in sales of its namesake brand. Meanwhile,
) and Renault each posted a 19% fall and
) recorded a decrease of 18%.
Most major automakers in Europe are resorting to job cuts and
plant closures, as it became no longer feasible for them to
undertake full-fledged operations in the continent. Unemployment
in the EU reached 26 million in November last year, while the
unemployment rate increased to 10.7% in the same month from 10%
in November 2011.
Among the U.S. automakers, Ford plans to shut vehicle and
component plants in the U.K. and Belgium in the next two years
while General Motors would suspend car production at its Bochum
plant in Germany -- which employs 3,100 workers -- in 2016.
Among the European automakers, Renault plans to retrench 7,500
jobs in France by 2016 while Fiat and Peugeot have decided to
eliminate 1,500 jobs each. Among the Japanese automakers, Honda
announced plans to terminate 800 jobs at its South Marston plant
near Swindon in southwest England in the second quarter of