Major trends in Global Automobile Industry

1) Mini and compact Segment to drive growth: - The sales in global car market are slowing down as most of the countries have reached the saturation level. Demand in Asian market surging and the mini and compact segment will drive the growth of the market. In India government has abolished the special excise duty of 8 % on small cars will help the manufacturer to price their models lower, leading the growth in the segment. A large part of the demand for the mini segment will come from the two wheeler customer upgrading to passenger cars, mostly in the semi urban and rural areas which will lead the mini compact segment growth in futures. The compact segment is also expected to make a significant contribution to the growth of passenger sales over the next 5 years. This segment is driven by the new entrants and price cuts owing to intense competition.

2) Growth in UV segment to be led by passenger UV: - Overall UV segment will witness the moderate growth but the share of passenger UV will increase tremendously. Higher end sports utility vehicle (SUV’s) will boost the passenger UV growth, albeit on a low base (as compare to other segment), due to the launch of new models and the perceived higher status attached to owning SUVs. However the UV used for commercial purpose will grow only at moderate rate

3) Increased Player thrust to boost the Share of Diesel Car: - The proportion of diesel car in global sales has been increasing as a long term trend. The proportion of fuel used in cars depends upon four key factors. These factors are: -

• Player thrust and model supply.
• Relative availability and overall economics of using each fuel.
• Relative consumer preference
• Environmental regulation.

Diesel penetration in car industry is increasing due to: -

• Continuation of price differential between petrol and diesel
• Increasing proportion of diesel model launch
• Growth revival in entry level car which will be predominantly based on petrol.

Players are also participating in the market dynamics and catering the demand of diesel cars. Europe has witnessed the increase in the proportion of diesel sales in the total car sales, Japanese player have been successful in creating a niche for hybrid cars. On the other hand American players like General Motors are developing fuel cell technology to increase the fuel efficiency of their products.

4) Opportunity for players in Low Cost Country to acquire Overseas Unit: - Low or stagnant automobile production growth in the USA, Western Europe, and Japan has forced the players to look at countries with better growth potential. Manufacturing units in America and Europe have huge capacities in line with their vast domestic automobile output. While this offered them the benefits of scale, the continuous sluggish growth in their local market and their inflationary increase in production cost, especially wage cost. Adoption of cost reduction measure became imperative for players to survive. China, India and Thailand have been regarded as the Low Cost Production bases with their unique offering to the outsourcers. Low cost country will provide them the global clientele and technology and also have synergetic operation. Area of opportunity for India lies in the products which have high level of design and engineering requirements, low level of automation and significant assembly requirement.

5) BRIC countries will be the potential destination for global players: - BRIC countries will be the potential destinations for global players. BRIC countries are expected to account for 47% of passenger car sales during years 2000-2010. (RNCOS’ report, “Passenger Car Market: A Global Review 2006")

6) The other factor determining the course of the auto industry is technology: -Historically the major driving forces behind technological implementation in the auto industry have been based on consumer demands for better vehicle performance and reliability. In recent years, technological improvements have also been aimed at areas such as safety, reduced environmental impact, and additional consumer features unrelated to the operation of the vehicle, such as stereo systems and navigational aides. New technologies are also determining the way the auto industry does business. In 1999, despite the fact that only 5 percent of the car sales were done through the Internet, as much as 40 percent of the buyers of a new vehicle in the US used it at least once to obtain information about the car they are buying (J.D. Power and Associates 2000). Sales through the web are expected have an explosive growth in the years to come. Changes are also happening at the level of the supply chain. With the recent announcement of Ford, General Motors, Daimler Chrysler, Renault, and Nissan to join their e-commerce initiatives, the auto industry is entering a new era of supply chain management.

7) Rising competition will offset scale and productivity benefits: - As globalization is the key trend in Industry, Competition is expected to intensify up by 2009-10 as more players enter the mainstream car segment (Compact or midsize) the outlook on profitability of the industry will change drastically. Process improvements and rising scale of operations have boosted the industry operating margin during the past 5 years significantly in the below mentioned areas; -

• Reduction in raw material cost due to measures like vendor rationalization and process improvement with the OEM and vendors.
• Reduction in labour cost
• Reduction in overhead

The industry capacity utilization growth rate will surge on the back of strong growth in volumes but these competition will negatively affect the margin in areas such as; -

• Fall in prices and hence in realization per car
• Increase in raw material cost, as some manufacturer will offer better preposition by providing more features at the same price.

8) Consolidation: - The global car industry will continue to consolidate over the next five years as manufacturers battle against the rise of Asian producers, overcapacity and the high cost of raw materials, automotive executives believe. The high number of Asian car bosses expecting further consolidation was driven partly by high expectations of consolidation in the Chinese industry. China has many relatively small car companies with only a few large firms, such as China Brilliance and Shanghai Automotive Industry Corporation. The bigger companies have generally expanded in partnership with Western companies, rather than on their own.

