6. Global Value Chains in Automobiles

Benito Mussolini, quoted in from Maxton and Wormald (2004, 3).

Discussion on the pre-twentieth-century history of automobile manufacturing is taken from various encyclopedias and materials available on the Internet.

It was a three-wheeled vehicle—two wheels at the rear and one in the front—which weighed 8000 pounds and had a top speed of roughly 2 miles per hour.

Located in Astoria, Queens, New York City, the company lasted up to 1897. The company also produced petrol engines for tramway cars, carriages, quadricycles, fire engines, and boats in a plant located in Hartford, Connecticut.

There were, however, hundreds of automobile parts manufacturers in the US at that time. Automakers were primarily assemblers and distributors—relied on already established companies for auto parts, and often adopted parts that were made for other purposes. Among the 50 largest auto parts suppliers in 2007 in the US, 20 predated the establishment of the motor vehicle industry in the 1890s. For example, Du Pont was established in 1802; Navister was established in 1831; and Leland & Faulconer was established in 1890 (Klier and Rubenstein 2008, 34–35).

See Chap. 2 of Klier and Rubenstein (2008) for further details on the consolidation of auto assembling and auto parts manufacturers in the US in the early twentieth century.

The Ford car had three major parts: running gear, body, and tires. Running gear was purchased from Dodge Brothers at a cost of $250, body and seat cushions were purchased from Wilson at a cost of $68, and tires were purchased from Hartford Rubber Works at $10 each. The car was sold at $750, with subtraction of advertising and selling costs, Ford made a hefty $150 profit, 20 percent of gross revenue (Klier and Rubenstein 2008, 37–38).

In 2014, Bosch also acquired German-based ZF Friedrichshafen AG—one of the top auto parts producers in the world that specializes in transmission, chassis components, and steering systems. The ZF in turn had acquired US-based TRW—another top-tier auto components supplier that specializes in steering, suspension, and braking and engine components.

SMEs, however, now had greater opportunities to participate in less capital- and technology-intensive Tier-3 or Tier-4 levels, such as manufacturing of textiles, glass, plastic, electronics, rubber products, and in after-sale segments of auto GVCs in local and regional markets. After-sale services, for example, provide greater opportunities for SMEs. A 2004 study on the sales of a large automaker revealed that its sales of $9bn in parts and services contributed $2bn in profits, while its car sales of $150bn produced profits of just $1bn. SMEs, with limited financial and technical capabilities, are well positioned to capture this opportunity by providing just-in-time and on-the-site services (Pingqing et al. 2008).

Global auto production grew by 5.9 percent annually during 1950 and 1973, but since the oil shock of 1973, the growth rate fell to just 1 percent between 1973 and 2003. In fact, the industry came to a halt during the 1999–2003 period (Maxton and Wormald 2004, 4).

China, indeed, emerged as the largest automobile producer in the world in 2008.