The Automotive Industry in EU

Market Structure of the EU Automotive Industry

The market structure of the EU automotive industry can be considered as a contestable market. A market structure is defined by: (1) number of firms present in the market, (2) type of product, (3) barriers to entry, (4) supernormal short run profit, (5) supernormal long run profit, (6) pricing power, (7) non price competition, and (8) the economics. In a contestable market, the number of firms has to be many (Calabrese 2016). In the EU automotive industry, there are over 50 car manufacturers, which is a sizeable number (Rawlinson & Wells 2016). Also, in a contestable market, the type of product has to be differentiated. Differentiation can be noted in the different car brands that are available in Europe. Barriers to entry and exit, on the other hand, should be low. Whereas the barriers to entry are fairly high in the European Union, it favours new players who have high capital investment that enables them to effectively set up their manufacturing facilities. For the supernormal short run profit, in a contestable market, it has to be any profit possible. The profit range of the different car manufacturers in Europe varies greatly depending on their pricing policy and number of car units sold. The most profitable firm in Europe is the Volkswagen (Statista 2017). Supernormal long run profit in a contestable market, on the other hand, is dictated by supernormal hit and run entry. While it is particularly true especially for firms that have an international recognition such as Toyota, it has fairly been difficult for startups (Library Briefing 2013). In a contestable market, the firms are the price markers, potential and actual competition restricts their pricing power. This can be confirmed by the fact that most vehicles of the same class, but different brands have a similar price range all over Europe (Rawlinson & Wells 2016). In a contestable market, non-price competition is always important. In Europe, automobile brands do not always compete on price but different aspects that the vehicle has to offer, for instance, durable, fuel efficient, etc. Finally, the economic aspects have to be high. The EU automotive industry contributes roughly 30% of Europe’s R&D (KPMG 2014).

Market Share of the EU Automotive Industry

The leading brands in the EU automotive industry as of 2017 include: VW Group (23.7%), PSA Group (12.2%), Renault Group (10.6%), FCA group (6.8%), Ford (6.7%), BMW Group (6.6%), Daimler (6.3%), Toyota Group (4.5), GM (3.8%), and Nissan (3.6%) (Statista 2017). The graph below is an illustration of this information:

Market Size of the EU Automotive Industry

It is estimated that over 3 million individuals are employed directly by the EU automotive industry employing 6.3% of the individuals working in the manufacturing sector, which is roughly 1% of the entire EU labour force (Library Briefing 2013). 60-70% of these workers are engaged in skilled and semi-skilled work. 30-40% of these workers are trained technicians and professionals (quality control, IT, marketing, engineers, etc.) while the leading country in employment is Germany followed by France, Italy, the UK and Spain in that order (Library Briefing 2013).