External Factors Facing the Car Industry in the Uk

The income of consumers, road ax, fuel prices and the fluctuating prices of commodities are all examples of external factors. The ever-increasing fuel prices, especially in the UK pose a large threat to the car industry as many people are turning to public transport as an alternative option to cars. This will most likely reduce the amount of cars bought which can be seen in appendix 2 which shows that new car registrations were reduced by 21% from 2007-2009.

However, with every problem presents an opportunity and many car manufacturers have decided that there is a huge market for people demanding cars tit a high fuel efficiency as consumers can then spend less on fuel. Therefore, even though some people are using public transport to save money, many people are buying from car manufactures that provide cars with a good fuel efficiency and can save them money in the long-term. This means rising fuel costs is an opportunity for car makers to produce cars with a high fuel efficiency to combat this problem.

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Another external factor is the price of materials used to make the car, many of which are commodities and have a fluctuating price which cannot be controlled. This poses threat to the car industry because if prices of materials increase, so too will their costs which means their prices may be forced up if they cannot continue to make of reasonable profit. This may lead to consumers not buying new cars due to the prices exceeding their demand for a new car so they may decide to keep their old one or use public transport.

This problem may encourage manufacturers to develop new materials that could be used to make their product. A new material which may be cheaper and have a better performance than materials used currently, therefore room this threat an opportunity may be available for car makers to take advantage of. High taxation on cars which are less environmentally friendly is a possible reason for less individuals buying a new cars.

This is a government incentive to try and encourage car buyers to purchase cars with low emissions as they will pay a low amount of tax or be even tax exempt in some cases. This is a clear incentive for buyers to purchase cars that are ‘greener’ and better for the environment. Therefore, this presents an opportunity for manufacturers to create cars which emit low missions, such as hybrid cars which use a combination of fuel and electricity, as on the car is not enough to influence their decision on what car to buy, therefore it may only affect those from lower to middle classes.

Another critical issue that affects the car market is the income of the public, especially those who are looking to purchase a new car. If the disposable income of consumers is low, they are likely to priorities on necessities rather than buying new cars which may be considered a luxury item. This is a clear threat to the car industry as if people don’t have enough disposable income they are more likely to buy a used ar or turn to public transport rather than pay a lot of money for a new one.

However, if the income of consumers is high, they are much more likely to purchase a new car as it is more affordable for them. There is a clear correlation between the Auk’s economic growth and new car registrations which can be seen in appendix 1 and 2. When the recession hit in early 2008, growth fell to under 0. 5% and so to did new car registrations. As low growth is usually linked with high unemployment and low earnings it is likely that there is a direct link with the two factors therefore, low earnings is a probable threat to the car industry.

There is a considerable number of threats and opportunities that are caused by the external environment which affect the car industry. Almost all factors are economic and present an opportunity for the manufacturers to create solution which will save their customers money in the long and short term. Consequently, the most significant external factor that effects the car industry is the disposable income of the consumers as they are more likely to spend a large amount of money on a car if they have more money to spend.