The industry was hurt by the recession, but will revive as conditions improve.
New York, NY (PRWEB) February 01, 2014
Over the five years to 2013, the Automobile Engine and Parts Manufacturing industry experienced revenue volatility due to the economic downturn; however, revenue trended higher as economic conditions improved. Industry operators manufacture motor-vehicle gasoline engines and related parts including valves, pistons, crankshafts, camshafts, fuel injectors and pumps. However, hybrid engines, electric vehicle (EV) motors or diesel engines are not relevant to this industry. During the economic downturn, unemployment increased and consumer confidence plummeted. In turn, consumers put off purchases of big-ticket items, such as new automobiles. As demand for automobiles slowed, automakers halted purchases from upstream suppliers, such as automobile engine and parts manufacturers. Nevertheless, this trend reversed as economic conditions improved. IBISWorld expects industry revenue to grow at an annualized rate over the five years to 2013, with an increase in 2013.
International trade is the main driving force for industry revenue. Exports are expected to account for a significant share of industry revenue in 2013, of which a majority is destined for the United States. Because the United States accounts for such a large share of industry revenue, domestic automobile engine and parts manufacturers are heavily reliant on their neighbour's economic conditions. Furthermore, industry operators benefit from the North American Free Trade Agreement (NAFTA), which eliminates trade barriers between Canada, the United States and Mexico. With exports expected to rise, along with declining prices for major inputs, such as steel, industry profit margins are expected to trend higher.
The industry has a low level of concentration, with the largest player expected to account for a significant share of industry revenue in 2013. Over the five years to 2018, according to IBISWorld Industry Analyst Brandon Ruiz, “industry operators are expected to face several obstacles that will increase price-based competition, and thus decrease profitability.” For example, “automakers are increasingly manufacturing engines and parts in house, as opposed to using a third party, such as industry operators,” says Ruiz. Additionally, there has been a growing trend toward establishing a manufacturing presence in Mexico to take advantage of more affordable labour. Despite these challenges, industry revenue is expected to increase as demand for automobiles trends higher, leading automakers to increase purchases of industry products. IBISWorld expects industry revenue to grow at an annualized rate over the five years to 2018.