Strategic Management of the Automotive Car Manufacturing Industry - Coursework Example

Executive Summary The global automobile car manufacturing industry has enjoyed rapid growth in the recent years. However the last three years have seen the industry go thought some tough economic moments which have stagnated growth in many sectors. This paper looks at the overall state of the automotive car manufacturing industry. Some of the industry aspects such as structure and investment attractiveness have been discussed in –depth. An analysis of the industry using Porter’s five and PESTLE analyses methods have been used to determine the factors that determine how the industry works. A market analysis of various players in the industry has also been carried out. Global Automobile Car Manufacturing Industry The global automobile industry is one of the leading industries in the world today. This industry has its roots in Europe and the USA where it started in the late second half of the 19th century. It started expanding to the rest of the world in the early 20th century. The global automobile car manufacturing industry deals with the assembly of passenger cars, Sports Utility Vehicles, vans and some light duty motor vehicles (Sturgeon, Biesebroeck and Gereffi, 2008). Structure of the Global Automobile Car Manufacturing Industry The world-wide car manufacturing industry is run mostly by large multi-national corporations that also engage in the production of other types of automobiles and automotive parts. The industry market has an oligopolistic structure, which is controlled by the big market players in the industry. The best investment in this industry can be done in an untapped market since getting into established markets is quit hard (PWC, 2009). Critical Success Factors At present, the critical success factors include: quality, image, cost control, meeting energy standards. A lot of attention is being paid to the quality of the different brands of cars being manufactured for specific markets. Competition arising from a high level of mergers in the industry is pushing manufacturers to enhance their image through production of quality cars. Cost control is also a major critical success factor as manufacturers look for ways to counter financial constraints caused by the global economic crisis. Many of these companies have developed cost-effective production of high quality cars. The high cost of fuel and other environmental factors have also led to manufacturers producing cars that meet the highest standards as pertaining to energy consumption (Ralf, 2001). The future critical success factors are likely to be pegged on the manufacturers’ image through brand management. Aspects of image such as design, service strategies, brand experience as well as technological functions. Enhancing manufacturer’s image is one of the main ways of enhancing the company’s competitive advantage. Quality will also be a major critical success factor in the industry as the manufacturers compete to produce the best environmental-friendly cars (Maxton, 2004). PESTAL Analysis of the Car Manufacturing Industry The political factors influencing the activities of the global car manufacturing industry include legislations to do with the environment, company cars and competition; taxes, duty and subsidies. Competition laws are also different in different countries. For instance, Japanese cars have a small market share in Europe as compared to the rest of the world mostly due to laws that favor European manufacturers. Local-based manufacturers enjoy tax reductions and subsidies as compared to international manufacturers (Lung, 2004). Economic factors affecting the car manufacturing industry include economies of scale, excess capacity, mergers and strategic alliances and diversification. Some manufacturers normally produce cars in excess, in the process, they overcrowd the market (Lung, 2004). The tough financial situation being faced by several companies has led to the practice of depending on economies of scale. The car manufacturing industry is diversifying its operations to include the manufacture of spare parts and other automobiles (Klier, Lavelle and Rubestein, 2010). Social factors affecting this industry include car culture, fashions and taste. There is a growing car culture all across the world as more people can afford to buy cars. Fashions and tastes keep changing with time. The kind of cars that were in fashion ten years ago are no longer fashionable. The preference of cars is also changing due to financial, technological and environmental factors (IMF Report, 2009). Technological factors include safety, e-commerce, plant efficiency and accessories. Safety has become a key feature in most cars being produced today. Cars fitted with modern accessories are also very popular. E-commerce has enhanced how and where cars are marketed. Plant efficiency determines the quality of cars that are manufactured (Lung, 2004). Legal factors include trade regulations as well as environmental and competitive policies. The industry enjoys flexible trade regulations in most parts of the world. Environmental awareness has led to environmental laws which require cars to be produced following specific standards. Different countries have different competitive policies. In Europe, it is hard for foreign manufacturers to penetrate the market since the laws lean heavily on the locals’ side. Environmental factors that are relevant in the car manufacturing industry include environmental regulations and market and stakeholder values. There are laws regulating the amount of emissions that cars should produce (Muthukumar, 2007). Five