What are the environmental factors that affect the automobile industry?

Expert Answers
thanatassa eNotes educator| Certified Educator

The term "environmental factors" refers to elements outside the industry which nonetheless are crucial to the profitability of the industry. 

First, the automobile industry is dependent on massive infrastructure, including investment in roads and the existence of a network of fuel stations. If countries decide to invest more in public transit and disinvest in road networks, then people will buy fewer cars.

Next, the most profitable cars tend to be inefficient, large luxury vehicles. Sales of these types of cars are highly dependent on fuel prices. When fuel prices skyrocket, the desire for fuel-inefficient cars decreases dramatically. 

Also, the general business environment affects car sales. Rises in interest rates or economic downturns can reduce sales. Currency fluctuations can also affect costs and sales.

Additionally, car companies have attempted to reduce the cost of labor and manufacturing through the use of global supply chains. However, these supply chains leave companies vulnerable to rising wages in the developing world, political unrest, tariffs, and fluctuations in global shipping costs.

Finally, car companies are vulnerable to lifestyle changes, including the sharing economy, which leads to people buying fewer cars. There seems to be a generational shift in progress, in which people are foregoing car ownership and are instead using forms of technologically mediated on-demand access to transportation, such as ride-sharing apps.

dswain001 eNotes educator| Certified Educator

It would appear that these two industries are worlds apart. However, many people would agree that in many ways one indirectly affects  the other. Consider all of the hybrid and energy efficient vehicles that are being produced by car companies. Enviromentalists have been saying for some time now that fossil fuels greatly harm the enviroment. Car manufacturers are responding to this by making vehicles that use Ethanol instead of gasoline. Manufacurers like  Honda, Toyota and General Motors have desighned hybrid vehicles that run on electricity and Ethanol.

Many individuals have decided to "go green" and trade in their Hummers and Expeditions for smaller cars that take less gas.

krishna-agrawala | Student

Environmental factors for a company or an industry refer to variables and conditions around that company and industry that affect its working and performance, but which cannot be controlled. For example, the weather conditions in a city may affect the sale of Ice cream in a city, but the company selling or manufacturing ice creams has Little control over the weather.

We can differentiate environmental factors from the internal variables of factors, that are under reasonable control of a company or industry. A company cannot change or influence the environmental factors, but it does have fair amount of control over impact of environmental factors on its performance. This control is achieved by, understanding, anticipating, and responding wisely to environmental factors by management of internal factors. For example, a company cannot change the weather condition, but it can manage its production and stocks of ice cream in a way that minimizes the ill effect of uncertainty and fluctuations created by changing weather condition.

To understand, analyze and deal with environmental factors, we can use the "PESTEL" framework that classifies all environmental faators in the following six groups.

  1. Political
  2. Economical
  3. Sociocultural
  4. Technological
  5. (Physical/Geographic) Environmental
  6. Legal.

Some of the major environmental factors affecting automobile industry in each of these group are described below.


  • Political climate in a different countries producing an buying automobiles regarding policies on import, export and manufacture of automobiles and automobile components. This will also include policies on allowing setting up of manufacturing plants by foreign companies.
  • Stability of governments. This may affect the future conditions in a country.
  • Taxation policies.


  • The population figures and automobile buying capacity of people.
  • Level of economic activity that affects need for commercial use of automobiles


  • Lifestyle and preferences of people, that impact their choice of types of automobiles.
  • Social norms that impact the decision to own and use automobiles versus other means of transport.


  • Technology relating to automobile designs
  • Technology of automobile manufacture
  • Technological developments that may increase or decrease use of automobiles. For example, Internet increase number of people working from home and thus reduce automobile use for commuting?

(Physical/Geographic) Environmental

  • Physical conditions effecting ability to use automobiles of different types. This will also include state infrastructure such as roads for driving vehicles.


  • Legal provision relating to environmental population by automobiles.
  • Legal provisions relating to safety measures.

For more information on environmental factors refer to:

Johnson, G. and Scholes,2002,  K., Exploring Corporate Strategy: Text and Cases, Prentice Hall, U.K.

riley0816 | Student

You have the obvious, exhaust fumes in tailpipes, tires and old cars in junkyards, but there are cures for these factors.  For example, there are higher standards on exhaust fumes, and most of the automobile can be recycled - steel, batteries, etc.  A good website that you might find what you are looking for is http://www.greenercars.org/guide_environment.htm.

Hope that helps.