Anyone in the automobile business knows how the price of steel has skyrocketed in the past couple of years.
Now we’re seeing the price of petroleum jump again, and it’s showing up at the pump.
We also have new competition for buying steel and gasoline. Between China and India, we’re seeing a big increase in consumption.
China has quickly become a huge producer of automobiles. That requires a lot of steel. Once Chinese cars leave the assembly line, those gasoline tanks have to be filled. Suddenly China has become one of the world’s major gasoline consumers.
Soon, China will become a major competitor in selling cars on the world stage. Then we will start to see more Indian-built cars for sale in Europe and North America. Last year, MG Rover started selling Indian-built Tata Indicas badged as the Rover CityRover.
The entrenched manufacturers will have an even tougher time competing against those emerging nations. China and India probably will start with minimally acceptable quality. But in a short time, that quality will improve dramatically. Costs will be low, and so will the prices.
Think of the development of the industry in Japan and Korea. History will repeat itself.
Meanwhile, the world is going to be competing for a limited amount of petroleum products – not so much because of natural resources but because of refining capacity.
So not only are we going to be competing with our global neighbors in the marketplace – we’ll also compete for the commodities that drive our industries.
Even with US gasoline costs above $2 a gallon (about E0.40 per liter), we are not seeing a big shift in US consumers’ buying habits. But a shift to a purchasing style more in line with Europe, where small cars are king, might start when the price hits $3.
In Europe, a similar-sized fuel price would quickly alter demand for larger, more powerful vehicles. And that would disrupt the established automakers’ product lineups and business plans once again.
This industry never lacks challenges.