Automotive Industry: The Key Industry Drivers

Economic Conditions:

The first key driver is economic conditions. When economic conditions are favorable, people are more likely to purchase new vehicles giving momentum to the industry. The slowdown in economic output leads to reduced consumer and business confidence and levels of vehicle consumption go down.

Automotive manufacturers need to plan capacity to achieve economies of scale. Companies plan their capacities based on their sales predictions which are totally dependent on economic cycles. The capacity issue has a strong influence on industry economics as vehicle prices are calculated on forecast capacities and reduced capacity means higher unit costs. Vehicle makers, therefore, get heavily impacted due to economic conditions.

Consumer Demand and Interests:

The second key driver is consumer interest, preferences, and demand. There is a growing demand for more choice. Volume production may become similar to that for premium cars, with a greater number of vehicles being made to order on the basis of a multi-option choice. The market for niche vehicles is growing, as consumers demand more variation of body shape and styling. This has led to a variety of body shapes being constructed on standard platforms.

There is an increased awareness of occupant and pedestrian safety, and consumers also look for greater fuel economy, exemplified by the growing rise of fossil fuel prices. Consumers is becoming more aware of specifications and looking for the inclusion of more on-board electronics and telecommunications systems. Automobile safety is tremendously important to consumers in all markets and consumers are willing to pay more for vehicles with safety features.

Globalization:

The third key driver is globalization and global industry influences. Today, the modern global automotive industry operates in a globally competitive marketplace. Globalization of the automotive industry has been greatly accelerated during the last half of the 1990s due to the construction of important overseas facilities and the establishment of mergers between giant multinational automakers. The world's largest automobile manufacturers invest in production facilities in emerging markets in order to reduce production costs. Automakers have merged with, and in some cases established commercial strategic partnerships with other automobile manufacturers, enabling them to expand in overseas markets.

Increasing global competition amongst the global manufacturers and positioning within foreign markets has divided the world's automakers into three tiers, the first tier being GM, Ford, Toyota, Honda, and Volkswagen, and the two remaining tier manufacturers attempting to consolidate or merge with other lower-tier automakers to compete with the first tier companies.

Technological Innovations:

The fourth key driver influencing the automotive industry significantly is Technology. Automotive companies seek to take advantage of sophisticated technology to address the competitive pressure and to meet increased customer expectations on quality and cost. Technological advances help them add value to their vehicles and offset the squeeze on costs and profit margins. Technology also helps them meet the demands of environmental legislation. It is through technology that manufacturers are able to address consumer demands for increased safety and sophistication.

Other innovations that consumers are interested in include features that improve navigation, like GPS, and features that enhance entertainment, including satellite radio and in-car access to digital music.

In terms of the vehicle, the innovations that are likely to be in demand are more electronics and telematics, move to a 42-volt electrical system, safety improvements, electrically controlled steering, braking, ABS, and suspension. There might be the continued development of electric, hybrid, and fuel cell drives, especially for city cars and fleet vehicles.

Features likely to be introduced could be sophisticated route guidance, inter-model route planning, lane guidance, and proximity radars for speed control and warning systems. The consumer in this sector always demands innovation and technology-driven innovations such as fuel-efficient, safer, more comfortable low-emission vehicles will shape the future of the industry.

Government & Regulations:

The fifth key driver of the automotive industry is government. The legislation is a major driver of the industry; emissions and recycling legislation have a strong impact on both on-vehicle technologies and construction. In many countries, governments have imposed strict environmental regulations dealing with fuel economy and emissions control on auto manufacturers. These environmental legislations vary in different countries and define standards that are compulsory for all vehicles sold in those countries. This has a huge impact on global auto manufacturers as they must keep updating the products they sell in different parts of the world to comply with these regulations. This can add significantly to manufacturing costs.