SIC 3711 NAICS 336111 One of the largest sectors of the global economy, the automobile industry manufactures passenger cars, trucks, commercial cars, and buses. Included in this discussion are firms that build chassis and passenger car bodies. Although some industry companies also manufacture motor vehicle parts, this topic is covered separately under the heading Motor Vehicle Parts and Accessories. INDUSTRY SNAPSHOT In the mid-2000s, the worldwide leader in the motor vehicle industry was the United States, followed closely by Japan in second place, and Germany in third. The top six companies in the industry secured more than half of global sales, although the rest of the industry's (ROI) companies were steadily gaining market share on GM, Toyota, Ford, DaimlerChrysler, Volkswagen, and Honda. Although the three mature world markets—Japan, North America, and western Europe—continued to account for the majority of global motor vehicle production and sales, nearly all of the industry's future growth was projected to come from emerging markets in the Asia-Pacific region, Latin America, the Middle East, and eastern Europe. Due to increasing globalization, the saturation of mature markets, and economic decline in North America and Europe, the automobile industry worldwide is characterized by intense competition. As a result, most major manufacturers restructured operations in an effort to speed product development, reduce costs, and improve production efficiency. In addition, many manufacturers shifted production facilities to developing countries to take advantage of less expensive labor, reduce exposure to currency fluctuations, and avoid trade restrictions. Automakers also have been forced to lower prices, trim their ranks, and slow production to deal with waning demand for new vehicles. Adding difficulty for automotive manufacturers was the rise in steel prices, which increased by 30 to 40 percent in 2004. Iron was expected to rise in price by another 20 percent in 2005, according to Datamonitor. Automakers and suppliers were both seeing reductions in profits as a result. At the same time, the growing worldwide environmental movement has prompted automakers to increase research and development expenditures in an effort to build commercially viable electric and electric-gas hybrid vehicles and to make their cars fully recyclable. In the mid-2000s, Toyota was leading the way with "Prius," its gas/electric hybrid sedan. According to the Alliance of Automobile Manufacturers (AAM), 2004 "Tier 2" vehicle models were almost 100 percent cleaner than those of three decades before. In fact, more than one-third of all new vehicles met the strict, mandatory 2009 standards a full five years early. R.L. Polk & Company reported that registrations for hybrid electric vehicles in the United States were 81 percent higher in 2004, at 83,153 new registered vehicles, than in 2003. The Toyota Prius captured 64 percent of that market, with 53,761 new registrations. The Honda Civic Hybrid took 31 percent of the market with 25,586 registered hybrid cars in 2004. ORGANIZATION AND STRUCTURE The global automobile market can be divided into roughly six segments: three mature markets and three relatively new markets that reflect emerging economies. As they had been for decades, Western Europe, North America, and Japan were dominant in the mid-2000s. However, Eastern Europe, the Pacific Rim (excluding Japan), and Latin America presented a rapidly developing secondary consumer market. Three Mature Markets In 2004, the three mature markets taken together controlled more than 85 percent of the world's motor vehicle production and sales. Japan and Europe gained in market share during the early 2000s. The major difference between U.S. and foreign markets was that producers in the United States and Canada sold the majority of vehicles produced within the domestic market, while manufacturers in Japan exported more than 40 percent of total production. Global sales of all vehicles in 2004 were 61,387,595 units, 5.5 percent more than in 2003, as reported by Dale Jewett in Automotive News. North America Dominated throughout the latter part of the twentieth century by General Motors (GM), Ford Motor Company, and DaimlerChrysler, the U.S. car market was not so much characterized by an industry drive to increase total sales, but rather reflected the Big Three's intense competition with foreign manufacturers for market share. In the 1970s, U.S. automakers held 90 percent of the domestic passenger car market. By 2000, this figure had plunged to a mere 54 percent, due to the growing popularity of transplant cars (foreign cars made in U.S. plants) and imports. The rapid growth in sales of light trucks—which over the 10 years ending in 1992 doubled to reach 5.0 million units and increased by half again to a record 7.9 million units in 2004—helped U.S. manufacturers regain some of their lost market share. In fact, in 2004 more than half of all new vehicle sales were trucks. Truck