The automotive industry is highly concentrated, with the top-10
global automakers accounting for roughly 80% of worldwide
production and nearly 90% of total vehicles sold in the U.S.
In the first nine months of 2012,
General Motors Company
) led with a 18.1% market share in the U.S., followed by
Ford Motor Co.
) with a 15.5% market share,
Toyota Motors Corp.
) with a 14.4% market share, Chrysler-Fiat with a 11.5% market
Honda Motor Co.
Nissan Motor Co.
) at the last spots with 9.8% and 7.9% market shares, respectively.
Due to a massive structural change after the global economic
meltdown in 2008, the global auto industry is expected to be ruled
by automakers and suppliers based in the six major auto markets -
the U.S., Western Europe, Japan, China, India and Korea.
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 advanced
The recent trend shows that 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.
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.
Consequently, there will be a variety of powertrain technologies in
the auto industry in this decade, and "green" cars are likely to
represent about 30% of total global sales in developed auto
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 plans to push hybrid
sales. Some of their "green" cars have already generated a huge
response in the auto industry, including the Ford Focus, GM Volt,
Nissan Leaf and
) smart USA micro EV.
In late 2011, Ford and Toyota have signed a memorandum of
understanding on the equal product development collaboration in
order to develop a gas-electric hybrid engine for pickup trucks and
sports utility vehicles (SUVs). The automakers have decided to sign
a definitive agreement that would lay out timelines to develop the
technology. They expect to market the product by the end of this
decade. The development of electric hybrid engines would help both
the companies meet stringent fuel economy and pollution standards
in the U.S. and elsewhere in the near future.
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.
It aims to boost development of hybrid-electric vehicles by at
least 25%. The company will utilize its 285,000-square-foot
research and development lab, Ford Advanced Electrification Center,
in Dearborn, Michigan to focus almost entirely on hybrids and
electric vehicles. Presently, 1,000 engineers are working on hybrid
and electrification programs at the facility, formerly known as
Advanced Engineering Center.
Ford aims to reduce cost of its current hybrid system by 30%
compared with its previous-generation system. The company plans to
launch five fuel-efficient hybrid-electric vehicles this year
including Focus Electric, C-MAX Hybrid, C-MAX Energi plug-in
hybrid, new Fusion Hybrid and Fusion Energi plug-in hybrid. It also
plans to triple production capacity of electrified vehicles by
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 company has also chosen battery
A123 Systems Inc.
) for its all-electric subcompact car for the Chevrolet brand that
is yet to be built.
U.S. is the largest hybrid car market in the world with sales
accounting for 60%-70% of global hybrid sales. According to J.D.
Power and Associates, hybrid-electric vehicle sales volumes in the
country are expected to grow by 268% between 2005 and 2012.
Presently, there are only 12 hybrid models available in the U.S.,
which would increase to 52 by 2012. Leroy, head of Toyota's
European operations, has revealed that the percentage of consumers
in Europe interested in hybrid cars for their next car purchase has
increased to 16% in 2011 from 8%-9% in 2009.
U.S. Market Recovery
The Big Three Detroit automakers (GM, Ford and Chrysler), who
command the lion's share of the U.S. auto market, bounced back with
the help of a recovery in the global market, restructuring of the
product portfolio, strong pent-up demand and cheap financing (when
average interest rate was 4.1% - the second-lowest since December
2011) in the U.S. after being severely hit by the global economic
In fact, higher average age of cars on U.S. roads (10.8 years) and
falling unemployment rate have been the key factors in driving the
auto sales in the U.S. despite higher gasoline price. In September,
U.S. auto sales reached its highest monthly seasonally adjusted
annual rate (SAAR) of 14.9 million vehicles since March 2008, four
months after the global economic recession set in. For 2012,
industry sales are expected to grow 13.3% to 14.5 million vehicles
on a SAAR basis from 12.8 million vehicles last year.
The Rise of Asian Automakers
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.
The Chinese automakers have been struggling hard to enhance their
global profile by upgrading their technology to meet the
international standards. Meanwhile, Indian automakers are also
sallying into international markets by introducing their innovative
products that could meet consumers demand abroad.
Recently, 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,
but fell 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 with engine sizes
of 1.6 liters or smaller.
However, the incentives were scrapped last year and the Beijing
government imposed quotas on new car registrations in order to
control traffic congestion. In the first nine months of 2012,
passenger vehicle sales in China increased a tad 3.4% to 14.1
million units, according to the China Association of Automobile
Auto sales in the country are expected to improve further 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, passenger car sales in
2012 is expected to grow by 9% in the country, which is much higher
than 2011 (2.5%).
Domestic automakers are likely to rule the key growth market of
China as the government plans to consolidate the top 14 domestic
automotive companies into 10. These automakers would capture a
share of more than 90% in the local market.
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 they face. 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
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 automakers.
