Can you imagine a world without automobiles? Probably not. Imagine how you would travel if there were no automobiles. Probably on cycles or horses, but that would take so much time and cause inconvenience.
Today, we can just sit in our car and drive anywhere we want. However, that wasn’t possible before 1885 because that’s when a guy named Karl Benz made the first automobile ever. The invention of the first automobile laid the foundation of the automotive industry. From then onwards, the industry continued expanding over the years.
The automotive industry holds great significance because, without its existence, the world would look entirely different. The automotive industry consists of companies all across the globe that are involved in designing, manufacturing, and selling motor vehicles.
Today’s article will be a treat for automobile lovers since this article will contain a SWOT analysis of the automotive industry. This SWOT analysis aims to identify the internal and external factors that affect the automotive industry.
Besides providing us with the means of transport and comfort, the automotive industry is also responsible for providing jobs to more than 15 million people across the globe. You must be surprised to see the number of people involved in the automotive industry.
Actually, there are a lot of businesses attached to this one industry. For example, businesses that provide designs and manufacture electrical and mechanical components are all attached to the automotive industry.
The automotive industry is spread worldwide. Although the first automobile was manufactured in Germany, currently, several countries manufacture automobiles. In contrast, many countries are famous for producing the key components needed to manufacture an automobile.
Currently, there are more than 1.4 billion vehicles on the road. China is the key producer of automobiles currently. It manufactures 28% of the vehicles we see on roads daily. After China, there is a list of countries that contribute to the automotive industry in one way or the other.
Any industry’s existence depends on the companies operating in that industry. If the companies in the industry do well, the industry will flourish. Some of the key players in the automotive industry are Toyota, Mercedes, Nissan, GM, etc.
Even if you aren’t an automobile fanatic, you would still know about these automobile brands since their operations are so widely spread that every other car you see is manufactured by one of these brands.
Traveling in an automobile is a necessity nowadays. This is why people are always willing to spend huge sums of money on the automobile industry. As a result, the automotive industry is one of the biggest industries in revenue. Currently, the market value of the automotive industry is equal to $3 trillion.
Although automobiles are used all over the world, some countries actually manufacture automobiles. Other countries import them, which is why the automotive industry exports are huge. In 2021, the exports of the automotive industry were equivalent to $710.4 billion.
The automotive industry is increasing daily as the demand for automobiles is growing with the growing population. The automotive industry is predicted to grow at a rate of 3.71% until 2030. This prediction proves that the future of automotive is bright ahead.
Now that we have discussed the operations of the automotive industry in detail let’s proceed and conduct the SWOT analysis of the automotive industry. First, however, before proceeding any further, let’s discuss what SWOT analysis is.
A SWOT analysis is a business tool that helps identify an organization’s strengths, weaknesses, opportunities, and threats. A SWOT template provides a complete picture of the internal and external factors that impact an organization’s operations.
Now that we have briefly discussed SWOT analysis, let’s proceed and conduct the automotive industry SWOT analysis.
Recommended read: PESTLE analysis of the Automotive Industry
Organizations possess both strengths and weaknesses. However, if an organization wants to succeed in the future, it has to possess some strengths. This section will take a look at the strengths of the automotive industry.
1. High Investment In R&D
With today’s technological advancements, businesses and industries must continuously improve their products to gain a competitive advantage. To do that, spending highly on R&D is necessary.
Many industries have suffered due to low expenditure on R&D since they couldn’t keep up with the rest of the world. However, the automotive industry is not like that.
2. High Demand For Automobiles
To flourish, any industry needs to offer products that are highly in demand. The automotive industry is one of the industries that offer highly in-demand products. As the population is increasing daily, people are demanding more automobiles.
Almost 150 years back, only one automobile was manufactured by Karl Benz. Fast Forward to 2022; there are more than 1.4 billion vehicles today. Isn’t that crazy? The ever-increasing demand for automobiles is a strength of the automotive industry.
3. Working Towards Green Environment
Climate change and global warming have made the world realize that protecting the environment is necessary. One industry that is actually working to mitigate the negative externalities on the environment is the automotive industry.
Carbon emissions cause global warming and result in climate change. Therefore, it is essential to mitigate carbon emissions to stop environmental degradation. For example, automobiles contribute close to 15% to carbon emissions.
The automotive industry has started manufacturing electric vehicles to mitigate carbon emissions through automobiles. Slowly, electric vehicles are replacing conventional automobiles. Currently, 16.5 million electric vehicles have replaced fuel-engine vehicles.
Along with the strengths, organizations also possess some weaknesses. Therefore, organizations need to overcome their weaknesses to succeed in the future. In this section, we will list the automotive industry’s weaknesses.
