Macro-Environment and Industrial Factors Affecting the Motor Car Manufacturers – Solved

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Macro-Environment and Industrial Factors Affecting the Motor Car Manufacturers

(4334 words)

I.              Executive Summary

            Macro- and industrial environment factors that are affecting the performance of major players in the industry focus on the economic and environmental factors. However, these two factors have a great impact on the perception and behaviors of the customers, therefore creating social changes, which will later on impact legislation and political entities. It had been found out that the global financial crisis affect the buying behavior of the customers, because customer tend to buy important things. On the other hand, due to the growing awareness of people towards health and the environment, people tend to substitute motor cars with more environmental- and health-friendly mode of transportation including walking and cycling, and public transportation, which not only help to save money in gas, lessen air pollution, but also push people to be physically active. Above all, the growing competition and the different governmental standards and regulations serve as primary barriers to new entrants.



Table of Contents

TOC \o “1-3” \h \z \u I.     Executive Summary

  1. Introduction

III.       Background of the Industry

  1. Macro-Environment Analysis
  2. Political
  3. Economic
  4. Social
  5. Technological
  6. Legislative/Legal
  7. Eco-Environmental
  8. Industry Analysis
  9. Threats of New Entrants
  10. Bargaining Power of Buyers
  11. Bargaining Power of Suppliers
  12. Threats of Substitutes
  13. Rivalry among Existing Firms
  14. Conclusion

VII.     References

VIII.    Appendices

Appendix A: Automotive Industry and the Economy of the World

Appendix B: 2007 Car Production Statistics

Appendix C: Direct Employment in Automotive Industry

Appendix D: Market Share





II.            Introduction

Automotive industry is considered as one of the largest industries in the world which affects performances of nations and the lives of individuals in economic, environmental and social way. This is because it helped different countries to produce jobs, thus increase revenue by tax. On the other hand, it changes how people travel. On the other hand, even though the said industry is already established and mature, it is also affected by the different environmental and industrial factors, primarily the issue of global financial crisis, because it primarily affect the buying behavior of the customers. Aside from that, the major players in the industry are focusing on the different environmental factors including the issue of global warming and the growing popularity of hybrid cars.

This paper will tackle the different factors that are connected to the macro- and industrial environment of the said industry by using information gathered from online and offline resources such as books, journal articles, magazine and newspapers. The author also used information from different reports of different organizations that are directly and indirectly connected with the industry. Online libraries were also used in order to speed up the process of gathering data and information. In order to analyze the said entire environment in which the industry is situated, PESTLE analysis and Porter’s Five Forces model were used.


III.           Background of the Industry

The automobile industry of the world made over 60 million cars, vans, trucks and buses in 2005. These vehicles are vital to the working of the global economy, as well as to the wellbeing of the citizens of the world. The said industry contributes to the global turnover by €1.9 trillion. Thus, it the motor car manufacturing as a country, then it would be the sixth largest economy in the world (see Appendix A) (OICA, 2006). This is because the global automobile industry enables to produce a total of 73,152,696 cars in 2007, showing 5.7% increase  (2007 Production Statistics, 2007) (See Appendix B).

Thus, building 77 million vehicles requires the employment of more than 8 million people in the world in direct manner in order to make the vehicles and parts that go into them. It corresponds to the 5% of the total manufacturing employment in the world. Aside from that, there are also 50 million people who earn their living from cars, trucks, buses and coaches (See Appendix C) (OICA, 2006).

USA, Japan, China, Germany and South Korea are the top car manufacturing nations in the world. While, among the 5, USA is considered as the largest producer and consumer of motor cars that account for 6.6 millions direct and spin-off jobs, which represents more or less 10% of the $10 trillion US economy. Furthermore, the primary motor cars manufacturing regions in the world are Northeastern United States and the Southern Great Lakes Regions, together with the Northwestern Europe, Western Russia, Ukraine and Japan. The European Union (EU) has the largest automotive production regions in the world including the UK, Rhine-Ruhr River Valley, Upper Rhine, Alsace, Lorraine region and the Po Valley in Italy (Automotive Industry – Industry Overview). In 2012, the global automobile industry is forecast to have a total volume of 118.5 million units, showing an increase of 37.5% since 2007 (Global Automobiles, 2008).

