Mercedes-Benz - Case Study Example

Running Head: MERCEDES-BENZ: A SWOT ANALYSIS Mercedes-Benz: A SWOT Analysis in Harvard Style by Mercedes-Benz, the division of the parent company Daimler Chrysler AG, is the world's oldest automobile company and traces its roots from the invention of the first car in 1886 (History of Mercedes n.d.). With its continued thrust in maintaining its name and image as symbol of luxury and elegance, Mercedes-Benz remains an important player in the auto manufacturing industry. At the end of the fiscal year 2007, the company reports revenue of $146 billion and net income of $5.8 billion (Annual Report 2008). In order to understand the operations of the business organization, this paper will undertake a SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis which will also include a consideration of the company's objectives, strategies. The opportunities and threats section will be generated from Mercedes-Benz's PEST (Political, Economic, Social, and Technological) analysis (Strickland & Thomson 2004). Strengths: Mercedes-Benz has become synonymous with luxury cars. In a global scale, the name enjoys strong brand equity among consumers (Daimler Chrysler 2008). Mercedes-Benz is known to be the best symbol of luxury in automobiles. Armed with the heritage of pioneering innovation, Mercedes-Benz continues its quest of bringing the best products in the market through the use of advanced technology including its Smart cars portfolio. The company's primary objective is to "set new standards in the global automotive industry" (Daimler Chrysler 2008) which they accomplish by embarking on intensive research aimed at identifying and responding to anticipated customer needs and demand. Mercedes-Benz is passionate in shaping the "future of mobility" (Daimler Chrysler 2008) through the introduction of more efficient cars. Mercedes-Benz makes use of Advanced Design Studios in order to develop cutting edge designs (Daimler Chrysler 2008). Technology which produces inputs quickly and at high precision is also being utilized in car design and manufacture. Another is becoming a more socially responsible entity by launching programs which enable it to give back to the society where it operates. The effort of the company to become a socially responsible entity is integrated in its effort in creating modern cars which are less damaging to the environment. Mercedes Benz boasts of being the first automaker to run the most tests on fuel cells in its commitment of having zero emission mobility (Daimler Chrysler 2008). Other efforts are aimed at offering the best working environment for all its employees and environment friendly automobiles (Daimler Chrysler 2008). Weaknesses: Secondary in the Mercedes-Benz's set of objectives are maintaining investor relations through profitability. However, the division has been having recent financial blows which can be attributed to the deterioration of its image in the world market (Landler 2005). During 2005, investors have been weary of the company's financial performance as Mercedes Benz reports only 2 million during the last quarter compared to the 784 million it recorded in the same fiscal period (Landler 2005). The declining performance of the stock of its parent company in the market is another indication of its deteriorating financial performance (Figure 1). Figure 1. Stock Price of Mercedes-Benz's Parent Company Daimler Chrysler (August 2007 to July 2008) The weak financial performance of Mercedes-Benz in the market can also be an indication of having not enough funds to allocate to the company's endeavor. Failure to become profitable will further push stock price down. As stated in the previous section, Mercedes-Benz has been recognized as a symbol for luxury. Ironically, one of its pressing problems is in the aspect of product quality. During the late 1990s and early 2000s, it has been noted that the quality of Mercedes-Benz's passenger cars has been in question as indicated by the result of objective measures (Edmondson 2003). In recognition of this problem, the management launched process improvements which temporarily bring it to industry average in 2005 (Edmondson 2003). In the present, Mercedes-Benz has been unable to climb to the top position in terms of product quality though its quality have already become at par with top players. The automaker lags behind its toughest competitors Toyota and Ford in terms of quality (Edmondson 2003). The failure to sustain its image as a producer of quality vehicles strongly damaged its reputation as a luxury vehicle. Mercedes-Benz is now considered by customers as substandard vehicles when compared to other less expensive brands. Opportunities: Technological