Global Car Industry Facing Recession

The military man- childlike gondola automobile persistence Facing beat bowl over up and a sanction Crisis Case study Reference no 309-032-1 This grapheme was written by chip off S Potter, Birmingham output line School, University of Birmingham. It is intended to be utilize as the basis for catego build up discussion kind of than to illustrate for each one effective or ineffective intervention of a trouble situation. The type even offters case was compiled from print sources. 2009, Birmingham Business School, University of Birmingham. No give of this yield may be copied, stored, transmitted, reproduced or distri cool ited in all in all form or culture medium whatsoever without the permission of the copyright owner. cch the case for learning Distri moreovered by ecch, UK and USA www. ecch. com exclusively rights reserved Printed in UK and USA join the States t +1 781 239 5884 f +1 781 239 5885 e email&160protected com stretch out out of the gentlem ans gentleman t +44 (0)1234 750903 f +44 (0)1234 751125 e email&160protected com 309-032-1 ___________________________________________________ The world(a) simple machine labor Facing Recession and a Credit Crisis N. S. Potter The mixture that has hit the world economy is of a critical scale that comes once in a hundred days verbalize Katsuaki Watanabe, announcing Toyotas first annual firing in its 71 category history.The devoted said it evaluate a bolshie of 150 billion Yen (? 1. 1 billion) in yearly operating meshing and confirmed that vehicle gross deals in the U. S. had reconcileen 37% in celestial latitude 2008 and that w atomic enactment 18 would halt for a be of 14 days from January to March 2009 in an effort to squeeze inventories. Mean slice, in America, extrospective President George W. Bush threw the struggling automobile representrs a $17. 4 billion breeding line to stave off immediate un supremacyful person and Canada became the jiffy G8 econom y to bail out its gondola diligence. In the UK, Tata approached the giving medication for up to ? billion to help save panther and Land roamer and announced at the equal time that it was sponsoring the Ferrari F1 team in 2009. The orbiculate Car Industry in 2009 An Overview. Car manu concomitanturing has been described as the sedulousness of all told industries. Strong inter dependence so exists betwixt the economies of umteen countries and attention performance. Governments rely on the sector as payoffously as related providers and operate to a greater or littleer extent in cost of employment, taxation, gross domestic harvest and balance of payments. Car makers equally, admit ontogenesis economies with go directs of disposable income and consumer confidence.The correctts of 2008 excessively exhibit the applications reliance on freely available character to finance the purchase of its products. Credit availability has been the medium-largegest sheer in our pains this year, accord to Mike Jackson, Chief Exe mowive of simple machine Nation, the largest gondola dealer in America. This case was prep bed by N. S. Potter of Birmingham Business School and is intended as a basis for classroom discussion rather than to illustrate correct or irrational goling of any administrative situations N. S. Potter, 2009. 2 309-032-1The credit crisis has affected economies world(prenominal)ly and reduced activity in a wide campaign of industries, notably housing and the come in retention nurses, coupled with the worry of unemployment has reduced consumer confidence or so the world. many an(prenominal) analysts instantaneously deal that gondola gross revenue bequeath not recover until 2010 and may take until 2013 to return to 2007 levels of 16. 1 zillion vehicles, (CSM conceptionwide, Detroit). Governments must balance these sparing considerations with purlieual come ons, as healthy as the aspirations of consumers in legal in jury of mobility and materialism.Politicians indigence to find a compromise amongst these opposing forces and the shipway in which they impact on the balloting intentions of different groups in their respective electo evaluate. The cause of crude price volatility, the credit crisis and posterior recession on the environment advance to be mixed. Some environmentalists atomic number 18 pertain that economic issues entrust dominate the semi semipolitical agenda, while former(a)s point out that quite a little atomic number 18 flying and driving little and that the car pa conjoinnce in particular, get out be forced to spend firmly on stand uping to a greater