Key Messages

  • Despite growing global sales, of over 90 million vehicles in 2015, overcapacity in the auto  industry results in low margins for many carmakers. In many market segment several car makers to compete head-on, limiting their profitability.
  • Combined with the sector’s vulnerability to swings of the economic cycle, this means that auto companies are prone to periodically dip and out of crisis. However, complete failure is relatively rare – in recent times, only two major car producers have disappeared – Rover (in 2005) and Saab (in 2011).
  • Most industries faced with this situation would consolidate. However,  for a variety of reasons, consolidation in the auto industry is slow and limited. This means that overcapacity is a long term problem and the industry is a ‘pressure-cooker’ of competing forces. But which auto companies will prove to be the most resilient in the long term?
  •  In addition to prowess at designing and making cars the book argues that three factors determine the resilience an auto firm:
    • Sufficient production volumes to provide economies of scale (or, failing this, a strong enough brand to command premium prices that allow economic operation at lower volumes)
    • Market reach – presence in a) a range of markets to offset the effects of recession in any one market and b) in rapidly growing markets where margins are usually higher
    • The support of powerful stakeholders committed to the continued operation of the firm, who provide support and concessions during troughs when all other measures have failed.
  • Thus, competence in designing and manufacturing cars, although a necessary condition for survival, is no longer be sufficient to guarantee it.
  • The book’s concludes that most resilient car companies in the world in the medium to long term are likely to be Hyundai, Toyota, Honda and General Motors. PSA and Fiat-Chrysler display vulnerabilities.

The book also discusses whether electric vehicles and autonomous vehicles will disrupt the auto  industry, as many are predicting they will. We argue that these technologies are unlikely to displace existing, strong, auto industry incumbents. In our view it is more likely that stronger incumbents will absorb the new technologies. possibly via partnerships with technology companies such as Google and Apple, rather than be destroyed by them.