Auto Industry Competitive Environment and Government Policies Essay

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Auto Industry

Competitive Environment and Government Policies Facing the Global Automobile Industry

New Entry Activity

The automobile market is always a hotbed for mergers and acquisitions. In the early part of last century, General Motors was at the head of those gaining market share through mergers and acquisitions when they absorbed such companies as Cadillac, Pontiac and Chevrolet. Ford followed suit, but made many of its agreements with companies later in the century with companies like Mercury, Mazda, Volvo, Land Rover, Jaguar and Aston Martin. However, the global financial crisis forced these large automakers to divest some of their holdings and to stop partnerships with other auto companies. Ford cut Jaguar and Land Rover, and cut ties with Volvos car division. Because these companies were available and there has been more money to invest lately in places like India and China, other companies were able to quickly add some of those that had been dropped through mergers and acquisitions. Tata Motors based in India was able to acquire Land Rover and Jaguar for a very small price (comparatively) because they were companies that were worth very little to the international market. Basically all that Tata wanted was the name anyway (IMAP, 2010).

More mergers have happened with automobile products manufacturers than among the large automakers In recent years because it is an industry that has much greater diversity from top to bottom with small shops that specialize in a very small array of products to very large distributors which work exclusively for one of the large automakers. According to an IMAP (2010) report

"In 2008, the largest deal worth USD 31.8 billion took place in the German automobile space between Schaeffler KG and Continental; whereas 2009's largest deal, valued at USD 1.07 billion, was in Asia between Hyundai Motors and Hyundai Mobis in South Korea"

These mergers show the determination of some of the larger parts manufacturers to merge together so that they can better weather a financial crisis if one occurs again.

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It should also be marked that the same deals might not have taken place in the U.S. because of stricter antitrust laws than are to be found in other countries.

Government Policies and Regulations

The primary policy change that has occurred over the last decade is that of green cars coming on the market. Many countries around the world are requiring that companies which do business within their borders use new guidelines for emissions controls, gas mileage, and other changes that will make the cars more compatible with the green initiatives. Another change is that many countries are giving tax incentives to people who buy cars that are either hybrid (electric and gas operating) or fully operated via electricity. The laws regarding fuel choice started changing in 1975 (Shimikawa, 2010, 8), but these types of laws have accelerated since because of a felt need to better protect the planet.

Any manufacturer that wants to sell globally has to run the gauntlet of a maze of international laws having to do with size, material, fuel type and fuel consumption. Because of regulations placed on the industry, it is often much more profitable to sell in country rather than to export globally (Global Economic Report, 2012). Thus many of the large global manufacturers that were opening plants around the world two decades ago are pulling those jobs back within their home countries and investing much less money globally (IMAP, 2010).

Global Competition Demographics

The financial slowdown had a great effect on….....

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