Marketing of the Automotive Industry - Research Paper Example

Research on the Automotive Industry Table of Contents I. Introduction 3 II. Global Trends/Outlook 3 III. Focus on the Key Automotive Markets of Chinaand the US 7 A. China Automotive Industry 7 B. The US Automotive Industry 9 IV. Analyses 11 A. Porter’s Five Forces Analysis 11 Threat of New Entrants 11 Supplier/Customer Bargaining Power 11 Threat of Substitutes 12 Rivalry 12 Overall Assessment 12 B. Marketing Mix- 5P’s 12 Product 12 People 13 Price 13 Promotion 14 Place 14 C. Competitive Strategies 14 Differentiation/Focus 14 Cost Leadership 15 Works Cited 16 I. Introduction This paper undertakes research on the car industry in the context of the marketing elements tied to strategy work. When one talks about the car or automotive industry one either refers to the global industry, dominated by the automotive giants such as the likes of Toyota and GM, and the country automotive industries in the biggest automotive markets in the world, such as the likes of the American automotive industry, the Chinese automotive industry, the European automotive industry, and the Japanese automotive industry. A fresh survey of global automotive firms by the accounting and management consulting firm KPMG found that while the global automotive industry continues to be dominated by the same trends that have prevailed for the past few decades stretching back to the 1970’s. Where automotive brands from Japan and the United States have held sway, a new era is expected to arise. This new era takes off from the momentous shift in the global center of financial trade away from the dominant centers of Europe and North America, and a redistribution of some of that concentration to Asia. This is obvious from the heavy weight of China and its rapidly expanding economy, already at par with the United States in many areas of trade. Manufacturers in Asia are expected to benefit from this power redistribution, with many of them climbing up in terms of market power for the next half-decade (Pravda.ru). II. Global Trends/Outlook The top ten automotive firms with the largest potential moving forward are populated by companies that have substantial presences in China, and eight of ten of them are expected to come from the Asian continent. This shift in power too, is characterized neither by technological innovation nor by advancements in production capabilities, as was the case in Japan, but rather by the recent financial crisis setting back demand in many mature markets, such as Europe and North America, to pre-crisis levels, and in some cases to levels that were recorded in the mid-1990’s. Demand growth in the United States is expected to slow down. The rate of the slowdown is typified by the fact that in 2012, automotive sales only reached 12 million units, a markdown of around eight percent from levels achieved in 2011. Other key markets in Europe have reported even larger losses, of between about 13 percent for the Spanish market and close to 20 percent for the French market for automotives. These slowdowns and decreases in auto sales volumes year on year contrast with the positive prospects for emerging country markets such as the BRIC nations. In China, the forecast is that domestic demand for automobiles will rise to a number between 20 million and 30 million in a decade’s time. The growing scale of the demand in China and the expected uptake of more China-made cars by the Chinese domestic market are said to be impetuses for Chinese car manufacturers to up their game in terms of quality. Already, it is noted that the quality of Chinese-made cars are rapidly improving and closing in on the gap between their quality and the quality of cars from manufacturers in the developed markets, including the powerhouse Japanese, American and European car makers (Pravda.ru). The following table, on the other hand, paints a somewhat less gloomy picture of demand for cars in the West versus Asia., even as the figures include light truck sales, and even as it is clear that the growth in demand in Asia and the other BRIC nations for cars has been larger compared to that in America and in Europe. If we take demand growth rates in America over the past ten years to 2000 and compare that with those for Asia, we see a more dramatic divergence in demand growth. Asian car demand grew four times for that period, even as demand in North America only grew by 14 percent (Gomes). These figures are matched by projections from the Financial Times that see China overtaking Europe and the United States in terms of volume production of cars and light trucks in 2013, with Chinese projections at 19.6 million such automobiles, accounting for 23.8 percent of global shares, compared to Europe with 18.3 million or 20 percent of the global share, and the US with 14.5 million vehicles, or 