The production of passenger cars began in Spain in 1950 with the creation of SEAT. In less than 30 years, Spain has gone from a situation in which there was no producer to one in which six coexist: SEAT, FASA-RENAULT, CITROEN, CHRYSLER (Current PEUGEOT), FORD AND GENERAL MOTORS (With its subsidiary OPEL).
strategic-analysis-of-the-automobile-sector-in-spain-and-europeSpain becomes one of the main world producers of tourism vehicles, and all this starting from a state of very low level of motorization, little industrialization, and almost non-existent auxiliary industry, in addition to a low level of human capital. The only advantages that our country offered were the real low labor costs and the proximity to a market as important as the European one.
The oil crisis of the 1980s led automakers to initiate a series of actions aimed at limiting fuel consumption.
On the one hand, low-consumption gasoline engines, diesel engines with higher performance than those known at that time began to be designed, and on the other hand, actions aimed at reducing weight were initiated. In this chapter, it is worth highlighting the beginning of the massive use of plastic materials, replacing metallic materials in many components. With both actions, in a few years it was possible to reduce fuel consumption by more than 25%.
A few years later the demands of the environment prompted us to think of other evolutions:
- Less polluting motors Use of recyclable materials
These evolutions had as their fundamental objective respect for the environment. The introduction of direct injection engines in both gasoline and diesel engines, the use of easily removable components, the use of reusable materials, etc. Despite the increase in the park, the environment has not degraded proportionally.
Today we are witnessing a great evolution in this sector driven by the following factors:
- SecurityComfortCommunication
The use of more efficient braking system (ABS), the extension of the use of both front and side Airbags, the use of side protection bars, etc., respond to the demand to increase the safety of our cars. The massive incorporation of air conditioning, heated seats, power steering, etc., is aimed at achieving a more comfortable ride.
The great increase in the number of vehicles in Spain has been based on a change in the mentality of the Spanish population that has stopped seeing the car as a property to make it one more element of daily life. The incorporation of Spain to the European Union and the great transformations suffered in our society are at its base. Likewise, the change in the social role of women and changes in the traditional family have activated this process. Faced with current problems and that seem to go against further growth in the market, the car has become one more basic necessity of daily life and families have more than one, depending on the different needs. In addition, the number of automobiles grows with the incorporation of children at the age of majority.Each member of the family tends to have a car exclusively for their own use, which seems to indicate that demand will continue.
This great growth in sales registered in our country in recent years has been based on consumer confidence due to the good employment situation and the good performance of the Spanish economy, which is immersed in a growth cycle that seems to not end. This has generated great confidence in the population, expressed in the upward trend in private consumption and in the growth of spending per household. Likewise, the fall in interest rates has influenced the appearance of new forms of financing in the automobile market such as renting or leasing. All brands have developed financing programs that facilitate the change of vehicle every 3 or 4 years.
The great boom of the 90s has undoubtedly been electronic immersion, this being the section where the most patents have been registered in the field of performance, dynamic capacity or equipment. For example, in the coming years we will see how the GPS navigation satellite system is also beginning to be implemented in the mid and low range, when it is currently only marketed in the upper range or as an extra in some mid-range model. Other examples are active or passive safety systems such as the ESP (stability) system, the SIPS (Volvo's patented side impact control), the electronic sequential change, the EDS (anti-slip) or the generalized ABS (brake distributor).).
The automobile market traditionally registers a great sensitivity to the economic changes taking place in the market. For this reason, we consider that it is important to take into account the global economic situation and that of Spain in particular to understand the current situation in the sector.
In 1998 production reached 2,826,042 units and was an absolute historical record. Global growth stood at 10.3%. The segment of industrial vehicles was the one that grew the most with 14.6% compared to off-road vehicles, which fell 12.7%. Passenger cars were those that had the greatest weight in Spanish production with 78% of the total.
RISE OF THE SPANISH AUTOMOBILE INDUSTRY
The leadership corresponded to Seat-Volkswagen with 743,390 cars produced, followed by Fasa-Renault and Opel Spain. In this way, Spain consolidated itself as the fifth largest vehicle producer in the world behind the United States, Japan, Germany and France. In Europe, it was ahead of the UK and Italy and a leader in commercial and off-road vehicles.
79% of production was destined for export with 2,232,863 vehicles in 1998, with the European Union being the main destination market with 88% of the total. The automobile industry is a strategic sector of the Spanish economy, since it represents 5.6% of GDP and 25% of the country's exports. It invoices more than 4 billion and has 71,000 direct jobs.
In 1998, the State collected 490,020 million pesetas in automobile taxation, a figure that represents an increase of 16.4% over the previous year.
In 1998 vehicle registrations stood at 1,192,843, surpassing the previous record reached in 1989 and confirming Renault's leadership with 13.7% of the Spanish market. Import cars accounted for 60% of the total and the private market reached 1,041,682 cars, 20.1% more than last year. All-terrain vehicles broke a record with 71,799 units registered and an annual increase of 30.2%.
- This sector experienced great growth in recent years, whose greatest exponent was the spectacular sales figures that reached record levels in the Spanish economy. Sales grew 14.7% in January, 25% in February and 32% in March. Sales moderated in April with growth of 11.8% compared to 1998 and standing at 112,926 units sold.
In the first four months of the year 451,607 units were sold with a growth of 21.4% according to Anfac (manufacturers association), Aniacam (importers association) and Faconauto (dealers association). Sales maintained this positive trend and without a change in trend being observed in the market. Although the general direction of traffic indicated that the total registrations in April, including commercial vehicles and trucks, had dropped 3.3%.
Although the experts considered that this slowdown in the pace of sales could be due to an anticipation of sales in March due to the effect of Easter. The European market as a whole increased by 7%, which was good news for Spanish exports.
