Pent-Up Demand to Aid Auto Industry Growth in 2013
The past five years were tumultuous for the global car and automobile manufacturing industry. According to IBISWorld Industry analyst Josh McBee, “Skyrocketing fuel prices and growing environmental concerns have shifted consumers’ preferences away from fuel-guzzling pickup trucks to smaller, more fuel-efficient cars.” Some automakers embraced the change by expanding their small-car portfolios and diversifying into the production of hybrid electric motor vehicles. Other automakers were more reluctant to shift their focus from big to small cars, expecting the price of fuel to contract eventually, bringing consumers back to the big-car fold.
When fuel prices fell during the second half of 2008, it was due to the U.S. financial crisis ripping through the global economy. The meltdown began when a debt binge overwhelmed many U.S. consumers and businesses. This had a domino effect throughout the developed and emerging worlds, with many Western nations following the U.S. into recession.
This year, pent-up demand will reportedly aid industry revenue growth, estimated at 2.1%, thus bringing overall revenue to an estimated $2.3 trillion. Overall, the large declines followed by recovery are expected to lend the industry average growth of 2.2% per year during the five years to 2013.
Throughout the past five years, growth in the BRIC countries (Brazil, Russia, India and China) supported production. Rising income in these countries led to an increase in the demand for motor vehicles. Also, Western automakers moved production facilities to BRIC countries to tap into these markets and benefit from low-cost production. “Over the next five years, the emerging economies will continue their growth, and demand for motor vehicles in the Western world will recover,” McBee said. Industry revenue is forecast to grow over the five years to 2018.
The global car and automobile manufacturing industry is reportedly deemed to have a low level of market share concentration. There are several major automotive companies across the globe, each with a significant share of the market, but concentration has been declining over the past five years as firms in emerging economies (e.g., India) ramp up production. General Motors spun off a number of its brands to smaller companies and reduced its size in 2009 and 2010. Ford lost some market share when it sold Jaguar and Land Rover to Indian manufacturer Tata in 2008. Concentration fell when DaimlerChrysler split into separate entities after the sale of Chrysler to private equity firm Cerberus in 2007. This downward trend in market share concentration is expected to continue over the next five years as automotive companies in emerging nations continue their growth spurts and large automakers in mature economies split, dissolve or grow at a slow pace.
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