The Automobile Industry and Automobile Products - Essay Example

?Automobile Industry Introduction From 2008 to the auto industry was in crisis due to financial downturn. The United s was particularly hit by this event but Europe and Asia were also affected. In line with this, the auto industry was put into test and its survival lies on the capacity of the stakeholders to understand the very nature of its business environment. This paper tries to analyse the automobile industry with related theories and actual observation in its ongoing business trend. The proponent tries to generally make use of PEST analysis, and industry analysis. Part I. Analysis of the macro-environment Political Analysis The Automobile Industry is a promising business sector in the world. However, the government still holds an important role to play prior to the success of the industry. Porter believed that the government has an important role to play prior to the success of a company or an industry in general (Porter, 1990). The government has substantial control in the business sector because it is its task to provide a promising For instance, the government’s lack of focus attention towards the automotive sector and inconsistency when it comes to long-term strategic policy framework have considerable impacts on the UK’s auto industry (House of Commons, 2009; Holweg et al. 2009). This has become one of the specific weaknesses of the sector. In short, the UK’s auto industry is dependent on the government’s important policy and procedure. The Automotive Products Trade Agreement affected Canada because of the economic downturn. This in return brings forward positive association between politics and performance of the auto industry. The issue of global warming encourages the car manufacturing industry to go for alternative designs that will minimize fuel consumption and green house gas emission. This is in line with government policies especially in Europe to take considerably the issue of global warming. There is a need to substantially look for alternative designs that is in line with government’s policies on environmental concerns. Economic Analysis The economic downturn is so tough for auto industry. There is no question about it. Car manufacturing employers have to reduce manpower. Thus, more jobless workers have to suffer the aftermath of the instability of the world economy. Sales for automobile have substantially decreased and car manufacturing companies have feared the eventual impact of this in their business. Social Analysis Distracted by the aftermath of economic downturn, customers are more willing to compromise the need for a car. In a society where economic activity is unstable plus oil crisis has substantial impact, having a car is considered a luxury. People are most likely to go for their basic needs first and set aside other secondary needs in life. In the midst of oil crisis and economic downturn, public transportation was in demand. This is also influenced by educating the people about the possible implications of too much green house gas emission that most of it comes from automobiles. This only shows that social considerations have important impacts on the auto industry. In short, social business environment is another important consideration for the automobile industry in order to create a substantial need for its offerings. Technological Analysis Grant (2009) pointed out that in order for a company to have long-term survival; there is a need to consider resource and capability base upgrades. In line with this, the auto industry is consistently observed to promote different car models suited to the ongoing trend and created needs through technological innovation. Toyota is known to produce cars that are known for their cutting-edge technology. Part II. Industry Analysis The automobile industry is good at stimulating demand or needs for their products. In fact, it is the latest trend of every company to stimulate needs for their product and service offerings (Kotler et al., 1999; Boone and Kurtz, 2006). Car companies from Asia, Europe, North America and wherever in the world have tried to capture customers’ attention through their aggressive marketing efforts. It is very clear that car companies try to aggressively promote their offerings in the midst of economic downturn and other major challenges in the auto industry. The industry has to undergo specific life cycle and its performance increases over time from its introduction moving forward to its growth and maturity, but a certain decline has to be experienced (Grant, 2009). It is in line with this that there are observed decline in the auto industry because it already surpassed the maturity stage. The decline however of the auto industry was not because of its maturity, but there are certain issues that are strongly associated with it. Part of it was discussed earlier, but there are some other important reasons and this can only be unraveled by considering some analyses which include the analysis of the competitive environment and segmentation analysis. A. Analysis of the competitive environment Porter’s five forces model can be used as an illustration to show how the competition in the auto industry is shaped (Porter, 1990). Porter’s five forces model includes threat of new entrants, bargaining power of buyers, and suppliers and threat of substitute products or services. These forces create a strong general force that affect the entire industry and that is rivalry among existing competitors. The entire force starts in the production process. In general, car