sales were inflated in part by the extreme popularity of sport-utility vehicles, but standard pickups, compact pickups, and vans added to the total. However, although the Big Three held a dominant 79 percent share of the U.S. light truck market in 2000, that number had fallen from a high of nearly 85 percent. The popularity of sport-utility vehicles (SUVs) manufactured by rivals such as Toyota and Honda had allowed those firms to steal domestic light truck market share from the Big Three. By 2004, GM and Ford still held around 24 percent of the world market for motor vehicles, losing about 1.5 percent market share from 2003. The numbers improved when North American automakers' stakes in foreign automakers were included. GM Daewoo in South Korea sold just over 900,000 units in 2004, and Ford had a 34 percent controlling stake in Mazda. Japan Domestic car and truck sales in Japan totaled 3.96 million units in 2004, reflecting a slowdown of 1.6 percent, as reported by Datamonitor. Demand for passenger cars fell by .8 percent, and trucks by 5.8 percent. Sales growth in the Japanese domestic market was limited by a number of factors: a fluctuating economy in the 1990s that included national recessions punctuated by weak recoveries, unfavorable currency exchange rates, and a culture that considered cars a luxury rather than a necessity. However, global sales in Japan accounted for 30.9 percent of the global market, a small gain of almost 1 percent from 2003. The Japanese automotive market was dominated by six large domestic producers: Toyota, Nissan, Honda, Mitsubishi, Mazda, and Suzuki. Western Europe The European automobile market, traditionally restricted to include seven major western industrialized nations, expanded in the 1990s with the dissolution of the communist bloc into two major marketing segments. However, traditional leaders such as Germany, which produced more than 9.5 million vehicles in 2004, continued to dominate the market. Germany was the third-largest automobile producer in the world. France, with Renault and PSA Peugeot-Citroen SA, and Italy with Fiat S.p.A., were also major producers in the global automotive market. Enticed by the rapidly growing markets of eastern and central Europe, the largest automakers in these five nations positioned themselves to deal with continued growth and increased competition, and several companies established joint ventures with or acquired controlling interest in other companies to obtain broader market presence. Three Emerging Markets Asia-Pacific Perhaps the most volatile emerging market in the 1990s was the Asia-Pacific region, excluding Japan. Although in 1991 sales to this part of the world amounted to only 4 million units, that number climbed to 6 million units by 1996, and 8 million by the year 2000. China and India, the two most populous nations on earth, underwent economic reforms throughout the 1990s that were expected to increase buying power and open markets to international competition. In China alone, the possible increase of automobiles on the road was staggering, with estimated growth starting at 5 million units and increasing to 40 million by the year 2000. Chinese domestic manufacturers struggled with a possible overcapacity problem in 1997, when receipt of government subsidies was contingent upon meeting generous manufacturing quotas. Still, analysts called for continuing high market growth, though possibly with results somewhat below original expectations. In 2004, Chinese automakers increased global market share to 3.8 percent, but sales slowed to 7.4 percent growth in 2004. The slowdown, in contrast to 36.5 percent growth in 2003, was attributed to credit restrictions imposed by the Chinese government. Exponential growth certainly was possible in India, where in 1998 some 950 million people boasted fewer than 6 million registered automobiles. However, immediate expansion of the Indian market was thwarted in the late 1990s by a combination of economic and trade issues. Not only did India slap a 40 percent tariff on automotive imports, in late 1997 the country began to require potential importers to observe a 50 percent "local content" rule. At the same time, most Indian manufacturers were partnered with Japanese and South Korean automakers that were suffering the throes of their respective domestic economic upheavals. Still India held 1 percent of the global market, and sales passed 600,000 units, led by Tata Motors Ltd. and Mahindra & Mahindra, listed in Automotive News as two of the three fastest growing automakers. Indonesia, Taiwan, and the Philippines similarly struggled with slow economies. However, South Korea, the largest emerging market in the Asia-Pacific region, did recover from a significant drop in 1998 production to become the world's seventh-largest producer of vehicles, with a production level of 2.8 million units in 1999. This was due in large part to the success of Hyundai Motor Company,...
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