Environmental and Competitive Trends in the Automotive Industry - Case Study Example

Q1- Using appropriate theory & models outline, the major environmental & competitive trends in the automotive industry. Which of these drivers have most impacted upon the strategic position of ford motor company What are the critical success factors for players in this industry (no more than 5) How does ford compare in performance terms with two of its major rivals in respect of these factors in 2007 Q2- Relating to appropriate theory & models, what internal issues have led to fords demise as a global world player & its massive financial losses as at 2007 Answer To The Question No - 1 The Major Environmental & Competitive Issues In Automotive Industry: The evaluation of automotive industry has been influenced by various innovations by fuels, vehicle components and social infrastructure etc. Some historians cite examples as the year 1600 of sail-mounted carriages as the first vehicles to be propelled by something other than animals or humans. However, It is believed by most historians that the key starting point if automobile was the development of the engine. The engine was developed as a result of discovering new energy carrying mediums, such as steam in 1700, & new fuels, such as gas, gasoline the 1800. During the 1800 & 1900, the development of other technologies, such as the steering wheel & floor mounted accelerator, speed up the development of automotive industry. In the 1930, several new vehicle brands were developed (FORD MERCURY, LINCLON CONTINENTAL etc) & trend in vehicle consumer preferences were established that differentiated the American & European Market. At the beginning of our discussion, we must understand the word of Stephen D'Arcy, who is the head of Global Automotive Practice at price Waterhouse coopers, "the US monopoly was an unsustainable anomaly." The worlds biggest automotive industry consists of the performance of several developed countries like- USA, Japan, and many European countries. Thus, here the consideration of global market is very important. This thought consists if 3 facts - proximity, location, attitude. Combining these 3 the automotive companies are having the unprecedented lineup and complexity of relationship that confront their global strategy. At first, companies now operate in much closer proximity than ever before to a grater number & range of customers, competitors, suppliers & government regulators. This proximity is a function of the "shrinking globe". Is a partly a matter of time to share the information. As a significant automotive company like HONDA, for example moved nearly 60 American specialists to Japan for several years to work with heir Japanese counterparts on design for the 1994 Honda record. Second, the location & integration of companies over international boundaries is very important aspect today. For example, in September, Honda accords & civics sold in the United States in Hondas plant in Ohio. And Toyota & General Motors have jointly operated the NUMMI plant in Fremont, California, since 1984. Third, globalization refers to a new, open attitude about practicing management internationally. Attitudes change over time. For example, how efficiently was the byword of Henry Ford provided the idea of mass production in the early years of this century Competitiveness is a frequent topic of conversation these days of managers & officials and in the new media. We define competitiveness as the relative standing of one competitor against other competitors. Competitiveness is like a musical chair: there are a finite number of places to sit and some are more desirable than others. For decades, manages of so-called big three automakers, General Motor, Ford, & Chrysler have worried about their organizations relative standing in the USA automobile marketplace. Porter's 5 Forces Analysis Model: Michael Porter identified 5 forces that influence an industry. These forces are degree of rivalry, threats of substitutes, barriers to entry, buyers' power & supplier power. Degree Of Rivalry Despite the high concentration ratios seen in USA market, rivalry in the US and global automotive industry is intense. The automotive industry in USA is no longer the playground of big 3(GM, FORD, DAIMLER CRYSLER). Global companies compete in US market; while US companies gave globalise themselves. The degree of rivalry in this industry is further heightened by high fixed costs associated with manufacturing cars and trucks and the low switching cost for the customers buying different makes & models. Threat Of Substitutes: The threat of substitute to the automotive industry is fairly mild. Numerous other forms of transportation are available, but none offer the utility, convenience, independence & the value afforded by automobiles. Also, there are inherent underlying social & cultural attitudes that keep people from owing automobiles in some parts of the world. Some are constrained either by geography, races, class or regions & the need of personal transportation is not as great yet. Barriers To Entry: The barriers to enter in this industry are substantial. For a new company, the startup capital required to establish manufacturing capability to achieve minimum efficient scale is prohibit. The barriers to entry for new or different market may be quite low; in the 1980s the US companies practically invited the JAPANESE makers into the US by failing the offer quality vehicles in the lower price markets. Buyers & Supplier Power: In the relationship between automotive industry & its supplier, the power axis is substantially tipped in the industries favor. It is comprised of powerful buyers who are generally able to dictate their terms to the suppliers. Drivers That Have Most Impacted Upon The