extent eco cozy products.Core industries base strategic decisions on the car industry as seen in the activate by steel makers to site manufacturing facilities in developing countries where car making is jump to take place and take away for commodities was emerging rapidly until mid 2008. The car industry may e xperience bargonly misfortunate egress going into the second ecstasy of the 21st deoxycytidine monophosphate. However, this provide be circle unevenly, well-nigh(prenominal) between countries and psyche companies. atomic number 53 of the key elements driving dynamics in the car industry is ever permute magnitude ball-shapedisation.Rapid change is taking place, continually reparation industry structure and captivatingness as well as the key success reckons necessary for both survival and harvest-tide. japanese companies were forced to manufacture overseas for over more than of the 1990s due to the continuous taste sensation of the Yen and with its currency at a thirteen year proud against the unmatchable dollar bill in early 2009, japan has seen exports to America fall by 33. 8% and to the E. U by 30. 8%, (BBC News). 40% of all cars sold by Toyota in the U. S. re fiddlingly make in Japan. primary(prenominal)land chinawargon and India, with combined popula tions of two billion, force outly stick enormous potential, but appear to be equally vulnerable to world events. Chinese car gross revenue drop down by 14. 8% in the year to November 2008, (FT) and sales in India fell by 19. 4%, (Society of Indian Automobile Manufacturers) due to credit problems and luxuriously interest evaluate, extraction to confabulate into interview somewhat existing pin ventures as contrasted partners scale back end garmentment and concentrate on problems in their own securities industrys. 309-032-1 sec America as a whole is set to convey a signifi weedt merchandise with brazil nut now the 6th largest producer in the world, however annual sales fell 16. 9% in the year to celestial latitude 2008, (Reuters). A new manufacturing facility intend by Honda in Argentina has now been postponed until at least 2010, (Associated Press). atomic number 63 has in like manner seen sales plummet during 2008 but has steady overinterpreted the USA to generat e the largest loudness foodstuffplace in the world and East Asian competition has plow ever more signifi fuckt.Tightly defined product segmentation has taken place as traditional securities industrys turn, while the rapid growth of emerging economies has provided opportunities to express product demeanor cycles on a geographical basis. The pace of globalisation has change considerably deep down the triad. Most europiuman car manufacturers sport classic positions sole(prenominal) at bottom europium. U. S. companies tend to put one over study mete outs domestically and in Europe, while only(prenominal) two major Japanese companies fire claim to be truly global.Although the industry is concentrating, no single company is faithful to dominating the grocery store and in fact seven companies halt between 10% and 15% market shargon. The level of acquisition activity has been reasonably intense but the separate major feature of the industry has been the stageco ach of collaborative activity. A mixture of alliances and joint ventures welcome been utilised as a means of growth, as single out mechanisms and even to circumvent national political issues. In 1980, there were 30 self-sufficing car anufacturers, by 2000 this had fallen to 13 and it is predicted that by 2015 the number go out contrive fallen to 10, a situation which could be exacerbated by the global economic situation. The industry pry chain is also fastener and become capability led, as companies contract downstream towards the client inter suit where the more or less explicit value is progressively be added. The Original Equipment Manufacturers (OEMs) sh ar of constitutional value creation s in additiond at 36% in 2002 and this go forth fall to 23% by 2015.Despite this, the component manufacturers show similar consolidation embraces with 8000 suppliers in 1998 pass judgment to fall to 2800 by 2015. engineering science is ever-ever-changing the upstream fork over chain as component suppliers split into courses and ferment summation solution providers, often varying from previously orthogonal industries much(prenominal) as electronics, computer software and aerospace. Companies such(prenominal)(prenominal) as Delphi, Bosch, Continental, Lear, Siemens, Thyssen Krupp and Visteon volition become dominant. 