FREE ESSAY ON AUTOMOBLIE INDUSTRY

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. Consumers are now demanding lower prices and more luxuries
in their cars. To deal with this consumer demand, auto manufacturers have begun by
lowering employee pay rolls, replacing employees with machines and more capable workers
to improve productivity, and many times merge with other companies to better compete in
the market.
Production growth has been about 2-3 percent for the past few years in the auto industry,
and hopefully will continue by implementing new cost efficient procedures. American
industries, competing in the international markets, face the problem of a strong dollar
compared to the weaker currencies of foreign nations. This means that American cars to
foreign nations are more expensive, and foreign cars to Americans are cheaper. This
supply and demand problem was solved by the Clinton administration which opened up many
foreign markets previously closed to the US auto makers. One of the main markets that the
Clinton administration opened up was the Japanese market. This was such a positive
victory for the US industries because the Japanese were notorious for charging very
little for the cars they sold in foreign countries, making up the difference with
extremely high prices for the cars they sold in the closed markets of Japan. The North
Atlantic Trade Agreement also opened up trade to many nations in Latin America,
especially Mexico. Overall, between 1992 and 1995 export sales rose 22 percent and the
sales to Mexico and Japan each rose 250 percent.
The auto industry is also a major source of jobs in the world. "During the early 1990s,
approximately one of every seven jobs in the US domestic economy is related to the
production, sale, operation, or maintenance of motor vehicles" (Tardiff 396) which makes
abundantly clear the impact the car industry has on society, with GM, Chrysler, and Ford
Companies making up three fourths of those jobs. Auto workers are also among the most
highest paid workers in any industry and also the most productive. This great increase in
worker productivity, due to advancing technology, also accounts for the huge profit gains
the Big Three have received in the past few years.
Until the late 1960s, the government did not get involved in implementing regulations on
the automobile industry. Most of the regulations now placed on car manufacturers have to
do with making the car drive safer and be more environmentally sound. Seat belts,
reflectors, bumpers, windshield wipers, defrosters, dashboard controls and specialized
lights, brakes, tires, and windows were all the result of government action. Today safety
has become extremely important to car makers because of the high deaths that result from
automobile accidents, the government, and most influentially, people's growing concern
for their well-being. 
The Environmental Protection Agency (EPA) has created standards for new cars called
emission standards, which prevent excess carbon monoxide from being released into the
atmosphere. There has been much talk of creating international standards to regulate the
automobile and recently some progress has been made. Many nations including the US and
Japan has become "active participants in the Group of Experts on the Construction of
Vehicles, of the United Nations Economic Commission for Europe (ECE/WP29), the principal
international forum for harmonization issues." (Hoover's Online) 
The future of the automobile industry looks rather stable. More than ever, international
competition will keep individual company's sales from soaring. Cost efficiency is a major
issue with today's car manufacturing, as is expanding into developing countries. The Far
East and Latin America are expected to be the source of most new profits and demand in
the years ahead. "The current global car market is expected to grow from about 44 million
vehicles sold per year to 64 million by 2002." (Hoover's Online) 
The automobile industry is also spending great amounts of time and money in developing
new cars and luxuries to offer their customers. Like in airplanes, car makers are looking
into placing a "black box" in each car to record valuable information in case of a car
accident. Intelligent Vehicle Highway Systems was a government sponsored study analyzing
traffic patterns and ways to improve motor transportation. 
Creating environmentally safe vehicles is also a major concern. Companies are looking
into solar powered, battery-operated, and electric cars, plus a new technology that
converts liquid hydrogen into electricity. All these new low emission automobiles are
still under development, but many prototypes are expected to reach the market by
2003-2004. 
The rise of computer technology in today's society has greatly affected the automobile
industry. Global Positioning System is an up and coming navigational system becoming more
and more common in cars today, especially SUVs, which are predicted to be in heavy demand
in the next few years. Thermal detectors in the windshield used to display hard to see
objects at night are in development and researchers are looking into the possibility of
placing computers in brakes to automatically slow the vehicle when rounding a curve or
when encountering another hazardous situation.
The automobile has become a necessity in the lives of millions of people living in
developed countries and it's influence is spreading around the world quickly. As cars
become more and more advanced, suited with better handling capabilities, safer features,
and more computerized systems, it's no wonder that so many people invest so much time,
energy and money into this industry. The automobile has come along way since the days of
Henry Ford, and you can rest assured that it will continue to evolve. Even though the car
itself will continue to change as will the industry that creates these incredible
machines, there is no doubt that people's demand and love for cars will go on for a long
time to come.
Works Cited
McBride, Gordon. "Automobile Manufacturing." Career Information Center. 2 vols. New York:
MacMillan Library Reference USA, 1996 p. 98-100
Tardiff, Joseph, ed." Motor Vehicles and Motor Vehicle Equipment." US Industry Profiles.
New York: Gale Research, 1998 p. 394-401
Broughty, James. Careers in Transport. Chicago: The Institute for Research, 1999
Womack, James P., Jones, Daniel T., and Roos, Daniel. The Machine that Changed the World.
New York: MacMillan Publishing Company, 1990
Farr, Max. "Automobile Industry." Hoover's Online. Online. Internet. February 2000
Bibliography
Works Cited
McBride, Gordon. "Automobile Manufacturing." Career Information Center. 2 vols. New York:
MacMillan Library Reference USA, 1996 p. 98-100
Tardiff, Joseph, ed." Motor Vehicles and Motor Vehicle Equipment." US Industry Profiles.
New York: Gale Research, 1998 p. 394-401
Broughty, James. Careers in Transport. Chicago: The Institute for Research, 1999
Womack, James P., Jones, Daniel T., and Roos, Daniel. The Machine that Changed the World.
New York: MacMillan Publishing Company, 1990
Farr, Max. "Automobile Industry." Hoover's Online. Online. Internet. February 2000