The biggest management challenge facing today’s automobile industry is the constant pressure of innovation and tough competition in the market. Each leading manufacturers are worried that without putting emphasis on innovation their company might not retain or regain market share and profitability during this tough economic times (Barnet, 2008). Innovation as defined by Wikipedia, the free encyclopedia (2010), is a change in the thought process for doing something, or the useful application of new inventions or discoveries.In the auto industry we create innovation by redefining existing products and market segments, create new ones, and attack competitors strongholds, those products with which a manufacturer captures a significant portion of the market (Howell, 2000). Today, car manufacturers are continuously making improvements and new development in conventional engine technologist. For example, plug-in hybrid electric and battery electric vehicles are now available in different models, and their range will be extended.Soon recharging facilities will be available and standardized. Some cars running on alternative, low emission fuels like ethanol or gas are already available on the market. Other technologist like smart navigation, adaptive cruise control, highly energy-efficient LED lights, and storage and re-use of heat will further improve fuel efficiency and lower CO2 emissions ( Technology and Innovation: The Industry’s Stronghold, 2009).The intent of innovation process is to ensure that a steady stream of product and technology options is developed on the basis of the company’s sense of where the market is headed. These options are potential responses that the auto industry can use to capitalize quickly on new opportunities. The process is designed to be dynamic, with new information and ideas moving continuously through the system. Each time the company goes through an innovation cycle, we gain knowledge and discover new ways to apply it to subsequent product and technology programs (Howell, 2000).Consumers continuously demand quality vehicles that are efficient, reliable, safe, and at lower price. Fifty-one percent of automotive industry respondents report they need to deliver significant levels of innovation regularly in order to remain competitive (Barnet, 2008). Through innovation and competition we will be able to put pressure on the industry to maintain and even reduce this price. In the United States, for example, the average monthly vehicle payment as a percentage of average household income has dropped from 12. % in 1980 to about 7. 5% today – a 40% decrease (Howell, 2000). To be efficient an industry need to emphasize on improving the quality of their product while finding a ways to lower their overhead and manufacturing cost. The right approached to application management helps the bottom line by increasing adaptability, reducing costs and enabling automotive companies to deliver the level and pace of innovation and change their businesses require (Barnet, 2008).Innovation is vital to the auto industry so it can survive and compete with the ever changing market demand. To stay in the market automotive industries must develop and improve their processes and put an emphasis on innovation while at the same time applying an effective management skill to meet this challenge. In order for the industry to stay in the market a good collaboration with the government, manufacturers, suppliers, designers, and customers is required to achieve good results.Through innovation the auto industry can possibly lower production cost, reduce time to market, attract more customers and will help to improve the economy.