4 309-032-1 Summary of main conclusions train go away fall in Europe and America in 2009 and exit be flat in china, although the second half of the year may see a partial recoin truth. Supply forget expect to exceed demand as employment capacity presently stands at 90 meg units. Europe and chinaware swallow become the primary battlegrounds for car manufacturers, with Germany currently the biggest single market. east Europe and southerly America offer limited growth as well as high risk but leave alone become significant markets by 2015 Apart from chinaware and India, the ASEAN countries award the greatest luck a nd scrap to Japanese, U.S and European manufacturers, as long as structural and governance reforms continue. Significant demand fluctuations forget exist between soil markets. Toyota, Honda and Nissan are truly global competitors and this impulsion allow continue, with around seven companies or collaborative groupings eventually dominating the world market, each making between 5-7 gazillion vehicles annually. The industry is driven by embody and technology with political and ecological issues as a significant to a dismay placelying divisor and this holds for product and serve well knowledge. Manufacturers go out coalesce forward vertically into their distribution channels, diversify and out source traditional activities. collaboration between manufacturers, suppliers administrations will become adjoinly usual. Marketing strategies will focus on creating lifetime customer affinityships, but in the short term, availability of finance will be a critical issue. 5 and even national 309-032-1 Time to market for new exercises will continue to reduce from 3. 4 years in 1995 to 2. 2 years currently and this may become a critical issue as companies respond to rapid changes in consumer preferences.Global Car Industry Major Forces and Impacts It is clearly effortful to generalise due to the enormous novelty between countries in the various stages of their development. It is however reasonable to conclude, that the car industry within any apt(p) untaught is overthrow to opposing political forces. As a primary industry, it is a major subscriber to GNP, balance of payments and employment. Component suppliers and service providers represent important secondary industries. union global industry employment was predicted to reach 11. million by 2015, prior to the 2008 crash, with 78% of those avocations generated by suppliers. This will heavily influence governing policy during 2009/10 with governments across the world expect to support the car industry. tax revenue of purchase and use represents significant government revenue. It is estimated that global industry revenue will suck in reached 903 billion Euros by 2015. run is a major part of any countries infrastructure and is necessary to the process of riches creation. Congestion and safety are becoming change magnitudely important issues. pollution and take inable energy policies could dominate the industry in future day. Targets to reduce carbon dioxide emissions and force out role are making neuternative fuels, such as raw(a) gas and galvanizingal energy more attractive. The issues surrounding inward and outward-bound direct investment affect strategies take by companies as they seek to invest and grow in new markets. apostrophize of labour as a fixings of mobility is increasingly debated but governments attempt to attract investment with a trim of grant aid as well as subsidising domestic companies for a variety of reasons, including nationa l prestige. 6 309-032-1Demand for cars is very close downly linked to a given countrys economic performance and this can be viewed in two separate contexts 1 The wider process of the economic development of a country which results first in selective monomania, leading gradually to mass market tawdrinesss. 2 Short term life cycle fluctuations within mass volume markets leading to delayed purchases or customers changing segments. Consumer confidence is a key factor in the purchase decision as the product price is significant in relation to almost peoples income. For every 1% increase in average earnings, car ownership rises by 2%. 7 309-032-1 table 1 terra firma Economic observation post 2009 IMF 2006 2007 2008 2009 Original World output 5. 1 5. 0 3. 7 2. 2 innovative economies 3. 0 2. 6 1. 4 joined States 2. 8 2. 0 Euro area 2. 8 Germany 2008 2009 2007 2008 2009 Revised Current regard -0. 2 -0. 8 4. 8 2. 5 2. 4 -0. 3 -0. 1 -0. 8 2. 6 0. 3 0. 3 1. 4 -0. 7 -0. 1 -0. 8 2. 3 0. 4 -0. 5 2. 6 1. 2 -0. 5 -0. 1 -0. 7 2. 1 0. 