To: Harold Bashor
From: Swarna
Sub: PESTEL Analysis on Auto Mobile Industry
Date: 04/06/2014

Business Brief

The auto industry is a leading driver of global economic growth; the industry is a leading employer throughout the world, with 9 million people involved in making 60 million vehicles, or 5% of global manufacturing jobs. Indirect employment from automotive activity is fivefold, representing 50 million jobs connected indirectly to the auto industry. Other industries involved in the manufacture and service of vehicles include textiles, plastics, iron, steel, glass, aluminum, computer chips and rubber. The industry also involves significant research and development activity, representing investment of nearly $85 billion. It is estimated that the manufacture of vehicles contributes more than $430 billion to the governments of 26 countries combined.

Automobile are primarily used to transportation and changed the world during 20th century particular in developed nations like USA and other developing nations like India, China markets. The automobile industry has succeeded like never before in the recent years but also seen major setback in global recession. This extraordinary growth that the automobile industry has witnessed is a result of a three major factors namely, increased average income of a per person, life style and innovation. Moreover in countries like India the liberalization steps, such as, relaxation of the foreign exchange and equity regulation, reduction of tariffs on imports, and refining the banking policies played an equally important role in bringing the automotive industry to great heights.

For the last five it is estimated the car sales have tripled. Thus the sales of car reached millions of consumers and expected to increase further; also industry has produced economic growth by creating jobs. It's also to be noted the demand for luxury models, SUVs, and mid-size cars for family owners, have shot up, largely due to increase in the consumer’s buying capacity. The increased demand for automobiles has resulted in a large number of multi-national auto companies especially from Japan, USA and Europe entering the global market and working in collaboration with local mark firms. Also, the institution of Auto-Mobile finance has further paved the way to sustain a long term high growth in the industry.

PEST

PESTEL is tool used to determine for analysis of key external forces that might affect the organization. These forces can create both opportunities and threats for an organization. Therefore, it is important to find out the current external factors affecting an organization, identify the external factors that may change in the future and to exploit the changes (opportunities) or defend against them (threats) better than competitors would do.
The outcome of PEST is an understanding of the overall picture surrounding the company. I have chosen to do analysis on Automobile Industry with Political, Social and Technology from PESTEL.

Political

Political factors play a major part in automobile industry especially related rules and regulations. Consider EU crisis, depending on the outcome of that there could be huge implications in terms of how we operate in Europe. Similarly with the new government set to take charge in China in March 2012 there could changes in some of the rules. Also the recent tax changes that went into effect at the beginning of Jan 2013 will have a significant impact on our customer since most of them are high net worth individuals.

The worldwide automotive industry is subject to various laws and governmental regulations including those related to vehicle safety and environmental matters such as emission levels, fuel economy, noise and pollution. Many governments also regulate local content, impose tariffs and other trade barriers, taxes and levies, and enact price or exchange controls. Toyota has incurred, and expects to incur in the future, significant costs in complying with these regulations. New legislation or changes in existing legislation may also subject Toyota to additional expense in the future. Toyota is also subject to a number of pending legal proceedings. A negative outcome in one or more of these pending legal proceedings could adversely affect Toyota’s future financial conditions and results of operations.

In some countries the government allowed the subsidiary. For example, the U.S. government helped buyers who choose alternative powertrains and provided federal subsidaries. In 2010, the government began offering a $7,500 tax rebate to anyone willing to buy an electric car—to offset the cost of the vehicle. Similar subsidies were available for diesel and hybrid cars in 2006—through tax rebates up to $3,400—though they expired in 2010.

Social

Nowadays, the kind of car can be social status in the world. However, but the society likely does not want to admit to this. Manufactures are studying the impact on their car sales and targets their markets by these thoughts. Anyone who drives a very nice thought to be wealthy and depending on the sale they increase their product line. Consumers also just get a better feeling when they are driving an attractive or latest car, if makes them get better impression about themselves. For example, Western European Market is considered to tend more towards Convertibles and MPV’s(People carriers).
Automobile is a necessity for some and luxury for some other people; in fact it's a lifestyle for the most part. Automobile industry is spending a lot of time in evaluating the lifestyles, travel patterns, demographics and psychographic information for a large segment of the customer. They continuously seek feedback from consumer for constant improvement and to capture a lot of profile information to make sure they are getting the best experience they can possibly offer. As an industry, they intend to provide the best experience that a customer can buy and this is possible only if industry understands customer better and better every day.
The employee job satisfaction is also important factor in Auto industry and determined by evaluation work performance, commitment, compensation, responsibility, achievement, supervisory support, workgroup cohesion, quantitative workload. The better the job satisfaction, better the product line. For Example, Hyundai fosters a workplace where team work, diversity and creative ideas are celebrated. With overtime and incentives, production team members earned an average annual salary and benefits of $73,299 in 2012. Hyundai also provides team members with a wide variety of open communication channels through which they can express, and bring to the attention of management, issues of concern regarding wages and benefits or working conditions.

