Automotive Industry in the United Kingdom - Report Example

Automotive Industry Analysis in the United Kingdom Table of Contents Scope 3 Introduction 4 Development of the Sector 5 General Features 7 Cost and Demand 8 Business Behavior 9 Macro Economic Influences 10 Global Influences 11 Conclusion 12 References 13 Scope The report studies the automobile industry of the United Kingdom with reference to the changing times and events happening in the global arena. It reflects upon the development of the auto sector in the country along with few of the general features of the industry. The report has dedicated sections for cost and demand analysis and it also studies the business behavior. The changing times and terms of trade have compelled studying of macro - economic environment and global influences and the report also includes the chapters. Last but not the least, the report comprises of a concluding chapter in which the future road map is discussed. Introduction The only thing constant in the present world of today is believed to be the term ‘change’ itself. The external environments as well as internal processes of almost all of the industries are on constant change. With the massive developments in the field of technology and engineering and communication processes, the terms and tricks of the trade are fast changing. The effects of globalisation have made the world to be a smaller place to live in, virtually within a few click of the mouse. The free flow of information also has played tremendous role in shaping the present course of society and economy, as a whole. The automobile industry of the world has also been susceptible to many of the changes and has been affected by the transforming phase. Basically, the industry of automation is related with the all and sundry of the motor vehicles that includes designing the vehicles, developing and manufacturing of spares, marketing and selling of the vehicles along with the after sales service. This heavy industry has the credit of producing more than 70 million vehicles worldwide in the year of 2008 (OICA, n.d.). The automotive industry of the United Kingdom is one of the prominent and of worldwide repute. The automobile industry of Great Britain is specifically focused towards exports and figures suggest that almost 75% of the entire production of the cars and commercial vehicles in United Kingdom are exported (SMMT, 2008). The automobile industry of the United Kingdom is rated among the top five industries of the Europe. The industry has more than 5000 companies that comprises of at least seven among the best ten manufacturer of vehicles in the global market and almost the entire top spare and parts makers of the industry (UK Trade & Investment, n.d.). Development of the Sector The automobile sector is one of those sector that has been greatly affected by the ongoing global meltdown and financial recession that all started with the sub – prime mortgage crisis in the United States. But as the world economy is mostly coupled with the economies of other nations, soon the effects reached the markets of United Kingdom too. As there were pink slips and job cuts all around, the market for the motor vehicles showed steady decline. The case was worse especially for the luxury cars. As the demand decreased all around, there were job cuts in the automobile industry too as the leading companies failed to ensure profits. The General Motors got one of the major blows as it recorded more than 44% decrease in sales in September, 2009. The another major player , the Bosch Group feared a decrease of sales of E 38 billion which prompted the company to plan for at least 10,000 job cuts by December, 2009 (Market Watch, n.d.). Focusing on the automobile industry of the United Kingdom, it is observed that more than 1.6 million cars are manufactured every year in the country along with three million engines. The automobile industry of the United Kingdom has annual turnover of around £ 51 billion and more than £ 10 billion is added to the economy of the United Kingdom. The industry of automobile is also one of the largest employing sectors of the nation as it involves more than 800,000 professionals. The highly reputed automobile segment’s constituents i.e. the manufacturing companies supplies to more than one hundred outside markets. Also, the industry of the United Kingdom can be referred as the environment friendly as carbon – di – oxide emissions have reduced by at least 17 % in the new cars compared to the previous years. The automobile industry of the United Kingdom comprises of at least nine CV manufacturing companies and that of seven volume cars. The designing of the automobile industry of the entire Europe is centered in the United Kingdom and also the country is home to the largest number of specialist sports car in the entire Europe. Along with the car and vehicle manufacturers, the industry is also home to almost of all of the leading component suppliers of global repute (SMMT. N.d.). General Features It is well understood from the above discussions that the automobile industry is one