Sustainable Tends In The Current Automotive Industry Of The USA - Research Paper Example

Sustainable Tends In The Current Automotive Industry Of The USA EXECUTIVE SUMMARY Initial efforts to research the current structure and principles of the auto industry in the United States surrounded macroeconomic factors such as income growth, GDP, and investor relationships. Efforts in this direction lead to a lack of conclusions about the significant impact of externalities on the industry. A turn toward understanding the role of U.S. consumers in the production and promotion of automaker products unveiled the most interesting information in regards to influence and buying power within this market. The U.S. auto industry is categorized by considerable uncertainty, ongoing media portrayal of automakers in their executive, promotional and operational roles. The method of response to consumer inquiry is what is driving many changes in these areas with automakers, giving buyers much more involvement in the corporate process and conditioning managers to accept consumer-driven demands. These are behaviors that under social learning theory will be modeled to continue if they witness rewards, something managers are providing to customers in this market environment. Research identified a lack of focus around what specific trends would be sustainable in the consumer consciousness, with each manufacturer devoted to their unique strategic goals regarding design, demand and consumer sentiment about each product brand. There are manufacturers that contribute sales growth swings to economic conditions and new product variety, whilst others consider losses to be attributed to internal issues of quality or poor media representation. In any event, the U.S. automotive industry has lost considerable control over production decision-making by adopting Customer First and One Team programmes and then allowing these to be presented to awaiting consumer target groups. Frequency and transparency of executive movements, at a time when consumer sentiment is lower and their influence higher, dramatizes the internal talent and processes of the organization. Multi-media, it was discovered, contributes considerably to growth in buying power in this industry. Recommendations for improvement in the current automotive industry include renewing relationships with multi-media leaders and altering current marketing focus to include basic conditioning efforts using colours, indifference, or competitive comparisons. These recommendations are founded on secondary source literature regarding information on multi-media representation, statements from annual reports of U.S. auto firms, and trends related to pricing and quality with certain automakers. There are significant differences in this industry, where differentiation should not be altogether difficult, than with other consumer product manufacturers in different sales industries. Industry background The United States auto industry is only recently emerging from somewhat of a crisis scenario that was marked with bankruptcies, bail-outs, and a considerable volume of negative press. With governmental support and a new focus on design, organizational structure, and general business focus for long-term sustainability and/or growth, the industry is experiencing higher sales volumes in most sectors. This transition period is marked with considerable uncertainty that comes from externalities that have impacted the scope of competitive relationships and changed certain pricing structures. As internal business models evolve as quickly as they do during this period, so do the model close-outs and the introduction of new elements to the product mix. The pace of innovation and the scope of change both internal and external, in most manufacturers, has been expedited through investor, consumer and regulatory pressures. It does not represent a certain and stable operating environment. Research aim It was initially decided to approach the secondary research effort looking for obvious factors related to the micro- and macro-economic environment to explain the current position of the U.S. automotive industry. (Those being related to finance, product, and competitive analysis). However, when approaching the problem quantitatively using a variety of source materials, a pattern of new growth in consumer buyer power, relationship management, and brand identification became apparent. The following case analyses identify some of the most sought-after brands in the United States in terms of industry structure and strategic goal-setting. Case analyses Jarvis (2009) indicates that the manufacturers are often secretive about design aspects and concepts, offering no quality method by which to listen to customer input. This professional opinion attempts to compare the auto industry with Google, two companies that operate completely outside of the same industry norms and standards. However, the intention is clear: there is a disconnect between the internal functioning of the business and the consumer. Porter’s model identifies the risk of allowing buyers to become integrated into the price bargaining process. In this industry, there is no threat of substitutes, that is, unless consumers gain a trend-oriented approach back to the traditional horse and carriage. The volume of suppliers and manufacturers, balanced with consumers, prevents significant negative bargaining tactics from many specialized market groups. Toyota experienced significant negative publicity for recent accusations involving a variety of mechanical failures. The problems were very much in the public eye, open to scrutiny, opinion and even investment advice regarding Toyota’s short- and long-term future as a publicly traded company. Recall involved 3.8 million vehicles for issues of loose floormats and consumer concerns that their vehicles could spontaneously accelerate (Eisenstein, 2010). Toyota’s leadership structure is one where change is constant and looks to have become a part of their ongoing corporate philosophy. In an effort to regain consumer sentiment regarding the firm’s historical safety record, the company made a very transparent leadership change for its North American quality division immediately after the recall was publicized (Stynes & Takahashi, 2010). The notion of keeping internal issues distant from consumers is to avoid the perception that they have achieved a position where bargaining is in the favor of the buyer. Buyers in the auto industry are fragmented, with each