The Auto Industry Pitfalls

Within most major cities and countries, the automotive industry plays a huge role within their economic, and industrial sectors. Each year there are over 60 million trucks, and cars manufactured. These millions of automobiles are responsible for the consumption of almost half of the world’s oil resources. Also, within the automotive industry, over 4 million people are given employment both directly, and indirectly.

Although the automotive industry has a rather large impact on the economy, and employment rate, many large companies are still operating under strain. Many of these large companies are experiencing low profitability, and overcapacity. On the upside, the automotive industry does provide a wide range of jobs with high payouts, and benefits. It also has a very strong influence on politics, and has major linkages with top suppliers of goods and services.

The downside

The automotive industry is over a century old, and began in France and Germany.

Over time the U.S joined the industry with mass production of automobiles. However, there are several major pitfalls within it. The average worldwide margins have decreased from over 20% in the 1920s, and is now at a dismal 5%. Many car companies are losing money instead of making money, due to the industry’s low profit margin, and performance. 

The market’s poor profits is mirrored in the market capitalization of the industry. This, despite high rates of employment and revenue, has resulted in a low stock market share within Europe at 1.6%, and 0.6% in the United States. 

Over the past few years the need and marketability of buses and trucks have decreased. Both the operational costs and capital for commercial vehicles have increased, at an alarming rate. At the same time, revenue did not follow suit. In addition, the manufacturing of heavy and medium equipment for transport has become a very unprofitable endeavour. 

The main pitfalls of the auto industry lie in its overall performance. Issues such as overcapacity, and low growth are just the tip of the iceberg. Within the U.S, as well as within Europe, and Japan, the growth of the automotive industry has stalled. Many suggest that reducing capacity may solve the problem. However, due to existing plants, it is almost painful to scrap them entirely. 

There are several top automotive assembly companies in the World. For one, Toyota is the most successful auto assembly company worldwide. This company has a market value which is 15 times larger than its nearest competitor, General Motors although both are still experiencing the crunch of overcapacity.

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