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 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
Some of the auto industry suppliers who have high reliance on a few
automakers such as General Motors, Ford, Chrysler and Volkswagen
American Axle and Manufacturing
Goodyear Tire and Rubber Co.
The shift in consumer preferences in the auto market towards
hi-tech, fuel-efficient and environment-friendly vehicles, such as
small cars/hybrids/EVs, is another issue. Auto market suppliers are
expected to quickly adapt to new technologies by investing in
research and development programs, putting heavy capital burdens on
The automakers also face significant challenges in transforming
their existing powertrain technologies into the latest versions, as
far as marketability is concerned. They are adapting the internal
combustion engines to alternative energy, including ethanol and
Ultimately, a time may come when they switch to the all-electric
powertrain as their sole powertrain solution. However, the shift in
powertrain technology needs to be supported by adequate charging
outlets in order to recharge batteries, which is again a serious
matter of concern.
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Automotive safety recalls became a serious issue after they were
brought into focus by media after Toyota's announcement of a series
of recalls since November 2009. Toyota has recalled more than 15
million vehicles globally in more than 20 recalls, surpassing all
other automakers. The Transportation Department of U.S. had also
imposed a fine of $48.4 million on the company due to late recall
of millions of defective vehicles.
Toyota's recalls were related to problems such as faulty
accelerator gas pedals, slipping floor mats and defective braking
systems. They led the automaker to suspend the sale of its models
several times and halt new car launches.
Recently, the Japanese automaker announced its largest global
recall in its 75-year history of 7.43 million vehicles due to
defective power window switches that can cause fires. The recall
includes models such as Yaris, Vios, Corolla, Matrix, Auris, Camry,
RAV4, Highlander, Tundra, Sequoia, xB and xD, manufactured between
2005 and 2010.
In the spate of recalls following Toyota's, other automakers'
recalls made headlines. They include Chrysler, Ford, GM, Honda and
Nissan. Among them, GM recalled most frequently, followed by Ford.
Japan Disaster & Floods in Thailand
The earthquake, tsunami and the nuclear crisis in Japan in March
11, 2011 have thrown the global automotive industry out of gear.
The auto parts supply chains have paralyzed, triggering production
shutdowns, work shift reductions and cancellation of orders.
Japan accounts for about 13% of the worldwide automobile
production, with U.S. being its largest market. Production of about
40 auto-parts manufacturer in the country has been jeopardized due
to plant outages and power shortages following the earthquake.
The global automotive industry faces interruptions in supply of
critical components such as transmissions, electric vehicle battery
packs and electronic semiconductors.
Another crisis that the auto parts supplied from Japan poses is
their uniqueness. Most of the auto parts sourced from Japan is
unbelievably complex and specifically tailored. As a result,
finding substitutes for such customized components becomes very
Further, looming power shortages in the country caused by the
meltdowns at Fukushima Daiichi nuclear power plant after the
earthquake are affecting the automakers. Currently, Japan's power
generators are mainly run by imported gas and fuel as all the
nuclear reactors have been shut down for routine safety checks due
to the meltdown issue.
No sooner had the global automakers (particularly those in Japan)
started recovering from the twin disasters in Japan than they were
struck with another catastrophic natural disaster in Thailand.
Thailand is an important manufacturing base in Asia for most global
automakers, particularly those in Japan.
The automobile production in Thailand severely hampered by floods
in the country that killed more than 500 people and damaged many
automakers' and their parts supplier's plants. In fact, vehicle
production in Thailand plummeted to the lowest level in more than 9
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. The European Automobile
Manufacturers' Association (ACEA) reported a 7.1% fall in sales to
8.3 million cars in the continent in the first eight months of
Demand for cars in the continent has started to weaken. As a
result, the automakers are trying very hard to entice the consumers
with the help of steep discounts and other sales promotions, which
will put a downward pressure on their margins. The West European
car market is expected to decline to 11 million units in 2012. Some
automakers have projected that European auto market will shrink 5%
Ford revealed that it is likely to lose between $500 million and
$600 million in 2012 in the 19 European markets covered by the
automaker owing to the ongoing debt crisis. The figure compared
with a meager $27 million loss recorded by the company in 2011. In
the fourth quarter of last year, the loss amounted to $190 million.
Ford has toned down the industry volume guidance (including medium
and heavy trucks) for full year 2012 to about 14 million units from
the prior guidance of 14.0 million units-15.0 million units.
Meanwhile, GM's European arm, Opel, revealed that it expects to
report an operating loss of €1 billion ($1.3 billion) in 2012 due
to fewer car sales than anticipated.
Opel expects to sell 1.4 million vehicles in 2012, which are about
100,000 units less than the earlier projected sales. In order to
reverse the 12 years of losses in Europe (totaling more than $12
billion), particularly from the Opel brand, GM has recently formed
a global allowance with PSA
They may agree to form a 50-50 joint venture between GM's Opel
division and Peugeot's core manufacturing arm. The alliance will
help both the automakers reduce at least $2 billion in costs.