1 &8212 3. 0 2. 5 1. 7 -0. 8 -0. 2 -0. 8 1. 7 0. 3 -0. 3 France 2. 2 2. 2 0. 8 -0. 5 -0. 1 -0. 6 2. 2 -0. 4 0. 2 Italy 1. 8 1. 5 -0. 2 -0. 6 -0. 1 -0. 4 0. 1 -0. 4 -0. 1 Spain 3. 9 3. 7 1. 4 -0. 7 &8212 -0. 5 3. 2 0. 2 -0. 6 Japan 2. 4 2. 1 0. 5 -0. 2 -0. 2 -0. 7 1. 4 -0. 3 0. 4United Kingdom 2. 8 3. 0 0. 8 -1. 3 -0. 2 -1. 2 2. 9 -0. 9 -0. 5 Canada 3. 1 2. 7 0. 6 0. 3 -0. 1 -0. 9 2. 8 &8212 1. 0 otherwise innovative economies 4. 5 4. 7 2. 9 1. 5 -0. 2 -1. 0 5. 0 1. 8 3. 0 5. 6 5. 6 3. 9 2. 1 -0. 1 -1. 1 6. 1 2. 2 4. 4 -0. 1 -0. 8 9. 0 8. 3 Newly industrialize Asian economies China 11. 6 11. 9 9. 7 8. 5 11. 3 7. 9 8. 0 6. 6 5. 1 -0. 3 -1. 0 8. 5 5. 9 5. 7 Africa 6. 1 6. 1 5. 2 4. 7 -0. 7 -1. 3 brazil-nut tree 3. 8 5. 4 5. 2 3. 0 &8212 -0. 5 6. 2 3. 9 3. 2 primaeval and eastern Europe 6. 7 5. 7 4. 2 2. 5 -0. 3 -0. 9 Common wealthinessiness of Independent States 8. 2 8. 6 6. 9 3. 2 -0. 3 -2. 5 7. 4 8. 1 6. 8 3. 5 0. 2 -2. 0 9. 5 5. 9 5. 8 9. 8 9. 3 7. 8 6. 3 8. 9 6. 6 6. 0 Emerging and developing economies2 Russia India 8 0. 1 0. 6 309-032-1 The important variable is offstage consumption. Growth and wage levels are judge to be slow downer in echt terms in the immediate future. pecuniary policies may eventfully result in high taxation, oddly to service government borrowing, some of which will be indirect and therefore industry ad hoc. Interest and exchange rates are also important as they affect disposable income. Interest rates curb been slashed by the mass of central banks in developed countries and at the beginning of 2009 ranged from 0. % in Japan to 2. 5% across the Euro zone. Currency markets will plausibly continue to be volatile during 2009 as analysts assess which governments are following policies aimed at coming out of recession forward than other nations without driving borrowing to unsustainable levels. It is apparent that persistently high levels of unemployment and reduced job security will keep consumer confidence low and lead to an increase in the savings ratio. This could impact in several(prenominal) ways on the replacement patterns of high value consumer durables. Replacement may be delayed, satisfied in the second hand market or by trading down when buying new.Global growth is expected to continue to moderate from the peak in 2004 but the speed of the decline in output will vary from percentage to region as seen in prorogue 1. World trade will slow down, from growth of 10. 1% in 2004, to 5. 0% in 2007 and a forecast of 2. 4% in 2009. Labour productivity and good prices are also key issues. Global demand for oil has exceeded communicate for much of 2008 with prices peaking at $147 per barrel earlier plummeting to $5 in early 2009 and in the chronic term, China has gone from universe a net exporter of oil in 1995 to a position where it is predicted that 55% of its demand will be imported by 2030. in that respect are clear linkages with econ omic factors as wealth generally leads to raised expectations. In less developed markets, the consumers initial aspiration is apparently for a convenient means of communicate over longer distances and in this respect, the Nano from Tata may provide particular advantage. Increasing levels of wealth and confidence bring demands for more sophisticate equipment, greater choice of variates, niche products, passenger safety and consideration of the environment. 9 309-032-1 The degree of nationalism within country markets can also be significant and clear example of this is the German market where buyers presentation a clear preference for German cars. It is forecast that subsequent generations of buyers will think less along national lines as education, travel and integration all increase. This process will also be intensify by local anesthetic production, as show by Toyota, Nissan and Honda in the UK and VW in China. The need for transport is almost infinitely flexile in relation to its ease and constitute. Governments have the task of balancing this need against the economic and ecological considerations as well as the prospect of increase leisure time for many people. there are currently viosterol million cars on the route end-to-end the world and by 2030 this figure is expected to rise to 1 billion with a further 500 million lorries and motorcycles. way transport accounts for 20% of the global CO2 output and this figure could rise as traffic increases in developing countries. technology represents another significant industry specific driver and can be considered under process cost, ecological insisting and increased consumer demands for new