C2 – Evolution

This chapter describes the auto industry and its evolution from its inception in the late 19th century up to the present day, paying particular attention to the forces that have shaped it from the 1970s onwards.  The chapter covers the challenge to the US and European auto industries posed by the rise of Japan in the 1970s and 1980s, and the plateauing of Japan since the 1990s. We look at the auto mergers and acquisitions of the 1990s and the rapid rise of China, now the largest car market in the world.

We note that the auto industry also has six key idiosyncrasies that are key to understanding its dynamics.

  1. Persistent global production overcapacity – there is capacity to produce more vehicles than there is demand for.
  2. Auto firms have national and corporate symbolic value – there are strong economic and non-economic incentives to enter car-making and equally strong barriers to exit.
  3. Car sales are heavily affected by the economic cycle – replacement or acquisition of vehicles can usually be deferred if money is tight, amplifying the peaks and troughs of the economic cycle
  4. Cars are complex products – they contain a multiple technologies that must be acquired, developed and integrated into complete vehicles. Car making requires a formidable capability to coordinate and control.
  5. Cars operate in varied and demanding environments – they have to function reliably for many years with minimal maintenance. Much modelling, testing and proving is needed before products are released to the market, and high levels of support are required thereafter.
  6. Cars are important ‘identity’ items – a car can be expression of one’s self. For many car owners brand counts for a great deal, and brand is something that develops slowly, over many years.

Fig 2.1 Global annual vehicle production since 1900

 

Selected Quotes

“The dominant design of the contemporary automobile was established in the early 1900s and has not changed fundamentally since then”. (p. 44)

“[Electric vehicles] raise the prospect of a disruption to the established order in the auto industry that will challenge the incumbents in various ways, creating advantage for some and disadvantage for others, and opening up the field to new competitors”. (p. 46)