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Introduction

Why GDP and automotive industry growth are related
Economic connection
There’s a direct correlation between the size of a country’s gross domestic product, or GDP,
and its automotive industry. GDP accounts for the consumption, investments, net exports, and
government spending during a given time period. The above graph shows the number of
vehicles sold in the five largest economies in the world. In 2013, four out of the five nations
also had the world’s biggest automotive markets in terms of units sold. The only outsider is
Brazil. It sold 3.58 million units that year. Brazil even came out ahead of Germany.
Germany sold 2.95 million vehicles.
Major industry growth
Except for 2012, when growth was slow or negative, the auto industry has been expanding at
a fast pace over the past several years. The above graph shows the vehicle production rates
for the fastest-growing countries with GDP thresholds of more than $750 billion as of 2013.
Between 2009 and 2013, China’s automotive industry had a compound annual growth rate, or
CAGR, of 18.6%. The CAGR for India’s auto industry was 16.3%. Indonesia wasn’t far
behind. It had an auto industry CAGR of 15.1%. High-growth economies require better
means of transportation and faster mobility. So, more vehicles are made and sold. This
attracts more investment. Gasoline prices affect automobile purchases.
Nature of the auto industry
For a consumer, an automobile is usually the second most expensive purchase after a home. A
car is a durable good. So, a consumer can defer the purchase of a vehicle if the economy isn’t
doing well. This makes the auto sector highly cyclical. The industry depends on a number of
broad-based economic indicators:



Unemployment levels
Consumer confidence
Disposable income
Credit availability

3) To analyse What Makes Nano So cost effective .Objectives: 1) to study Costing for automobile industry 2) Study the Impact of Raw Materials on Automobile Industry.

Raw materials – the biggest cost driver in the auto industry Cost components There are four major cost drivers in the production and sale of an automobile:     Raw materials Labour Advertising R&D (research and development) .

7 million people directly. due to cost constraints. by 2016. They create 1. only Premium segment cars—like Tata Motors’ Jaguar XF and the Audi A8— have aluminium bodies. Aluminium is much lighter. Volkswagen employs the most people in the auto industry. 8% iron.5 mpg by 2025. In the automotive industry. The US government’s Corporate Average Fuel Economy. . or mpg. Currently. The new Ford F-150 will launch in January 2015. OEMs make the original parts that are used by automakers. So. this trend is changing in response to stringent fuel economy standards.2% to 17. from 15. Approximately 22% of an automaker’s operational costs depend on steel. and 3% glass.000 employees. In the US.000 employees. Toyota Motors has 340.2 euros per metric ton in 2008 to 4. or bps.8 euros per metric ton in 2013. Aluminium is twice as expensive as steel. Every 10% reduction in weight improves the fuel economy by 5–7%. cylinder blocks. OEMs (original equipment manufacturers) employ 1. automakers only used Aluminium for wheels. General Motors directly employs 220.1 miles per gallon. every $1 million increase in revenue leads to the creation of approximately ten jobs. On average.2%. Suppliers and dealers support an additional 4. 8% plastic.000 people. and other engine parts. the gross margins increased by 200 basis points. Traditionally. It will have a high proportion of Aluminium in its makeup. 7% Aluminium. During this period. Other materials account for the remaining 27%.8 million jobs.Raw materials contribute about 47% to the cost of a vehicle. Steel billet prices came down drastically from 15. It has a similar strength. Globally. This ratio is larger for sectors like energy and utilities. The shift towards Aluminium Although it’s more expensive than steel. This significantly improved manufacturers’ gross margins. or CAFE. an automobile is 47% steel. It’s followed by General Motors.5 million jobs indirectly. It has 570. regulations require vehicles to have an average fuel consumption of 34. any fluctuation in global steel prices has a direct impact on profitability. Vehicles are required to have an average fuel consumption of 54. However.

As a result. how do automakers cover their huge costs? They spend more. The company made its plant in Chennai. The share decreased to 54% in 2014.Labour costs Labour costs vary significantly by country. expense is also in the form of labour cost in the automotive industry. or R&D. India. In 1997. UAW (United Auto Workers) members produced 86% of the vehicles manufactured in the US. So. the auto industry has been in the grip of labour unions. it’s very important for companies to be able to control wages. A large portion of research and development. . an export hub for its commercial vehicles. Production outsourcing and the creation of union-free units by foreign manufacturers diminished labour unions’ bargaining power. Traditionally. Daimler is one automaker that adopted these strategies.