There 5 important players in the industry which are: Toyota, General Motors, Ford Motor, Volkswagen and Daimler Chrysler. These companies have their presence in almost all countries in the world, which enables them to invest on different facilities that will help to improve and maintain their position in the market (Automotive Industry – Industry Overview). The study of Datamonitor (2008) showed that in 2007, Toyota Motor Corporation lead the market with a total of 15% global sales, followed by Ford Motor Company with 125 value share (see Appendix D).

IV.          Macro-Environment Analysis

The macro-environment consists of the broader set of forces that have an impact on the company which include economic, demographic, technological, political, legal, social and cultural factors. These factors combined will create non-controllable elements which are important in order to focus on strategic movement (Wilson & Gilligan, 2005, 129). Fortunately, there are tools which can be used in order to analyze the macro-environment including the PESTLE analysis which help to identify forces in the macro-environment which affect the business. This tool focuses on examining Political, Economic, Socio-cultural, Technological, Legislative and Ecological aspects of the wider environment (Partridge & Sinclair-Hunt, 1997, 77).



Table  SEQ Table \* ARABIC 1 PESTLE Analysis – Car Manufacturers Industry

Political Economic
·   European Union Policy;

·   Free Trade Union (FTA);

·   North American Free Trade Agreement (NAFTA);

·   Unfair trade relationship with Korea and Japan; and

·   support from the government.

·   globalization;

·   outsourcing;

·   global financial crisis; and

·   increasing competition.


Social Technological
·   brand image;

·   lower income distribution; and

·   growing knowledge of people towards health and environmental issues.

·   robotization;

·   increasing pressure on research funding;

·   communication and the Internet;

·   e-commerce;

·   access to technology; and

·   licensing, patents and intellectual property issues.

Legislative/Legal Eco-Environmental
·   international and national:

o   employment law;

o   health and safety law; and

o   environmental law.

·   international and national environmental regulations;

·   implementation of ISO 14001;

·   corporate social responsibility; and

·   pollution.


A.           Political

Political factors focus on different actions by local and national administrations and political parties, together with the international bodies including European Unions and World Trade Organization (Harberg & Rieple, 2008). The EU implements its industrial policy towards the industry including the internal market, competition policy, research and development policy, external trade policy and environment policy. In support, EU is implementing EU Whole Vehicle Type-Approval (WVTA) system which focuses on harmonization of technical requirements on motor vehicles. In order to manage fair competition, EU promotes industrial cooperation in order to assist small suppliers of motor vehicle components under the Regulation (EC) No. 1475/95. Thus, help the research and development process of motor car manufacturers by Sixth Framework Programme (2002 – 2006), and the industry will be supported by Seventh Framework Programme (2007 – 2013) in critical events and challenges of the future. Above all, EU focused on the external policy by protecting the automobile market and improving the access to the third countries on the import system (Györffi, 2006).

It is also important to focus on NAFTA which focus on the relationship of Mexico, Canada and the US. The said agreement allows the US to export its motor cars to Mexico and Canada, thus increase the market for American motor cars  (Raver, 2006). Therefore, it has a great impact on the operation of Korean and Japanese manufacturers.

FTA is another factor to be considered because it enables motor car manufacturers to have a free trade and fair access to market. However, it is important to consider that even though, FTA is ruling in different countries, Europe and the US is having different problems regarding their motor car trade relationship with Korea which include anti-import bias, unfair regulations and certification; unfair tariff and tax structure; limited financial services and manipulation of currency. Although the country is somewhat open with the foreign motor car brands, the government and industry officials are launching regular public campaigns about using foreign cars that has a great impact on national pride, thus result to slow down or stop of sales of foreign cars. Aside from that, the country is maintaining an 8% tariff on automotive passenger car, consider as high compare with 2.7% of other countries. Above all, just like Japan, the government is gaining competitive advantage by unfair manner by controlling the currency markets to weaken the value of their currency against the dollar  (Collins, 2006).

B.           Economic

            Globalization has a great impact on the performance of players in the industry. Primarily, it can help companies to save time, money and effort. During the last decades, in order to meet the growing demands for advanced technology, GM has recruited a rich blend of international talents, with engineers and scientists from different countries, which help to create a bubbling cauldron of exciting ideas that GM is applying to the development of their product, technology and business innovations  (Hsu, 2002). Another impact of globalization is outsourcing which become a common in automotive industry (Lepeak, 2008). Currently, more and more companies are outsourcing in China and India because of low labor cost. As a matter of fact, an engineer costing $4,000/month in the US will only cost $500 in China (Zhang).

