DIAPOSITIVA 2

The Auto Industry is significant. With gross revenues of over $2 trillion

and production of over 66 million vehicles, it employs 9 million people
directly and 50 million indirectly. Politically it must be ranked among
the top three industries worthy of government subsidy.
The autos market is thought to be made primarily of automakers, but
auto parts makes up another lucrative sector of the market. For this
reason, the major areas of this industry are:

Original Equipment Manufacturers (OEMs) - The big auto

manufacturers produce some of their own parts, but they
cannot produce every part and component that goes into a new
vehicle. Companies in this industry manufacture everything
from door handles to seats.

Replacement Parts Production and Distribution - These

are the parts that are replaced after the purchase of a vehicle.
Air filters, oil filters and replacement lights are examples of
products from this area of the sector. Obviously, they are less
sensitive to the economic cycle than OEMs.

DIAPOSITIVA 3
The
auto
manufacturing
industry
is
considered
to
be
highly capital and labour intensive. The major costs for producing and
selling automobiles include:

Labour - While machines and robots are playing a greater role

in manufacturing vehicles, there are still substantial labour
costs in designing and engineering automobiles.
Materials - Everything from steel, aluminium, dashboards,
seats, tires, etc. are purchased from suppliers.
Advertising - Each year automakers spend billions on print and
broadcast advertising; besides, they spent large amounts of
money on market research to anticipate consumer trends and
preferences.

As we know, cyclical industries perform well when the economy is

growing and suffer when the economy stagnates or shrinks. When
jobs are scarce and disposable income is lower, people tend to hold
off on purchasing cars. But when employment is high and wages are
rising, these industries often shine. This is why the automotive
industry is a good example of a very cyclical industry.
The auto industry has lower margins primarily because of intense
competition. The competition makes it difficult for companies to pass
on increases in raw material prices to the customer. Due to high
operating leverage, a small increase in input prices adversely affects
margins by a significant percentage.
Compliance to stringent fuel emission standards and fuel efficiency
requirements resulted in significant structural costs for companies as
well.
We wont forget that capital intensive industries typically use high
amounts of debt.
In this industry, main global markets are the states, Europe, China
and Japan. After them, with a lower level of importance come other
countries like India, Brazil or Russia.
Finally, and in order to study this sector more deeply, we will consider
three key ratios:

Fleet Sales: Traditionally, these are high-volume sales

designated to come from large companies and government
agencies.
Seasonally Adjusted Annual Rate of Sales (SAAR): Most auto
makers experience increased sales from April to June, and sales
tend to be sluggish between November and January. For this
reason, it is important to compare sales figures to the same
period of the previous year.
Sales Reports: Many of the large auto makers release their
preliminary sales figures from the previous month on a monthly
basis. This can give you an indication of the current trends in
the industry.

DIAPOSITIVA 4
MACRO FACTORS:
Here, we will highlight that automobiles depend heavily on consumer
trends and tastes. While car companies do sell a large proportion of
vehicles to businesses and car rental companies (fleet sales),
consumer sales is the largest source of revenue. For this reason,
taking consumer and business confidence into account should be a
higher priority than considering the regular factors like earnings
growth and debt load.
We cannot forget other aspects like the infrastructure development of
target markets. Without roads, car companies wont sell any car.
Finally, we have considered an important factor, so called China
factor. For the past 20 years, sales in North America, Europe, and
Japan have been relatively flat. Growth has come from emerging
marketsmuch of it in China, which over the past decade has seen
auto sales almost triple, from slightly less than 8 million cars and
trucks sold in 2004 to, estimates suggest, about 25 million in 2014.
Chinese tastes and standards, particularly at the luxury end will have
a global influence.
MICRO FACTORS:
Environmental regulation: The global automotive industry is
undergoing a fundamental transformation due to increasing consumer
preferences toward vehicles with a lower carbon footprint.
Governments throughout the world have responded to these market
forces and other geo-political factors by imposing strict environmental
regulations on original equipment manufacturers for emissions control
and fuel economy. These regulations vary markedly from one part of
the world to the other, adding complexity to the mix of vehicles
offered by makers worldwide. As a result, global makers and suppliers
are being challenged to constantly update their product portfolios to

meet numerous regional regulatory requirements, which are expected

to add significantly to their manufacturing costs.
Digitalization and electrification: While its unlikely that
regulatory and competitive pressures will abate, the shift from
mechanical to solid-state systems will create new opportunities to
improve the automakers economics. The ability to analyse real-time
road data should improve the efficacy of sales and marketing. Digital
design and manufacturing can raise productivity in a dramatic way:
big data simulations and virtual modelling can lower development
costs and speed up time to market.
Rethinking ownership: Technology and connectivity pose the
question of whether its necessary to own an automobile. Car sharing
is a prominent example: the consumer pays to use vehicles only as
needed and foregoes the responsibilitiesand benefitsof individual
ownership. Car-sharing services, which allow people to make a
reservation at the tap of a personal mobile device, are expected to
grow significantly in the next two years, with dramatic increases in
the number of users and in revenues. These developments also defy
the very notion of a car as a personal, autonomous machine. Already,
millennials (the 1834 demographic) appear to place less
importance on car ownership than previous generations do. They are
more open to sharing cars and to the rapidly growing number of
mobility services, such as Uber or Blablacar.