Transcript
__________________________________________________ The Global Car Industry: Coming out of Recession and a Credit Crisis N.S. Potter The car industry went through an exceptionally turbulent period between 2008 and2010. “The change that has hit the world economy is of a critical scale that comesonce in a hundred years” said Katsuaki Watanabe, announcing Toyota’s first annualloss in its 71 year history. The firm said it had made a loss of 150 billion Yen (£1.1billion) in yearly operating profits and confirmed that vehicle sales in the U.S. hadfallen 37% by December 2008.The U.S. government provided GM with a total of $50 billion to see it throughrestructuring and exit from Chapter 11 bankruptcy. In return the government got acontrolling stake. Canada became the second G8 economy to bail out its car industry. The Global Car Industry in 2010 - An Overview. Car manufacturing has been described as the industry of all industries . Strong interdependence therefore exists between the economies of many countries and industryperformance. Governments rely on the sector as well as related suppliers and servicesto a greater or lesser extent in terms of employment, taxation, GDP and balance of payments. Car makers equally, require growing economies with rising levels of disposable income and consumer confidence. The events of 2008/9 also demonstratedthe industry’s reliance on freely available credit to finance the purchase of itsproducts. “Credit availability has been the biggest issue in our industry this year”,according to Mike Jackson, Chief Executive of the largest car dealer in America._____________________________________________________________________ This case was prepared by N.S. Potter of Birmingham Business School and is intended as a basis forclassroom discussion rather than to illustrate correct or incorrect handling of any administrativesituations - N.S. Potter, 2010. 2 Meanwhile, between 2008/10, Toyota recalled hundreds of thousands of vehicles for avariety of faults, calling into question the implementation of its growth strategy.The credit crisis has affected economies globally and reduced activity in a wide rangeof industries, notably housing and the fall in property values, coupled with the fear of unemployment has reduced consumer confidence around the world. Many analystsnow think that car sales will slowly recover during 2010 but may take until 2013 toreturn to the level reached in 2007, (CSM Worldwide, Detroit).China overtook the US during 2009 to become the biggest car market in the world asgovernment policy initiatives spurred demand. China sold more than 13.5m vehiclesduring the year, according to the official Xinhua news agency and this compared with10.4m cars and light trucks sold in the US, the lowest level in 27 years. China'smarket grew by 45% year-on-year in 2009, providing a rare glimmer of hope for theworld's beleaguered car manufacturers, such as General Motors, Volkswagen andToyota. Total industry sales fell 21% in the formerly dominant US market, andVolkswagen has said that China is now its biggest market.Governments must balance these economic considerations with environmental issues,as well as the aspirations of consumers in terms of mobility and materialism.Politicians need to find a compromise between these opposing forces and the ways inwhich they impact on the voting intentions of different groups in their respectiveelectorates. The effects of oil price volatility, the credit crisis and subsequentrecession on the environment appear to be mixed. Some environmentalists areconcerned that economic issues will dominate the political agenda, while others pointout that people are flying and driving less and that the car industry in particular, willbe forced to spend heavily on developing more eco friendly products.Core industries base strategic decisions on the car industry as seen in the move bysteel makers to site manufacturing facilities in developing countries where car makingis starting to take place and demand for commodities was rising rapidly until mid2008. 3 The car industry may experience only low growth going into the second decade of the21st century. However, this will be spread unevenly, both between countries andindividual companies. One of the key elements driving dynamics in the car industry isever increasing globalisation. Rapid change is taking place, continually alteringindustry structure and attractiveness as well as the key success factors necessary forboth survival and growth. Japanese companies were forced to manufacture overseasfor much of the 1990s due to the continuous appreciation of the Yen and with itscurrency at a thirteen year high against the dollar in early 2009, Japan has seen exportsto America fall by 33.8% and to the E.U by 30.8%, (BBC News). 40% of all cars soldby Toyota in the U.S. are currently manufactured in Japan.China and India, with combined populations of two billion, clearly have enormouspotential, but appeared to be equally vulnerable to world events. Chinese car sales fellby 14.8% in the year to November 2008, before that strong recovery and sales in Indiafell by 19.4%, (Society of Indian Automobile Manufacturers) due to credit problemsand high interest rates. The Society of Indian Automobile Manufacturers (SIAM),released its first ever demand forecast for the Indian automobile industry in July 2010,predicting growth for 2010-11 of 12-13%.South America as a whole is set to become a significant market with Brazil now the6th largest producer in the world, however annual sales fell 16.9% in the year toDecember 2008, (Reuters). Brazil is projected to reach sales of 3.3 million units in2010, an increase of eight per cent over 2009, however a new manufacturing facilityplanned by Honda in Argentina was postponed until at least 2010, (Associated Press).Europe also saw sales plummet during 2008, temporarily overtaking the USA tobecome the largest volume market in the world, however, South East Asian marketsare becoming ever more significant. Tightly defined product segmentation has takenplace as traditional markets mature, while the rapid growth of emerging economieshas provided opportunities to extend product life cycles on a geographical basis. 4 The pace of globalisation has varied considerably within the triad. Most European carmanufacturers have significant positions only within Europe. U.S. companies tend tohave major shares domestically and in Europe, while only two major Japanesecompanies can claim to be truly global.Although the industry is concentrating, no single company is close to dominating themarket and in fact seven companies have between 10% and 15% market share. Thelevel of acquisition activity has been reasonably intense but the other major feature of the industry has been the degree of collaborative activity. A variety of alliances andjoint ventures have been utilised as a means of growth, as isolating mechanisms andeven to circumvent national political issues. In 1980, there were 30 independent carmanufacturers, by 2000 this had fallen to 13 and it is predicted that by 2015 thenumber will have fallen to 10, a situation which could be exacerbated by the globaleconomic situation.The industry value chain is also altering and becoming capability led, as companiesfocus downstream towards the customer interface where the most explicit value isincreasingly being added. The Original Equipment Manufacturer’s (OEM’s) share of total value creation stood at 36% in 2002 and this will fall to 23% by 2015. Despitethis, the component manufacturers face similar consolidation pressures with 8000suppliers in 1998 expected to fall to 2800 by 2015.Technology is changing the upstream supply chain as component suppliers split intotiers and become total solution providers, often diversifying from previously unrelatedindustries such as electronics, computer software and aerospace. Companies such asDelphi, Bosch, Continental, Lear, Siemens, Thyssen Krupp and Visteon will becomedominant. Summary of main conclusions