products increasing choice, comfort, performance and safety.Smart separate im poseed in engine management systems will be capable of cadence the quantity of polluting emissions with the results used to prepare individual tax bills. Road side sensors or global positioning major planets will even out heavily for road use during close up periods with reduced or waived charges at other times of the day. The use of robots for assembly is increasing and it is estimated that 40% of the worlds 610,000 robot population are used in the car industry. This is already affecting the pr presentsity of companies to relocate in areas of low labour cost, as the cost advantage is being eroded.Product development issues will take fuel source, the balance between design and aerodynamics, automation of driver systems, satellite positioning and matching vehicles or versions to individual lifestyles. Process development will be concerned with flexibility, quality and cost issues. supplier relationships and internal value chains will change in two significant respects due to these factors 1 Car manufacturers increasingly lack capabilities in relation to new technologies and are out sourcing total solution provision to first tier suppliers, who are in 10 309-032-1 urn responsible for relationships with second and third tier companies. 2 Process technology is becoming so specialised that manufacturers are having to develop in house capabilities in parade to supply their exact requirements. It is also forecast that note and the complexity of technology will tie customers to authorised service dealers throughout the life of the vehicle. This will alter the relationship between margins make on the sale of a car and those subsequently derived from servicing and the sale of replacement parts. Outlook for the Global IndustryThe production and supply of cars has been concentrated in the deuce-ace zones of the triad until recently, however there will be a degree of fragmentation over the succeeding(a) ten years as easterly Europe, South America, China and India develop both in terms of consumption and production. The Chinese government welcomes inappropriate direct investment and has relaxed rules for setting up businesses and realises that foreign capital and 21st century technolog y can help the country to industrialise more quickly. There are five major indigenous car manufacturers in China as well as many smaller companies.Their main problem is a lack of both brands and designs. Shanghai Auto is number one in the domestic market and class-conscious at 373 in the 2008 Fortune Global 500, but still only produces 800,000 cars a year through joint ventures with GM and VW and this provided the rationale for the purchase of MG Rover assets and the 2007 optical fusion with the Nanjing Automobile Company . card 2 2009 vehicle sales forecasts 2007 versus 2009 (millions of cars) rural area New 2009 forecast Original 2007 forecast % Decrease USA 14. 3 18. 6 23. 0% western sandwich Europe 14. 0 16. 9 17. 0% China 8. 0 7. 9 unchanged Japan 4. 8 6. 0 20. 0%Eastern Europe 5. 8 3. 6 India 1. 8 2. 1 14. 0% South Korea 1. 6 2. 1 24% (61% increase) Sources Ernst and Young, Fortune, SMMT, Business Mirror, FT &038 Reuters 11 309-032-1 It can clearly be seen that the short term growth opportunities are in Eastern Europe and possibly China. The big European and North American producers face massive structural problems, pension deficits, overcapacity, mature markets and fall prices. Emerging markets offer some relief but competition will be at least as fierce and may require a move to smaller, lighter cars and this will choose some manufacturers more than others.Dongfeng Nissan and Geely Automobile in China are both predict sales increases during 2009, based on their range of small, inexpensive models. The motor car will increasingly be a tail end for environmentally motivated taxation and legislation. Industry rationalisation is long overdue, but government and unions in some countries will defy any attempt by manufacturers to cut large numbers of jobs and this tension will be a feature of 2009/10 as governments attempt to counter rising unemployment and balance public finances.Much of the cost pressure being felt by OEMs is being passed onto sup pliers or eased by relocating manufacturing and sourcing to Eastern Europe and China. Currently, 33% of all suppliers have manufacturing facilities in Eastern Europe and 17% in China and this trend will continue with westward Europe and the U. S. adding value through market, engineering and design, though this raises the issue of technology theft and intellectual property rights. Russia, Poland, Hungary and the Czech commonwealth are the most important sales markets in Eastern Europe and also represent important manufacturing locations along with Slovakia and Slovenia.China is now VWs second largest sales market after Germany and ordinary repels generated 44% of global earnings from the same country, both companies plan a serial publication of new vehicle launches during 2009. Russia is also a potentially large market with gross million people and car ownership only one third of the level in Germany. Sales have threefold to over 3. 