The Automotive Industry
Global vehicle production has more than doubled since 1975, from 33 to nearly 73 million in 2007. The opening of new markets in China and India has helped to drive the pace of growth. While seven countries accounted for about 80% of world production in 1975, 11 countries accounted for the same share in 2005.( Starkey,K. & McKinlay, A 2007: 89) Lead firms in the automotive industry, known as automakers or original equipment manufacturers, carry out most aspects of product design, the production of most engines and transmissions and nearly all vehicle assembly within their own facilities. They are large employers, traders and innovators. They have substantial coordination and buying power in the chain. The automotive industry is distinctive because of its extremely concentrated firm structure: a small number of giant companies exert an extraordinary amount of power over smaller firms. Eleven lead firms from three countries, Japan, Germany and the USA, dominate production in the main markets. The global scope of both lead firms and the largest suppliers was enhanced by a wave of mergers and acquisitions, and equity-based alliances in the 1990s. A second distinctive feature specific to the automotive industry is that final vehicle assembly, and by extension, parts production, has largely been kept close to end markets because of political sensitivities. Market saturation, high levels of motorisation and the tendency for automakers to ‘build where they sell’ have also encouraged the dispersion of final assembly, which now takes place in many more countries, than it did 30 years ago. (Maxcy, G & Silberston, A. 1959:15)
Industrialisation of the auto industry
The production of automobiles in volume began in the early 1890s, in Western Europe. The USA started the production of both electric and gas automobiles by 1896. In 1903, Ford stepped in. According to Starkey,K. & McKinlay, A the price of cars reduced from USD 850 in 1908 to USD 360 in 1916. The great depression and the World Wars saw a drop in sale; but the 1950s and 1960s were the glorious era for automobiles (driven by Ford, GM and Chrysler). Starkey,K. & McKinlay, A (2007:90) argues that production reached 11 million units in 1970. Starkey,K. & McKinlay, A further indicates that international business in the automobile industry dates back to the technology transfer of Ford Motor Company's mass-production model from the U.S. to Western Europe and Japan following both World Wars I and II. This gives rise to two important trends. The first one is that, the advancements in industrialization led to significant increase in the growth and production of the Japanese and German automotive markets. The second important trend was that due to the oil embargo from 1973 to 1974, the export of fuel efficient cars from Japan to the U.S. Earlier due to low fuel prices, US was producing ‘muscle cars’ but after the oil price shocks US had to compete with Europe and Japan who succeeded in producing fuel efficient cars. For the first time, design, marketing, prices, customer satisfaction etc become important in the automobile market. By 1982, Japan became the world leader in US market. The potential growth opportunities led to global overcapacity in automobile industry. 1990s observed the merger and acquisition (M&A) and formation of strategic...