Pestle Analysis of the Motor Industry - Case Study Example

Question Pestle Analysis of the Motor industry. P – Political - The current and potential influences from political pressures The motor industry and cars in particular are a perennial favourite of politicians. Environmental and legal issues will be discussed later. Politicians are also currently looking at safety concerns related to cars and the state of the UK road network. The UK road network is barely able to cope with the number of vehicles currently wishing to use at. It is predicted that in the foreseeable future, the network will not be able to support the usage that will be required. Hence, politicians are looking at ways to reduce road usage. Consideration is being given to a number of schemes such as road pricing and pay as you go road taxation. The government is trying to reduce peoples reliance on cars and get them to use the public transport network, which may well be good news for buses. Unfortunately they appear to be using the stick and stick approach to getting people out of their cars. E - Economic - The local, national and world economy impact Consumer confidence in the new car market is currently in a downturn. This is due to a number of factors. Firstly, rising interest rates mean that the cost of car ownership is increasing (due to the increasing cost of loans needed to pay for owning me a new car). Also the rise in interest rates means that there is less income available for spending on a new car. There is also a lot of consumer uncertainty in the costs of fuel. Taxation is also playing a part; taxation rules now view company cars as a benefit to the employee rather than its necessity of doing the job. And as such taxation rules regarding them are tightening sharply it is no longer much of a benefit to have a company car – although they can be considered a status symbol. S - Sociological - The ways in which changes in society affect us A higher proportion of households now have more than one vehicle and this has led to a number of interesting effects. There are a growing number of women in the workplace, and as such or ownership amongst women is going up. In addition as households have more than one vehicle, those vehicles are becoming differentiated. There is no longer a desire for an all purpose vehicle, but the cars are seen as fulfilling different purposes and making more of a statement. A household may well a people carrier or large vehicle for family use and a smaller or sportier car for personal use. T - Technological - How new and emerging technology affects our business There are two main technological challenges to the modern motor industry. Firstly there is a change to the way people buy cars. Due to the internet people are able to research their choices more thoroughly. For example, J.D Power and Associates studied nearly 30,000 car buyers in 2002 to discover that more than half the buyers look at the internet before making a buying decision about a car. Additionally nearly 90% of car buyers visit the car manufacturer’s website to get a better idea about the look and feel of the car. Therefore, the use of technology in this area is an essential requirement for car manufactures of today (Baki et. al., 2004). And secondly a quotation from the introduction to the Automotive Electronics show: “What sort of car will you be driving in ten years time? The most significant difference will be the use of electronics to make cars safer, smarter, less polluting and more enjoyable to drive. Tomorrow’s road vehicles will have significant in-car processing power to lighten the driver workload and will be able to communicate with the road infrastructure receiving advance warning of congestion or other hazards. The possibilities appear endless and limited only by our imagination. The two major drivers will be to reduce road accidents and pollution as car ownership rises in the decades to come.” L - Legal - How local, national and world legislation affects us The Society of Motor Manufacturers and Traders did a survey in 2006. Nearly 90% of respondents said that legislation had significantly increased their business costs in the last five years, and most of them said they foresaw an avalanche of new rules which would gain significantly impact their business costs. But the legal landscape surrounding motor vehicles is not just the rules and regulations, laws and statutes applying to the motor manufacturers. There are also a growing number of rules and regulations concerning motor vehicle owners. For example, the penalty for using a mobile phone whilst driving has recently been increased and the range of driving offences has recently been extended to include causing death by careless driving. E - Environmental - The local, national and world environmental issues CO2 emissions are currently a worldwide environmental hot button. The European Automobile Manufacturers Association made a commitment to reduce emissions in new cars by approximately 25% in 1998. The BBC reported on a study in October last year that most manufacturers were not on target to meet that promise. The most significant threat to the motor industry is the multi pronged drive to reduce the reliance on cars. The costs of owning and running a car are rising, and new schemes will only cause that to rise higher. The motor industry will need to address making motor vehicles friendlier to our roads and our environment. The most significant opportunity lies in the area of “personalising” a vehicle. We have come a long way from “Any colour you want as long as it’s black” (Attributed to Ford cars) to not just a choice of colours and finishes but also internal accessories such as hands free kits for the mobile phone, and DVD entertainment systems. I believe that manufacturers will need to respond to cars needing to reflect what their owners want much more heavily in the future. Question 2 – Analysis of the Motor Industry using Porter’s Five Forces Model The bargaining power of customers Cars can be owned either by individuals or by businesses, business fleets are defined as more than 25 vehicles. Although fleet purchases are rising and now account for almost half the new car market, the size of a fleet (which is also not usually purchased all at once) is not large enough for any one purchaser to be buying a significant proportion of any manufacturers output. As the number of buyers is very much larger than the number of manufacturers and as there