of the pillars of the economy of the United Kingdom. It can be further evident from discussion of the facts. It has been reported that the automobile industry of the United Kingdom contributes 6.4% of the Gross Value Added (GVA) of the country with almost 6% of employment. The automotive industry is also a major player in the fields of imports and exports as it comprises for at least 12% of the manufactured exports of United Kingdom where as manufactured imports constitutes to be around 13% . Following the trends of the automobile industry all across the globe, the financial slowdown has affected the industry of the United Kingdom too as the production reduced by 5.8% on year to year basis (the car market was down by 5.7% where as the vehicle market by 5.9%). The United Kingdom market’s productions continued to be exported in the previous year too as 77% of the cars and 66% of the commercial vehicles were send to the international markets. Also discussed earlier, the automotive industry of the United Kingdom has been a major employment generator for the nation. But the recent data shows that the decline in the generation of employment in this specific sector is comparatively higher than that of entire manufacturing sectors put together. While the overall compounded annual growth rate for employment of the automobile industry in the country is (-) 4.5%, the overall CAGR of the other manufacturing sectors put together is (-) 3.5%. It implies the employment in this particular sector has been on the decreasing trend. One of the reasons for such happening can be that many of the works of the industry are outsourced to other nations. Also such trend has made the auto mobile industry net importer, affecting the trade deficit of the country (Department for Business, Enterprise & Regulatory Reform, 2009). Cost and Demand The cost structure of the automobile industry is largely dependent on the location of the competing companies with a close periphery of area. This is because, being a heavy industry, automobile manufacturing units are often not self sufficient and requires whole lot of ancillary industries for the successful running. Now, if these ancillary industries are located at far off places or are not at all situated in the country, then the costing of the product goes up. Also, such a decentralized unit does not help the customers as with any fault of the system, they would not find the replacement at once. Therefore, if the ancillary industries are situated within the close proximity of the manufacturing unit, cost can be checked by a huge extent. The demand of the automotive sector of the United Kingdom, at least for the new market is found to be backward – looking error correction model. As along with the development, the forward looking rational expectations model is rejected, it can be inferred that such adaption of backward buying behavior have important references in decreasing emissions from vehicles in the United Kingdom (Sarantis & Murray, 1999). Business Behavior Considering the lower productivity in the last fiscal as well as this year, the other note worthy factor among the business behavior is that the industry has reduced the inventory considerably. The inventories among the various process of the supply chain can be divided into (a) inter – firm inventories which comprises of raw materials and finished goods and (b) internal work in progress that is required to adjust the variability and late in the process of manufacturing. The recent data have suggested that the different major companies have successfully reduced the inventories or the idle time and made the processes efficient (Sako, 1997). To ensure increased efficient within the business environment, the Society of Motor Manufactures and Traders Limited proposes two – fold recommendations namely quality and e-commerce. The organization recommends the automotive companies of the United Kingdom to adhere to the standards of ISO/TS 16949:2002, which is the prescribed standard of the global automotive quality management system. The above standard also covers the ISO 9001:2000 and so it would be required for all the spare parts manufacturers to be certified by it in near future. SMMT views quality as the weapon to fight the ever increasing competition. The other feature upon which the SMMT stresses is the electronic business methodologies. The organization is working upon the European Network Exchange which is proposed to be a sort of extranet for the automobile companies and also it is partnering online business initiatives of the government of the United Kingdom to augment online support to the automotive sector (The Society of Motor Manufactures and Traders Limited, n.d.). Macro Economic Influences The macro - economic influences upon the automobile sector in the United Kingdom largely depends upon the micro economic factors that each of the company individually faces. The ongoing financial slowdown has affected tremendously upon the industry in lieu of falling demand of motor vehicles. The big names like Jaguar Land Rover or LDV had been seeking government