Global Automobile Industry: Competition and Government Policy

Introduction: Mergers and Acquisitions in the Auto Industry

The automobile market has long been a hotbed for mergers and acquisitions. In the early part of the last century, General Motors led the way in gaining market share through acquisitions, absorbing companies such as Cadillac, Pontiac, and Chevrolet. Ford followed suit, forming agreements later in the century with companies such as Mercury, Mazda, Volvo, Land Rover, Jaguar, and Aston Martin. However, the global financial crisis forced these large automakers to divest many of their holdings and discontinue partnerships. Ford shed Jaguar and Land Rover and cut ties with Volvo's car division. Because these brands became available at the same time that investment capital was growing in places like India and China, other companies were able to quickly acquire what had been dropped. Tata Motors, based in India, was able to purchase Land Rover and Jaguar for a comparatively small price, as both brands held little immediate value to the international market — in large part, Tata was purchasing the brand names themselves (IMAP, 2010).

In recent years, mergers have been more common among automobile parts manufacturers than among the large automakers themselves. This reflects the greater diversity within the parts sector, which ranges from small specialty shops to very large distributors working exclusively for a single major automaker. According to an IMAP (2010) report:

"In 2008, the largest deal worth USD 31.8 billion took place in the German automobile space between Schaeffler KG and Continental; whereas 2009's largest deal, valued at USD 1.07 billion, was in Asia between Hyundai Motors and Hyundai Mobis in South Korea."

These mergers reflect the determination of larger parts manufacturers to consolidate so that they can better weather future financial crises. It is also worth noting that similar deals might not have occurred in the United States, where antitrust laws are stricter than in many other countries.

Government Policies and Regulations

The primary policy shift of the last decade has been the push toward greener vehicles. Many countries are requiring that automakers operating within their borders meet new guidelines for emissions controls, fuel economy, and other standards aligned with environmental initiatives. In addition, many governments are offering tax incentives to consumers who purchase hybrid (electric-gasoline) or fully electric vehicles. Legislation governing fuel standards began changing as early as 1975 (Shimokawa, 2010, p. 8), but the pace of regulatory change has accelerated considerably in response to growing environmental concerns.

Any manufacturer seeking to sell globally must navigate a complex maze of international laws governing vehicle size, materials, fuel type, and fuel consumption. Because of these regulations, it is often more profitable to sell domestically than to export (Global Economic Report, 2012). As a result, many of the large global manufacturers that opened plants around the world two decades ago are pulling production back to their home countries and reducing global investment (IMAP, 2010).

Conclusion: Strategic Outlook for Global Automakers

Because of recent growth in the global auto sector — particularly in Asia, which now accounts for 30% of the world's auto sales (Global Economic Report, 2012), and in Brazil — global car manufacturers are once again beginning to seek partnerships and expand their bases. Although Japan has been responsible for some of the greatest automotive innovations and growth over the past four decades, its largest automakers, Toyota and Honda, are slowing considerably. It appears that major manufacturers need to reinvigorate their efforts in China and India. China is developing its own products and beginning to market them globally; Chinese automakers could rival their Japanese counterparts within a decade. Quality remains a concern, but established players must choose between working with Chinese manufacturers or risking being overtaken by them.

Global regulations must be satisfied for any company wishing to sell in a given country. At the same time, manufacturing costs overseas are rising. Automakers should therefore look more closely at emerging markets like Brazil and India, where regulatory burdens are lighter and opportunities are greater.

Competition will remain a constant in the industry, so major automakers must be innovative and creative to survive. The transition to new fuel technologies is promising, but further breakthroughs are needed to attract buyers. The prospect of intensified competition from the large population centers of China and India represents one of the most significant challenges facing established global automakers today.