Effects of recession

EFFECT OF RECESSION ON luxury AUTOMOBILE INDUSTRY IN U.K.

AIMS OF THE RESEARCH

The project proposes to investigate the effects of recession on the luxury automobile industry in United Kingdom. This includes its aftermath on employment sector, advertisement sector, Research & Development Sector, Banking Sector, oil price hikes [International Heralds Tribune], every other sector related to this, the effect on UK's overall economy and the related terminologies thereof. Also, the aim is to the study of effect of recession on downturn in luxury automobile industry by virtue of the changes in Trade Agreements between UK and other countries regarding export and import policies of this industry.

RESEARCH OBJECTIVES

  • To observe the declining trend towards buying of luxury automobiles in UK due to recession.
  • To evaluate the effect of recession on luxury automobile industry's contribution to UK's overall economy.
  • To provide a systematic analysis of investigation towards decline in consumer motivations due to recession both from an utilitarian and hedonic prospective in buying a luxury automobile.
  • To evaluate how recession has hit employment sector in this industry in UK.

LITERATURE REVIEW

Theautomotive industry crisis of 2008-2010was a part of a global financial downturn. The crises affected European automobile manufacturers. The automotive industry was weakened by a substantial increase in the prices ofautomotive fuels [International Heralds Tribune].

The popular latest luxury cars in UK include :

  • Audi A8
  • Bentley Arnage
  • Bentley Continental
  • BMW 7 series
  • Cadillac Seville
  • Chrysler 300M
  • Honda Legend
  • Hyundai XG 30
  • Jaguar XJ
  • Lexus LS 400/430
  • Maserati Quattroporte
  • Mercedes CL
  • Mercedes S-Class
  • Renault Avantime
  • Rolls-Royce Silver Seraph
  • and many more.

In the UK, the normal annual registrations of new cars runs from 2.1 to 2.4M units whereas the actual natural number of sales is circa 1.6M units and the registrations and sales have declined enormously since . The difference in these numbers is usually taken up with demo cars, pre-registration and daily rentals. The trouble is that capacity remains in excess of 2.0M units and actual real sales today are probably less than half that. Without the finance to fund unsold cars, the manufacturers are having to put the brakes on production lines [ Clive Sutton, 2009].

The British motor industry has always been export oriented. Today it employs about 850,000 people and produces about 1.5 million cars and 216,000commercial vehiclesper year, 75% of which are exported. The top five UK car producers areBMW,Toyota,Honda,MINIandLand Rover. However, international competitiveness of UK luxury cars has declined consistently since the start of recession. The UK is the 13th largest automobile producer in the world [SMMT].

In the U.K.,Jaguar Land Rover, now owned byTata Motors, was seeking a $1.5 billion loan from the government to cope with the credit crisis. [BBC News]

On December 22, 2008,Tata motorsdeclared that it would inject "tens of millions" of pounds for Jaguar Land Rover company it had acquired from Ford Motor Corporationin early 2008. British Prime MinisterGordon Brownalso stated the intention to help out car industry in U.K. [CNN IBN]

On the 8 January 2009,Nissan Motors UKannounced it was to shed 1200 jobs from itsWashingtonfactory nearSunderlandinNorth East Englanddue to the automotive industry crisis of 2008.[48]This announcement was made, despite the plant recently being hailed as the most efficient in Europe. [BBC News] [GIBSON, KEN (08-01-2009)]

General Motors UK subsidiaryVauxhall Motors, whose brand is the second most popular in the UK has two bases in the UK, a factory in Ellesmere Port,Cheshireand their headquarters and design and development centre inLuton,Bedfordshire. It is as yet unknown whether these plants will be affected by the GM cutbacks. The group along with their sister subsidiary, OpelofGermanywas supposed to be sold in their majority toMagna International, aAustro-Canadiancompany who supply many parts to large car companies, but General Motors cancelled the transaction.

In view of the available literature, my analysis aim to provide evidences of factors influencing the recession and effects of recession on UK luxury automobile industry and related terminologies.

