TERM PAPER

ANALYSIS OF
AUTOMOTIVE INDUSTRY

1
TABLE of CONTENTS

HISTORY……………….............................................................2

IMPORTANCE of THE SECTOR……………………………………..10

PORTER’S FIVE FORCES…………………………………………….11

NUMBER of FIRMS, MARKET SHARES…………………………..13

AN EXAMPLE FIRM: TOYOTASA……………………………………17

TAXES…………………………………………………………………….24

REFERENCES…………………………………………………………..25

2
A. HISTORY

1. General Automotive Industry History

The automotive industry was affected by many sources. Various

innovations in fuels, auto parts, and manufacturing techniques, as well as

automobile needs, changing demand in markets, suppliers and business

structures. The ancients of the cars were the vehicles working with

animals rather than engines. They were a lot less technological than the

cars we use now, but they helped us to have the idea of riding

automobiles. However, most historians state that the real key starting

point for the automobile was the development of the engine. The engine

was developed as a result of discovering new energy carrying mediums,

such as steam in the 1700s, and new fuels, such as gas and gasoline in

the 1800s. Just after the invention of the 4-stroke internal combustion

gasoline-fueled engine in 1876, the development of the first motor

3
vehicles and establishment of first automotive firms in Europe and

America occurred.

In the early 1900s, developments of other technologies, such as the

steering wheel and the accelerator, speed up the development of the

automotive industry by making vehicles easier to use. Simultaneously, in

United States, the societal infrastructure that would provide ground for the

proliferation of automobiles was being set. Driver’s licenses were issued,

service stations were opened, and car sales with time payments were

instituted. Famous vehicle models such as Ford’s Model T were developed

during these times and, by 1906, car designs started becoming more

fashionable and new looked.

During the 1910s, the development of technologies and societal structure

continued in addition to new manufacturing practices and business

strategies. Traffic lights started appearing in the U.S. and thousands of

road signs were builded 100,000 miles of U.S. roads. Henry Ford’s famous

assembly line was launched in 1913, which allowed vehicles to be mass

produced. Ford also introduced the concept of using interchangeable and

standard parts to further enable the mass production process. Automakers

also started to facilitate in different countries.

In the 1920s, the development of infrastructure, adoption of new

manufacturing practices, and the merging of companies continued. In the

U.S. had many different road-building projects and develop a national road

system. In manufacturing, mass production methods became better

established, which led to the availability of a wide range of satisfactory

4
cars to the public. While Ford had focused on a single model, GM adopted

a new production strategy for providing greater product variety, which

helped them increase their market share.

In the 1930s, several new vehicle brands were developed (e.g., Ford

Mercury, Volkswagen) and trends in vehicle consumer preferences

changed the American and European market. In the U.S. market,

consumers preferred luxurious and powerful cars, whereas in Europe

consumers preferred smaller and low-priced cars. Also during this time,

GM’s product variety strategy continued to give them a competitive

advantage over Ford, allowing GM to continue increasing their market

share while Ford kept losing theirs.

“Model T” & Ford Assembly Line

In the 1940s, during World War II, automotive factories were used to make

military vehicles and weapons, thus dangering civilian vehicle production.

After WWII, the economies of most European and some Asian-pacific

countries, such as Japan, were decimated; this required the development

of new production and business strategies such as Toyota, which began to

develop Just in Time manufacturing. Most of the first models produced

were similar to the pre-war designs since it took some time for the plants

to stop their operations to make new designs and models.

In the 1950s and 1960s, more technological innovations, such as

fiberglass bodies and higher compression ratio fuels, allowed vehicle

developers to appease the growing consumer interest for vehicle comfort,

look, and feel. Car designs were highly influenced by safety and

environmental concerns and regulations. Vehicle speed limits and front

5
seat belts became standard, in addition to other features such as heating

and ventilation equipment.