manufacturers would like to go for maximizing their value-chain management system. The most important is to look for product resources that can eventually help them produce products at a reasonable price. In line with this, the suppliers of raw materials have created a strong market power which in return allows them to name their price. In line with this, car manufacturing companies are able to create relationship marketing strategies with their suppliers and such relationship is about creating strong loyalty in order to prevent any unnecessary effects that could not benefit the consumers. However, as there are many car-producing companies in the world, those who supply raw materials have still strong market power to demand for the final pricing of their product offerings. The new entrants in the car industry are most likely to be receiving tough challenges. Considering that the auto industry is trying to create specific market segments and their marketing activities involve relationship marketing to ensure customer loyalty and satisfaction, new entrants are most likely not to survive in the auto industry. Toyota has strong marketing force and Ford has substantial marketing impact and all other brands. This is a common trend in the contemporary marketing and it always the customers who are viewed to have strong influence in the automobile market. In line with this, new entrants have to exert more efforts to gain trust and loyalty from existing customers. Thus, in line with this, there is a need exclusively understand specific market segments of car users. Buyers therefore have strong bargaining power considering that the completion for different car brand is so intense. Toyota is known for its affordable yet higher quality offerings. Toyota therefore is good at creating value proposition for its product offerings. However, other car manufacturing companies are also good at creating needs for their products. Thus, the entire auto industry is a healthy market for competition. Customers therefore are always benefited from this trend. Toyota is willing to provide more affordable cars at higher quality, but amidst of this, there has something to be sacrificed somewhere in the supply chain management. The bottom line of this is that customers have variety of choices and they substantially have strong bargaining power. Illustration 1. Porter’s five forces model. B. Segmentation Analysis The Market Share It is noted that the United States is one of the leading car manufacturing countries in the world followed by other first world countries. Car manufacturing industry in the United States is viewed as an indicator of how healthy is the auto industry in the world. The top four renowned car manufacturing companies in the United States are General Motors Corporation, Ford Motor Company, Toyota Motor Incorporated and Honda Motor Corporation Incorporated. These four companies have substantial market share and they have strong influence in the car manufacturing industry in general. This is the reason why it was an advantage to the three top car manufacturing companies when Toyota Motors Incorporated got so many problems about quality issues resulting to recalls of its product offerings in the previous years. The General Motors Corporation has long been the top leading car manufacturing company in the United States, but at some point in time, Toyota Motors Incorporated has become the top car producer in the world starting in the year 2004, but not lately based on its market share. The issue in this case between the top four car manufacturing companies is about competitive advantage. The entire thing circulating within them is a matter of consistency in introducing value proposition that can effectively satisfy customer’s expectation. Mostly, customers are looking forward to trust and reliability of the purchased automobile product. The General Motors has captured this need that is why it surpassed the performance of Toyota Motors Incorporated as of February 2011 due to quality issue problems that lately are encountered by the latter. The whole thing is about a matter of consistency and those companies that tried to stick to this is eventually making an advantage for obtaining corporate goals. The market share is a good indicator that tries to point out the fact how a certain company is performing in the market, and in its industry and customers (Cooper and Nakanishi, 1988; Osenton, 2002). As shown in Table 1, the top car manufacturing companies in the United States have corresponding market share. The market share is affected entirely by both internal and external factors within the auto industry, just as like cited between the case of Toyota Motors Incorporated and General Motors Corporation. The market share is not just an indicator of a certain company’s performance but it can also be used to know how competitive a certain industry is in general. This is presented next in the analysis of concentration ratio of the auto industry based on the US Sales of top car manufacturing producers in the world. Table 1. Sales and Share of Total Market by Top 10 Car Manufacturers (Based on the US Sales) (The Wall Street Journal, 2011) Car Manufacturer % Market Share as of Feb 2011 General Motors Corporation 20.8 Ford Motor Company 15.7 Toyota Motor Sales USA Inc. 14.3 American Honda Motor Co. Inc. 9.9 Chrysler LLC 9.6 Hyundai Motor America 4.4 Nissan North America Inc. 9.3 Kia Motors America Inc. 3.3 Subarn Supplies Motor Corp. 2.2 Mazda Motor of America Inc. 2.0 The Concentration Ratio At this point, it is important to understand how