Trends in global automobile industry

By the end of financial year of 2009 all major industries have suffered from recession and automobile industry is also one of them. However the strength of automobile industry appears as one of the stronger industries. Because of enough successful research and development, this brings out more innovative ideas; which makes the industry even stronger.

Automobile industry is mainly divided in four main parts listed below:

  • Motorcycle industry
  • Car industry (includes passenger cars)
  • Light commercial vehicles and
  • Heavy commercial vehicles (includes Trucks, earth moving machinery etc.)

In 2003 motorcycle industry produced 30 million units in all over the world and increasing it to 40 million units at end of year 2005. Asia was holding the leading position by covering almost 90% of share of whole industry. [1]

Small car, hybrid car, electric cars, zero emission cars or the car which occur less pollution are being the most innovative ideas and the latest trends in the automobile sector. All major automotive companies are looking forward to get most out of the good ideas like these. "Recently Honda has launched the insight hybrid electric car and Indian Reva is a good example of the upcoming years of hybrid car and at the other side the Honda FCX Clarity is a fuel cell hydrogen based car which produce zero percentage pollution. At the same time General Motors is also not behind of any one and has launched its EV1 car which runs on battery to make its contribution in the control over pollution by automobile."[2]

Since last 4-5 years industry is more concern about the pollution made by automobiles. So the industry is paying more attention on the vehicles which cause less or zero emission.

The automobile industry in last year (2008) made revenue some of $ 1, 784 billion, which represent the compound annual rate of change of -0.8% for previous four years. The sales of automobile manufacturers proved that it is the moneymaking business, as it gathered $ 1698.5 billion which was 95.19% of the industry's in 2008. Performance of the industry is likely to increase with Compound Annual Growth Rate of 4.5% for the next five year period from 2008-2013. Industry expects the value of itself about $ 2220 billion by finishing of year 2013. [3]

As we all know that the automobile industry deals with research, design, development, and manufactures for the entire world's automotive vehicles. Let us take a glance at the line chart below which explains the production of the top ten companies of the world for last three years

The chart shows that the all the leading automotive companies were struggling to maintain their production ratio compare to the previous year's (ex. Volkswagen). The only company managed to achieve their target of production was Volkswagen, Which made considerable progress during past three years. These figures explain the massive production of automobiles.

We can assume the numbers of vehicles by its registration data provided. But if we look at the contribution of cars in the entire production of automobile is more than 85%. We will find out that companies are showing more interest in car market which grows year by year. The numbers shows the increase of car production in last two years by top 2 companies Toyota and General motors. Toyota increases the production of cars 9500000 in the year of 2008 from 8500000 last year. At the other side General Motors also made a huge difference in car production from 7500000 to 9500000. [4]


In 1991 the Union of Soviet Socialist Republics (USSR) collapse and Russia make its way out of there. In USSR there was a command economy which was failing year by year and that was the one of the reason for its breakdown.

After breathing in the freedom Russia made phenomenal progress as it changed its type of economy from command to a transit economy. Where people invested their funds where they actually wanted.

"By the time when the whole world was looking at China's huge production capacity Russia has supplied the tremendous potential to the automotive market especially with cars industry of Europe." [5]

The economy of Russia stands at the point of eighth or ninth largest economy by nominal Gross Domestic Product, which is having sixth largest purchasing power. [4] The transition was undertaken by Russia with all kind of obstacles and advantages. However Russian economy's formidable assets were covering only 50% of the whole former Soviet Economy. [6]

The Russian economy made a significant change as the beginning of year 2000 by the time Putin was in charge. The average was at least 7% with gain per year. At the same time Russian economy saw the double increase in GDP to 11th position from 22nd position in the world, and became 6th largest economy in the world. The ratio of GDP for Russia stands at US$ 11,339 which helped it to hold the place at 57th in both terms of purchasing power and nominal basis. Fall of Soviet Union also helped Russia to make serious change in economy. Russian economy made good progress though past 15 years which can be derived by the following chart. [7]

As we can see that Russian market truly got the potential to become one of the worlds leading markets in automotive industry and it was shown during the years 2000-2008. This was affected by range of factors such as increase in average income and the development in the credit system. The numbers shows that the growth was almost doubled with the sales achieving a number of 3 million from 1.5 million. And the sales stood at US $36 billion in 2008 way ahead of sales in 2004 of US$ 18 billion. [8]


Russia is the ninth most populated country in the world and having population of 141800000 as the world development indicators of World Bank showed last year. And it is also one of the largest countries in the world. So it likely to see that there is much potential for the growth of automobile sector in the country. People do rely on public transport but global automobile industries are seeing good investment in Russia.

