The European Automotive Industry
CONCLUSION
In this report we have analysed the factors that influence the
level of competition in the European automotive industry.
The features that facilitate competition are overcapacity, low
industry growth, supplier dependency and high fixed costs. The
factors that limit competition are the lack of close substitutes,
moderate concentration, insignificant exit barriers, dispersed
buyers, R&D and product differences. However, the factors
that limit competition only provide margi-nal market power,
whereas the facilitating factors are very significant. Here we
think especially of the combination of overcapacity and low
industry growth. Thus we can con-clude that the automotive
industry in Europe at present is highly competitive, and that the
individual firms faces elastic demand and little market power.
An additional feature of the industry is segmented markets, which
cannot be labelled as a catalyst or limitation of competition.
Nevertheless it has caused the market actors to price
discriminate on the basis of national markets. The conduct of the
actors has also been affected by the nature of sunk costs in the
industry. These costs can make a credible commitment to the
industry, and hence investment in sunk cost assets can help to
deter competition. This has caused market actors to overinvest.
Finally the existence of market power differentials due to
specialised assets in the component industry has led to vertical
integration
In our analysis of factors that contribute to long term
competitiveness, we have argued that the most important factors
are low cost production and effective R&D. Low cost
production is an absolute necessity in an industry with elastic
demand, while R&D con-tribute to competitiveness by providing
a small relief from cost pressures, and by facilita-ting new
model introductions.
Further we have presented the seven largest actors and divided
these into strategic groups. This has been done on the basis of
market segmentation. Thus market actors have been divided into
strategic groups, based on the criteria of diversification across
segments, and primary segment focus. The market actors within
each of the strategic groups are likely to constantly face each
other in different parts of the markets. Consequently they are
also likely to follow similar strategies in these markets. We
have further argued, that in the car industry, competition also
occur across strategic groups. Hence the strategic groups are
less dispersed compared to many other industries.
In our financial statement analysis we have examined vertical
integration, cost structures, R&D and marketing. From the
analysis we can conclude, that value added is between 25% and
37%, which demonstrates the importance of external suppliers.
Further we have shown, that the industry is characterised by very
high investments in production plants. In spite of this, labour
costs still far exceed depreciations. The analysis also revealed
the large R&D investments made in the industry. The reason
for this can be found in R&D's role in competitiveness, but
can also be contributed to the industry structure of intense
competition with slightly downwardsloping demand.
Finally we have examined how some of these features are likely to
change in the future. We have argued that the scene is set for
further concentration, as a consequence of incre-asing R&D
costs. We have also argued that the increased concentration is
unlikely to de-crease competition due to continued overcapacity
and low growth.
European integration will eliminate the opportunity for price
discrimination, and lead to lower costs with respect to testing
and adapting cars for different markets. There seems to be a
trend towards lower vertical integration, in spite of the
increased requirements for specialised assets in the component
industry. The future is unlikely to bring about a change in the
factors that shape competitiveness.