SUMARIO

1. Different interpretations of the automotive industry / 2. Contribution of the automotive industry to the economy in the context of the European core-periphery relationship / 3. Summary / 4. Bibliography

1. DIFFERENT INTERPRETATIONS OF THE AUTOMOTIVE INDUSTRY¹

For measuring the contribution of the automotive industry to the economy, there are generally two kinds of approaches. On the one hand, the activity-based interpretations use economic activity classification. Among others there are the Statistical Classification of Economic Activities in the European Community (NACE), the Standard industrial classification (SIC) introduced for U.S. government agencies and the Harmonized System (HS) developed by the World Customs Organization. On the other hand, for measuring its global embeddedness by analyzing its foreign trade, there are product-based approaches using the Standard International Trade Classification (SITC) or Combined Nomenclature (CN).

To give a holistic picture about the automotive-related activities, the paper first reviews the previous activity-based approaches; then makes an analysis based on its own NACE database. The backbone of the study is the creation of a statistical framework based on these previous researches. Therefore, in the introductory part of the paper, I devote more space to the different interpretations. Based on the literature, there are several approaches regarding automotive-related activities (i.e. production and service activities also belong to the automotive industry). Based on the vertical integration of the production, the supply chain involves many other activities that sell their products to other industries as well. The most commonly used nomenclatures are the NACE Rev 1.1 Division 34 or later the NACE Rev. 2 Division 29², or in the SIC 371 in terms of analyses to U.S. automotive industry³, where the activities include manufacturing of passenger and truck bodies as well as parts and accessories related to the vehicle production.

In the case of employment and foreign direct investment, Pavlínek⁴ defined broadly the automotive industry. He added NACE Rev. 2 Division 30 to the common used Division 29. Schulten and Müller ⁵ similarly combines the two activities in its analysis. The authors broaden the scope of the investigated activities: namely the manufacture of other transport equipment contains ships and boats, railway locomotives and rolling stocks, air and spacecraft and related machineries and furthermore military fighting vehicles as well. Lengyel⁶ also uses a broader view, he takes into consideration eight NACE Rev. 1.1 divisions.⁷ Eurostat gives a much broader/complex definition (Table 1) of the automotive industry adding some related activities. In addition to the NACE Rev. 2 Division 29, (manufacture of motor vehicles, trailers and semi-trailers) Eurostat⁸ listed 12 other activities (Table 1) connected to the automotive production, enumerating activities from the manufacturing industry to the service sector. The four-digit NACE classes included also other activities not related to automotive production, therefore we found that there are activities with considerable relevance and there are some with hardly any relevance.⁹ Demand for electric lighting for motor vehicles and manufactured goods, for example, represents only a smaller market segment (only about 20 percent).

he technological change in the automotive industry fundamentally transforms the value chain ^10,11, thus attracting new industries into the production vertical. For example in the last decade, manufacturing of Li-ion batteries (part of the manufacture of batteries and accumulators: NACE Rev. 2 27.20) has grown more than 10 times¹², giving the 73 percent of the built-in output (MWh) in 2010. The main driver is the growing production of alternative fuel¹³ vehicles.¹⁴ Due to electromobility (replacement of internal combustion engines), rising demand for automotive batteries in OEM (Original Equipment Manufacturer) and aftermarket segments, the role of battery production will increase.

Table 1.

A broader interpretation of the automotive-related industries by Eurosat

Alternate Text: Table 1 A broader interpretation of the automotive-related industries by Eurosat.
  —Source: author, based on Eurostat 2008.