Toyota has become one of the top ten biggest advertising spenders in the US. It represented 3. General Motor’s global advertising expenditure was $5. In 2013.54% of its revenue.5 billion.76 billion. In 2013. The company spent $600 million during the first half of 2014. Fiat spent $2.82% of its revenue. The same year. General Motors paid out $928 million during the first half of 2014. It’s the third automaker on the list of the top ten advertisers in the US.4 billion for automotive revenue of $139.Advertising is key for automotive companies Promotional spending The automotive industry is one of the biggest spenders when it comes to advertising. Ford spent $4.37 billion. It represented 3. Fiat spent $589 million during the same period. .

THE KEY TO SURVIVAL IN THE AUTOMOTIVE SECTOR .2 billion that year. General Motors spent $7.1 billion on R&D. Compare this to a Boeing 787 that has a computer that executes just 6 million lines of code. So. spending a lot on research helps keep the competition at bay. For Toyota. Toyota Motors spent $8. A typical high-end car has about 70–100 microprocessors executing more than 100 million lines of code. Manufacturing cars is a complex business. . It can take several years to develop a vehicle. innovation has taken center stage. The auto industry spent more than $100 billion globally in 2013—including $18 billion in the US. The auto industry is reaping rich benefits from investing in fuel efficiency improvements. spending. In 2013. or R&D. The new Ford F150 took about five years to complete. Its roll out will take place in January 2015.R & D The automotive industry is the world’s third largest industry in terms of research and development. smarter. According to Strategy&—formerly Booz & Company—99% of the industry’s R&D spending comes from the industry itself. The federal government only contributes 1% of the auto industry’s R&D spending—less than the government gives to any other industry. and more efficient vehicles. Automakers are consistently being challenged to make faster.

The company clocked 7. . General Motors (GM) accounts for 1. In comparison to all of the other 2013 models. The fuel efficiency in Subaru vehicles grew by 1. Mazda continues to provide the best return per gallon at 28. respectively.92% of the fund. So far this year. Better fuel efficiency translated into more sales for Nissan and Subaru.5 mpg.1 mpg (miles per gallon). Nissan and Subaru had sales growth of 13% and 21%.53% of the fund.Highest spending on Research and Development Auto firms invest huge amounts of money in research and development. The Vanguard Consumer Discretionary ETF is a highly diversified fund. It has holdings in 381 companies.70% growth in 2014.1 mpg. This is higher than the industry average. Nissan cars and trucks improved their fuel efficiency by 2.9%. Nissan and Subaru’s models showed the highest increases in fuel economy. The industry average is 5. Ford has a weight of 1. They have to develop more fuel-efficient models to meet government regulations.

despite rapidly rising material prices at the time. • It has 12" wheels. Ratan Tata envisions that Tata Nano to become a “People’s car” which is affordable by almost everybody. the rear seats can be folded down to access. Its chairman. Tata Nano is scheduled to first be launched in India on 1st April 2009 and expected to be in Indian market by July 2009. • It has no power steering. TATA has already sold more than 2.A Vehicle that completely stripped off unnecessary parts TATA Nano is the cheapest car in the world. a huge buzz has been created all over India. • It has no ABS. Instead. material costs had risen from 13% to 23% over the car’s development . Cost cutting features of TATA Nano: • The Nano's trunk does not open. • In Base model it has three lug nuts on the wheels instead of four. • It has a single windscreen wiper instead of the usual pair. the largest automobile company in India. do away with superficial parts and change the materials wherever possible without compromising the safety and environmental compliance. What makes Tata Nano so cheap? Basically.c. It is manufactured by TATA Motor Limited. engine Tata initially targeted the vehicle as "the least expensive production car in the world"— aiming for a starting price of 100.TATA NANO. Mr. by making things smaller. • It has only one side view mirror. lighter. • A two-cylinder 623 c. From the first moment that Tata Nano project was published. • Plastic body parts joined with glue rather than welding. As of August 2008.000 rupees or approximately US$2000 (using exchange rate as of 22 March 2009) 6 years ago.5 Lac Nano cars till date.

com/management/tata-nano) .(Source: http://www.autofocusasia.