The boom in 1999 in the automobile sector in Spain continued throughout the period, although producers considered the possibility of adopting some defensive measures in the event of a possible recession. If economic growth slowed or consumers assumed the pessimism of companies, the drop in sales would be automatic. They had to take into account the possible problems that in the coming years the adjustment policy of the European community and the measures of price equalization and fiscal harmonization would entail.
An increase in the unemployment rate or inflation growth would also reduce the trend. Although in general it seemed that the growth of the sector will continue during 1999 although it will possibly slow down in the following years, if there are not significant changes in the Spanish and world economic environment. And within a period of two or three years, a serious restructuring of the market will begin if the market is unable to find new markets for its products since the main ones are very close to saturation. Facing that challenge will be the pending chapter for brands in the new millennium.
In this situation, the Spanish car manufacturers considered the possibility of adopting some defensive measures, such as the termination of temporary contracts and the negotiation with the unions of employment regulations or other flexibility agreements, in order to adapt the work schedule to the swings in demand. On the other hand, at the strategic level, the global panorama of the automobile industry was framed in the concentration processes driven by excess installed production and the new demands of the markets. The merger between the North American Chrysler consortium and the German Daimler-Benz, as well as the purchase of Volvo by Ford, were only the first steps in this direction.
- 2000. World car sales fell by 2,000 by 9% and it will be necessary to wait until 2003 to recover the levels of 1997. Along these lines, a sales decrease of 4% is expected in Europe.
With a total production of three million vehicles this year, Spain occupies 5th place in the world ranking. Among the key factors of this success we highlight the productivity achieved by manufacturers in Spain, the consolidation of the components industry and the increase in car sales in Europe, the natural market for Spanish plants.
In 2000, the automotive equipment and components industry was made up of more than 1,000 companies that generated 248,300 jobs in Spain. Component manufacturers focused their efforts on foreign markets in order to balance their dependence on the internal market.
European Production of Touring Cars Year 2000
| 1. Germany | 5,132 |
| 2. France | 2,745 |
| 3. Spain | 2,366 |
| 4. Italy | 1,396 |
| 5. United Kingdom | 1,360 |
In the year 2000, the trade balance of the automotive sector registered a positive balance of 406,534 million pesetas, which represented an increase compared to the surplus registered the previous year. This strong increase is due in part to the increase in the growth rate of exports in 2000 while imports increased to a lesser extent than the previous year.
DISTRIBUTION OF CAR REGISTRATIONS BY BRANDS IN APRIL 2000.
| Groups / Brands | %Dues |
| Renault | 13.0 |
| VW group | 22.9 |
| VW | 6.7 |
| SEAT | 12.2 |
| Audi | 3.0 |
| Skoda | 1.0 |
| Ford group | 9.3 |
| Ford | 8.2 |
| Volvo | 0.9 |
| Jaguar | 0.2 |
| PSA Group | 21.9 |
| Citroën | 11.5 |
| Peugeot | 10.4 |
| GM group | 11.0 |
| Opel | 10.7 |
| Saab | 0.3 |
| Daimler-Chrysler | 2.4 |
| Mercedes | 1.6 |
| Chrysler | 0.6 |
| MCC | 0.2 |
| Fiat Group | 4.7 |
| Fiat | 3.9 |
| Lancia | 0.3 |
| Alfa Romeo | 0.5 |
| BMW group | 3.6 |
| BMW | 2.0 |
| Rover | 1.6 |
| Japanese | 5.4 |
| Korean | 5.4 |
| Rest | 0.4 |
| TOTAL | 100.0 |
The import of the sector as a whole grew by 10.72%
IMPORTS
Export also grew in value by 17.34%. the passenger car subsector exported 21.4% more than the previous year.
EXPORTS
2001 2001 was a disappointing year for the automobile sector in Spain, which saw the government reuse it to collect taxes. First was the assignment of the Special Registration Tax to the Autonomous Communities, granting them the power to increase it by 3% in the case of vehicles with a lower cylinder capacity, which had a lower one.
The Spanish automobile industry suffered in 2001 the exercise of the greatest labor conflict since 1998. this figure multiplies by eight the one obtained during the year 2000. The strikes lost 33,100 days with their assembly lines stopped.
2001 was a tough year as dealers found unhealthy sales due to people's haste to buy a car before the arrival of the euro, and many kilometer 0 registrations made by dealers of some brands to get their targets, which would impact the beginning of the 2002 market.
DATA OF THE TEN MAIN GROUPS OF COMPANIES IN THE SECTOR
DATA 2001
| Vehicle production | 2,849,888 |
| Vehicle registration | 1,763,458 |
| Vehicle export | 2,336,057 |
| Vehicle export% | 82 |
| % sector exp / total Spanish exp | 26.6 |
| % imp.sector / total imp. Spanish | 17.9 |
| Billing | 40,154 |
| Profits (millions) | 252 |
| Investments (millions) | 1,890 |
2002 The Spanish automobile sector concentrates directly on 17,288 companies, but only 5.6% of them are engaged in manufacturing tasks. Among the 17,288 companies of direct activity in the automotive world, 55.1% (9,524) are small retailers, 39.2% (6,789) wholesalers and the aforementioned 5.7% (975) manufacturers.
EVOLUTION OF REGISTRATION
An analysis of the evolution of the different automobile groups reveals the bad situation that Fiat is going through which, with sales of 567,894 units, has fallen by 19.1%. On the other hand, the registrations of General Motors fell 14.3%, 8.2% those of Volkswagen that remains the leader with 1,174,293 units, and 2.1% those of Ford with 750,785 units.
