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automotive industry

Asked by magcat | Sep 13, 2007 | KS1 Level > Economics > Homework
magcat asks:

What are some threats to the Auto industry

etutor answers:

It is not clear whether you mean the global car industry or the UK industry. I have assumed the latter, though most of the points below overlap.

1. The danger of putting models on the market that do not sell in sufficient quantities to recoup the enormous research and development costs.

2. Excess capacity in the industry - hence if production is not at full capacity, some of the benefits of assembly line economies of scale are not achieved. This in turn raises average costs and selling price, hence threatening market competitiveness.

3. Growing competition from China, India and other newly developing countries. Because of much lower wage costs elsewhere, UK firms have found it increasingly difficult to compete with cheaper goods in both home and overseas markets. This threat is rapidly becoming greater. Also competition from other EU countries, with no barriers to trade in the Single European Market. Some UK firms have relocated part or all of their operations to other EU countries (such as Portugal) where labour and other costs are considerably lower.

4. Growing protective barriers in other countries, especially the USA, which have the effect of restricting the scope for exports.

5. Massive increases in oil prices, with the knock-on effect on petrol prices (petrol is of course a complementary good). Perhaps only a threat at the margin, since motoring demand is generally fairly inelastic.

6. The biggest threat of all - increased taxes on motorists and motoring, with the certainty of more to come. These increases are designed to contribute to a decrease in carbon emissions and thus global warming. The impact is felt particularly heavily on high performance, 'gas guzzling' vehicles. If, as is intended, motorists then buy cheaper, less-polluting cars, then manufacturers of larger vehicles suffer - or else have to spend a great deal of money on research and model redesign to reduce the emissions produced by their cars.

I hope this is helpful.

1 student responses

I'm going to try and get the etutor to add some more information re the American auto industry, or at the least a globally.
responded Sep 17, 2007 6:02:25 PM BST
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