Executive Summary

The performance of manufacturing firms that are involved in the US and in extend the global automobile industry is influenced by a myriad of external environmental factors. These factors can broadly be classified into social-cultural, technological, environmental, economic and political and legal factors. These influences present sources of risks, threats and challenges facing this industry resulting to their less than optimal performance, however, they at same time present opportunities. The presence of weaknesses and challenges only go to present opportunities for growth and expansion for firms in the automobile industry. However, the firms need to strategically position themselves in order to take advantage of the opportunities and use them in a manner that will ensure they maximize their organizational objectives.

Introduction

This report presents an analysis of the U.S and global automobile industry using globally tested and accepted industry analysis tools such as STEEP analysis, Porters Five Forces analysis and Opportunities and Threats of the automobile industry. The report concludes by presenting recommendations which if implemented will assist the new CEO of FORD motors to maintain a sustainable competitive advantage in an industry that is continuously changing with new players entering everyday, and new strategies being conceived by market players.

Brief Background of the Automobile Industry

The global automobile industry in the present day is in the middle of a dramatic and largely unprecedented transformation. At the middle of the transformation is the way the industry defines itself as well as how the industry works. From its early beginning in 1885, the U.S automotive industry has grown in leaps and bounds and in the present day it is considered  as one of the biggest industry not only in the U.S but globally as well. Globally, the automotive industry is rank second in terms of sales revenue making it one of the highest earning economic sectors. This industry is not only involved in the manufacturing of motor vehicles but also in the marketing and distribution of motor vehicles globally.

Automobile Industry Analysis

STEEP ANALYSIS

Social-Cultural

Various social-cultural factors come into play when it comes to the automobile industry. Variables such as population, cultural differences, social responsibility as well as the influence of consumer movement directly impacts on the performance of the automobile industry.

Among the considerations that consumers take into reflection when making a decision with regards to whether to buy a motor vehicle as well as the decision on which company to buy from and model of motor vehicle to buy include: price, design and style, brand of car, mileage, and the after-sale services that they are likely to benefit from the parent company. Another factor that influences the consumers’ decision of automobile is what other people opinion is with regards to the car model.

Age and structure of the society in terms of family structure are also critical influences in the performance of the automobile industry. Therefore, it is critical that the industry participants manufacture vehicles that are inclusive and targeting specific segments of the population by being responsive to their tastes and preferences. One of the key factors that influence purchases of vehicles by families includes space, budget and safety. Responding to these critical factors by the automobile industry will ensure there is a constant and sustainable stream of sales revenues for participants in this industry.

Technological

In the face of a technological revolution, where one technological innovation is phased out before it even begins, the need for constant improvement is imperative to ensure sustainable competitive advantage in the automobile industry. This necessitates the need for unreserved investment in research and development. technological factors not only ensure that the most efficient automobile in terms of fuel consumption efficiency, engine strength, or capacity is manufactured, but also automobiles that ensure maximum safety of drivers through improved standards of driving as well as a more comfortable driving experience for the consumer.Fuel consumption forms one of the major concerns for players in the automobile industry. This has necessitated the manufacture of motor vehicles that consume green fuel, or are efficient in fuel consumption such as hybrid engines that reduce fuel consumption manufactured by companies such as Honda and Toyota.

Another technological factor that has some bearing on consumer demand is the safety aspects of various automobile models. Customer safety forms one of the key considerations when making a decision to purchase a motor vehicle. Features such as seat belts, air bags that ensure the safety of passengersduring collision, and ABS breaks that stop a vehicle within the shortest distance even on icy surfaces have continuously been some of the distinguishing technological features that form a thin line between a customerdecision to purchase a vehicle or opting for a competitor’s model. Other distinguishing technological considerations are the features that make the driving experience more comfortable, easier, luxuriant and lush such as auto gear, auto pilot, and inclusion of gadgets and gizmos such as navigation systems, Automatically Steering Headlights, map lights, motorized rearview mirror, motorized seatbelts, proximity warning systems, Electronic Parking Brake, and Volt Capacitive Touch Controls. These technological considerations play a big role in a consumers purchasing decision.

By investing in research and development, and ensuring that new technologies are patented ensures that a company’s sustainable competitive advantage is safeguarded and in extent a constant future stream of sales revenue is guaranteed for the company in an industry that is increasingly being very competitive, with no one player with a clear dominant market share.

