Value Chain Analysis Case Study

Outsourcing Trends in the Global Automobile Industry

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Abstract:
From the early 20th century, the automobile industry grew rapidly into a global industry with the introduction of new technologies and trendier car models. Although the US dominated the global auto manufacturing till the mid 20th century, by the 1980s, Japan had become the world's largest producer of low cost high volume automobiles with 28.5% market share of the global auto market. As a result, major automobile companies in the US and in Europe witnessed severe competition and were forced to curtail costs and maintain profitability. To sustain costs, many companies started outsourcing or sub-contracting manufacturing processes to contract manufacturers. Soon, the companies started outsourcing the design and development of particular models to the sub-contractors. In the late 1990s, outsourcing in the automobile industry saw a major change when companies started offering contracts for manufacturing entire cars, from design to assembly, to the sub-contractors. With competition heating up in the niche segment of built-to-order cars, outsourcing seemed to be the most economically viable option to survive the price wars in the global automobile market, albeit with some of its inherent risks for both the manufacturers and the contractors.

Pedagogical Objectives:

• To understand how the rise of Japanese carmakers hit the profits of the American and European carmakers
• The steps being taken by the American carmakers to cut costs especially through outsourcing right from design to assembly
• To understand the potential risks and benefits of outsourcing to carmakers.

Keywords : Government and Business Environment Case Study, Automobile industry, Outsourcing, Sub-contracting, BMW, Magna Steyr, Mercedes-Benz, Lean production, General Motors, Japan, Mass production, Risks of outsourcing, Built-to-order, Jeep, Business Environment Case Study, System integrators, Craft production

Contents:

• Introduction
• Global automobile industry – a brief history
• Outsourcing trends in the automobile industry
• Recent trends in outsourcing