Future of the Car Industry - Essay Example

Future of the car industry Table of Contents Introduction ……………………………………………………….. 2 Aim …………………………………………………………………. 2 The car industry ……………………………………………………. 2 Pest model …………………………………………………………… 3 Impact/ Uncertainty model …………………………………………. 5 Scenarios ……………………………………………………………… 6 Analysis of an organizational impact ………………………………… 7 Conclusions and Recommendations ………………………………… 8 Appendix 1 ……………………………………………………………. 9 Introduction Transportation is one of the most important key areas in the modern world. The modern economy is dependent to a large extent on the transportation. Various modes of transportation has developed through the ages with the essence being on speed and the fuel efficiency. However, the majority of the people use the car as preferred means of transport within a specific geographical area. Numerous companies have evolved for the manufacturing of the cars. The Western economy assisted the growth of these companies, as the demand was high for the cars. However, the market in the west has reached a saturation point and the companies are looking for other avenues of growth. The growing market of Asia is one of the most attractive markets in the world with the development of the economies and the rise in the disposable income for the population. The companies all over the world are coming into Asia to tap the huge potential in the market. With the growth of the business and the economy, Asia is the market that the car manufacturers all over the world are targeting right now. They have understood that the future of the industry lies in the markets of Asia. The paper will deal with the prospects of the market in Asia with the help of the PEST analysis and impact/uncertainty model. Aim The aim of the paper is to look into the future of the car industry with the help of scenario planning, strategic decision making and looking into the factors of the uncertain environment. The Car Industry The Asian car industry is currently on a growing phase due to the stagnation of the market in the West. The countries of China and India are the most developing countries in the world and they offer a huge market for the car manufacturers. In addition to this, the Asian countries supply cheap sources of labor. With the emergence of the AFTA (Asean Free Trade Area), countries like Thailand and Philippines are hotspots for the car manufacturing companies to set up shops. The Asian car market is comparatively new and the cities and roads in many parts are not suitable for the cars to ply. The car industry is the base multiplier, which increases the country’s GDP to a large extent. The market is huge with the most closely inhabited areas in the world in this region. The area being the world’s new economic hub more and more global organizations are coming and starting operations here. This provides a bigger opportunity for the car manufacturers. (Asian automotive industry outlook, May, 2007; Creutzig, 19th August, 2009) The car manufacturers from Asia dominate the Asian car industry. Companies like Honda, Toyota, Hyundai, Nissan etc. play a dominant role in the industry. These companies are also major global players and they have undertaken their American and European counterparts. New players from India like Tata are also entering into the industry. (Asian car companies outperform, 11th November, 2009) (see Appendix 1). PEST model The PEST analysis is very helpful in determining the industry’s dependence on the external factors of environment. In context of the car industry in Asia, the PEST can be described as follows: Political: The Asian region consists of different countries with varied rules and tax structures. Malaysia has an open economy but the tax structures are unfriendly thus protecting the domestic manufacturers.(Bhattacharjee,25th April,2003). The countries in this region are generally poor and the Government offers subsidies in the fuels used by the people. The Malaysian Government recently slashed the subsidy for petrol to 41% and the Government is contemplating money to the citizens according to the ownership of cars. (Zain, 11th June,2008). Countries like China and Thailand are thinking on the lines of tax exemption for individuals buying green fuel car. (Automotive, 15th January, 2010). The taxes on the cars are perhaps present in almost all the countries to a high extent. The Indonesian Government is thinking of increasing the taxes on cars, bikes as their sales are increasing, and this is resulting in increase in Government spending in the form of fuel subsidies. (Indosnesos, 4th September, 2008). The varied implications of taxes and subsidies have an effect on the car industry in Asia. Economic: The Asian car manufacturers have a huge market to cater. The market is rewarding but the car makers have to evolve rather quickly with the most developed technologies. This is possible for only the big players in the market. In the days to come, the smaller players would be wiped