The auto industry has significantly benefitedsignificant benefits from globalization. The industry has evolved from being a local-market-focused business comprised of hundreds of small manufacturers to a global market-focused business dominated by Japanese, German, South Korean, and American producers generating over 1.7 trillion dollars US in sales. This essay discusses what we believe are the main risks posed by globalization to the automobile industry. We define globalization for the purpose of this essay to beas the integration of markets across political boundaries that allows for the flow of capital, people, goods and services within. We define the automobile industry as the set of companies that produce automobiles and light duty trucks (“The Auto Industry”)..
Since WW II, globalization has enabled greater market access and corporate consolidation that has enabled large automobile manufacturers to diversify their offer product and transcend national boundaries. Volkswagen, for example, originally a German company founded by Nazi government in 1937 to offer German citizens a German produced car, now includes makes from seven different countries and has hails China as one of its largest markets with an 18.6% market share at the end of 2008 (Volkswagen, 2008); and Tata, the Indian conglomerate owns two venerable English brands, Jaguar and Land Rover.
While the automotive industry has grown and thrived as a result of globalization, it also has, and will continue to face risks that if left unattended, will negatively impact both industry growth and profitability. These risks are:
Protectionism
Global Financial Instability
Global Supply Chain Vulnerability
This essay looks at these three risks separately, analyzing their impact on the industry’s growth and profitability. It also offers actions the industry can to manage mitigate these risks going forward.
Although we have chosen to concentrate on these three risks, we understand that other risks exist that could influence the future of the automotive industry. Walter McManus, for example, makes an especially strong point regarding the correlation between oil prices and car sales and how Detroit’s largest car makers failed to heed the warnings of economic reasoning (McManus, 2007, pp 53-60). Copeland and Hall, in their 2005 paper, also discuss how unforeseen shocks, such as the terrorist attacks of 9/11 can influence demand in the short term and how auto-makers have the necessary tools to overcome these events and level out the price shocks over time (Copeland & Hall, 2005). This essay also does not explore the risk of global warming and its implications for product design. While other effects, such as political instability, or currency risks are very briefly touched upon, it is our belief that the three risks we have chosen to provideoutlined are the more likely relevant risks the automotive industry must address to further realize the benefits of globalizationensure global sustainability.
Protectionism
The automobile industry has matured over the past century, evolving from a domestic business model where carmakers produced for local markets, to a global model beginning iIn the early 1980’s where car Production has become transnational, thus providing carmakers access to consumers around the globe. This growth has provided consumers more choice, reduced product cost and price, and increased fostered innovation in response to greater competition.
Protectionism, defined as is the ability of nations to impose limits on goods and services by raising barriers to trade and foreign investment, poses a significant risk to the industry. These often nationalistic measures take on various forms including restrictions on the treatment of labour and flow of capital, tariffs on trade, and government subsidies. Such measures can:
Reduce carmaker access to foreign markets
Increase production costs and/or sales price
Decrease foreign direct investment, partnership, and