Forces Framework Threat of New Entrants: The global car manufacturing industry is one of the global manufacturing industries that faces very little competition. Some of the reasons given for the lack of threat of new entrants include: buyer incentives, customer loyalty to certain brands, scarcity of resources, high fixed costs and government policies creating entry barriers. Power of suppliers: In the global automotive industry, the supplier exerts a lot of pressure on the manufacturers. This is because there are very few suppliers and there are few options for product substitutes. In such situations, the suppliers are normally in a more superior situation which they can use to dictate terms. Power of Buyers: The influence of buyers in the car manufacturing industry is driven by the prevalence of different options and price sensitivity. Other factors influencing power of buyers include purchases of large volumes and a small number of potential buyers. For instance, in North America, buyers were more driven to buy foreign makes due to their low prices and affordability of auto parts. Availability of Substitutes: Although the car manufacturing industry is not over populated, there is availability of substitutes from related manufacturing industries. These industries normally offer substitute car parts, most of which are available in the market at low prices. The rise in the cost of fueling cars also prompted many people to look for alternative means of transport. Competitive Rivalry: The car manufacturing industry experiences fierce rivalry among the key global players. The big manufacturers in Europe, North America and Asia all want a piece of the global market share. This is a very mature industry and competition among auto makers has led to innovation in auto production in order to lure as many consumers as possible (Gopal, nd). Strategic Groups of Competitors The Big Three in North America These are: General Motors (GM), Ford and Chrysler. GM is the manufacturer of such brands as Cadillac, Opel and the Vauxhall. Vauxhall is based in the United Kingdom. Opel is a global model, but it is not marketed in North America, the UK and Japan. Ford produces the global Ford and North America-based Lincoln. The Big Three in Germany: Volkswagen, BMW and Daimler AG. Volkswagen has popular brands such as Audi, Lamborghini, Bentley, Porsche and Volkswagen as its global subsidiaries. Mercedes-Benz and Orion brands are produced by the Daimler Group. Apart from the BMW brand, BMW also produces MINI and Rolls-Royce for the global market. The Big Three in Japan: Toyota, Honda and Nissan are some of the most popular manufacturers of cars; Toyota is the biggest in the world. Toyota brands include the Lexus which is popular throughout the world for its quality and low cost (Klier, Lavelle and Rubestein, 2010). Concentration of Market Share Protected autonomous markets are in China, India and Malaysia. There are also regionally intergrated peripgeral markets in Central Europe (EU) and Mexico (NAFTA). Examples of emerging regional markets are Brazil and Thailand. The fourth category of markets is the globally intergrated domestic markets such as South Africa (Humphrey and Oeter, 2000). Key Performance Indicators Factors that influence performance on the automotive car manufacturing industry include: availability calculations, machines and equipment volume, quality of manufactured parts and overall equipment effectiveness. Productivity and competitiveness, costs and inventory management are some of the other performance indicators in this industry (Sturgeon, Biesebroeck and Gereffi, 2008). Industry Trends Regionalization, internationalization and globalization is a trend that has been adapted by many of the top players in the world automobile car manufacturing industry has created new trends. One of the major trends is that major global car manufacturers are consolidating into global auto groups and alliances in a bid to achieve economies of scale, speed and scope. This consolidation is normally in the form of mergers, acquisitions and networking. This gives rise to the trend of global value chains that are producer-driven (Maxton, 2004). The internet has emerged as a strong marketing platform for many of the world’s car makers (Lung, 2004). References Gopal, C., nd, Global Automobile Industry: MChanging with Times, Viewed 14 October 2010, Humphrey, J, & Oeter, A, 2000, Motor Industry Policies in Emerging Markets: Globalisation and the Promotion of Domestic Industry. Oxford University Press, Oxford. IMF Report, 2009, The Global Crisis and Restructuring in Automotive and Metalworking Industries, Special Report, IMF, Geneva. Klier, TH, Lavelle, M and Rubenstein, JM, 2010, After the Perfect Storm: What’s Next for the Auto Industry? Chicago fed Letter, Issue No. 277a, pp. 1 – 4 Lung, Y, 2004, Cars, Carriers of Regionalism, Palgrave MacMillan, New York. Maxton, G, 2004, Time for a Model Change: Re-engineering the Global Automobile Industry. Cambridge University Press, New York. Muthukumar, R, 2007, Case Studies on Global Automotive Industry, Viewed 14 October, 2010, PWC, 2009, 2009 Automotive Review: Globla Automotive Review, PWC Automotive Institute, London. Ralf, L, 2001, The Future of the Automobile Industry: Challenge and Concepts for the 21st Century, Society of Automotive Engineers: Warrendale, PA. Sturgeon, T, Biesebroeck, JV & Gereffi, G, 2008, Value Chains, Networks and Clusters: Reframing the Global Automotive Industry, Journal of Economic Geography, Vol.8, No. 1, pp. 297 – 321. Appendices Toyota Sales Percentage of the most produced car models Midsize Cars Small Cars Luxury Cars Read More