There are other several factors influenced the automobile industry for example in India, the average income of an individual has increased and car has become an social status. Also due to shift of out sourcing to India, the female employment has increased significantly and so as use of automobile.
Technology
Technology plays a huge part in maintaining product line for an auto industry. Technology relating to automobile designs, technology of automobile manufacture and Technological developments that may increase or decrease with use of automobiles. The industry is adapting new technologies and techniques to make its cars more famous among the customers. It is also introducing luxury, low priced and environment efficient automobiles depending on the market value.
Technology and innovation are the key factors which drive any business, automobile industry is no exception with considering all the resources producing the low emission and electric cars are increased significantly. This can be an increase in cost of fuel and looking for alternative fuel solution or more inclining to environmental solutions.
One way to develop green technology is to continuously strive to meet the ever more stringent fuel economy requirements legislated by different countries. For example, Hyundai is developing engines and car models that can utilize diverse types of alternative fuels such as biofuels in Brazil and North America, where there is a regular supply of ethanol as a fuel source, the sales of Flexible Fuel vehicles (FFV) that use both ethanol and gasoline are on the rise. In Europe where diesel cars are preferred, Hyundai cars that can use Bd5 fuel, a mixture of conventional diesel with 5 percent bio-diesel, are promoted. Also, in India, where compressed natural gas (CNG) is relatively abundant, Hyundai has released cars utilizing CNG as well as a bi-fuel model, i10 that can use both gasoline and LPG.

Automobile Industry is constantly develop green technology is to continuously strive to meet the ever more stringent fuel economy requirements legislated by different countries. Onto the other side, the industry is developing more or more advanced car with cutting edge of technology to meet all the customer demands to their product lines.

Convergence and Synergy

Automobile industry is the expansion of their own competence through acquisitions, joint ventures, or strategic alliances. Given the degree of maturity and level of development of the automobile industry strategic alliances are an efficient and risk, minimizing forms of implementing convergences solutions,. Alliances enable companies to exchange technologies and knowledge and integrate these rapidly. Alliances also help to minimized risk because in many cases the contracts the govern them impose restrictions on content and duration and limit the transfer to a as specific area of business. In strategic alliances, the players essentially remain independent so the direct interest also focuses on a certain area limited in terms of content and duration.

Most of the top companies are alliance with local companies to make their presence in other countries. For example, Suzuki made its presence in India with Maruthi auto mobiles and produced great success over the years.

Also automobiles purchasing other companies may result in low cost. For example, Hyundai bought the defunct Hanbo Steel in Dangjin. This synergy(1+1=3) have taken the once rundown steel company and have refurnished and revitalized its facilities to make it one of the most efficient steel plants in Korea

In Next Five Years

Auto industry executives are expected to see a rise in investment in new powertrain technology, new plants, alternative fuel technologies and high growth markets, merger and acquisition activity over the next five years, according to the 12th annual global automotive survey conducted by KPMG LLP.

In my opinion alternate fuel technologies will be the key factors to these production-related investments, auto executives also say they will be increasing their focus on alternative fuel technologies, specifically hybrid fuel systems, battery electric power and fuel cell electric power. Despite the apparent focus on electric power, seven in ten respondents to the KPMG survey say that the auto industry won't be able to offer an electric vehicle that is as affordable as traditional fuel vehicles for mainstream buyers for at least four years. Tesla Motors already proved its part producing electric cars with luxury line. All the companies like Hyundai, Honda, BMW and others are more focusing on fuel efficient cars.

Major Issues:

Political status is always unstable in some countries. Fluctuations of exchange rates and oil prices, foreign ownership regulations and technology cooperation with government’s introduction of new business laws are always the factors influence the industry.

Social factors include are consumer attitude in selecting automobile mode and design. If the consumers are cost and safety they probably chose a normal car. But if they customer is to performance car with luxury it will be different set of customers. It is always challenging to meet both the customers with different R&Ds.

Technology is always a concern in Automobile industry. Consumer satisfaction with emerging technologies to provide low emission CO2 and electric cars. Also shift in to these technologies because of high gas prices.

Conclusion

I chose to do PESTEL analysis since it provides a very broad perspective of organizations external factors. As an automobile industry they are totally dependent on factors like political, social and technology. Honestly, I could see how all things were coming together when I started writing this analysis. As I mentioned before, I've been in the IT industry my entire career. Stepping into the shoes of a business person and doing this analysis was indeed very exciting.