The basic need for transportation is a car which is ideal for short distance and requires minimum fuel consumption. This is the minimum requirement for any individual customer throughout the world. The customer will always look for his requirement to be fulfilled by minimum amount to pay.

Companies are doing their maximum efforts reduce the production cost in order to make their final product cheap and popular in market for example in metro cities two seater cars are being most popular and effective also. And to fulfil that demand many automobile companies such as Volkswagen and Toyota have introduced the cars which allows only two passengers and which is more affordable too.

From the latest result, covering automotive industry of Russia predicts if the banking sector can overcome from the critical period of financial turmoil then it is expected to get at least the growth rate of passenger cars which is the ample part of automobile industry. "At present a big portion which is 45% of Russian car sales is financed by bank loans." [9]

Before the global recession reaches to Russian economy, it was much stronger as it was its continuous 9th year of stronger growth by end of 2009. Russian economy showed its value sum of $353 million invested in automobile and transportation machine-building sector. And even after the recession hit the Russia there was a reduction of by only 2.6% in sales compare to last year. To rectify the situation the Russian government is going to take several steps such as changes in used vehicles' import policies, prohibition of importation is going to five years which was seven year according to previous year.

One big change is about to come is to make increase in import tariff which may help to reduce the importation of Original Equipment Manufacturers (OMEs). And this move can gradually accelerate the development of foreign assembly in Russia.

The future and the renewal of Russian car industry are likely to depend on various factors such as demand side, on the development of strong credit system etc. For the good future of industry the home car makers have to regain and extend their market shares on the traditional markets not only in Russia but also worldwide. [10]

As we can see that Russian government is making positive moves towards better and stronger industrial background.

In the first half of financial year 2008 Russian market grew up by 14% in terms of quantitative and in monetary term the progress was 29%. Foreign car market also increases its market share in same time period and the average car price crossed the figure of 13% growth which was USD 21, 700. [11]

But as we know that the economical crisis are the stronger factor than any other, which can influence key growth factors in the automobile market of Russia. The estimated target is there will be 300 cars per 1000 person by 2012 [12] and might be 400 cars per 1000 people in 2020 which may vary to 2025. On the other hand the disposal ratio of cars may reach to 6%. As we know that there are numbers of factors which can make a huge impact on the sales of industry.

Even after the global economic crisis during entire 2009 year still it seems possible that Russian market would stand steady within 2012 and may become the third largest country in particular automobile sector after U.S.A and the China.

The scenario of Russian automotive market is changing rapidly as the import of foreign cars is growing every second month. If we study the chart carefully then we can notice that not only the Russian home made cars sales is increasing but also the foreign cars importation ration is trying to touch its highest level despite demand of imported cars.

But Russia is also more concern about its home made cars so the manufacturing is increasing their production, which made its way to the dream figure of 1.5 million. Substantially 1.35million, 1.49 million and 1.4 million in year of 2007, 08 and 09 and this is more likely to go above 2.3 million by 2025. Used cars and foreign cars are also giving hard competition to the industry as the cancellation of double VAT (Value Added Tax) over used cars. Foreign cars which are imported from outside Russia will also donate its contribution to growth of industry.

As per forecast the foreign cars will encourage the sales from 1.5 million units to 5.5 million units by the period of 2007-2011. [13]

The study says that Russian automobile is having much potential and can lead the Russian economy at the next stage and to make it possible Russian government is attracting the global automotive industries around the word to fulfil the demand and the supply of all kind of automotive need specially car segment. In 2007 the used car played significant role by covering 86.9% share compare to previous year. Russian automotive sector shrink heavily in 2009 and look as the situation may carry over next few months.

