Auto Industry Analysis

Group #2
February 24, 2009

Jacob Western
Heather McMahon
Ryan White
Brittany Thomason
Scott DeVore
Cory Gregory
Mitchell Stack
The Automotive Industry
Forced to change its business characteristics:
Closing of factories
Laying off workers
Shrinking product line and models
Creative marketing techniques
Automotive Industry is HUGE
GM, Ford, and Chrysler contribute to more than 7
million American jobs
Foreign auto manufacturers contribute to more than
1.8 million American jobs
If the Big 3 Collapse
3 million jobs would instantly be lost
Decline of $151 billion in personal income the first
year
$398 billion the second year
$156 billion lost in tax and revenue for the
government over three years
American Automotive Industry:
Employees
Heavily unionized
United Auto Workers (UAW)
Canadian Auto Workers (CAW)
This leads to
Higher labor costs
Heavy fringe benefits and health care
American Automotive Industry:
Employees
Some Facts:
UAW workers receive $10-$20 more to do than competitors
Wages + Benefits = ~$73 per hour for unskilled labor
 Foreign Wages + Benefits = ~$48
Foreign Automotive Industry:
Employees
Successful in keeping out unions from their plants,
both in America and abroad
Has given them strong advantage over Big 3

Example: Toyota is able to make cars that require less

money
Cheaper to make and more money can be spent on
other business aspects
Foreign Automotive Industry:
Employees
Transplants = foreign manufacturers
making/assembling cars in America
Transplants are relatively new in America compared to
the 100 year old American automotive industry

Honda and Toyota have younger workforce, so

pension and healthcare costs are significantly lower
American Automotive Industry:
Fuel Prices
American car makers focused on producing SUVs
1) easy and cheap to build
2) Americans paid the high price without thought of
gas prices
HALF of the Big 3’s profits came from the sell of SUVs
and trucks
American Automotive Industry:
Fuel Prices
Oil Crisis of the early 21st Century
Americans stopped purchasing large vehicles
American sales plummeted
Sudden decrease in sales + strong foreign competition
= huge surpluses of back stock
This caused
Steep incentives
Production cuts
Production shifts
Completely new business strategy
Foreign Automotive Industry:
Fuel Prices
Foreign companies have traditionally focused on
smaller, more economical vehicles
Has given companies such as Toyota and Honda huge
advantage in small car market over American
manufacturers
Americans turned to more efficient cars that were in
great abundance in foreign car dealerships
Automotive Industry at a Glance
Automotive industry in North America has suffered
greatly during the past few years
Yet production is still strong
71.9 million vehicles were sold worldwide
Increase of 5.7% over 2006

Industry in South America and Asia is strong

Foreign Automotive Industry:
Fuel Prices
This competitive advantage has allowed foreign car
manufactures to avoid the possibility of bankruptcy

HOWEVER
Toyota, for the first time in 70 years, has had a net
profit LOSS due to the decreasing world market
But is still safe from the threat of bankruptcy
Identify/Assess driving forces
for change
Changes
Automobiles have been designed, developed,
manufactured, and marketed since the late 1800’s. 
Over the decades, engineers have embarked upon the
task of looking for ways to improve and renovate an
age-old industry.
Henry Ford
Born July 30, 1863 in Dearborn Michigan.
Incorporated Ford Motor Co. in 1903.
Introduced the Model T in 1908; sold for $950.
Ford’s Model T evolved from being a luxury item for
the well-to-do to essential transportation for the
average man. As more middle-class Americans began
owning cars, urbanization patterns changed. The
United States saw the growth of suburbia, the creation
of a national highway system, and a population
excited by the possibility of going anywhere anytime.
Ford’s Assembly Line
Mass scale