Increasing competition is also important factors because the market is offering almost the same products and just vary in some factors such as the design and motor. To add more pressure, global financial crisis is helping to increase competition in the market. As the global stock market decline, the confident of the consumer to buy things is also decreasing. In 2008, all of the carmakers in the USA had showed decline in sales: GM (16%), Toyota (32%), Ford (34%), Honda (23%)  (KMPG, 2008). In connection, GM, the leading US car makers asked for bailout which was granted by the US Federal government, at the same time, the company announced to cut costs and capital spending while raining funds by the sale of their assets. Daewoo, a subsidiary of GM had announced to close its factories in Korea temporarily, which will be followed by cutting jobs in Argentina, Poland. Another subsidiary of GM, Opel, asked for more public support from the German Government. Ford is also planning to shut down its operation in Berdaux, France because of poor sales from October 2008 to mid-January 2009. French automaker, PSA also stopped its production in China, Spain and France, temporarily, while Renault plans to reduce jobs in Europe  (UNCTAD, 2009).

C.           Social

            Brand image plays an important role in the decision of the customers in choosing the auto car brands they will buy. It can be seen on the effort of different Japanese companies towards activities and tools to improve qualities, particularly Six Sigma. Furthermore, going back to the issue of global financial crisis, it has a great impact on the social and behavioral aspect of the customers. Because there are a huge number of people who loses their job and other financial sources, they tend to save or use it in more important things.

On the other hand, motor cars are also connected with the health aspect. As of now, there are different health organization that are motivating people to walk as a perfect form of exercise, thus making sure that people are physically active. This is further affected by the improving public transportation facilities in different countries, including those developing countries.

On the other hand, people are becoming aware of the negative impact of energy consumption in our environment, particularly regarding the popular issue of global warming. People are focusing on things that will help them to save the environment, thus the emergence of hybrid cars is becoming popular. Furthermore, seeking gas relief, Americans are turning to hybrid cars, which is combination of traditional internal combustion engines with electric ones. It also helps to lessen heavy traffic pressure and decrease bloated pollution levels (Singleton, 2004).

D.           Technological

            The automotive industry is focusing on research funding in order to give emphasis on innovation which enables them to maintain their competitive advantage. Aside from that, it is being affected by the maturity of the technologies that are being applied. This is important because technology is evolving in just one blink of an eye. The internet can help both the internal and external customers of the company, primarily in terms of communication. It helps employees of the company to communicate with each other, therefore enables them to centralize the any time and any place.

On the other hand, it is important to consider the issue of fraud and theft of intellectual property. According to the report of Frost & Sullivan shows that the process of sharing of supplier has complicated the protection of privacy including the design of the products, which is an important aspect of intellectual property law. As a result in 2005, experts estimated that there were about $11.53 billion earned via counterfeit vehicle parts and components, and it is forecasted to increase up to $44.74 billion in 2011  (IHS, 2006).

Above all, the use of robotics in assembling and manufacturing motor cars is also important. In the Japanese automotive industry, the application of robots can be group into arc wielding, spot wielding, loading and unloading, assembling, material handling, foundry, press, painting and other activities (Yagi, 2002).

E.           Legislative/Legal

            There are different international and national laws which are being implemented regarding the aspect of employment, safety and health and environmental. Because the automotive industry is considered as matured, and involved in global manufacturing and marketing, it is important to consider the different factors which are connected on local laws. Thus, it is important to focus on the different local and national standards in handling human resource, safety procedures and waste management.

Above all, it is important to focus on the different organizations who are involved in the local settings such as employee union and other non-governmental organizations.

F.            Eco-Environmental

As a result of the social factors affecting the mentality of people towards the environment, the industry is focusing on the different processes which will enable them to ensure safety of nature and safety of individual’s health. This is also one of the primary reasons why most of automotive companies are focusing on green production. As part of the global standard, ISO 14001 pertains on the process of how the activities of organization can affect the environment throughout the life of its products (Johnson, Sun, & Johnson, 2007). It also pertains on the social responsibilities of the company.