According to other interpretations, these classifications do not cover the whole circle of automotive-related activities. McAlinden and Smith¹⁵ investigated the U.S. automotive parts industry and emphasized that the size and complexity of auto parts manufacturing lead to difficulties in defining the range of the automotive companies (i.e. automotive-related industries). Therefore, their research tried to focus on activities that specialize in the manufacture of products for automotive use as well as other automotive parts and components. Using SIC nomenclature, they specified nine supplier industries related to automotive industry.¹⁶

During the investigation of the U.S. automotive sector, McAlinden and his co-authors ¹⁷ and later Chung his co-authors¹⁸ called the attention to some accounting issues. Firstly, among the above mentioned nine supplier industries, there are branches that make nonautomotive products as well. For instance, in the case of the companies producing internal combustion engines (SIC 3519: non-automotive gasoline engines, automotive diesel engines, engine parts), only one third of their output is destined for automotive use. The observation of Chung and his co-authors (2003) also included companies whose primary activity was not the production of vehicle components, but automotive parts or stampings (SIC 3714 or SIC 3465) gave more than 10 percent of their sales. Secondly, in the turnover of the automotive-related companies the aftermarket sales also have an important role. Manufacturers of tires and inner tubes (SIC 3011) sell most of their products “aftermarket”. Therefore, the retail trade sale of the automotive parts comprises a significant part of their production. On the other hand, if we take into consideration the SLI¹⁹ battery market, 68 percent of their turnover stemmed from aftermarket sales in 2015.²⁰

In the subsequent analyses of Fulton and his co-authors²¹ a wider interpretation is applied in order to offer a comprehensive picture about the contribution of the automotive industry to the U.S. economy. To estimate the employment and income contributions of the U.S. automotive sector, they consider the spin-off effect of the sector. The spin-off effect includes the expenditure-induced effect in addition to the indirect effect. Therefore, the scope of related activities became quite wide, from the construction, trucking, credit and finance, wholesale trade, retail trade until the other services as well (Table 2). Just to illustrate the difference between SIC 371 – that employed 1.01 million people in 2000 – and the data supplemented by the industry’s spin-off effect, 1 direct job in the automotive assembly generates 6.6 additional spin-off jobs i.e. 2.9 further jobs at the supplier industries and further 3.7 expenditure-induced employment²² in general. Hill and her co-authors²³ confirmed this result when they concluded that every direct OEM job adds 6.6 additional jobs (automotive parts sector, selling and servicing new vehicles) therefore close to 7.3 million U.S. jobs were related to the automotive industry in 2015. At the same time, the multiplier effect depends on our definition of automotive industry. For instance, elsewhere in their paper Hill and her co-authors²⁴ refer to a much wider base²⁵ where a 4.7-fold employment multiplier effects was detected. Concerning the Japanese automotive industry, the Japan Automobile Manufacturers Association evinced a 6.5-fold employment effect in 2015.²⁶ The European Automobile Manufacturers’ Association (ACEA) measured in Europe a 5.3 difference between direct and total employment.²⁷

In this context, McAlinden and his co-authors²⁸ applied the holistic approach of the automotive production and handled the upstream and downstream sides of the industry. They separated the upstream side to commodities (e.g. metal, plastics and rubber) and functions (e.g. heating and cooling, trucking and warehousing).

Therefore, if we want to specify the contribution of the automotive-related industries within the automotive-related activities, first we should take into consideration the structure of the whole automotive supply chain. Their role at the production and after sales period must be distinguished as upstream and downstream activities. Upstream activities of the automotive value system are organized hierarchically where automotive-related companies have linkages with the OEMs. At the downstream level, automotive-related activities are involved in distribution, after sales services and recycling where the linkages are established among the automotive-related industries, traders and consumers (end users).

Table 2.

Private nonmanufacturing sectors related to automotive industry

Alternate Text: Table 2 Private nonmanufacturing sectors related to automotive industry.
  —Source: Fulton et al. 2001, p. 38..

On the other hand, the downstream industries contribute to maintenance and the use of the vehicle. This means that the downstream activities are beyond the commonly used aftermarket approach (Table 2); they are not only related to maintaining, but to using the motor vehicles. Heneric and his co-authors consider the following as downstream activities²⁹: motor vehicle retail enterprises (NACE 50.1); motor vehicle maintenance and repair enterprises (NACE 50.2); the sale of motor vehicle parts and accessories enterprises (NACE 50.3); the sale of motor bikes, motor bike maintenance and accessories enterprises (NACE 50.4) and the retail sale of automotive fuel (NACE 50.5

[Figure ID: gf1] Figure 1.

The spin-off contributors of the automotive production

Alternate Text: Figure 1 The spin-off contributors of the automotive production.
  —Source: author, based on McAlinden et al. 2003.

