The European Automotive Industry
Introduction
The automotive industry is an
increasingly international sector. In the 1950's and 60's car
manufacturers mainly sold their products in domestic markets.
National producers often enjoyed government support through
subsidies, and very high tariff levels protected markets. Thus
producers concentrated on producing cars specifically intended
for the domestic markets making international penetration very
difficult .
In the late 60's this began to change. Lower tariff levels and
pressure from US firms led producers to pursue a more global
approach to the industry. Thus cars converged into a more
homogeneous product, that could be sold both in domestic and
international markets. Further evidence of globalisation is found
in the difficulty in determining the nationality of different
companies. Ford Motors, for example, is one of the world's
largest car manufacturers, and originates from the United States.
Today, however, the company has production plants in 38 countries
and sales outlets in over 200 countries. Thus Ford, along with a
number of other players in the industry, has become a truly
transnational corporation with a worldwide network of suppliers,
customers and associated companies.
In spite of this trend markets for cars are still segmented,
making home markets very important for car manufacturers.
Evidence of this segmentation can be found in prices that differ
heavily across Europe. Thus net prices in Denmark are low due to
tax pressures, while a market protected from parallel imports by
left-hand driving has lead to higher prices in the United Kingdom
.
This report will concentrate on the automotive industry in the
EU, which is one of the major markets for cars due to the
relatively high average income. About 12,5 million cars are
produced annually in the EU standing for one third of world car
production.
For the EU the automotive sector is extremely important due to
its contribution to both employment and GDP. Thus the automotive
industry employs more than one million people in the EU, which is
approximately 5% of the industrial workforce . At the same time 3
of the 9 largest corporations in the EU are car manufacturers,
which furthers the industry's role as a high profile sector. Cars
are also a major export commodity for the EU, as total car
exports amounted to 37 billion ECU in 1994 (In the same year car
imports amounted to 19 billion) . EUs main export market is North
America, although the size of this market has decreased due to
adverse changes in exchange rates. All in all there can be no
doubt as to the sectors importance for the EU economy as a whole.
The figure 1.1 below shows unit sales of passenger cars in the
European automotive industry from 1985-1996.
Figure 1.1
Source: Panorama
Database
In the same period the employment
in the sector has decreased rapidly. This has happened as a
consequence of the major restructuring and rationalisation, which
has swept through the industry during the period in question. At
the same time the industry faced declining demand in the early
90's, further hurting employment in the sector.
One likely explanation for such a rationalisation is increased
competition as a result of decreasing trade barriers internally
in the EU, as well as increased competition from Asian
competitors with cost advantages.