PESTLE Analysis of German Automotive Industry

Introduction

This study aims to examine the German Automotive industry that has faced various crucial events in the year 2018. However, the German Automotive industry aims to examine their external environment to extract out the factors that have lead the industry to encounter undesirable events. Moreover, the German Automotive industry is one of the largest leading industries in the world, increasing the significance of this study. This assignment will address the German Automotive industry analysis by using the PESTLE tool as it allows the close examination of the external environment of the industry and provides some adequate measures concerning design, integrates and execute some strategies that can be used for the betterment of the industry (Reinhardt et al., 2017). The PESTLE analysis does not only help companies and the different stakeholders to determine the market situation. It can also be part of the due diligence process as a proactive risk monitoring tool. Especially in the modern times of globalisation, supply chains are often much interconnected and span over several countries involved in production and distribution. However, the German automotive industry has faced several issues in analysing the underlying problems within the industry and also to examine the external factors that can be used to examine the current situation of the German automotive industry.

Discussion

Political Factors

The political aspects are considered to have a remarkable influence on supply chain and third party risks that are directly associated with the German Automotive industry. In 2016 it was determined that the global political landscape is extremely volatile – and not only in emerging markets of Germany, but there is also a noticeable impact found on the German Automotive industry. Brexit’s uncertainty, US economic nationalism and increasing populism across Europe have contributed to increasing political risk. These political factors create uncertainty and have affected the German Automotive industry in a negative manner. The Global Risk Index reached its new high since 2013: 82.6 out of 100 in the last quarter of 2016 (Debye, 2014). While a slight decline was recorded in the first quarter of 2017, the various political factors continue to exist exposing these companies risks as well as for the German Automotive industry. Furthermore, globalisation has fueled expansion into new markets, enabling cost-effective, resilient supply chains that cause its impact on the supply chain operations of the German automotive industry. While automotive organisations leave their footprints in other countries with increasingly complex supply chains, they are increasingly facing political risk factors in Germany. For instance, the automotive industry has to face political instability, bureaucracy and corruption, media freedom and the rule of law, the changing trends in regulation and deregulation and the policies relating to trade, customs and taxes that has affected the operations of German Automotive industry in a negative manner (Hwee, 2015).

These factors directly affect the ability of the German automotive industry to achieve growth and reach profit goals. Thus, timely information about potential threats becomes a success factor. However, it has been determined that in the start of 2018 the German political instability was reduced as in 2017. Political instability is defined as a bias towards a regime or government change, political upheaval or violence in society, or instability and uncertainty in government policies such as laws on regulation, taxes, property and human rights. Due to this, the operational processes and the internal processes of the German Automotive industry was disturbed. Moreover, the political instability in 2016 has negatively impacted operations and supply chains, threatening productivity, quality and important relationships within the German Automotive sector (Jindal et al., 2011).

Economic Factors

The German economy is going through an economic and financial crisis that is also affecting the automotive sector. This crisis has led to a decrease in the purchasing power of households and difficulties in obtaining credit from banks. The automotive sector is one of the main victims of the crisis because access to credit is more complicated and households have less purchasing power. Thus, car acquisition is more difficult because it depends on a large scale of the concession of credit. Consequently, the car sales fell sharply and markets were heavily depressed. According to Della Ragione (2014), the years 2008 and 2009 were marked to be one of the worst times for the German Automotive industry in the history of the automobile Money. Market interest rates declined sharply in 2008 as the German banks were having restricted funding and made access to credit more expensive through spread (Della Ragione et al., 2014). According to Bruns (2014), there is a high level of private sector indebtedness and financial constraints on households and businesses. With the rise in unemployment, there tends to be a decrease in car sales since the unemployed population does not have the purchasing power to acquire an automobile. The current economic and financial crisis leads to 61% of households in German situation of financial disruption, that is, families saw their disposable income decrease, not having as much purchasing power and the level of business confidence for households and companies reached the lowest values ever (Bruns, 2014).