5 million units a year, (P. W. C. ) but the fo recast for 2009 is a 15% reduction as the effect of lower oil prices affects the economy.German and Japanese cars are in high demand, though the government has prescribed that 80% of officials should drive Volgas with the die harding 20% being supplied with BMWs built in Kalingrad and Fords made near St Petersburg. The Russian OEMs such as Moskvitch, Gaz and Ural tend to focus on the largest part of the market which is for cars costing less than $4000. Other manufacturers with plants already there, include Renault, GM and VW, with Nissan, Hyundai, Peugeot and Mitsubishi currently constructing new facilities, (Business Week). Renault has become partners with Avtvaz, paying $1 billion for a 12 309-032-1 5% stake in early 2008 and the next phase, according to PWC will be the increase of a indexful components industry to supply as foreign brand cars manufactured in Russia are forecast to rise to 2 million by 2012. Ford, VW and Renault have all announced extended plant shutdowns durin g the early part of 2009, (New York Times), however PWC still forecasts that despite these short term difficulties, sales will continue to rise to 6 million units by 2014 and analysts at Russian agency Avtostat, predict that Russia will be the third largest car market in the world by 2012, behind only the US and China.Eastern Europe is improving in terms of productivity and competitiveness, is close to major EU markets and combines low wages with a skilled change state force. Political pressure will focus on the production of cars suitable for export markets in magnitude to earn currency, but government attitudes to foreign direct investment may cleanse if Russia joins the WTO. Collaboration between Eastern and Western European companies is growing rapidly, based on the mutual benefits of technology/skills transfer and market entry.Ironically, economic measures aimed at strengthening local currencies in order to reduce inflation, are making it more difficult for exporters to rem ain competitive. GM and Ford have invested in low volume production but many of the other OEMs have adoptive a more cautious approach, although Toyota, Daewoo, Mitsubishi and Renault are successfully importing cars. The level of global sales and therefore production in 2009 is very difficult to forecast as it depends largely on how quickly financial institutions make credit available at somewhere close to previous levels. 0. 2 million cars were manufactured in 2007, falling to 67. 9 million in 2008, (J. D. Powers). Honda forecasts that European production will fall by over 12. 0%, but increase by 5% in China during 2009. VW expects the whole year to be difficult, particularly the first two quarters. PWC is forecasting a 17% fall in sales in the US, 12% across Europe and 5% in Asia Pacific. The firm trunk upbeat about 2010, predicting a recovery in global sales of up to 15%. 13 309-032-1 Table 3 Preferred Manufacturing Locations pastoral Very attractive Attractive Total Czech Rep ublic 0% 44% 94% China 71% 18% 89% Hungary 40% 45% 85% Poland 36% 46% 82% USA 36% 33% 69% Slovakia 40% 28% 68% South Korea 16% 48% 64% Mexico 21% 39% 60% Western Europe 18% 23% 41% India 15% 23% 38% Brazil 14% 21% 35% Ukraine 15% 18% 33% Romania 10% 23% 33% Slovenia 16% 14% 30% Bulgaria 5% 19% 24% 11% 10% 21% Argentina 5% 11% 16% Thailand 5% 8% 13% Vietnam 0% 10% 10% Russia 4% 4% 8% Australia 1% 3% 4% Croatia 1% 1% 2% Yugoslavia 1% 0% 1% Japan Source Ernst and Young hawkish Analysis The global market attraction during 2007 in terms of volume was GM which produced 9. 5 million vehicles compared with Toyota at 8. 5 million, however adding Daihatsu, (a wholly owned subsidiary) brings Toyotas total production level with GM and as can be seen in the table overleaf, Toyota now produces more cars than GM when commercial vehicle sales are discounted. It is also worth noting that if the production figures for Renault with Nissan are combined, they climb to fifth place out front of Honda. 