Economic

Perhaps one of the leading influences that affect the global automobile industry is the economic performance of the world economy whose effects boils down to the household level. Influences such as international oil prices, infrastructural demands, manufacturing costs play a big role in influencing the performance of companies in the automobile industry.

Over the years, the prices of automobiles have continuously increased. This has been attributed to the increase in the cost of production in terms of input prices and labor costs. A rise in the cost of living has also worsened the situation by eating up on consumers’disposable income. This has had a profound effect on the aggregate demand for motor vehicles negatively affecting the automobile industry.The automobile industry is also very demanding in terms of infrastructural development needs; therefore its growth is to a large extentdependent on the investment that is directed towards infrastructure development by governments. Another economic factor that impacts on motor vehicles industry streams from the over-dependency of the industry on oil and the impact that changes in oil prices has on the industry.

Other salient factors that influence the performance of companies in the automobile industry include:

1. Buying capacity or Purchasing power of the people;
2. Taxes imposed on manufactures by the government;
3. Prices of inputs from external manufactures such as prices of steel, oil, and labor;
4. Level of commercial activities;
5. Population figures; and
6. Commercial use of automobiles.

Ecological

Environmental factors such as fuel economy, pollution, and emission form some of the biggest challenges facing the automobile industry. However, these challenges have functioned as incentives and sources of ingenuity for automobile manufacturers to innovate. Increasingly, more environment friendly vehicles are being manufactured and introduced into the market and equally increasing is the market demand for hybrid vehicles that are friendly to the environment. This has been achieved through the manufacture of vehicles that use systems that minimize CFC, vehicles that use alternate energy and electronic injections and manufacturing of vehicles that save on space such as compact cars and minivans.

Political and Legal Forces

Political influences are significant authorities in the automobile industry both in the US market as well as the global automobile industry. Political influences stem from the governments’ preferences for the manufacture of environment-friendly automobiles. This has resulted to a shift into the manufacture of hybrid vehicles that have more government support relative to contemporary motor vehicles. This preference is reflected in the European Union motor vehicle industry which has to comply with strict vehicle emission standards referred to as the Euro Standards. The United Kingdoms’ government for example has put in place financial measures that favor the manufacturing and sale of motor vehicles that have lower carbon emissions.Other factors such as tax systems and structures informed by the government also impact on the sales and usage of automobiles thereby affecting the performance of stakeholders in the industry.

With regards to legal forces, although import laws vary from country to country, they have a big influence on the industry. For example: Chinese laws dictate that vehicle importers must be in possession of  importing license; while in Colombia, importing second hand motor vehicles are not allowed.

Porters Five Forces Analysis

Threats of New Entrants

The automobile industry is a very specific industry. It is mature and a capital intensive industry whose entry cost interms of initial capital outlay is very high. These characteristics coupled with the high government restrictions form great barriers to the industry thereby making entry to the industry difficult. For example: factory plant and equipment, labor costs, technological needs are heavily involved in the automobile industry making it a very capital intensive industry.Additionally, an automobile manufacturing facility is highly specialized thereby increasing the riskiness of investing in the industry, this further acts as a barrier to entry to the industry. It requires enormous capital investment and in the event of failure a facility cannot be easily retooled.

However, most industry entrants are achieving entry-success by entering into the market through strategic partnerships or merging with already established market players. For example TATA buying into Jaguar Company. Furthermore, for a new company to register sales, it has to sell their automobiles through dealerships so as to access the already established supply chain channels.

Bargaining Power of Buyers

Bargaining power of buyers plays a significant role in the automobile industry. This is for the reason that it influences the industry profitability by the buyers’ ability to hagglefor lower prices, higher quality, and better services. In the automobile industry the bargaining power of the consumers is moderately high, this is partly as a result of the competitive nature of the industry where every industry player is competing to have a bigger market share thereby leaving the consumer with a lot of leeway.

The factors that affect consumer to make a buying decisions are: the appearance in term of the aesthetic value of the vehicle as well as the brand name and prestige associated with the car model; the performance and quality of the motor vehicle; the price; and finally the environmental considerations with regard to how friendly to the environment the automobile is. Based on a variety of the lifestyles; people opt to purchase a vehicle based on a variety of factors.There are various company brands and car models that are available to consumers in the present automobile industry; this is coupled with low switching costs due to the presence of various brands with equal features and price with competitive marketing.

However, the bargaining power of buyers is limited on account of the small number of buyers. They also do not have the ability to integrate backwards into the industry.