competitive is the auto industry based on the data presented in Table 1. The concentration ratio generally is a percentage of market share owned by the largest firms in an industry. A concentration ratio close to 0 means an extremely competitive industry since the selected largest firms would not have any significant market share. The concentration ratio can be expressed as: CRm = S1 + S2 + S3 + … Si, where Si the market share of the ith firm. The four largest car manufacturing companies in the automobile industry based on their market share, based on the US sales as of February 2011 are General Motors Incorporated, Ford Motor Company, Toyota Motors Incorporated, and Honda Motors Incorporated. The concentration ratio of these four top car manufacturing companies is computed and is equal to 60.70%. This means that CR4 is equivalent to 60.70%. This further implies that the car manufacturing industry is not so competitive for new market entrants and other small firms considering that less than 40% of the market only belongs to them. Despite of this, there are still many car manufacturing companies in the automobile industry indicating that customers have variety of choices to choose from. Customers have benefited by this entire trending in the auto industry. As stated, the majority of the market share is obtained by the four key players which are General Motors, Ford Motor Company, Toyota Motor Incorporated and Honda Motor Corporation. These companies have been making the entire trend in the auto industry in the world. Their failure therefore would greatly create an impact in the automobile industry. However, their success is also a good indicator of the good health of car manufacturing industry in the world. This is the reason why car manufacturing producers have to substantially consider prevailing needs and demands of consumers. These top car manufacturing companies are good at creating needs that is why they try to study the whole market industry and present the value proposition of their offerings. In short, they try to identify specific market segments where their product offerings would make sense compared to those presented by competitors. Segmentation Stevensson (2004) presented a generic model of supplier segmentation in the Automotive Industry. The Vehicle Manufacturers (VM) have certain commitments and at the same time always looking forward to the demand of their product offerings. That is why there is always a need to identify the generic market segments in the auto industry in general. The generic segments consist of family, friends, business partner and transactional businesses. Based on the model presented in illustration 2, Family and business partners are two top important market segments in the car industry because of their high value for VM based on commodity issue. However, suppliers have also their target market segments and they usually try to have more commitment in family commodity than in business partners. For this reason, the competitive force is very critical in the auto industry. There seems to be more profit advantage when suppliers and car manufacturing companies will focus on family segments and business partners in general. Illustration 2. A generic model of supplier segmentation in the Automotive Industry (Svensson, 2004) Part III. Conclusions The automobile industry is one of the oldest in the world. It still survives at present because there is continuing demand for cars and other automobile products. However, car manufacturing companies are being challenged by the growth of number of car producers in the world. In this case, pierce competition is everywhere in the industry and only to find out more than half of the market share belongs only to top multinational car producers. This is an indication of a not-so-healthy competition in the automobile industry for new entrants and other car producers at the extreme level. Therefore, everything needed by a car manufacturer in order to be on top lies on the formulation of competitive strategies for more competitive advantage. References Boone, L. E., and Kurtz, D. L. (2006) Contemporary Marketing. 12th ed. USA: South-Western. Cooper, L. G., and Nakanishi, M. (1988) Market-share analysis: evaluating competitive marketing effectiveness. USA: Springer. Grant, R. (2009) Contemporary Strategy Analysis. Oxford: Blackwell. Holweg, M., Davies, P., and Podpolny, D. (2009) ‘The Competitive Status of the UK Automotive Industry.’ [Online] Available at: http://www-innovation.jbs.cam.ac.uk/publications/downloads/holweg_competitive.pdf (Accessed: 23 March 2011). House of Common: Business and Enterprise Committee (2009) ‘The Automotive Industry in the UK.’ [Online] Available at: http://www.parliament.the-stationery-office.co.uk/pa/cm200809/cmselect/cmberr/550/550.pdf (Accessed: 23 March 2011). Kotler, P., Armstrong, G., Saunders, J., and Wong, V. (1999) Principles of Marketing. 2nd ed. England: Prentice Hall. Osenton, T. (2002) Customer share marketing: how the world’s great marketers unlock profits from customer loyalty. New Jersey: FT Press. Porter, M. E. (1990) Competitive Strategy. New York: Free Press Svensson, G. (2004) ‘Supplier Segmentation in the Automotive Industry: a dyadic approach of a managerial model.’ [Online] Available at: http://pcbfaculty.ou.edu/classfiles/MKT6393/wk5/IJPDLM%2004%20Svensson.pdf (Accessed: 29 March 2011). The Wall Street Journal (2011) ‘Sales and Share of Total Market by Manufacturer.’ [Online] Available at: http://online.wsj.com/mdc/public/page/2_3022-autosales.html#autosalesE (Accessed: 29 March 2011). Read More