PESTLE. Political and Legal

Transcription

1 PESTLE A close examination of the macro environment of the EU car industry is critical. As a new entrant to the EU market, Tata has to thoroughly understand and take into consideration the political, economic, social, technology, legal and environmental issues in their strategy. Political and Legal The European automotive industry has always been a keystone of the European economy - it is the leading industrial contributor to net external EU trade and it directly and indirectly supports 13million jobs from the vehicle manufacturing to the automotive supply chain (European Parliament, 2009). As a result, the European governments proactive intervention can been clearly seen In the face of the financial and economic crisis.the various incentive schemes introduced since the beginning of 2009 (refer to Appendix 1 for the schemes adopted in various EU countries) have lifted demand, especially for small and medium sized cars (Mintel, 2009), helping car manufacturers tide through tough times. However, the incentive schemes expire in end 2009 and the growth prospects of the car market will once again be subjected to consumers confidence in the economic outlook. The recognition of intensifying competition from abroad, especially for emerging and lower-cost economies like China and India, has made the European Commission (EC) step forward to launch the CARS 21 (Competitive Automotive Regulatory System for the 21st century) High Level Group in 2005, which aims to enhance the industry s global competitiveness and employment while sustaining further progress in safety and environmental performance at a price affordable to the consumer (European Commission, 2006). The European automotive industry is one of the most regulated automotive industry, with great emphasis placed on safety, environmental and taxation issues. These imply increasing cost of development of cars for both EU and non-eu manufacturers as they comply to these mandatory and stringent requirements 1. In addition to these challenges, non-eu players face more obstacles being confronted by EC s competition policy, which has also been much criticised for imposing additional and unnecessary burdens for manufacturers and exacerbating the difficulties already faced by EU s declining automotive industry (Colino, 2007). Economic The automotive industry is currently one of the hardest hit sector by the financial crisis. A 20% slump in vehicle production and loss of over 60bn revenue have been forecasted between the start of 2008 to the end of 2009 (European Parliament, 2009). Collapsing business confidence, higher unemployment rate and reduction in consumer spending present a gloomy economic outlook ahead. With the tightening of credit in the banking sector, surveys showed that over 50% of dealers reported increased rejections for vehicle financing applications. Repercussions of this financial woe then tumbled down to every part of the automotive supply chain - with cash-strapped manufacturers delaying and canceling the launch of new car models and distressed suppliers who are the verge of shutting down, which may require manufacturers to source for new suppliers. A trend is for car buyers to defer their purchase, trade down to a smaller and less expensive new car, or purchase a used car (Mintel, 2009). On the broader European market front, variations in the economic development within Europe influence consumers buying inclination. According to Donnelly, et. al (2002), new car demand is static and replacement demand predominates in the highly developed rich north-western area while in the Southern and Mediterranean Europe, growth prospects are buoyant with income rise. Eastern Europe has been perceived as a potentially medium to long term growth market (Financial Times, 1994b). 1 Stringent requirements in areas such as safety (Pedestrian Protection ), clean air (Euro 4 ), reduced greenhouse gas emissions (industry CO2 commitment), reduced dependence on imported fossil fuels, and recycling (End-of-Life Vehicles ). A competitive automotive regulatory system for the 21st century, European Commission, March 2006

2 Social (1)General European s consumer Profile The highest car ownership across the Europe is year-olds, in Young singles, hotel parents and empty nest households, the higher likely. The major changes in lifestyle have been leaning toward women, having to returned to work and require independent transport of their own. Car ownership is highest amongst older age groups and the affluent, with an increase in new car ownership among a younger and less affluent profile of consumers, due to the higher availability of alternatives. Customer has now become more price-sensitive with high awareness of the emission from car. They have become relatively more receptive to alternative cars and energy. (2) Financial Implications in Consumers Car Purchase Behaviour The economic crisis has imposed constraints on the consumer s income significantly. This has an effect the consumer s ability to obtain new cars in the consumers. With lower exposable income, the demand on used car within Europe has been significant, especially among the younger and less affluent. This includes the decrease demand for new car and replacement car, with lengthening car replacement cycle. The scarcity of credit as a result of the recent financial crisis will potentially reduce sales of cars if consumers are unable to source credit. Changes in the interest rate can highly impact the level of income of consumers. (3) European Commonality According to the, the purchase motivation in the European auto motive industry can be divided into three category - Pleasure seekers - Image seekers - Functionality seekers. At the macro level, there are common trends apparent across Europe, and these trends can have a universal impact on why, what and how people buy, and the purchase decision process. Some of the common trends in the European region include: - a tendency to more unevenly distributed incomes - an increasing number of older people - a reduction in household size - a higher level of immigrating - an increase in environmentalism - an increase in consumption of services compared to durable goods (4) Purchase Behaviour on Alternative Car and Energy Within the younger and less affluent market segment, used car has become the more favourable choice. The group s financial capability in obtaining new and used car lies an estimated of 7,500 and 14,999. Other group of the market segmentation that has higher chance of purchasing new car includes Child-free couples, empty nesters and senior singles.