Bargaining Power of Suppliers

Suppliers can exert a competitive force in the industry by influencing prices as well as quality of inputs. However, their bargaining power is very low in the industry. The motor vehicle manufacturing process requires various inputs which the automobile industry outsources from various secondary industries. Due to the availability of many suppliers in the automobile industry, as well as the ease with which the automobile industry can switch suppliers, the suppliers have a low bargaining power. For example, Toyota has more than 10 different suppliers in the United States. The main differentiating characteristics of the suppliers are the quality, cost, and delivery of the products. If suppliers are not in a position to meet these fundamental considerations, it is difficult for them to remain competitive.

Rivalry among Existing Firms

The entrance of new companies into the industry bring with it increased competition for market share. The rivalry between manufacturers in the automobile industry presents customers with many advantages. These range from: improved product differentiation; competitive prices; creative use of distribution channels; as well as better exploitation of the relationship between suppliers and manufacturers such as the competition between BMW and the Benz automobile market.

The deep rivalry between industry players is as a result of various dynamics in the automobile industry:

1. The increased number of firms increase rivalry for the reason that more firms must compete for the same market or markets and resources;
2. The rate of market growth results to manufacturing firms competing for increased market share in a growing global market;
3. The inflexible fixed costs associated with the motor vehicle manufacturing process results to companies taking advantage of economies of scale to reduce average costs this increase production and in extent rivalry;
4. High barriers to exit due to the specificity of motor vehicle manufacturing assets make the industry more competitive. Automobile plants and equipment cannot be easily sold to buyers from other industries, this forces firms to be more competitive as an exit strategy is not available; and
5. The diversity of rival firms with different histories, philosophies and cultures make the industry unstable.

Threats of Substitute Product or Service

Motor Vehicles share high functional similarity. Product may appear different but meet the same needs, therefore, it is imperative that product differentiation as a competitive advantage is employed by participants in the automobile industry. In this industry, there are typically many car models that are look like a mid-range Toyota but are similar in performance to Nissan, Honda or Mazda. Therefore, the customer is faced with a choice based on a very small distinctive difference that he or she might perceive is present in a particular motor vehicle model. These differentiating features can be as minute as the available color schemes.The threat of substitute products depends on factors such as geographic location, climate and availability of other forms of transport such as buses, subways, bicycles and other alternatives.

Opportunities and Threats of Automobile Industry

The global auto mobile industry is a very dynamic industry. It is very sensitive to global events and susceptible to changes in various external influences. This makes the industry very fragile to fluctuations in environmental factors.

Opportunities

Opportunities in the automobile industry present avenues for both profit and growth for players within the industry. This is critical in gaining competitive advantage. Some of the opportunities in the industry include:

1. Positive attitude towards “green” vehicles: green vehicles are cars that are considerate of the negative effect that fuel has on the environment. Most industry participants have developed electrification strategies to minimize the carbon emissions from their automobiles and improving their fuel efficiency.
2. Increasing fuel prices: the automobile industry clear-cut emphasis on manufacturing fuel efficient vehicles such as the Ford Fiesta and Ford Focus through the ECOnetic technology with flexible fuel and hybrid engines will in future pay off because of the increasing fuel prices globally.
3. New emission standards: increased and stricter regulations on vehicle emission standards would positively impact on the position of manufacturers in the global automotive industry. Firms have invested large amounts of finances to manufacture fuel efficient vehicle and most have garnered moderate success for example the experimental vehicle models ford fiesta and ford focus.
4. Strategic partnerships: most vehicle manufactures have nurtured strategic relationships, partnerships and alliances with other vehicle manufacturing companies. As a result of the competitiveness of the industry, companies are more probable to enter into strategic partnerships to reduce research and development costs down, gain access to new segments of the market as well as gain new and additional skills.

Threats and challenges

Various threats and challenges face the automobile industry. According to Booz.Allen & Hamilton(1999), these challenges have broadly been classified under globalization, product differentiation, product development, supply chain restructuring and marketing and distribution.The challenge of Product differentiation streams from the competition that is as a result of increased changes in consumer tastes and preferences which are fueling the competition among industry firms. This has necessitated the manufacture of highly differentiated motor vehicles that win the consumer by satisfying their specific needs and wants in any location and at any point in time. The challenge of product development refers to the associated costs of vehicle manufacture in terms of cycle time, product complexity, technology and increased regulations in the industry. The Cost to design, engineer, and tool a major new model is very high. This acts as a challenge to product differentiation. Supply restructuring refers to the difficult step of reducing the level of vertical integration, to make certain that inputs are of high quality and labor and fixed costs are minimized. This acts as source of challenges as individually firms are price takers and this reduces their ability to influence the market price of inputs. Marketing and distribution, this has for the most part been outsourced to external firms which already have an established chain, however, the increased competition of consumersnecessitates the involvement of automobile firms to engage in marketing and distribution undertakings. This ties up capital as well as stretches the workforce.

