Industry and Pestle Analysis of Car Industry in Europe - Assignment Example

Industry and PESTLE Analysis of Car Industry in Europe Industry Analysis The selected industry is European automobile industry and the company is General Motors. Global financial crisis hit the European automobile sector and the sales of the vehicles declined in 2008. European automobile industry is one of the largest industries in Europe and around twenty million European support their families through cars manufacturing (ACEA, 2010). The recent figures of sales published by the industry show that a sharp downturn was seen in the sales of commercial figures in 2009 vehicle production declined 20 percent in end of 2009 and 25 percent decline was projected for the early year 2009. Moreover, in 2008, markets for all kinds of vehicles in Europe crashed (ACEA, 2010). In 2010, the analysts are hopeful about the strengthening automobile sector as economy has been able to recover from the crisis. Trends in automobile industry in Europe are different as compared to the trends in the United States therefore; strategies of GM which are successful in the United States might not be successful in Europe. In Europe demand of diesel cars is significantly higher and they make up around 43 percent of the total car sales (Lung, 2003). The competition in Europe is based on technological competencies and innovation. PESTLE Analysis Political The political conditions and the interests of political parties directly influence the car industry. European foreign policy has a significant influence on international companies operating in Europe. For example, GM has withdrawn its operations from some brands from GM Europe. The operations of the company are not only affected by the European government but the home country government may also impact the decisions of the company such as US Federal government affects the management decisions of GM Europe like plant location, fuel efficiency etc. During Bush administration, the sales of GM vehicles declined in Europe because of the negative perception about Bush’s government among European. European government has been forcing various policies which have affected the operations of the companies. The government introduced the policy of setting benchmark parameters on the automobile companies with an intention to improve the mileage and to reduce the pollution and this policy provoked many problems for GM Europe and other companies. If government also holds stakes in the automobile company then it is more exposed to political risks. In 2009, president Obama declared to liquidate government’s stakes from GM because of the problems GM Europe was facing in Europe (Brendan-Nyhan, 2009). Economic The increasing inflation such as the prices of steel, aluminium, copper, lead, platinum etc directly influence the production of vehicles. The increasing oil prices also influence the demand of cars negatively. During the financial crisis, unemployment rate remained significantly higher which has directly affected the morale of the employees. For example, GM Europe bankruptcy severely affected the performance of the employees. The decline in household income also negatively affects the demand of vehicles and car sales decline. The macroeconomic falls such as production gaps, problems in the manufacturing capacities of the companies and the infrastructure developments such as rail and road network also influences the operations of the automobile companies negatively (Global Economic Crisis, 2009). Social Factors The culture, expectations and trends in the consumer markets also impact the automobile companies. The increasing population, urbanization and household size in Europe has increased the demand of vehicles per house. The increasing environmental concerns have negatively influences the automobile companies because the consumers’ awareness is increasing and they are demanding green vehicles. In consideration to this demand, GM made huge investments in green technology and fuel-efficient engine. Legal The legislative framework also influences the demand and sales of cars and because of the environmental concerns legislations in this sector are also strict . All 27 European States have agreed to purchase the strict emission control requirements on vehicles which have directly affected the operations of the companies and less-efficient engines are no longer in demand. To enhance the low emission vehicles, tax benefits are being offered to the car companies. According to European legislation, the testing of vehicles is must for companies before producing them. To save the interest of the local market, the changes in the legislative framework are made which can affect the international companies negatively. Such as when GM planned to enter into the European market, new laws were introduced to save the interest of local car manufacturers. Technological Automobile industry is a technological intensive industry and companies operating in Europe are largely affected by technological factors. The competition among car companies is technology based in Europe and car companies are seeking to come up with more fuel efficient cars. The demand of hybrid technology and plug-in-electric is increasing and the companies which are solely producing non-hybrid cars are highly influenced by such technological demands. The technological developments improve the efficiency of cars however, they also increase the costs of manufacturing for the car companies and companies have to consider their profit margins. Ecological The increasing environmental protection laws and corporate social responsibility directly influences the operations of the companies. The increasing green concerns have insisted European government to impose strict environmental laws, which have directly influenced the operations of companies. Car companies are also investing in environmental sustainable programs to improve their image as socially responsible organisations. An example of the impact of environmental protection laws on GM is that when government stopped the drill for oil offshore in Alaska, US government had to pay huge amounts to Saudi Arabia and Middle East countries. However, GM’s light trucks demand declined during this period. Conclusion From the industry and PESTLE analysis it is evident that European Car Industry is one of the huge industry worldwide however, there are various political, economic, social, technological, environmental and legal factors which can negatively or positively influence the operations of the car companies. Most of the companies go for environmental scanning when they plan to enter into the new markets however, companies should continuously do environmental scanning as it can help in understanding the market attractiveness and threats and opportunities. European market might have been very attractive for GM when it started its operations in Europe however; the bankruptcy of GM Europe and its successful and profitable operations in the other regions of the world show a significant impact of European business environment on Europe. Therefore, a continuous environmental scanning can actually help the companies to explore more opportunities and to identify major threats. Bibliography ACEA, 2010. European Automotive Industry Report . [Online] Available at: http://www.acea.be/images/uploads/files/20090519_ACEA_Industry_Report09FULL.pdf [Accessed on 19 October 2010] Global Economic Crisis , 2009. GM Is Now “Government Motors”. [Online] Available at: http://www.globaleconomiccrisis.com/blog/archives/tag/general-motors [Accessed on 19 October 2010] Golde, M. J., 2006. The Failure of General Motors Is a Failure of Government Policy . [Online] Available at: http://seekingalpha.com/article/141869-the-failure-of-general-motors-is-a-failure-of-government-policy [Accessed on 19 October 2010] Lung, Y., 2003. The Challenges of the European Automotive Industry at the Beginning of the 21st Century. [Online] Available at: http://www.rieti.go.jp/en/events/03091201/pdf/lung_paper.pdf [Accessed on 19 October 2010] Nyhan, B., 2009. The Threat of Political Meddling in GM. [Online] Available at: http://www.brendan-nyhan.com/blog/2009/06/shouldnt-obama-limit-govt-influence-on-gm.html Read More