Almost everyone heard Russia as one of the Top leading countries in the Automobile industry and this is why this paper is made. This is to show how Russia came up to what it is now. What was the Russia before it came up to its success. Russia is one of the fifteen union republics who belongs to the Union of Soviet Socialist Republics (USSR) or commonly known as the Soviet Union. It was a model state governed only by the Communist Party.
This study presents a sample case study about the Global Automobile Industry its scenario and economic status as well the trends of the business and its impact to the business world specifically in Automobile industry. Particularly, this paper focused on the case of Russia. This country is very much known as one of the conquerors alongside of the United States from the year of 1945 until it stopped in 1991 because of the challenges the country faced.
Problems and challenges never stopped Russia to become the hub of the world in Automobile industry and in fact it earned high or what we called the class services and also it earned brand name loyalty. Based on some study some people from different countries prepared the Automobile made by Russia for many reasons aside of having its brand name.
Trends in the Global Automobile Industry
It is a well known fact that the automobile industry is one of the most important industries in the world. It affects not only the global economy but also the various cultures of the world. The industry provides jobs for millions of people around the world. It helps to generate billions of dollars in worldwide revenues, and provides the basis for a huge number of related service and support industries. When we look back we learn that the Automobiles revolutionized the transportation in the 20th century. It changed the way how people live, travel, and carry out business. The automobile business is developing at a very faster rate than before on a worldwide basis. Manufacturers of automobiles and parts are joining together. In the Meantime, all the biggest and the most successful automobile industry firms go global or gains international reputation. Globalization is the present trend and it is active throughout the automobile industry. It is very clear that the car dealership side is very large and the When we look at the car dealership side it is very clear that, the large, nationwide holding companies have obtained the best dealers in major markets. It is even very interesting to find that the used car business is expanding and booming up.
The present advancement in the Information Technology sector, especially the e-commerce, is having strong and powerful effects on the car industry. Nowadays, the Consumers use the Internet to gather valuable information before finalizing an automobile purchase. There are several online sites for the consumers to obtain information. Online sites like Autobytel lead millions of car buyers toward specific dealers. At the same time, these sites also provide financing and finance in such way that makes low costs and improves the satisfaction among consumers. The present trend is that the automobile manufacturers are using the latest e-commerce procedure to control their supply series.
There is no doubt that the automobiles have helped the rich and the poor alike for travelling and transport goods farther and faster, and it has helped to open larger retail areas for business. The automobile field has been also decreased the total cost of transportation by using ways such as mass production which means that making of several products at a single time, rather than one by one. It also does mass marketing - selling products globally instead of locally - and the globalization of production or assembling products with parts made worldwide.
The records show that period 1886 - 1898, about 300 automobiles were constructed, but there wasn't real built industry. However, a century later, with the expansion of automakers and auto buyers, auto making have became the world's biggest manufacturing action. It shows that nearly 58 million new vehicles are built each year worldwide.
Increased competition and globalization are the two related developments that usually happen as a result of important trends in the automobile industry. Tough competition urges the manufacturers and the consumers to enter with foreign markets in order to oversight their quality of brands, also their engineering, and the production costs.
The data tells us that the "largest Three" U.S. automobile makers and companies: GM, Ford, and Chrysler are losing important market share to those foreign producers companies. Two main reasons for this decrease are due to the higher prices and grow of consumer request for indulgence. As known that the prices of the oil and some other raw materials have rise up, the production of the costs have also risen. Whereas automobile makers from all around countries face some similar challenges, and only U.S. organization have to discuss with labour unions. Also employee advantage costs, particularly those who are related to the healthcare, have been rising over the past years. Here is an example, between the years 1999 - 2005, the General Motor's non-pension retirement advantages (mostly healthcare) has grow at a compound annual rate of 10.6%. The automobile makers must also take on consumer demand to better safety and electronics characteristic. Some customers want features like side airbags, anti-lock brakes, and the electronic stability programs (ESP), so this will apply pressure on each of the wheels in order to prevent the drivers from losing the control of their cars. Other trends in electronics include high rise demand for global positioning systems (GPS) and for premium sound systems.
There is another threatening trend to U.S. the auto mobile makers that are the increasing in the foreign attendance inside the truck market. Some of the vehicles like the Nissan Titan and Toyota Tundra are becoming more famous with American consumers that are using the automobiles. Moreover, for the future, it look likes that the big three will continue dominating this market, as they cached 91.4% of the market share in the year 2005.
