The invention of both cars and aircraft had a profound impact on our daily lives, so much that it completely changed how we live. As the automotive industry is both capital and labor intensive, market analysts suggest that the following segments involve the highest costs:
Labor: According to industry research, although machines and robots play an important role in the manufacture of vehicles today, industry still has to bear intensive labor costs in the design and construction of cars. However, a study shows that when a car factory is located in a urban area, it creates more jobs both in the sector and in the neighboring industry. With a job multiplier index of 3.6 for each job created within the automotive sector, there are 2.6 additional jobs created in the associated segments, such as subcontracting segments, etc. Although the plant is located outside the urban area, it still has a labor multiplier index of 2.1 indicating that the sector play an important role in reducing unemployment in various markets.
Material: For the manufacture of these vehicles, different parts like steel, aluminum, dashboards, seats, tires, etc. must be purchased from external suppliers, which means that the car sector further triggers significant growth in the related industries.
Advertising: Finally, due to the fierce competition that exists in the global automotive industry it becomes necessary for companies to spend billions on marketing their products and product offerings. Car companies are also known to spend big pieces of money on conducting market research that is expected to provide a better understanding of consumer trends and preferences, allowing companies to design products that meet market demands.
The automotive industrys research is divided into two main segments - car manufacturers and automotive manufacturers that also contribute significantly to the development of industry. The most important sections of these auto parts manufacturers are as follows:
Manufacturing and distribution of spare parts: This sector usually involves the manufacture of vehicle parts required after purchase of vehicles, including air filters, oil filters and brake pads.
Manufacturer of Original Equipment (OEM): In the global automotive industry, industrial manufacturers manufacture some of their own vehicle components that include things like door handles and car seats.
Manufacture of rubber: Rubber is used as part of tires, belts and hoses in a vehicle. Car manufacturers buy rubber and its products in order to offer the vehicles within the most cost effective price holder to consumers.
In addition to these labor and material related expenses, factors such as globalization and companies tend to move from national and domestic markets and continue to international markets to the automotive landscape. In addition, market competition also affects the industry significantly.
Insights in the auto sector
As in the aviation industry, the expansion of the automotive industry is strongly dependent on consumer trends and preferences. Although there are segments selling vehicles to companies and car hire (fleet sales), consumer sales account for most of the revenue in this sector. Thus, consumer and business confidence data should be given higher priority over other aspects such as revenue growth and debt burden.
The other important aspect most automakers are looking at is whether they are planning makeovers for their products or completing the rebuilding of the vehicles. Since most companies update their cars annually, they always take into account the related problems when deciding whether to fully consider the design of any vehicle model. These changes can sometimes cause serious problems ranging from massive delays to glitches, resulting in increased costs and long-term revenues. So even though a design jump is likely to be profitable in terms of results, its still a risky proposal.
In addition, for vehicle manufacturers, the age of the vehicle is still crucial. The longer the car has been operating, the greater the need for spare parts. Since the new parts are usually longer, it is advantageous from the customers point of view but not so much for the suppliers. By keeping all these aspects in mind, companies and subcontractors and suppliers together try to manage the different product components in order to offer quality, but within specific price limits.