European Union’s Impact on Automobiles Industry analysis

Since the earliest mercantilists, global trade has been expanding. Due to specialization, nations have turned to international trade to purchase goods they cannot make themselves and export excess production. Trade barriers and intense market competition brought on by numerous participants and a variety of commodities are just two of the difficulties that international trade must overcome. In order to assure better business conditions and the flow of commodities, countries have established regional economic integrations encompassing certain regions. Economic integration is the agreement between certain countries to end discrimination against different states’ economic units (Daniels and Radebaugh 1992). The European Union is one of the oldest economic unions in the world (EU). These trade integration unions have impacted on different sectors of the industries in the world. This paper will focus on analyzing the consequences of the European Union on the automobile industry in the European nations.

The Development of the European Union

The European Union is one of the most substantial, most sizeable and far-reaching regional economic integration groups worldwide (Daniels, Radebaugh and Sullivan, 2004). The European Union started as a Customs Union, but with the establishment of the single currency, the euro, the European Union become one of the most ambitious unions in the European nations. The Union has been moving towards a single market since the passage of the European Act of 1987. The act included an elimination of the existing trade barriers to ensure a free market.

The European Automobile Industry

The United States, Germany, and France have dominated the automotive sector since 1960 (Edelhoff, 2004). This industry is one of the most important industries in the European nations. Most European automobile production is exported; around three-quarters of the total European vehicles are traded within the integrated regions.

The Impact of European Union on Automobile Industry

The European Union through the European Commission has realized the potential of the car sector as the largest foreign investment and is proactive in encouraging and safeguarding the industry. Through this, the Union has brought about several impacts to the automobile industry in the various regions.

The primary objective of the European Union in the automobile industry is to create and adopt a market regulation for the motor-based industries, comprehensive enough to regulate to industry. This Union’s objective has influenced to fair competition among the nations and improved quality production. The rules ensure quality maintenance and improvement and create a stable market within the Union for the automobile produce.

Production of vehicles requires high skilled labor, technology and vast amounts of capital. Not all European countries building cars were endowed with all these factors of production. The European Union has enabled free movement of skilled labor and technology across member countries. The European money markets have provided investors with a platform to lend and borrow money. This has enabled the European countries without some factor endowment to be able to produce, hiring labor and technology from the other nations.

The removal of most trade barriers by the European Union has enabled automobile industry to explore many markets, especially in the developed countries. Most European countries are developed; improvement in trade among the developed nations has increased the manufacturer’s income. The free trade has therefore increased the performance of these industries thus providing high employment levels and revenues to the countries.

The flow of raw materials among the European Union members has improved. Most European countries produce steel. However, some automobile manufacturing countries have a low quantity of steel available locally. The European Union’s elimination of trade barriers have ensured an enhanced flow of steel, and this has improved the performance of automobile industries in the European nations.

Auto manufacturers in the European Union have gained market shares in the mature markets outside its member states. They have invested in some overseas markets, but trade restrictions have depressed these opportunities and reduced the industry participation in the foreign market. The European Union has their tariffs and non-tariff restrictions that discourage foreign competition for producers outside the European Union nations.

The European Union has signed some bilateral trade agreements that allow automobile industries to sell most of its products within the European Nations; this has affected to the challenges of reduced performance of the automobile industries. The increasing reduction of the domestic demand among the European nations has made investors in the car industry to question such agreements.

Biofuel introduction has improved the performance of the auto industry. The automobile industry has been producing vehicles using petroleum types of diesels for so long. The European Union through the European Commission conducted research in the automotive sector and identified the capability of biofuels as a better replacement of the petroleum fuels. This study was carried out because of the increasing need for oil products and its effects on the environment. The most common biofuel in Europe is the biodiesel, it represents about 82% of biofuel production in Europe (Bozbas, 2008). The spread of biofuel use in Europe has increased the production of automobiles, which no longer have the challenge of impending depletion of world oil reserves.

Germany has been leading in vehicle production for long. It is considered the largest industry in the country and employs the most significant number of people. The European Union opened Germany to the rest of the European nations since automobiles manufacturing started in Germany. Trade integration opened markets for Germany, which increased its production to meet the international market demand since the other countries had not acquired the technology. The integration of business led to the expansion of the automobile sector in Germany and contributed primarily to the gross domestic product of Germany.

The European Union has created high strategic competitiveness through the technical harmonization done by the European Commission. The commission places some specific technical requirements for the countries producing automobiles so as to reduce cost and duplication of procedures. This has ensured efficient production in Germany and has put Germany in a strategic position among the increasing competitors.

The European Union has started and doubled corporate research aimed at enhancing innovation in the automobile industry in the member countries. They provide funds for research focusing on developing environmentally friendly vehicles. This study has improved the auto industry in Germany. The German-based companies have benefited from this research and are now producing competitive cars, which consume less fuel and have reduced effect on environmental pollution. Integrated commission’s research has also enabled German-based automobile industries to manufacture with the corresponding reduction of environmental contamination.

The trade integration (European Union) has enabled other countries like the United States, France, and Italy to imitate the technology and are now yielding competitors to Germany. The continued spread of technology has created an intense competition among the nations exporting automobiles. The countries are therefore forced to improve their qualities and reduce their prices to meet the world demand for competitive advantage.

The automobile industry has developed and sustained other industries due to some directives placed by the European Union. The European Union in 2006, advanced instruction on the requirements for car design on the End-of-Life motors (Ferrao, & Amaral, 2006). This directive aimed at inducing changes in the automobile manufacturing structure to include materials that can be reused. It involved the removal of the increased use of plastics in the manufacture of the End-of-life cars by about 14%; this would increase their recycling to around 80%. The steel recycling industry has grown as a result of this since motor vehicles are the highest provider of steel for recycling in these sectors.

Conclusion

The European Union is known to be the world’s leading Automobile producer with countries like the United States, Italy, Germany, and France being the largest producers. The Automobile industries in these nations have gained some benefits from the European integration besides facing some challenges in the European markets. The large auto industry base Present in the European countries has made an enormous contribution to the economic prosperity of Europe. The industry is the highest employer of skilled labors and plays a significant role in innovation in Europe. The European Union has expanded this industry, through research, increasing, regulated competition among the sectors. The union has also opened up free markets among the European nations for exports from the automobile manufacturing countries. Alongside the many benefits of the European Union in the auto industry, the Union has also impacted negatively in the industry. This is by placing restrictions that prevent member countries from exploring outside markets, thus reducing the industry sales. The European Union has therefore played a significant role in the success of the automobile industries in the European countries that is now considered the largest contributor to the world economy.

References

Bozbas, K. (2008). Biodiesel as an alternative motor fuel: production and policies in the European Union. Renewable and Sustainable Energy Reviews, 12(2), 542-552. Retrieved from http://www.sciencedirect.com/science/article/pii/S1364032105000614 on 11th April 2017 at 6.30pm

Edelhoff, J. (2004). The European Automobile Industry. Retrieved from http://www.grin.com/en/e-book/128175/the-european-automobile-industry on 10th April 2017 at 3.50pm

Ferrao, P., & Amaral, J. (2006). Assessing the economics of auto recycling activities in relation to European Union Directive on end of life vehicles. Technological forecasting and social change, 73(3), 277-289. Retrieved from http://www.sciencedirect.com/science/article/pii/S0040162505000946 on 11th April 2017 at 7.25pm

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