The invention of both automobiles and aircraft had a profound impact on our everyday lives, so much so that it completely transformed the way we live. With the automobile manufacturing industry being both capital and labor intensive, market analysts suggest that the following segments involve the maximum costs:
Labor: According to automobile industry research, even with machines and robots playing an integral role in the manufacturing of vehicles these days, the industry still has to bear intensive labor costs related to designing and engineering of cars. However, a study indicates that whenever an automotive manufacturing facility is located in an urban area, it creates more job opportunities both within the sector as well as within the associated industries. With a job multiplier index of 3.6, for every job created within the auto sector, there are an additional 2.6 jobs created in the associated segments such as the parts supplier segments etc. Even if the facility is located outside the urban setting, it still has a job multiplier index of 2.1 indicating that the sector plays a major role in reducing unemployment issues in various markets.
Materials: For the manufacturing these vehicles, various elements such as steel, aluminum, dashboards, seats, tires etc. need to be purchased from external suppliers, which again means that the auto sector further triggers substantial growth within the associated industries.
Advertising: Lastly, due to stiff competition present in the global automobile industry, it becomes necessary for companies to spend billions on marketing their products and product offerings. Automobile companies are also known to spend large chunks of money on conducting market surveys that are expected to provide a better understanding of consumers’ trends and preferences, allowing companies to design products that meet the market requirements.
The automobile industry research is divided into two main segments — the auto manufacturers and the auto parts manufacturers who also contribute significantly towards the development of the industry. The major sections within these auto parts manufacturers are as follows:
Replacement parts production and distribution: This sector usually involves the manufacturing of automobile replacement parts that are required after the purchase of vehicles including air filters, oil filters, and brake plates, among others.
Original equipment manufacturers (OEMs): Within the global automobile industry, industry players manufacture some of their own vehicle components that include things such as door handles and car seats.
Fabrication of the rubber: Rubber is used as a part of tires, belts and hoses in a vehicle. Auto manufacturers purchase rubber and its products to be able to provide the vehicles within the most cost effective price bracket to the consumers.
Besides these labor and material related expenses, factors such as globalization and the tendency of businesses to move from national and domestic markets and venture into international markets further shapes the automobile industry landscape. Other than this, the market competition also affects the industry substantially.
Insights into the auto sector
Just as in the aviation sector, the expansion of the auto industry is greatly dependent on consumer trends and preferences. Although there are segments that sell vehicles to businesses and car rental services (fleet sales), it is consumer sales account for the majority of revenues in this sector. Thus, consumer and business confidence data should be given higher priority as compared to other aspects such as earnings growth and debt load.
The other important aspect that most auto manufacturers look into, is whether they are planning makeovers for their products or complete redesigning of the vehicles. Since most of the companies annually update their cars, they always take into account the associated problems when deciding to whether to completely overhaul the design of any vehicle model. These alterations sometimes backfire causing severe problems ranging from massive delays to glitches resulting in increased costs and slow revenues. So, even if a design overhaul is likely to eventually pay off in terms of results, it still remains a risky proposition.
Moreover, for parts suppliers, the age of the vehicle remains crucial. The longer the car has been in operation, the greater will be the need for replacement parts. Since the new parts tend to last longer, it is beneficial from the customer’s viewpoint but not so much for the suppliers. Keeping all these aspects in mind, companies as well as parts manufacturers and suppliers together try to manage the various product components so as to be able to provide quality, but within specific price brackets.