A PESTEL Analysis of the automotive/automobile

industry

Political :

Political factors play an important role and have a direct impact on the profitability of
the automotive industry. Governments around the world are favoring low emission vehicles.
Moreover, taxes on the luxury vehicles and fuel guzzlers have grown higher. The markets
like EU and UK are providing government subsidy for the low emission vehicles.
Environment friendly vehicles have grown in demand globally. They are also receiving higher
government support for their low environmental impact. As such the government rules and
regulations heavily affect the revenues of the vehicle brands. Technology that is fuel efficient
and low on emission can easily pass government rules. Moreover, the import rules and taxes
vary from country to country. Overall, there are so many political factors affecting the auto
industry. Changing government regimes as well political regulation of the market can from
time to time cause favorable or unfavorable fluctuations. However, the political factors are
generally outside the control of the businesses except for lobbying. Still, their importance can
be understood from the fact that companies have shifted their manufacturing bases to
countries where the wage related regulations are lenient. Companies have to manage their
costs and the political factors can have a significant role in this area. If China has become a
favorite of several brands then the reason is the low labor cost which is because of
the lenient wage regulation. The import and export laws that vary across nations can also be
a headache for automakers in case of the nations where import laws are stiff. Thus, the
government policies to a remarkable extent affect the fortunes of the auto companies.

Economical:

Economic forces are also of particular importance in the context of the automotive
industry. This sector was hit hard by the recent economic crisis. When the economic
conditions are not good, the sales of vehicles fall. The demand for luxury or high
priced vehicles is also affected poorly during poor economic conditions. Moreover,
the taxes on the high priced vehicles are high in several markets. If the economic
conditions are good, the sales of vehicles can remain high. The sales
are generally higher in the developed countries. In the developing and under-
developed markets, they are comparatively low. The developed markets see higher
sales as the purchasing power of the customers is higher. In these markets, the
sales of the higher priced variants is also higher. The lower priced variants are
generally in demand in the developing and underdeveloped markets. Thus, the size
of the economy and the economic conditions globally, have a major impact on the
profitability of the auto industry in various markets. There are various angles to
analyze the importance of the economic factors for the industry. The most used
angle is the purchasing power of the customers. It dips during economic downturns.
Industries are dependent heavily on the purchasing power of the customers. If a
large number of brands have focused on bringing low cost cars to the market, it is
because they know they can tap into a larger customer segment this way.
Socio-Cultural:

The market is influenced deeply by the socio-cultural forces. The automotives

industry is also affected by the changing socio cultural trends and peoples
preferences. Vehicle makers have to adopt to these forces. Every year new models
are released keeping peoples preferences in mind. Moreover, specific styles are
preferred in certain cultures. In some markets while the SUVs might be in higher
demand, in the others the sedans might be preferred. Age distribution in the various
populations is also an important factor that vehicle makers have to keep in mind
while targeting the consumers. They should release vehicles based on the
preferences of their target population. Apart from it from culture to culture, peoples
style and preferences also differ. The result is that while a particular model will sell in
a market, it might not be as popular in the other. Social trends also keep changing
continuously affecting the popularity of brands and models. Changing trends may
some times make the older models obsolete or go out of fashion.

Technological:

Technology and innovation have become important determinants of market share in

the automotive industry. The more innovative the company, the higher is its market
share. Given this fact, all the major players make huge investments in research and
development. Brands like Toyota, Hyundai and Ford are investing in low emission
and environment friendly vehicles. Toyota is even planning to release a driverless
car in the coming years. Not just this, the major technological players are trying to
enter this sector of the industry. In the recent years technological innovation has
remained a major basis of differentiation for the automotive makers. It is because the
customers focus shifted towards fuel efficient and high mileage vehicles. The sales
of the low emission and fuel efficient vehicles is always high. It shows that
technology is one of the most important factors affecting the sales and profitability of
the automotive industry.

Ecological/Environmental:

The laws related to environment friendliness and carbon emissions are growing
stiffer around the globe. Given that all the major players in the automotive industry
had to focus upon low emission vehicles. The vehicles which are low on emissions
and fuel consumption receive tax subsidies and are favored by the government and
law. The pollution tests have grown stricter and the vehicles passing these tests only
are allowed in certain markets including EU and UK. Environment friendliness has
become an important test for the vehicle makers in the 21st century as governments
have started focusing heavily on pollution control.
Legal:

Law is another important factor that gets to affect the profitability and performance of
the vehicle brands. Vehicles selling in the international market are subject to laws
related to product quality and safety. The pollution laws have grown stricter. The
vehicles being exported overseas have to pass strict emission controls. Next are the
laws related to product safety that have an important impact on the sales of the
vehicles. Recently, Toyota had to recall its vehicles because of its faulty airbags.
There have been similar cases in the past putting passenger safety under question.
Due to such accidents, governments have made laws related to passenger safety
stricter. Apart from it, there are environmental laws, tax laws and several other laws
that the vehicle companies have to deal with while operating in the international
market.
Introduction
The automotive industry is a wide range of companies and organizations involved in
the design, development, manufacturing, marketing, and selling of motor vehicles, some of them
are called automakers. It is one of the world's most important economic sectors by revenue. The
automotive industry does not include industries dedicated to the maintenance of automobiles
following delivery to the end-user, such as automobile repair shops and motor fuel filling stations.
The term automotive was created from Greek autos (self), and Latin motivus (of motion) to
represent any form of self-powered vehicle. This term was proposed by Elmer Sperry
The automotive industry began in the 1890s with hundreds of manufacturers that pioneered
the horseless carriage. For many decades, the United States led the world in total automobile
production. In 1929, before the Great Depression, the world had 32,028,500 automobiles in use,
and the U.S. automobile industry produced over 90% of them. At that time the U.S. had one car
per 4.87 persons. After World War II, the U.S. produced about 75 percent of world's auto
production. In 1980, the U.S. was overtaken by Japan and became world's leader again in 1994.
In 2006, Japan narrowly passed the U.S. in production and held this rank until 2009, when China
took the top spot with 13.8 million units. With 19.3 million units manufactured in 2012, China
almost doubled the U.S. production, with 10.3 million units, while Japan was in third place with
9.9 million units. From 1970 (140 models) over 1998 (260 models) to 2012 (684 models), the
number of automobile models in the U.S. has grown exponentially.

Executive summary