If families have less income, there is less consumer propensity to spend, which is reflected in the sales of the automotive sector. Another relevant factor is related to the high tax burden on the sector. In January 2009 there was a strong fiscal deterioration that damaged the automotive sector, and because of this, the sale of cars has decreased. This aggravation led to the strong anticipation of purchases in December 2008, which meant that Germany was to avoid the general fall in sales, obtaining a growth rate of 5.7%. Another problem related to taxes is the double taxation to the incidence of VAT on the ISV. The decline in VAT can also influence the sales of automobiles. This decline led to an overall reduction in the list price of automobiles. The environmental policy to reduce CO2 emissions in the Tax Automobile has been one of the premises that has also lead the change in the final market prices, with declines in the least polluting models. ‘To these two factors VAT and the environmental protection policy in the ISV, it is added that the transactional and marketing strategies, as well as the slaughter of the different brands, and is witnessing a dynamic of promoting unprecedented sales in this sector’. During the year 2008, the value of the incentive was € 1,000 if a vehicle with more than 10 years was delivered and is € 1,250 if a vehicle older than 15 years old is delivered (Wedeniwski, 2015).

Given the economic constraints and prospects for the evolution of the economies of countries and the situation in which consumers find themselves, it is to be expected that sales in the automotive sector tend to decline in the near future. The fiscal and financial factors that influence the sales of the automobile industry have issue in its measurement process and so it is difficult to suspect that automotive industry will also be in crisis (ŠMÍDOVÁ, 2013). However, the management of the German Automotive risks their operations and supply chain, they endanger their current and future business. By allowing various organisations like Volkswagen, Audi to gain more and more insight into economic and market trends as well as potential legal action and other factors, the German Automotive industry can proactively respond to mitigate risk. The German Automotive industry is required to take calculated risks to achieve their desired goals. Improved insights into the risks facilitate agile reactions when serious problems arise and entity Insight is a powerful tool that helps companies conduct on-going observations tailored to their specific risks.

Social Factors

As German Automotive industry increasingly relies on complex networks of suppliers and other third parties, they are exposed to even greater risks. In order to get an overall picture of the risk, companies first have to get an overview of the socio-cultural risk factors in order to focus on the most important details. Given the scale of current supply chain issues in the German Automotive industry, as well as the growth targets that German Automotive industry is trying to achieve by expanding into new markets, German automotive companies face significant risks if they fail to properly assess global trends and local socio-cultural norms (ŠMÍDOVÁ, 2013). Which socio-cultural risks are relevant to your business depends on a variety of factors – from the countries where German automobile companies are present, to the types of products and services they offer.

Although these factors seem rather harmless, the risk is quite real. Tsangas (2019) has defined that ‘the system of social networks and influential relationships that support business and other arrangements.’ As part of this custom, gifts are a given, but companies must exercise caution to avoid conflict with laws such as the Foreign Corrupt Practices Act (FCPA) and the Bribery Act (Tsangas et al., 2019). However, the German Automotive industry is required to understand the socio-cultural risks that enable the automotive organisations to build important business relationships while avoiding potential violations. Although these factors seem rather harmless, the risk is quite real. Dealing with socio-cultural risks can be a major challenge for German automotive companies. Interacting with a complete supply chain, not just the first level, can be nearly impossible given the scale of modern supply chains. A more practical approach is to focus on key suppliers and certain supply chain ‘hotspots’, such as subsectors like the emerging markets that are particularly vulnerable to socio-cultural issues. As such, the German Automotive industry has mitigated these measures that have provided significant outcomes for the German Automotive industry in relation to having sustainable social factors for German Automotive sector (Maharaj et al., 2016).

Technological Factors

The German Automotive industry has faced various technological risk and its corporate impact on automotive organisations. In the technological view of risk assessment, it is important to understand both the factors that can impact the business of current and future technologies and the technical risks along the automotive industry. ‘Deep talks of global risks in the German Automotive industry that technological change can affect the risk landscape in more diverse ways’ (Velásquez et al., 2017). Technological factors that may have affected the processes of the German Automotive industry or their future viability are also related to existing technologies and the development of emerging technologies. It is enough to look at the impressive progression rates of recent years to understand the speed at which these developments occur in the German Automotive industry. These include, for example, the increased use of hybrid and electric cars, the simplicity of contactless payment, and the significant impact of social online media on our everyday lives. This unbridled technological development requires rapid response from companies to keep pace with new trends and innovations, and to maintain or increase visibility within a competitive business environment to enable more proactive, data-driven decisions. In the German Automotive industry, Disruptive technology is used. The Technological implementations used by the German Automotive industry may represent operational and strategic risks that may be detrimental to company growth, for example, the meteoric (and technology-based) advancement swept away over traditional transportation services whose business collapsed completely. Furthermore, various opportunities have been highlighted by using disruptive digital technology had a significant impact on automotive organisations as the offer to consume programs expanded significantly (Reinhardt et al., 2017).