manufacturer developing their own unique method to reach niche markets, large target groups or specialty luxury buyers. Toyota’s management shake-up provided new transparency to consumer groups that fueled fire to concepts of bargaining practices and generation of hapless consumer sentiment. “Customers have different meanings for quality. These are key insights” (Zeithaml & Lemon, 2009, p.91). The presence of multi-media in the United States makes many of the automakers a target of public scrutiny. In European markets, the Toyota brand is so well-recognized and strong that there is a legitimate issue with counterfeiting as suppliers of discounted products attempt to sell them using the Toyota brand name. There is massive counterfeiting operations involving spare parts and accessories both in the online sales environment and in bricks-and-mortar repair facilities (Fetu, 2010). In the U.S., Toyota was already known for quality in similar proportion to the overseas markets and it was transparency that led to changes in consumer behaviour. Toyota’s devotion toward reinforcing the quality of products would not be congruent with the notion that all consumers translate quality differently, nor does it keep the distance required to avoid consumers’ gaining perceptions of price negotiation. The internal dynamics of the Toyota structure are not as important, in this case, as the decision-making that is put forward. There is conflict with Toyota’s strategic intention and current mission in the wake of perceived (or otherwise) safety defects. Offers the current CEO, “…we are redoubling our commitment to the Customer First” (Toyoda, 2009, p.2). The philosophy driving this Customer First programme is referred to as genchi genbutsu, long-standing values in Toyota heritage. What this accomplishes is further transparency amid a market environment where entry into this market is difficult for economic, regulatory, and even brand-related difficulties at attempting to outperform competition. The United States consumer has been empowered through multi-media sources, executive management transparency, and a fragmented marketplace with significantly diverse practices, lifestyles and perceptions related to quality. There is a common industry norm with most of the automakers that spotlight their team focus and utilize multi-media sources to reinforce partnership agreements with a variety of suppliers. Toyota heralded its production milestones using these media sources to reinforce its welcoming attitude to nearly 100 visitors and representatives from other companies (toyota-industries.com, 2006). The Ford Motor Company annual report lists a similar customer-focused mentality known as the One Team approach (ford.com, 2008). There is a cultural dynamic in the United States that puts significant value on team-based thinking and system-style operations with very complicated horizontal, yet vertical decision-making hierarchies. The heavy concentration of multi-media sources in this country gives the buyer perceived decision-making control as they have access to production costs, and the ability to shift to an alternative supplier is ever-present. Team-based advertising gives consumers the impression that they have become active decision-makers in terms of design, purchase negotiation, opinion about mark-up, and opens the proverbial flood gates for the buyer to consider internal structural dynamics. Notice how a very popular business and news magazine describes Hyundai and this firm’s transparency of management leadership change-up, “The U.S. unit of Hyundai has churned through four top executives in five years….management shakeups” (Welch, Kiley & Ihlwan, 2008, p.49). Media, by its current structure in the U.S., favours dramatic presentation of events and business issues. Buyers have even more control due to their physical economic situations where price sensitivity is on the increase. Consumer sensitivity to the method of sales chosen by dealers for this industry include their responses to cash discounts, monthly reduced payments, and other incentives-based marketing (Silva-Risso & Ionova, 2008). It is an empowered consumer market where corporate level, buyer level, and even investment level concerns are on the forefront of consumer consciousness and they have strengthened price sensitivity to offer buyer demands. This is a scenario that the automakers in the United States have built through utilization of multi-media sources, consumer involvement, and ongoing empowerment philosophies that have rubbed into the consumer mainstream. Whilst consumers are achieving higher buyer power through transparency, there is shrinking access to credit availability and high inventories (researchandmarkets.com, 2009). This is an uncontrollable externality that is market-driven and involves the current methodology behind why consumers spend or avoid spending in uncertain economies. The self-sustaining principles behind many U.S. lenders and banking institutions in this region are also fueling changes to buying behaviour and access to higher credit status and loan guarantees. At a time when most of the automakers are searching for continued sustainability, consumers are looking for growth opportunities and do not look to able to find them in this difficult U.S. economic climate. This is translating into a more vocal buyer audience that utilize multi-media sources to impose their unique, household agendas on the automakers. The Ford Motor Company supports this notion when describing the 2007 buying trends in the United States. “An inability to increase vehicle prices could be offset by the long-term trend of consumers’ propensity to purchase higher-end, more expensive vehicles” (ford.com, 2007, p.12). Hyundai developed a premium luxury car branded the Equus with the intention of competing with higher-line products such as Mercedes, Audi and BMW (Taylor, 2009). The consumer propensity to seek upgraded or higher-quality products is driving changes to the production philosophy of the automakers. Again, the consumer that is frustrated with inability to procure credit for these purchases has a genuine desire for these luxury goods. However, their regular familiarity with multi-media sources gives them first-hand knowledge of the executive level, production and other operational components with a One Team and Customer First focus. In essence, consumers are driving industry changes in an environment where media representation is widespread, competition is significant, and price policies