Automobile Industry PESTEL Analysis

1. Introduction

The PESTEL analysis is a crucial component of management studies. It helps a company to point out the external conditions which may impact the business. There are different external components like politics, economy, society, technology, ecology, and law, which can influence the sales of the automotive industry. The PESTEL analysis of the automobile industry show how those factors can work on the development of this industry. It helps companies to make strategies to resolve the potential harms.

2. Background of Automobile Industry

The automobile industry in the current world is a flourishing industry. Cars are not only a mode of communication, but they are also a part of the lifestyle in many developed countries. Though the increasing gas price, pollution laws, and taxes have some impact on the growth of this industry, technological innovations have opened a door for future customers. The automobile industry is highly profitable, with an EBIT margin of 6% in 2016.

3. Automobile Industry PESTEL Analysis

The PESTEL analysis of the automobile industry shows how different external factors can affect their business. As the lifestyle of people is changing, the automobile industry is also emerging. PESTEL analysis of the automobile industry shows the problems that they can face in the future. Thus, allowing companies to find out the ways to solve them.

Political Factors:

The politics of a country has a direct effect on the business operating within its periphery. The PESTEL analysis of the automobile industry shows how political issues can impact the automobile industry:

• In most countries, governments have issued regulations regarding the production of automobile parts to ensure the safety of passengers. If any company fails to fulfill these requirements, their license may get canceled. Moreover, the company needs to spend significant time on test running before launch, which can be costly at times.
• The administrations are also keen to restrict the ample usage of fossil fuels which create more pollutants. The automobile manufacturer companies need to keep the emissions under a specific range to continue with their business.
• The automobile industry of a country is also dependent on the government’s decisions on export and import. If a company can import high-quality parts at a comparatively lower rate, it can have a better profit margin.

Economic Factors:

The lifestyle of people is dependent on the economy of a country. Therefore, it can also impact the automobile industry. Here are some economic issues which can affect the automobile business:

• The income of people from stable and emerging economic zones are increasing day by day. Therefore their spending capacity is also on the rise. It is the reason the demand for cars is going up.
• Many countries have imposed taxes on luxury items which have increased their price, and hence a specific section of buyers may not choose to buy one. It may result in decreasing demand for luxury cars in some countries. However, if many companies launch comparatively cheap cars, they may get more buyers.
• If the price of automobile parts increases, then the cost of the cars will also increase. It can be a reason for the decrease in demand for automobiles.

Social Factors:

The socio-cultural conditions work on the businesses of a land. Social trends gravely impact the production of cars. The PESTEL analysis of the automobile industry can find the sociological conditions, which can toll upon the automobile industry.

• Cars are not only vehicles but are fashion statements. Hence, the companies need to consider the choice of people while manufacturing new cars. Otherwise, it may go out of fashion and may not get a good sale.
• Population distribution of a country also impacts the sales of cars. A state with a dense population and large families tends to have a good sale of big cars like SUVs.
• The culture and tendency of communities also affect the automobile industry. For example, the countries which have well-connected bus services may see less number of people owning cars. There is also a tendency of developed countries to possess one or more cars.

Technological Factors:

Technological condition immensely impacts the sales of automobile companies. Here are some technical issues which can work on the business of the automobile industry :

• The automobile industry is hugely dependent on innovative technology to ensure the safety of the people. Companies need to upgrade their technologies to make their cars as safe as possible.
• The companies need to concentrate on the reduction of emissions. They can use modern technologies to keep the emission rate in check.
• Self-driven cars are already out in the market. Hence in the future, they may get high demands. The company needs to promote these self-driven cars and electric vehicles, which may gain them more customers.

Environmental Factors:

The automobile industry can get deeply impacted by ecological issues. As the concern over pollution is increasing, the condition may toll upon their business. The PESTEL analysis of the automobile industry can identify the environmental issues, which can impact the automobile industry:

• As emission from the vehicle is a concern for the environmentalists and government. The companies can use their latest technology to manufacture battery-driven or electric cars, which can help in decreasing the rate of emissions.
• The governments of the countries are more willing to take up environmental policies to decrease the pollution level, and the automobile manufacturer needs to abide by the rules. It may lower the profit margin for automobile manufacturing companies.
• The research unit of the automobile companies needs to be strict with the testing. They should debut a unit in the market if only it can pass the strict pollution tests.

Legal Factors:

The laws and regulations of the countries can affect the business of the automobile industry. Most of the countries have laws for automobile companies. Here are some legal issues which can work on the business of the automobile industry:

• Many countries have strict laws to decrease the number of vehicles on the street, which can help them to lower the air pollution level.
• During the forensic test of an accident, if it is proved that there was any problem with the faulty parts or airbags, the company may have to face legal proceedings.
• If a vehicle company operates in an international market, the company must take care of the tax laws and environmental laws. If they fail to do so, the company may get banned in the country.

4. Key Takeaways

As the lifestyle and economic conditions of the countries are changing, the automobile industry has the potential to see rapid growth in the future. However, there are safety and environmental concerns which they need to take care of to sustain stability. The PESTEL analysis of the automobile industry shows that the automobile industry should successfully cushion its potential threats. Only then can they expand their business in both developed and developing countries.

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5. References

1. Bush, T., 2021. 'PESTLE Analysis of the Automotive Industry', PESTLE Analysis, [online]. Available at: https://pestleanalysis.com/pestle-analysis-of-the-automotive-industry/ (Accessed 26 June 2021).

2. Farooq, U., 2021. 'Global Automotive Industry PESTLE Analysis | Marketing Tutor', Marketing Tutor, [online]. Available at: https://www.marketingtutor.net/global-automotive-industry-pestle-analysis/ (Accessed 26 June 2021).

3. Pratap, A., 2021. 'Automotive Industry PESTEL/PESTLE/PEST Analysis by Cheshnotes', notesmatic ,[online]. Available at: https://notesmatic.com/automotive-industry-pestel/ (Accessed 26 June 2021).

4. UKEssays.com. 2021. 'SWOT and PESTEL analysis of the automobile industry', notesmatic ,[online]. Available at: https://www.ukessays.com/essays/marketing/swot-and-pestel-analysis-of-the-automobile-industry-marketing-essay.php (Accessed 26 June 2021).