On the opposite side is BMW, which, with 283,483 units, has been the group with the highest growth (of 18.5%) in the first five months of the year. It is followed by PSA (Peugeot and Citroen) with an increase of 4.1%. Meanwhile Reanult and DaimlerChrysler have improved their sales by 2.6%.
The drop of 8.4% in car sales in the first quarter of the year has led to a rethinking of its distribution among brands. The most popular brands, called generalists, such as Renault, Citroen or SEAT, which traditionally occupy the first positions in the sales ranking, are losing ground, while there are others, the so-called specialists or "luxury brands", which have continued to increase their share. A phenomenon that is surprising because sales to rental companies have increased in recent months and these are generally supplied by popular brand models.
However, the reality is that while Reanult and Citroen lost 0.6% of their market share, and SEAT, 2.4%, specialist brands increased theirs substantially. In some cases, sales were lower than they had been in 2001 but the differences have been so low that in the end the result has been a noticeable increase in penetration.
The data is clear: Alfa Romeo has achieved an increase in its market share of 22%; Audi 11%; BMW 8%; Jaguar 45%; Lexus 12%; Mercedes 15% and Volvo 4%. Only one of them has lost ground, Saab has lost 22% penetration, possibly due to the aging of its best-selling model.
There were those who attributed these increases in participation in the Spanish market of these brands to the need to liquidate black money, despite the fact that the purchase of a car is something perfectly controlled by the Treasury, after the arrival of the euro, the demand of the themselves. Along with the influence that many potential car buyers have these brands, the main reason for this increase in demand has been the appearance of smaller and cheaper models in their ranges, which have made them accessible to a wider audience. Vehicles such as the Mercedes A-Class, the Audi A3 or the Alfa 147 are examples of this phenomenon.
2002 closed with a 7.2% drop in sales, that is, with 1,322,000 vehicles registered. The bad economic situation, the adaptation of the euro and high private indebtedness, which rose to 77%, compared to 44% in recent years, have fueled this slowdown.
General Motors and Ford rank third and fourth in the ranking of US companies by turnover. The joint billing of both US groups (the first two global automobile manufacturers) reached 339,672 million dollars (387,226 million euros), which represents 50% of the Gross Domestic Product of Spain. This year's turnover for General Motors was 202,076 million euros.
During the first quarter of this year, the Volkswagen firm has led the ranking of best-selling tourism vehicles in Europe, according to data from the Association of European Automobile Manufacturers, ACEA. Despite registering a 3.7% drop in sales compared to the January-March 2000 figures, the German automaker launched more than 438 thousand cars with its brand and achieved a market share of 10.9%.
Second on the list is Opel. In the first 3 months of 2001, the European subsidiary of General Motors sold almost 430,000 units, representing a 10.6% penetration in Western Europe. Renault, with 411,000 cars, was positioned as the third best-selling brand, followed by Ford (370,000 cars), Peugeot (3,331,000), Fiat (330,000) and Citroen (232,000).
RANKING OF THE BEST SELLING CARS IN SPAIN 2002
AUDI -AUDI products are a reflection of the dynamism and prestige of the brand that continue to set the standard in technological development. In addition to being a pioneer in the development of systems such as the electronic differential lock (EDS), the electronic brake force distribution system (EBV), the slip control (ARS) or the dynamic change program (DPS). According to its managers, the success of its brand in Spain is the result of combining a whole series of factors: a modern and renewed range of products and an attractive image founded not only on the aesthetics and quality of the product but also on an impeccable level of service.. AUDI is considered one of the major brands that set the standard for the sector and has achieved notable recognition by the general public.It competes with traditional brands in the high-price segment such as also German Mercedes and BMW, offering quality, mechanical reliability, distinction and confidence.
BMW - This brand places special emphasis on the importance of technology applied to the car. BMW has managed to convey a very personal car concept throughout its product offering. Safety and high performance are the foundation without sacrificing ergonomics, mechanical reliability and consumption. One of its advantages is that they can apply a price policy far above what their most logical rivals would be thanks to the prestigious position they occupy in the consumer's mind. Precisely in this high price positioning policy, a good part of the product strategy is sustained.
The three fundamental series of the range (3, 5 and 7) have a practically identical exterior design, which allows low ranges to benefit from the image of the powerful Series 7 and give them added value of prestige and representativeness belonging to the most extensive range. can. In recent years, the company has begun a process of renewal and has entered into niche markets that have been unprofitable until now for retail brands (such as the Z3 case), seeking new horizons for their vehicles.
MERCEDES - The German brand continues to represent par excellence the vehicle of quality and prestige that offers the best features on the market. The image of Mercedes is still associated with exclusivity. It is remarkable the great adaptability that it has shown to current market conditions offering in recent years new models to enter new market niches in which it had not traditionally been present (Class A, entry in the 3.5-meter tourism segment and Class V in minivans). From having a range highly concentrated in the highest segment, it has gone on to introduce a whole series of models that have seen in it a possible threat to its traditional positioning by losing that exclusivity factor that has marked its line for decades.
VOLKSWAGEN - One of the great automobile consortiums that encompasses various brands homogenized by the high quality requirement that its headquarters demands. Currently, it is clearly committed to technology, even if it means a rise in the prices of its products. The quality standards of any of its products are superior to those of the competition.
It also stands out for its efforts to complete the renewal of its wide range of offer and its aggressive line of policy that has led it to launch into the conquest of new segments and propose unique and different cars to its clients. An example of this would be the launch of the New Beetle that follows in the wake of the mythical cars update that we have previously seen in other brands.
The main demand of the Spanish automobile industry is the suppression of the registration rate, between 7 and 12% of the factory price, depending on the model in question. Spokespersons for automotive companies argue that this tax burden unnecessarily makes cars more expensive and point out that in other EU countries, such as France, Germany or the United Kingdom, it does not exist. One of the objectives of Anfac is the suppression of the registration tax. For the president of this association, 2003 may be a good time to start analyzing how the criteria of the European Commission regarding the suppression of this tax are transposed to Spain., with the aim of speeding up the car acquisition process and taxing the use and maintenance of the vehicle.