out. Asia consists of some of the biggest economies in the whole world. In the present day scenario, China is one of the largest economies of the world. In addition to this, Japan has been a leading economy for many years. There have been many countries that have attained the tag of “developing economy.”The general condition of the economy of Asia is good with the growth of countries like Malaysia, Singapore, Korea, India etc. The Middle East countries like the Saudi Arabia, Bahrain, Kuwait etc. have high disposable income which provides a good market for the car manufacturers. Social: The social structure influences the customers’ tastes and preferences. The fashion trends in a country can increase the demand for a particular type of cars. Some countries in Asia have been troubled by wars and incidents like trafficking. Barring these countries, the society of Asia is modernized with lot of emphasis on the fashion and culture. Companies will look to implement the features of the society in their products for the marketability of the products. The societies of Japan and Korea have a good market for the cars and the developing economies of China and India are also major markets. Many renowned companies in the world have become synonymous with the culture. For example, Beetle cars are attached to feminity due to its color and shape. Technological: Technology plays an important part in the industry. The companies have to be well versed with the changes in technology to make the required changes in their design so as to enhance customer value. Otherwise the competitors would overtake them in the race. (Analysis of the car industry, n.d., pp 1-10). The new technology of the car industry is the implementation of green fuel in the car. The pollution will be less due to these cars, as they will use biodegradable fuel. There has been a rising demand for these cars and the Governments are also encouraging their use with tax cuts. Companies should look to produce these cars as quickly as possible to be in the market. Impact/Uncertainty model There are various key points, which affect the growth of the car industry. The prices, the taxes, subsidies, technology, consumer tastes, preferences etc. are to name a few. The general increase in the global prices of oil has cast a dark shadow on the future of the car industry. The consumers have altered their consumption habits and the marginal consumption has declined. The auto manufacturers face a grim situation with increased competition and lowering sales margins. (Press releases, 23rd September, 2008). Various companies in the world are designing their cars according to the tastes and preferences of the people of Asia. China is the biggest market today and companies entering China are making cars relating to Chinese sensibilities. The exteriors of the cars are designed to maintain balance in terms of colour and stature while the interior part with blending colours and fabrics is reminiscent of the status and respect associated with the car. (Rosenberg, 18th February,2010). The taxes have been made higher for the high emission cars than that of the low emission cars. It essentially means that the consumers have to dish out much more while purchasing high emission cars now. The global players in the auto industry still deal in the high emission category, as the technology for the low emission vehicle has not been developed yet. (Asiapulse news, 19th August, 2008) The dominant players in the Asian market like Honda, Nissan, Hyundai etc. will compete with the newer players in the market like the Tata. In addition to this, as the western market have saturated, companies all over the world to tap the huge markets of China and India. This will intensify competition in the future and the industry may see mergers and acquisitions.(Money morning staff, 22nd April,2008). The markets of Asia are highly rewarding but there is no guarantee that they will stay like this in the days to come. The economic condition of Asia improved with the development of its relationship with USA. However, with the recent advent of the recession the economy of the USA crumbled. Various companies closed down, millions were rendered homeless. The situation affected in Asia also and as a result the sales of the cars dropped. The recession has not gone out of the scene completely and is waiting to explode again.