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Crisis, Resilience and Survival

Intense pressures in the global automotive industry could explain why Volkswagen was driven to cheat emissions tests, according to a new book published this month.

Academics from Saïd Business School, University of Oxford and University of Edinburgh Business School argue the scandal is the latest in a series of car industry crises to stem from a ‘perfect storm’ of challenging conditions.

Based on a historical analysis of manufacturers’ performance, Professors Matthias Holweg and Nick Oliver say long term overcapacity in the industry results in low margins for many carmakers. Combined with the sector’s vulnerability to swings of the economic cycle, this means auto companies are prone to periodically dip in and out of crisis. 

As demonstrated in the failures of car firms including Saab and Rover, the research shows that competence in designing and manufacturing cars, although a necessary condition for survival, may no longer be sufficient to guarantee it.  The study concludes that resilience in the auto industry stems from four factors:

  • Efficient operations to provide a competitive offering in the marketplace
  • Sufficient production volumes to provide economies of scale (or, failing this, a strong enough brand to command premium prices that allow economic operation at lower volumes)
  • Market reach in terms of presence in a) a range of markets to offset the effects of recession in any one market and b) in rapidly growing markets where margins are usually higher
  • Support of powerful stakeholders committed to the continued operation of the firm, who provide support and concessions during troughs when all other measures have failed

 

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