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Week 8 Report Project 2 Brian McMullen American Military University ECON600B April 17, 2012 Professor Fereidoon Shahrokh
A truly competitive company will provide superior alternatives. with the advent of the mass-market automobile presented a new image of the Americans and a new means of business. Chrysler was bought by Fiat and has benefited through an introduction into new international markets. Henry Ford created the first American automobile company to mass-produce the cars. Ford. and contractions will cause suppliers to close shop. expansions. The Automotive Industry Introduction to the Industry The American automotive industry brings up iconic imagery of the early twentieth century and the great transition from the agrarian society to an industrial society. I will identify the strengths and weaknesses of the American automotive industry and the Big Three. The growth of America in greatly indebted to the automotive industry. Recent company bailouts and Chapter 11 reorganization of GM and Chrysler have given the companies new life. I will discuss the current state of the industry and recommendation for improvement through the analysis and utilization of Porter’s Five Forces Strategy analysis. General Motors. The restructuring has enabled the refocusing of priorities and assessment of industry position and potential. The automotive industry is a major economic indicator. unemployment. A strong industry is indicative of a healthier economy. Ford developed the large-scale manufacturing plant that allowed the assembly 2 . In this paper. Future growth of all three companies will be based on understanding and integrating into the global market. In the early twentieth century. and Chrysler. The economic trends of recessions. In 1903. or plants to close. unemployment to increase.WEEK 8 – PROJECT REPORT 2 Executive Summary The automotive industry has been in a transition period over the last decade.
The automotive industry has proven to be a major indicator for economic change for the US economy. Ford. General Motors (GM).WEEK 8 – PROJECT REPORT 2 line construction of automobile. The recession has placed strain on consumers and businesses. and 3. GDP. All massed produced the consumer automobile as well as the commercial vehicles that allowed America to become a mobile country. Industry Definition The automotive industry provides transportation of people and goods and service for consumers and businesses with vehicles ranging from the low-end transportation to high-end luxury vehicles. create a partnership with Fiat in order to maintain operations. Chrysler case. GM. The growth and contraction of the economic indicators (i. employment. Ford. The horse and buggy where soon replaced by the car. 2. The American auto manufacturing companies formed what is known as the Big Three. and Chrysler automobile manufacturers have dominated the industry for almost eighty-years. The goods and services provided by the automakers The Big Three automakers: 1. and trucks for all uses. Recent years for the American automobile industry have proven to be financially challenging.e. The economic environment caused GM and Chrysler to file Chapter 11 bankruptcy reorganization in 2009 and seek federal bailout money or additionally. Chrysler 3 . The movement of America and the transition into an industrialized county soon created a completely new means of moving people and goods across America.
utility trucks. the industry provides maintenance services and wide variety of financial services. Volkswagen. The industry functions through multinational manufacturing process that includes a vast number of suppliers and logistical support channels and manufacturing plants located throughout the United States and internationally. exterior. SUVs. These businesses manufacture parts and provide services that contribute to the overall production process of for the industry. and retailers. The parts for the vehicles are made by numerous suppliers and shipped to the plants for assembly. This has proven a major challenge to the Big Three and forced them to reconsider their industry positioning forced change through necessity of survival. There are 5. They produce everything from interior. 2011c) that support both consumers and commercial industry. However. the international automotive market of Honda.784 businesses that providing employment for more than 415.WEEK 8 – PROJECT REPORT 2 have dominated the automotive manufacturing for years. to engine components. A majority of these businesses are located in the Midwest. In addition to the sales of goods. The interconnected logistical support 4 . heavy-duty commercial trucks (Bureau of Labor Statistics. The industry produces automobiles.180 workers (Bureau of Labor Statistics. wholesalers. cross overs. BMW. Toyota. suppliers. The manufacturing of vehicles is centralized through various plants located in the US and international markets. 2011a) (see Figure 1). Industry Profile The automobile industry provides goods and services that support a wide range of manufacturers. and Nissan have garnered substantial market shares and in some cased surpassed the Big Three in volume sales and revenue. The industry is a multinational provider of vehicles and parts that are sold through third-party retailers throughout the world.
resource waste.343 GM 2. Ford +13%. Chrysler +27% (Lorio. GM. 2011) Change % 9. and Chrysler in 2011. and redundancy.269. Figure 1.654 1.933. The Big Three automakers are major supplies of vehicles in the world.03 5 . GM +20%.509 Source: (Motor Intelligence.944 Chrysler 1. time.446 1.986.WEEK 8 – PROJECT REPORT 2 needed to produce one automobile requires high levels of efficiencies that minimize cost.45 20. 2011) clearly show that the companies are on the right path after weathering a tough economic period.741.095 984. The sales have dramatically changed in one year: Company 2011 Sales YTD 2010 Sales YTD Ford 1. The sales numbers are an increase compared to September 2010 to September 2011. Vehicles sales increased for Ford.95 12.231.