Other challenges which can be identified in the automobile industry include:

1. Decreasing fuel prices: forecast has showed that as a result of the extraction of shale gas, future fuel prices will decrease. This will result to a decrease in the sales of hybrid motor vehicles as firms have focused and invested in fuel efficient hybrid and flexible fuel cars which are less attractive when fuel prices are low.
2. Rising raw material prices: the rising prices for vehicle raw materials particularly raw metal would result to an increase in manufacturing costs and lead to a reduction in profits.
3. Intense competition: the automobile industry faces stiff competition streaming from other automotive manufacturing companies more than ever. This is especially so in the small car market with hybrid engines.
4. Fluctuating exchange rates: the automotive industry may be adversely affected by unstable and changing exchange rates as more than 50 percent of its sales are conducted outside the United States market. The profits may be lower as a result of the appreciating dollar currency against other currencies.
5. Other threats stream from a decrease in the global household disposable income. This will have the effect of reducing the demand for motor vehicles thereby resulting to a decrease in sales. Additionally, the dynamic nature of consumers taste and preferences without a commensurate change in innovation will also act as a threat to future profitability of firms in the automobile industry.

Recommendations

Perhaps the most direct and easy to execute strategy that would to a large extent further improve the bottom line of ford motor is expansion of its operations in the Middle East segment as well as expand sales to the Asia Pacific-Africa market, this will tap into a market that is to large extent not tapped by United States automobile manufacturers.

Ford can also take advantage of the threat of the growing need for public forms of transport by manufacturing utility vehicles that are being utilized in cities that have embraced public forms of transport, and also manufacturing other automotive that may find their use in other industries. For instance, producing trucks and buses for the Indian and African market, and manufacturing oil tanks for oil producing markets.

With regards to the centralized management of the company, this might be limiting autonomy with regional managers thus limiting their participation in decision making. This can be addressed by lessening the degrees of centralization in the company, with autonomy being granted to different regional managers to synchronize with the different demands associated with different market niches

The company can also resort to the production of affordable motor vehicles en masse for mass sales as opposed to the manufacture of high end vehicles. This will provide a bigger market for their vehicles thereby assuring them safety in numbers. (Hitt, et al., 2011)

Conclusion

This report presented a detailed analysis of the U.S andglobal automobile industry with emphasis on the external forces impacting on the automobile industry and which the industry has to strategically face in order to remain competitive. With the use of analysis tools and concepts such STEEP analysis, Porters Five Force model as well as external environmental analysis, it has been able to better present and be familiar with various external factors that affect the automobile industry. Through the employment of STEEP analysis tools of Social, technological, Economic, Environmental and Political impacts and Porters Five forces frameworks, the report has identified and determined the competitive forces and the attractiveness of the automobile industry market. Lastly, the report examined the opportunities and threats that exist in the global automobile environment. This is for the reason that assessing and examining opportunities and threats allows firms to strategically place themselves in positions where they can better achieve their organizational goals and strive towards the efficient utilization of available skills, resources while minimizing the industry constraints and threa

 

References

BOOZ.ALLEN & HAMILTON, 1999. Challenges Facing the Global Automotive Industry. INSIGHTS, 1(1).

FORD Motor, 2014. SUSTAINABILITY REPORT 2013/2014, Michigan: Ford Motor.

Hamel, G., 2000. Leading the Revolution. Havard: Havard Business School Press.

Hitt, M. A., Duane, R. I. & Hoskisson, R. E., 2011. Strategic Management: Competiveness and Globalization. Ohio: Cengage Learning.

Walter, L., 2008. Auto Industry Views Environmental Issues as Top Concern. [Online]
Available at: http://ehstoday.com/environment/news/ehs_imp_79702/
[Accessed 1 December 2014].

William, L., 2014. Why companies like Toyota lead in global automobile market share. [Online]
Available at: http://marketrealist.com/2014/04/companies-like-toyota-lead-global-automobile-market-share/
[Accessed 31 August 2014].