Situation Analysis of the Automotive Industry Brands - Essay Example

Situation Analysis of the Automotive Industry Name: Date: Introduction The automotive industry has a large network of players that focus on all the aspects of the industry, which include manufacturing, supply, and distribution of the automobiles to the final consumers. Some of the major automobile firms include Toyota, General Motors, Volkswagen, Hyundai, Ford, Nissan, and Peugeot (KPMG, 2012). The industry is large and it is one of the industries that are driving the growth of the global economy. In 2013 alone, the industry sold a total of 83 million units, which is a 4% increase compared to 2012 with the passengers cares taking the largest share of the total units that were sold in the year at 63 million units. The automotive industry is also the major employer and it employs about 50 million across the globe. There are a number of factors that affect players in the automobile industry. Some of the factors include a shift in consumer demand, increased environmental concern, and regionalization (KPMG, 2015). Other factors include market saturation and overcapacity, increased regulatory requirements, and rapid change in technology. The factors affect all the players in the industry and they can be either threats or opportunities to the players in the industry. Therefore, it is important for all players in the industry and the management to understand them if they want to remain active in the industry that is experiencing stiff competition. This report analyzes some of the companies that are found in the automotive industry, which include Hyundai, BMW, and Audi, with Ford as the reference company. The report concentrates on the specific issues in the industry, the major competitors, characteristics of the market, regulatory issues, global factors and the business model of each company. Therefore, the report focuses on the situation analysis of the above companies in the automotive industry. Reference Company: Ford Company Overview Ford Motor Company was found in 1903 by Henry Ford with an initial investment capital of $28,000 and its financial status now stands at $10.6 billion. Ford is an American automaker and it is one of the best performing and large automobile company in the automobile industry. The company is the second largest automaker in America and the fifth in the world. The company has about 224,000 workers who are employed in its 90 manufacturing plants across the globe. The company is headquartered in the capital city of Michigan, Dearborn, but it is found in almost all the regions of the world. The company has two main brands, which include Ford and Lincoln. The Industry Specific Issues There are a number of specific issues that affect the automotive industry. The issues are majorly associated with economic uncertainties, increase in technology, globalization, changes in consumer behaviors due to social and economic changes, and environmental concern (KPMG, 2014). Some of the specific issues that are covered in this report include regionalization, environmental issues, market saturation, Technology, and the changes in the supply chain. Environmental Issue Increase environmental degradation is one of the major issues that affect the production and the designs of automobiles. Environment movements, international organizations and governments are coming up with environmental regulations and policies that ensure that the environmental pollution is minimized (KMG, 2014). One of the major pollutants is the automobiles due to carbon dioxide emission, which is believed to be causing global warming. Therefore, the automobile industry is coming up with innovations that ensure environmental conservation. Environmental issues are shaping the driving system and the designing of the vehicles because they players in the industry must with cost effective and fuel efficient vehicles that least pollutes the environment. Automotive players are forced to team up with the organizations like DuPont to address the environmental concern. The increase demand of the hybrid cars that are environmentally friendly is also forcing the automobile manufacturers to come up with cars that do not pollute the environment. Various governments also support the industry players, which do not emit a lot of carbon dioxide in the environment (KPMG, 2012). However, firms that do not manufacture hybrid vehicles are highly taxed by various governments. A lot of environmental issues have been raised that relate to the car manufacturing process. One area of greatest concern is the painting and coating of the vehicles, which has the greatest impact on the environment during the manufacturing process. Some of the paints and coats that are used release dangerous chemicals like nickel and copper in the environment. Therefore, care manufacturers have been forced to use “in mold painting” techniques to reduce the release of such hazardous chemicals in the environment. The batteries used in vehicles have also raised some issues because they contribute to the emission of lead, which is very hazardous. The industry players have also under pressure to recycle the materials that they are using. Market Saturation and Overcapacity The failure of automobile manufacturers to match their production capacity to market demand has led to the saturation and the overcapacity of the market (PWC, 2015). The estimated global capacity is 20 million vehicles, but the number has gone much higher because the players find it easier and cheaper to add the capacity than to reduce it. The overproduction is more political than economic because the automotive firms employ many workers and closing or reducing their capacity means a massive job loss, which may not go well with many governments. It is estimated that a single assembly plant employs about 5,000 workers. As a result, various governments subsidize the operation of such assembly plants, which leads to overcapacity and saturation of the market. The market overcapacity and saturation have