The Global Car Industry - Essay Example

The Global Car Industry Introduction The worldwide market for car is on a very booming period. The industry is highly competitive compared to many other industries. Under this highly competitive market the companies are striving hard to be the market leader. Many of the car manufacturing companies are adopting higher advertising campaigning product modification in order to carve the niche of the market. Companies are also adopting techniques like Mergers and Acquisitions (M&A) inorder to gain technological strength. The car industry is affected by many factors. Changes in the iron and steel industry have very high influence on the car manufacturing industry. A major change in the iron and steel industry will make great changes in the prices of cars. The market is greatly impacted by the reputation and quality of the product. A car company with good reputation that provides higher quality products and good after sales service will definitely capture more markets. But above all the primary factor that drives the industry is the usage of latest technology for the product as well as for production. This report studies clearly the competitive position of the car market. The report is based on Daimler Chrysler, one of the biggest car makers of the world. The company has its presence in almost all parts of the world either through production plants or through distribution channels. The company has many competitors which are equally potential and competitive to Daimler Chrysler. Therefore, the company is running through a highly competitive environment and is in a process of framing new strategies for its betterment. The report critically analyses the current position of the company as a car manufacturer. The current strategies of the company and its future plans are also referred in the report. The industry is highly influenced by the economic condition of the country. Organizational framework Daimler Chrysler was founded in the year 1998 by the merger of two old and giant company’s Daimler Benz of Germany and Chrysler Corporation of US. German based Daimler Benz has been in the industry since 1926. US based Chrysler Corporation was formed in the year 1925. Daimler Chrysler is one of the leading manufacturers and distributors of passenger cars and commercial vehicles in the world. “Today, the company is a leading supplier of premium passenger cars as well as the world‘s largest manufacturer of commercial vehicles” (Corporate Profile-overview. 2008). The company operates in the various sectors of automobiles through its various brands. The different brands of the company can be classified under segments like Mercedes Benz cars, Daimler trucks, Mercedes Benz vans, Daimler buses and Daimler financial services. The brands under Mercedes Benz cars are Mercedes Benz, Smart, AMG and Maybach. Brands under Daimler trucks include Mercedes Benz, Freightliner, Fuso, Sterling Trucks, Western Star, Thomas Built buses and Detroit Diesel. There is only the brand Mercedes Benz in the Mercedes Benz vans category. There are the brands Mercedes Benz, Setra and Orion under the Daimler buses category. The financial services are provided under the brands Mercedes Benz Bank, Mercedes Benz Financial and Daimler Truck Financial brands. The strength and strategies of these brands are the strength of the company in the market. The Daimler truck brand is the world’s largest manufacturer of commercial vehicles. The Mercedes Benz brand of Daimler Chrysler is the well known and accepted brand in the luxury vehicles segment of the industry. Latest technology and safety features to its products have been the strategy of the company ever since its formation. “Our mission is to continuously increase DaimlerChryslers technological edge over its competitors by leading innovation and development in chosen core competence areas” (Daimler Chrysler Research Centre India). The Company has a highly specialized research teams involved in developing brand new technologies for developing safety, luxury and efficiency features of their products. The company makes around 4700 patents each year for its varied innovation. The usage of high technology is what that makes the company distinctive from others. The growth of the company is also contributing greatly to the economy and society of the country it is located. Daimler Chrysler is keen maintaining better customer relations as a part of its marketing strategy because the company believes that customer satisfaction is a key driver of company’s growth. The company has a combined strength of around 270000 dedicated employees. Above all Daimler Chrysler is also keen on improving the shareholder value. Like any other industry competition is also very high in this sector. The company faces stiff competition from many other strongest players. Some of the major competitors of the company are General Motors, Volkswagen, Toyota, BMW and Ford. These competitors too have presence in almost all the markets through their different brands. Therefore, for facing this stiff competition the company is now into framing of new strategies. The company is also highly concentrated on improvement in the product features in order to make it distinctive from that of the competitors. In this highly demanding market the company adopts a customer oriented approach for survival. Literature framework Automotive industry is a fast growing and potential industry than any other industries in the world. The industry