The global automobile industry is spreading very fast worldwide. Manufacturers companies and cars are joining together to design and implement components to costumer's demands. Global automobile industries are expanding fast and they are changing brands names to provide customers financial services. The main factor of the automobile car industry is globalization which is evidence to the industry. All the biggest car automobile industries and the one that are very success full have gone global. The biggest car giant companies worldwide have taken the best deals in the huge market dealership while even the used cars are taken as serious business by national market chains.
Internet has become main factor in car trends industries because customers are able to make a good research on what they want before making a purchase. They also have great opportunity to compare the market from different car companies; millions of customers go for the specific dealers and the one with good reputation which gives a competing bid to have great service and low prices. Internet also plays big part on the insurance and financing the lower cost to the customers by among other different insurers as competitive market is growing fast Globally on the car industry.
In the end of 2007 automobile car industries have been hit by deep recession world wide especially in the United States of America. Car market and trucks have dropped massively in year of 2008 by millions of dollars per unit in an annual year. Where as in 2009 the market kept dropping by millions per unit. This made to the worst year in car industry history in the last 10 years. Two of the biggest car giant called for bankruptcy (GM motors and Chrysler) where there was more suppliers and dealership with in automobile industry failed in the current recession. A globally average new car sale was down from 2007 even with government using many financial schemes to help car giant survive this long global recession. In the early of 2009 the car giant industries received with billions on money to save plant and jobs including USA and UK. GM and Chrysler was nearly to verge of closing many plant losing jobs and sale out its brands but government brought back to market by huge bailout. Globally car automobile customers have been in hard financial for purchasing new cars because of global credit crunch with job security to concern. But there are some countries that have advantages in this recession where their trends were going up like (china and Mexico). China is expecting to explore US car market with their modern industry because of their currency drop they became international competitive in the market.
The other big trends to the market will be fast growing friendly cars around the globe, like electric cars and producing plug in systems and developing of new technology for batteries. Nissan will launch next year an electric vehicle called leaf. They want a clean diesel engine with high performance and low cost fuel efficient that offers to customer a high quality and friendly to environments.
There are massive changes to the industry in automobile manufacturing, there are more flexible factories where has reduced cost on the cars the same time offering products to customers choice. Cheap cars from china will soon reach the US market but the big question is whether consumers will relies on their product and is it safe to the quality expected by US consumers. The trends in Asian car automobile manufacturers is also felt by Global credit crisis but they have to offer high quality manufacturing making a tough market for America and Japan as long term competitive. Meanwhile in Europe there are bigger challenges ahead with different laws that are not in industries favour and high cost is making difficult for recovery.
World giant automobile manufacturers are investing more and more money on research and development to reduce the cost of production. The big car automobiles have merged together to have a partnership with European and Japan auto car makers. There are trend to strengthen the US automobile market to be expanded over globally.
The future trends are growing fast for the global automobile industry, as we worldwide population grow, we will drive more cars and due to life expectancy is growing globally we need fast solution as well protecting environment, it would be big challenge for car makers to design cars for changing physiology. So the X-prize is giving millions of cash for the companies that can design a viable car for passengers running at 160 km per gallon. Consumers are looking for new technology that will attract them with cheaper and reliable cars in the market. They like to see affordable cars and environmentally friendly. The automobile car industry has to tackle many challenges to survive in the market in the long term future.
2 - Briefly discuss the economics transition of Russia from a command economy to a market economy.
Russia was soviet socialist or more commonly known as Soviet Union which existed from 1922 until 1991. From 1945 until 1991 was one of the world super powers along with United States of America. Soviet Union was model state for communist countries and governed from communist party only. By 1956 they grew to 15 union republics however after they become independent they are known as former Soviet Union. Russia was dominant of republic of USSR, now Russia is independent country and influential member of common independent state which was considered as successor on diplomatic matter. Most of the industrial production of Soviet Union remains in Russia. Due to break of soviet union Russia's global role mostly demolished however with the biggest landmass in the world (17,075,400) kilometres and has one of the largest population in the world.
In June 1991, new president was elected (Boris Yeltsin) the first direct presidential election in Russian history. By the end of 1991 Russia was on edge of independent country, new president announced that Russia would proceed with his plan towards market oriented reforms along with shock therapy. In June 1992 as part of market oriented reforms Russia became member of the world bank group, seven after economic reforms and the IMF granted $ 1 billion dollar US dollar with condition that the money should not be spend for to finance the budget deficit.
Soon after the break of Soviet Union Russia raised the prices by 90% on consumer goods and 80% of intermediate groups. The predicted GPD was 5% under the economics program but the actual figure was 20% GPD. After not progression of USSR the economy of Russia fall in crises so lived to responsibilities to pay USSR's external debt even population was half of populations at the time of market wash off. They privatized large states enterprises (petroleum, metallurgy,) for small sum of $600 million US dollar way less than they worth, on the other side most of population went through poverty that Russia can't afford.