On the other side, the integration of modern technology in German Automotive industry (provided that the needs, objectives, and strategic considerations of companies are not disregarded) has provided a great benefit to companies and their customers and provide a sustainable competitive advantage. The key to doing so is important monitoring: it can help organisations identify new technologies that might potentially disrupt and proactively respond to the market, as well as to better understand potential warnings due to technical failure. Moreover, the German Automotive Companies aims to gain a competitive advantage through technology and have a viable strategy that could benefit tremendously and achieve significant and rapid ROI and cost savings (Hwee, 2015). However, as these effects are monitored seamlessly along the supply chain processes in the German Automotive industry, technology integration in German Automotive industry has provided better opportunities for skilled maintenance, programming, potentially allowing companies to attract employees.

Legal Factors

Regulations and laws are important components in ensuring equality of competition for companies and societies. They affect all business areas. Legal factors can have a positive or negative impact on both the operation and the management of companies, regardless of the country in which the company is located. Regulatory risks in German Automotive has a remarkable impact on sales, reputation, and business performance, and even occur when a company is aware of its rights and obligations. This is partly because suppliers and other third parties carry an increased risk of erratic behaviour (Della Ragione et al., 2014). On the other hand, there is a constant change in the international regulatory landscape, which requires companies to continuously gather real-time information about current and upcoming policy and regulatory changes to minimise their risk. Legal risks are a problem especially for multinational and multinational corporations, as they not only know the regulations and laws in the country where they are based but must also identify these factors for all countries or countries to which they deliver or are supplied.

Tax and Customs Regulations rules apply to all German automotive companies whose business includes the import or export of goods. These include national tax laws, tax restrictions for specific sectors, export and import restrictions, tax relief, income and corporate taxes and fiscal regulations that produce a significant impact on the organisational processes working under the German Automotive Industry (Wedeniwski, 2015).

General economic policies in the German Automotive industry increases the risk of breaching general economic policies that may affect all companies, as this type of risk factor covers a wide range of issues and aspects, such as monetary and trade regulations, property rights, state control of business activities, the promotion of certain business activities, the protection of copyright and patents, data protection laws and securities, reporting obligations. The German Automotive industry has to consider all these policies and their respective terms to provide sustainable operations for their business operations. Employee protection laws and Workers’ protection laws vary widely across Germany and therefore represent a major potential risk to business reputation or breaches of law and German automotive sector has to face various negative issues in order to cope with their current legal factors and to provide a sustainable measure that will work to save the German Automotive industry from their legal obligations (Tsangas et al., 2019).

Environmental Factors

The need to reconcile economic development with the preservation of the environment, the so-called ‘sustainable ‘, plays a role in determining the state of the German Automobile Industry. Arising from studies initiated by Velásquez (2017) which were first published in the 1980s, sustainable development is conceived as one that allows meeting the needs of the present without compromising the ability of future generations to meet their own needs (Velásquez et al., 2017). As far as the automotive sector is concerned, awareness has environmental issues associated with it, such as fuel consumption, air pollution, noise, the destination of scrap metal, carcasses of vehicles that cannot be more useful, parts used and waste. Environmental problems that need urgent solutions, and which, from various debates on the subject, including increasingly stringent laws, consumers, forcing automakers, suppliers, automotive parts to innovate technologically to achieve better and more efficient environmental performance.

Thus, the Environmental Management System (EMS) was born, which is an organisation that allows the company to evaluate and control the environmental impacts of its activities, products or services. It has guidelines adapted for the implementation of environmental policy in a given company specific of their skills, behaviour, procedures and requirements in order to assess and control the environmental impacts of their activities. In this way the EMS can be considered an innovative strategy to promote the sustainable development, which synchronizes economic growth with the growth of social well-being and the correct use of the environment, making it possible to improve people’s quality of life and the achievement of more sustainable modes of production in the German automotive industry (Jindal et al., 2011).

The environmental management in the German automotive industry underwent transformations, due to information in the various segments of society, government incentives to preserve the environment and create policies for sustainable development in the German auto industry (Tsangas et al., 2019). From the implementation of the Environmental Management Systems (EMS), the environmental audits were to evaluate environmental preservation and sustainable growth, which began to be disclosed in the company’s social balance sheet, becoming the communication vehicle of the corporation. The adjustment of the automakers to comply with environmental standards and procedures promote clean production has led to the development of reductions in the environmental damages generated by the emission of pollutants. This is an aspect every more important (Wedeniwski, 2015).