Automoblie Industry

This essay has a total of 2299 words and 10 pages.

Automoblie Industry

Mark Geraghty
AP Economics
Automobile Industry
There is no industry more present in the world-wide community than the automobile industry. The automobile has changed the lives, culture, and economy of the people and nations that manufacture and demand them. Ever since the late 1800s when the first “modern” car was invented by Benz and Daimler in Germany, the industry has grown into a billion dollar industry affecting so many aspects of our lives. There are more than 400 million passenger cars alone on the roads today. During the early part of the twentieth century, the United States was home to more than 90 percent of the world’s automotive industry, but has shrunk to about 20 percent in today’s world. This drastic change has occurred by the booming economies in such nations as Japan, Germany, Canada, France, Italy, and other nations. The US auto industry “sales totaled $205 billion, or 3.3 percent of the total Gross Domestic Product.” (Tardiff 394)
By the end of 19th century, there were about 500 auto manufacturers, but that number dropped sharply to 23 by 1917, and today the Big Three dominate the market. Ford, General Motors, and Chrysler make up the Big Three which account for 23 percent of the world’s motor vehicle production in 1997, with the Japanese industries coming in second, producing 21 percent. Germany produces 9 percent, Spain, France, South Korea, and Canada each produce 5 percent of the international market in 1997. In the US alone, the auto industry, which includes it’s 500,000 car-related businesses, create 12 million jobs.
The automobile is clearly an oligopoly, but each company’s control of the market has gradually diminished because of rising foreign competition. The US has three main auto manufacturers, Japan has five major producers as does Germany. Each of these companies produce differentiated versions of the same product, have control over their products’ prices, and rely heavily on non-price competition. Each company produces a new line of cars for each model annually. There are many different types of cars, like sedans, station wagons, Sport Utility Vehicles (SUV), two-doors, and four-doors, but by comparing models between two competing companies, you can see how great the similarities are. The auto industry can still thrive even though it’s products are so similar because the demand for cars is immense and continuous. People rely on cars for so many things that life without one seems impossible, especially in the US which registered 141 million cars in 1988, whereas Japan, the second highest, only registered 30 million.
The creation and production of a new car starts about three to four years before it is released to the public. The initial planning stage begins in the company’s corporate headquarters with ideas for the car from product planners and company officials. Automotive designers draw prospective sketches of the new car, and once approved, model makers create small scale models of the car in fiberglass or clay, then forge life size models also in clay or fiberglass. Automotive engineers then develop each part of the car, and mock-up builders create those indigenous parts of the new car. Test drivers check over the entire system, analyzing how it runs, and then gives suggestions on improving the vehicle. Automotive engineers test all the new, specialized parts of the car, and after all the parts are tested, plant engineers plan how to best mass-produce the new car. Of all the people working in the automobile industry, most will be found in this next industry which is the assembly plant. In the United States, the majority of these assembly plants can be found in the Michigan, Great Lakes area, and it, on average, takes about ninety minutes on the assembly line for an entire car to be produced.
When planning a new car model, the company tries to create what the consumer wants. This is very difficult because as stated earlier it take between three and four years to develop a car. When General Motors begins developing a new product, it starts by assembling a new team to coordinate the production. After this team is assembled, millions of dollars are spent on dispensing and analyzing public surveys, private firm’s own research, government research, and past car sales to determine what the consumer wants. These specifications include physical dimensions, cost, fuel efficiency, comfort, market price, appearance, and performance. GM then would go on to begin producing the car. The most time consuming step when creating a new model is supplying the specialized pieces of the new model. Some of the parts can be carried over from previous models or other cars, but many times the company has to either create the new pieces themselves or buy them from a large scale supplier, like ITT Automotive. The company then looks for the supplier that will supply the parts the cheapest. After the model car has been created and approved, the plans are made for it to be made on the assembly line. The car is then ready to be sold to the public through private dealerships which, in the US, are not linked with any major automobile manufacturer. GM would then sell its cars to whichever dealership is willing to buy from them.
In many Japanese firms, like Toyota, a new system has been created and has been coined ‘lean production’. The basic manufacturing ideas are the same, but it emphasizes developing relationships between the company and those it deals with. When Toyota begins developing a new car model, it already has a team assembled which has worked on previous models. The Toyota team then collects the same information about what the public wants just like the GM team but has a much cheaper way of going about it. Unlike the GM firm, Toyota has formed business ties with car dealerships, and in some cases even owns them. These dealerships use a new set of techniques to sell their cars, called “aggressive selling,” in which a very permanent, personal, and hopefully life-long relationship is created between the company, the dealer, and the buyer. Since the company keeps ties to its consumers, it already knows what the consumer wants, and the consumer is more willing to buy from the company. Toyota continues developing and producing its car, and it comes across the same problem as the GM team of not having all the specialized parts it needs. Like with the dealerships, Toyota has formed many symbiotic relationships with car part suppliers. These suppliers work hand in hand, with the Toyota team and develop any products that Toyota needs for its new model.
The past decade has seen many interesting fluctuations within the automobile industry. Overall the auto industry fluctuates with the normal business cycle, for motor vehicles are an elastic demand to consumers. The more the price for cars goes up, the less people buy cars. For many years, the automobile industry has seen very large profits because the demand and necessity for cars has increased significantly. Recently, large foreign competitors and steadily increasing prices in motor vehicles have reduced these surplus profits within the industry. Cons

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