9) Environmentally Friendly Products: - As the auto industry faces recent slipping sales, clean energy vehicles are catching the attention of consumers looking for efficiency and environmentally friendly alternatives, giving manufacturers a new direction for growth. The momentum behind green cars is a reaction to a variety of factors such as fuel prices despite current declines, environmental issues such as greenhouse gas emissions and global national energy security concerns. While many companies pursue the plug-in hybrid models, full electric vehicles are rapidly grabbing industry attention. While there are very few publicly owned companies currently offering mass-produced electric cars? Nissan has plans for a 125-mile range all-electric car, but plans for production are targeted for 2010

Nissan SWOT Analysis

Nissan Motor Company Ltd (Nissan) is Japanese Company engaged in the automotive industry worldwide. The Company, including its associated brands, designs, produces and sells more than 3.7 million passenger cars and commercial vehicles in more than 190 countries. The Company is engaged in manufacture and sale of passenger automobiles, as well as the supply of automobile parts. Major overseas market for Nissan included Europe, North America, Africa, New Zealand and China.

The Company's major production sites are located in Japan, with additional facilities located in the United States, Mexico, the United Kingdom and Spain. In 1999, the Company established an alliance with Renault SA, a French automobile manufacturer. The alliance is designed to achieve profitable and balanced growth for the two partners through the creation of a bi-national group.

Nissan (Japan) is amongst the top three car manufacturers in Japan and the top five in the world. As well as its cars, pickups and sports utility vehicles, the company also has an interest in heavier vehicles and equipment such as vans, trucks, buses, components, aerospace, industrial machinery and marine equipment.

The SWOT Analysis of Nissan is as follows: -



Strength: -

1) Global Brand: - According to business Week Global Brand Scorecard Nissan is the fastest growing automotive brand. Nissan’s brand equity was valued at $3,108 million in 2006. Some of the company’s passenger car models include Maxima, Sentra, Altima, Versa, Z Roadstar and Z Coupe. Some of its truck models are Quest, Armada, Pathfinder, Murand and Xterra.

Brand strength provides competitive advantage that can offset the increasing competition. Over the last five years company has establish the global brand by focusing on the brand pyramid and dynamics that caters the silky design, the vibrant experience, the interplay between serenity and driving pleasure has reached a high level of alignment and consistency. That makes it easier to communicate about the brand and specific features of its model.

2) Global Financial position: - One of the Nissan key strength is its Global Financial Position. Five year financial highlights are shown below (figures are in USD Millions): -


Source: Nissan annual report 2005-06

From this table we are able to analyze Nissan’s financial position in 3 key areas – profitability, solvency and liquidity. Return on Assets (ROA) is a key indicator of profitability and thus, overall financial position and management. Since 2000, Nissan has a ROA of 5 % which is quite high for a company of such a large size. Furthermore, Nissan has had a Long Term/Assets Liabilities Ratio of between 0.19 and 0.22. This is an excellent figure and indicates that Nissan will be able to withstand tough economic conditions.

One final indicator of the strong financial position held by Nissan is its overall growth. From FY02 to FY06 inclusive, Nissan experienced an annual average of 13.8% revenue growth, 11.33% net income growth and 15.62% asset growth. These figures strongly support the argument that Nissan globally is in a strong financial position and will be able to provide Nissan Europe with backing to compete in the saturated European market.

3) Renault-Nissan Alliance: - The alliance has provided advantages to both companies. They can move into new markets faster and with lower costs because they don't have to build new plants. (Renault builds cars in Nissan's Mexico plants and Nissan uses Renault's Brazil plant and distribution networks) The companies are collaborating on building common platforms, components and engines, and each company leads engine design in their area of expertise--Renault in diesel and Nissan in gasoline. And they have increased purchasing power because they buy components for six million cars not three as will be in the case of Nissan alone. The alliance has so far boosted the profitability, market capitalization and sales in 192 countries for both partners. CEO and president of Renault to his titles in 2005, says he'll rely on the strengths of two distinct work forces: French innovation in concept stages and Japanese dedication to process in manufacturing.

Weakness: -

1) Dependence in overseas market: - Nissan produced a total of 3,378,000 units globally in FY2004. 1,482,000 million units of them were made at home and 1,896,000 units abroad. Nissan produces more vehicle abroad than at home. Increasingly dependent on overseas production indicating their pace of globalization. Nissan overseas dependency of operating income is over 50% which show they are in the fast lane of globalization.



The major risk of increasing dependency in other market is the risk associated with country in operation, financial transaction, and government policy. The figure below shows the declining share of total revenue at home and increasing share of overseas revenue. FY05-06 shows other foreign countries share as 10.6 against the 4.7 in FY03-04 which offset the revenue of Japan by 5%, while other proportion of total revenue remains the same.


