The automotive sector represents more than a simple industry. It embodies the economic and technological power of nations, the lifestyle and consumption patterns of societies, the dynamics of urban and territorial development, and acts as a national barometer of economic success and failure. This book explains how the car industry works and analyses the challenges both for the sector and for the economies that rely on the industry for jobs, growth and innovation. It explores an industry that has been under severe pressure in industrialized countries for many years – factories have closed, jobs have gone and brands and manufacturers have disappeared – yet world production has never been higher, reaching new peaks annually. The authors investigate how western and Japanese manufacturers still dominate the market, despite the challenge posed by Korean, Chinese and Indian competitors. They examine how changing environmental policies and consumer preferences are moving the industry towards electric vehicles; how usage patterns are evolving, favouring car-sharing; and how advances in electronics and digitalization are set to further reshape the sector with autonomous and self-driving vehicles. The book offers readers a short, non-technical guide to the workings of a fast-moving industry that remains of huge importance to both national and global economies. Fabio Cassia is Associate Professor in the Department of Business Administration at the University of Verona. Matteo Ferrazzi is currently manager of a leading financial institution. He has been a researcher at the Italian think tank Prometeia and Senior Economist at UniCredit. He is also Adjunct Professor at the Catholic University in Milan, and the author of various books and publications concerning Central Eastern European economies and the manufacturing sector. He holds a Master Degree in Economics from Bocconi University. The Economics of Cars By Fabio Cassia, Matteo Ferrazzi Agenda Publishing Copyright © 2018 Fabio Cassia and Matteo Ferrazzi All rights reserved. ISBN: 978-1-911116-72-1 Contents 1. The automotive industry: a source of technological and managerial innovation, 1, 2. Automotive production: how and where, 13, 3. Demand: new consumers at the doorstep, 35, 4. Marketing strategies: how supply meets demand, 49, 5. The car of the future, 81, Conclusion, 103, Bibliography, 109, Index, 115, CHAPTER 1 THE AUTOMOTIVE INDUSTRY: A SOURCE OF TECHNOLOGICAL AND MANAGERIAL INNOVATION "We want to hymn the man at the wheel, who hurls the lance of his spirit across the Earth, along the circle of its orbit." Filippo Marinetti, Futurist Manifesto (1909) Cars are not simply a means of transportation: they are icons of style, status and affluence. They reflect consumers' preferences and have always had a prominent place in the collective imagination due to their technology, the mobility they enable, the opportunity for travel and leisure and the enduring fascination with motorsport and racing. The automotive industry means something more than other manufacturing industries. The history of the manufacturing industry and the history of the automotive industry were strongly intertwined throughout the twentieth century and such ties will probably remain highly relevant in the future. Vehicle production – including passenger cars, light commercial vehicles and heavy trucks – has driven the industrial development of many countries on several continents and has been a source of incessant innovations and technological improvements. Hence, the automotive industry has become an emblem of industrialization itself. The automotive industry's role in the economy cannot be compared with any other manufacturing industry. If it were a country, it would be the fourth largest economy in the world. The size of the industry's revenues – estimated at $3,500 billion and projected to reach $6,700 billion by 2030 (McKinsey 2016) – is comparable to Germany's gross domestic product and is greater than that of the UK, France, India and Brazil. Moreover, the industry employs approximately 9 million direct workers all over the world. The automotive industry not only encompasses vehicle production. More than 15,000 parts and components are required to assemble a single vehicle and several industries are involved in their production, such as steel, glass, plastic and rubber, textile and electronics. According to available estimations (OICA 2017) each direct automotive sector job supports at least another five jobs in the supply chain. The economic importance of the automotive industry is even greater if one considers not just vehicle production but also services related to sales, marketing and maintenance throughout vehicle life. Before reaching the market, a vehicle is enriched by the addition of several services, which are not limited to warranty services but include also sophisticated loan schemes, assistance packages and many other advanced s