US Automobile Industry or Only Passenger Cars - Case Study Example

The US Automobile Industry: LoNGPESTEL Analysis Introduction The world is currently experiencing a rapid growth and development phase. Car and car spare parts manufacturers are evolving and others are merging so bring together their resources and technology while outsourcing of component designers and manufacture has increased as opposed to being created in-house. Branding has changed so much with even more new brands being created. Big car manufacturing firms are increasing to deeper market to provide financial serves to customers. In the meantime it’s important to note that all the successful companies in the automobile industry in the United States have turned global operators; globalization is apparent in the entire automobile industry. The Business Environment Its very imperative to constantly asses the business environment so as to keep up with competition, be updated on current developments in the industry as well as understanding the external and internal factors that affect the business (Greacen & Chou 2005). Business environment is identified as the external factors influencing the decisions made by a business and they way the business will operate there after. These factors are very critical to development of an industry and any business analyses set to investigated them should be done so in a systematic way so as to ensure the whole process in cost effective and that relevant information is obtained (Leumar 2008). One is able to concentrate on the industry’s environmental factors like the customers, competitors, the government, and suppliers. In general, it’s pertinent to note that the profit that a firm gets comes from the ways in which a market is made to be perfect. The prices that clients are willing to pay for the goods should not actually surpass the cost of producing the goods (Leumar 2008). PESTEL analysis is one of such means by which companies use to assess their performance in relation to the business environment so that changes can be made whenever possible to increase profitability (Capon 2006). PESTEL Analysis The PESTEL analysis is sometimes extended to include local national and global aspects and hence denoted as LoNGPESTEL analysis. These are some of the factors that are analysed in assessing the business environment particularly the macro environment factors that are likely to affect management’s decisions about the organisation. PESTEL is an acronym of Political, Economic, Social, Technological, Environmental and Legal factors that influence organizations decision process (Greacen & Chou 2005). The changes in taxation policy, introduction of trade barriers, establishment of new laws, changers in demographic figures and government policy formulation are some of the macro environmental factors that have affected the automobile industry in the US. Political Factors: the factors that have affected the automobile over the past decades can be discussed in terms of the extent to which the government has implemented economic intervention plans, the products the government wants to provide, the extend to what extend subsidies are being offered to manufacturing companies and the priorities in the support of business(Greacen & Chou 2005). Generally political, decisions can be very effective in impacting change in different areas of the economy including the education sector, healthcare, and road system. The automobile industry in the US has been faced with a lot of challenges from the political scene especially when addressing the use of carbon fuels. There has been growing concerns about the process of global warming and amount of gas emissions to the atmosphere. These issues will be addressed exhaustively in environmental factors (Capon 2006). However at this point, the political interference by the government is the main issues to be a tabled. Many automobile manufacturers have been asked to voluntarily engage in technologies that help to reduce carbon gas emissions and the aim is to reduce the emission by 50%. The taxation policy discriminated against automobile products that are imported and this has encouraged the development of the domestic companies which have gone international. Imported products are heavily taxed to discourage importation. Changes have been made to the corporate taxation bill where several provisions have bee deleted; the proposed deferral of taxes for two years has been eliminated, tax credits that had been proposed were also deleted (Leumar 2008). Other policy issues imposed by the government are greatly affecting the US automotive industry for instance the pension and the increased number of health care concerns, this have been found to impose about 1,300 dollars per vehicle as opposed to little or no legacy expenses for transplant providers. Currency rates are also a major factor to take into consideration now that most of the companies are going global and exchange in currencies during the trade is inevitable. The Japanese monetary authorities have out in place a market interception policy that has prevented the US automotives to appreciating in terms of yen dollar exchange rates. Due to this, competing against goods imported from Japan is unfair. Other regulations to be implanted include the taxation of road tax in terms of the amount gas emitted (Lung 2004). The government will continue giving subsidies to the local companies. Economic Factors: this area of business environment analysis should address all the financial systems and policies that affect the operation of a business, they could include the world inflation rates, taxations rates, interest rates on loans, and the rate of economic growth. Basically higher taxation rates are bound to curd more venturous investment and people will not go for loans. As indicated earlier, most of the automobile firms in the United States have expanded enormously hence dominating the world market (Capon 2006). Due to their size, they are likely to have a competitive advantage over firms from other nations as they enjoy economies of scale. Economies of scale are factors that allow the companies to operate at low costs when the company expands for instance the cost of Marketing, management, bulky purchasing, interest rates, and transport. The higher national income rates that have been enjoyed in the US have been the main course of increased demand for cars and as a result leading to growth and expansion of these companies. Nonetheless, the current inflation may cause the employees to demand higher salary rates and in the end the cost of production may go up and this is passed to clients by high costs. Due to competition and the diversity of the customer needs, most companies have resort to providing a diversity of products so as to have a broader customer base and to compensate on other areas that the company may be losing out (Lung 2004). Ford, for instance, has diversified its service and product delivery, there in Hertz, Ford Large operator and finance subsidiary among other segments of economy. Mergers, acquisitions and alliances aimed at expanding the operations of the car firms in the United States, has seen the industry grow to greater heights, however with the current economic situation, smaller companies are disadvantaged as cannot be able to borrow loans for expansion. Some common mergers are Ford and other companies like Mazda, Volvo, mercury, Aston Martin, Lincoln and jaguar etc. Social Issues: every company has a social responsibility to ensure that it protects the environment during its operations. The social stratification of the community is also very important as