Total Cost Minimization - Essay Example

Total Cost Minimization of Introduction That about 60 million automobiles are manufactured in a year points tothe economic and industrial force that the automotive industry is. In fact, the automotive industry consumes almost half of all world’s oil and directly or/and indirectly employs more that four million people. The strong influence of the automotive industry persists despite the low profitability and overcapacity challenges that many of the automobile manufacturers face. Importantly, the industry avails well-paying jobs and linkages and businesses to supplier industries, further expanding its influence in world economic and industrial development (Georgano, 1985).

This paper explores the difference between the past and the present automobile engineering world, giving examples of Toyota and Ford. Specifically, the paper discusses the past and present economic issues, the growth and development of the manufacturers, and the changes in production speed by the manufacturers. The Past and Current State of the Industry The automobile industry has been in existence for slightly more than one hundred years, having begun in France and Germany. However, the industry grew, developed, and came of age in the United States until the current times where automobile production is done in a rather mass scale (Toyota Motor Corporation, 1988).

The main areas of noticeable growth in the automobile industry are vehicle efficiency, volume, safety, choices, and features (Papatheodorou, 2007). The automotive industry has thus not lagged behind in industrial and technological development and has stayed abreast with the 20th and the 21st century industrial and technological developments. There has been mass production of automobiles accompanied by an equal mass consumption, resulting in the automotive industry receiving the title the "industry of industries (Perryman, 2011).

" Despite its growth, the automotive industry encountered and continues to face a number of economic issues, which derail its further growth. Due to these problems, the industry’s average margins have fallen from 20% in the 1920s to 5% in current times. Consequently, a number of automobile companies have lost money, causing low profitability as evidenced by the industry's market capitalization. The miniature 1.6%, which the industry accounts for at European stock markets reflects this dismal performance despite the huge revenues and employment in the industry (Perryman, 2011).

There is also an apparent contrast between the industry’s oversized social role, share of employment and political influence and its uninspiring financial success. The main factors that determine the performance of the industry in current times is its overcapacity and mature markets, especially in the developed countries of Europe, U.S., and Japan. In fact, currently, these three regions account for about 80% of world automobile sales. Unfortunately, the industry’s growth has stalled a lot in the recent past.

Although the obvious response to this slowed growth and an increased productivity should have be a reduced capacity, it has been rather difficult to close down the existing large and expensive plants, which confer mass production and cost advantages. In the U.S., the big three automakers of General Motors, Toyota, and Ford have been losing their market share and money rather fast in the last three decades while new non-U.S.-based companies’ plants have increased their capacity and competition (Perryman, 2011).

This scenario is a pointer to the big change that the industry faces. Changes in speed and nature of production are some of the reasons for which the new players in the market seem to be overtaking the bigger and more established ones like Ford and Toyota. For instance, while the big companies are large, less flexible, and designed for mass production, the new entrants cover wider production spectrum of car sizes and are designed for flexibility thus produce different models (Magee, 2007). The new entrants, referred to as transplants, mostly have non-unionized, younger workforces, and geographically flexible plants.

However, the growth of big firms such as Toyota and Ford stems from their spare part and assembly plants, which are also the reasons for their economic successes. In fact, spare part plants create about 60% of final vehicle value-added besides creating employment, creating even more jobs than the assembly plants do. More spare part plants are created every decade than assembly plants are, implying that they growth faster than assembly plants. However, automobile assembly plants have more indirect and induced effect on the motor industry than the spare part plants do.

As mentioned, the production speed and line of Toyota and Ford and the other automotive manufacturers have changed a great deal in recent times. First, Toyota and Ford use electric technology to produce luxury cars such as Toyota Prius, which was the flagship of the Toyota’s hybrid technology. In addition, Toyota and Ford are speedily developing vehicles that would operate entirely only on electricity, aiming at mass-production of such cars in the early years of this decade. The production speed has also been accompanied by the building of different car models, with Toyota listing approximately 70 different models sold under its namesake brand in 2009.

Examples of those listed are coupes, vans, sedans, trucks, hybrids, and crossovers. Conclusion Toyota and Ford are among the most successful care manufacturers in the world. Despite the economic challenges they faced in the past, these companies managed to cerate and production and consumer base that have seen them become the top automobile makers in the world. Specifically, increased production speed and models of cars with increased efficiency, volume, and safety are the main factors contributing to their success.

References Georgano, G. N. (1985). Cars: early and vintage, 1886–1930. London: Grange-Universal. Magee, D. (2007). How Toyota became #1: leadership lessons from the world's greatest car company. Penguin Group. Perryman, S. (2011). Global Automotive Outlook for 2011 Appears Positive as Mature Auto Markets Recover, Emerging Markets. Retrieved on September 20, 2012 from http://businesscenter.jdpower.com/news/pressrelease.aspx?ID=2011018 Toyota Motor Corporation. (1988). Toyota: a history of the first 50 years.

Toyota Motor Corporation. Papatheodorou, Y. (2007). The Automotive Industry: Economic Impact and Location Issues. Industry Week. Retrieved on September 20, 2012 from http://www.industryweek.com/global-economy/automotive-industry-economic-impact-and-location-issues