1. Increased Average Price of Automobiles
You’re mistaken if you think automobiles were more expensive a few decades ago. In the early 1940s, the average price of cars was around $14,000 after adjusting for inflation. However, as the years went by, the prices of automobiles increased instead of dropping.
Currently, the average price of an automobile is around $25,000. Such a huge increase in the price of automobiles will make them less affordable today.
2. Source of Carbon Emissions
Carbon emissions play a vital role in damaging the Ozone layer. This is causing global warming, due to which climatic changes are arising. The automotive industry contributes a significant share of 15% of the total carbon emissions.
Although the automotive industry has shifted its policy, it is also now manufacturing electric vehicles. However, shifting completely to electric vehicles will still take time. Until then, the automotive industry will cause pollution and environmental degradation.
3. High Buyer Power
Buyer power represents the power of consumers to set prices in the market. Buyer power depends upon the number of suppliers in an industry. For example, suppose there are many suppliers in the industry. In that case, the consumers will have a higher power to set the prices in that industry.
The automotive industry has a high buyer power since there are more than 60 major automobile brands and hundreds of local brands. This gives the power to the buyers to set low prices.
Opportunities are the chances that every organization and industry gets to grow. If any business or industry wants to achieve success, it must grab the opportunities timely. This section will look at the opportunities that lie in front of the automotive industry.
1. Growing Population
With every passing day, the population of this world is increasing. Currently, there are more than 8 billion people in the world. This number is expected to increase to 9 billion by 2037. Although an increase in population is causing some problems too, the growing population excites the automotive industry.
As the population increases, the automotive industry has an opportunity to increase its customer base. The increase in population will cause the demand for automobiles to increase. As a result, the revenue of the automotive industry will also increase.
2. Increased Standard of Living
Have you ever noticed that if you look at a photograph taken maybe a few decades ago, you can clearly see the difference between the standard of living you have today and what that picture reflects?
Over the years, the standard of living has improved as the global income per capita has increased. As a result, people now have more luxurious lifestyles than they had in the past. This improved standard of living will increase the demand for automobiles in the coming years and cause the automotive industry to grow.
3. Shifting Operations To Developing Economies
The main objective of any business is to minimize its operational costs to maximize its profits. Companies in the automotive industry can also maximize their profit by shifting their operations to developing economies in Asia, such as India, Pakistan, Bangladesh, and China.
This action will decrease the operational costs of the automotive companies since average wages in these countries are significantly low compared to the wages in developed economies. Therefore, reducing operational costs will help the automotive industry to maximize profits.
Threats account for the worries faced by organizations from the external environment. This section will identify some of the threats faced by the automotive industry.
1. Global High Inflation
Inflation damages businesses and industries financially since it causes the price of goods to increase, and hence their demand falls. After the pandemic and the conflict between Russia and Ukraine, global inflation has risen to 8.8% in 2022.
This has caused the price of inputs used to manufacture automobiles to rise. As a result, the overall price of automobiles has risen significantly. For example, the average price of cars has risen to 42.5% from 2020 to 2022.
Such an increase in price due increase in inflation will cause the demand for automobiles to fall. As a result, the automotive industry will suffer.
2. Economic Recession
The world is on the verge of an economic recession after COVID-19 and the war between Russia and Ukraine. Recessions are always damaging for businesses since they reduce the purchasing power of the common man.
The automotive industry is currently feeling threatened by the recession since it will cause the demand for automobiles to fall. As a result, the automotive industry will suffer a loss in revenue.
3. Volatile Fuel Prices
Recently we saw a rise in the price of oil. In April 2022, the global oil price reached almost $117 per barrel. Such a major fluctuation in the price of oil has made the consumers of automotive industries worried about the future of oil prices.
This uncertainty will force people to cut their demand for automobiles. As a result, the automotive industry will suffer.
The automotive industry consists of several companies that are involved in the process of designing, manufacturing, and retailing automobiles. This industry holds great significance since it has a vast customer base.
There are currently more than 1.4 billion vehicles on the road, and the market value of the automotive industry is around $3 trillion. The industry provides millions of jobs to people and generates significant economic activity.
In this article, we conducted a SWOT analysis of the automotive industry to identify what external and internal factors impact the automotive industry.
The SWOT analysis conducted in this article is in the form of an essay. However, a SWOT Matrix can represent the findings of this SWOT analysis in a better way. If you have reached this far reading this article, we are sure you must know how to conduct a SWOT analysis.
However, if you need some help understanding the SWOT analysis, look at some of its examples.