affected the industry. The market saturation has forced the firms to come up with the incentives like discounts and free services for them to secure their market share (PWC, 2015). However, the sustainability of such incentives has been a challenge due to the high cost and they have made even major players in the industry to make losses. The high cost of the incentives made Ford and General Motors to make losses in the 2005. Regionalization The industry has experienced a regional a shift in the production the production of the automobile for the last few decades. In 1990s, vehicles manufactured in the US, Japan, and Europe dominated the global market (Ingrassia & White, 2013). The three regions combined accounted for the 91% of the total number of cars that were being produced then. However, that trend changed in the beginning of the 21st century due to the emergence of the new markets and economies. The trend has changed and the former big three regions in the industry no longer lead in the production of cars. For instance, in 2004, only 70% of the units that were produced came from the USA, Japan and Europe. The regional shift has been due to the increase of the assembly plants and their distribution across the world (Ingrassia & White, 2013). The key players in the industry like the Toyota, GM and Volkswagen have been distributing their manufacturing base in the emerging economies. There has been increase in the demand of cars in the emerging economies, which has influenced the regional shifts. Companies shifted their production from areas with high cost of labor to areas with low cost of labor like India. Change in Consumer Behavior Consumer behavior refers to all human behavior in making the decision to purchase a particular car brand and what goes in his mind after purchasing that brand (Li, Linn & Muehlegger, 2012). A firm is only able to succeed in the competitive automotive industry only after understanding the shift in consumer desires, needs and expectations. Understanding the changing consumer behavior will enable marketers to come up with marketing decisions that are in line with the changing consumer needs. There are a number of things that consumers consider before they buy the car. One of the main factors to be considered by consumers is fuel efficiency of the vehicle due to the high price and scarcity of fuel (KPMG, 2014). A consumer purchasing decision is also influenced with the durability of the vehicle while at the same time expects the same vehicle to be environmental friendly. Another factor is technology, especially the in-car technology through the use of seamless extension. Automobile companies, therefore, must consider the above factors when designing their vehicles. Trends in the Automotive Industry Lightweighting There is increased demand for automobile companies to produce light weight automobiles. The weight of the vehicle has a direct effect on fuel consumption, carbon dioxide emission, and the agility of the vehicle (KPMG, 2015). Automobile companies are now targeting light materials like aluminum, alloy and magnesium when making the body of the vehicles. Lightweignting may have an impact on the production cost. Electrification of Vehicles Companies are now under pressure to manufacture automobiles that use alternative fuels that are environmentally friendly like the LPG, gasoline, and electric power. Various governments have been advocating and subsidizing the production of Electric Vehicles (EVs) because of the scarcity of fuel and the need for environmental conservation. Consumers are also demanding for such like vehicles. Connected Vehicles There is increased digitalization of the automobile companies due to the high demand of the connected vehicles. Consumers want their vehicles to be in tough with the outside world through on-board experience (KPMG, 2015). Consumers want to access the traffic updates, tracking of the vehicles, roadside assistance when there is an accident, and parking management systems in their vehicles (Koslowski, 2014). As a result, there is increased use of connected vehicles techniques in the latest vehicle. Major Competitors There is a stiff competition in the automotive industry. The main competitors of Ford include General Motors, Toyota, Honda and Chrysler. For instance, Ford controls about 15% of the US market share while the competitors like GM controls 22%, Toyota controls 16%, Honda 11% and Chrysler also controls 11% of the total US automotive market (Ingrassia & White, 2013). The statistics shows that the above four are the major competitors of Ford. General Motors is more of a threat to Ford because it has come up with a pure electric car, which enables the cars to cover longer distance faster. Even though this is a challenge, the high price of such cars may prevent mass sales despite the consumer desirable qualities. Toyota is also another threat, but the massive recall of its vehicles has led to the decline of its sales. Honda, on the other hand, has introduced CR-Z model, which fun to drive and the brand is also very efficient when it comes to fuel economy. Characteristics of the Target Market The primary target market are the people between 20-50 years old from the lower to upper income bracket. These people have an income of between $40,000 to $70,000 and they can either be single or they have a young family. They are educated people with some still in college and the majority live in urban areas. The target market also wants relatively small cars that are affordable and economically friendly because of their income. The company has expanded its product lines to attract a variety of consumers. Regulatory Issues and Global Factors There is expanded regulatory issues due to environmental and safety concerns, which increase the cost of production. The new regulation requires that the company comes up with car design that is fuel efficient with very limited greenhouse emissions (PWC, 2015). The law requires that the company adheres to the fuel economy standards of at an average of 