The automatic industry has come a long way since the global financial crisis threatened the existence of some of the key industry players. Sales have bounced back and remain very strong, particularly in the domestic market. However, many are starting to grow worried about several key foreign markets, as European sales could slow if their financial woes intensify.
Still, there are plenty of reasons to be optimistic about the broader auto industry for both the short and the long term. Below, we discuss some of these key reasons and what investors in the auto sector can look forward to seeing in the coming months and years:
Automakers are developing technologically advanced and economically viable vehicles that cater to consumers in both mature and emerging markets to boost sales. These companies are also striving to provide attractive optional features in vehicles in order to draw buyers. These features provide scope for additional revenue generation from small cars, which have lower profit margins relative to large trucks.
Automakers also continue to shift production facilities from high-cost regions such as North America and the European Union to low-cost regions such as China, India and South America to reduce cost of production. Consequently, China is expected to account for 50% of growth in auto production over the next 7 years, according to the research by IHS Automotive.
Apart from individual company strategies, government policies in different countries about energy and the environment policies will play pivotal roles in shaping the future of the global auto industry. For instance, in late 2011, 13 major automakers, including Ford Motor Co. (F), General Motors, and Toyota (TM) to name a few, signed letters of commitment with the U.S. government to upgrade fuel economy in cars and light-duty trucks to 54.5 miles per gallon (mpg) by 2025. This has significantly improved the car designs, though at the price of higher cost.