2) Product Innovation time lag; - Nissan launched two new or redesigned vehicles, in comparison to 14 in the three previous years. Nissan has misjudged its model strategy in the United States over the past few years. Like the other Japanese automakers, the company was a relative late-comer to the country's high-profit margin and high-volume pick-up markets. Nissan's late entry meant that it has suffered from the decline in the sector as a result of rising fuel prices in the United States, While Toyota and Nissan have been well placed to benefit from a shift in emphasis in the U.S. market towards compact sales as a result of the Scion and Civic models respectively, Nissan at the moment has no competitive offering in this segment. However, there are a number of new models that should reinvigorate the company's fortunes in the United States, including the Sentra and Altima mid-size sedans, as well as its luxury-brand Infiniti G35 sedan. The company also desperately needs new offering in key segments in the European market. The Almera C-segment hatchback and Primera D-segment sedan are hopelessly outmoded and largely ignored by European buyers, although the new Note small multi-purpose vehicle (MPV) should provide Nissan with a sales success in Europe.

3) Lack of Diesel Technology: - In the Japanese market, diesel accounts for only 0.4% of vehicles sold (Rowley, 2006). In contrast, diesel is very popular and its share in overall sales has been increasing. In the year ending 1st January 2006 the number of diesel cars sold increased by 7.5%. Some analysts believe that the diesel market will account for more than 80% of total vehicle sales in Europe by the end of 2008. Diesel technology has been improving significantly over the past decade reducing emissions, fuel consumption and cost. As Nissan’s home country has a low demand for diesel engines, Nissan lacks the technology and experience to produce diesel engines of comparative quality.


Opportunity

1) Asia market: -Lower penetration coupled with strong rise in income levels, led to continuous jumps in car sales in markets like china and India. In fact china, followed by India is estimated to be major growth driver in the next decade. Hence it is necessary for global player to be present in these countries. Therefore all global players either have products for these markets or planning to develop products to enter into these markets. In India in year 2004-05 domestic sales of car and utility vehicles has crossed the 1 million mark.

2) Relocate its manufacturing unit to reduce cost: - The Japanese car maker has stepped up their policy of producing where demand exists. Car making is a industry situated at a forefront of globalization and major player is accelerating their cross border activities. Manufacturing units in America and Europe have huge capacities in line with their vast domestic automobile output. While this offered them the benefits of scale, the continuous sluggish growth in their local market and their inflationary increase in production cost, especially wage cost. Adoption of cost reduction measure became imperative for players to survive. China, India and Thailand have been regarded as the Low Cost Production bases with their unique offering to the outsourcers. Low cost country will provide them the global clientele and technology and also have synergetic operation. Area of opportunity for India lies in the products which have high level of design and engineering requirements, low level of automation and significant assembly requirement.

3) Renault-Nissan Purchasing Organization (RNPO): - The RNPO, which was established in 2001 in the early stages of the alliance, was one of the key ways in which Renault-Nissan would combine their resources to create a more efficient organization. Currently Nissan and Renault share 60% of the same part and raw material suppliers. This has led Nissan to achieve greater purchasing power and has served to reduce costs and reduce the bargaining power of suppliers. There still remains significant opportunity through the RNPO to decrease costs and provide increased competitive advantage.


Threats

1) Cross-Cultural Disharmony: - As Nissan and Renault become further integrated with one another, the risk of cross-cultural disharmony increases. If disharmony occurs then, as occurred at DaimlerChrysler, overall company performance may be reduced and the current strengths that the Alliance provides may become instabilities. Nissan is currently working to reduce the likelihood through its 'Business Way' program but corporate and national culture takes a long time to change.

2) Rising Commodity Prices: - Due to the economic expansion of China, changes in commodity prices could affect the costs incurred by Nissan. Over the past 12 months, the price of steel used in car production has risen by nearly 30% (London Metal Exchange, 2006). Nissan has taken steps to reduce the effect of rising steel prices; in 2000, Nissan began using hot dip zinc coated steel and converted to less expensive steel in 2002, which saved about $16 million per year (Nissan Motor Co., 2004). This however, has done little to reduce the upward pressure on vehicle costs and prices. As this increase in cost has been passed on to the consumer, demand for new vehicles has reduced. This threatens Nissan's viability in the region.

3) Market saturation: - With overall industry sales number stagnant, if not declining in key economies term, the overall automobile industry has been significantly impacted. Due to overall market saturation, the individual company new product development strategy towards market expansion is changing from iterative year on year model changes to drastic innovation. The emergence of SUV market few years back is an evidence of how product and market innovation has changed the very composition of US auto market.