35.5 mpg due to the scarcity and high price of fuel, including the reduction of carbon dioxide emissions. There is also an increase need of care safety and the automobile companies have been forced to come up with safety features like the collision mitigation system and backup cameras. Global climate is forcing players in the automobile industry to come up with innovations that are environmentally friendly (Chatterjee, Nayak, & Saha, 2014). There has also been a decline in demand in the regions like USA and Japan while regions like Europe, China and Asia have experienced an increase in demand, which has led to the shift of the target market (Ingrassia White, 2013). There is also an increase advancement in technology in the whole industry like voice-based navigation and satellite radio system. These global factors affect all the players in the industry. Business Model Ford is doing all it can to maintain its position in the automobile industry by carrying out intensive research and development to enhance the innovation in the company. The innovation will ensure that the company remains competitive. The company is also adjusting its output by increasing production in areas that are experiencing an increase in demand and reducing production in regions with a decline in demand. The company, therefore, aims to match production with the market demand. BMW Company Overview Bayerische Motoren Werke AG, commonly known as BMW, is the leading manufacturer of classy cars in the automotive industry. The company is identified by its unique designs, excellent quality, and luxurious models (Kaplan, 2012). The company was founded in 1916 and it was corporate in 1918 and it started producing cars in 1920 after acquiring Eisenach. The company is now among the ten largest automakers and some of its main brands include BMW, MINI and Rolls-Royce. In addition, the company also has a strong market position in the production of the motorcycles. The Industry Specific Issues The same industry issues that affect the operation of Ford also influence the operations of BMW as well. Environmental concern has affected the operations of the company because it has to adhere to the environmental standards and policies set by various governments. The company is also affected by globalization, especially the regionalization because of the shift of regional demands. There is an increase in the number of middle and upper income earners in the emerging economies like Brazil, India, China and South Africa, which form the target of the company. In addition, the change in consumer behavior and the saturation of the market have also affected BMW. Main Competitors The company’s main competitors are Audi, Mercedes Benz and Porsche. Out of the three, Marcedes Benz is the most competitor of BMW and it is the top premium automobile manufacturer (Kaplan, 2012). Porsche is known to manufacture very exclusive high performance sport cars and it has a competitive advantage due its classic name. Audi has a competitive advantage over BMW because it is owned by Volkswagen and it is closely related to Porsche. Therefore, it is able to come up with new luxurious brands due to high competency. Characteristics of Target Market The majority of the people owning BMW are between 25 and 54 years old. The company targets young and ambitious professionals who striving to protect their public image and reputation. The brands are also preferred more by men than women and the company aims to meet the needs of men compared to women. Those who own BMW are also highly educated and the majority are the college graduates with household incomes of more than $150,000. Those who own BMW are either in managerial positions, owning big businesses, or financial professionals. Further, the car is preferred by the whites and Asians compared to blacks because more than 90% of those own the brands comes from the first two races. Regulatory Issues and Global Factors Like Ford, the major regulatory issues are based on the safety of car users, pedestrians and the safety of the environment. The company is now under pressure to install devices like airbags in the vehicles and to manufacture vehicles that are fuel efficient with limited emission of the poisonous gases and metals in the air (KPMG, 2012). The company is also under obligation to take the new vehicles through assessment programs set by various host governments. Some of the global factors that affect the company include the manufacturing of light vehicles, electrification of vehicles and the use of connected vehicles techniques. Business Model BMW operates in large scale and the company has representatives in more than 140 countries across the world. The company focuses only on three brads and it manufactures is BMW 3 and 4 series in its BMW plant, which is next to its headquarter in Munich. All the BMW assembly plants are supposed to serve the nearby markets. Its plant in Berlin is only used to manufacture motorcycles, which are supplied in the international markets. Hyundai Company Overview Hyundai Motor Company was founded in 1947 by Chung Ju-Yong as Hyundai Engineering and Construction Company. The company operates one of the largest integrated automobile plants in Ulsan, and the company has its headquarter in Seoul in South Korea. As of 2013, the company had a total revenue of about $75.03 billion, with a profit margin of $7.6 billion. The company has employed about 58,000 who are distributed in its assembly plants across the globe (KPMG, 2012). Some of the products of the company include automobile, commercials and engines. The Industry Specific Issues The issues that affect both Ford and BMW also affect Hyundai. The company is also affected by increased environmental concerns, globalization, technological changes, consumer behavior changes, stiff competition in the industry. However, in addition, the company is under new threat the competitors are quickly overtaking its stronghold market, South Korea, which has forced it to come up with new strategies to dominate the market. The