US Industry and Trade Outlook
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Motor Vehicles
Industry Definition
The motor vehicle industry includes new, on-road, volume-produced completed vehicles for carrying cargo or passengers (SIC 3711) and truck and bus bodies and cabs for sale separately or for assembly on purchased chassis (SIC 3713). The automotive parts and accessories industry is covered in Chapter 37.
OVERVIEW
The global automobile industry is decreasing the number of stand alone companies, unique platforms, unique engines, and unique parts in an effort to reduce investment costs and increase economies of scale. As a result, the major automakers are combining research and development efforts to create platforms and parts that can be used throughout the world. Volkswagen, for example, is working toward reducing the number of unique platforms it produces worldwide from 16 to 4. Yet the total number of vehicles Volkswagen offers will probably increase as the average number of vehicles a given platform supports increases.
Another trend is also related to cost control as well as to timeliness: Manufacturers are using supercomputers and paperless design tools to reduce the time it takes to go from vehicle concept to production. A reduced development time means key decisions affecting product marketability can be postponed until later in the process. It also means that engineers and designers can evaluate several iterations of a given part or even an entire vehicle as computer simulations rather than use the costly and time-consuming method of building and testing actual prototypes. Although this new technology requires significant investments, the payoffs should be fairly immediate.
GLOBAL INDUSTRY TRENDS
Many of the barriers that have separated the world's automotive markets are slowly falling away. As a result, the light-vehicle market (cars plus light trucks) worldwide has become much more integrated with production. Likewise, over time vehicle trends in the world's mature markets (the United States, Western Europe, and Japan) are likely to appear in the developing markets.
The changing face of the world market means that automakers can move production to less-costly locations. In response, the U.S. Big Three automakers (General Motors, Ford, and Chrysler) have been adding production in Mexico, for example. Honda and BMW, however, are moving production to the United States to avoid relatively high domestic labor costs. Another global trend is that production has moved closer to a vehicle's primary market, in part to minimize the effect of currency fluctuations. In keeping with that trend, Mercedes-Benz is building its M-Class sport/utility vehicle exclusively in Alabama, which will make Alabama the worldwide location of M-Class production.
WORLD COMMONALITY
Changes in today's world industry are in ways reminiscent of Henry Ford's idea of mass-producing vehicles in the interest of reaching economies of scale. Today, the industry is moving the concept of economies of scale from the country level to the world level by reducing the number of unique platforms (a vehicle's underpinnings) and components (e.g., engines and transmissions). The idea is to design a single platform or component that can be made and used on several vehicles worldwide. An example of such a vehicle is the Ford Contour (sold and made in both the United States and Mexico), a very similar version of which is the Mondeo, which is sold and produced in Europe.
This global approach has a number of advantages: First, product development costs are reduced (one design in place of many). Second, development costs can be spread over a larger number of vehicles, reducing the development cost per vehicle and thereby allowing lower prices or increased profit margins.