Auto manufacturers recognize that it has been impossible to soften the feeling that the Administration has of taking the car as a taxable event. The sector criticizes the Local Tax Law, which allows municipalities to raise the road tax and believes that the new treatment given to this tax (depending on the power and the class of vehicle) adds new doses of pressure to marketing. To this they add the claim that the Renove plans continue. Anfac says that 40% of the cars are over 10 years old and 51% over 7 years old. For this reason and to activate the purchase of vehicles, the sector considers it essential to renew the Planwhich ends on December 30, 2003. This change will have to be accompanied by a new approach because the current one is exhausted. Anfac demands for this new plan a greater generosity in subsidies, which currently stand at between 480.80 and 721.21 euros; asks to include all commercial vehicles as beneficiaries. It also requests the removal of the requirement of ownership of the vehicle, the reduction of the age of the car to be removed and the elimination of administrative procedures in the purchase. Anfac proposes that the Plan Prever be extended indefinitely, so that it is not a conjunctural norm, but a permanent one.
At the community level, the main complaints focus on the new regulation that will bring more competition to the distribution and sale of cars, when it comes into force in October. The regulation, promoted by the Competition Commissioner, Mario Monti, includes the disappearance of the location clause - which protects a concessionaire of new facilities of the same brand in its territory, although the start-up period is still negotiable - and the possibility of subcontracting workshops. And to top it off, the industry is suspicious of multi-brand sales in the same space. The sector considers that the new regulation has generated uncertainty among the commercial networks and demands a new Profit program with a budget in accordance with the needs of the sector in research and development.
Two basic variables of the businessman's relationship with his environment can be summarized: the situation of the company vis-à-vis its current and potential competitors, and its position with respect to its customers and suppliers. Obtaining advantageous positions in the market not only originate from a special offer compared to the competition, but is increasingly affected by relationships with suppliers and customers.
Porter defined the forces of sectoral competitiveness as the set of potential competitors, suppliers, current competitors, customers and substitute products. Companies have to gradually develop dissuasive forces that avoid or mitigate the necessary competitive replication.
The threat of entry into an industrial sector depends on barriers to entry.
DETERMINANTS OF BARRIERS FOR ENTRY
ECONOMIES OF SCALE - Refers to reductions in the unit costs of a product while increasing the absolute volume per period. In the automobile sector there are economies of scale, that is, it is necessary to achieve a high level of production to amortize costs. This makes entering the market a difficult task and the privilege only of large companies that enter with sufficient capital to invest in their production plants and join the existing economy of scale.
Success will be only for those large companies that have significant capital and have experience in the automotive sector, only these companies will be able to steal part of the market from their competitors. On the contrary, if the company does not have sufficient production capacity, it will be canceled from the market by its competitors.
Mergers and acquisitions should be the most appropriate form of entry, since it allows you to acquire the size and specific assets necessary to serve the largest number of markets in a limited period of time.
The use of a modular production system, with highly standardized production processes, in the face of a sharp reduction in transport and transaction costs (trade barriers) explains why assembly plants are created towards economies that offer: economic stability, adequate infrastructure provision and productive factors at a competitive price.
The business size in the automobile sector is a source of competitive advantage, since it allows to mitigate the effects of the reduction of the product life cycle, recover the investments made in technology and obtain economies of scale.
PRODUCT DIFFERENTIATION / BRAND IDENTITY - In the automotive sector, brand identification is one of the most important factors.
Companies have a high degree of differentiation from the competition, brands are identified based on factors such as comfort, safety, prestige, etc.
The identification of these factors to their respective brands is the result of years of customer care, large investments in advertising and very elaborate communication campaigns.
Therefore, if a company wants to enter this market, it is going to be very difficult and it will have to incur large expenses to overcome customer loyalty to existing brands. In addition it would imply losses in its beginnings and it would take a long time to get a place in the market.
The only chance that a new company would be successful in a sector like the automobile would be if it were backed by a foreign multinational in the sector, that had a lot of money to saturate consumers with advertising and high quality in its vehicles, or that a new company was introduced. completely innovative and non-existent product feature.
CAPITAL REQUIREMENTS - As I have mentioned in the previous determinants, there is a powerful barrier to entry in the automobile sector in terms of capital. Costs as high as the creation of an assembly plant, dealers, technology in machinery and in the vehicle itself, R&D studies, initial disbursement, massive publicity to make itself known in the new market, customer financing and invested capital in offers, discounts and promotions to attract customers, it means starting from scratch with significant capital. Still, success is not guaranteed.
As we can see, these capital requirements are an important entry barrier for the new competitor and at the same time a competitive advantage for companies that are already installed in the market.
CHANGING COSTS- This determinant does not usually occur in the automotive sector. In this sector, it is usual for the most important suppliers to work for the big brands, each important company has its own supplier that supplies it only. The agreements reached by supplier-manufacturer are so strong that the fact that supplier changes are made does not usually happen, in the event that this happens, it would be a high price for the company to find another supplier that will adapt to its processes in exclusiveness. For the supplier it would also mean high losses since its facilities and material are designed for that company.
In this sector, suppliers do not resort to price increases or cost changes because the agreements benefit both parties.
If a company wanted to enter the market, it would be difficult to find effective suppliers since the best ones already work for the competitors. The lack of a quality supplier and the cost of finding and matching one to the new competitor make this factor an important entry barrier in the automotive sector.