innovation can brings about profit opportunities for Mercedes-Benz. The establishment of technology which allows the creation of fuel efficient cars can bring lucrative business for the automotive sector (Bullis 2007) noting the dramatic rise in the price of fuel in the world market. In specific, the fuel cell technology which is currently developed in order to create non-fuel operated automobile is a huge opportunity being developed by manufacturers including Toyota (Bullis 2007). Technological advancement is also expected to facilitate the manufacture of cars at lower costs as processes are improved and wastage is eliminated. Materials technology which will allow companies to design parts of automobile's body with high speed and precision will boost manufacturing efficiency for automakers. Emerging markets presents opportunities for Mercedes-Benz. The rapid economic development of markets like China, India, and Southern America establishes new markets for car manufacturers as income rises (Pricewaterhouse Coopers 2008). In the near future, China is expected to lead the global economy through its high GDP growth and increasing per capita income. The huge population of China together with its high spending power makes it a profitable prospect for automakers. According to PricewaterhouseCoopers (2008), the automotive industry faces an excess capacity from "across all segments of the supply chain from design and development to manufacture and sale." This excess capacity can be channeled and be used in other markets in order to enhance company's revenues. Threats: In general, the automotive manufacturing industry is challenged by the economic crisis which hits major markets including the United States. During 2008, the reality of slowdown in the US brought about threats in markets with upscale clientele like information technology and automobile. As inflation rises and income declines, Americans squeeze their purchasing power in order to finance the purchase of basic necessities like food and medicine. In the process, the spending for durables are postponed or altogether dismissed. The appreciation of euro against the dollar also continues to be a threat to the European car manufacturers including Mercedes-Benz (Figure 2). As the value of euro appreciates, European cars become relatively more expensive in the American market. Together with the economic slump in the United States, this slump can make luxury cars less attractive to clients. Figure 2. Euro to Dollar Exchange Rate (August 2007 to July 2008) According to Kotler (2005), the global business arena is becoming hypercompetitive which is characterized by a more stringent competition among industry players as well discriminating buyers. The automotive industry experiences this through the aggressive move of players in capturing their market through the use of efficient strategies. Toyota for one, aims to sustain its position as the top manufacturer of automobile in the world. Toyota has also significantly posted quality superiority through high production standards. Improvements in manufacturing together with strengthening brand equity make it an undisputed leader in the industry. Buying habits of markets have constantly evolved through time. Buyers are looking beyond branding and image into the quality of products. Quality and safety are the primary considerations of the clientele. Increasingly, there has also been a shift into buying from socially responsible manufacturers. References Annual Report 2007 (2007), Daimler Chrysler Website, Retrieved 15 July 2008, from http://www.daimler.com/ Bullis, K. (2007) Improving Fuel Cells for Car, Technology Review Retrieved 14 July 2008, from http://www.technologyreview.com/Energy/19710/ Daimler Chrysler (2008) Corporate Profile, Retrieved 16 July 2008, from http://www.daimler.com/ Edmondson, G. (2003) Measuring Mercedes' Quality, Business Week, Retrieved 15 July 2008, from http://www.businessweek.com/ autos/autobeat/archives/2006/11/measuring_merce.html History of Mercedes-Benz (n. d.) Retrieved 14 July 2008, from http://www.edmunds.com/mercedesbenz/history.html Kotler, P. (2005) Marketing Management. New Jersey: Prentice-Hall Landler, M. (2005) Daimler Profit Sinks on Mercedes' Weakness, The New York Times, Retrieved 15 July 2008, from http://www.nytimes.com/2005/02/11/business/worldbusiness/11auto.html_r=1&oref=slogin Pricewaterhouse Coopers (2008). Automotive Industry, Retrieved 14 July 2008, from http://www.pwc.com/Extweb/ industry.nsf/docid/6977E84565DCF36685256D810076CBEB Thomson, A. & Strickland, A. (2004). Strategic Management. Boston: McGraw-Hill/Irwin Yahoo Finance (2008), Retrieved 15 July 2008, from http://www.finance.yahoo.com Read More