Why The Car Industry Is Booming Right Now

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Not many people know it, but the car industry is booming right now. Over the last ten years or so, the resurgence has been nothing short of remarkable.

Only a decade ago, people were sounding the death knell for the car industry. Major players were on the brink of bankruptcy, and it looked like the country would lose its competitive advantage to overseas players in Korea, Europe, and Japan. But that’s not what happened. Instead, what happened was international companies came and took advantage of domestic US and UK expertise. These countries already had the workers with the skill and knowledge to put cars together, as well as the vehicle transport infrastructure they needed to bring those cars to market.

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Just recently, we got the news that the car sector is the biggest it’s been in around 12 years, indicating that things are finally getting better and the world is emerging from the great recession of 2009. Back then, car production stood at just 1 million units. Today, it’s up fifty percent at an impressive 1.5 million units and rising. What’s more, productivity per worker in the sector has rocketed more than 45 percent over the same period, meaning more can be done with less human effort. This is the result of mass automation in factories and workers moving onto higher value-added work.

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What’s so impressive about this turnaround is that it has all occurred despite the ferocious regulation from the government. One can only imagine how healthy the car industry would be today if there were less regulation and more opening up of the market.

So what has made all of this possible? A study by Business Green of 100 senior auto industry executives tried to find out the answer. They asked top people in the industry what they thought had made the difference. Many of them pointed to the increased investment that the industry had undertaken. In the UK alone, companies have pumped in more than £17 billion into new technologies and R&D. This is part of the reason why we’ve seen so many new safety features in cars and prices haven’t risen. Firms are reducing the marginal cost of car production all the time.

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The other significant contributor to growth they say has been the drive toward more fuel-efficient cars. According to the data, average fuel economy was just 42.2 mpg back in 2003. By 2013 it was more than 56.3 mpg, a 25 percent increase in a decade. During the same period, fuel consumption actually fell by over 18 percent per head.

Managing director of LowCVP, Andy Eastlake says that the emphasis of policymakers has been on growth and making cars cheaper to run over the long term. This appears to have bolstered the market, getting consumers to buy their own cars again, rather than relying on other methods of transport.

Many people in the environmental movement want to pin the success of the car industry on more regulation. But the truth probably has more to do with advancing technology, overcompensating for increased regulatory burden.

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