The Newest Revolutions In The Automotive Industry

30 July, 2018
The Newest Revolutions In The Automotive Industry

The international automotive industry has completely recovered from the economic crisis. Sector profits in 2012, considered the end of the recession, were much greater than in 2007, the last pre-crisis year, and the prognosis for future growth is even better. By the end of the decade, global profits could boost by a different 50 percent, however, the benefits will not be distributed equally across all geographies or all kinds of cars.

Instead, some regions and sectors will do a lot better than others. What is most eye-catching about the recent past is how exceptionally the source of profits has changed. In 2007, emerging markets included 30 percent of global profits. In 2012, that portion rose to virtually 60 percent, as sales in these regions climbed 65 percent, outpacing growth in Europe, North America, Japan, and South Korea. Greater than 50 percent this growth came from China.

Sluggish European auto industry

While emerging markets have surged, Europe has gone in the opposite direction. In 2007, the European automotive industry recorded profits of 15 billion euros. Five years later, that figure fell by 1 billion euros.

There are two big reasons for the decrease. First, fewer people bought new cars. Across Europe, the new automobile registrations decreased by at least four million units over this period, and car sales today are at low last seen in the early 1990s. Second, Europe’s well-developed automotive industry suffers from overcapacity; fierce competition is keeping prices, and profits, down.

Markets in Japan and South Korea also appear far from dominant. Both markets were inflicted by the economic crisis, and Japan endured a different hit in 2011, with the twin tsunami-earthquake disasters in March. However, both countries saw a profitable year in 2012, their first since 2008.

In Japan, exports and production rose, while domestic sales rose significantly. However, this trend does not appear sustained, as they were largely supported by car purchase incentives.

By contrast, North America is in good shape: profits grew by around 150 percent from 2007 to 2012. Sales in North America reached 17 million units in at the close of the recession and the product mix has also begun to change to higher-value pickups and SUVs.

Finally, after some uncomfortable balance sheets and restructurings, the cost structure of leading manufacturers looks very healthy, offering a basis for greater profitability. Not only did emerging markets account for nearly 60 percent of global automotive profits coming out of the recession, these regions are poised to considerably outpace growth in established markets over the coming years. Profit in the emerging markets is forecasted to grow at least three times as fast as in established markets. By the end of the decade, emerging markets will account for around two-thirds of the overall automotive profit, and China is expected to be the driving force.

A lot of the estimated further profits will come from stable sales growth. The sources of those profits, however, will be somewhat uneven. Studies have indicated that China will be the reason for around 50 percent those profits. Other emerging markets will add about 50 percent more profits than established markets, according to experts.

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