The following manufacturers are considered the major firms of the Automobile Industry:
- General Motors Corporation - It employs a great number of 335,000 employees and it is one of the biggest automobile manufacturers globally. The main offices in Detroit, Michigan, but it have business and maybe manufacturing in around 55 countries out of the U.S. and Canada. GM owns other corporations that include Chevrolet, Pontiac, and Hummer.
- DaimlerChrysler AG - It's much spread out company. DaimlerChrysler produces mostly anything from sports cars to trucks. Their main office located in Stuttgart, Germany, and works in the Europe and United States.
- Toyota Motor Corporation - Toyota is very well known. It is selling automobile in over 170 countries. Their main office located in Toyota City, Japan, and they employ around 285,980 people.
- Ford Motor Company - This industry constructs and distributes automobiles in six continents. One of Ford Motor's brands that are well known includes Lincoln, and Mercury. It operates in U.S. and Europe, and their main office in Dearborn, Michigan.
- The "Big Three" - GM, Ford, and Chrysler - are considered to be the world leaders in revenue, however, in terms of net income, they are behind the Japanese manufacturers.
No doubt, the automobile industry is a competitive industry. The industry's international trade patterns indicate that the strong group of organization and countries which will rule the world's imports, exports, and the production. Top five exporters in 1985 are still top five exporters in 2005. While the top five importers in 1985, only one of them are not in the top five currently. Germany and Japan are among the top two positions as exporters for over the past twenty years. While the US shows extraordinary consistency as an importer.
An interesting trend to note in the auto industry is the absence of apparent diversity in the leaders (importers and exporters) of passenger vehicles. Lots of countries may become a bigger worldwide competitor in the field industry, this is due to high nature of the industry and as a fact that some of the large companies are ahead in the market share. But still, it's hard to imagine that a country like South Korea developes in a short time of twenty years.
It is significant to have cooperation between the manufacturers in the industry. This is because; cost shipping of auto parts and the need of customer service is high. High cost of the shipping auto parts will also helps to stronger the vertical combination of auto industry.
Regulations of government are so important which lead the industry into a globalized manufacturing arrangement. The US and many countries, the government policies such as tariffs and taxes and on imports that make many foreign companies to arrange manufacturing in another countries in order to face the laws or to increase profitability.
To explain in detail, I have reviewed the facts and figures. In the year 2008, more than 70 million of the motor vehicles, including commercial vehicles and cars were produced worldwide. In the year 2007, a 71.9 million automobiles that were new, were sold worldwide, 22.9 million in Asia Pacific, 21.4 million in Europe, 19.4 million in Canada and USA, 4.4 million in Middle East, 2.4 million in the Latin America and in Africa 1.4 million. Markets in the Japan and North America were stagnant, on the other hand those in South America and some other parts in Asia grew strongly. The most rapid growth has occurred in the major markets such as, Brazil, Russia, India and China.
About 250 million of vehicles were in use, in the United States. Around the world, there were around 806 million light trucks and cars on the road in 2007; they burned over 260 billion gallons of diesel and gasoline fuel each year. These numbers increase rapidly, in China and India especially. Some people have an opinion that says the urban transport systems that are based around the car have confirm unsustainable, affecting health of populations, consuming too many energy and delivers a decline stage of service in spite enlarging investments. Lots of this negative, effect falls disproportionately on these social groups who are also less likely to drive cars.
During 2008, with the rapid rising in oil prices, some industries such as automotive industry are experiencing a combination of price pressures from the raw material cost and change in the consumer buying habits. The industry also facing increasing external competitive from public transport sector, and as consumers re-evaluate their private vehicle use.
Among the top 20 motor vehicle producing countries, the top three countries are Japan, People's Republic of China and United States of America. They are considered to be the leading countries in vehicle production.
Among the top motor vehicle manufacturing companies by volume in 2008, the top three motor vehicle manufacturing companies are Toyota, General Motors and Volkswagen.
Among the top motor vehicle manufacturing groups, along with their different brands, are the Toyota Motor Corporation of Japan, General Motors Company of United States of America, and Porsche Automobile Holding SE of Germany.
