The uk and the global car industry

The car industry is a good example of a market-oriented industry. The impetus to manufacture in major markets is due to a number of factors. Arguably the most important is that tastes or fashions in car size and design can vary significantly around the world. In a world where fashion can change very quickly indeed, manufacturers need to produce exactly what customers want if they are to make a profit. However, new markets for cars are also invariably lower-cost countries (for labour, land and other important cost factors), which make opening new plants an attractive proposition. In addition, other factors, such as getting around tariff barriers and reducing transport costs, also have an impact on location decisions.

The globalisation of the car industry accelerated in the latter half of the 1990s due to:

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  The construction of major overseas facilities, a process known in the industry as ‘global market dynamics’ (as explained in the previous paragraph).
  
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  The establishment of mergers between major manufacturers. For example, the Chrysler Daimler-Benz merger was initiated by the European manufacturer in an attempt to strengthen its position in the US market.
  
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  The considerable development of joint ventures between the global giants and smaller manufacturers in newly industrialised countries.
  

Figure 7 is very useful in understanding the product lifecycle in relation to the changing location of the car industry. The market has reached maturity in North America, Japan and Western Europe where car ownership is widespread and near saturation. In these markets, most car sales are to replace older vehicles that are being sold second-hand or scrapped by their owners. However, in LEDCs, particularly the NICs where incomes are rising rapidly, the scope for selling to first-time buyers is much greater. Developing countries can be placed in either the early or growth stages of the model. If the potential market in a developing country is very large, major manufacturers will be likely to locate there to take advantage of manufacturing in a growing market for cars and also to benefit from lower wages and other costs. Brazil, China and India are good examples of this process. China is already the world’s fourth-largest car market (after the USA, Japan and Germany), with sales of 2.3 million in 2004.

Figure 7.

Figure 8 illustrates the stages of development in the Brazilian car industry. Virtually every major car manufacturer has facilities in Brazil, the largest market in Latin America. The rapid growth of the middle class in Brazil has resulted in a considerable increase in the demand for new cars, and car workers' wages are significantly lower than in North America, Europe and Japan.

1. Foreign transnationals assembling components mainly produced in developed countries for the Brazilian market.