contributes a great to the economy and also any change in the economy affects the industry greatly. An analysis of the macro environment of the company will help to understand various factors that affect Daimler Chrysler and its position in the competitive environment. A suitable method for this is PESTLE analysis which is shown below. PESTLE Analysis: PESTLE analysis of the company includes the analysis of Political, Economic, Social, Technological, Legal and Environmental factors that affects the company. Political factors are highly related to the legal factors because the impact of political factors is resulted in legal form. Political conditions are the issues that are related to the concerned government of the company. Daimler Chrysler has its presence in almost all the countries. When any issue has been raised in the political level in any country the government takes decision on the matters which can be favourable and unfavourable for the company. Economic factors have greater influence on the company. Any change in the value of the currency will impact the company and its pricing policy. The changes in the oil prices will affect the company very easily as the change in oil prices will affect the fuel prices that will affect the industry and finally the company. Changes in the economic policies of respective countries will also have great impact on the company. Social factors have great influence on the buyer behaviour of the customers which ultimately affects the company. “Today’s society judges people on the type of car you drive” (Baki 2004). Driving a good car has always been considered as a symbol of prestige ever since the first car was launched in the world. Therefore, changes in the taste of the customers and trends of the market make the company to undergo a process of redesign of the existing products to maker it suitable for the new market and customer preferences. Technological factors are the one that has the greatest influence and the one that is the key driver of the company as well as the industry as a whole. When technology is booming the customers expect more from the company. Technology is employed in every aspects of a car such as design, safety and fuel efficiency. Daimler Chrysler has invested heavily on developing alternative fuels for the cares such as fuel cell and bio diesel. The company is also directing its technology to develop fuel efficient cars. Legal factors affect the company in many ways. The increasing concerns of the consumers for the environment and for the safer products have made Government to formulate many rules and regulations for governing the industry. Every country has their own rules and regulations for protecting the environment and for meeting the safety standards in automobiles. This makes the company reduce its flexibility within those frameworks. The final factor is the environmental factors that have the impact that is similar to that caused by legal factors. Daimler Chrysler has to comply with the environment protection standards of the country which again is in the form of rules and regulations. Any violation of the rules will create a negative impact on the reputation of the company. Five Forces Model of Competition: A brief overview of the industry can be studied using Five Forces Model of Competition. The five forces model states the five factors such as Threat of new entrants, Supplier power, Buyer power, Threat of substitutes and the rivalry among the competitors. Compared to any other industry the threat of new entrants is very low in the industry. An automobile company with a track record of decades can only survive in the market. The possible barriers for new entrants are requirements of huge initial capital, higher production for economies of production and availability of dealerships. The supplier power refers to the bargaining power of suppliers of raw materials to the automobile industry. There are a number of equipment manufacturers in the industry and as a result the bargaining power of the suppliers is low in the automobile industry. Similarly, buyer power refers to the bargaining power of the buyers. Compared to the any other industry the buyers are lower in automotive industry. As a result there are many companies chasing a small group of customers. This creates a higher bargaining power for the buyers. The threat of substitutes is almost absent in the case of automobile industry. There are no substitute products for the industry other than car, bikes and trains. The last factor that is the intensity of rivalry is the strongest influencing factor of the industry. A very high competition exists between the rivals in the industry. The distinctive features for the products are less in the automobile industry because when a customer purchases a car the basic factors they prefer are quality, price and durability. Therefore, the competing companies have to create distinctiveness on these basic factors and as a result the competition becomes higher. An analysis of the market will help to decide the position of Daimler Chrysler in the market. There are different methods to evaluate the market. Here the market can be analyzed briefly on the basis of branding aspects. The branding strategy of car manufacturers involves production of cars in different brand names by the same parent company. The different brands of Daimler Chrysler have already been seen in the organizational framework of the report. General Motors is the largest car manufacturer of the world