In order to estimate the total spin-off effects of the industry McAlinden and his co-authors³⁰, expanded the impacts of the industry. They separated downstream economic contributions provided by support activities maintaining the motor vehicles, and the socioeconomic contributions resulting from the employment opportunities that make integral use of a road vehicle. The downstream industries employed 3.2 million people in 2000, among others used vehicle dealers, automotive repairmen, car washers, gasoline traders, oil and gas field manufacturers, highway and street construction workers or automotive recyclers. On the other hand, the so called socioeconomic impact of the downstream industries is related to the public’s sense of personal freedom i.e. the mobility in space. The socioeconomic impacts affected 3.9 million employees working as a taxicab- truck- and bus drivers. According to McAlinden and his co-authors³¹ along with the socioeconomic impacts, vehicle related employment represented almost 9.8 percent of U.S. employment in 2001.

Based on the idea of McAlinden and his co-authors³² the automotive industry can be separated as the upstream and downstream side of the following automotive-related activities (Figure 1). Concerning the employment figures, the downstream side exceeds the upstream side. In addition, taking into consideration the value added along the supply chain³³, the “smile curve” both has a high added value on the upstream and downstream site.

2. CONTRIBUTION OF THE AUTOMOTIVE INDUSTRY TO THE ECONOMY IN THE CONTEXT OF THE EUROPEAN CORE-PERIPHERY RELATIONSHIP

The automotive industry is a key branch for Europe’s prosperity. The sector employed 13.3 million people (manufacturing, service and construction) in 2016 and accounted for 6.1 percent of the EU’s total employment.³⁴Regarding direct automotive manufacturing employment, Czech Republic has the leading position where 3.22 percent of the active population works in the sector. Slovakia ranks the second (2.6 %), Germany the third (2.04 %), Hungary the fourth (2.04 %) and Romania the fifth (2.0 %). Poland (1.10 %) and France (0.75 %) are close to the EU 28 average (1.05 %), while Portugal (0.68 %) and Spain (0.67 %) are not far below the average. The sector has a significant foreign trade surplus of 90.3 billion euros, exports are nearly three times higher than imports.

The importance of the automotive industry is also outstanding in other countries’ economic indicators. According to the data of the Slovak Automotive Industry Association (ZAP), in 2017 the Slovak automotive industry accounted for 12 percent of the country’s GDP, 44 percent in industrial production and 35 percent in the industrial export.³⁵ The contribution of the vehicle industry to the Hungarian economy is outstanding, accounting for nearly ten per cent of GDP, and 25 per cent of the exports came from the sector in 2017.³⁶ The Spanish automotive products represent 17.9 percent of total exports, and accounted for 8.6 percent of GDP in 2017.³⁷ The automotive industry has an outstanding role not only in these small export oriented countries, but in the core countries as well. In Germany the industry has the largest export share, accounting for more than 16 percent of all exports in 2017.³⁸ In France the automotive industry is the third largest exporter next to aeronautics and agri-foods, accounting for 10% of total exports in 2017.³⁹

The global pattern of the automotive production as well as the position of the European production in it has been examined by several authors⁴⁰. The analyses highlighted the dependency relationship – so called “supply role” – between advanced and semi-peripheral countries. It draws a center – peripheral pattern within the global automotive industry.

The center-periphery concept was introduced by Wallerstein to model the development of the modern world’s economic system. Prior to this, a number of authors examined the issue of development spreading.⁴¹ Paul Krugman interprets territorial concentration as the most important concept of economic geography.⁴² Later he distinguished ⁴³ the centripetal factors pointing towards concentration and centrifugal factors pointing towards deconcentration.

Based on the different approaches, maps of the center-periphery relations of Europe can be drawn. Including the most famous Roger Brunet’s concept of the ‘European Backbone’ (known as the ‘Blue Banana’), which has drawn the development axis of Europe on the basis of population density in Europe.⁴⁴ Or ‘Central European Boomerang’ drawn by the potential developing centers based on infrastructure density and innovative urban areas.⁴⁵ These interpretations separate the economically developed core areas of Europe from the semi-peripheral and peripheral areas surrounding it.

