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The UK and the global car industry

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Car manufacture is a major global industry. Most MEDCs produce cars and a growing number of LEDCs (mostly NICs) have become car manufacturers in recent decades. In addition, more than 100 countries make parts and components. This is a globalised industry that is in a significant period of change.

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small globe icon The major global car manufacturers

Figure 1 shows the world’s top ten car manufacturers in 2003. All are large transnational corporations. The American giant General Motors (GM) heads the list with over 8.5 million vehicles sold. Ford and Daimler Chrysler add to the significant American presence in large-scale motor manufacture. Japan is represented by Toyota, Nissan and Honda; Germany by Volkswagan and Daimler; France by PSA/Peugeot Citroen; and South Korea by Hyundai. In terms of overall national production, Japan replaced the USA as the top car manufacturer between 1980 and 1983. It regained first place from the USA in 1987 and still holds that position today. Some industry experts expect Toyota to take over from GM as the world’s largest car producer before the end of the present decade.

Figure 1. The World’s top ten car manufacturers in 2003.

Britain is unrepresented in the top car league, but this was not always the case. In 1972, British Leyland was the third-biggest car firm in the world. However, it was not long before poor management and uncooperative unions brought about the demise of British-owned car manufacturing. MG Rover, the last British-owned car company, collapsed in April 2005.

Although Toyoto is second to GM in terms of vehicles sold, its market capitation (stock market value) is by far the highest of all the major producers (Figure 1). The relatively strong stock market position of Japanese producers is because they are more profitable than their American counterparts. In 2003, Chrysler was losing $496 on every car it sold, compared with Ford’s $48. In contrast, GM made a profit of $178 per car. However, Japanese profits were far greater – Honda $1,488, Toyota $1,742, and Nissan $2,402.

The large American manufacturers, particularly GM and Ford, have been going through a very difficult time recently. According to The Economist, ‘For the past two years the threat of collapse has hung in the Detroit air as American car firms have wrestled with falling sales, unprecedented competition at home and soaring retirement and health-care costs for current and former employees’. GM now has 2.5 pensioners for every current employee. Costs associated with retired employees are known as legacy costs. Figure 2 shows the effect legacy costs have had on profits in recent years. The company has reacted to increasing competition, and it now employs only 324,000 workers compared to 877,000 twenty years ago, having laid off workers, closed factories and outsourced parts supplies. Under similar circumstances, Ford closed five American factories between 2002 and 2005. In the cities affected by plant closures, a negative process of cumulative causation has often ensued as sacked workers have found it hard to find new jobs.

Figure 2. The effect of legacy costs on profit margins.

However, as Figure 3 shows, the original equipment manufacturers (Ford, Toyota etc.) are only one part of the automotive-industry value chain. Aftersales account for by far the largest share of annual profits when looking at the industry as a whole.

Figure 3. Annual profits in the automotive-industry value chain in 2003.

Car manufacturing is considered to be of strategic importance in many countries. However, with increasing maturity, it has stagnated in its core bases of the USA, Western Europe and Japan, with average profit margins down to below five per cent in 2004. This compares to twenty per cent or more in the 1920s and around ten per cent in the 1960s. Today, the car industry accounts for 0.6 per cent of stock market capitalisation in the USA and 1.6 per cent in Europe. Two decades ago the corresponding figures were 4.0 per cent and 3.6 per cent. In MEDCs, the car industry is viewed as a sunset or mature industry.

Unlike Japan and Europe, the US car industry does not rely significantly on foreign exports. US car manufacturers focus predominantly on the domestic market and to some degree on the Canadian market. The ‘Big Three’ US car manufacturers have invested heavily in the Canadian market, which has resulted in Canada becoming a global leader in automotive engineering.

Figure 4 shows how the geographical location of car production has changed since 1997, while Figure 5 shows the world regional breakdown of production for all motor vehicles.

Figure 4. Passenger vehicle production since 1997 by region.


Figure 5. All motor vehicle production since 1997 by region.

Globally, the motor vehicle industry is a major resource user requiring:

  • Nearly half the world’s annual production of rubber.
  • Twenty-five per cent of global glass production.
  • Fifteen per cent of annual steel production.

small globe iconThe continuing process of consolidation

The industry has been consolidating since the early part of the twentieth century. In the late 1920s, there were 270 car companies in the world, with most located in the USA. From these the global giants of GM, Ford and Chrysler emerged. Consolidation has tended to occur in phases, with the past decade witnessing significant activity. Today the global car industry is dominated by seven large groups and three smaller ones. The six groups of GM, Toyota, Ford, Renault/Nissan, Volkswagen and Daimler Chrysler account for about 70 per cent of global sales. Figure 6 shows the decline in the number of big independent manufacturers since 1980.

Perhaps the most successful of the recent alliances has been between Renault and Nissan. In 1999, Renault took a 37 per cent stake in Nissan. The two companies decided to keep their separate identities to retain brand loyalty. The two companies are now pushing ahead with plans to share car platforms, aiming to reduce the number across the two companies from 40 in 2,000 to ten in 2010. This will open the way to common purchasing, which should save more than 500 million euros a year.

With intense competition, factories have to be large to benefit from the biggest economies of scale. This means around 250,000 units a year for assembly plants and 1–2 million units for making body panels.






 




 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Figure 6. Decline in number of big independent manufacturers since 1980.
Figure 6.
Decline in number of big independent manufacturers since 1980.
Source: The Economist 04/09/04.
Click here to enlarge.

 

 
 
 


 
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