are no significant buyers then the power of buyers is low. Buyers as a group will show their preferences going from one type of vehicle to another, but no one buyer can affect the industry. As a result the power of this forces is weak. The bargaining power of suppliers The suppliers to this industry are the parts manufacturers. For each vehicle type in production there are numerous suppliers. Suppliers traditionally hold very little power here; there are many more suppliers of motor parts than manufacturers using them. Many suppliers find that a significant portion of their production goes to one or two buyers. Although the market for parts used in repairing vehicles is greater than the market for supplying new car manufacturers, it must be remembered that is a car manufacturer switched to a different company to supply a particular part the supplier will also lose business in the car parts for repair market as they lose the status of manufacturer approval. As a result parts manufacturers have to be responsive to the needs of car manufacturers, and their bargaining power is low. The strength of this force is therefore low as well. The threat of new entrants Historically it had been considered that the threat of new entrants was so low as to be approaching zero – and the Japanese manufacturers entered the market. It is unlikely that there will be new entrants to this industry, but it cannot be completely discounted. If this were to happen it is likely that a domestic company from one of the currently changing and developing countries will become a leader in their internal market and then seek to export or manufacture in a new country. However that is not something that will happen in the foreseeable future, and if there is any likelihood of it happening then it will be signalled well in advance. Therefore the threat of new entrants to this industry is very low. The threat of substitute products This threat has two main heads. Firstly although brand loyalty is high (when consumers find a car that they like they often want their next one to be of the same manufacturer), consumers know what they want in a vehicle and they will go to elsewhere if necessary. That elsewhere is usually the second hand market – specifically nearly new cars. In addition brand loyalty can be fragile. As a car is a major purchase consumers have to consider a number of a factor, some of which can be outside of a manufacturers control, for example, availability of parts and location and convenience of service centres. Customers may feel that although they think a particular brand is and excellent make, the cost and/or convenience of maintenance is too high. Secondly as mentioned before alternative methods of transport should be considered, as dependence on cars is being challenged. Rail and air transport should be considered. However nothing matches the convenience of a personal vehicle, and we have become a society dependent on this, take for example the “weekly shopping” and how difficult it is to get that home for a family without the use of a vehicle. There is a high level of substitution in this market, if a customer becomes disenchanted with a brand they can switch to another and find a comparable product. Manufacturers therefore need to adjust their strategy to make sure that their brand is strong and is reflected in each new vehicle offered. If a customer does not wish to travel by motor car then they can easily travel by public transport, indeed the government is committed to making this easier. As a result car manufacturers need to make sure that travel by car is much more attractive then public transport, and increase the safety of vehicles and address the environmental concerns of consumers. As a result of these point there is a high threat of substitute products; this is a very strong force The intensity of competitive rivalry The motor vehicle industry is concentrated in the hands of a few large firms, and so is generally considered to be an oligopoly. But despite this these is intense competition in this market. Advertising is a significant cost in this market, both of the brands themselves and particular products with the brand. The main focus of competitive rivalry in this industry is to show that their car is the safest and greenest car of its type. Price competition is also high, and profit margins are low. The motor industry will be both attractive and profitable – if you can afford to stay in it, as the recent collapse of MG Rover has shown. High levels of research, development and innovation are necessary to maintain market share in an industry when the value of the new car market is falling. If existing companies adapt to the changing market they will have a profitable future as cars are too entrenched in our way of life. At this point in time this is not an attractive industry, consumer confidence is low and profit margins are being eroded. There is a high chance of further collapses or mergers. From a strategic viewpoint I would suggest avoiding this industry for the next few years as the industry shakes out to adapt to consumer demands for safer, more environmentally friendly, and more personalised vehicles and copes with the Government pressures to contain and reduce the number of vehicles on the road. The companies that emerge will be stronger, more attractive and more profitable. Bibliography Automotive Electronics Show 2007, Automotive show website [online] Available at: http://conferences.theiet.org/autoelec/ Baki, M. et. al. 2004, Automotive Industry Analysis - GM, DaimlerChrysler, Toyota, Ford, Honda. AcademicMind.com, [Online] Available at: http://www.academicmind.com/scholarlypapers/business/management/2004-11-000aaa-automotive-industry-analysis.html Car Keys (2007) Car Keys Website [online] Available at: http://www.carkeys.co.uk Maurer, R. 2005, ‘Taking Stock of Change Management’, Journal for Quality & Participation, vol. 28, no. 3, pp. 19-20. Mintel 2007, Mintel website [online] Available at: http://www.mintel.com/ RBSC (Roland Berger Strategy Consultants). 2006, Six Key Purchasing Trends in the Global Automotive Industry. RolandBerger.com [Online] Available at: http://www.rolandberger.com/expertise/en/html/publications/2006-01-11-Six_key_purchasing_trends.html Rincon, P. 2006 Most car brands failing on CO2, BBC Worldwide [online] Available at: http://news.bbc.co.uk/1/hi/sci/tech/6076800.stm SMMT 2007, SMMT website [online] Available at: http://www.smmt.co.uk/ Read More