it’s the people who form the demand for products. The car manufacturers are currently investing in new technology (greener technology) where cars that have less emission into the atmosphere are being manufactured. Investing in new technology is very expensive and this has been the reason why the big three (ford, General Motors and Chrysler) in the automotive industry are collapsing. The general motors produced battery operated EV1 car which failed because they required constant charging (Capon 2006). Low emission cars were meant to expand the market of the car market but this has not been easy to achieve. The automobile industry in the US was weakened by the fuel crisis that occurred from 2003 to 2008 which lead to a shift from the sport utility cars (SUVs) which are the stronghold of US automobile industry to the cheap low gas emitters. At the same time, there was increased worker protest for high wages especially those in the union as opposed to non unionised counterparts. The benefits that were demanded including, high salaries, better working conditions, pension and better healthcare; management granted concession leading to uncompetitive economic structures (Greacen & Chou 2005). Technological Factors: new technologies are very important as they help to sophisticate live even more. These developments include the computer and the internet, online marketing, music and entertainment. In the automobile industry, the major technological changes that have affected the development of the industry over the past few years include the advent of the internet and the push for greener technologies (Capon 2006). Investing in new technology is very expensive, in the American market, several cars are being manufactured in response to the calls that global warming should be stopped and that it’s the responsibility of every one of us to do so. Toyota invested in Prius hybrids, Camry hybrids highlander hybrids; Honda invested in civic hybrids and the trend is the same up to other automobile companies. There are other competitors from abroad offering fuel efficient cars like the mini coopers and the BMW’s. These have initiated renewed interests in technology. The sale of the SUVs has declined terribly. Another important aspect of technology is the means of communication that has been applied. E-commerce has brought a lot of transformation on the cars industry as in now, orders and other business transactions can be done online. Consumers can use the interne to access a lot of information about the products. The manufacturers are now using the web to carry out their daily transactions like supplies and sales (Greacen & Chou 2005). Environmental Factors: the US has been the largest consumer of oil and the largest emitter of the carbon gases until was recently overtaken by China (Capon 2006). The major concerns addressed under this factors is the issue of environmental pollution either noise of the smoke and the destruction of the ozone layer and increased temperatures described as global warming. This has been a major concern in automobile industry bearing in mind that the consequences of these changes pose a threat to the survival of future generations. It’s with this regard that the environmental policies are being created by governments and international organizations. The Kyoto protocol is one of the treaties that govern the emissions of greenhouse gases. Conservation of the environment is very important and it been agreed that every organization has the mandate to protect the area it is operating from to reduce disintegration. The major climatic changes that have been observed in the recent times including higher temperature, el Niño, Katrina and tsunami, all being attributed to the unpredictability the global worming phenomenon has caused, environment awareness is very crucial fro every trade and more do the automobile as it’s the largest emitter of carbon gases. Transportation cost are highly taxed and also hybrid cars. The basic move to create environmentally friendly firm is to affect the demand and create more opportunities. Legal Factors: these are the factors that determine the legitimacy of the businesses operations. Basically for any business to start, there should some legal requirement that the company should meet before commencing their functions at the company. The automotives industry should be able to meet the legal provisions to reduce the possibility of obtaining a law suit. The first step is to obtain the working licence and then consent to the environment preservation regulation. There are a lot of laws in place and its worth to note that these can adversely affect the functioning of the firm. These laws should not be neglected; consumer law; competition for atonement, employment laws and healthy and after close. Local and National issues The growth and development of the automobile industry in the US is very rapid and dynamic. The changes that have occurred in the industry either at global levels or at local and national level remain historically significant. The introduction of the foreign direct investment has seen tension crop up in the United States as there are international multinational form which are moving in to initiate a lot of competition. The growth of the automobile will have to face the competition fairly (Rubenstein 2001). Local regulations have to be designed in a strategy in ways that encourages local investment the way the united states have been doing it. There big three automotive are leading the trend of changing the industry based on benefits they enjoy from the government like business subsidies. Investing in low carbon emission cars is a factor that is encouraged both locally and abroad. The great in population has also provided enough market for the industry (Cooney & Yacobucci 2006). Tax breaks are another strategy adopted to help out. Local and cheap labour Global Factors These are international factors that are affecting the growth of the automobile industry. The major factor has been the opening up of free markets, FDIs- foreign direct investments, improved communication, advent of ecommerce and the whole process of globalization (Cooney & Yacobucci 2006). This has allowed the US big three to penetrate markets in Europe and the Asian nations. GM and ford are very dominant in Europe that the customer base could surpass that of home country. Some experts even suggested that the US market cold reduce drastically (Rubenstein 2001). The effects of globalization which include effective communication, free trade have all contribute to the success of the US automobile industry. Conclusion The factors that evaluate the business environment are very critical in that though the business itself is dynamic, one will be will equipped with the tools to be able to asses the external environment before the actual venture into the business Reference Capon, C. (2006) Understanding Organizational Context, Harlow: Pearson Education/FT Cooney S. & Yacobucci B.D (2006). U.S. Automotive Industry. Policy Overview and Recent History. Nova Publishers Greacen J.F. & Chou D.C. (2005), “Offshore Outsourcing Impact. An Analysis of the US Automobile Industry”. International Journal of Management and Enterprise Development, Vol. 2 No.3/4, Pp.387-407. Leumar B (2008) America’s Automobile Industry: The Real Reason Why the Big Three Are Failing. Global research Lung Y (2004) Special Issue On Coordinating Competencies And Knowledge In The Auto Industry. International Journal of Automotive Technology and Management (IJATM) Rubenstein J.M (2001). Making and Selling Cars. Innovation and Change in the U.S. Automotive Industry. Jhu Press Read More