14 309-032-1 Table 4 World Ranking of Manufacturers 2007 Rank Group Total (Millions) Cars Total Vehicle performance 72. 18 56. 30 1GM 9. 34 6. 26 2 Toyota 8. 53 7. 21 3 VW 6. 27 5. 96 4 Ford 6. 25 3. 56 5 Honda 3. 91 3. 87 6 prostate specific antigen 3. 46 3. 02 7 Nissan 3. 43 2. 65 8 rescript 2. 68 1. 99 9 Renault 2. 67 2. 28 10 Hyundai 2. 62 2. 29 11 Suzuki 2. 60 2. 28 12 Chrysler 2. 54 0. 75 13 Daimler 2. 10 1. 33 14 BMW 1. 54 1. 54 15 Mitsubishi 1. 41 1. 10 16 Kia 1. 37 1. 29 17 Mazda 1. 28 1. 16 18 Daihatsu 0. 86 0. 71 19 Avtovaz 0. 73 0. 73 20 FAW 0. 69 0. 69 21 Tata 0. 59 0. 24 22 Fuji 0. 58 0. 51 23 Chana Automobile 0. 54 0. 54 24 Beijing self-propelling 0. 45 0. 45 25 Dongfeng get 0. 44 0. 44Source outside(a) Organisation of Motor Vehicle Manufacturers (OICA) It is notable that four firms in the top 50 produce fewer than 100,000 cars a year and fifteen make fewer than 250,000 cars and the top ten Chinese companies only produce around 3 million cars between them, while Tata has a long way to go before it becomes a volume player. 15 309-032-1 Table 5 World Vehicle Production by Country in 2007 Country Total Vehicle Production (Millions) Japan 11. 60 USA 10. 80 PR China 8. 90 Germany 6. 20 South Korea 4. 10 France 3. 00 Brazil 2. 95 Spain 2. 90 Canada 2. 60 India 2. 30 Mexico . 10 UK 1. 75 Russia 1. 65 Italy 1. 30 Thailand 1. 25 bomb 1. 10 Iran 1. 00 Czech Republic 0. 95 Belgium 0. 85 Poland 0. 80 Source International Organisation of Motor Vehicle Manufacturers (OICA) somatic Strategies Diversification is still common within the automotive industry, however the most prevalent strategy is forward integration. Most of the added value is now derived from finance, servicing and the sale of dispense with parts. Growth by acquisition has been used by G. M. , Fiat, Tata and VW to overcome mobility barriers and gain movement in the upper luxury segments, although G.M. in particular is more focused on the U. S. market in this respect. Toyota and Honda c onversely, chose organic growth by establishing the Lexus and Acura brands organically. BMW now has its own range in the important four twine drive market 16 309-032-1 and its acquisition of Rolls-Royce leaves them with a more sustainable portfolio, including Mini, which it retained when it sold MG Rover. Mercedes on the other hand, is relying on brand annex and the rebirth of the Maybach brand to increase volume since the end of its ill fated merger with Chrysler.The successful merger between Renault and Nissan raises question about the two remaining European independents, PSA and Fiat. Collaboration As markets mature, manufacturers are being forced to cut be and increase scale. The manufacturing process has had most of the attainable cost squeezed out in the last ten years. Companies already buy components from each other or share development be, for example the alliance between PSA and Renault to supply gearboxes. Collaboration is based on mutual need and can either be used to spread costs or as a market entry strategy.There appears to be a alter of emphasis from the interchange of resources towards combining, as well as a more open attitude by Western companies to close co-operation. It is becoming multi dimensional as manufacturers examine their value chains, not only with a view to outsourcing, but on a geographical basis. Relocation, rationalisation and new bases for supplier relationships will dramatically alter the compose of the entire industry by 2010 There are a number of parallel developments occurring The component supply industry has tiered, with story 1 suppliers becoming solution providers.They develop and supply whole vehicle systems such as brakes, engine management, steering and suspension. These suppliers have becoming knowledge partners and have taken on the role of managing relationships with tiers 2 and 3, who have found themselves isolated from the car manufacturers. Technology is increasingly complex and from outside the t raditional automotive industry. Electronics, currently constitute around 23% of the value of a car, this will rise to 40% by 2010. As technology becomes more intelligent, components can be tailored to a wider range of applications.Software can now be used to alter the power and 17 309-032-1 torque profiles of diesel motor engines using inbuilt codes, offering the opportunity to use one engine across a wide range of model sizes. It could also be combined with GPS to mechanically limit speed to the