PESTEL Analysis of the Automobile Industry

PESTEL Analysis of the Automobile Industry

PESTEL analysis is an assessment of political, economic, social, technological, environmental and legal issues that affect a particular sector. This type of analysis is used to determine the major gaps and weaknesses that a particular industry may have and how companies can deal with these challenges. The automobile industry is an old industry with many investors striving to get opportunities in it every day. Despite being a lucrative industry, it can be a risky affair as it is very sensitive.

The following are the PESTEL factors affecting the automobile industry:

Political factors

The automobile industry is often affected by political factors. These include different tax regimes which may influence the number of exports and imports of automobiles. When governments raise taxes of automobiles, fewer consumers are willing to spend on them. Additionally, the investment climates created by governments can determine the growth or fall of the automobile industry. If governments put in place incentives to encourage the growth and expansion of the automobile industry then more investment will occur in the sector leading to high quality production and more consumption of automobiles.

Economic factors

Economic growth always has ripple effects on every industry. In the automobile industry, economic growth in any automobile producing country is perceived as a plus for the industry. This is because it encourages investment as well as consumption.

Prices of important commodities such as fuel and crude oil products also affect the automobile industry. When oil prices escalate, the prices of automobiles and spare parts are affected. The economic prowess of consumers also determines whether they can provide a viable market for automobiles or not.

Social factors

Social factors mainly affect consumers and market access for investors. Populations which are developed and have high numbers of middle class and upper class citizens tend to provide a ready market for the automobile industry. On the other hand those in the lower social class may find it difficult to afford their basic needs let alone luxuries like cars. It would therefore be more sensible for investors to set up automobile companies in the right areas.

The types of vehicles which are sold in a region are also determined by the social aspect. Some clients prefer vehicles which are cheaper and consume less fuel while others look at the speed of a vehicle. There are also consumers who move with the latest trends and the class associated with the vehicle. The consumer taste and preference can also be used in determining which cars to manufacture and which ones to discard.

Technological factors

The automobile industry is affected by technological factors. Changes within the industry determine new technological advancements to be incorporated into manufacture of automobiles. There are also many research and development centers where new technologically savvy innovations are designed.

Environmental factors

Climate change has largely affected the automobile industry. Manufacturers are even leaning towards designing environmental friendly vehicles. There are now electric vehicles which use energy saving cells.

Legal factors

Every country has its own laws that govern the automobile industry. There are countries which restrict automobile importation. There are also those that limit the models and years of manufacture to reduce environmental degradation within the industry.

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