Ford. Industry Structure The American automobile industry consists of an oligopoly of three major players in the market. A company that acts alone in their pricing will gain or lose based on the other company reactions. Future Outlook The future outlook for the American auto industry looked good.WEEK 8 – PROJECT REPORT 2 The American automotive industry is creating vehicles that meet the need of consumers and providing innovative solutions through a new product. Ford US auto sales are up 14% while revenue is $18 billion up $1. The advent of the energy efficient vehicles electric and hybrid vehicle are providing a challenge to the foreign car market (i. For instance. Sales and revenue have increased over the last few years. The shared nature of the auto industry and the changes that affect each company have a causation effect throughout the industry. all three companies sell 300 units (100 for each company) of their midsize auto and charge $20.000 and offer a rebate of $1.8 billion for the third quarter of 2011 over the same period in 2010 (Ford Motor Company.e. 2010).000 to veterans.000 for each unit. Toyota. Honda. GM. Ford decides to lower the price of its midsize best seller to $15. this will result in Ford selling 150 units to GM and Chryslers 75 units respectively. This mutual interdependence of the companies is relative to pricing along with supply and demand and directly affects the decision-making process of each company (Samuelson & Marks. or do nothing. that is. This interdependency of the three automakers drives the decision-making process. and Chrysler. GM and Chrysler may decide to match the pricing to gain back consumers. and Nissan). wait for Ford to revert back to the standard pricing. GM US auto sales are up 7% in the third quarter over the same period in 2010 (General 6 . 2011).
This market provides an excellent opportunity to enhance the product line and show corporate responsibility through environmental concern. The current debt payoffs will allow the stabilization of the companies and allow reallocation of money for investment in growth opportunities. Growth opportunities in Asia. However. The uncertainty of the monetary stability of both will influence the balance sheet through available financing and overall revenue. The green vehicles is a growth market the will need to be increased substantially in order to meet consumer and regulatory demands. 2011). recent natural disaster have proven to greatly affect the production capability of competitors and must be considered in the operation of facilities. 7 . Product continuity and sustainment through contingency plans need to be part of the strategic business plan and model.WEEK 8 – PROJECT REPORT 2 Motors. 2011). The increased efficiencies that drive the supply chain provide a value-added opportunity. and South America are promising. The future outlook for the Big Three is directly related to the economic recovery and the US and the European Union. The competitive regional marketing and brand identity will need to be incorporated into new and emerging market strategies. Economies of scale for this growth market will increase over time. the economic conditions of unemployment and consumer positioning will limit the buying power of consumers. Furthermore. The facilities that support the companies will need to be internationally and regionally based to meet the unique demands of each market. The future market opportunities of the companies look promising. Chrysler worldwide sales for third quarter are up 24% over the same period in 2010 (Chrysler. Europe.
consumers) are providing a wide variety of products from a limited number of automakers. GM. and Chrysler profitable again. discounts. This and the increase buyer knowledge of products through information availability has made the buyer very select in their purchases.6% as of November 2011 (Bureau of Labor Statistics.e.WEEK 8 – PROJECT REPORT 2 Porter's Five Forces Strategy Analysis Bargaining Power of Buyers The buyers (i. Brand loyalty and ‘buy American” ideas have brought the Big Three back from crisis points. Honda. price sensitive models. product value retention and buy back guarantees that Hyundai offers). The current economic recovery and unemployment finally less than 9%. such as. and regionally unique vehicles has broadened the product selection for buyers. and specials (i. Buyers have suffered from lost wages. product innovations. currently 8. 2011b) will increase the number of buyers. a strong presence of brand identity. unemployment. green cars. repossession of assets that have strained their purchasing power. and substitution that meet a lower income buyers need be considered. Toyota. The introduction of new product lines and green cars are highly sought by consumers. This places pressure on the automakers and drives the competition to adapt to the buyers demands by providing incentives. Buyer power comes from over production due to poor planning and over estimation of demand. Product differentiation will prove to be a strong selling point for buyers. Though the need for a new vehicle may not be a primary concern for many buyers. The progressive increase in sales from 2009 to 2011 are making Ford. and Nissan have struggled through natural disasters and 8 .e. Rebates and trade-in guarantees will gain customers. Competitors. financial uncertainties and government bailouts. The demand of new vehicles. The current world economic hardships have challenge automakers in insuring that production meets the market demand.