ACCESS TO DISTRIBUTION CHANNELS- The current distribution network allows selective and exclusive distribution through official networks of manufacturers' dealers, thereby benefiting from an exemption from community competition rules. Despite the fact that a reform is being carried out in the regulation of motor vehicle distribution, at the moment the distribution is carried out by the manufacturers themselves. So for that company that wants to enter the sector this will be a problem.
As the distribution channels are dominated directly by the current competitors, the new competitor faces a new entry barrier due to having to provide their own infrastructure and distribution network, which would entail new costs, not to mention the difficulties that the current competitors would put on it. Perhaps in the not too distant future this would cease to be a barrier to entry thanks to the new regulation, but now it would be impossible to persuade current channels to distribute their product. In addition, the location clause currently allows manufacturers to strictly control the geographical location of their dealer network, so for the new competitor it would also mean looking for their own geographic location, a task quite difficult today.
DISADVANTAGES IN COST INDEPENDENT OF THE ECONOMIES OF SCALEThe new company will find itself in this sector with entry barriers that are difficult to overcome since the technology of the sector is not available in the market but is found within the companies already installed; Patents and registrations are very important in this sector, every company that has launched something new has it patented so the new company will have to assess whether these patents are an obstacle to their entry into the sector or, on the contrary, they do not affect them; access to raw materials is restricted as I have already commented previously, companies already established in the sector do not allow access to raw materials, so the new company should be supplied in another market, which would significantly increase its costs; the most favorable locations are occupied by the companies that have been in this market the longest,the best strategic positions are already occupied and almost the rest are also the new company could have great losses due to a bad location that distances it from infrastructure, channels and customers.
Government aid is scarce, although it is known that it always helps new companies, in this case the government does not usually grant almost aid or subsidies to companies already installed, so it is highly unlikely that they will be granted to third parties who want to join the sector.
Regarding the experience curves, we find here another determining factor that could be an entry barrier, it is a fact that each time you repeat a job or activity the cost decreases but in the automotive sector it is not, since the production process it is the same all the time but the cost of investment requires a lot of production to recover it, and a new company cannot take the risk of manufacturing a lot and then remaining in stock. Companies in this sector work on demand on a large scale.
GOVERNMENT POLICY - The reality is that the Spanish government does not provide many facilities to companies in this sector, they feel exploited by the state. But also it is that the EU is establishing right now a new regulation in which the activity of the sector is very limited and manufacturers' wings are cut
EXPECTED REACTIONS FROM CURRENT COMPETITORS- In the automotive sector, the companies that wish to enter will encounter a strong reaction from the existing competition since this is a sector characterized by oligopoly, that is, a market structure characterized by the presence of Few companies, which establish the forms of competition. It supposes the existence of strong entry barriers to new competitors.
The normal thing before the entry of a new competitor is that the existing companies cancel it completely through price reductions, special promotions, advertising campaigns, modifications in the offer, continuous innovations in their models, investments to increase productive capacity, etc.
Given this possible situation, the new company has no choice but to enter, since it will not be able to search for new unexplored market segments or market niches, since they do not exist because they are already occupied by current competitors.
The degree of competition that occurs in a sector derived from the greater or lesser rivalry between competing companies constitutes one of the most relevant indicators of the competitive potential of a reference sector and its level of attractiveness.
The rivalry in the automotive sector is palpable among the companies in the sector that continually compete for parts of the market and try to be as well positioned as possible.
This last year has been a year of crisis in the automotive sector, so the rivalry between the companies is notable since sales have decreased and the objective of all of them is to get the best market share by increasing sales, but demand it is reluctant to buy due to the said crisis, which leads companies to strengthen their sales force and try to match production to demand so as not to incur stock, that is, losses.
The companies have struggled this last period more than any other to get to remove customers from the competition, new models have been launched in order to attract attention to the demand and expand the range, trusting that the new launches would attract customers from competition.
The elements that define the degree of rivalry are the following:
GREAT NUMBER OF COMPETITORS OR EQUALLY BALANCED: In this sector we find instability since the number of companies competing is small, but with equal potential. As I have already mentioned, these companies tend to compete with each other to achieve the highest sales and it is difficult to achieve because they are very similar companies in terms of potential.
There is no clear leader who sets trends as leadership is pursued by almost all companies and they fight for it.
MARKET GROWTH: Instability continues to predominate since in the last period there has been slow growth in the automotive sector, obtaining profits led to increases in the market penetration rate by companies in the sector.
All this has been produced by the sale of cars in the Spanish market, the entry of the euro and regulatory changes. During the past year, sales improved for the better of the year, but we can affirm that the growth of the market was slow, causing insecurity and instability in the sector for the companies and the subsector itself.
EXPENSIVE AND SPECIALIZED FIXED ASSETS: The automobile industry has a strong investment in fixed assets, its production plants and facilities are specialized. This added to the fact that they produce in large quantities leads to the conclusion that in this sector there are no possible stocks, work on request because there is no storage capacity or it is too expensive.
In any case, being such important assets, we always take full advantage of production capacity but without creating excesses, it is about optimizing resources, not losing money.
EXCESS OF PRODUCTION CAPACITY- Excess capacity supposes increases that are absorbed in the medium and long term, but when the economy of scale has an excess, the balance between demand and supply can be altered. Therefore, the company that makes the terrible mistake of producing too much in this sector will have to resort to price reductions, sometimes it happens but it is not palpable because they disguise it as limited offers and promotions, in reality those limited promotions do not mean anything else. que: they have to get rid of those leftover cars as soon as possible. The real problem comes when this error is caused by several companies at the same time, some companies could not overcome it.
AVERAGE PROFITABILITY OF THE SECTOR - The sectors with good profitability rates present less rivalry between companies. This does not occur in the automotive sector since, as we have mentioned, the trade and price war between different companies and brands determine a low level of profitability. Or what is the same, the current rivalry between companies in the sector is confirmed again.
