This report has been requested by the Institute for the Examination of Public Policy (IEPP) to report on the UK government’s newley declared policy on the development of ultra- low emission vehicles. The report explains in details the economic structure of the global mass volume car industry, explains and analyses the government policy of attempting to foster the development of a significant ‘Tier 1’ electric car component supplier in the UK and concludes with our group expert analysis whether this policy is going to lead to the establishment of high added value electric vehicle component industry in the country that will provide significant levels of employment.
This report has been created based on various articles, journals, textbooks, online websites as well as economic lectures that would be referenced in the end of this report.
3.0 ECONOMIC STRUCTURE OF THE GLOBAL AUTOMOTIVE INDUSTRY
MARKET STRUCTURE OF AUTOMOTIVE INDUSTRY- THEORY
The market structure of automotive industry is dominated by a small number of large sellers. This type of market structure is called oligopoly. The seller can change the price of the product, however the reaction of the competitors is not known. The competitors in the act of price change may increase or decrease prices and volume as a direct respond, or as well they could remain stable. Oligopoly in the automotive industry is continuous in product differentiation that means that products are different one from another. Oligopoly allows competition in a major market although the product is mostly identical that leads to usually independent competition. Prices mostly are set up by the market itself and if any of the competitors decide to increase the price of the product that will lead to lose market share and what is more lose of profit.
Automotive industry is very global that contain large centralised factories with suppliers from all over the world. Tier 1 producers are the name brand major car firms responsible for assembling the car, design, marketing and sales. Tier 1 suppliers are responsible for producing the necessary equipment for Tier 1 producers such as gearboxes, seats, braking and safety equipment. Moreover they are the brainwork as they are responsible for developing new technology and conduct research and development.
Few years ago it was possible to specify three main types of manufacturers such as: i.
High volume, full range producers (Ford; VW; Fiat)
Specialist producers (Mercedes; Audi; BMW)
Niche producers (Lotus; Ferrari)
However, this structure has changed over the last few years. The globalization has been evident in few main forms that lead to merging and acquisitions as well as foreign direct investment (FDI).
New researches shows that automobile industry is based on single technology that is concentrated on high cost, few competing technologies, research and development of automobile manufactures that can be improved at later date.
MARKET STRUCTURE OF AUTOMOTIVE INDUSTRY IN THE UK
The automotive industry is very important part of UK economy, generating a manufacturing turnover of almost £52 billion and employing almost 800,000 people. More than 40 companies manufacture vehicles in UK. It produces about 1.5 million cars and 216,000 commercial vehicles per year, where about 75% are exported to other countries. The automobile market is very competitive on the worldwide market and the domestic’s government policies (taxation), country economic conditions as well as industrial performance are playing highly important role in this industry. The automotive sector contributes £10 billon added value to the UK economy. The value of exports is £26.6 billion and in the last decade has risen by 35%. The recession had a huge impact on automotive industry in the UK where the pay freezes and many redundancies had to be taken. Moreover, the figures for the UK car market...
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