The 1970s were marked by stricter environmental regulations and the oil

embargo of the early 70s, which led to the development of low emission

vehicle technologies, such as catalytic converters, and a 55-mph

nationwide speed limit in the U.S. Foreign cars like the Japanese Honda

Civic started appearing in the U.S. market. The Civic was marketed as a

fuel efficient and low-emissions vehicle, which given the recent high oil

prices and strict environmental regulations. Despite the entrance of new

competitors into the U.S. market, U.S. automakers underestimated the

threat of foreign automakers to their market shares.

In the 1980s, the U.S. automotive industry began losing market share to

the higher quality, affordable, and fuel efficient cars from Japanese

automakers. In response to this market share loss, U.S. automakers began

focusing on improving quality by adopting different Japanese

manufacturing management philosophies, such as JIT. Although their

adoption of JIT and other philosophies helped improve the quality of U.S.

vehicles, it did not fully bridge the gap between the quality of U.S. and

Japanese cars.

6
This gap remained because U.S. automakers tried applying JIT techniques

without a full understanding of the whole Japanese manufacturing system,

while Japanese automakers had decades to develop, refine and master

their JIT approach.

Another new point of the 1980s was the global nature of vehicle

manufacturing. Automakers started assembling vehicles around the world.

This trend was accelerated in the 1990s with the construction of overseas

facilities and mergers between multinational automakers. This global

expansion gave automakers a greater capacity to create new markets

quickly and at lower costs. The increased product offers in many markets

led to consumers having a greater variety of vehicles from which to

choose. To this new vehicle was coupled the explosion of the internet,

which made vehicle-related information ready to consumers. Consumers

7
now wanted a vehicle that was “personalizable,” inexpensive, reliable, and

quickly obtainable. Consumers desired vehicles that were less harmful to

the environment, which led to the introduction of hybrid vehicles by

Japanese automakers in the late 1990s.

After millennium, the recent trend of increasing sophistication and

empowerment of the consumer has led automakers to identify new and

more specialized market with diversified customer bases, such as U.S.

Another trend is to seperate new emerging markets such as Southeast

Asia and Latin America, which has further motivated the establishment of

production facilities overseas and the establishment of global alliances

and commercial strategic partnerships with foreign automakers. Of these

new markets, China appears to be the most promising.

2. Turkish Automotive Industry History and Anadol

What is the first word when you think about the first domestic car in

Turkey? This name is actually one which we are all familiar with. We don’t

need to go back or think for a long time. That is Anadol, and even some of

them stil stay and work. Although many of them were sent to car

cemeteries during the junk automobile discount and forced to accept their

fate, we will talk about the Anadol, which people try to make it live as

living history and still use for carrying goods. Koç Group was compelled to

consider various alternatives because of some research for domestic

automotive industry after some small scale and short lived assembly

efforts. There had been some initiatives with Ford until that time.

However, due to the small size of the Turkish market, no support was

given. Despite Rahmi Koç never gave up. Everything changed one day in

8
the beginning of the 1960s’ when a dealer came with a pickup to take

away some goods. The body of the vehicle was made of glass reinforced

plastics or fiberglass. It is possible to build a car’s body out of this material

instead of sheet metal. In those days some American cars, even Corvette

had fiber parts. Therefore Koç reached the source of this technology. It is

the English company Reliant. Reliant, manufacturing three-wheel fiber

body cars those days, was selling out technology to some countries, too. In

the end they came to an agreement. Parts such as engine or the gearbox

were purchased from Ford. Anadol was produced with Ford engines since

the first samples. Ogle Design Limited, which is still operative with the

name “Ogle Noor” and has various designs from radios to automobiles,

finalized the drawings of Anadol with a team led by Tom Karen.

The first vehicle was designed with two doors and the first prototypes

9
called FW5 came out. Bernar Nahum drove one of these and the vehicle

was brought from England to Istanbul by road in the last month of 1965.

Ministry of Commerce executives tested the car and said that they would

give permission if the price is under 30 thousand TL. The vehicle was sent

back to England. Meanwhile a competition was held in Turkey to

determine the name of the car. The name “Anadol” was adopted at the

end of the competition. New prototypes called “Reliant Anadol” were

produced in England. The first Anadol from Otosan factories was

completed on December 1966 and it cost 26 thousand TL. This vehicle

with a 1198 cc Ford engine with 52 HP is the beginning of a revolution in

Turkey.

