PESTEL analysis of The Naro Car Company - Case Study Example

PESTEL analysis – the NARO Car Background The NARO car concept was born to address the increasing problem of congestion, pollution and parking scarcity which the country has been facing. The NARO vehicle concept is based on the concept of the leaning vehicle that improves the mobility of the commuter and also addresses the issues of efficiency and emissions (Company website). However, the British motor industry is in a state of dependency (Sibbald, 2009). The relationship between the government and the car firm has always been strained but the Parliament is now trying to be supportive of the industry. A PESTEL analysis would help to determine the future prospects of the NARO car and how it’s positioning in the automotive industry could be improved. 2. PESTEL 2.1 Political The UK government is supporting the car industry to make it become much greener, innovative and more productive although the once prosperous industry is severely hit by the recession. It has affected thousands of jobs and it has also made the government offer financial aid to the auto companies to stop from closing down or shifting their production sites. The government has supported the deflated automotive industry by £2.4bn rescue package which will assist the car manufacturers in developing green technology and save jobs (Sibbald, 2009). The government has been able to exert pressure over European Investment Bank to release loan of £1.3bn to develop green technology and another £1bn to invest in low carbon engines. NARO received the UK government SMART grant of £57,000 which is meant to support innovative ideas at the initial stage of development (Read, 2006). Investment from the government ensures innovation in the next five years which safeguards a green future for the car industry with a partnership between the government and the car manufacturers (Sibbald, 2009). 2.2 Economical The motor industry in the UK employs nearly one million people but car sales have dropped. Many car makers have reduced the working hours to stop redundancies (Sibbald, 2009). Unemployment in the UK has increased over the last quarter by 0.2% according to Labour Force Survey (LFS). The number of people employed in the UK reduced by 76,000 and unemployment remains a pressing social and economic problem especially among the young people (HRM Guide, 2010). The economic policy is undergoing a change and higher unemployment with increases in redundancies is likely. While labour market conditions directly impact consumer behaviour as the demand and supply of labour affect the consumer earnings, to some extent this has been offset by lower tax structure (Anagboso & McLaren (2009). The tax rebates have a cushioning effect on the expenditure. The largest proportion of people that have remained unemployed, have been for a maximum of six months. This may affect consumer spending in the necessity category but its impact on the car sales have been different. The government is however supportive of helping the auto industry. They are finding ways of providing funds for car finance firms to offer cheap deals specially for cars manufactured within the country. This would then also be supportive of car fleet companies and hire companies when they plan their purchases of green cars which would help in a low-carbon future (Sibbald, 2009). 2.3 Social Change in the UK demographics suggests two vital factors that impact the car market. First, women have become equally important as main drivers as the men. Second, there is an increase in the number of old people in the UK population and they are buying cars more actively than the young ones. By 2010, it is expected that the over 55s in the population will constitute about half the market for new cars (Brown, 2005). The older people also are increasingly opting for used cars. There is increasing number of older women in the market and they prefer to drive cars. However attitude towards motoring impacts the car buying behaviour. The new cars are bought by the richer people and the people accumulate wealth as they grow old. The older people prefer to buy indigenously manufactured cars because of the loyalty factor. Moreover, older people are more active than they used to be and they would not want to buy cars that are perceived to be old people’s car (Brown, 2005). However, as the hormone production falls, this influence the car buying behaviour. They do suffer from arthritis and other related conditions which would impact their decision. The youngest age group (between 17 and 20 years) finds it difficult to pass the driving test (Brown, 2005). Moreover, with the high insurance cost and most of the people in this age bracket pursuing higher studies, the car market for this segment has reduced. 2.4 Technological The European car makers found themselves incompetent in technology and management (Donnelly, Mellahi & Morris, 2002). The UK car industry has suffered as the manufacturers moved away from indigenous production. They preferred FDI which brought in technology from other countries like US, Japan and Korea for niche and luxury brands (NAIGT, 2009). There is no global volume vehicle manufacturer headquartered in the UK because of shortage of skilled workers on the shop floor as well as in research and development. The foreign firms bring in their own production techniques, like Nissan, Honda and Toyota who have imported their production techniques instead of Japanese-built vehicles (Northedge, 2009). Global automotive technology developer Prodrive has developed the concept of the NARO car and licensed The Narrow Car Company to develop the project in mid-2004 (Hanlon, 2004). This project has user-friendly steering