are not significantly differentiated in terms of mark-up over production cost. There is little supplier power in this industry, with the majority of control secure in favour of the companies. Suppliers are held to exacting standards, subject to auditing control through a variety of regulations imposed by the manufacturer. Suppliers are considered powerful if the consumer is powerful (quickmba.com, 2010). Consumers in the United States have established a sense of team philosophy that has extended from the corporate Board Room into the living room of consumers. However, boycott of these industries as a means of protest or to exert further buying power is unlikely due to the One Team philosophy that drives national heritage and national pride. This protects suppliers in an environment where buyer power continues to increase by the efforts of automakers in the U.S. They are only powerful based on the link between national brotherhood, a form of union mentality, that protects the business rights of non-corporate suppliers; considerable division. All firms in this industry are not impacted equally, as there is transparency with some auto manufacturers whilst for other firms, their role in the public eye is common and obvious. There are also considerable assumptions made regarding anticipated future trends both in buying behaviour and in assessment of what consumers are demanding most. The volume of partnerships and collaborations in this industry have moved to strip away basic concepts of competitive rivalry as access to processes and benchmarks are distributed freely throughout the entire supply chain and in upgrades to current production systems. Ford attributes a burst in sales success to be a product of an improved product mix (ford.com, 2008), however there is no quantitative numbers that support the assumption. Competitive successes are not highlighted and for a market where buyers should have less control and differentiation should be achievable, successes are very individualized and internalized with a One Team and Customer First focus. The sales environment is characterized by rather wild swings in sales success, an unpredictable element to buyer behaviour amidst a difficult economic environment. The whole industry combined achieved a 14 percent growth rate in auto sales from June 2009 to June 2010. However, in May of the same year, sales declined five percent year-over-year (Shpall, 2010). There is a haphazard buying pattern with targeted customers that is attributed to assumption-style strategy. There are risks associated with giving buyers more control than they already hold by involving them further in business practices without the rights attached to employment or investor voicing. However, the industry is dependent on production system redesign and new model close-out/roll-out without the data associated with buyer sentiment. The distributor system in the United States also provides difficulties and added pressure as the inventories represent a sizeable portion of assets with dealerships and is a measure of their total liquidity. Even when the company makes decisions to close under-performing or unneeded dealer networks, resistance is common and new pressure is exerted from the legal environment and the consumer buying networks. Market exit is not easily achievable due to current acquisitions, costs of exit, inter-reliance with the investment market, and governmental intervention and its own regulatory committees. However, many of these businesses have become victims of ever-growing consumer sentiment and willingness to promote these opinions and values using multi-media sources. These Customer First and One Team values, with widespread transparency on internalized efforts and objectives, impedes forward success and leaves the automakers open for unpredictability. Subject to media changes and consumer opinion polling (or other media representation of buyer interests), automakers appear to have put themselves into an unwanted position of social and strictly consumer scrutiny that impacts micro-level decision-making. As with other products on the consumer market, the role that logos play in consumer recall and the sensorysocial effects on their perception are present in the auto industry in the U.S., but not reinforced as heavily as low-cost consumer household products. “When people know how brands are attempting to position themselves, people consider colors congruent with those positions to be more appropriate” (Zeithaml & Lemon, 2009, p.91). Focus in the auto industry is on reinforcing consumer-based principles of customer quality, customer loyalty, and the team philosophy, further strengthening buyer power in their chosen markets. The results of experiments involving colour impact on buyers and their view toward logo presentation does not appear to be part of marketing focus, even though the literature supports measurable consumer behaviour changes based on these simple principles. Rather than using psycho-dimensional advertising methods that involve imagery, Toyota is left in a position to defend its quality when there is little evidence that such consumer sentiment exists. Hyundai conducts rapid changes to its senior leadership team that is promoted via multi-media channels. The domestic automakers are under social scrutiny for their role in stimulus, bail-outs, and media coverage of their changing operational design and focus in strategy. Each manufacturer has their own individualized strategic imperatives, however they serve to give the buyer more control in an already difficult and unpredictable market. This could be a product of known consumer buyer attitudes that dictate strategic direction or assumptions, both a risk to sustainability and growth. Conclusions & recommendations Unlike other industries, the automotive industry has been placed into the forefront of consumer consciousness, giving them a unique birds-eye view with consumers holding the microscope. Consumers receive multi-media information about more progressive companies, such as Google, with a much different production and service model and then attempt to apply these working principles on industries where unanimous decision-making can slow progress. There is a mixed blessing in relationship to supplier power, as their processes are highly controlled by a variety of auditing procedures and compliance policies. However, as the consumer strength grows, so does the supplier strength that comes from national heritage and brotherhood support. These are