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cars worldwide due to problems with accelerator pedals and brakes. Executives from Toyota were fiercely criticized in the US Congress and the companys once high reputation has been left in tatters, with the company facing 97 lawsuits for damages for injury or death linked to claims that cars were faulty. In April 2010, Toyota agreed to pay a record US$16.4 million fine for safety violations in the United States. Announcing the settlement, US transport secretary, Ray LaHood, said that by failing to report known safety problems, as it is required to do under the law, Toyota put consumers at risk. However, Toyota said it agreed to the penalty to avoid a protracted dispute and possible litigation and denied that it had broken the law. However, the affair may have made little long-term damage to the Japanese car maker. In April 2010, it announced that it had nearly doubled its global production in March. Global production rose by 97% to 773,297 vehicles, following a 82.7% gain in February. Marchs steep gain was attributed to the comparison with March 2009, when the company was adjusting to a plunge in demand in the wake of the global financial crisis. Furthermore Toyotas US sales bounced back in March 2010 as substantial discounts helped to win back customers who had been shaken by the firms mass safety recalls. US sales jumped 40.7% in April 2010 compared with a year earlier. The big rise came after its sales slumped by 8.7% in February. Ford and General Motors also saw their sales rise in April 2010, up 39.8% and 20.6% respectively.
Market Analysis
Despite the recovery in the car market in 2010, some major makers continue to chalk up losses. In April 2010, for example, both Chrysler and Fiat reported further losses. Fiat said that it made a loss of 25 million (US$33.4 million) for the first quarter of the year, while its US subsidiary Chrysler lost a further US$197 millionadding to the massive US$3.8 billion it lost following bankruptcy in 2009. There was better news for rival European car firm Volkswagen, however, which reported profits of 473 million for the first three months of 2010nearly double the profits recorded in 2009. VW said sales of its cars, which include the Seat and Audi brands, rose 19%. Meanwhile, French car maker Peugeot Citroen said its sales jumped 27.5% in the first quarter, and said it hoped to see a positive impact on profits. But the company said it still expected the European car market to decline by 9% in 2010. GM appears to be on the road to recovery, announcing in April 2010 that it had repaid US$8.1 billion loans it had received from the US and Canadian governments, less than a year after emerging from bankruptcy. The car maker said the repayment marked an important step towards GM reducing government ownership of the firm. The US government owns 61% of GM and Canada about 12%. GM plans to start repaying this money with a share placing, possibly if it can convince investors that the recovery strategy is working. Merger and acquisition (M&A) activity is also continuing, and, given that many analysts believe that the car industry is plagued by overproduction, further consolidation is likely. One of the biggest deals in 2010 was the April tie-up between German car maker Daimler, which gave Renault and Nissan a 3.1% stake in its business as part of a global tie-up of the brands. In exchange, Daimler will take a 3.1% stake in both Renault and Nissan, who have been in an alliance since 1999. Legislation-driven challenges for the global auto sector revolve around two needs: to maximize fuel efficiencies in engine and bodywork design, and to lower CO2 emissions. The sector has also had to take account of shifts in consumer preferences towards smaller, more fuelefficient, greener vehicles, in response to growing concern about global warming. To protect their reputations and to be seen as good corporate citizens, manufacturers have also had to respond by greening their supply chains, at the same time as they move to achieve efficiencies by making greater use of outsourcing of components and assemblies. PricewaterhouseCoopers (PwC) forecasts that, from now until 2015, emerging markets will enjoy some 18 times the growth in light-vehicle assembly that will be achieved in mature markets. On these figures, around 95% of light-vehicle growth will originate from emerging markets, with the BRIC countries (Brazil, Russia, India, and China) growing fastest, and accounting for some 58% of anticipated growth. PwC expects China and India to lead this growth in light-vehicle output, boosted by domestic markets that account for some 2 billion people.
Automobiles
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Two exciting new directions for the auto sector are moves to build ever-cheaper and more-affordable small cars (to bring car purchases within the reach of greater numbers of emerging-market consumers), and a determined focus in some markets, such as the European Union, on achieving more and more miles per gallon. In India, the countrys leading automaker, Tata Motors, announced its Peoples Car in January 2008, with a target price of just 100,000 rupees, or US$2,500. The design makes extensive use of plastics and adhesives, instead of welding, to cut costs, and it has been produced at a price point that mature-market auto manufacturers would find impossible. US auto manufacturers have, in the eyes of many analysts, not been helped by the very modest targets for fuel consumption set by US legislation. The US government bailout will help US auto manufacturers to produce new fuel-efficient engines capable of doing 35 mpg, instead of the present requirement of 25 mpg. The European Union already has legislation in place demanding that EU auto manufacturers achieve 52 mpg for new cars by 2012. PwC argues, however, that environmental considerations should not be seen by auto manufacturers as just constraints on design, but rather as opening the door to broader horizons. Opportunities for new profit sources and competitive advantages are available if the industry moves in the direction of safer, more comfortable, and simpler vehicles. Innovations such as that of Tata with the Nano (Peoples Car) are already dramatically altering the competitive climate, PwC argues. Automakers environmental initiatives are sure to win investor attention, creating both opportunities and threats for manufacturers. The European Unions requirement for added use of particulate filters on diesel engines for all new cars sold in the European Union from September 2009 is one obvious example of the way in which the regulatory environment is setting constraints on the industry. Emerging-market companies will not escape this trend. China, for example, aims to implement similar standards to Europe through a set of environmental and regulatory standards called the China IV Standards, which came into force in 2008. Then there is the impact on the auto industry of environmental and waste regulatory regimes elsewhere in the economy. One example is Europes REACH standard (Registration, Evaluation, and Authorization of Chemicals), which has an impact on the auto industry. REACH mandates transparency by suppliers and substance importers, and contributes to the greening of the supply chain mentioned earlier in this article. According to the International Organization of Motor Vehicle Manufacturers (OICA), just over 60,986,985 cars and commercial vehicles were produced worldwide in 2009, a fall of 13.5% on the previous year. China was far and away the leader in terms of car production, manufacturing 13,790,994 vehicles in 2009, a 48.3% gain on the previous year. Japan was in second place with 7,934,516, a fall of 31.5% on the previous year. The United States was in third place with 5,711,823 vehicles, a fall of 34.3%, while Germany registered fourth with 5,209,857, down by 13.8%. The OICAs league table of leading motor manufacturers gives the following top 10 positions. The vehicle production figures include cars, light commercial vehicles (LCVs), and heavy commercial vehicles (HCVs), and refer to the manufacturers global production. They do not correspond to home-country production figures.
More Info
Websites:
OICA: www.oica.net PricewaterhouseCoopers: www.pwc.com
See Also
Industry Profile Transport and Logistics