Automobile Industry

Motor vehicle production constitutes an important industrial sector for many countries. More than 70 million light vehicles (defined as passenger cars and light trucks but excluding heavy-duty trucks) were produced worldwide in 2006. Production exceeded 1 million vehicles in 2006 in 16 countries on every continent: Brazil, Canada, China, France, Germany, India, Iran, Italy, Japan, South Korea, Mexico, Russia, Spain, Thailand, the United Kingdom, and the United States. During the first decade of the 21st century, global production of light vehicles was increasing at an annual rate of 4%.

With the growth of motor vehicle production worldwide has come an increasing concentration of producers. The two leading motor vehicle producers, Toyota and General Motors (GM), together manufactured one fourth of the world total. Eight other companies shared another one half of the market. Three dozen companies, mostly based in Asia, split the remaining one fourth, in part through joint ventures with one or more of the top 10 companies.

Small-scale commercial production of motor vehicles began in the United States and several European countries in the 1890s. Early carmakers located in places with expertise in producing key components, especially gasoline engines and bodies. Also critical was proximity to sources of capital willing to invest in a risky new industry with uncertain prospects.

Under the influence of the Ford Motor Company, the geography of motor vehicle production was set during the 1910s. Ford's low-cost Model T held more than one half of the market worldwide, not just in the United States; minimizing transport-related production costs was one way that Ford kept the Model T price low. Ford employees calculated that the optimal spatial arrangement for motor vehicle production was to assemble vehicles near the consumers.

As a bulk-gaining product, the cost of shipping finished vehicles to consumers was much higher than the cost of packing parts into freight cars and trucks. In addition, finished motor vehicles were fragile, high-value items subject to costly damage if shipped long distances. Consequently, Ford produced most of its parts in Michigan but actually assembled its cars at three dozen final assembly plants around the United States near major metropolitan areas where most of the customers were clustered. When GM replaced Ford as the leading carmaker in the 1920s, it too produced most of its parts in Michigan and shipped them to assembly plants near major population centers.

Ford and GM, which dominated worldwide motor vehicle production during the first half of the 20th century, extended to other countries the strategy of assembling vehicles where they were sold. Rather than relying primarily on exports from the United States, the two companies opened assembly plants throughout Europe, Latin America, and Asia to meet—as well as to stimulate—growing local demand.

The changing distribution of motor vehicle sales and production worldwide has reinforced the long-standing geographic paradigm. As more consumers around the world have the income to purchase motor vehicles, manufacturers open assembly plants in these places. Thus, production has grown rapidly in Asia during the early 21st century primarily because demand from consumers in the region has grown rapidly. For example, as sales of light vehicles increased in China from 2.4 million in 2001 to 7.5 million in 2006, demand was accommodated by increasing production in China from 2.4 million in 2001 to 7.3 million in 2006. On the other hand, stagnant production levels in North America during the period reflected stagnant demand in a mature, long-saturated market.

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