Future Trends of EU Car Manufacturers in Relation to Economic Growth and Competition - Essay Example

A REPORT EXAMINING THE FUTURE TRENDS OF EU CAR MANUFACTURERS IN RELATION TO ECONOMIC GROWTH AND COMPETITION Prepared by (Student’s Name) Professor’s Name Course Date University A. Identification of Target Audience This report is focused on examining the European automotive industry and is solely directed towards car manufacturers as major stakeholders of this industry within the European Union as a whole. It is meant to give a possible future direction of the car manufacturing trends as well as relevant information pertaining to how this sector is driving growth in the EU now and in the near future. It is important to note that there is nothing that unites the entire Europe than its cars (Gao & Zielke, 2016). The continent is widely ascertained to be the original birthplace of motor vehicles. More than ever, the region has continued to embrace the automobile sector not only for purposes related to economic growth and development but different researches indicate that it has also incorporated the aspect of leisure and fun. Car manufactures need to understand that the path taken by the overall car industry in recent past within the EU was not as smooth as it was expected since there has been a great deal of competition from other heavy car manufacturers in such regions as Asia and the United States of America (Gao & Zielke, 2016). As a result of this penetration and thus, putting pressure to the EU car manufacturers to sustain their current market shares as well as check on competition pricing; car manufacturers in the EU have the need to ascertain strategies that should be adopted in order to stay afloat. Recent studies conducted by the ACEA indicate that Europe has continued to enjoy extensive growth in passenger car registrations and this can be witnessed with the recently marking of the 31st consecutive month of growth (Gao & Zielke, 2016). This growth cements the notion that car manufacturing and consumption as well remains to be one of EU’s most rapid and resilient industries the world over. In 2014, the global production units of cars stood at 90.6M with the EU contributing at least 17.2M or 18.98% of this overall production output (CNBC, 2016). Within a similar period, the overall contribution of these production units to the global GDP growth stood at $18.52T; with the EU contributing 6.3% of this figure. Certainly, the EU car manufacturing industry contributed at least 12.1M job opportunities in 2014 (CNBC, 2016). It is important to emphasise that in March 2016, new car registrations within the region improved by 6% thus reaching 1.7M in comparison to the previous year of 2015 (CNBC, 2016). Given this level of statistics, the information is considered to be important to the current car manufacturers within the region since it is able to provide them with pertinent information of re-strategizing their operations to fit in with future demands for more passengers cars as well as ascertain how well they can incorporate their activities towards improving the overall economic growth of this period. This is especially important because a failure to re-strategize might only mean that competition from such other regions as Asia and USA will infiltrate their market share hence resulting to redundant growth while at the same time; fail to contribute to EU overall GDP growth as expected by the government agencies in place (Gao & Zielke, 2016). B. Possible Change in EU Car Manufacturing Sector Despite the statistics above showing lots of progress and a positive future, the EU car industry is however; a hostage to the current and future economic and political uncertainties. Obviously, it can be safely argued that car manufacturing within Europe as a whole is nothing new since the industry is considered to be one of the oldest sources of both exports and employment opportunities. In fact, according to ACEA, it is ascertained that more than 21% of cars present in the world today has roots in the EU as close to 12.1M within the region works either directly or even indirectly within the underlying EU’s automobile industry. Such popular brand names like Volkswagen, Opel and BMW have already garnered a positive brand image and reputation as their production integrates tenets of perfect quality materials and workmanship. However, a most notable example of political turmoil that faced the industry can be seen when Volkswagen(VW) , which is in fact one of the most sought after car brands across the globe, was solely hit by emissions scandals that went ahead to destabilise its overall global brand reputation as well as raised credibility issues. On a positive though, with a series of top-level changes having been effected on a timely manner as well as immediate reorganization of company’s operations; resulted to a move that seems to have helped calmed the situation down (Volkswagen, 2017). This can be backed by the brand’s ability to increase their overall Group Sales-that includes sales of such notable brands as VW, Audi, SEAT and Skoda- by more than 8% in their first quarter in 2016 (Volkswagen, 2017). As much as the sales figures indicating that there has been increased revenues and output volumes as can be seen with VW’s most notable brand; SEAT, what can possibly go