The Automotive Industry and the Future of Global Manufacturing
The automotive industry is a good example of a traditional industry that is facing major challenges in the first decades of the 21st century. On one hand, the industry is shaped by factors that have been in place for more than a century, making the industry, in some regards, easy to predict. However, changes in technology, transportation trends and purchasing habits are threatening to shake up the industry and lead to major changes to the centers of production and the major players within the industry. For many countries, the automotive industry has been at the heart of their manufacturing sector and has been a key driver of growth for many of the world’s leading economies. Moreover, the size and complexity of the automotive industry has allowed centers of production for the industry to attract many other manufacturing sectors due to the extensive ties between the automotive industry and a range of other industries. As such, the trends that are now shaking up the automotive industry are trends that are impacting many other manufacturing sectors around the world.
A Period of Change: The automotive industry in 2018 is an industry that is on the precipice of what could be a period of massive change for what is one of the world’s most important manufacturing sectors. These changes started on the production side, as the integration of emerging markets into the global economy over the past three decades has led to the rise of new centers of production and consumption for the automotive industry. These changes were exacerbated by the global financial crisis and the subsequent struggles that many of the world’s leading developed economies faced when trying to recover from the impact of this crisis. In recent years, consumption trends in the automotive sector have also changed, with many automotive companies worried about how the expansion of the sharing economy and changing consumption patterns among millennials will impact their business. Likewise, technological changes are also accelerating, with a move towards electrical vehicles gaining momentum and with technological companies becoming much larger stakeholders in the industry. Overall, this is clearly a watershed moment for the automotive industry, with emerging markets, changing consumption habits and new technologies combining to dramatically shake up what had been a relatively staid industry.
New Automotive Centers: One good example of the changes underway in the automotive industry is the changing footprint of automotive production. Of course, traditional production centers such as the United States, Japan and Germany remain important centers of production today, although their share of overall automotive production has fallen steadily over the past two decades. Still, for the time being, much of the decision-making in the automotive industry is made in just a small handful of traditional centers of the industry. However, some changes are afoot. First, those traditional automotive centers where the decision-making is no longer taking place due to foreign ownership of the industry in those countries (such as Canada, Australia and Belgium) have seen their automotive industries shrink rapidly in recent years. In their place, emerging markets have taken over as leading centers of automotive production. No emerging market has grown faster than China, which now produces more cars and commercial vehicles than the United States, Japan and Germany combined. Likewise, other emerging markets such as India, Mexico, Thailand and Brazil have seen a rapid expansion of their automotive industries in recent decades. These shifts in the footprint of global automotive production highlight the broader shift in manufacturing away from expensive developed economies to lower-cost emerging markets that now have access to the automotive markets of the developed world.
More Changes in Store: As an industry in flux, it is clear that more major changes are forthcoming for the global automotive industry. On one hand, emerging market automotive centers will continue to grow, particularly as the demand for cars and trucks continues to rise rapidly in those countries. On the other hand, changes in manufacturing such as automation could result in a return of some previously-offshored automotive manufacturing processes to production locations in developed countries. Likewise, the rise of new players in the industry, particularly from sectors such as information technology and renewable energy, could dramatically shake up the industry. For example, the rise of these new players in the industry could result in new automotive centers arising in areas of the world where the automotive industry has had relatively little presence (such as Tesla in California). As such, these trends could have massive repercussions for the current centers of automotive production around the world, as well as for many other manufacturing sectors that have strong ties to the automotive industry. For many countries, these changes could have a massive impact on their economic outlook, as we have already seen dramatic changes in the fortunes of those economies that have seen their automotive industries benefit or suffer from the changes that have already taken place in the industry in recent decades.