with a total production and sale of more than 8 million cars in 2006. General Motors became the market leader through its eleven brands Vauxhall, Cadillac, Pontiac, Buick, Saab, Chevrolet, Oldsmobile, Saturn, Opel, Holden and Isuzu. Similarly Ford has eight competitive brands in the market. Another market leader Volkswagen competes with six brands. Daimler Chrysler and Ford are among the top five producers of car in the world. This shows that branding is a very important strategy in the success of automobiles. SWOT Analysis of Daimler Chrysler: Strengths The main strengths of the Company would be its strong global presence, strong brands, a wide & diverse product range and also technological leadership. Daimler Chrysler is unison of two giant automakers, Daimler and Chrysler. The merger o Chrysler and Daimler Benz which created Daimler Chrysler gave the Company a large worldwide presence. (Baki 2004). Therefore, it is seen that they have achieved the synergistic benefits of both the giant companies. Some of the products of Chrysler even compete with Bentley and Mercedes Benz. Therefore, it is seen that over a period of time, this Company is able to compete with established American automakers. Another main reason for the success of this Company has been the constant innovation and up gradation of technology, through modern means of production and selling strategies. The cars produced by Chrysler have high impact value and are in the mould of American cars. The market visibility of Daimler Chrysler is also high in that their strategic merger with Daimler has assured it of a strong market in US and Germany. It also has Mitsubishi as a strong acquisition. Weaknesses: One of the major weaknesses of Daimler Chrysler has been that it has not been able to penetrate the Asian markets, although it has done well in US and Europe. It does not have any brand of its own in the Asian sub-continent, which could take care of automakers in Japan, China, India, etc. Since countries like China, India, Japan are strong economic forces in the days to come, and have growing economies, it is very much necessary for this Company to have established footholds in these regions. It is seen that in the future, the growing economies of China, Japan and India would be strong contenders for economic renaissance in the East.” The company is targeting 25% of the total turnover from Asia and thus DaimlerChrysler India intends to play a definite role in the strategic forays in this part of the globe” (About us). Another weakness of this Company has been that, with the merger with Chrysler, an American brand company, a lot of executives of Chrysler were constrained to leave the Company, and there was large brain drain of Chrysler experience. This experience could not be capitalized by the merged entity- Daimler Chrysler. Opportunities: There is a wide and burgeoning market for automobiles in developing economies and Daimler Chrysler need to work strategically to meet it. In the wake of rising fuel costs, it has become necessary to seek fuelling alternatives, in the form of hydrogen. This alternative is being researched and developed as answer to fossil fuels, and it is believed that in the future, depending upon the future build up and its usefulness in meeting alternative fuel resourcing, it could ease the pressure on automakers from conventional fuel technology. Threats: The main threats that plague Daimler Chrysler is with regard to activities of competitors and exploration of alternative fossil fuels. There are many automakers in the fray that could provide strong competition to the Company, especially, in the Chinese and Japanese markets. A significant part of its markets have been lost to rivals “like BMW and Lexus” (EMCC Case studies. 2004, P. 16). It needs to relocate its strategies in order to claim market shares in other economies also. Moreover, it is seen that Daimler has invested significantly in the Research and Development activities of hydrogen. If the research cannot produce substantial results in the years to come, it is possible that other substitutes, like hybrid engines etc. may be used. Therefore, there is a constant threat that the investments in R&D of hydrogen could need to be written off, if no useful purpose is served by this alternative. Bibliography About us. [online]. Daimler Chrysler. Last accessed 09 January 2008 at: http://www.daimlerchrysler.co.in/ Baki, Matt (2004). Automotive Industry Analysis - GM, DaimlerChrysler, Toyota, Ford, Honda. Sociocultural. Last accessed 09 January 2008 at: http://www.academicmind.com/unpublishedpapers/business/management/2004-11-000aaa-automotive-industry-analysis.html Baki, Matt (2004). Damiler Chrysler SWOT Analysis. Automotive Industry Analysis – GM, Daimler Chrysler, Toyota, Ford, Honda. Last accessed 09 January 2008 at: http://www.academicmind.com/unpublishedpapers/business/management/2004-11-000aaa-automotive-industry-analysis.html Corporate Profile-overview. (2008). [online]. Daimler. Last accessed 09 January 2008 at: http://www.daimlerchrysler.com/dccom/0-5-7155-1-630866-1-0-0-0-0-0-8-7145-0-0-0-0-0-0-0.html Daimler Chrysler Research Centre India. Driven and focused. [online]. Daimler Chrysle. Last accessed 09 January 2008 at: http://company.monsterindia.com/dcin/ EMCC Case studies. (2004). Trends & Drivers of change in the European Automotive Industry. Daimler Chrysler. P. 16. Last accessed 09 January 2008 at: http://www.eurofound.europa.eu/emcc/publications/2004/ef0489en3.pdf Read More