According to automotive studies that analyzed the position of the Southern, Central and Eastern European countries (see above), the role of the semi-peripheral countries in the European value chain has been limited to the assembly of vehicles with medium- or low added value. If we look at the ownership structure of road vehicle manufacturing, we come to a similar conclusion: Western European producers have a dominant (sometimes exclusive) share in manufacturing capacity⁴⁶. Regarding the global position of the Southern European and the Central and Eastern European economies, according to Lung⁴⁷ and Pavlínek⁴⁸ the European automotive value chain is characterized by two hierarchical structures. On the one hand, the assembly-based hierarchy resulted a centrum-periphery geographical pattern where France and Germany are the core area and the rest of the European countries belong to the peripheral states. The high-end models are assembled in the core countries while mainly the smaller vehicles⁴⁹ are assembled in the periphery like Spain and Portugal and the Central and Eastern European countries. On the other hand, the function-based hierarchy means that strategic functions like R&D centers are concentrated in the home countries of the automotive companies and the supplier as well⁵⁰. The assembly functions were more widely scattered following the above-mentioned assembly-based hierarchy.

As mentioned earlier, there are different interpretations of the contribution of the automotive industry to the economy. There are studies which tried to measure the significance of the industry by quantifying its contribution to economic growth. They tried to measure the GDP contribution of the passenger car industry. During the research Tirpák and Kariozen⁵¹ observed the backward and forward (or upstream and downstream) linkages within the industry. An input-output calculation carried out by the analysis of data between 2001 and 2005, showed a contribution to GDP between 0.19-0.59 percentage points on average. The broader definition of automotive industry – originally focusing on the employment – of this paper is based on the approach of McAlinden and his co-authors⁵². Although the authors provide a rather detailed analysis of the economic role of the sector, they don’t give any detailed statistical classification of the activities related to the manufacturing and the use of the motor vehicles. The reason for this is that in some cases – for instance in the case of employment in automotive-related advertising – statistical data collection is not able to separate the aggregate records. On the other hand, the European nomenclature (NACE) doesn’t it go into details about recycling; oil and gas field machinery manufacturing; refinery of the oil products⁵³; or urban and suburban passenger land transport⁵⁴. As we can see from Table 3, because of statistical severability problems, some related activities were not taken into account. Therefore, NACE Rev. 2. 19.2 and 49.31 activities were not included in the database.

Table 3.

Contribution of the automotive industry to the economy: activities related to the manufacturing and the use of motor vehicles

Alternate Text: Table 3 Contribution of the automotive industry to the economy: activities related to the manufacturing and the use of motor vehicles.
  —Source: compilation of the autor.

This study is using four variables: number of enterprises and number of employees; production value; gross value added per employee. Concerning the availability of data, there are detailed figures about the number of enterprises and the number of employees from almost all countries. In the case of the production value and gross value added per employee, more data are missing. Looking at the variables there are significant differences among the data. The figures show a fairly mixed picture: for some indicators the ratios are different from, for other indicators the values are in line with previous researches⁵⁵ which emphasize the outstanding importance of the downstream activities within automotive-related activities.

In the case of the distribution of enterprises related to automotive industry (Figure 2) wholesale and retail trade, repair of motor vehicles and motorcycles (G) and the transportation and storage (H), as well as administrative and support service activities (N) have a high representation, exceeding the automotive manufacturing activities and the construction sector (F4211) in all examined countries. The latter two activities represent only 1.4-2.8 percent of all automotive-related activities, which shows a strong labor concentration in these activities. Looking at the average number of the employees by large activities (C, F, G, H+N) especially the sum of C2211⁵⁶ and C29⁵⁷ have high figures. These companies employ 10-40 times more people (50-340 employed) than the average. Concerning the companies that are involved in G, H and N activities, there are no significant differences among the countries. Only one characteristic of the Central and Eastern European countries can be mentioned, which may be a consequence of the center-peripheral location. The H and N activities have a greater share than wholesale and retail trade (G) compared to the core countries. This can be linked to the size of demand that is much lower in the semi-peripheral EU countries than in the countries that belong to the center.⁵⁸

[Figure ID: gf2] Figure 2.