18.2 percent global market share (BR Research): Table Source: Gomes 2 The more detailed breakdown figures for demand/sales in North America also shows how the American auto market has gone on reverse in terms of auto sales, with forecast sales for 2013 equal to average demand notched by the car industry from 1991-1995, at around 15 million units, again signifying the challenges facing the American auto market as it tries to move forward, and as Asian markets and car makers catch up (Gomes 3): Table Source: Gomes 3 These trends and figures are said to augur well for the continued rise in the volume of sales of China-branded automotives moving forward, with more cost-conscious car buyers in all markets around the world contributing to the demand for cheaper but quality automotives. This is not to say that the established markets and car makers will remain stagnant too, as the threat from increased demand from China and the threat of Asian carmakers are also expected to spur the rest of the global automotive industry to adapt and change the way they make and market their automobiles. The goal then of this paper is to map out the car industry in terms of the marketing tools and perspectives that have been studied and proven of value in marketing strategy work (Gomes; BR Research; Pravda.ru). Taking a step back, it is noteworthy that some macro-trends dominate and continue to sweep through to influence the dynamics and behavior of global automotive markets. Some of these trends include the continued but slow march of electric mobility options in many automotive markets around the world. A 2012 KPMG survey notes that by 2026, global uptake of electric cars will be anywhere from 9 to 14 million units just in the BRIC and TRIAD regions, even as hybrid vehicles are touted to be the most likely versions to come out, according to 65 percent of polled Chief Executives. Another trend is an undercurrent of prominence for component OEM manufacturers, who are seen as being those who will rise to the top of the automotive value chain. Predictions of overcapacity, meanwhile, are estimated for the global market by 2016, when overcapacity shall reach between 20 and 30 percent; China will have the most excess capacity by 2016; among the developed markets, it is the US which is estimated to have the highest levels of excess capacity, followed by Germany at second place, and Japan at third place. Another trend meanwhile is the rise of the automotive consumer markets in the BRIC countries estimated to reach anywhere from 100 to 190 million by 2027. By 2016, the estimated size of that market is anywhere from 23 to 29 million units. Chinese exports of cars are expected to top one million units by 2014. Financing will play a larger and larger role in future innovations surrounding the marketing and selling of automobiles around the world (KPMG 2-3) III. Focus on the Key Automotive Markets of China and the US A. China Automotive Industry By 2009 China had grown to become the largest automobiles producer in the entire planet, .and by 2011 its total output of cars produced had reached 19.2 million, more than double the production in the United States, at 8.6 million, and larger than Japan’s 8.4 million cars. This, as conditions in the domestic markets of the two latter countries did not augur well for a recovery in auto sales, while those in China favored larger production volumes with the explosion in the size of the middle class and owing to its large population and domestic market. This state of affairs is reflected in the plot on production below (Potter): Plot Source: Potter The situation on the demand size reflects the situation on the production side, with China overtaking first Japan and then the US as the largest country market for automobiles in the world, the latter achieved in 2009, a time when the US was in the midst of a recession from the financial crisis that struck most of the world. The confluence of factors that include the rise of the Chinese middle class has translated to about 50 percent of all vehicles produced in the country being passenger automobiles by that time, going up from levels of about 30 percent from a decade and a half prior to that time (Potter): Plot Source: Potter In terms of brands mix, about half of cars produced in China are made by Chinese brand manufacturers, with the remaining 50 percent being produced by joint venture undertakings between local manufacturers on the one hand and foreign brand manufacturers on the other. In 2012 GM remained the top brand, in competition with Toyota, who is ahead some years. Top local manufacturers include Chery, Dongfeng, and Geely (Potter). B. The US Automotive Industry As discussed earlier, the US market for automobiles is not growing at par with its counterparts in other parts of the world, but viewed another way, it