A four-door version of this two-door vehicle was developed in England in

1971. Production of this four-door Anadol started in Turkey in the very

same year. This vehicle with a 1198 cc engine with 52 HP drew the

attention of others, too. Even some initiatives were made to start

manufacturing in New Zealand.

New Models

The first sports car of Turkey STC 16 (1.6 lt 78 HP engine) and the first

station wagon Anadol SV 1600 (1.6 lt 65 HP engine) were produced in

1973. The latter is also the first fiber station wagon automobile and the

spoiler on its luggage compartment cover was applied to a station wagon

for the first time. The “Böcek” (1.6 lt 63 HP hobby vehicle) was produced

in 1975. Reminiscent of the “Buggy” model of Volkswagen which was

developed for sandy terrain, it looked like a two-wheel drive off-road

vehicle. Jan Nahum himself even made some drawings of versions of

10
“Böcek” in order to use it for official purposes. The pickup truck version

came after that. PTT served people with Anadol pickups for many years.

“Erk”, which is the first domestic diesel engine, was used in Anadol

pickups for the first time. This story went on with SL 1600 (1.6 lt 77 HP

engine) in 1976 and Anadol 16 models in the 80s’ and ended in 1984 if my

memory is not failing me. “Anadol Automobile Club” was recently founded

by Nuri Uçman and Onur Selçuk to let Anadol live and various groups in

different cities are trying to gather fans of this vehicle. Some able people

are starting to restore old Anadols back to their original form and some

celebrities are adding one Anadol to their classic car collections. Anadol,

which succeeded in entering foreign classic car literature, participated in

classic car races abroad as a “Turkish car” and some of them are on

display in some foreign museums. There are some people in England who

still has Anadols.

B. IMPORTANCE of THE SECTOR

Automative sector is assumed as a locomative sector in all the

industrialized countries. The reason for that is this sector is related to

many other industrial sectors like iron, gasoline, tire etc. This is all

because of the complicated structure of automobiles, and this complicated

structure requires many different parts from different industries. So, any

change in automotive industry will result in significant changes in these

linked sectors.

Automobile manifacturing is 70% of all the automative industry. This ratio

is valid for both Turkey and the world. The rest is other vehicles working

with engines. We can clearly say that automobiles is the base of the

11
automotive industry. Automotive industry is the second most complicated

and expertness required sector after space-airplane industry.

R & D is also very important due to the increasing rivalry. So, all the

automative manifacturing firms spend high amounts to have better R & D

practices and better products and sales respectively.

Because all these needs, there should be many workers in this production

line. Automotive sector creates a great employment opportunity directly

and indirectly.

Lastly, automative sector is the base of military defence industry. All the

vehicles used in military need the technology in automotive sector.

Because defence industry uses a significant ratio of all Turkey’s budget,

automotive sector’s relatedness with this sector is an important point as

well.

C. PORTER’S FIVE FORCES ANLYSIS

1. Competitive Rivalry

Competitive rivalry is real high in the industry, and it gets more and more

hard everyday, with the effect of Chinese cars coming to Turkey. All the

brands and firms are having hard times due to the crisis in these days, and

this makes the competition harder than ever.

All the firms have to renew their assembly lines periodically due to the

technological changes. Otherwise, they will suffer in the competition. For

instance, when a new break system is invented by one of the automobile

12
firms, it will enjoy to be the first mover. The quicker the others respond to

this, the less they will suffer. But, if they will insist on using the same

thing, they will lose now or then.

2. Threat of Substitutes

The threat of substitutes to the automotive industry is fairly mild. There

are many other opportunities available, but none of them can provide the

comfort, independance and ease of autombiles.

The switching costs associated with using a different mode of

transportation, such as train, may be high in terms of personal time,

luggage capacity, but monetarily, they are a lot cheaper than automobiles.