The distribution of the automotive-related enterprises by main sectors as a percent of the total number of activities related to the manufacturing and the use of motor vehicles, 2016

* some data are missingNote: C: manufacturing activities related to automotive industry F: F4211 Construction of roads and motorways G: wholesale and retail trade, repair of motor vehicles and motorcycles related to automotive industry H: transportation and storage related to automotive industry N: administrative and support service activities related to automotive industry
Alternate Text: Figure 2 The distribution of the automotive-related enterprises by main sectors as a percent of the total number of activities related to the manufacturing and the use of motor vehicles, 2016.
  —Source: authors’ calculations based on Eurostat 2019.

In the case of the number of employees, the significance of the aforementioned activities (G, H and N) is no longer so obvious (Figure 3). The employment related to automotive manufacturing (see below table 3) has significant share (between 30 and 50%) in the countries with ‘relatively significant’ automotive industries. In the Czech Republic, Romania, Slovakia, Germany and Hungary the employment are over 30 percent of the sum of the activities related to manufacturing and use of the motor vehicles.⁵⁹ The EU28 average of the manufacturing activities is 23.1 percent. In Spain and Portugal the wholesale and retail trade, repair of motor vehicles and motorcycles activities show a very high value. Regarding the differences, there are no discrepancies based on regional position, however the importance of the automotive industry and the labor intensive manufacturing operations are reflected in the data.

[Figure ID: gf3] Figure 3.

The distribution of the automotive-related employees by main sectors as a percent of the total number of activities related to the manufacturing and the use of the motor vehicles, 2016

* some data are missing Note: C: manufacturing activities related to automotive industry F: F4211 Construction of roads and motorways G: wholesale and retail trade, repair of motor vehicles and motorcycles related to automotive industry H: transportation and storage related to automotive industry N: administrative and support service activities related to automotive industry
Alternate Text: Figure 3 The distribution of the automotive-related employees by main sectors as a percent of the total number of activities related to the manufacturing and the use of the motor vehicles, 2016.
  —Source: authors’ calculations based on Eurostat 2019.

From the point of view of our investigation, the most important factor is the spin-off effect of the automotive manufacturing activities on employment. Firstly, table 4 shows the share of the direct employment (i.e. NACE Rev. 2 C291: Manufacture of motor vehicles and C292: Manufacture of bodies (coachwork) for motor vehicles; manufacture of trailers and semi-trailers), based on the method of McAlinden and his co-authors⁶⁰, within automotive industry what compare the direct employment and the activities (NACE Rev. 2 C293 Manufacture of parts and accessories for motor vehicles; C2211 Manufacture of rubber tyres and tubes; retreading and rebuilding of rubber tyres) related to automotive manufacturing that include the supplier employment as well. Employment figures show quite large differences among the countries, which can be traced back to the structural differences and specialties in the industry, as well as in their position within the global value chain.⁶¹ The core countries and Spain have a higher rate in vehicles production while the semi-peripheral countries have a relative higher rate in parts production, despite the intensive assembly growth happening in the last two decades. Secondly, the table also shows the differences regarding the multiplier effect in the last row. With regard to the multiplier effect (last row in the table) on employment, there is no significant difference between the central peripheral countries. A correlation can be found with the proportion of direct employees (correlation value: 0.81), i.e. where the proportion of direct employees is higher, as in Germany, Romania, the Czech Republic and France, the multiplier effect is smaller. If we compare our data to the U.S. or Japanese figures (Table 4), we can see that the direct employment spin-off effect is similar to the countries with relatively low direct employment.

Table 4.

Activities related to the manufacturing and the use of motor vehicles in the following sections Number of employees in 2016

* data on employment are not available for the Czech Republic, therefore no major conclusions can be drawn; ** latest year available; *** in 2001

Alternate Text: Table 4 Activities related to the manufacturing and the use of motor vehicles in the following sections Number of employees in 2016.

Note:.

