PESTEL analysis of the automobile (automotive) industry
This detailed PESTEL analysis of the automobile (automotive) industry aims to examine some of the factors that impact on this industry globally, drawing examples from different countries notably the USA, the UK, Canada, Australia, China, and India. The automobile industry consists of a variety of organisations which dedicate their time and efforts to design, develop, manufacture, and sell motor vehicles.
Political factors that impact on the automobile (automotive) industry
Political environment impacts on the automobile industry as governments may adopt flexible or tough stands concerning the import, export, and manufacture of vehicles and vehicle parts. Some governments may not even allow foreign companies to set up manufacturing plants in their soil.
The automobile industry thrives well when countries have joint agreements to move the best people freely at speed to wherever they are needed. However, this does not often happen because of different restrictions and protectionism. Likewise, trade disputes between countries may affect the automobile industry badly as well.
The top automobile producing countries in the world are China, the USA, Japan, Germany, India, Mexico, South Korea, Brazil, Spain, and France. What is common in most if not all of these countries, is the political stability. Without stability, no industry can thrive.
Economic factors that impact on the automobile (automotive) industry
A rapid economic growth is happening in many developing countries which is very useful for the automobile industry. Due to business demand, the use of commercial vehicles is increasing. Similarly, the use of personal vehicles is growing as well. It is worth mentioning that developing economies usually offer cheap labour, and therefore, many auto makers have manufacturing plants there.
When most people around the world earn more and have good disposable income, they do not hesitate to spend on luxury items including cars. Particularly, in developed economies, the use of private vehicles is very widespread. Lau (2021) reports that 4.8 million New Zealanders have 4.4 million cars, while 25.5 million Australians have over 17 million cars. The author also reveals that the number of cars registered in China is almost 300 million, however, with a population of 1.4 billion, which is quite low in terms of number of cars per capita.
Social factors that impact on the automobile (automotive) industry
Buying one or more cars and other vehicles is very popular among many people around the world which is very good for the automobile industry as it sees increased demands. In many countries, having simply a small and cheap car elevates a person’s social status. This is also true when it comes to having a luxury car such as Bentley, Rolls-Royce, BMW etc. in developed countries, cities, and territories.
However, many people around the world are focusing on healthy lifestyle. They prefer to make short journeys on foot as part of their routine exercise. While this is good for health, it reduces the demand for private vehicles.
Understanding social factors affecting customers’ decisions to buy automobiles is very important for auto makers. Socio cultural trends and customers preferences change rapidly which require them to adopt. It is not therefore surprising to see that companies release new models of cars every now and then.
Technological factors that impact on the automobile (automotive) industry
Technology is the next component in the PESTEL analysis of the automobile (automotive) industry. Automobile industry requires advanced uses of technologies to design and manufacture vehicles. Likewise, developing fundamentally new products such as self-driving cars also requires cutting-edge technologies. The major technological disruptions the auto industry faced recently are electric mobility, driverless cars, automated factories, and ridesharing (Hofstätter et al., 2020).
The top companies that are currently researching and developing self-driving cars are Tesla, Waymo, Uber, Apple, Ford and Kia-Hyundai. However, some automakers are falling behind in terms of investment in technology. Likewise, the industry has been late to adopt digital marketing strategies. As more consumers are using online sales channels to engage with businesses in every industry, the auto makers need to increase their online presence (Hofstätter et al, 2020).
Environmental factors that impact on the automobile (automotive) industry
Automobiles have a big impact on the environment. Materials such as steel, rubber, glass, plastics, paints, and many more are needed to manufacture them. Similarly, a car’s life may end, however, plastics, toxic battery acids, and other products may stay in the environment causing damage to it and human health.
The automobile industry is responsible for a lot of air pollution. In fact, one-third of all U.S. air pollution is generated by vehicles (National Geographic, 2019). Therefore, auto makers need to work continuously to reduce their impact on the planet.
Legal factors that impact on the automobile (automotive) industry
The automobile industry must abide by several rules and regulations. For instance, National Traffic and Motor Vehicle Safety Act, U.S. requires automakers to have safety standards to protect people from unnecessary risk of accidents. Likewise, Canada’s Motor Vehicle Safety Act aims to reduce the risk of death, injury and damage to properties and the environment.
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Last update: 25 September 2021
Hofstätter, T. Krawina, M., Mühlreiter, B., Pöhler, S., and Tschiesner, A. (2020) Reimagining the auto industry’s future: It’s now or never, available at: https://www.mckinsey.com/industries/automotive-and-assembly/our-insights/reimagining-the-auto-industrys-future-its-now-or-never (accessed 24 September 2021)
Lau, E. (2021) New study reveals which country in the world has the most cars per capita, available at: https://www.thenationalnews.com/lifestyle/motoring/2021/08/16/new-study-reveals-which-country-in-the-world-has-the-most-cars-per-capita/ (accessed 25 September 2021)
National Geographic (2021) The environmental impacts of cars, explained, available at: https://www.nationalgeographic.com/environment/article/environmental-impact (accessed 25 September 2021)
Author: M Rahman
M Rahman writes extensively online and offline with an emphasis on business management, marketing, and tourism. He is a lecturer in Management and Marketing. He holds an MSc in Tourism & Hospitality from the University of Sunderland. Also, graduated from Leeds Metropolitan University with a BA in Business & Management Studies and completed a DTLLS (Diploma in Teaching in the Life-Long Learning Sector) from London South Bank University.