Audit of Automobile industry Essay

AUTOMOBILE INDUSTRY IN UK United Kingdom has been a colossal manufacturer of automobiles in last 10 years. Producing more that 8 million vehicles and engines and exporting more than 80% of these, UK automobile industry stands as a driving force of its economy. The automobile industry generates a yearly turnover of around 55 Billion Pounds and largest value from exports. Nevertheless, the country that has automobile players like, Alexander Davis, Aston Martin, Bentley, BMW, Ford, Honda, Jaguar, etc., is still said to be under a vast influence of dwindling supply chain and its dependence on foreign market. Let us scrutinize the situation of UK automobile industry by doing an internal and external environmental audit. INTERNAL AUDIT Internal environmental audit is performed to understand the position of industry with respect to its own environment. SWOT is one of the tools used to perform internal audit which is employed for studying the strengths, weaknesses, opportunities and threats of the subject. STRENGTHS The strengths of UK’s automobile industry: 1. Largest Revenue generating sector UK’s auto industry yearly contributes around 12 Billion Pounds to the economy of UK by generating revenue of more than 55 Billion Pounds, annually. 2. Diversity in products Products manufactured by UK automobile industry range from various premium and sports cars to commercial vehicles and engines. Around 80% of this is exported, yearly. 3. Chief employment generator The automobile industry in UK is a major employment generating sector, offering wide range of employment opportunities in manufacturing and R&D. WEAKNESSES 1. Disparity between manufacturers UK’s automobile industry is known for having an austere disparity between its manufacturers, which stands out to be a major weakness of this industry. 2. Depleted Supply Chain Supply chain of UK automobile industry is going through an appalling phase. A potent supply chain and its capacity is an important factor in determining market expansion and foreign investment. Extensive improvement, in the supply chain of UK automobile industry, is essential. 3. Dependence on foreign markets As the UK car industry exports around 80% of its produce to foreign markets, it is under the risk of getting directly dependent on economic crisis of other markets. UK motor industry should focus on reaching as many markets as possible to ease risk. OPPORTUNITIES 1. Providing eco-friendly vehicles UK’s automotive industry has been constantly active in innovating new products to provide a safe and eco-friendly environment, hence opening up string of opportunities. 2. Investments by Global OEMs In the year 2013 many global equipment manufacturers have announced investments in United Kingdom. Through these strategic alliance UK auto industry is believed to benefit significantly. THREATS 1. Soaring cost of Raw Material The cost of raw material has been ever rising; hence, the manufacturers pay more for procuring raw material every year. This eventually raises the price of automobiles. 2. Increasing competition With new companies coming in UK along with foreign direct investment the competition is bound to soar, ultimately increasing threat for existing companies. Bottom-line is that in spite of challenges faced by automobile industry in last decade, it is resurging from its downfall and looking forward to producing more number of vehicles this year. EXTERNAL ENVIRONMENTAL ANALYSIS The automobile industry in UK has been tactically working towards creating new opportunities and enhancing technology. It has extensively slogged to make UK more attractive for foreign investors. Through automotive industry’s external analysis, we shall study influence of external factors on the industry. The two major models discussed here are PESTLE Analysis and Porter’s Five Forces’ Model. PESTEL ANALYSIS Political To ensure there is no monopoly created in the industry, certain policies restricting firms from forming cartels and fixing price have been implemented. They also control the size of automobile companies. Economic With the advent of increasing inflation across the world, it is predicted that the purchase of automobiles shall increase in coming years. Also, globalisation has opened doors for foreign investors in UK. Social Recent researches show that young population in UK is declining and older population is rising. Hence, it is advisable that companies focus on creating more products catering to smaller families and older population. Technology Increased focus on providing eco-friendly vehicles has encouraged industry to continually invest in research and development. With popularity of new designing softwares, Global Positioning Systems for navigation, etc, technology has advanced two folds. Environmental As people are getting more aware and concerned about a healthy environment, it is imperative to create products that are eco-friendly. Hence, it has created a pressure on the industry to focus on environmental issues as well. Legal A few legal policies have been imposed by UK government like compulsory fitment of Electronic Stability Control and Tyre Pressure Monitoring Systems in all the cars produced. PORTER’S FIVE FORCES’ MODEL 1. Threat from new entrants Automobile industry being capital extensive demands a lot of money to venture and uphold. In order to sustain, present automobile companies have augmented their production, enforcing new entrants to enter only on large scale. 2. Bargaining Power of Suppliers Due to increase in globalisation the industry has suppliers not only from UK but also from across the world. Hence, the bargaining power of suppliers is limited. As some manufacturers have joined hands with OEMs from China and India others source materials from UK itself. 3. Bargaining Power of Buyers This model brings forth the fact that purchasers have a power to regulate the market and increase competition. As consumers have access to extensive information and choice of numerous brands across the globe they definitely stand to have a better bargaining power. 4. Competition from Substitutes Substitute products are those that can be consumed in place of any product. For instance, people of UK can as well use public transport instead of private cars. They may also consider the option of using rented cars. 5. Existing Competition As UK is home to around 50 car manufacturers selling 200 models, the internal competition among the companies is inevitable. Apart from the local car manufacturers like GM, Ford, etc, the foreign manufacturers are also giving a lot of competition. The external influences play a major role in casting future of automobile industry in UK. Analysing the internal as well as the external environment of UK’s car industry helps identifying how it has been performing and what is the scope for improvement. United Kingdom offers an array of car models in a highly competitive market. Nonetheless, it is still facing a lot of issues in recovering from the past downfall. Market experts predict that the industry shall still be able to cater to the new more demanding market.