business risks imposed by the external environment where consumers have gained perception that the automakers are in a position to explain their internal organizational design and put to the defensive. Though there is little likelihood that any of the major manufacturers are looking to exit their market environments, the pressures applied by these consumer, investor and media groups challenge both decision-making and policy principles upheld by struggling organizations looking mostly for sustainability. Add to this the growing knowledge of processes and benchmarks, and rivalry that generally drives innovation is transformed into an industry-wide system of know-how that makes it difficult to differentiate at the marketing level. The growth in customer satisfaction, customer focus, and team/family philosophies gives consumers an entirely new role both as honorary corporate executives, but quality assurance agents as well both at the organizational and product level. Ford believed its sales increases were involved with product mix enhancement, whilst Hyundai recognizes new consumer trends in luxury or upgraded vehicle purchases and is making steps to satisfy these market needs. The automakers are in a difficult position, when trying to gain competitive edge, without relying on design aesthetics to differentiate between vehicles. Entire system make-overs and redesigns for the introduction of new models is a labour- and expense-reliant effort, however the pace of consumer changes and their introduction as sideline commentators move the industry from hybrids, to luxury vehicles, to sporty affordable models which might be found in the Ford product mix. In the U.S., multi-media and representation of these industries with the consumer needs on the forefront of consumer demands, advertising methodology is affected as they attempt to remove themselves from defensive positions they should not have been victimized with. The largest opportunity for brands that have been dealing with negative publicity and growing buyer power (or perceptions of it), is to distance the corporation from consumer sentiment by focusing less on team philosophies, Customer First programmes, and similar concepts. Though complete removal of these aspects from organizational culture is unrealistic and has become part of some of the automakers’ policies and procedures, transparency at the consumer level needs reduction. Through defensive advertising, auto manufacturers are essentially asking customers for their approval on the vehicles and the current systems that build, design and manage operations. Manufacturers can be witnessed offering gratitudes and reminders to the consumer households that the majority of decision-making and buying power lies in their hands; a servitude mentality. Distancing consumer sentiment from executive level decision-making and as unauthorized quality control agents involves new marketing focus and redoubling commitment to maintaining unique innovations with less benchmark knowledge. Human beings can be conditioned with advertising and colour choice, which has been proven with research studies involving sensory-social responses to logo presentation and colour schemes. The relationship with automakers with media sources requires a fresh focus; a confident business logo and philosophy that requires less consumer input. When buyers maintain growing control in highly competitive markets, through third party intervention and transparency growth in internal executive functions, consumers are going to be willing to exert their demands as they find instant reward by companies making instant changes to suit their ultra-flexible value systems. Neubert, Carlson, Kacmar, Roberts & Chonko (2009) identify that under the social learning theory, individuals in society will adjust their future behaviours based on what they see reprimanded or punished. When executives scramble to meet production, advertising, or internal management changes, their role as critical commentator is enhanced as this behaviour is rewarded by multi-media, automaker leadership, and even government in the process. The end result is a buyer controlled market with people conditioned to exert pressure. Automakers could, individually, re-exert similar pressure on the media sources to remind them that they are respected and long-lasting organizations with considerable evolution behind the knowledge driving their production, quality, and design models. These concerns can be voiced through press releases, direct on-air interviews, or through hands-on representation with corporate officials and media production organizations. Through logo, colour and other advertising conditioning, consumers can be removed as executive decision-makers, distracted, or otherwise stripped of their perceptions of buyer control in a market where this should be difficult to achieve. There are markets with the resources and demand for many of the vehicles, however their buying habits have become scattered and unpredictable due to economic concerns, investment shrinkage, employment and other externalities outside of their immediate control. This is obvious with sudden spikes in sales that improve year-over-year or even month-over-month. In an industry where the decision-making process had a predictable time period where consumers would scan alternatives, it has become a much more in-depth process that starts with concerns over leadership and operations, events once quite removed from consumer view. Comparison advertising is also recommended, within legal guidelines, to reinforce the differences between current competitive products on the market. Establishing an indifference with subjective consumers with radically different quality values is the first step in regaining control over buyer influence. Reinforcing that competitive products are non-comparable and removing transparency in the process can condition buyers to forget their role as quality control specialists, executive leaders and production coordinators. References Eisenstein, P. (2010). Toyota is accused of being safety deaf as it recalls millions of vehicles, Professional Engineering, 23, 2, pp.6-8. Fetu, S. (2009). Counterfeiting of spare parts & accessories in physical shops & online. [online] http://www.globalsecuresummit.com/presentations/10/Toyota%20Brand%20Protection%20London%202010.pdf (accessed October 2, 2010). Ford.com. (2008). Ford Motor Company – More products people want. 2008 Annual Report”. 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