Able to produce a chassis every 92 minutes

Able to manufacture a Model T every 24 seconds

Safety Glass
Coated on both sides by a liquid plastic and invented
by: Edouard Benedictus.
Accident: inadvertently knocked a glass flask to the
floor and it held together.
Recently held a solution of cellulose nitrate, a liquid
plastic.
Automakers were reluctant to use the expensive
“safety glass”
WW1 – gas masks
Car safety
The prevalent attitude was that the driving safety was
largely in the hands of the driver, not the
manufacturer. Initially, car makers engineered cars
with the idea of only preventing an accident, not
minimizing injury if an accident occurred.
Rising concern of safety
1920 – 1st 3-light traffic light system
1930 – Automobile Safety League of America
1934 – GM conducts crash tests
1944 – Volvo safety cage
1960s - USDOT
Firestone / Ford Explorer scandal
1990s - 6.5 million tires recalled because of high speed
blowouts
150 deaths and 1,100 accidents linked to the tires
Who’s at fault? Firestone or Ford
26 psi or 30?
Ford Pinto Scandal
1970s
Ford rushed the car to market when it had fuel tank
ruptures in 37 of 40 crash tests. In that incident “Ford
knew of its problems, but decided that it would be
more cost effective to allow deaths than to make it
safer. (They could have fixed the problem at just $10
per car.)”
OnStar
Provides subscription-based communications, in-
vehicle security, turn-by-turn navigation, and remote
diagnostics systems throughout the United States and
Canada.
Only available on GM models currently
Locked out
Stolen
Gas & Greenhouse gasses
Rising cost of gas and effects of greenhouse gasses on
the atmosphere
Purchase more fuel efficient cars
Obama’s plan
1 million plug0in hybrid cars by 2015
All White House fleet plug-in hybrid w/in 1 year
All Government fleets plug-in hybrid by 2012
EVALUATE COMPETITIVE
FORCES
Porters Five Forces
Threats to Entry
Barriers of Entry - Factors that limit new companies
entering a market.
- Substantial Barrier due to cost
- Current companies relying on strategic partnerships
or mergers to help enter new markets
Threats to Entry
Hyundai – Korean Automaker
New Luxury car called Genesis
Genesis is promised to deliver features equal to a
$60,000 vehicle at a price of around $30,000.
Threats to Entry
Tesla Motors
- Electric powered sports car
- Range – 221 miles - 0-60 mph less than 4 sec.
- Base price roughly $110,000
- Raised 187 million and has delivers 147 cars
Power of Suppliers
Large amount of suppliers
Many suppliers rely on one or two major
manufactures buying the bulk of their parts.
Switching suppliers can lead to devastating effects
to that supply firm. Resulting in suppliers being
extremely susceptible to automakers
requirements and demands. This leaves suppliers
with little bargaining power.
Power of Buyers
Currently consumers have better buying power which
is reflected buy auto dealers providing large
incentives to buy.
Hyundai has chosen not to create a new luxury brand
like Toyota (Lexus) and Honda (Acura) but instead to
badge its premier luxury vehicle (Genesis) as a
Hyundai. Time will only tell how U.S. buyers react.
Threats of Substitutes
The threat of substitutes to the automotive industry
is fairly mild.
There are numerous other forms of transportation
available to the public, but none offer the
independence, convenience and the value provided by
automobiles.
Cultural Threats
Competitive Rivalry
The automotive industry in the U.S. is no longer a
playground for the Big 3 (GM, Ford, and Daimler
Chrysler); global companies compete in the U.S. market,
while U.S. companies have globalized themselves.
In the 1980’s Honda and Toyota entered a fairly
disciplined U.S. market and were very focused in growing
their share in the market.
The degree of rivalry in the automotive industry is further
heightened by high fixed costs associated with
manufacturing cars and trucks and the low switching costs
for consumers when buying different makes and models.
Competitive Positions
Competitive Position is the relative level of
dominance (or lack thereof) a firm has in the market
as compared to its competitors.
Must Analyze:
 Market Share
 Competitive Advantage

 Porter’s 5 Forces of Competitive Position

Competitive Positions Continued…
Market Share: shows how a company is doing as
compared to its competitors who are experiencing the
same opportunities or challenges at the same time.
Market Share
Competitive Positions Continued…
•The Big Three have dropped from 70% to 57% in 2006
•Currently it has dropped to 43%
Market Share
Competitive Positions Continued…
Big Three now share less than 50%
 Market Share
Competitive Positions Continued…
Losses in Market Share =
Operate Below Capacity
 Production Cuts
 Plant Closures

 Layoffs

Employment Losses creates a

WEAK competitive position!
Competitive Advantage
Competitive Positions Continued…

Competitive Advantage: is position a firm occupies

against its competitors.

According to Michael Porter there is 2….

 Cost Advantage  (Low Cost)
 Differentiation Advantage (Unique & Appealing)
 Competitive Advantage: Cost
Competitive Positions Continued…
The Big 3 is lacking on the Health Care Advantage…
“Universal free health care is the secret competitive
weapon of the Japanese, Canadian and European auto
industries. ” - Bruce Dixon, manager of BlackAgentReport.com
 Competitive Advantage: Cost
Competitive Positions Continued…
Big 3 Pensions Paid > Pensions paid in the Foreign
Industry.
Competitive Advantage: Cost
Competitive Positions Continued…

The US can’t compete on this level!

