What Features of the Industry Have Caused Intensive Competition and Low Profitability - Essay Example

?FORD AND THE WORLD AUTOMOBILE INDUSTRY IN 1. The world automobile industry has experienced low profitability during the past two decades. What features of the industry have caused intensive competition and low profitability? The rudimentary characteristics of the modern cars have not altered much since the days when Ford happened to dominate the market. Nowadays cars happen to have the same number of wheels as back then that is four. Furthermore, cars are driven by a fuel engine. The body of a car is also joined together by parts of metal, exactly same as it was done by then. Notwithstanding the overpowering influence Ford happened to have on the industry of automobiles, the advantage it had over its competitors was transitory. GM took over Ford as a result. This resulted due to the vision of GM being much more decentralized organizational arrangement. Customers were also offered much more options and choices as the product portfolio of GM happened to be much broader in nature. The bulk production of cars in United States influenced the growth of the post-war period, but that was only till the 1970s, which saw intensive rivalry from countries like Japan. Toyota offered customers in the US and through Europe better deals, not only with respect to quality but also cost Another reason for intensive competition can be attributed to government actions in Europe and US. The government of these areas tend to provide bonuses for getting rid of old cars and subsidizing purchase of ones that are new. Bonuses are also offered for the regaining of demand in major markets. Due to new incentives in production as well as increasing demand, competition increased. The automobile industry can be explained diagrammatically in the following figure: Porter’s Five Forces Model ((Investopedia, 2009) The automotive industry is facing a strong and tough competition as most of the competitors are not only large with respect to size but also have market, resource and financial stability as well as a proven track record. Competitors are promoting new products that may compete with each other at a high level. Competition focuses on attracting recruiting and retaining marketing personnel. Due to the fast pace of changes in technology the position of automobile players would unfavourably be affected if future developments in new technology are not accessed as well as anticipated. The automotive industry has faced low profitability due to the following key challenges: Regionalization Overload and division of markets, Challenges that only a few makers have happened to manage positively as well as effectively. New skills are needed to deal with the ongoing competition and ensure that the company/organization operation results in profits. Many countries have grasped the skills of manufacturing cars. The quality of cars produced are not only good in quality but are also low in cost as compared to cars produced in Europe and US. The figure below shows the key challenges suppliers face in the automobile industry: Other reasons for low profitability include the cost of health care, the rise of China to a persistent overcapacity, manufacturers relying heavily on static business models (as shown in the figure above), and unable to show some adaptability skills especially in a changing environment. History shows to what degree the position of companies have changed during the last century due to them being unable to adapt themselves according to the changing market. Henry Ford built his realm on the basis of its capability to produce vehicles in bulk at an unmatched cost. Ford’s market share was defied by Alfred at GM. Alfred sensed that customers required a broader range than Ford provided especially in maturing markets. Alfred started offering vehicles that served every purpose as well as every class of the society. Hence, in 1927 Ford happen to lose its market share and never happen to regain its dominant market share as yet. Market share, in the mature automobile industry has not and will never be obvious only on the basis cost of a vehicle or its capacity for bulk production. The ability to understand new trends and broadening your range according to the demand of the customers and market happens to be the determining. One of the biggest risks and threats that the western motor industry may experience is the rejection to understand as well as accept such changes as well as their reliance on high volumes of SUVs. Also growing environmental concerns is as short-sighted as the European manufacturers’ perennial favor of luxury vehicles. Also, there needs to be extended closer sales management through increased customer contact. (Question 2 on next page) 2. What will be the key success factors in the world automobile industry during the next five years? Which companies will be most profitable? Companies in this industry have failed to “delight” their customers very often, and this needs to be done on a more regular basis if any of the company wishes to remain profitable. Also, the companies need to work on their management culture and the quality of staff in order to make quick management decisions that will in turn save the time spent on correcting mistakes and utilizing it for better, profitable purposes. In order to survive and gain an advantage over one another, every company ensures its philosophy towards managing operations is not only unique but competitive also The European automakers may want to consider an upper step of entrustment and distributed obligation along with flatter hierarchies. Companies need to completely redesign, revisit, and re-enact their business models. Numerous companies are still relying on the Ford Model T and the GM’s and Toyota’s lean management business model. Their models need to be aligned with the current market situation as well as the rapid technological changes taking place. Any company that fails to do this will not last long on the competitive market list. Right now, most automakers are following essentially the same stratagem, which ensures neither of them can be differentiated from one another. Because only few automakers may attain a notable leadership position with respect to the cost, they should opt for diversification and create a strategy to support this aspect. Creativity, point of sale control along with other production and related activities are to be focused upon. Notwithstanding the mounting inclination of direct sales, the car dealership will remain to be the most imperative interface with customers for the anticipatable future. Therefore, automakers need to provide more support to in order to reinforce the customer loyalty towards their brand. A good way is to offer discounts to customers and try applying niche marketing where a specific community may be targeted. Automakers may have a direct control on their personal sales outlets. However, most car dealerships have lost strategic control over their customers. The figure below shows the rise of emerging markets in the automobile industries. Therefore, it is clear that all the carmakers in these emerging markets and those partnered with these will be the most successful ones in the next five years. Purely European and WE carmakers having no stake in the emerging markets will continue to struggle. References: Top of Form Bottom of Form Ford and the world automobile industry in 2012 (n.d). HOLWEG, M., DAVIES, P., & PODPOLNY, D. (2009). The competitive status of the UK automotive industry. Buckingham, PICSIE Books. Investopedia. 2009. Industry Handbook: Porter's 5 Forces Analysis | Investopedia. [online] Available at: http://www.investopedia.com/features/industryhandbook/porter.asp [Accessed: 6 Nov 2013]. Read More