UK CAR INDUSTRY ASSIGNMENT IN 2020

UK car industry

Introduction

The automobile industry is a multi-billion-dollar industry worldwide, however this is highly competitive with numerous big players try to gain a competitive edge by becoming the majority or the part of the whole market share in the United Kingdom.

Moreover, industrial environmental aspects play a vital role. Therefore, car manufacturers cannot rely solely on reliability and safety to stay competitive in the UK car market, particularly due to the maturity of the industry.

This study will summarize the trends in sales of the car organizations within the United Kingdom. This study aims to recognize the market structure of the entire car industry within the United Kingdom.

Main body

2.a. The automotive manufacturing industry has been producing for the last five years. In the early days, the strong development was driven by the achievement in exporting car to developing economy countries and increasing new car registrations.

Moreover, these factors are driven by the strong consumer confidence, short financial contracts and increasing financial earnings that increase domestic demand. However, according to data from the “Society of Motor Manufacturers and Traders” (SMMT), the production has continued to decrease, including output down4% in 2017 compare to 2018 (Aminand Smith, 2017).

The UK car market is now well known for premium car and sports brands, such as Bentley, Aston Martin,Caterham Cars, Jaguar, Daimler,Lagonda, Lister Cars, Lotus, Land Rover, McLaren, Mini, MG, Roll-Royce and Morgan. The UK has a great presence of volume car manufacturers, such as Nissan, Honda, Voxhall Motors, and Toyota.

Along with that, the commercial car manufacturers dynamic in the UK, such as Ford, Alexander Dennis, IBC Vehicles, London EV Company, and Leyland Trucks.

In 2018, the UK automotive manufacturing sector is valued at £82 billion, making the UK economy £18.6 billion and producing around 1.5 million passenger cars as well as 85,000 commercial cars.

There are about 168,000 people who work directly in the UK car manufacturing supplies, including another 824,000 people worked in the automobile retail, servicing, and supply. It declined to 148,000 with supply industry in 2014 (-18%).

Further, the United Kingdom is foremost center of engine production and in 2018 the country produced about 2.71 million machines. Moreover, this countryhas a noteworthy existence in auto racing as well as the motorsport industry of UK now around 39,000 people, including almost 4,500 organizations and havethe annual turnoverabout$6 billion (Begleyet al. 2015).

The beginnings of the British automotive industry began in the late 19th century. In 1950, the United Kingdom was the world’s largest exporter and the second largest manufacturer among the world (after the US).

In recent decades, however, the industry has grown slower than competing countries such as Japan, Germany, and France, as well asthe United Kingdom was the 12thlargest car manufacturer determined by the volume in 2008.

Several British car brands have been acquired by the foreign organization since 1990s, including “BMW (Mini and Rolls-Royce), SAIC (MG), Tata (Jaguar and Land Rover), as well as Volkswagen Group (Bentley)”. The right of many latent signs is now also owned by foreign companies, such as Riley,Austin, Triumph, and Rover, are similarly owned by the overseas firms (Colino, 2010).

UK CAR INDUSTRY ASSIGNMENT IN 2020

 

Fig: Comparison of leading car companies’ market share in the UK

Source: https://www.statista.com/statistics/300467/leading-car-companies-market-share-in-the-united-kingdom/

 

b)The UK car market is extensively competitive in terms of the return on investment. This is considered as an oligopoly market. Previously, the competition was not just about the price of a car, just to gain more market share through innovative technology and design. The UK car market has been classified as a growing broad mass market.

The small car market discovers itself at the top of this emerging market (Patrucco, 2014). They can be classified into two separate vehicles because of different car models. In this way,most models are positioned in the city or mini or supermini part as well as some people who live in small/lower medium family.

While the cost of driving is largely due to taxes, the cost of traffic congestion and other factors, the market share for both categories dominates the industry, while the sales in the supermini section show strong growth of industry leaders.

Along with that, the higher sales trend of the Supermini model is clearly proven, the 44% development in this segment is encouraged by the continual addition of new and improved features introduced by the manufacturers. Britain became the second largest car market for new registrationin the European Union after Germany in 2003.

The new car was assessed at valued£33.5 billionrather than a comparatively small increase of 3.4% on the year as well as 14% progress over five years (Trkman, 2010).

UK CAR INDUSTRY ASSIGNMENT IN 2020

Fig: UK car production

Source: https://www.smmt.co.uk/industry-topics/economy/

 

  1. c) There are perfect barriers to entry into this industry, which has become a real threat to new entrants. Some new entrepreneurs or players may enter the automotive industry as they require high capital investment to establish production facilities and distribution networks.

Additionally, the fact that the current multi-national competitors are advancing from an economy of scale and opportunity makes it very problematic to offer a competitive price to a new entrant. Eventually, as the issues of durability, safety, and reliability are so prominent. As the customer base theirimpression of the model on the previous performance of the manufacturers on the issue, it became increasingly difficult to compete with new entrants.

It took a lot of years for the new entrant to make a strong reputation for competition. Everyaspect can reduce the threat of new entrantin the car market very low.Therefore, entry to the car market needs significant capital,managerial and technicalskills, and the time required to achieve a market acceptance which willmake sales and adequate revenue for operation without the requirement of cash infusion from finance activities and investors (Daunorienėet al. 2015).