DIFFERENTIATION OF THE PRODUCT- This point is quite relative since the two possibilities coexist: from the different companies we obtain different ranges, within the medium-high range the differentiation is based on the brand and the quality that their products provide, so the competition is not very high. But in the lower ranges there is not only differentiation but we also find a war for being the company with the best price and service.
STRONG EXIT BARRIERS- They occur when there are strategic, economic or emotional factors that keep companies competing even when they are earning low returns. They are the forces that prevent a sector from being abandoned. These exit barriers are derived from the following elements:
ASSET SPECIALIZATION: In the automotive sector this is the most important exit barrier when making the decision to leave the sector. Car production plants are highly specialized, so the sales value if you want to leave the market is almost significant because it is difficult to find someone who wants your assembly plants and it is difficult for them to be of any use… For this reason it is usual that when a company does poorly it tries to stay as long as possible hoping to improve in the short / medium term, they will do everything possible before leaving the market.
EXIT COST: The liquidation of a business involves labor costs, cancellation of contracts, managerial effort and even low productivity in the liquidation period. In this sector there is a very high exit cost, with the liquidation of the business, the sale of the facilities, in addition to the settlements that in this sector are many because they employ millions of specialized people.
STRATEGY INTERACTION: It is not usual but it could also influence the closure of a company in this sector in subsectors or in activities in other sectors such as the financial and insurance companies of the company itself that would be affected in terms of customer confidence. But it is not usually an exit barrier because nothing will affect more than the closure of a car company itself.
EMOTIONAL BARRIERS: They are those that link the same people who decided to enter the sector who now have to leave the sector. But in the car this does not happen.
SOCIAL OR GOVERNMENT RESTRICTIONS: Sometimes the cessation of an activity is difficult due to the concern of the government at the level of cessation of activity in the area. The automobile sector is one of the most important in Spain, it is the one that generates the most jobs, it has a great influence on GDP and a high percentage in terms of exports, so the government would have to give aid in the event of a serious crisis in the sector or would negatively influence the state economy.
| EXIT BARRIERS
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EXIT BARRIERS
HIGH |
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| INCOME BARRIER
LOW |
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| INCOME BARRIERS
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SECTOR
MOTORING |
The substitute products that deserve maximum attention are those that are subject to trends that improve their performance and price against the sector product that obtain high returns. In this sense, we can consider as such products those that perform, or alternatively satisfy, the same original function for the same group of consumers segmented by companies in the sector, but that are based on a different operational technology.
The differentiation of substitute products is not always evident, so the objective is to find products that respond to the same generic need or that can perform the same function for your market.
In the automotive sector we find various substitute products such as motorcycles, bicycles, public transport, etc. Although the ones most used by consumers, if they want to replace their own vehicle, are motorcycles and public transport.
But even so, motorcycles are not a rival to cars today since this year they have also suffered a crisis.
Taiwan manufacturer Kymco has maintained its leadership in the quarter liter displacement (250 cc) market for ´cooters´ in 2002, having registered 467 units last year, which gives it a share of 21.3 percent.
This quota has been achieved in a context of extreme difficulty for the two-wheel sector, especially in the moped segment, which has caused a 28 percent drop in sales of 250 cc scooters.
However, the displacement of the quarter liter, where the 250 cc maxiscooters are fitted, continues to account for a large part of the registrations of the urban motorcycle segment.
The market has gone from around 3,000 250 cc scooters sold in 2001 to a total of 2,193 in 2002, and therefore Kymco Moto España has not been able to maintain the 23.8 percent share, equivalent to 724 units, achieved in 2001.
The bulk of Kymco's sales in 2002 in the quarter liter is divided between the Bet & Win 250, with 214 units and a 9.8 percent share, and the Grand Dink 250 with 253 and a share of 11.5 percent.
These records are produced in the year that Kymco entered the 250 cc motorcycle market, with the ´custom´ Venox, a segment in which the brand's expectations have been exceeded, since this motorcycle, which was chosen for the Promotion of the movie ´Men in black II´, it has positioned itself as the fifth best-selling motorcycle in its category in just six months from the start of its commercialization, registering 421 units.
As for public transport, it is one of the substitute products and has evolved favorably in the last year. Public transport in Spain consumes 6 times less energy than the private car. We must also highlight that Spain is among the first three countries of the European Union and above the Union average, since 10.5% of the population uses the bus as public transport, second only to Denmark with a 14, 7% and Portugal with 14.2%, the European Union average is 8.9%.
Although these substitute products are not excessively dangerous, we must bear in mind that in the last year many cities have been claiming the abuse of car use and the problems that they entail in relation to pollution and public parking. For this reason, people are beginning to use public transport to access the busiest areas of cities and the authorities are trying to make it difficult to get to those areas.
These two substitutes have a long way to go to affect the automotive sector since consumers have a clear preference for using their own vehicles for the comfort that this represents.
Buyers compete in the sector by forcing down prices, negotiating for more or more services, and making competitors compete with each other. The power of each of the major groups of buyers in the sector depends on various characteristics of their market situation and the relative importance of their purchases from the sector compared to their total sales.
Clients are related to the sector demanding greater benefits in terms of quality, service and lower prices. Its power over the sector is greater or less based on the following elements:
NUMBER OF CUSTOMERS - In this automobile sector, it is generally the business to have the bargaining power, since they distribute through their own networks, which are the dealers and impose their prices without alternative, although they provide financing facilities, etc. But we can also find important clients such as the authorities (local police, national police, civil guard, etc.) these "associations" if they have great negotiating power because they place large orders with companies and negotiate discounts for rappels or volume of purchases.