has grown consistently over the past few years, making it a more desirable market to pursue, in comparison to Europe, which has seen demand levels drop over the past few years to levels achieved in the mid-1990’s, and Japan, which is expected to see demand declines for 2013, as subsidies for car purchases dry up. Some of the data reflect a softening of growth in demand in China, but this is relative, given that its market has become larger than any other country market around the world. There is data, nonetheless, that sees US prospects for vehicle sales to be better in the short term in comparison to the rest of the world, and certainly Europe and Japan, as reflected in this plot (The Economist Newspaper Limited; Pravda.ru; Gomes): Plot Source: The Economist Newspaper Limited Meanwhile, country comparisons are putting the American automobile industry in a positive light, with growth strong and profitability for American car makers solid, even as overcapacity and other related concerns are said to threaten the health of the Chinese auto industry, and even as Europe is expected to continue to falter in the medium term in terms of auto sales. The sentiment from European car manufacturers is that the US remains the most important car market in the world, notwithstanding the change of guard with China as the leading manufacturer country by volume. All of the American car manufacturers, headed by GM and Ford, are optimistic about revenues and profit projections moving forward, while Japanese car makers are expected to continue its focus in the American market in the near term, owing to recent developments such as a territory spat with China and the weakening of the yen versus the US dollar (Frost and Klayman). IV. Analyses A. Porter’s Five Forces Analysis Threat of New Entrants Given the high levels of technological and financial investment necessary to boot a country automotive industry from scratch, one can say that the threat of new entrants, in terms of new players in the global automotive industry, is low. Current players will continue to entrench themselves in their particular markets. On the other hand, if we consider the Chinese brands as new entrants, then given their excellent prospects for quality and market share improvements, then one can say that the threat of new entrants is medium to high. In the short to medium term, given the long gestation needed to build new players, this threat is generally low (Porter; Gomes; BR Research; Pravda.ru) Supplier/Customer Bargaining Power Given the relatively high level of competition, for some markets the supplier bargaining power is low, and this gives rise to a situation where Buyer Bargaining Power is relatively high in contrast. On the other hand, for some key markets where some brands are preferred over others for quality and cost considerations, then supplier bargaining power is high, while customer bargaining power is low. This is true for instance for some markets where Toyota cars dominate, and where customers have to have Toyota, or else GM or an American brand. Here buyer bargaining power is conversely low as supplier bargaining power is high. On balance both bargaining powers can be rated as low for suppliers and high for buyers. This is partly due to some factors such as excess capacity and the presence of many choices (Porter; Gomes; BR Research; Pravda.ru) Threat of Substitutes One can say that while new emerging modes of transport, such as electric vehicles, are gaining popular attention, the reality is that there are few alternatives or substitutes to motor vehicles, especially in markets that are becoming more and more prosperous. Here the threat of substitutes is therefore low (Porter; Gomes; BR Research; Pravda.ru). Rivalry The global automotive industry is characterized by a few dominant players that are also fierce rivals in many markets. Moreover, new emerging players from China are poised to add to the competition, and increase the rivalry levels further. Here the rivalry level can be deemed as medium to high (Porter; Gomes; BR Research; Pravda.ru). Overall Assessment Overall, with most of the Porter forces being low to medium, one can say that existing players have room to make profits in this industry, and continues to be desirable for the existing and emerging manufacturers, as discussed (Porter; Gomes; BR Research; Pravda.ru). B. Marketing Mix- 5P’s Product It is clear from the preceding discussion that product considerations differ for the different key automotive industry markets around the world, with the US market remaining the most desirable and the most developed in terms of the breadth and depth of positionings that car makes can take in order to market their automobiles. On the other hand, in more financially-limited markets such as the BRIC nations, premium product positioning may not sell as