company has been found with inconsistency when it launched its new brand, Sonata. The company stated that moves at 12.6 Km per liter but the government of S. Korea found that it moves at 12.1 km per liter. The inconsistency affected the reputation of the company and it had to apologize to the public. Main Competitors The main competitors of Hyundai include General Motors Korean Company and Ssangyuong Motor Company. GM Korean Company is a major threat out of the two competitors because it is owned by GM, the largest automobile company. The Company, therefore, manufactures GM-branded cars that are of high quality at a relatively lower cost due to economies of scale. It has invaded the South Korea market, which is the stronghold market of Hyundai. Even though Ssangyong is a small company, it is the major competitor because of its rapid growth and it quickly dominating the South Korean market with its brands. Characteristics of the Target Market The main target market is those in the middle class without the financial ability to purchase luxury brands like BMW, Audi and Mercedes Benz. Despite their financial status, theses consumers still want quality machine and Hyundai comes in to fill the gap. The target wants low acquisition prices, reliable means of transportation, and the economy of operations. The company also first time car buyers who may not have the ability to buy luxury cars. These are young people who are new in the labor force, but are earning large sums of money. Regulatory Issues and Global Factors Regulation and global factors that are associated with Ford also apply to Hyundai. The company must adhere to the environmental standards when it comes to auto emissions. At the same time, it must ensure the safety of the consumers when it is designing its vehicles (PWC, 2015). Safety standards require that any vehicle found with any defect must be recalled by the respective company. The recall is expensive and can lead to massive loss. The company is also affected by the global factors like adoption of the latest technology like ‘connected vehicle’ technology. Business Model The business model of Hyundai is based on diversity with clear objectives where those in charge are held accountable for their actions and decisions. All the departments like sales and marketing, manufacturers, and suppliers are accountable for their work and they ensure they they meet the set objectives. The company has its main three plants in Korea, but it also found in other parts of the world like the US, India, Turkey, Russia and Brazil. Audi Company Overview The company was founded by August Horsh in July 1909 in Germany. The company’s headquarter is located in Ingolstandt, Germany and it is the main subsidiary of Volkwagen, which own more than 99% of the company. The company operates in more in about 110 countries across the globe in all the regions in the world. The company has three categories of automobile, which include executive class, sport class, and Sport Utility Vehicles (SUVs). The Industry Specific Issues The industry specific issues that affect companies and their brand is the same. There is increased concern about the emission of dangerous gasses in the air like carbon dioxide, which leads to global warming. The automotive industry also contributes in the emission of dangerous metal like lead, that affects the health of the people. The company, therefore, must comply with the environmental standards. The issues that have been discused in this report include globalization, consumer behaviors, saturation of the market, and improved technology. Main Competitors The main competitors of Audi include BMW, Mercedes Benz and Porsche. All the three competitors manufacture premium luxury vehicles that are targeting those in the middle and upper income consumers. Marcedes is the main competitor out of the of the three because it is the oldest and well established company, which enjoys the economies of scale with a wide network. Marcedes is followed by BMW and Porsche, also control a significant market share. Characteristics of the Target Market Audi is targeting young, cool and urban dwellers who would like to show their status in the society. These are consumers between 20 and 45 years and they are majorly professional with well paying jobs or come from well to do families. They want to show their class in the society by driving classy cars. The majority of these consumers are men, however, the number of female driving Audi is also increasing. The company, therefore, targets those with high income in the society. Regulatory Issues and Global Factors The key regulatory issues that apply to Ford also apply to Audi because they operate in the same industry. It is required to adhere to the standard of auto emissions and not to rely so much on the fossil fuels when designing the vehicles. It also required taking the safety of passengers when producing its products. In addition, it should manufacture fuel efficient cars due to the scarcity of fuel (KPMG, 2014). The global factors remain constant among the four automobile companies. Business Model The company main objective luxury cars that meet international standards and that identifies with the personality of the target market. The production is set in such a way that it meets the demands in the market and it targets s high income earners. The company targets its distribution on special zones that are characterized by affluence and people with high income. References Chatterjee, D., Nayak, S. M., & Saha, P. (2014). Sound Package Technology in the Indian Automotive Industry. SOUND AND VIBRATION, 48(10), 14-15. Ingrassia, P., & White, J. B. (2013). Comeback: The Fall & Rise of the American Automobile Industry. Simon and Schuster. Kaplan, A. (2012). DESIGN, CONSTRUCTION AND TESTING OF THE MOST EFFICIENT EXHAUST FOR A MERCEDES-BENZ C-CLASS. Koslowski, T. (2014). Automakers' Adoption of Android Auto Meets Industry and Consumer Needs, but at a Price. Gartner, In, US. 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