POSSIBILITY OF INTEGRATION WATER UP - This happens when the products of the sector can involve serious logistical problems for the client, the client may be inclined to enter the sector, at least gradually, to cover risks of lack of product or strong price fluctuations.
This fact does not occur in the automotive sector since the client goes to the dealership and it is in charge of the logistics necessary for the client to acquire the vehicle.
CUSTOMER PROFITABILITY- If customers are making low profits, they will press hard to reduce purchasing costs, especially if they represent a high percentage of their cost. In this sector, it is not usual for this to happen, but in the event that a client places a considerable order, an agreement can be reached with the company to reduce purchase costs, but it is normal for it to be granted only if it is a good customer and with orders that involve many units.
COST OF CHANGE OF SUPPLIERS FOR THE CLIENT- It consists of the fact that if a client has adapted his processes and facilities to our product, it will be expensive to change the supplier and he will become a captive. But this does not happen in the automotive sector because the customers are final, the consumers themselves. The companies that manufacture cars do not supply anyone with these characteristics, but vice versa, the manufacturer does supply many companies with the components.
WEIGHT OF OUR SUPPLY ON CUSTOMER SALES- Although this does not happen in car manufacturing companies, it means that our customers will be less willing to lower our prices to the extent that our supplies represent a small percentage of their costs and vice versa.
PRODUCTS ARE STANDARD OR NOT DIFFERENTIATED- The bargaining power of the client in this regard in the automotive sector is almost nil since all companies offer differentiated products, by brand, quality, technology, etc.
THE PRODUCT OF THE SECTOR IS NOT IMPORTANT FOR THE QUALITY OF THE BUYER'S PRODUCTS - In this case the client depends a lot on the supplier since they are high-priced products and depending on the benefits chosen by the client, he will have to resort to one brand or the other.
THE BUYER HAS TOTAL INFORMATION - To make the purchase of a vehicle the customer requires all possible information about the product. Car manufacturers provide all the information through advertising and information offered by the dealers themselves.
In this case, we refer to the threats that suppliers can introduce into the sector's expectations through their actions. The influencing variables are similar to those just discussed, only now the company is the customer.
Suppliers can exercise bargaining power over those in the sector by threatening to raise prices or reduce product quality. A group of providers is powerful if the following circumstances are present:
NUMBER OF SUPPLIERS- In the automotive sector there are not many suppliers, so they make exclusive supply agreements with large companies, they have significant bargaining power since companies are interested in producing only for them.
SUPPLIER COST OF CHANGE- The parts and components that the suppliers supply to the car manufacturers are designed by the company itself, they are unique models, which do not have the competition, therefore the suppliers' facilities are prepared to manufacture these parts. In the case of a supplier change, it would be a high cost for the company to re-equip a supplier with its machinery so that they manufacture exactly as they want. That is why there is an important supplier's negotiating power since neither supplier nor company is interested in changing.
THEY ARE NOT REQUIRED TO COMPETE WITH OTHER SUBSTITUTE PRODUCTS- This does not happen in this sector, the suppliers do not have to compete with other suppliers, they only have to supply the parts under the specifications given by the company. But that does not ensure their power, since in the event that they do not work as required by the company, it will have to change providers with what it entails.
THAT THE COMPANY IS NOT AN IMPORTANT CUSTOMER OF THE SUPPLIER GROUP- In this case the bargaining power of the supplier is low since the clients they have (the manufacturers) are always very important clients since they only work for them. Its activity depends on the orders placed by the manufacturers.
POSSIBILITY OF INTEGRATION WATER BELOW - When the main supplier can become a new competitor this possibility represents a real threat. The sector's ability to improve its supply conditions is very limited.
At the moment this does not happen but in the not too distant future it is possible that car manufacturers will find that their suppliers always want to compete with them. With the introduction of the new regulation that gives full freedom to suppliers, manufacturers could be subject to a high negotiating power of suppliers if they decide to compete.
THAT THE PRODUCT THAT THEY SELL, BE AN IMPORTANT SUPPLY FOR THE BUYER'S BUSINESS- In this sector the evolution of the suppliers is linked to the progress of the sector and therefore they will be prone to apply reasonable supply conditions.