Strategic Position Of Ford Motor Company: Ford Motor Company is an American multinational corporation also is the world's third largest automaker based on worldwide vehicle saleses. Based in Dearborn, Michigan, a suburb of Detroit, Ford was founded by Henry Fordand incorporated in June 16, 1903. Ford now encompasses many global brands, including Lincolnand Mercury of the US, Jaguar and Land Rover of the UK, and Volvo of Sweden. Ford also owns a one-third controlling interest in Mazda. Several important drives are- FORD is able to produce more efficient & mass product than their competitors do. Vast product portfolio includes cars, truck, & SUVs from the following brands- Ford , Lincoln, Mercury, Jaguar, volvo , land rover etc. FORD has a finance division, a parys & service division, & also the largest car rental business in the world. Relative to other automotive companies, FORD was number two domestically and globally in terms of number of vehicles sold. Success Factors Of Players In This Industry: Todau's successful automobile companies possess at least some important factors, like- Production efficiency has played a significant role in making TOYOTA the most successful of todays automobile manufacturer. It has sought to improve efficiency through a number of inovative features & the Total Quality Management(TQM). Well planned cost structure is another key. Managable size is another obvious point. Answer -2: The Ford Motor Company portfolio of product line contains Passengers cars, trucks, and SUVs. It's brands included as Aston-Martin, Ford, Jaguar, Land Rover, Lincoln, Mazda, Mercury and Volvo. In accumulation to Ford's core automotive business, it contains a finance division, a spare parts and customer service division. Ford also at present owned one of the largest car rental businesses in the world under the name Hertz Corporation. In relation to other gigantic automotive manufacturers, Ford was placed second both domestically and globally in terms of number of vehicles sold in 2003. Ford's viewpoint is very challenging. Ford has focused a loss of over $1.3 billion in their pre-tax profit from automotive operations where it concerned a $1.1 billion loss in US Market in third quarter of 2007. The losses for 2007 has occurred due to a number of reasons: 1) Rising expenses of Raw materials, specifically steel and energy, have increased manufacturing costs significantly 2) Ongoing and increasing health care expenditure, mainly 'legacy' remuneration rewarded to retirees and their families 3) Visteon's bailing out from bankruptcy, the core parts supplier of Ford. 4) Vehicle sales covering by 81,000 units evaluated to the same point in spite of unparalleled "Employee Pricing" deal offered. Sales are particularly covering in the gainful SUV and truck markets when market demand is reducing due to increasing gasoline prices. This loss is unsatisfactory specified the optimistic trend observed in net income for past years (in Appendix -1). The unenthusiastic net income found due to the costly safety replacement of faulty. Frequently Ford and Mercury trucks use Firestone tires and SUVs. Ford's low arrangement and shady attitude have driven in the demising of their credit ratings status. In terms of its Beta rating the unpredictability of Ford's stock indicates that investing in their stock has quite high risk. To face of unfortunate performance and unenthusiastic negative trends, remarkable steps must be introduced in the near future to save the long-standing viability of Ford Motor. The Ford has been announced to restructuring and implementation. Reducing personnel has already been started as a part of the restructuring. It hits as a rule from white-collar positions. In long-term reformation, the company desires to drop over-capacity in manufacturing. Shedding over-production capacity engages shut down and combining manufacturing facilities. These initiatives has prohibited by the United Auto Workers (UAW) in 2007. An explanation Ford's success is its rapport with the UAW and potentiality to get prior concessions from the union. Special allowance over healthcare costs that rising for $2000 for each new vehicle sold. Ford's plant consolidations also required being leaner and more cost effective in its business. In addition to organisational reform being vital to the future achievement of Ford. The company realises the needs of improvement their market share in the U.S. domestic market. They have already begun effort to do this with several new vehicles to clean up and stimulate their product line. Ford has pronounced its plans to amplify its hybrid vehicle manufacturing to 250,000 per year by 2010. This imitative could be observed as an attempt to locate itself as a market leader in rising hybrid market in U.S. If the organisational reformation occurs well and new products hit the consumers, Ford must have a good chance to be the market leader for another 100 years. Bibliography: 1. Hitt, A. M., Ireland, D. R. Hoskisson, E.R. (2006), Strategic Management, Thompson Asia Pet., Singapore. 2. Stephen, R and Mary, C. (2004), Management, 8th edition, Pearson Education. 3. Stoner J. A. F (2006), Management, 6th edition, Prentic-Hall of India, New Delhi. 4. Bradley, D., et al (2005), Automotive Industry Analysis, available at: < http://www.srl.gatech.edu/Members/bbradley/me6753.industryanalysis.teamA.pdf > [accessed on 11/10/2007] 5. ACEA (2002), Industry As A Partner For Sustainable Development, ISBN: 92-807-2177-1, Copyright 2002 Association des Constructeurs Europens d' Automobiles and United Nations Environment Programme, available at: < http://www.uneptie.org/outreach/wssd/docs/sectors/final/automotive.pdf > [accessed on 11/10/2007] 6. BBC News (2007), Ford and GM See US Sales Decline, 03, July 2007. Read More