mechanism and is a solution to urban congestion. The technology takes care of efficiency, emissions and safety at the same time. 2.5 Environmental According to the motor industry economist, there would be 20,000 vehicles in the sub-car category in the UK by 2012 (Sampson, 2006). The world vehicle count is also expected to double over the next thirty years (Company website). Global warming is adding to the CO2 emissions. According to AEA (n.d.), the major threat to clean air is posed by the traffic emissions. Petrol and diesel-engine vehicles emit various pollutants such as Carbon Monoxide and oxides of Nitrogen, which impact the urban air quality. As the sunlight acts with nitrogen dioxide and volatile organic compounds, an ozone layer is formed which impacts the rural areas far from the original emission site. Acid rain is another long-range pollutant caused by oxides of Nitrogen. Under the circumstances it is necessary to control the CO2 limits and the congestion. The NARO car is an environmentally friendly car and because of its size and weight it would double the efficiency of the conventional car. 2.6 Legal The narrow car or NARO, because of its narrow framework, offers the traffic evading agility of a motor cycle while providing the safety, load capability and comfort of a car (Read, 2006). The software controls can improve the transport options for the disabled. In fact, NARO creates a whole new customer segment that has remained unfulfilled as of now – a segment between the motor cycle and the four-wheelers. The NARO can also provide licensing oppurtunities overseas. It offers functional value as a vehicle in different ways: 1. As a commuter vehicle – it can be parked at one third the space and run at 30% of the fuel costs. 2. As a taxi – an alternative for those who value time and have tight schedules. The journey time can be reduced by one-third and this could be hailed through mobile phones as normal taxis. 3. As a delivery vehicle – would help cut costs and reduce pollution and CO2 emissions. It could also reduce automobile congestion. Domino’s Pizza franchisee in the UK switched its delivery fleet to tiny Toyota Aygos to reduce fuel consumption (Sawyer, 2006). This makes it evident that government has approved of such small cars to be used as delivery vehicles. The tax payers’ cash would not be needed to make the motor industry green as the government is establishing bigger distinction between car tax brands. Those buying the last efficient vehicles would have to pay £2000 more per year than those buying the most efficient cars (Sibbald, 2009). 3. Conclusion and recommendations The political and legal environments are conducive to the growth of the NARO car market as the government has decided to invest in innovative projects and greener cars. Technologically, the UK has now advanced and the NARO car would ensure efficiency and emission controls. The NARO car would be a very economical car compared to the conventional ones apart from lower taxes that it would attract. The purchasing power has been affected due to recession but this is phase and would soon be over. To capture the right segment, the right promotional strategies would have to be adopted by the manufacturers. They would have to attract the youth as well as the older people with the same promotions like giving it a youthful experience. The older people do like to feel young but they may not be able to take too much excitement if the turns cause a change in the adrenaline levels. The businesses such as fast food companies that offer home deliveries, fleet owners and individual cab owners would be another segment where prospects are high. The government should provide necessary incentives to those who buy this car. Overall, the concept car seems very promising. Reference: AEA. (n.d.). Air Pollution. UK AIr Quality Archive. Retrieved online 12 June 2010 from http://www.airquality.co.uk/what_causes.php Anagboso, M., & McLaren, C. (2009). The impact of the recession on retail sales volumes. Economic & Labour Market Review. 3 (8), Retrieved online 12 June 2010 from http://www.statistics.gov.uk/elmr/08_09/downloads/ELMR_Aug09_Anagbos.pdf Brown, J. (2005). The demographic structure of the UK car market. HWB Management Brief. Retrieved online 12 June 2010 from http://www.hwbinternational.co.uk/pdfs/HWB_Brief_3_06_6.pdf Donnelly, T., Mellahi, K., & Morris, D. (2002). The European automobile industry: escape from parochialism. European Business Review. 14 (1), 30-39 Hanlon, M. (2004). Naro tilting car concept. Retrieved online 12 June 2010 from http://www.gizmag.com/go/3647/ HRM Guide. (2010). UK Unemployment. Retrieved online 12 June 2010 from http://www.hrmguide.co.uk/jobmarket/unemployment.htm NAIGT. (2009). An Independent Report on the Future of the Automotive Industry in the UK. Retrieved online 12 June 2010 from: http://www.berr.gov.uk/files/file51139.pdf Northedge, R. (2009). When the Sun Set on the British Auto Industry. Retrieved online 12 June 2010 from: http://moneywatch.bnet.com/economic-news/article/the-decline-of-the-uk-auto-industry/301224/ Read, L. (2006). Four Mini Case Studies in Entrepreneurship. Retrieved online 12 June 2010 from http://www.engsc.ac.uk/downloads/scholarart/entre-casestudies.pdf Sampson, B. (2006). Lean machine. Professional Engineering. 19 (5), 39-39 Sawyer, C. (2006). LEAN MOBILITY. Automotive Design & Production. 118 (7), 48-48 Sibbald, M. (2009). Britain’s car industry needs the "green" light from the Government. Retrieved online 12 June 2010 from http://www.contracthireandleasing.com/car-leasing-news/index.php/britains-car-industry-needs-the-green-light-from-the-government/ Company website: http://www.naro.co.uk/NewsIndexThruProject.htm Read More