The exception to this statement occurs in the global urban areas with high

population densities. In these areas, the substitutes available (e.g.,

walking, bicycles, etc.) can be less costly than automobiles and thus

alternative modes of transportation are often preferred.

Also, there are inherent underlying social and cultural attitudes that keep

people from owning automobiles in some parts of the world. The

marketing arms of the global automotive manufacturers are certainly

working very hard to change this paradigm, and with unprecedented

production volumes world

wide, all signs indicate that they are succeeding. Most with the ability and

means to own a vehicle, who live in a society with the necessary

infrastructure (e.g., roads and fueling stations), will do so.

3. Barriers to Entry

The barriers to enter the automotive industry are costly in the meaning of

money and experience. For a new company, the startup capital required to

13
establish manufacturing capacity to achieve minimum efficient scale is

real high. An automotive manufacturing facility is quite specialized.

Although the barriers to new companies are substantial, established

companies are entering new markets through strategic partnerships, buy

outs or mergers. However, a domestic start up, with local knowledge and

expertise, has the potential to compete in its home market against the

global firms who are not yet well established there. But, in Turkey,

automotive manifacturing industry is well developed, so being a new

entrant really requires something.

4. Bargaining Power of Buyers

In the relationship between the automotive industry and the buyers of

finished vehicles, the power axis is tipped in the consumers’ favor.

Consumers have the greatest power in this relationship due to the fairly

standardized nature of the automobiles and the low switching costs

associated with selecting from among competing brands. However, the

automotive industry remains powerful due to the large customer to

producer ratio. But, in these days bargaining power of buyers got

extremely high due to low demand and high supply in the industry.

5. Bargaining Power of Suppliers

In automotive industry, usually buyers(the firms making the cars) are

usually more powerful than the suppliers and that gives them the

opportunity to dictate them what they want.

There are specific characteristics that make members of the automotive

industry powerful buyers like: there is not a grand proliferation of

companies manufacturing automotives, automotive parts are standardized

14
and these parts are only used on automobiles. Due to these reasons what

we sometimes see is real firms can buy their suppliers, if it will be more

beneficial for them.

D. NUMBER of FIRMS, MARKET SHARES & SOME STATISTICS

General Info About Turkish Automotive Industry

There are 16 companies producing passenger cars & commercial vehicles

of all kinds and farm tractors. These are all private, large scale enterprises

and operating under foreign licenses and shareholders with the

companies.

With intense world wide competition, each year firms now introduce new

models or face lifts on existing models to the Turkish market

simultaneously with global launches. Within the various segments of the

15
Turkish market, a total of approximately 130 different model cars are

supplied now.

The number of passenger cars per person in Turkey is still lower than

international figures. In 1999, while the world average and the EU average

per 1,000 persons was 88 and 476 respectively, in Turkey this figure was

around 62. This seems like Turkey has a great potential for new cars, but

considering the economical conditions, it is not so realistic.

In this century, the Turkish automotive industry has been focusing on

export. In 2002 and with exports amounting to US$ 5 billion, the

automotive industry ranked second in the Turkish export ratings. A target

of US$ 7.5 billion has been set for 2005 which would make it the number

one exporting industry.

Due to the high export potential and regional advantages of Turkey,

foreign capital is now showing an increasing interest in the

automotive suppliers industry in Turkey.

Turkey is approaching the point where 500,000 vehicles can be exported

annually. Thus foreign partners have begun to view their facilities in

16
Turkey as their production centre for the global market and already

impressive volumes are being exported to a number of Middle East

countries. In the near future, Turkey will be the centre of manufacturing

for passenger cars & commercial vehicles in the region with production

volumes of 80,000 – 120,000.

The manufacturing methods and techniques used within the Turkish

automotive industry are to international standards. Technology investment

in the industry is rapid and continuous. This feature of the industry is also

creating the foundation of technological development in Turkey. Total

installed capacity of the industry is around 812,000 units/year of which

about 78% are 635,000 passenger cars and 22% commercial vehicles.