March 1993 Russia congress of people deputies tried to remove communist party but after military show down Yeltsin's party held control and they had election for the current constitution of the Russian federation which was on power by the end of 1993. Soon after Victor Stapanovich and Boris Federov formed new government with Boris as an economic reformer and deputy prime minister of finance minister.Fedorov had a plan so he called anti crisis program to control inflation by tighten the monetary fund and using such a fiscal policies. Under his program the government has three ways of controlling money and credit emission. 1 - They have to allow central bank to increase interest rates on credit by using government bonds 2 - slowly financing budget deficit, 3- starting to close inefficient state enterprise. As the result of the new program brought by Federov we have seen as improving in 1993.
In 1994 Central bank has stabilized and start to give credits to enterprise at smaller rates also Banks pressurized industries and agricultural for more credit withdrawn. On the same year parliament used restriction to use of monetary policy to finance their state debt as ministry of finance began to issue government bonds at market rates to finance deficit. In 1995 government kept to tight fiscal constraint and budget deficit remained within their plan set. Again pressure on government start to grow from two different direction, one was that government needed to fund wage arrears which they becoming bog problem from enterprise and secondly is to improve safety of social net. States failure to address many problems was one of the biggest factors that kept Russia budget deficit at moderate level during 1995 and 1996. There was shortage on revenue and such factors like heavy burden that encouraged non compliance and corrupt tax collection system.
3 - What is the future of Russian car industry? It's potential? What are the nations of business interest in the automobile industry?
The automobile industry was growing fast in machininery sector; they had a great impact on Russian economy and on society as well on the politics. The impact of automotive sector created more jobs on other industries and further development. Because automotive is the largest sector in Russians consumers product of metallurgical, petrochemical, machines and electrical industries its important factor on production of petroleum, motor oil that created many jobs in this sector and relevant sectors to the industry.
In 2003 we seen the car ownership increased dramatically from 10 years ago and the car sales doubled for the same period of time based on the statistics of early 2004. As the income of Russian household increased there was more and more car demand for production. Demand for cars remained highly steady moving market as Russia moved in the world ranking to 13th in car manufacturing there was a boom market for new cars within Russia as well vehicles from abroad. Russian automotive is growing steadily way better than Asia and western countries where mostly of internal component were made in Russia but they needed to change their old style of manufacturing as the market faced new component. To stay in business with market industry Russia had to import components from other countries.
Some of the car makers in Russia importing to many component parts and as the price of importing increased they fell in financial crises, as they did not have enough money to put in this market to modernise the car market so they have encourage international supplier to establish unit for manufacturing in Russia. They knew that to keep up with comparing market they had to provide better quality at cheaper price; this can be achieved only by using modern components or import from well known manufacturers under their licence.
The Russian government had a plan of automotive development of encouraging more partnership with foreigner's automotive companies and many foreign companies joined this scheme. Their target to sale market was central and ester Europe and annual increase of 7.4%, with highly qualified staff and low labour cost combined to attract big number of automakers and their suppliers.
Mr Berger forecast shows that by 2014 there will be huge sale of car 2.3 million will be sold in Russia and annual will increase by almost a million cars, Russians market is predicted to be one of the fastest growing markets after china in the world car making industry. The speed of growing market in Russia will see for the next 10 years, almost 100 000 new car a year. Traditionally Avtovaz was the main manufacturing industry in Russia and owned but automobile manufacturer which produced 'lada' cars and is the largest and most modernised manufacturer in Russia.
Foreign brands presence in Russian automobile market including ford motors, GM, BMW, Kia and Hyundai, their investments as ford's directors decided of building new plant in St Petersburg with great amount of 150 million dollars, Where GM motors joint venture with AvtoVAz for investing on new cars , like Chevrolet -Niva and selling 25 000 cars. Renault signed a new agreement to joint venture with Moscow city for assembling Renault Meganne a family car from imported parts.
BMW also had a joint venture with one the Russians assembler from imported parts as well Kia, Toyota, where Sweden firm invested about 10 million US dollars for assembling imported parts for busses.
In 4 years time Russia will produce 70% of the current market supply however 60% new car will be sold from international industries. As Russia is getting richer they look for more commode and modern lifestyle foreign industries are predicting to sell about one a half million new cars in Russia where half of them are made in Russia and the rest are imported international car makers. There are more foreign investor looking Russia as long future prospect of car industry and they are investing with millions of dollars , like Toyota will be investing about 15 billion Yen in plants an equipment and Nissan will invest lot more , the sum of 22.6 billion yen for building new plant with capacity of 50 000 new cars.
Russians consumers who had not much choice in but to go for local model 'Ladas' which was low quality and unreliable on the road where now they have a lot of choices as the market has been growing so fast in Russia, they running out service plants to catch up with customers demand. The statistic came from Russians one of the biggest group in car dealership.
The other factor in Russians car boom future is the financing and insurance, where consumers gain confidence on car loans sales are expected to grow with huge amount of 1.4 billion dollars as people tend to buy new cars with car loan sales and with the interest starting as low as 5% . Many Banks have taken this opportunity to lend to people for car loans have doubled as the car market is increasing every day. One day Russia hoped to own global car manufactured and this day is not far away from reality.