- The client will continue to count on the dealers, who are the ones that will best serve their needs. In after-sales, great opportunities open up, as dealers intend to improve this aspect, fundamentally to unseat department stores or Internet companies.The dealers assume the new regulation and give them a new dimension so that they do not work as isolated operators, but benefit from the figure of the association, grouping with other concessionaires to take advantage of economies of scale. The new sales and distribution standard has significantly strengthened the figure of the concessionaire, leaving sales through other types of channels (large surfaces, Internet…) since they are still mere intermediaries.There has been a change of trend in the market with the incorporation of micro-passenger cars, small cars on the outside and large cars on the inside, highly adapted to urban needs. And also of the SUVs that maintain the extraordinary momentum. There is a greater presence of heavy vehicles for leisure, holidays, family outings… The market is oriented towards cars adapted to each specific need. The consumer demands when buying the car have also changed and it is believed that it will continue in this line from now on. Safety has come to take precedence over other characteristics. Most brands have incorporated the latest advances in this field as standard and increasingly emphasize this fact in their communication to the consumer.The standards of safety and equipment are increasingly higher even in the basic models. This trend will increase in the coming years, and the great increase in supply compared to an expected reduction in demand, will create the need to equip all models with the maximum of accessories and finishes that until recently, and even in some cases, were still only optional. It will also tend to the "costumizer" or adaptation of the vehicle to the customer, allowing the creation of models tailored to each user. We have already observed how the possibilities have expanded enormously in recent years and it is believed that this line will continue. There is currently a nostalgic return to “retro” style models in the market that once marked a milestone and that today have again a great reception.The effects of ecological awareness of both brands and consumers have also begun to be felt. It is believed that this will be one of the areas that will grow the most in the coming years. In Spain these kinds of concerns are beginning to settle in the average consumer compared to countries like Germany where they have played a prominent role for many years. Car producers will have to create engines that pollute less with less consumption or seek solutions for direct pollution caused by combustion engines. Sales of cars with diesel mechanics due to the savings in both fuel quantity and the price of diesel and not so much for the longevity of its mechanics, which is also a positive aspect, will continue to increase in the European market.In the coming years, upgradeable models will emerge and each time its mechanics will be adjusted more, the appearance of new technologies and the option by brands of demonstrable sports character, such as BMW, AUDI or Mercedes, has led to a change of vision in the market. Now it is no longer strange to see sports vehicles with high-performance diesel engines. We can also see traffic quotas in large cities or limitations on the number of vehicles as well as the encouragement by the authorities to the use of public or collective transport, which although exist they will become more aggressive. Governments must begin to regulate aspects that until now were beyond their responsibility in order to preserve living conditions in cities.Producers must respond to these current concerns and short-term needs and foresee the possible effects on their market of these problems. Car prices in Spain will grow 3.3% in 2003, this figure is part of a estimate of real increase in passenger car prices of 0.5% in 2003, to which should be added the forecast of an increase of 2.8% in inflation for next year. The traditional dealers, from now on authorized distributors, will continue to massively carry out activities both in the sale of vehicles, and in the workshop services and commercialization of manufacturer's brand parts. The interdependence between suppliers and manufacturers will increase, which will cause a further reduction of the global supplier base,more suppliers with participations in production centers and the creation of more integrated associations. Suppliers will continue to experience pressure on their margins as manufacturers need additional cost reductions and agreements to share warranty claims. According to forecasts by Faconauto, the dealer association, the market will remain stable, at least in next five years, with a forecast of between 1.32 million registrations in 2004 and 1.42 million in 2003. The estimate for this year is 1.34 million registrations.As manufacturers need additional cost reductions and agreements to share warranty claims, according to forecasts by Faconauto, the dealer association, the market will remain stable for at least the next five years, with a forecast of between 1, 32 million registrations in 2004 and 1.42 million in 2003. The estimate for this year is 1.34 million registrations.As manufacturers need additional cost reductions and agreements to share warranty claims, according to forecasts by Faconauto, the dealer association, the market will remain stable for at least the next five years, with a forecast of between 1, 32 million registrations in 2004 and 1.42 million in 2003. The estimate for this year is 1.34 million registrations.
THREATS:
- Fierce competition has produced unprecedented levels of quality and reliability in passenger cars and light vehicles worldwide. Competition will continue to drive innovation and collaboration between the two parties. The new regulation will reduce the power of car manufacturing companies. The basic problems of the sector are overcapacity in Europe, competition from Eastern countries (in particular for suppliers), and the fact that decision centers are outside of Spain. Logistics costs outweigh the advantages offered by our industry thanks to cheaper labor. Alternative distribution channels. Increase in the car park The change of the economic cycle
OPPORTUNITIES:
- The automobile will continue to be a representative element of the economic level and personal status as well as a source of social prestige. They will continue to be an expression of how we want others to see us and a certain indicator of our personality and way of life. This will continue with greater force in the future and the brands have advanced by introducing the emotional aspects in their communication, prevailing over the technical characteristics. There has also been the opening of new markets with the fall of communism and the introduction of the Chinese economy in the capitalist market, as well as the development of the economies of Southeast Asia. The entry of a large part of the world population in the consumer market will mark the next few years and practically nonexistent markets will begin to emerge, as is the case of China or India,whenever the economic conditions of the population begin to improve. There is also a great increase in advertising and the use of sporting events as a prestigious and technological showcase. Vehicle distribution regulations Incorporation of new technologies
RECOMMENDATIONS TO BE COMPETITIVE:
The great competition in the automotive sector has led to the establishment of alliances between brands for joint technological development. This makes it possible to reduce research and development costs and lower production costs, although the subsequent commercialization is carried out autonomously. There have also been large acquisitions between brands, creating macro companies that control various brands aimed at very different audiences and totally differentiated market segments.
Another strategy is the fact of being the dominant sponsor in any of the sports, reflecting the quality standards of the company and considering the event above the individualities.
To be competitive, companies in the sector must:
- betting on free and fair competition defending the interests of the consumer, as customers and main asset of the dealership, continuous and excellent professional training of all the professionals involved, improving the business management of the dealers, standardizing the quality of service and optimizing personal attention, developing potential economies of scale to transfer their benefits to users. Search, analysis and development of new business opportunities for dealers.
CONCLUSION OF THE ANALYSIS
After analyzing the automobile sector in Spain, I conclude that it is a sector that is established over the years, the companies that operate in it today are companies that have a very long life in the sector, over the years they stabilize and create a brand image impossible to copy or remove.
It is an exceptional case that a company leaves this sector due to the high exit barriers that it entails, so companies wait until the last moment hoping that their luck will change, all in order not to leave the sector. An exit would always be due to a business crisis that has led to bankruptcy. It is very difficult to sell fixed assets due to their great specialization, we are talking about raw materials with a high acquisition cost and modeled for a single company, so the difficulty in not losing money at the exit is enormous.
Those companies that intend to enter the sector will have so many entry barriers that they should only try if they are going to implement an innovative revolution and always backed by a foreign multinational in the sector, on the contrary, it is almost impossible to enter the sector.
Being an oligopolistic market, the new company will be eaten up by competition and the competitive advantages they have thanks to years of work in the sector.
I do not recommend an entry in this sector, I believe that the best way to enter is through mergers and acquisitions with companies that are already operating in the market.
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