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The European Automotive Industry


The automotive industry is an increasingly international sector. In the 1950's and 60's car manufacturers mainly sold their products in domestic markets. National producers often enjoyed government support through subsidies, and very high tariff levels protected markets. Thus producers concentrated on producing cars specifically intended for the domestic markets making international penetration very difficult .

In the late 60's this began to change. Lower tariff levels and pressure from US firms led producers to pursue a more global approach to the industry. Thus cars converged into a more homogeneous product, that could be sold both in domestic and international markets. Further evidence of globalisation is found in the difficulty in determining the nationality of different companies. Ford Motors, for example, is one of the world's largest car manufacturers, and originates from the United States. Today, however, the company has production plants in 38 countries and sales outlets in over 200 countries. Thus Ford, along with a number of other players in the industry, has become a truly transnational corporation with a worldwide network of suppliers, customers and associated companies.

In spite of this trend markets for cars are still segmented, making home markets very important for car manufacturers. Evidence of this segmentation can be found in prices that differ heavily across Europe. Thus net prices in Denmark are low due to tax pressures, while a market protected from parallel imports by left-hand driving has lead to higher prices in the United Kingdom .

This report will concentrate on the automotive industry in the EU, which is one of the major markets for cars due to the relatively high average income. About 12,5 million cars are produced annually in the EU standing for one third of world car production.

For the EU the automotive sector is extremely important due to its contribution to both employment and GDP. Thus the automotive industry employs more than one million people in the EU, which is approximately 5% of the industrial workforce . At the same time 3 of the 9 largest corporations in the EU are car manufacturers, which furthers the industry's role as a high profile sector. Cars are also a major export commodity for the EU, as total car exports amounted to 37 billion ECU in 1994 (In the same year car imports amounted to 19 billion) . EUs main export market is North America, although the size of this market has decreased due to adverse changes in exchange rates. All in all there can be no doubt as to the sectors importance for the EU economy as a whole.

The figure 1.1 below shows unit sales of passenger cars in the European automotive industry from 1985-1996.

Figure 1.1

Source: Panorama Database

In the same period the employment in the sector has decreased rapidly. This has happened as a consequence of the major restructuring and rationalisation, which has swept through the industry during the period in question. At the same time the industry faced declining demand in the early 90's, further hurting employment in the sector.

One likely explanation for such a rationalisation is increased competition as a result of decreasing trade barriers internally in the EU, as well as increased competition from Asian competitors with cost advantages.


Nadarasa Subramaniam 1999, Copyright , All rights reserved.