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The first automobile with a petrol engine was built in 1885 and soon the figure for total cars in the world will be touching a mark of 1000 million cars and light trucks. This article presents a quick overview of what we mean with the Automobile Industry and how it started and what is the scale of this industry today.

The automobile industry designs, develops, manufactures, markets, and sells motor vehicles, and is one of the earth’s most important economic sectors by revenue. The term automobile industry usually does not include industries dedicated to automobiles after delivery to the customer, such as repair shops and motor fuel filling stations.

There are four key business drivers that impact the Automobile industry:

Economic Conditions:

Automobile manufacturers need to plan capacity to achieve economies of scale. Companies plan their capacities based on their sales predictions which are totally dependent on economic cycles. The capacity issue has a strong influence on industry economics as vehicle prices are calculated on forecast capacities and reduced capacity means higher unit costs. Vehicle makers, therefore, get heavily impacted due to economic conditions.

Consumer Demand and Interests:

There is an increased awareness of occupant and pedestrian safety, and consumers also look for greater fuel economy, exemplified by the growing rise of fossil fuel prices. Consumers is becoming more aware of specifications and looking for the inclusion of more on-board electronics and telecommunications systems. Automobile safety is tremendously important to consumers in all markets and consumers are willing to pay more for vehicles with safety features.


Increasing global competition amongst the global manufacturers and positioning within foreign markets has divided the world’s automakers into three tiers, the first tier being GM, Ford, Toyota, Honda, and Volkswagen, and the two remaining tier manufacturers attempting to consolidate or merge with other lower-tier automakers to compete with the first tier companies.

Technological Innovations:

Other innovations that consumers are interested in include features that improve navigation, like GPS, and features that enhance entertainment, including satellite radio and in-car access to digital music. In terms of the vehicle, the innovations that are likely to be in demand are more electronics and telematics, move to a 42-volt electrical system, safety improvements, electrically controlled steering, braking, ABS, and suspension. There might be the continued development of electric, hybrid, and fuel cell drives, especially for city cars and fleet vehicles.

Government & Regulations:

The legislation is a major driver of the industry; emissions and recycling legislation have a strong impact on both on-vehicle technologies and construction. In many countries, governments have imposed strict environmental regulations dealing with fuel economy and emissions control on auto manufacturers.

Around the world, there were about 806 million cars and light trucks on the road in 2007, consuming over 260 billion US gallons (980,000,000 m3) of gasoline and diesel fuel yearly. The automobile is a primary mode of transportation for many developed economies. The Detroit branch of Boston Consulting Group predicts that, by 2014, one-third of world demand will be in the four BRIC markets (Brazil, Russia, India, and China). Other potentially powerful Automobile markets are Iran and Indonesia. Emerging auto markets already buy more cars than established markets. According to a J.D. Power study, emerging markets accounted for 51 percent of the global light-vehicle sales in 2010. The study expects this trend to accelerate.

Automobile Industry Supply & Value Chain

Most of the Automobile manufacturers employ a business model that demands collaboration between different assemblers and cadre of parts suppliers with a lean, flexible, just-in-time (JIT) assembly process. In this article, we will discuss the business model of a typical Automobile manufacturer and the various stages from planning to final retailing of the product.

Industry’s Business Model:

Most of the Automobile manufacturers employ a business model that demands collaboration between different assemblers and cadre of parts suppliers with a lean, flexible, just-in-time (JIT) assembly process.

JIT is predicated upon short supply lines that can deliver small batches of components to the assembly line steadily and without interruption (often hourly, and sometimes synchronized to match a particular vehicle), coupled with the facility to immediately correct quality problems as they are discovered, and to make running changes in product specifications or volume requirements when needed.

Supply Chain Model

Supply chain progresses through the following stages:

The executive team in an Automobile manufacturing company plans overall concepts and ideas for new vehicles. These teams often involve suppliers at all tiers as development partners.

After researching consumer wants and needs, automakers begin designing models that are tailored to the public demand.
OEM engineers design most of the bought-in components, developing all product parameters in the process. R&D teams design conceptual sketches for a new vehicle. Based on these sketches, a model is created. Product design engineers collaborate with auto manufacturers to ensure that newly designed products can be successfully integrated into the design specifications of a model.

Experts are consulted to troubleshoot potential problems and conduct extensive tests. Next, a simplified model of the new vehicle, called a prototype, is built. The prototype is used to determine whether the final design will be functionally feasible and cost-effective to manufacture.

Raw Material Procurement:
Once the prototype is successfully validated, then the next stage is to procure raw materials for production and assembly. These may include rubber, glass, steel, plastic, and aluminum. Parts are also procured. Some examples of parts are tires, windshields, and airbags.

The OEMs provide detailed blueprints to potential suppliers and invite them to bid against each other for a contract, employing an auction market model in which the two lowest price bidders usually won a “build to print” contract for an agreed fixed price, for an agreed quantity, supplied over a finite time period of generally not more than one year.

Inventory Management:
During the inventory management stage, logistical decisions are made about the transportation and storage of the vehicles. Auto manufacturers ensure that production and supplier schedules run smoothly by working with logistic service providers. These providers collect parts from suppliers, consolidate them, and deliver them to the assembly plant on time. Vehicle distribution or outbound logistics is the process of transporting vehicles from the assembly plant to the dealership or final customer with large fleets. The outbound distribution logistics is always done via train, truck, and ship.

During the retailing stage, the finished vehicle is sent to retailers or dealers. Here focus groups test the vehicle’s suitability. Based on these results, the retailer’s advertising department creates a campaign for the vehicle. R&D teams also use feedback from the focus groups to continuously refine or improve their models.

Dealers and retailers distribute the vehicles to customers, and the supply chain cycle is completed. Before a vehicle is distributed to customers, dealers and retailers train service technicians to service the vehicle. Sales assistants are given accurate and reliable product information so they can sell the vehicle and answer any questions that a customer may have. As the Automobile vehicles have a life cycle of several years, dealers and retailers ensure that service network is available to periodically repair and service the vehicle post-sales.