well as product positioning that relate well with the functionality, efficiency, and quality considerations of these latter markets. It is not an accident that recent reports indicate European luxury car makers continuing to prefer the US as a market for automobiles, given the greater diversity of product positionings, including premium product positionings, that do well in that market (Gomes; BR Research; Pravda.ru; Frost and Klayman; Potter; Dolak). People Markets can be proxies for the people aspect of the marketing mix, owing to the fact that a successful analysis such as the one undertaken above is able to differentiate market characteristics based on the characteristics of the buyers in each of the key markets discussed above. Relevant people characteristics in the marketing mix include taste and preferences, as well as buying power. These are markedly different, for instance, for Chinese car buyers and for American car buyers, with the latter showing a more sustained level of sophistication with regard to their preferences, as reflected in the diversity of car offerings in the US (Gomes; BR Research; Pravda.ru; Frost and Klayman; Potter; Dolak). Price In the global automotive industry, prices reflect various aspects of various car offerings, including car type, brand, country of origin, and a host of factors relating to marketing positioning, from value to premium. The presence of overcapacity in the US and in China complicate pricing aspects of the marketing mix, tending to drive prices downward, regardless of the primary positioning, as discussed earlier (Gomes; BR Research; Pravda.ru; Frost and Klayman; Potter; Dolak). Promotion The preceding discussion makes clear that positioning of the product is tailored to the preferences and other characteristics of the markets, and the same goes for promotions, where activities tied to promoting the brands and the vehicles themselves are particular to specific countries (Gomes; BR Research; Pravda.ru; Frost and Klayman; Potter; Dolak). Place The global automotive industry is carved out in the expert literature according to key markets, and in this analysis too the global industry analysis is narrowed to focus on the largest and most vibrant markets, namely the American and Chinese automotive markets. These make up the place aspects of the marketing mix too, where place equates to geography/country/region (Gomes; BR Research; Pravda.ru; Frost and Klayman; Potter; Dolak). C. Competitive Strategies Differentiation/Focus Differentiation is clearly working as a chosen competitive strategy for European car makers eager to expand sales in key markets outside of Europe, and it is no accident that the same European car makers have expressed a preference for the more mature and robust American market, which is more receptive to differentiation and to premium product positionings, in comparison with the less desirable Chinese market in this aspect (Gomes; BR Research; Pravda.ru; Frost and Klayman; Potter; Dolak). Cost Leadership The key players in the global automotive industry are all aware of the need to expand to many markets in order to achieve scale economies in production, distribution, sales, and services. These are all factors that enable the key players to be cost leaders in some of their brand and product offerings. Toyota, which focuses both on cost leadership as well as quality, is an exemplary example of a player in this space that has used cost leadership as a competitive strategy, with outstanding results (Gomes; BR Research; Pravda.ru; Frost and Klayman; Potter; Dolak). Works Cited BR Research. “Global automotive industry: shifting sands, new battlegrounds” Business Recorder. 1 March 2013. Web. 4 March 2013. < http://www.brecorder.com/br-research/44:miscellaneous/3140:global-automotive-industry-shifting-sands-new-battlegrounds/> Dolak, Dave. “A Marketing Plan: Key Components and Plan Outline”. The Marketing Guy Who Drives Sales. 2013. Web. 4 March 2013. Frost, Laurence. and Klayman, Ben. “Global car industry sharpens US focus for 2013”. Reuters. 11 January 2013. Web. 4 March 2013. Gomes, Carlos. “Global Auto Report” Scotiabank. 30 January 2013. Web. 4 March 2013. KPMG. “KPMG’s Global Automotive Executive Survey 2012”. KPMG International. 2012. Web. 4 March 2013. Pravda.ru. “Global automotive industry stepping into new era” Pravda. 25 January 2013. Web. 4 March 2013. Porter, Michael. “The Five Competitive Forces That Shape Strategy”. Harvard Business Review. January 2008. Web. 4 March 2013. < http://hbr.org/2008/01/the-five-competitive-forces-that-shape-strategy/ar/1> Potter, Sara. “China: Driving the global auto industry”. FactSet Insight. 10 January 2013. Web. 4 March 2013. The Economist Newspaper Limited. “The global car industry: Wheels of mixed fortune”. The Economist. 22 December 2012. Web. 4 March 2013. Read More