  1. d) Competitiveness is defined as the ability of a business to compete successfully as well as profitability in non-price and price term compete in terms of price and quality across global markets. The main method of cost competition is the cost competitiveness is relative unit labor costs while offer indicator can be used. Most car manufacturers operate within the oligopoly market structure so competition is not about price as well as significant product design, brand functionality and environmental impact.

Point 1

The level of labor productivity and labor costs in the UK automotive industry affect the economy for competition. If British-based companies like Toyota in Derbyshire, Honda in Swindon, and Nissan in Tyne & Wear can increase labor productivity per person worked or per hour worked.  For a given wages level, the unit cost of the car will allow more sales in the market.

The productivity could be improved by increasing the human capital of the workforce by skill training; through join in lean manufacturing method into the production and by the improved administration. The development in productivity, ceteris paribus will lessen the average and marginal cost of manufacturing each car and empower carmaker to reduce their price whereas making adequate super nominal profit (Ivascuet al. 2016).

Point 2

One of the macroeconomic effects of spending competition is the external value of sterling in contrast to the major trading partners of UK. Moreover, the extract states that 80% of cars produced in the UK are exported, thus the prices of sterling against US dollars, euros and currencies such as the Turkish lira and Yuan will have an outcome. Since the Brexit vote in June 2016, the sterling has fallen by almost 20% on the trade-weighted basis.

It has supported to make UK car exports more price competitive as the foreign values of UK vehicleswill decrease. These comparative price changes have resulted in price changes with foreign consumers who are more likely to purchase British cars so they can get better prices. Increased export sales will boost UK car output, employment, and profits (Lääts, 2011).

UK CAR INDUSTRY ASSIGNMENT IN 2020

Point 3

The second macroeconomic impact of price competitiveness in the UK car market, which is continuedtariff-free access to large export markets of the UK. Britain will leave the EU Custom union after the Brexit transition period in December 2020.

Moreover, the custom union is a trade agreement among nation in which they have tariff-free trade among thembut decide a common external tariff for service and products coming into the European Union. The UK car manufacturer recently export without the tariff into the United Kingdom.

Thus, their competitiveness is not affected by the artificial trade barrier.  However, if the UK fails to negotiate a comprehensive trade agreement with the EU in the next month, the car manufacturers here are likely to raise EU tariffs on every non-EU car by 11%.

Also,a tariff increases to the value of exports and – Cetarisperibis – makes the competition worse (Ward and Begg, 2016). This could lead to decay in the UK vehicle sales to the EU as well asthe risk of lost job from declining demand and several capital flights as companies like Honda and Ford that prefer to go to lower-cost nations like the Czech Republic, Poland, and Slovakia.

The impact of import tariff on UK car manufacturers is shown in the analysis diagram. Moreover, a tariff raises the price of UK exports and leads to a contraction in demand and production. It will have a knock-on effect on the supply chain industry (Slomanand Jones, 2019).

Conclusion

Despite the growth potential of this industry, it is optimistic to fight the long-running management conditions for five long years. Moreover, the car manufacturers are predictable to achieve estimate improvementin major export markets such as Continental Europe and the United States.

However, it is not yet clear whether trade tariff or other barriers to trade will be presented. The “Society of Motor Manufacturers and Traders” (SMMT) and other industry stakeholders have refused to a no-deal exit from the EU, demand from Continental Europe might be quiet. However, operators expect export earnings to expand in the long-term because emerging market demand keeps increasesin proportion to the improvement of global economic circumstances.

References

Amin, A. and Smith, I., 2017. Vertical integration or disintegration? The case of the UK car parts industry. In Restructuring the global automobile industry (pp. 169-199). Routledge.

Begley, J., Collis, C. and Donnelly, T., 2015. Skills shortages: A brake on the British car industry?. Local Economy30(6), pp.593-608.

Colino, S.M., 2010. Recent changes in the regulation of motor vehicle distribution in Europe–Questioning the logic of sector-specific rules for the car industry. Competition Law Review6(2), pp.203-224.

Daunorienė, A., Drakšaitė, A., Snieška, V. and Valodkienė, G., 2015. Evaluating sustainability of sharing economy business models. Procedia-Social and Behavioral Sciences213, pp.836-841.

Ivascu, L., Cirjaliu, B. and Draghici, A., 2016. Business model for the university-industry collaboration in open innovation. Procedia Economics and Finance39(November 2015), pp.674-678.

Lääts, K., 2011. Management accounting change in a dynamic economic environment based on examples from business and public sector organizations (Doctoral dissertation).

Patrucco, P.P., 2014. The evolution of knowledge organization and the emergence of a platform for innovation in the car industry. Industry and Innovation21(3), pp.243-266.

Sloman, J. and Jones, E., 2019. Essential economics for business. Pearson Higher Ed.

Trkman, P., 2010. The critical success factors of business process management. International journal of information management30(2), pp.125-134.

Ward, D. and Begg, D., 2016. Economics for business. McGraw-Hill.

 

 

 

 

 

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