The Foreign market is investing in Innovation instead

of Health Care & Pensions!
Competitive Advantage: Cost
Competitive Positions Continued…
Each car produced by the Big Three firms costs $2000
more in wages and benefits to produce than it does its
foreign competitors. - Mitt Romney, NY Times
These extra costs must be reduced in order for the US
to compete!
This lack in resources once again leads to a
WEAK Competitive Position for the Big 3!
Competitive Advantage: Differentiation
Competitive Positions Continued…
The Big Three spends over $21 Billion each year on:
 Technological Innovation
 New Products
 Training

 Education

…to build safer, cleaner, and higher-quality vehicles

with state of the art technology!

But its not enough to keep up with the foreign

Industry!
 Competitive Advantage: Differentiation
Competitive Positions Continued…
Toyota was the first firm to come out with a hybrid in the
US…. The Toyota Prius
The Big 3 were still producing gas guzzling SUV’s
Toyota had the competitive advantage = BEST competitive
position!!
Competitive Position Conclusion…
The Foreign Auto Industry is quickly taking the lead
in market share and cost & differentiation competitive
advantages.

This leaves the US Big 3 in a very weak competitive

position!
Start of a Trend
Toyota Prius

Honda Insight
 Gas saving SUVs
MSRP $75,000

Tahoe MSRP $55,000

Plug in Hybrid
The Chevy Volt. Can it save GM?
Electric Cars
Zap
Makes
Small
Cars and
Trucks
Electric Cars Cont.
GEM

We don’t see
this becoming
the main
Str.eam
Hydrogen Car
The FCX Clarity has a range of 280 miles, and
refueling is simple.

Leasing started in Southern California

They have the most refueling stations in the US.

FCX
Refueling From Home
The Home Energy Station
Honda has operated an experimental Home Energy
Station in Torrance, California, since 2003. The Home
Energy Station, which generates hydrogen from
natural gas, is designed to provide heat and electricity
for the home through fuel cell cogeneration and to
supply fuel for a hydrogen-powered fuel cell vehicle.
Who Will Make What Moves
Toyota – Prius and more Hybrid Models

Honda – FCX and Home Energy Station

GM – Plug in Hybrids and Hydrogen

Chrysler – Plug in Hybrids

Ford - Hybrids
Key Success Points- Global
Alliances
A global alliance is when a company makes an
agreement with suppliers and manufacturers around
the world
This is helpful because it can allow for cheaper
manufacturing or keep a company in business in a
foreign market
Ex: GM in compact European Cars
Environmental Factors
Political- companies must pay attention to every new
piece of legislation that the government makes so
they can find new ways for innovation
EX: Vehicle Air Pollution and Control Act
Environmental Factors Cont.
Global- cooperation between competitors is very
important when it comes to the auto industry.
Need to keep friends close but enemies closer
Alliance of Automotive Manufacturers
Several car companies joined together to work on pubic
policy matters.
U.S. manufacturers at a disadvantage
Hedgehog Concept
Automotive companies employ the Hedgehog
Concept to keep from getting stuck in a rut.
Japanese manufacturers are better at doing this than
U.S. manufacturers
Toyota Ex: New innovations on truck line
In the automotive industry being able to see through
the complexity of competition, price wars, and
struggling markets and discern any underlying
patterns will ultimately lead to a crucial success factor.
Hyundai Ex:
Blue Oceans
One of the biggest success factors in the auto
industry is finding the next big market before the
competition.
Toyota Hybrids
GM Hydrogen Fuel Cell Concept
By not getting bogged down within boundaries of the
market, and always looking for the next big thing will
help secure long term success
Reputation
Reputation is a very powerful force in the automotive
industry.
The Big Three have relied on reputation for the last
decade to get them through the recession
Ex: Ford Motor Company and the Explorer problem
Attractiveness of the Auto Industry
Baby Boomer Generation
Numerous retirements

Pension plans to be paid out

Tremendous amount of health care benefits

Big Three’s consumer confidence
Difficulties in their internal environments

Such as their management of reputation resources

This news has diminished the Big Three’s consumer

confidence.
Obstacle at hand for the Big
Costs of production seems almost impossible to
3
control

If the Big Three do not efficiently use the government

loans

Unionized structure
More money per car than foreign industry
Wages are higher
Healthcare contributions
GM’s Attempt to Revamp
Competition among engineers

Breaking down barriers

Attending weekly meetings

All come together to solve their differences

GM’s Attempt to Revamp cont.
Work in partnerships, such as:
 Car design
 Marketing
 Engineering
 Manufacturing

GM expects integrity and innovation

Spark consumer demand

Achieve ultimate satisfaction

Who to follow?
Japanese industry
Toyota
Honda

Japanese non-unionized work force

Less money spent on wages
Free health care
The End