^fn67n.a.: not available

NACE Rev. 2 C293 Manufacture of parts and accessories for motor vehicles; C2211 Manufacture of rubber tyres and tubes; retreading and rebuilding of rubber tyres

Source: authors’ calculations based on Eurostat 2019; McAlinden et al. 2003; JAMA 2017

Unlike the number of enterprises and employees, in the case of production value (Figure 4) direct automotive manufacturing activities have a high share in almost 50 percent of the countries. Figures of Spain, Poland, France, Portugal and Italy are below the EU28 average. There are three countries: Romania, Hungary and Germany where automotive manufacturing related activities have a very high share because the car industry has a strong position, as we saw, in terms of employment as well. Similar to the previous figure there are no center-peripheral characteristics.

[Figure ID: gf4] Figure 4.

Automotive-related activities in the following sections Production value in 2016, as percent of the total automotive related activities

* data on production value is not available for the Czech Republic, therefore no major conclusions can be drawn; ** latest year available Source: authors’ calculations based on Eurostat 2019
Alternate Text: Figure 4 Automotive-related activities in the following sections Production value in 2016, as percent of the total automotive related activities.

During the whole analysis, we have not been able to detect the decisive importance of center-peripheral location in any case, except the value added figures that show the lag of the semi-periphery region, in particular in the new Central and Eastern European EU member states.⁶² Concerning gross value added per employee (Table 5) almost all core countries’ values are above EU28 average figures. For automotive manufacturing activities (i.e. NACE Rev. 2 C activities), the Czech Republic, Hungary and Slovakia have outstanding values just like the Iberian countries, where Spain has above average values. This confirms the previous researches about the role of the semi-peripheral countries in the European value chain, which has been limited to the assembly of vehicles with medium- or low added value. However, a catching-up can be detected in the Southern European countries in other automotive related (spin-off) activities.

Table 5.

Automotive-related activities in the following sections Gross value added per employee (in 2016; ths. euros), Values in bold letters show figures above the EU average

* data on gross value added per employee are not available for the Czech Republic, therefore no major conclusions can be drawn; ** latest year available Source: authors’ calculations based on Eurostat 2019

Alternate Text: Table 5 Automotive-related activities in the following sections Gross value added per employee (in 2016; ths. euros), Values in bold letters show figures above the EU average.

3. SUMMARY

The objective of this research was to investigate the contribution of the automotive industry to the domestic economy in a regional development approach. Therefore, the study compiled automotive related activities in order to compare the automotive industry’s spillover effect between the core and peripheral countries. Thus, the backbone of the paper is the creation of a usable statistical framework to measure automotive spill-overs. That is the novelty of the research to set up this framework based on the NACE nomenclature which provides an opportunity to examine spin-off effects and compare individual countries all over the world. Based on this statistical framework, we examined the center and the semi-peripheral countries with different indicators and reached the following conclusions.

Firstly, we found that automotive manufacturing has an outstanding employment multiplier effect in all countries, which coincides with previous results.

Secondly, there was no significant difference between the central peripheral countries with regard to the number employees, production value and multiplier effect on employment. As long as there is a high concentration of the direct manufacturers and the construction sector at the distribution of the automotive-related enterprises, the number of the G, H and N automotive related sectors dominated the figures. Employment figures and production value showed quite large differences among the countries, which can be traced back to the structural differences and specialties in the industry, as well as in their position within the global value chain. In the case of the number of employees, activities related to direct automotive manufacturing had significant share in the countries with ‘relatively significant’ automotive industries (the Czech Republic, Romania, Slovakia, Germany and Hungary). In the case of production value, direct automotive manufacturing activities had a high share in almost half of the countries, but as previous figures showed there are no center-peripheral characteristics.

Thirdly, we could detect the decisive importance of center-peripheral location only in the number of enterprises and the value-added figures. For the former, market demand (economic development), for the latter, the position within the automotive manufacturing. It confirmed the previous researches about the role of the semi-peripheral countries in the European value chain, which has been limited to the assembly of vehicles with medium- or low added value.

As a conclusion, it can be stated that the differences cannot always be explained by the center-peripheral dependency approach, diversion is more dependent on the position of automotive production in the national economy and at the same time within the global automotive value chain.