V.           Industry Analysis

Analysis at the industry level focuses on the overall attractiveness of operating in a selected industry and the relative position of a company versus its competitors in the industry. Porter’s Five Forces Model is considered as one of the most important and applied method for conducting industry analysis (Evans & Bishop, 2001).


Figure  SEQ Figure \* ARABIC 1 Porter’s Five Forces Model – The Automotive Industry


A.           Threats of New Entrants

            Threats of new entrants are moderate because entry to the automotive industry is unlikely to be successful on a small scale because huge amount of capital is needed in order to set-up large-scale production plants. Aside from that, factors including difficulty in accessing distribution channels are a problem because dealers and distributors tend to stock well-established branded automobiles as an answer to the demand of the consumers. Aside from that, top players in the market, including the 5 stated in this paper hold licenses to use numerous patents, copyrights and trademarks which focus on engineering and technical expertise to maintain their competitive advantage through innovations. In addition, there are different governmental standards and regulations that are connected to safety, fuel economy, emissions control, noise control, vehicle recycling, substance of concern, engines and equipment manufactured for sale in the world. Above all, manufacturing and other assembly facilities are subject to different stringent standards which regulate air emissions, water discharges and waste management (Datamonitor, 2008).

B.           Bargaining Power of Buyers

            Buyers in the automotive industry are commonly large companies with a vital financial power. Therefore, they can be authorized dealer for a number of manufactures and they can make large purchases and put pressure on market players in order to reduce prices. However, the brand strength or the image of the brands weaken the buyer power, because the leading car manufacturer have already established their relationship with the customers, thus, buyers are more likely to enter into different contracts with specific manufacturers to meet the demand of the customers, at the same time, increase sales. Aside from that, there are number of market players that have integrated forward into retailing, which put pressures on buyers (Datamonitor, 2008).

C.           Bargaining Power of Suppliers

            Inputs to the global automobiles market include a variety of raw materials, assembled and semi-assembled components, energy, freight and transportation. On the other hand, suppliers have a strong power over the industry because the suppliers, which are commonly large companies, are not dependent on the automotive industry but operate in a diverse market. In addition, the power of supplier is being strengthened because the automotive industry requires raw materials of high quality. However, this is complemented because motor car manufacturers does not focus on one suppliers, thus reliance to suppliers keep to minimum by using wide range of companies as their suppliers  (Datamonitor, 2008).

D.           Threats of Substitutes

            The presence of used car market is a threatening player in the new cars market. As a matter of fact, the volume of used car sold had exceeded that of the new cars market. However, this lessens because most of car manufacturers are focusing on producing affordable new cars. On the other hand, with connection with the awareness of environmental issues, people tend to substitute automobiles for more environmentally friendly forms of transport such as walking, cycling and even public transportation. However, the said substitute is unlikely to happen on a large scale or to become a complete substitute for automobile, thus it does not have that much impact on the industry (Datamonitor, 2008).

Furthermore, hybrid is growing in terms of sales, however market players play a vital role in the said green market (Datamonitor, 2008), therefore, making the threat of substitute low.

E.           Rivalry among Existing Firms

It is important to consider that the global automobiles industry is highly concentrated with the top three players in the industry, which holds 40% of the entire market value. Competition is increasing and intensifying because different developed and newly developed countries such as Japan and Korea are starting to compete in the global market. Aside from that, most of car manufacturers are now ramping in terms of production which put pressures on their rivals. Besides, the industry is becoming consolidated because increase in raw material cost resulted to increase in production costs and put pressure on the players in the market (Datamonitor, 2008). Therefore the rivalry in the industry is strong.


VI.          Conclusion

After analyzing the information gathered, it had been found out that the industry is facing problems because of the current financial crisis. Customers tend to save money and stop buying cars for the future. As a result, the sale of automobile is forecasted to decline. On the other hand, because of the said financial crisis, people tend to go for second-hand cars, cycling, walking and transportation. However, the said factors do not have a long-lasting and strong impact because of the current effort of major players in the industry including introduction of affordable and reliable cars in the market. Furthermore, most of companies are also focusing on green market, which enables them to manufacture and sell hybrid cars, as an answer to the concerns of the customer towards the different environment issues.