METHODOLOGY

The proposed research will have three stages :-

  • The first stage will be to inspect existing resources to explore the useful figures and information regarding all areas related to luxury automobile industry in UK and aftermath effect of recession.
  • The second stage will involve in depth qualitative and quantitative research to provide in depth information for the aims and objectives mentioned above.
  • This will help to design the questionnaire to be used in the third stage. Its purpose will serve the serve to know the amount of contribution of the luxury automobile industry to the UK and the effects of recession on the same and also on various other sectors mentioned in the aims as above stated. This questionnaire will be directed at survey amongst the recruitment agencies amounting to cut off of employment opportunities in this sector including its relation with the advertisement & promotional sector and employment opportunities in advertisement sector, banking sector, etc. Respondents targeted would be surveys with use of population and sampling regarding automobile brand ownership, segmentation of customers & cars, VALS Typology (Capelli, 1984;Engel, 1995), supply chain management[ MAVEL (England) (1997)], brand segmentation [Goodyear (1996)] and effect of recession on the same.

Search of secondary sources will be carried out to refine the objectives and provide lines of enquiry for next stages. Specifically, the second stage will gather information on UK's usage of luxury automobiles over the years since the start of recession, through various books by various publications, statistics released during this period, press releases, various articles and journals thereof on and off the web as per requirements from time to time. This trend data should give a useful indication about the status of the UK marketplace towards luxury cars throughout the recession period. At this point, a list of brand names will also be generated and uncover any pertinent information on competing brands and effect of recession on them, that may be useful in the next parts of the research and dissertation.

Also, the consumer behavior will be studied to find out the causes of effect of recession on the consumer's buying capacity and also towards the luxury automobile industry in the UK. While, consumer behaviour largely depends on the following variables identified :

  • Reliability
  • Quality
  • Durability
  • Safety
  • Security
  • Performance
  • Efficiency
  • Technology
  • Handling
  • Value
  • Style
  • Comfort
  • Prestige
  • Status
  • Visual Impact

The first nine variables would be considered in the objective theory, while the rest can be considered into subjective category. These different categories are straightly related to different types of customers because cognition, feelings, and response dispositions' of customers are organized into a set of 'patterned emotional reactions'[Markin,1969]. This may be due to differences described as demographic, geographic, psychographic, or lifestyle, etc. and recession hits at all these stages. Therefore, behaviour moves from personal buyer to different buyers. [Cohen, J. & Basu, K. (1997)]. This also affects buyers in recession time.

References:

  • BBC News. Car firm in talks with government. 23-11-2008.
  • CNN-IBN. Tata Motors announces bailout plans for Jaguar. 22-12-2008.
  • GIBSON, KEN 08-01-2009."Jobs blow for UK carmakers". The Sun.
  • Goodyear, M. (1996), 'Divided by a common language: diversity and deception in the world of global marketing', Journal of the Market Research Society, Vol.38, No.2, pp.105-122.
  • Harbour, M. (1997), Winning Tomorrow's Customers: Future directions for car retailing and servicing in the UK. England: International Car Distribution Programme.
  • International Herald's Tribune. Press release - September 19, 2008.
  • Kassarjian, H. (1971), 'Personality and Consumer Behavior: A Review', Journal of Marketing Research, November,
  • "Business | LDV told 'no more government aid'". BBC News. 2009-02-23.
  • BBC News - Busines LDV told 'no more government aid' dated 23-02-2009.
  • BBC News - Business - LDV says firm has viable future - 24-02-2009.
  • Clive Sutton (2009) - experts comments
  • Capelli, E.A. 'Psychology & The Auto Industry: Detroit Goes Psycho!', Automotive Industries, September 1984, 164, (9), p44-48.
  • Cohen, J. & Basu, K. (1997). 'Alternative models of categorization: toward a contingent processing framework', Journal of Consumer Research, 13 (March)
  • Markin, R. (1969), The Psychology of Consumer Behaviour. New Jersey: Prentice-Hall
  • MAVEL (England). (1997). Automotive Production/Sales Statistics in the World: Zoom Edition 1998 1996/1997. London: MAVEL.
  • Optare - Latest news - press releases - websitehome.co.uk
  • SMMT. 25-01-2008. Record breaking figures for UK vehicle production.
  • UK car plants most efficient in Europe. BBC News. 2001-06-28. (http://news.bbc.co.uk/1/hi/business/1411386.stm)
  • Wernick, A. (1991), Promotional Culture: Advertising, ideology and symbolic expression, London: SAGE.

Biblography:

  • Article dated 20th February 2009. By The Society of Motor Manufacturers & Traders Ltd ( SMMTL )
  • From the speech given by Peter Mandelson at the Low Carbon Industrial Summit, held at the Royal Society, on 6 March 2009 (Source:BERR )
  • http://www.autoindustry.co.uk/press_releases/06-03-09
  • http://www.autoindustry.co.uk/statistics/production/uk/index
  • http://www.autoindustry.co.uk/statistics/sales/new

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