Question 1

The U.S. automotive industry is facing a difficult if not unprecedented period of competition and
capital spending in its efforts to compete with Japanese automakers and to meet pending
government regulations on emissions control and safety. These burdens are falling on an industry
trying to cope with massive losses due to the 1990-1991 recession and the battle for market
share.

Fuel economy has not been a major competitive issue in the marketplace since 1981. Relatively
low gasoline prices have allowed consumers to focus instead on vehicle prices, performance,
comfort, and style. But firms that can provide all of those characteristics, plus superior fuel
economy, should have an advantage over those that do not. Whatever the future fuel economy
standards, U.S. automakers must confront the fact that the Japanese appear to have targeted
improved fuel economy as an area deserving particular emphasis.1

Although properly designed fuel economy standards would not necessarily constitute a
competitive disadvantage to U.S. automotive companies (see Chapter 9), new fuel economy
standards that are extremely costly to implement or that greatly distort the normal product cycle
of the industry would place an enormous financial burden on domestic automakers. Hence, the
impacts on the industry are central to the discussion of new fuel economy targets. This chapter
explores those impacts.
1
  
It is difficult to separate fact from rhetoric on this matter. The Japanese are targeting
fuel economy in Japan (U.S. Department of Commerce and Motor Equipment
Manufacturers Association, 1990) under the threat of tougher U.S. corporate average
fuel economy (CAFE) laws and the possibility that Japan will adopt its own version
of CAFE standards, and because the price of gas is nearly $4 a gallon there and the
Japanese government has been critical of declining fuel economy. Nonetheless, it
must be noted that in general, on a class-by-class basis, U.S. cars currently have
better fuel economy than similar Japanese cars. In its presentation on November 4,
1991, to the Standards and Regulations Subgroup of the committee (see Appendix
F), General Motors noted that for MY 1990 cars, if the sales mix of its vehicles had
been the same (by size class and transmission types) as its principal Japanese
competitors, its CAFE rating would have been as follows: GM with a Honda mix,
31.6 vs. Honda's 30.8 mpg; GM with a Nissan mix, 29.4 vs. 28.4 mpg for Nissan;
GM with a Toyota mix, 30.3 vs. 30.6 mpg for Toyota. General Motor's actual CAFE
rating for MY 1990 was 27.1 mpg.
2  
Labor and overhead costs are relatively constant over all models. Nonetheless, on average,
trucks contribute more profit per unit, followed by large luxury automobiles. Trucks are
redesigned infrequently, so tooling investment per unit is relatively low. Historically, small
cars have been less profitable than large cars, and there has been greater competition in this
market segment from imports. Larger cars can command higher prices because of their size
and features. Moreover, as discussed herein, the CAFE standards may themselves establish
 pressures on manufacturers to reduce the prices of small, fuel-efficient cars to ensure
compliance.
3  
The Japanese share of the U.S. automotive market rose from 19.6 to 28.1 percent between
1980 and 1990. The Japanese share of the light-truck segment has consistently trailed that
for automobiles. In 1980, the Japanese share of light-truck sales was 10.1 percent, rising to
16.1 percent in 1990. The 25 percent tariff on imported two-door trucks limits profitability
and, in addition, the Japanese do not, as yet, produce many popular types of light trucks,
such as standard-size pickup trucks, vans, and sport-utility vehicles.
4  
In 1985, Britain, France, West Germany, Japan, and the United States met at New York's
Plaza Hotel and reached agreement on depreciating the dollar, which made it cheaper for
foreigners to buy U.S. Goods.

They retained a tremendous advantage in cost of capital until 1990, as well as an advantage in
production efficiency, in factories in Japan and the United States (Womack et al., 1990).5

The expansion of Japanese penetration into the automobile and truck sectors of the market has
touched off a battle for market share that is a major factor in the recent record losses of the U.S.
automakers. On February 24, 1992, General Motors announced corporate losses of $4.45 billion
in 1991. General Motor's announcement followed those of Ford and Chrysler reporting losses in
1991 of $2.26 billion and $665 million, respectively. The recession has also had an impact on
Japanese automakers, but not as severe as for U.S. automakers. Whereas the U.S. companies
have experienced record losses, the principal Japanese automobile companies have experienced
only a decline in profits. And the market share of Japanese automobiles has increased to record
levels in the United States during the recession.
5
  
Their U.S. factories benefit from a young, skilled work force. They have virtually no
pension liabilities as yet, and health care costs are low because of the young work
force and lack of retirees. They are also not burdened by the need to provide wages
and benefits to workers displaced by plant closings. In addition, states that won
transplant investment provide incentives in the form of funds for training workers,
tax abatements, and so forth.