intervention in terms of financial aid or borrowings to carry out their daily operations. The Jaguar which has been acquired by Tata Motors of India now, was lobbying to the government for a loan of more than a billion USDs. After the acquisition, Tata Motors injected quite a hefty amount to revive the company (Reuters, 2008). The other giant in the field of manufacturing of vans and commercial vehicles, LDV too seeked a huge loan from the government but was refused. Soon, as no buyouts happened the company was declared defunct in 2009. The General Motors was also badly hit. There were speculations that the subsidiary of GM in United Kingdom, if Vauxhall Motors would have to bear the burn in terms of job losses. But the CEO had assured nothing of that sort would happen as he does not find any redundancies in the subsidiary (Macalister, 2009). Global Influences With the advent of the emerging economies especially that of China and India, the industry of the auto mobile in the United Kingdom experienced a major shift. The individual companies and the international leaders of the market like Ford, General Motors, Nissan, Toyota or Honda found it extremely lucrative to invest in the emerging economies as because with manufacturing units in these countries, they could easily cater to the Asian and Oceania markets. Also, the cost of production in these countries was much cheap as the availability of factors of production like labour and land, was in abundance. The nations are experiencing steady growth even amidst global meltdown and therefore the purchasing power of the populace remained intact and also it reasoned to the shifting trend (Chithra Gopal, n.d.). Conclusion There is little doubt that within the economy of the United Kingdom, the industry of automobile holds a major position. The sector is not only one of the leading employment generators in United Kingdom but also it earns considerable foreign exchange and reputation for the nation from the international arena. Though, the present figures depict that the country has trade deficits from the auto segment, but it can be because of the affects of the western markets due to the financial crisis. To recover from such a dull present and to get back to the glorious past, the industry as a whole, involving all the stakeholders (the companies, the regulators, the government, the media and all others), should work upon shared goals and objectives. References Chithra Gopal, R. S., No Date. Executive Summary. Global Automobile Industry: Changing with Times. [Online] Available at: http://www.outsource2india.com/kpo/site/includes/Global_Automobile_Industry11.pdf [Accessed 14 December, 2009]. Department for Business, Enterprise & Regulatory Reform, 2009. An Independent Report on the Future of the Automotive Industry in the UK. The UK Automotive Industry. [Online] Available at: http://www.berr.gov.uk/files/file51139.pdf [Accessed 14 December, 2009]. Market Watch, No Date. Industry Update. Automotive. [Pdf] Macalister, T., 2009. General Motors seeks to reassure Vauxhall on UK job losses. The Guardian. [Online] Available at: http://www.guardian.co.uk/business/2009/dec/06/general-motors-vauxhall-job-losses [Accessed 14 December, 2009]. OICA, No Date. 2008 Production Statistics. Home. [Online] Available at: http://oica.net/category/production-statistics/ [Accessed 14 December, 2009]. Reuters, 2008. Tata Motors announces bailout plan for Jaguar. IBN Live. [Online] Available at: http://ibnlive.in.com/news/tata-motors-announces-bailout-plan-for-jaguar/81085-7.html?from=rssfeed [Accessed 14 December, 2009]. Sako, M., 1997. Emergent Dualism in the UK Automotive Industry: Should We be Concerned? Massachusetts Institute of Technology. http://dspace.mit.edu/bitstream/handle/1721.1/1463/176a.pdf?sequence=1 [Accessed 14 December, 2009]. Sarantis, N. & Murray, J. 1999. Quality, user cost, forward-looking behavior, and the demand for cars in the UK. Journal of Economics and Business. [Online] Available at: http://www.faqs.org/abstracts/Economics/Quality-user-cost-forward-looking-behavior-and-the-demand-for-cars-in-the-UK.html [Accessed 14 December, 2009]. The Society of Motor Manufactures and Traders Limited, 2008. Record Breaking Figures for 2007 UK Vehicle Production. Total Vehicle Export. [Online] Available at: http://www.smmt.co.uk/articles/article.cfm?articleid=16852 [Accessed 14 December, 2009]. The Society of Motor Manufactures and Traders Limited, No Date. The automotive industry is the vital part of the UK economy. Industry Performance. [Online] Available at: http://www.smmt.co.uk/downloads/MotorIndustryFacts2009.pdf [Accessed 14 December, 2009]. The Society of Motor Manufactures and Traders Limited, No Date. Introduction. Business Improvement. [Online] Available at: http://www.smmt.co.uk/businessimprovement/index.cfm [Accessed 14 December, 2009]. UK Trade & Investment, No Date. Automotive. Sectors. [Online] Available at: https://www.uktradeinvest.gov.uk/ukti/appmanager/ukti/sectors?_nfls=false&_nfpb=true&_pageLabel=SectorType1&navigationPageId=/automotive [Accessed 14 December, 2009]. Read More