Turkey is the only country within the surrounding geographical area to

have established a well-advanced automotive industry. Therefore, the

automotive industry is strategically important both for Turkey and for firms

that will invest in Turkey. Turkish automotive industry has already proven

17
to export to EU, every kind of automotive product with 850000 vehicle

production capacity, man power and international shareholders.

Turkey will soon reach an annual vehicle export capacity of over 500,000

units. Also in the near future, Turkey will be the world ‘s alternative

production centre of vehicle and parts, and the automotive sector

will become one of the leading sectors of the manufacturing

industry, with exports of $8-8.5 billion.

E. AN EXAMPLE COMPANY for AUTOMOTIVE INDUSTRY: TOYOTASA

Toyota Motor Manufacturing Turkey (TMMT) is one of Toyota's vehicle

production bases in Europe. Located in Adapazari Turkey, TMMT

18
manufactures Corolla Verso and Auris models. Majority of the production is

exported to over 30 countries, which are located mainly in Europe.

TMMT, owned by Toyota Motor Europe NV/SA (%90), and Mitsui & Co., Ltd.

(%10), has a total investment of 1 Billion, and currently employs more

than 3,000 people.

Dedicated to best quality production with the contribution of all members,

TMMT applies the Toyota Production System (TPS) to its manufacturing

processes from the very first day of the start of its operation.

Today, with an annual production capacity of 150,000 units, Toyota Motor

Manufacturing Turkey (TMMT) is one of the ten biggest overseas

manufacturing operations of Toyota, and one of the biggest manufacturing

companies of Turkey.

Product line-up consists of Corolla Verso and Auris.

Basic technical specifications of Verso are:

Engine Type: Gasoline/Diesel

Engine 1.8,1.6 liter Gasoline, 2.2

19
Displacement (cc): liter Diesel
Manual/Multi mode
Gearbox Type:
transmission
Number of Seats: 5 or 7

Basic technical specifications of Auris are:

Engine Type: Gasoline/Diesel

Engine Displacement 1.4,1.6 liter Gasoline, 1.4, 2.0, 2.2

(cc): liter Diesel

Gearbox Type: Manual/Multi Mode
Number of Seats: 5
Body 3 door / 5 door

Capacity is 150.000 for a year. Manufacturing process consists of Press,

Welding, Paint Assembly.

TOYOTASA Milestones

July, 1990 Establishment as Toyotasa

May, 1992 Groundbreaking ceremony
Sept, 1994 Start of production with 7th generation Corolla Sedan
October, 1995 Start of 7th generation Corolla Wagon production
Nove.,1995 Awarded ISO 9001 certification
August, 1998 Start of 8th generation Corolla Sedan production
June, 1999 Awarded ISO 14001 certification with zero non-conformances
June, 2000 100 000th vehicle manufactured
October, 2000 Re-structuring, and the establishment of TMMT
January, 2002 Start of 9th generation Corolla Sedan production

20
Febr, 2002 Start of exportation
August, 2002 Start of 9th generation Corolla Wagon production
March, 2003 Start of double shift operation
Febr, 2004 Capacity increase from 100,000 to annual 150,000 units
Febr, 2004 Start of the new Corolla Verso production
May, 2004 The new Corolla Verso awarded 5 stars by Euro-NCAP
Dece, 2005 500 000th vehicle manufactured
February 2007 Start of the Auris Production

TMMT has a rapid growth with the start of exportation in the year 2002.

Production has increased in line with increasing investments. Number of

employees gradually increased while most of the production is being

exported to Europe.

21
Toyota Quality Assurance System

1.Quality Target

TMMT Project was planned and realized for producing and marketing same

quality level vehicles as Japan Production Plants. Toyota Turkey members

were carefully selected for this purpose and detail training were given in

22
Japan and Turkey. Plant investment and equipments, were established

with same concept.

TMMT has started production in 1994, quality targets were achieved and it

has been a leading company in Turkey and among all Toyota Plants in a

short time.