Economic Transition of Russia from Command Economy to Market Economy
The history of Russian automobile industry started in beginning of 20th century in the times of Russian empire. In 1901 carriage factory Freze in St. Petersburg successfully started to assemble French oil engines De Dion Buton, followed by other factories in Riga, Rostov-on-Don and elsewhere which were manufacturing American Oldsmobile, Mercedes and other brands.
After October revolution of 1917 and subsequent civil war, the Soviet government established the Research Automotive Laboratory (later known as NAMI). The very first Soviet motor car NAMI-1 was a graduation project by a young engineer, however, he confessed in 1979, that he made it by copying charts of Czechoslovak Tatra-11.
The NAMI-1 was a success and it was put into production next year, however, it was not planned for mass production and during period 1927-1930 only 403 cars were assembled. Soviet authorities realized, that Soviet Industrialization needed mass production of cars and that needed giant factories. During the severe economic crisis in USA in 1929, Soviet government signed an agreement with Ford Motor Company. Soviets agreed to purchase $13M worth of automobiles and parts, while Ford agreed to give technical assistance until 1938 to construct an integrated automobile-manufacturing plant at Nizhny Novgorod. The production of the new plant started on January 1932, and it was called Gorkovsky Avtomobilny Zavod, or GAZ. The first car was called GAZ-A and it was made after Ford Model A, and until 1936, over 100,000 cars were build. The famous cars produced in GAZ include GAZ-M20 Pobeda (Victory), GAZ-21 Volga and luxurious limousine GAZ-13 Chaika (Seagull).
The GAZ factory was followed by many others. The most important plants include :
- Moscow Small Car Factory (MZMA, later called AZLK), which was originally a branch of GAZ, but after 1939 it was operating independently. It was producing Moskvitch brand.
- VAZ (Volzhsky Avtomobilny Zavod), established in 1960 with collaboration with Fiat, producing the Lada brand, sometimes also called Zhiguli.
- ZAZ (Zaporizhia Automobile Building Plant in Ukraine), established in 1960, producing Zaporhozets brand. Even though these cars were intended to be a peoples' car", almost like original Volkswagens, they were never liked much by Soviet citizens, as compared to Ladas and others.
Despite the fact that the USSR already had its own highly educated and talented engineers,most of the cars in history of soviet automobile industry were made as copies of western cars. Starting with GAZ-A, which was made of Ford Model A, other examples can be given: GAZ-21 Volga (Ford Mainline), GAZ-13 Chaika (Packard Patrician), ZIL-111 (Imperial Crown Limousine), ZIL-114 (Lincoln Continental Limousine), Moskvitch 1241 (Chrysler 1501), Moskvitch 2141 (Simca 1307), VAZ-2101 Zhiguli (Fiat 124), VAZ-2108 (Nissan Sunny). One of the few exceptions to this was an off-road car Lada Niva.
In the late 1980s the car production industry in the USSR began to lag behind its competitors in the US and Europe. With the problems of the planned economy, the funding of the production of new models stopped, car part suppliers did not have the new parts, and parts made were frequently defected. With dissolution of Soviet Union , the russian car plants industry become ashadow of its former glory. The models produced were behind their Western counterparts but the price ranges were similar to the new European cars of a far better quality (including VAZ's Lada Samara, Lada Priora and Lada Kalina).
After transiting to market economy, the state-owned companies were privatized. To make themselves able to compete on western markets, they formed contracts with major western car producers: VAZ with General Motors (GM-AvtoVAZ joint-venture), producing and updated version of Lada Niva, called Chevrolet Niva and four-door version of Opel Astra G, called Chevrolet Viva. GAZ cooperated with DaimlerChrysler, LDV group and others. However, the economy crisis of 2008-2009 hit very hard the car production in Russia: in first quarter of 2009, the production of cars went down by almost 61%.
Future of the Car Industry in Russia
In Russia which is considered as an industrialized country, the industry of automotive spearheads the manufacturing sector. This specific area has great impact on the stability of economical and political development of a society. The automotive sector is considered to be the largest consumer of products like metallurgical, petrochemical, electrical industries. And the machine tools
The automotive firms in Russia are a potential source of encouraging the economy. The ownership of cars increased to 152 vehicles per 1,000 inhabitants in year 2003, which is almost thrice the 1993 rate of 59. There is another proof that the car manufactories of Russia is booming, ad this is due of the annual car sales have increased too much from 800,000 in 1992 to 1.5 million in the year of 2003. With the large production of 120 million vehicles in the year of 2005, the statistics in Russia says that it is classified as the 13rth biggest manufacturer of vehicles in the world.