VII.         References

2007 Production Statistics. (2007). Retrieved May 4, 2009, from Organization International des Constructeurs d’Automobiles:

Automotive Industry – Industry Overview. (n.d.). Retrieved May 4, 2009, from Automotive Components & Parts:

Collins, S. (2006, April 20). International Trade Commission (ITC) Public Hearing on the Economic Effects of a US – Korea FTA on the US Automotive Industry. Retrieved May 4, 2009, from Automotive Trade Policy Council:

Datamonitor. (2008). Global Automobiles. Retrieved May 4, 2009, from Datamonitor:

Evans, F., & Bishop, D. (2001). Valuation for M & A: Building Value in Private Companies. John Wiley and Sons.

Györffi, M. (2006). Common Policies. Retrieved May 4, 2009, from European Parliament:

Haberberg, A., & Rieple, A. (2008). Strategic Management: Theory and Application. Oxford University Press.

Hsu, J. (2002, July 1). Globalization Withint the Auto Industry: A Major Benefit of Globalization for GM has been Access… Retrieved May 5, 2009, from AllBusiness:

IHS. (2006, October 31). Frost: Intellectual Property Rights Protection to Reduce Counterfeiting Risk in Chinese Auto Industry. Retrieved May 9, 2009, from IHS:

Johnson, D., Sun, J., & Johnson, M. (2007). Integrating Multiple Manufacturing Initiatives: Challenges for Automotive Suppliers. Measuring Business Excellence , 11(3), 41 – 56.

KMPG. (2008, November 27). Automotive: A Rough Road: The Effects of Today’s Financial Crisis in the Global Automotive Industry. Retrieved May 4, 2009, from KMPG International:

Lepeak, S. (2008, January 1). “What’s happening in outsourcing trends? Manufacturing, automotive, and high-tech industries are looking mostly at information technology and business process outsourcing.”. Retrieved May 4, 2009, from Implement & Tractor. Scissortail Productions LLC. HighBeam:

OICA. (2006, November 29). The World’s Automotive Industry. Retrieved May 5, 2009, from The International Organization of Motor Vehicles Manufacturers:

Partridge, L., & Sinclair-Hunt, M. (1997). Strategic Management. Select Knowledge Limited.

Raver, E. (2006, February 16). The Effect of NAFTA on the US Auto Industry. Retrieved May 2, 2009, from Associated Content:

Singleton, K. (2004, March 14). Hybrid Cars Are Gaining Popularity. Retrieved May 5, 2009, from World Internet News:

UNCTAD. (2009, January 19). Assessing the Impact of the Current Financial and Economic Crisis on Global FDI Flows. Retrieved May 5, 2009, from United Nations Conference on Trade and Development:〈=1&intItemID=2068

Wilson, R., & Gilligan, C. (2005). Strategic Marketing Management: Planning, Implementation and Control. Butterworth-Heinemann.

Yagi, T. (2002). Recent Trends in the Robotization of the Japanese Automotive Industry. Industrial Robot: An International Journal , 29(6), 485 – 499.

Zhang, J. (n.d.). Outsourcing to China Part 1. Retrieved May 4, 2009, from



VIII.       Appendices

Appendix A: Automotive Industry and the Economy of the World


(2004 or latest available figures)
(In Million) Turnover Investments Public Revenue
Argentina 3,519*
Australia 18,929 887
Austria 13,900 580 8,315
Belgium 18,225 302 7,155
Brazil 26,997 1,141
Canada 77,469* 2,496** 9,701
China 86,984 5,330
Croatia 205 20 1
Czech Rep. 12,091 663 1,032
Denmark 1,165 46 5,867
Egypt 2,901 1,661 1,911
Finland 1,076 36 3,807
France 111,901 4,196 34,000
Germany 227,666 11,900 44,314
Greece 162 17 3,200
Hungary 8,144 432
India 16,893 1,014 11,122
Indonesia 3,858 1,071
Italy 54,135 3,450 40,954
Japan 435,610 6,450 66,444
Korea 62,993 2,239 16,615
Malaysia 6,084 1,263
Mexico 3,348
Netherlands 7,876 81 10,837
Poland 16,202 893
Portugal 4,457 176 6,897
Romania 1,836 308
Russia 7,019 223 654
Slovakia 8,711 1,056
Slovenia 1,544 40
South Africa 20,602 277 3,459
Spain 75,104 277 3,459
Sweden 24,784 861 5,590
Switzerland 4,252 4,689
Thailand 116,58* 443 2,871
Turkey 28,196 502 10,127
UK 58,238 1,590 46,099
USA 425,106 30,416 64,289
Total 1,889,840 84,801 433,160
* gross productive value ** gross fixed capital formation