Today TMMT is one of the global production bases of Toyota with the

models produced only in Turkey and by exporting approximately 95% of

its production to Europe.

2. Toyota Production System

Toyota Production System (TPS) is also known as "lean production system"

and it is adopted by some other companies to improve quality and

productivity.

Built-in Quality concept:

One of main principles of TPS is 'built-in quality'. According to this principle

for each process/operator next step is a customer. So everybody is

responsible to send the product with zero defect.

Every member strives to do his/her best.

Operator prevents to transfer his/her problems or other problems to the

following process.

Every member can stop the line if necessary. Mechanical systems are used

in some processes which recognize and prevent the defective product to

pass to the following process.

Standardization

Every operation is planned and checked after trials to provide built-in

quality. After the best operation method is determined, it is carried out for

23
each vehicle as a standard. Standardization of each step mean, same

quality level product. Besides, standardization makes easy to determine

variables for analysis.

Kaizen (Continuous Improvement)

Standard work is not monotonous in Toyota, it is a dynamic concept. Plan-

Do-Check-Action is applied continuously. Operation is done according to

standards, but kaizen points are always looked for. For this purpose,

feedback from following stages, inspection and customers is continuously

followed. Improvement activities are also done to prevent potential

problems. All members are supported for participation to kaizen activities.

"Creative Suggestion System" and "Kaizen Circles" have been carried out

with success since 1995.

Quality of working area effects work and product quality. Therefore 5S

(seiri-classification, seiton-arrangement, seiketsu-tidiness, seiso-cleaning,

shitsuke-discipline) is very important in TPS.

All workers are responsible from their working area arrangement. Tools

and equipments are arranged to prevent wrong usage. Working area

cleaning is important for correct working of equipment, no damage on

product, and increasing of motivation. Discipline, provides loyalty to

standard operations. Tidiness, which requires attention to details, is an

indispensable parameter for proper work and kaizen.

3.Supplier Quality Assurance System

Toyota considers suppliers as a part of the family, because parts/materials

quality directly affects vehicle quality. Therefore Toyota supports all

suppliers for their continuous improvement activities.

24
Toyota does not make a concession from quality targets. The parts can be

localized, only if local suppliers produce parts as same as Japan quality

level. Supplier's quality, technical capacity, cost and supply capabilities

are evaluated before selection.

Toyota establishes long term cooperation and mutual trust with suppliers

and supports for good quality parts/materials. Toyota expects suppliers to

work according to Toyota Supplier Quality Assurance Manual, which is part

of the agreement. This manual explains minimum requirements from

suppliers about quality system. Purpose of this system is to assure parts

and materials quality at supplier. Supplier is responsible to send good

quality parts according to this manual. Toyota implements receiving

inspection of the materials/parts according to their characteristics, quality

level and supplier's quality system sufficiency.

4.Customer Satisfaction

European market has a lot of variation regarding road and climate

conditions, economical situation and individual preferences. TMMT

members are directly involved in new model preparation activities from

design stages in Japan and Europe. Feedback from customers are always

monitored and used for model activities.

F) GOVERNMENT POLICIES, TAXES

Taxes

All the taxes when buying new automobiles used to be high before the crisis, but now the

government decreased them in order to increase the sales and matching the demand and the

supply by this way. And because Value Added Tax is calculated based on both the price and

Private Consuming Tax, this decreased the prices significantly directly and indirectly.

25
According to the decrease in taxesi here are the new and old ratios:

1600cc and below cars: used to be 37%, now 18%

Between 1600cc and 2000cc: used to be 60%, now 54%

Commercial Vehicles: used to be 10%, now 1%

Buses: used to be 4%, now 1%

REFERENCES

www.toyotasa.com

http://proquest.umi.com/pqdlink?Ver=1&Exp=06-06-

2014&FMT=7&DID=1408631201&RQT=309&cfc=1

Milliyet Arşiv, Levent Köprülü, Anadol

Bisiklet, Otomativ, TV Tarihi, Wolfgang Ruppert

26