(Chan, Abesamis, Coral & Pereyra,n.d.) Scenarios Wooden spoon The increase of taxes in the category of high emission vehicles spells doom for the renowned companies in the world. Most of the companies have not started manufacturing low emission vehicles. With the increase of taxes, their cars will be highly priced in the market. The sales will be bound to fall. The final frontier The western markets have saturated and the sales there have dipped. This is the reason that most of the companies are turning their interests in the markets of China and India. The markets there are potentially huge but the products have to suit the tastes and preferences of the consumers. The markets are also price sensitive. The competition will intensify in the days to come resulting in lower sales margins for the companies. Waiting to erupt At the aftermath of recession, the sales volume has decreased for car companies around the world. The financial companies have sold of their loans via debt instruments in the Wall Street. When these debts appear for payment the economy will again go for a downturn. The companies will suffer with decreasing sales. The companies will recover with lower sales growth and they may have to look for newer markets. The Asian deceleration in the initial period of the decade has also affected the sales of the companies. (Business, 19th May,2009; Asian car industry in turmoil,5th January,2001) End of an era With the increase in oil prices, the countries are decreasing their subsidies. As a result, consumers have to dish out more from the pocket. With this view in mind, the consumers have changed their pattern of consumption, which will affect the companies. Analysis of an organizational impact A company like Honda would certainly be affected in the above mentioned scenarios. This can be tabulated as follows: Impact on: Wooden spoon Final frontier Waiting to erupt End of an era R & D Has to develop newer low emission cars Develop products according to tastes and preferences of customers Try to develop low cost products Develop low fuel cars Marketing Strategy Promote the newer cars Promote to the customers about the base of the company, its stature and its brand. Promote low cost cars. Target the middle level customers and educate them about the low fuel usage cars. Market Share Market share will dip at first against the established players but with the brand image it will come out on top Has to compete with local low cost producers. Will take time before establishing itself The market share will remain unchanged given its strong base Will take time to develop low fuel usage cars. Thus the market share will dip first and then recover. Conclusions and recommendations The car industry is facing some tough problems with the rise of oil prices and the increase of taxes. The customers have to dish out more from their pocket. This has seen the reduction of demand in the world market. However, the future of the car industry is bright in Asia. With the market set to grow in the years to come, the companies are in for an exciting time. The growth of economies like India and China makes up for the decrease in demand worldwide. The market has vast potential. There are chances of some unfortunate incidents, which can halt the progress. However, companies with strong base and credentials will overcome the problems and will continue to grow. The future of the car industry is the production of hybrid cars. Companies with strong R&D will be able to produce the hybrid cars in the future and will be growing in the days to come. Therefore, it is advisable for companies to invest in R&D. Appendix 1 Global car production in 2006(in 1000 units) Source: Auto guide. The Asian car manufacturers dominate the world production. This is due to the emerging markets in Asia. References: 1. Asian automotive industry outlook. (May, 2007). Research and Markets. Available at: http://www.researchandmarkets.com/reports/473608 (Accessed on 26th February, 2010) 2. Creutzig.F,(19th August, 2009). The good and the bad of the Asian car boom. Environmental research web. Available at: http://environmentalresearchweb.org/blog/2009/08/the-good-and-the-bad-of-the-as.html (Accessed on 26th February, 2010) 3. Asian car companies outperform.(11th November,2009).Galway independent. Available at: http://www.galwayindependent.com/motoring/motoring/asian-car-companies-out-perform/ (Accessed on 26th February,2010) 4. Analysis of the car industry.(n.d.).Slideshare.pp1-10. Available at: http://www.slideshare.net/shekhar619/analysis-of-the-car-industry (accessed on 26th February, 2010) 5. Bhattacharjee.A,(25th April,2003). Malaysia’s auto sector faces roadblocks. Available at: http://www.atimes.com/atimes/Southeast_Asia/ED25Ae01.html (Accessed on 26th February, 2010) 6. Zain.M(11th June,2008).Malaysians question petrol subsidy.suite101.com. Available at: http://malaysia.suite101.com/article.cfm/malaysians_question_petrol_subsidy (Accessed on 26th February,2010) 7. Automotive.(15th January,2010).Global intelligence alliance. Available at: http://www.globalintelligence.com/insights-analysis/asia-news-update/asia-news-update-january-15-2010/south-korea-sk-car-production-drops-by-8-in-2009-t/ (Accessed on 26th February,2010) 8. Indosnesos.(4th September,2008). Indonesia mulls higher vehicle tax to pay for fuel subsidies. Available at: http://www.topblogarea.com/rss/Subsidies.htm (Accessed on 26th February,2010) 9. Press releases.(23rd September, 2008). Marcus evans to organize Asia automotive 2008 conference in Malaysia. Vertical talk. 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