However Russian car market managed to make revenue of $ 35.8 billion in 2008, representing a compound annual growth rate (CAGR) of 31.5% for the period of spanning 2004-08. [14]

Within 2009 Russia overtook the Germany in terms of new cars sells. Before three years in 2006 Russia imported more foreign cars than those of domestic brands and it seems that the rate of increase continuously steady at 21% at least till 2010. That can support the country's economy as well sale of automobile also. This positive and welcomed change is driven by easy accessible car loan and expanding of local cars sale. [15]


Russia has opened its door for foreign companies to invest not only in automobiles but also in other sectors, especially after being separate from USSR. This Russian move made green field for the companies which can lead Russian progress along with the market. And despite these kind of several change in policy Russia started achieving big targets. Initial years were difficult till 1998 when global economical crisis took place but after that Russia again put its economy in top gear.

As Russia allowed several giant companies to enter it made a vast difference in its economy. General motors was the foreign automobile company to enter. For example in automobile sector Russia's solar company and Italian Fiat company has signed an agreement. And on their path way other companies like Hyundai which is the giant South Korean company, France's Peugeot and Japan's Mitsubishi motors are also making their way to get some share of Russian automobiles.

In Russia the automobile industry stands alongside at export oriented industries as one of the most promising target. Where, on the demand side its future prospect always depends on growth of internal demand which is always supported by improvement of nation's (Russian) standard of living and also the capacity of Russian car manufacturers in order to regain and expand market shares in the traditional international market of former Soviet Union, Latin America and the Middle East and India. Russian car producers will have to compel with the new competitive environment which is brought by the presence of foreign car producers in the country. By observing the supply side for car production is depended on many other areas such as well developed metallurgy and petrochemical industries of Russia.

Russia will produce more than a million foreign cars in year of 2010 and Russia can be the second largest market for automobile across the Europe continent as per Economic Development Ministry of Russia. With no question it is looking forward to reach ahead of all times.

For Russian car makers it is not acceptable picture that selling of homemade car's selling is falling down because this kind of tuff competition. Fall of Russian cars was one quarter last year which can be even high in next coming 3-4 years.

With those facts Russian automotive industry will have to accept the truth that the strong competition is just the resultant of tender policy for foreign cars. This competition has forced Russian automobile industry to abandon their own factor strategy. [16]

Because of hard time in automotive sector in Russia the home made car manufacturers are finding much obstacle in achievement of their targeted sales compare to previous time when the policy for imported cars was not so gentle. "But because of recent financial crisis sale of foreign cars has also dropped by 48.8 at the other side fall of Russian car sales was 48%.[17] So analytically it seems possible to gain the big share of car industry and make a better position over market. Ratio of importation of foreign cars has also reduced even more than the production by 71.5% and meanwhile the rate for second handed car was also declined by 20 times.

Kalmbach (The American publishing company) have described two scenes that the automotive market will overcome the economic crisis and that we can see a rapid recovery also on the other hand the pessimistic future shows a poor recovery of market in 2010 and will make growth of three million units till the year of 2010 finishes. The analysts predicts the optimistic future of industry with the gain in sales for 1.7 million this year and 2 million in the year after. And especially for Russian car makers it is good news as Kalmbach pretends that the demand of cars may exceed heavily more than current local production capacity which is 1.7 million units. [18]

Moreover the Russian government is also coming forward to help and support the Russian automobile industry by increasing the import tax over new cars from 25 percent to 30 percent which is already approved and going to be applied from January.

Market also can get meltdown in 2010 by GDP deflation of 1% in 2010 and bounce back in 2011 and 2012 with 4-5%. This consequence may lead the sale to the lower level of 1.7 million units in 2010, when it was 1.8 in 2009. But after that there are more chances to resume the market in next two years with 2.3 million units when the year of 2012 has finished.

As the Russian government has increased the import duties on the foreign cars, which leads Ford Company to announce the raise of its cars both imported and locally assembled. Earlier the major Russian automobile company AutoVaz and Toyota from Japan has already made declaration of price raise for their individual products. [19]

Despite of global financial crisis which have affected automotive sector a lot, giant companies are shutting their plants such as Renault, Volkswagen, Ford and GM (General Motors). Although this step from companies are for short term period only but it is making a negative effect on entire industry. However if we take a look at the other side of coin then we can find that as the other foreign companies are shutting their plants and this is the peak time for Russian industry to fill the gap of supply which may appear during same period.

Overall the scenario may look quite hard to for AutoVan, Gaz and Kamaz to make progress in industry even though those are the local industries but a appropriate management and proper decision at right time can avoid the risk factor and boost up the sales for whole industry.

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