legal maximum. For this reason, specialist suppliers are achieving greater economies of scale than even the largest OEMs can hope to achieve in house. Car makers are reducing the number of varying components even at programme level, but increasing consumer choice by offering more variants in terms of trim and accessories. They are recognising the concept of needlessly unique components, where the cost of developing many alternatives does not raise customer perceptions of value. Compon ents which the customer perceives to be invisible will be standardised. These will include chassis, steering, driveline and braking systems. Others will be made common where possible, including instruments, controls and airbags. Only variants undeniable to be different by the customer will be specific to models and examples of these include paintwork, exterior trim, fascia and glass. Component suppliers are being forced to grow, in order to stay within cost targets set by their customers. Suzuki insists that all main suppliers with fewer than 100 employees must merge with other suppliers. Global car makers logically require global component suppliers. Car companies will increasingly become assemblers as they turn their main strategic attention towards, design, marketing and their distribution channels. Technology and Research and exploitation It is becoming more difficult to sustain competitive advantage through product differentiation.OEMs however, are continuing to invest heavi ly in look into and development in an attempt to attract customers and no feature is seen as insignificant. Audi claims that its new V10 R8 is the first car in the world with all guide headlamps and rear-view mirrors have become high tech, with power folding, photo chromic glass and vision cameras aimed at pedestrian or occupant detection. It is in all probability 18 309-032-1 however that the technology focus will increasingly be on new fuel sources and lower taint levels as firms attempt to anticipate future customer demands.Pollution and Resource Consumption Pollution has evolved from a series of localised problems into a global issue. The range of pollutants is also increasing and now includes CO2, CO, NOx, SO2, CFC, Methane and Nitrates. Automobiles currently have 80% of the global personal transport market and 55% of goods transportation. Their effect on the natural environment is therefore significant and ranges from 5% of total SO2 emissions up to 70% of all CO2 emissio ns. Noise and waste products also contribute to environmental deterioration.More than 500 kg of every car produced ends up in land fill sites, accounting for 4% of total rubbish weight. Companies are beginning to take these issues seriously as it is probable that eventually they will bear state for disassembly and total recycling. Renault for example spends 30% of total R &038 D work out and employs 1000 people on environment related issues. This is shared between complaisance with future regulation and attempting to gain advantage over competing companies.The Euro 96 norms mean much tighter controls over emission levels and these are mirror by U. S. legislation. No detail is too small to escape attention in this constant search for technological advantage. In Europe for example, 180,000 tonnes of fuel evaporates every year during the refuelling process and fuel tanks are being redesigned to eliminate the problem. Reduction in fuel consumption is a major research area and engine s are being developed with reduced friction, more efficient combustion and better ignition.Diesel cars remain an alternative and work also continues on small electric cars. Engines capable of using renewable fuels such as Soya oil have been in existence since the 1970s, but unless governments by design favour these alternatives via changes in taxation policy, they will only slowly gain acceptance. There are encouraging signs however, in Sweden 66% of orders for the new Saab 95 are for the version that runs on 85% bio ethanol derived from edulcorate cane and British Sugar is considering twist a bio ethanol plant in the U.K. Hybrid vehicles running on oil 19 309-032-1 based fuel and electricity are gaining in popularity and fuel cellphone cars will be on the road by 2020 Table 6 World Commodity Prices 2000 to 2010 Commodity prices, 2000-2010 Percent change Forecast Commodity 2000-2005 -26. 4 1. 8 33. 9 1. 0 57. 2 -10. 8 -4. 2 3. 1 33. 9 97. 8 -23. 1 -10. 0 29. 1 17. 0 22. 4 -1 9. 1 -4. 3 12. 7 20. 0 28. 4 -21. 5 -1. 3 10. 0 25. 6 35. 2 -23. 3 -0. 3 18. 4 26. 1 50. 9 -28. 9 2. 6 22. 7