4- What are the opportunities and competitive challenges Russian auto players could face in the wake of the current boom in the industry?
For the last decade Russia continues growth in the automotive market but there two main factors required for growth of automotive market in Russia. One them is companies need to set proper strategies and management with target to rich in the industry and other one is they need stable economics frame work and have the most of low cost labourer with a big advantage to the economy. Russia is on the right truck to become one of biggest automotive base to export cars and its parts to the world to turn in industrialised world modern economy. They also have high educated labour with high knowledge of expertise in technical sound.
Most of the economist that study growth of Russia cannot have any accurate measurement to the growth of the economy due to the Russian government fixing the prices on many goods as well on energy services.
Many companies that invested in Russians automotives market see some main factors that will not help automotive sectors, as the enforcement law lacks, with corruption everywhere in the country and with politically unpredicted to this environment. The government of Russia does not have any fixed taxes duty on imported automotive component on foreign investors. There will be higher taxes on imported foreign goods as the local government is producing more and more parts with in Russia, but investor have a complain about low quantities supply and those that are made with low quality materials. The main top 20 global supplier have about 150 sites in Eastern Europe where 6 are in Russia. A study conducted by Roland Berger in the future will be more involvements on car makers with suppliers. Suppliers share will make in car maker are set to rise among the global carmakers but are to rise even further in the near future.
Russians have some factors for competing with western industries in domestic automotive components but they have bad management and old technologies and don't have enough money to modernise those technologies so they only compete on low prices and their negation with people to exchange in goods for services. So this transformation gives to Russians carmakers and suppliers a new opportunity to get to the international standards due to joint ventures with foreign suppliers making a great opportunity. The joint venture will benefit both sides as most of the companies think if western companies have stake in modernising Russians suppliers. The benefit will be that Russian will have the international standard and, more efficient in production process and for the foreign supplier will get access to the current market structure, as well as in Russians customer.
The automotive has to modernise in Russia in every department, their investments are low comparing with European countries as investing for the development on car industry, while Russia is way behind Germany in the investment sector they are behind Poland, Slovakia and Czech republic, also Russia manufacturer spend so little for research and development the foreign car makers invest 5 time the amount Russians car makers invest in department of research and development.
The scale of plans are underway together with those development in Russia, the transformation is so big on this sector that Russia can rich that level where China reached few years back. Forecasting Russians car market will double next year by a huge figure of 31 billion dollars. Russians car export does not boom the same way the domestic market as the numbers of car being exported is remaining the same annually.
In the current market Russia cannot match the world car market if economy will not improve by margin towards the global economy. To achieve this growth they must reduce prices on imports for bringing vehicle parts together and have the stronger standard for the products. Also Russia should get more international investors through agencies and other attractive areas. And Russian government have to do it now to act on automotive industry if they want to be competing for long term future. Acting on those facts Russians economy will boost in all departments and would create lot more jobs for people at around a million from modern competing of international car industry.
On the same time of this boom the giant carmaker Volkswagen planned to new plant in Russia to build new vehicles that will suit local people services and strong cars for the Russians roads bringing modernised machinery very high skilled man power to build. The same time will bring new jobs to local people and the prices will be the same as current market in Russia. In real term the foreign brands are expensive and their target is people earning high wages with in large cities. But it take time to rich this goals and they need to be sale enough in the region. As they are expensive brands it will take many years to get there so they have to look at Russian climate most of all the prices should not exceed from the target with vehicles assembling in Russia.
Russia has advantage in motor industry America and Europe because they are able to produce low cost. So to succeed in their mission Russian car makers have to produce a system that is very complex with high value products. Government of Russia allowed for promotion of assembling foreign car makers in Russia, and there will no imported parts or in some case will be a small amount. As income level is raising the low cost car sale are more likely to increase to from new middle class born. After the income level increased they had lot of money to dispose in the market, almost 90% of population spend with huge amount 270 billion dollars in services and good in an annual year. This high growth of income comes from high energy bill and heavy rise in production due to investing in modern western machinery and using their soviet style practices and management. We also sow an increase in more computer sold, home system sound increase by more than doubled and car sales also continued to rise since the economy start rising one decade ago. There was more lending from consumers and banks lending to people increase by annually by 80%.
So the economy was rising people were spending more and banks were easier to borrow money from them. French car 'lada' made it on the top list from the rest of other brands because was cheaper and there was less expected from customers of 'lada' then on the other hand other companies are more expensive and customer expectation is much greater in the service and cars they get for the money they pay.
Russia is not able to provide high sales to compete with china and India but they are on the same level with western Europeans countries. This is enough produce to supply the motor industry if there is fair share market for car makers in Russia. Because they are known for low cost of productivity might open up a great opportunity to export lot more goods than expected. Russian motor industries have to keep good run and fair share to the market when they will expand on internationally.
Russia really needs to get some main factor right if they want to become one of the greatest but they have to do more on research development and on fixing cost the way are controlled, better products and high management on global sale.