Source:  (OICA, 2006)

Appendix B: 2007 Car Production Statistics


Country Cars Commercial Vehicles Total % Change
Argentina 350,735 193,912 544,647 26.0%
Australia 283,348 51,269 334,617 0.9%
Austria 199,969 28,097 228,066 -17%
Belgium 789,674 44,729 834,403 -9.1%
Belgium 789,674 44,729 834,403 -9.1%
Brazil 2,388,402 582,416 2,970,818 13.8%
Canada 1,342,133 1,236,105 2,578,238 0.3%
China 6,381,116 2,501,340 8,882,456 22.0%
Czech Rep. 925,778 12,749 938,527 9.8%
Egypt 67,149 36,403 103,552 13.1%
Finland 24,000 303 24,303 -25.8%
France 2,550,869 464,985 3,015,854 -4.8%
Germany 5,709,139 504,321 6,213,460 6.8%
Hungary 287,982 4,045 292,027 53.5%
India 1,707,839 598,929 2,306,768 14.4%
Indonesia 309,208 103,580 412,788 39%
Iran 882,000 115,240 997,240 10.3%
Italy 910,860 373,452 1,284,312 6.0%
Japan 9,944,637 1,651,690 11,596,327 1.0%
Malaysia 347,971 93,690 441,661 -12.2%
Mexico 1,209,097 886,148 2,095,245 2.4%
Netherlands 61,912 76,656 138,568 -13.1%
Poland 695,000 89,700 784,700 9.8%
Portugal 134,047 42,195 176,242 -22.5%
Romania 234,103 7,609 241,712 13.2%
Russia 1,288,652 371,468 1,660,120 10.4%
Serbia 8,236 1,667 9,903 -11.4%
Slovakia 571,071 0 571,071 93.3%
Slovenia 174,209 24,193 198,402 29.6%
South Africa 276,018 258,472 534,490 -9.1%
South Korea 3,723,482 362,826 4,086,308 6.4%
Spain 2,195,780 693,923 2,889,703 4.0%
Sweden 316,850 49,170 366,020 9.9%
Taiwan 212,685 70,354 283,039 -6.7%
Thailand 315,444 971,902 1,287,346 7.8%
Turkey 634,883 464,531 1,099,414 11.3%
Ukraine 380,061 22,530 402,591 39.7%
UK 1,534,567 215,686 1,750,253 6.1%
USA 3,924,268 6,856,461 10,780,729 -4.5%
Uzbekistan 170,000 14,900 184,900 68.1%
Others 429,430 168,466 597,896 12.5%
Total 53,049,391 20,103,305 73,152,696 5.7%


Source:  (2007 Production Statistics, 2007)









Appendix C: Direct Employment in Automotive Industry


Countries Employment Countries Employment
Argentina 12,166 Korea 246,900
Australia 43,000 Malaysia 47,000
Austria 32,000 Mexico 137,000
Belgium 45,600 Netherlands 24,500
Brazil 289,082 Poland 94,000
Canada 159,000 Portugal 22,800
China 1,605,000 Romania 59,000
Croatia 4,861 Russia 755,000
Czech Rep. 101,500 Serbia 14,454
Denmark 6,300 Slovakia 57,376
Egypt 73,200 Slovenia 7,900
Finland 6,530 South Africa 112,300
France 304,000 Spain 330,000
Germany 773,217 Sweden 140,000
Greece 2,219 Switzerland 15,500
Hungary 40,800 Thailand 182,300
India 270,000 Turkey 230,736
Indonesia 64,000 UK 213,000
Italy 196,000 USA 954,210
Japan 725,000  
Grand Total (39 countries only) 8,397,451


Appendix D: Market Share


Company Share (%)
Toyota Motor Corporation 15%
Ford Motor Company 12%
General Motors Corporation 11.40%
Daimler AG 10.30%
Other 51.30%
Total 100%

Source: (Global Automobiles, 2008)