and closures.WEEK 8 – PROJECT REPORT 2 product defects that have hurt sales. GM has the Chevrolet Volt 9 . and amenities the enhance their products. This will enhance the company’s economic stability through supporting small businesses. In order to gain a competitive advantage. The strength of the distribution channel is based on a stable supply chain. Ford has the Sync with MyFord Touch. He supply chain will suffer as the suppliers suffer. Increasing the manufacturing efficiencies through technology advancements and modeling for a more unified. suppliers have not fared as well. The large number of suppliers allows for the negotiation of pricing that in fare and competitive. electric vehicles. A philosophy of buying American should be implemented in the contracting of suppliers. the Big Three must adapt their product line to the very demanding consumers. The quality differentiations and concerns of past of less defined and have leveled the playing field for automakers. create automobiles that utilize the same core product. Economic hardships will force automakers to reconsider substitutions and alternate resource outlets in order to meet production runs. EcoBoost engines. downsizing. but allow for model differentiation and uniqueness. That is. Bargaining Power of Suppliers The suppliers to the automakers have suffered through layoffs. Taking advantage of a change in buyers perception of the American automakers and the product lines have breathed new life into and once stagnant industry. Automakers have adapted to the economic crisis through assistance by the federal government. multi-model construction process will prove beneficial and cost effective. Innovation of new models will increase product differentiation. thus contributing to the overall economic recovery of the US. Competitive Rivalry in the Industry The automobile industry is very competitive.
WEEK 8 – PROJECT REPORT 2 and hybrid SUVs that give green conscious buyers an excellent variety. American Honda drop -8% (Honda. making them a global competitor. 2011). Chrysler is proving highly fuel efficient vehicles and desirable design options that have proven successful. The quality and innovation of American automakers is strong incentive to select alternatives over foreign products. The initial investments and logistical issues are too great for a new company to start. Product differentiation through brand advertisement and product placement are an important part of garnering market shares. Threat of New Entrants The threat of new entrants in to the auto manufacturing industry is low. economies of scale. The Big Three must look into the long-term 10 . Tata acquired Jaguar Land Rover in 2008. Brand loyalty and market shares would quickly force a start-up to reconsider. New companies or companies seeking additional market share in the US must adapt to capital demands. the merger or acquisition of establish auto companies will increase revenue and market shares. Along with unique products.4% (Toyota. The Big Three automakers have been around for over one-hundred years. industry profitability and pricing points that may gain a small market share. Toyota sales have dropped -10. India’s Tata Motors has met the demands of the Asian market by adapting product models to the specific needs of the region. The global emerging markets are growing are an opportunity to gain a significant market share. sunk costs. 2011) in September 2011. The small vehicle profiles like the Tata Nano have been very successful. this leaves an opening for American automakers to gain consumers that may find product quality and pricing more ambiguous than in recent past. consumer demands. distribution channels. The oligopoly of the auto industry can be a daunting mountain to overcome. Company’s such as. regulatory requirements.
11 . Each automaker produces various sized autos that are comparable to one another. The auto industry makes it very easy for consumer to substitute a buy decision between companies. and innovation must be selling point that draw in customers. trade-in value. A company that does not look as a buyer as a long-term relationship will suffer on the bottom line. The growth of emerging global markets provides American automakers a great opportunity to increase revenue. This allows consumers to seek out substitutions or alternate brands. GM. Ford. The China market is growing. The stagnant past and dated design of American made vehicle is overt. Conclusion The American auto industry is looking promising in the future. The lack of product differentiation. and Chrysler must prove strong options in an effort to retain and gain customers. pricing benefits will drive consumers to competitors. As the economy gain its footing and unemployment decreases. the Big Three will increase revenue. innovation. The price of similar vehicles. high-end auto distinguish them from competitors. However. 2011). Shanghai GM increased sales 10. Opportunities through product differentiation must be integrating into the product life cycle. Maintaining a competitive advantage through new innovative products that closely consider the consumers demands will gain market shares.4% in October (GM.WEEK 8 – PROJECT REPORT 2 strategic plans and determine the opportunity costs of mergers and acquisitions that broaden the consumer base and the global market. product quality. Threat of Substitutes The competitive market of the auto industry has given buyers a wide variety of product to choices. This enables the consumer to better determine the value of a purchase.