Question 2

These are tough times for the giants of the American auto industry. How tough? Ford, the
second-largest car company in America, felt compelled last week to put out a press release
headlined: "Ford Profitable in 2005; Says No Need for Government Bailout."
In other words, we've pretty much hit bottom here in the Motor City.

GM and Ford are gearing up to close nearly two dozen factories and eliminate more than 60,000
jobs, in effect reaping the harvest of mistakes they have made over the past 20 years.
Stop Making Excuses. There's no question that GM and Ford have real competitive
disadvantages that arise from their decades of success prior to the late 1970s. They cannot now
simply wave magic wands to make their expensive health plans, uncompetitive labor agreements,
top-heavy bureaucracies and over-populated dealer networks disappear. But so what? Only GM
and Ford employees and their relatives really care -- as Mr. Bush's comments demonstrated.
They just want cars and trucks that look good, don't break and hold their value over time.
Running advertisements to say, in effect, "We're sorry we sold you lousy cars in the 1980s," is a
waste of money that could be used to actually fix quality problems, which in Ford's case
whacked $400 million more off the bottom line in 2005 than in 2004.
GM and Ford could take a lesson from Korea's Hyundai. Hyundai sold a lot of lousy cars during
its initial assault on America in the 1990s. But in the past four years, Hyundai has rebounded
dramatically thanks in part to a slew of better-designed vehicles and a 10-year warranty offer.
Sure, that warranty is limited. But it puts beef into the message that the company is serious about
quality. The warranty doesn't say "sorry for what we did." It says, "you won't be sorry now.

But have GM and Ford cut prices enough to compensate for the damage done to consumer
confidence in their brands and products? January sales, due out Wednesday, will start to tell the
story. The Big Two will need courage to stick with their efforts to restore credible pricing and
they will need to be honest with themselves about how low they must go. Industry consultant
Ron Harbour illustrated the problem earlier this month by showing a photograph of the front end
of a car with a Lexus logo. The car looks nice. But Mr. Harbour says that when he tells people
the car is actually a Buick with the Lexus logo superimposed on the grille, their interest wanes.
That's a damaged brand.
To recover, GM and Ford need to convince customers they will sell a better car for less money
than the competition. If that works, maybe they can offer a better car for the same money -- and
at some point, they might be able to sell the same car for better money. It can be done. Just ask
Carlos Ghosn, the head of Nissan, which was once headed for the graveyard but is now one of
the industry's most-profitable mass-market competitors.
Kill the Dogs. Now. Here's one of the most shocking numbers from GM's genuinely awful
fourth-quarter financial report: 39% of the passenger cars GM sold in the U.S. during the quarter
were sold to fleets, including rental-car agencies. When people say that GM makes too many
cars that people don't want, this is what they are talking about.
It may come as a surprise to Wall Streeters and academics who think GM and Ford are run by
buffoons, but the managers and workers at these companies know perfectly well which of their
vehicles are duds. Most car-company employees are passionate about cars, and know what's
good and what isn't. Here's what's lacking: the determination to cull out and kill models that are
ugly, poorly executed or woefully uncompetitive. This is starting to happen, but it needs to
happen more often and more quickly. Chumming the market with ugly cars drags down the
company's image, and undermines the pricing and resale values of cars that people do want.

Question # 3
Human nature insists on a definition for every concept. The field of strategic management cannot
afford to rely on a single definition of strategy, indeed the word has long been used implicitly in
different ways even if it has traditionally been defined formally in only one.
Explicit recognition of multiple definitions can help practitioners and researchers alike to
maneuver through this difficult field. Accordingly, this article presents five definitions of strategy-
as plan, ploy, pattern, position, and perspective-and considers some of their interrelationships. To
almost anyone you care to ask, strategy is a plan-some sort of consciously intended course of
action, a guideline
Thus a third definition is proposed: strategy is a pattern-specifically, a pattern in a stream of
actions.lo By this definition, when Picasso painted blue for a time, that was a strategy, just as was
the behavior of the
Ford Motor Company when Henry Ford offered his Model T only in black. In other words, by this
definition, strategy is consistency in behavior, whether or not intended.
This may sound like a strange definition for a word that has been so bound up with free will
("strategos" in Greek, the art of the army general"). But the fact of the matter is that while hardly
anyone defines strategy in this way,12many people seem at one time or another to so use it.
Consider this quotation from a business executive:
Gradually the successful approaches merge into a pattern of action that becomes our strat. egy. We
certainly don't have an overall strategy on this.13

This is inconsistent only if we restrict ourselves to one definition of strategy: what this man seems
to be saying is that his firm has strategy as pattern, but not as plan. O r consider this comment in
Business Week on a joint venture between General Motors