3 Steadily rising oil and petrol prices have seen demand shift away from petrol to diesel engines. Even though diesel incurs a higher cost per litre in most countries than petrol, the fuel economy of diesel engines, particularly the latest turbo-charged diesel engines, is much greater than that of petrol engines. Technology (1) Technological improvements with impact of automobile emissions Technological improvements in auto manufactures has been drive largely due to increasing consumer awareness. Electric car- The average price of electric cars ranges from 8,000 to more than 80,000 for high-performance models (news.bbc.co.uk) can be another alternative for budget and price conscious buyers. The illustration below demonstrates some example of electric cars soon to be introduce or introduced to the European market: (news.bbc.co.uk) Despite require electricity charges, the electric car is significantly more efficient and pollutes less than all alternatives (Stanford.edu, 2006). Further, the economic efficiency and environmental impact of electric car use will increase further with on the source of the electricity. If the electricity comes from renewable energy sources, 50-60% produced within the car engine system, the electric car is advantageous compared to the hybrid. FUEL CELL TECHNOLOGY Fuel cell technology- fuel cell powered electric vehicles (FCEV), feeds energy to the car through a dedicated fuel processor, using gasoline, bio-ethanol or other liquid fuels (Campanari, Manzolini & Garcia de la Iglesia, 2008). According to Campanari, Manzolini & Garcia de la Iglesia, The technology was often recognize as the the only long term complete solution to the problem of pollution in urban areas, and CO2 emissions, due to the use of clean energy vectors like electricity and hydrogen (2008). In spring 2005, a joint US-EU initiative was launched to continue energy efficient activities, especially on developing the fuel cell technologies.

4 Criticisms of the emergent technology Many are skeptics about the automobile industry s ability to keep up with the R&D cost required to created a more efficient. Further, The development costs of these vehicles have also been high, which resonates why the manufacturer to recoup the early cost on higher pricing strategy. In the consumer s perspective, one could argue that Consumers were not willing to pay high prices for the complimentary good (fuel). Instead they were ready to pay more for hybrid versions. So the producers were altering the product and reallocating their resources to launch the hybrid version. (2) Internet, telematics and technological innovations as future drivers Internet and other technological innovations will serve as future drive of automobile industry. Internet users will have to ability to gather information and mass-customerisation allow customers to alter the car to best suit them. Technological improvement can be use within the manufaturer s operation to better communicate to suppliers. Another example includes Telematic where communication can take place within the car, The technology is is in development to impove communication from within the car, convenience facilities and safer driving experience. Environment The shifting in demand toward low-emission and diesel vehicles Low-emission car development With more environmental concerns drivers, higher investment has been put into a clean energy, as reported by the clean energy trend (2009). Example of alternative fuel includes, in LPG. In the UK in particular, LPG usage is available as an original equipment option to be install on a very small number of bi-fuel designed cars. Many car manufacturers and governments in Western Europe believe that the future of the car industry will be based on low-emission vehicles, either in the form of hybrids or fully electric vehicles. However, the sale of alternative cars is small in comparison to the overall car sales. The low take-up of alternative fuels is likely to be related to the higher purchase cost of hybrid cars and the still scarce availability and high conversion costs. Further, Over the past decade, there has been a rise in sales of diesel-powered cars with rising fuel prices, shifting in demand towards diesel and away from petrol, particularly in Spain and France. Issue of recycling plastics in the automobile industry The issue of recycling of plastics in the automobile industry is gaining importance due to the proposed European Commission regulation on End-of-Life Vehicles (ELVs) where the EC sets targets on the percent recyclability or reusability of a car by the year This proposed regulation puts pressure on the car manufacturers to increase the recyclable and/or reusable components of their product. Plastic poses a critical challenge in achieving a higher percent recyclability of the ELVs. End-of-Life Vehicles (ELVs), recycling of car components are issues that have yet to receive serious attention. The cost connected with the recycling of plastic components, which is one of the causes of reduced profits for the industry of end of life vehicle recovery could be reduce with recycling infrastructure improvement in the community.

5 Appedix 1: Incentive Schemes initiated by EU Governments in the Automotive Industry Source: Impact of the Financial and Economic Crisis on European Industries, Compilation on Briefing Papers, European Parliament, March 2009

6 Serene s References: Marco Colino, S., 2007, "On the Road to Perdition? The Future of the European Car Industry and Its Implications for EC Competition Law", Northwestern Journal of International Law and Business, vol. 28, no. 1, November, pp Car Ownership and Purchasing in Europe, August 2009, Mintel Impact of the Financial and Economic Crisis on European Industries, Compilation of Briefing Papers, March European Parliament, Policy Department and Economic and Scientific Policy. The European automobile industry: escape from parochialism, European Business Review, Volume 14 - Number 1, 2002, pp 30-39, Tom Donnelly, Kemal Mellahi and David Morris Financial Times (1994), Western recovery fuels demand, 5 March 1994.