laid off employees and restructuring of business models. Government bailouts and financial reorganizations have left automakers with abandoned plant. Ford. hybrids. GM. 12 . Electric cars. Toyota Prius) the Big Three will need to invest more research and development into the future vehicle line. The competitive market is global and dynamic. Consumers are seeking lower prices and higher quality products. The economy is continuing to recover for hard times.e. The will prove to be a substantial cost savings for companies along with addition revenue streams. parts manufacturing. Designing vehicles that are green options and high mileage will provide appealing alternatives for consumers. and Chrysler will need to establish partnerships and relationship with foreign countries and business to ease the transition into a global economic model. labor) to manufacture vehicles. This is a challenge. Meaning the ability to meet competitors on equal ground has never been less difficult. The long-term strategic plans will need to reflect the assumptions of economic trends and their impact on business decisions. The cultural differences are an opportunity to adapt vehicles to the specific needs of the market and utilize in-country resources (i. The foreign competitors have been producing green vehicles for years (i. but not impossible.e.WEEK 8 – PROJECT REPORT 2 Innovations will drive the industry and market. and multi-fuel vehicles are in greater demand and the consumers become more environmentally concerned. Companies should provide cost saving discount and specials to gain customers. Should a new plant be build and refit? What is the benefit of entering new and emerging markets? Are the economies of scale in line for pricing and demand in order to maintain profitability? These are just a few of the consideration in regards to future planning.
13 . Marketing a specific audience through multiple media outlets will provide visibility and brand recognition. trade-in will need to have a higher value.WEEK 8 – PROJECT REPORT 2 Additionally.
gov/spotlight/2011/auto/ Bureau of Labor Statistics. (2011). Motor vehicle and parts manufacturing Retrieved 12/28/2011. General motors sales & production reports Retrieved 12/29/2011. (2011a). Automobiles: BLS spotlight on statistics Retrieved 12/29/2011. from http://www.chryslergroupllc. GM china sales set october record Retrieved 1/1/2012.gov/cps/ Bureau of Labor Statistics.com/ourcompany/investors/investor-quarterly-results General Motors. 2012.honda.pdf (application/pdf object) Retrieved 12/30/2011. from http://www. 2011. 2011.ford.com/enus/investor/PressReleases/financial/ChryslerDocuments/Q3_2011_PressRelease. Retrieved 12/30/2011. American honda reports september sales . Q3_2011_PressRelease. (2011c).html/content/Pages/news/us/en/20 11/Nov/1107_china Honda. 2012.gm. (2011).pdf Ford Motor Company. (2011). from http://corporate. from http://www.gov/oco/cg/cgs012. Ford motor company financial earning reports & SEC filings for ford investors Retrieved 12/30/2011. from http://media. from http://www. (2011b).honda.bls.bls. Current population survey (CPS). from http://www. (2011).gm.com/sales-production/ GM.com/newsandviews/article.unemployment . from http://investor. (2011). 2011.bls.com/content/media/us/en/gm/news.aspx?id=6254-en 14 . 2011.detail. 2011.htm Chrysler. 2011.com Retrieved 1/1/2012.WEEK 8 – PROJECT REPORT 2 References Bureau of Labor Statistics.
2012.motorintelligence. Toyota. & Marks.automobile magazine Retrieved 12/29/2011. 2011. G. S. (2010). NJ: John Wiley & Sons Inc.html 15 . Retrieved 12/2011. September 2011 auto sales ..com/m_frameset. (2011). from http://www. Managerial economics (6th ed. About toyota | our news | toyota reports september sales Retrieved 1/1/2012.). from http://www. J.html Samuelson. from http://www.com/about/news/corporate/2008/10/01-1-sales.ht ml Motor Intelligence. W. (2011). New car sales.com/features/news/1110_september_2011_auto_sales/viewall. Hoboken. 2011. F.toyota.WEEK 8 – PROJECT REPORT 2 Lorio.automobilemag. (2011).
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