Other important fact is that since opening of the Russia economy and the rise of the consumer spending, the central and eastern Europe has become a major sales markets in the automotive industry. The sales soar high annually in average around 7.3% to 3.4 million units in the year 2004.
There is a great expectation that by the year 2014 around 2.3 million new cars expected to be sold in the country Russia. So in this kind of development, Russia expected to be among one of the most markets which is growing in the world after China. The study claims that between the year of 2004 and the year 2014, each year will have 100,000 more new vehicles coming.
In the Russian automotive industry, high quality brands which include from Ford motors, GM motors, Renault, BMW, Kia Motors, Hyundai and Scania Motor Corporation.
At these conditions, it's clearly shown that the car manufactory in Russia country is a perfect potential market goes beyond other countries which have the same business venture.
Opportunities and Competitive Challenges
The automobile industry of Russia has grown a lot since soviet times. However, the constant growth has certain requirements. The most important thing is to have good plans for future and good management to oversee them. Another very important issue is stability of the global and country economy and stability of Russian legal system. Russian automobile industry is becoming one of the biggest producer and exporter in the world, because of its huge size of economy and sufficient supplies of the most of natural resources, which are needed by every modern industrialized economy. Also the labor force is relatively cheap but well experienced in Russia.
However, there are afew disadvantages, too. It's not easy to achieve the exact measurement of Russian economy, due to not-so-accurate official economic data reports. Energy and utilities have fixed prices by government. The main obstacles that foreign business partners and investors have to face in Russia (and to some degree in all Eastern Europe countries) are lack of law enforcement, contradictory legislation and unpredictable political environment, which gives opportunities to wide-spread corruption. The tax or import duty relieves for foreign investors are not easy to obtain, moreover, the more components are produced locally, the higher import taxes will be set for importing them from abroad.
Despite all the problems, the transformation of russian automobile industry gives alot of opportunities. Studies done by Ronald Berger and others have proven that co-operative work of russian and foreign companies (for example, General Motors with Volzhsky Avtomobilny Zavod, forming GM-AvtoVAZ joint venture) can effectively combine russian labor and supplies with international standards, to improve efficiency of production process and products' quality standards.
All sectors of russian automobile industry have to modernize across the board. The level of investments in Russia is relatively higher compared to other countries, however, according to Ronald Berger's study, the russian economy needs more improvements in order to get better connections to world car market. The import taxes for components and modules should be decreased, even more important is to tighten the technical standards for russian products as well. The investment agencies in
Russia should be working harder to attract more foreign investors. As Berger's study shows us, about one million jobs can be provided by modernisation and increasing competitiveness of russian automobile industry.
The key element of the competitiveness of Russian (and most of east european) automobile industry is to create at lower costs compared to most of the western european and american car manufactureres. Combination of western components and russian cheaper labor force will lead to highly complex and highly-valued products.
Therefore, Russian automobile manufactors have to take some measures to maintain their maket share in Russia, while increasing their share in the international market. Changes need to be done by country officials at central and local level, to stabilize the legislative system, decrease corruption, soften import taxes and attract the foreign investors in the country.
Therefore it is concluded based on this case study that Russia is growing very fast from its storm time way back years ago going to its succeed and it is obviously that as time passed by Russia is become more competitive in the automobile industry and it is unstoppable. What is good in Russia is that it did not stop even though it passed in assailed time and now Russia is one of the top leading countries in the field of Automobile industry.
It is expected that foreign countries will more spend in Russia and in the future Russia will be more and more known to automobile world and maybe will be the top one country in making auto. On the other hand, technology helps a lot in publishing the auto mobile industry because even the people living on the edge on the world will be informed on what is the latest and new in the automobile industry made by Russia. It is possible to have contract between the consumers or the buyers and the Company in online market.
Furthermore, Russia helps a lot in the way people live because of the automobile industry people now are enjoying its capacity and its aspect. It has a great impact on our lives and through automobile we can travel anywhere we want without hustle and in some cases it saves time in our part. People did not bother of how far the distance between towns, cities, or even countries because it can always be reach by having automobile in our lives.
- Plunkett's Automobile Industry Almanac 2010
- International Organization of Motor Vehicles Manufacturers Data Report 2008 Automakers Report 2005
- http://oica.net/category/production-statistics/. Retrieved 2009-06-24.