wrong in the future? To start with, the current Europe recovery journey has been slow hence there is a possibility of car manufacturers facing tough times in the near future. Despite the fact that most of the EU-based countries are experiencing growth and employment rates slowly improving; the broader economy as a whole is nonetheless operating under a low-inflation condition, which prompts panic amongst potential customers from the fear of making big-ticket purchases in the near future (PWC, 2017). Volkswagen 2016 annual report indicate that one of its major risks going into the future lies in the economic situation within Europe that might cause redundancy in its overall sales volume and thus, revenue growth (Volkswagen, 2017). To cushion itself from possible future shocks, Volkswagen indicates that it has resorted to putting much of their efforts towards sustaining the existing markets where it enjoys a great presence and posts an enormous contribution margin, which loosely translates to most of the focus being directed towards the EU market as a whole. Different market analysts note that Europe has not been able to show that it has shed-off previous poor economic growth while still the automotive industry still remains as being one of the most rapid sectors in the region. The region is still facing lots of pressures from other notable areas that include; government regulation especially with most state agencies now requiring car manufacturers to develop engines with less emissions; high-levels of uncertainties in relation to investment and profitability of the industry into the future; enormous global competition from such notable rivals in Asia as Toyota and Ford in the United States of America. There is also a risk attributed to the overall EU region’s outlook in the future. Tough government legislation can be seen in all European car manufacturers have been compelled to adhere to the EU regulations that are directed towards reducing greenhouse gases (Thiel, Perujo, & Mercier, 2010). The latest regulation ascertains that all new cars that are registered within the entire EU region should not emit more than 130 grams of CO2/Km by the end 2015. While this regulation has assisted greatly in boosting EU’s overall green credentials and credibility as a whole; it has however; continued to elicit intense contention for most of these EU car manufacturing firms as well as their immediate investors (Thiel, Perujo, & Mercier, 2010). In relation to profitability and return on capital employed, investors are now crying foul over the industry being subjected to a constant struggle; given the ever-increasing emissions legislations from different European markets. The adoption of the current EU legislation has resulted to most of the manufacturers incurring additional costs through adoption of new technology that is set to reduce emissions. Most of the manufactures are trying so hard to find savings and cost efficiencies in other notable markets and over a long-period of time, investments will likely shift to more profitable markets thereby hindering economic developments within the Eurozone. C. Possible Reactions for Car Manufacturers Considering this level of uncertainty, EU car manufactures should now focus their efforts towards adopting newer production technique like the one used in the generation of hybrid electrical cars in order to comply fully with the underlying government legislations. Certainly, there is a current trend towards production of intelligent car, which poses an exciting period of production transformation where customer experiences is set to remain a top notch priority in a bid to cut down on unnecessary competition (PWC,2017). As car manufacturers in EU, it is important to understand that the level of competition across the globe continues to increase hence a need to direct lots of resources not only towards building brands and company reputation but also; R&D activities. To effectively continue with productions, car manufacturers need to comprehend that the oil prices will likely remain stable for sometimes hence making it more appealing to consumers to increase their car consumption behaviours in the future period. To remain afloat, re-strategizing operations to meet up with todays’ technological advancements will not be one of the solution but the only solution if in fact, the car manufactures seek to maximise their profits and a gain of even more customer-base going into the future. References CNBC. 2016. ‘Driving Growth? The Future of Europe’s Car Industry’. Retrieved on March 30th, 2017 from http://www.cnbc.com/2016/04/18/driving-growth-the-future-of-europes-car-industry.html Gao, P. & Zielke, A. 2016. ‘A road Map to the Future for the auto industry’. McKinsey Quarterly. Retrieved from http://www.mckinsey.com/industries/automotive-and-assembly/our-insights/a-road-map-to-the-future-for-the-auto-industry Price-Waterhouse Coppers. 2017. 2016 Auto Industry Trend. Retrieved from http://www.strategyand.pwc.com/trends/2016-auto-industry-trends Thiel, C., Perujo, A. & Mercier, A., 2010. Cost and CO 2 aspects of future vehicle options in Europe under new energy policy scenarios. Energy Policy, 38(11), pp.7142-7151. Volkswagen. 2017. 2016-Annual Report. Retrieved from http://annualreport2016.volkswagenag.com/group-management-report.html Read More