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The auto manufacturing industry is considered to be highly capital and labor intensive. The major osts for producing and selling automobiles include:

Labor - While machines and robots are playing a greater role in manufacturing vehicles, there are still substantial labor costs in designing and engineering automobiles.
Materials - Everything from steel, aluminum, dashboards, seats, tires, etc. are purchased from suppliers.
Advertising - Each year automakers spend billions on print and broadcast advertising; furthermore, they spent large amounts of money on market research to anticipate consumer trends and preferences.

The auto market is thought to be made primarily of automakers, but auto parts makes up another lucrative sector of the market. The major areas of auto parts manufacturing are:

Original Equipment Manufacturers (OEMs) - The big auto manufacturers do produce some of their own parts, but they can't produce every part and component that goes into a new vehicle. Companies in this industry manufacture everything from door handles to seats.
Replacement Parts Production and Distribution - These are the parts that are replaced after the purchase of a vehicle. Air filters, oil filers and replacement lights are examples of products from this area of the sector.
Rubber Fabrication - This includes everything from tires, hoses, belts, etc.

In the auto industry, a large proportion of revenue comes from selling automobiles. The parts market, however, is even more lucrative. For example, a new car might cost $18,000 to buy, but if you bought, from the automaker, all the parts needed to construct that car, it would cost 300-400% more.

Over and above the labor and material costs we mentioned above, there are other developments in the automobile industry that you must consider when analyzing an automobile company. Globalization, the tendency of world investment and businesses to move from national and domestic markets to a worldwide environment, is a huge factor affecting the auto market. More than ever, it is becoming easier for foreign automakers to enter the North American market. (To read more about this issue, see The Globalization Debate.)

Competition is the other factor that takes its toll on the auto industry; we will discuss this in more detail below under the Porter's 5 forces analysis.

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