¶ … auto parts industry on a global level and highlight potential opportunities as well as problems facing manufacturers. The industry has undergone a number of significant changes in recent years, including the globalization of automobile use in developing world nations such as China and India. Environmental concerns and regulations have also impacted the industry. Global Industry Selection

As car use becomes more and more ubiquitous throughout the world, the significance of the global auto industry will increase exponentially. To better understand developments within automobile manufacturing, it is also essential to better understand how components of automobiles are sold and sourced internationally. Just as automobile companies are subject to radical shifts in consumer demand, so are the organizations which manufacture auto parts.

Industry Description and Competitive Environment

The auto parts industry is more competitive given the current downward pressure upon prices. American consumers are growing less enamored with high-cost luxury vehicles and are instead more interested in lower-cost functional cars. As there is a downward pressure upon prices, there will similarly be a downward pressure upon the auto parts market to compensate. "Consumers appear to be rethinking their long love affair with individual automobile brands and viewing cars more as transportation machines ... it is affecting how much people are willing to pay for automobiles" (Hirsh, Kakkar, Singh, & Wilk, 2015). But as cars grow higher-tech, the prices of component products must reflect this. "The cost of electronics and software content in autos was less than 20% of the total cost a decade ago. Today it is as much as 35%" (Hirsh, Kakkar, Singh, & Wilk, 2015).

Automotive parts manufacturers and automotive companies are both seeing their costs rise and their revenues decrease due to the greater complexity of car technology and a demand for cheaper vehicles. According to a recent McKinsey & Company 2013 report The road to 2020 and beyond: What is driving the automobile industry: "Price and regulatory pressures mean that OEM [original equipment manufacturer]s in the established markets of Europe, North America, Japan, and South Korea have little margin of error when it comes to making the right decisions on how to differentiate themselves" (p.10). A decline in profitability can be compensated with by an increase in technological productive efficiency, but new regulation of vehicles in response to environmental concerns may make this challenging. Overall, this low profit margin heightens the competitive intensity in the industry, given that companies must continually be seeking to expand their base of buyers simply to stay solvent.

The power of suppliers varies wildly, based upon the relationship of the purchasing company to the manufacturer. The Japanese automotive companies Toyota and Honda have been noted for their close relationships with suppliers. To ensure the functionality of JIT (just-in-time) manufacturing systems these companies have striven to confine themselves to one or two suppliers, and avoid building up high levels of inventory, preferring to order only when parts are needed, thus reducing waste (Liker & Choi 2004). However, despite the success of this model in the past, the industry has grown more competitive and barriers to entry have been substantially reduced, thanks to the rise of global manufacturing, outsourcing, and the Internet. Today, automobile manufacturers are more likely to outsource and have "jumped to the conclusion that the immediate benefits of low wage costs outweighed the long-term benefits of investing in relationships" and the Internet has also made it far easier for new startups to develop and for companies to price-shop in B2B exchanges (Liker & Choi 2004).

Today, the two top automotive parts manufacturing firms are the German companies Continental and Bosch ("The leading global automotive suppliers," 2014). Continental has made its commitment to ethical responsibility a cornerstone of its self-presentation, as noted on its website. "Sustainable management and corporate social responsibility are among Continental's fundamental values. Both reinforce the culture of solidarity while simultaneously contributing to forward-looking and values-based corporate management" and the company stresses that it uses "financial and non-financial performance indicators" in evaluating its performance ("Understanding of sustainability," 2015). Despite the costs which sustainability may incur, Continental's safety requirements of various nations, given that most of the major car manufacturers are serving nations with varied regulatory standards. There are also more highly nuanced segments of consumer demand in terms of the various additional luxury features demanded by the industry. "The increase in regulations with respect to environmental and safety standards will raise costs but also increase complexity, as they need to be managed apart from domestic markets" (The road to 2020 and beyond, 2013, p.9). Automotive parts companies, particularly those with a global focus, must be responsive to demand changes and regional specificity in their design.

The changing nature of demand within the current industry, as more and more nations become car-dependent will also likely change the ways in which cars are marketed and positioned. For example, "emerging markets' share of global sales will rise from 50% in 2012 to 60% by 2020" (The road to 2020 and beyond, 2013, p.9). Although there has been a rise of the middle class within developing world nations, this could still generate a downward pressure on prices overall, further pressuring organizations to keep prices down and further spurring competition between competitors for a narrow base of profits.

Industry Chaos

The automobile industry as a whole is in a state of flux and is highly fragmented on a global level. "In Europe, many markets are suffering economic trauma, and the industry has yet to restructure. Japan and South Korea are barely profitable. By contrast, North America and the emerging markets are seeing healthy profits; the latter are also experiencing sales increases of 5 to 6% a year" (The road to 2020 and beyond, 2013, p.19). There is also considerable volatility in consumer demand in terms of the type of cars desired by critical market segments. On one hand, in certain areas of the developing world there has been an escalation of interest in luxury SUVs, as middle-class consumers seek to flaunt their wealth. As gas prices in the U.S. have declined, interest in fuel-efficient vehicles such as hybrids has likewise contracted. But manufacturers are still exploring the possibility of new hybrid and electric technology.

The demand for specific types of parts will naturally have a spillover effect into the manufacture of component parts. There is also more fragmented demand even within market niches. For example, in the U.S. "lifestyle changes will allow access to luxury or larger vehicles during weekends, as an example, while a small, efficient vehicle will suffice for daily commuting needs. This model would impact the aggregate production profile for vehicle segments" (Automotive 2020, 2008, p.5). Changes in the economy, concerns about the environment, and consumer tastes have made for erratic industry performance and chaos. On one hand, companies do not want to be left behind in the development of green technology, hence the emphasis on sustainability by organizations such as Continental. On the other hand, consumer demand for fuel efficiency and government responsiveness to global warming concerns have been fairly inconsistent.

Conclusion

The automotive parts market, much like the automobile industry itself, is in a state of flux. The global marketplace has disrupted traditionally close relationships between suppliers and manufacturers in many areas and changes in demand and regulation within different regions and demographic sectors have destabilized the industry. Competition is high for increasingly narrow profit margins.