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Last Updated: Wednesday, 28 February 2007, 20:36 GMT
Globalising the car industry
By Steve Schifferes
Globalisation reporter, BBC News

Sheafali, call centre worker, India
Sheafali may represent the car consumers of the future
Sheafali is very pleased that at age 25, she has just been able to buy her first car, a small Hyundai.

She plans to use the car to go on weekend trips to the hill country to escape the heat of Delhi, where she lives.

Sheafali is able to afford a car because she works in an call centre run by the US multinational Convergys - which is not only well-paid by Indian standards, but also gives her the weekend off.

She may be typical of the new breed of consumer - young, savvy and Asian - who represents the future of the car industry.

Saturated market

For many years, the model for the global car industry was the United States - the single largest car market in the world.

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But now the US represents less than one-quarter of the world industry, and its market share will decline further.

The US car market has already reached saturation point.

Stephen D'Arcy of PricewaterhouseCoopers believes all the growth in the global auto industry in the next decade will come from emerging market countries such as India, China and eastern Europe.

And that means the fastest-growing segment in the car industry will be the small car, the only size that will be affordable to the burgeoning middle classes in these countries.

There will soon be more cars in India and China than the US
There will soon be more cars in India and China than the US

Consultancy firm Ronald Berger estimates that global demand for small cars, those costing less than $10,000 or 10,000 euros, will grow by 30% in the next five years to 18 million, including six million in the BRICs (Brazil, Russia, India, China).

Major companies developing low-cost cars include Renault, Fiat, Peugeot, Daewoo (GM), Hyundai and Daihatsu (Toyota), as well as Chinese firms Geely and Chery and Indian companies Tata and Maruti.

According to Professor Garel Rhys of Cardiff Business School, there are essentially two car markets - the US, with its low fuel prices, low population densities and big cars - and the rest of the world.

He says that only when the US raises petrol prices to world levels will this change.

Greening the car

But attitudes are changing, even in the US, as consumers become more consciousness about environmental issues.

Ford launched a new electric concept car at the motor show
Ford launched a new electric concept car at the Detroit motor show

Sales of hybrid (petrol-electric) cars are growing fast - and Toyota and Honda are rolling out hybrids across their entire range.

Tough new ceilings on pollution and fuel efficiency standards are being introduced in both the US and Europe, despite protests from the car industry.

High fuel prices - and high taxes on petrol - are discouraging consumers from buying the large, fuel-guzzling SUVs (sports utility vehicles).

All the major car manufacturers now recognise the trend.

It is a business necessity that we find alternative sources of propulsion for our vehicles
Rick Wagoner, chief executive, GM

Bill Ford says that "society is now clamouring for this approach" and Ford has "recognised the shift in the marketplace" with its Greener Miles approach.

And GM boss Rick Wagoner says that "it's really a business necessity that we find alternative sources of propulsion for our vehicles", because eventually petroleum is going to run out.

Ford and GM are some way behind Toyota, with their flexible-fuel concept cars some years away from mass production.

And there are still big cost and technical barriers to the spread of alternative technology, which may take 10-20 years to solve.

But in the long run, no major car company doubts that ethanol, diesel, electric, hybrid and even hydrogen-powered vehicles will become more important in the future.

Think global, act local

The car industry is also going through a profound revolution in its method of production.

There is no longer anywhere to hide. We are competing in every market and every segment
Mark Fields, president, Ford North America

Lean production techniques are lowering the cost of making small cars and making it more efficient for car companies to change models quickly, in response to changing consumer taste.

The big car groups are moving to a global production system, in which their factories anywhere in the world are identical, based on global design and manufacturing best practice.

Robot assembly, Toyota assembly plant, Kentucky
'Just-in-time': System of delivering parts to the assembly line in a continuous flow, rather than stockpiling large volumes at the plant
Continuous improvement: Process of analysing problems and solving them on a daily basis
Personal responsibility: Each worker on a production line is given responsibility for each process he carries out
Flexible production: Several different models can be produced on the same assembly line
Design for manufacture: Making the components of a car easy to fit together on the assembly line

"The reality is that in today's economy you've got to be able to compete across borders in virtually every market," says Toyota's North American president Jim Press.

That ability puts pressure on smaller companies who cannot match their productivity.

At the same time, it allows the global car companies to localise their product mix to suit each region.

It also means they can globalise the skills in different regions - for example, rolling out an Asian-designed small car across the world.

At the same time, the lean production system - based on a "just-in-time" manufacturing system - is encouraging car companies to locate their assembly plants in or near their major markets, bypassing trade barriers.

That allows them to keep closer to the different consumer tastes in the three key world regions - Asia, Europe and North America.

And growing regional economic integration has boosted the importance of eastern Europe for the EU market, and Canada and Mexico within North America, both for manufacturers and auto parts suppliers.

Tough markets

Only the most competitive, and most nimble, will survive in the new globally competitive market.

As yet, there are no truly global car companies
James Womack, author, The Machine that changed the World

There are no longer any protected home markets (outside Japan and South Korea), and the fierce competition means that no one is able to dominate in the way that GM dominated the US market for most of this century.

According to Ford's North American president Mark Fields, "There is no longer anywhere to hide. We are competing in every market and every segment."

The competition is even tougher outside the US.

In Europe, the market leader, VW, has only a 14% market share.

Kia moves into Eastern Europe
Kia Ceed assembly line in Zilina, Slovakia

In China, VW's share of the market declined from 60% to 10% in the last decade, the same size as GM (both companies operate joint ventures).

GM's President for Asia-Pacific, Nick Reilly, says that the increasing competition is making it tough for GM to make money in China.

And the market leaders are under threat as never before.

In Europe, Japanese and Korean manufacturers such as Hyundai and Toyota are ramping up production, representing a real threat to the smaller mass-market producers such as Fiat, Renault and Peugeot-Citroen.

In China and India, Western companies are under challenge, not only from Asian rivals but also from a proliferation of home-grown companies with global aspirations.

Only the strong survive

So what will be the shape of the global car industry in the next few decades?

Geely car worker,China
The new face of the car industry?

Most experts believe that further consolidation is inevitable, particularly with the large amount of overcapacity in the mature markets of Europe and North America.

The first victim could be Chrysler, which German carmaker Daimler is putting up for sale after failing to make it profitable.

Combining brands may also have been a strategic mistake, according to lean production expert James Womack - it is more likely to weaken the stronger brand.

He believes it will take at least a generation before there are truly global car companies - but GM and Toyota, who make more cars outside their home market than inside it, come closest.

These two giants (who together produce nearly one-third of global car output) look set to continue their global battle for dominance.

DaimlerChrysler's tiny Smartcar debuted at Detroit this year
DaimlerChrysler's tiny Smartcar debuted at Detroit this year
They are both major players in all three global regions (Asia, Europe, and North America) and compete over the full product range.

The two other global giants - Ford and VW - are looking more vulnerable.

Ford is at least 18 months behind GM in restructuring its global operations, while VW has yet to tackle the production issues at its home plant in Wolfsburg and is weak in North America.

The green trend could also hurt the big German luxury carmakers, Daimler (Mercedes) and BMW, even though they have both introduced smaller vehicles in their range.

The key to the future could lie in the emerging markets, and whether China and India can fashion from their car industries a national champion who can challenge the global giants.

Many experts believe that - in terms of design and manufacturing practice - this threat is at least a decade away.

But in a harbinger of the future, this year two Chinese car companies showcased their wares at the Detroit Motor Show - and a third, Chery, announced a joint venture with Chrysler to market its small car in the US.

World car production by region

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