Automotive Industry - Environmental Analysis

Automotive Industry - Environmental Analysis

The following pages focus on analyzing the external environment of Daimler Chrysler. The company includes brands like: Dodge, Chrysler, Mercedes Benz, and Jeep. Daimler Chrysler is one of the most prolific manufacturers in the global automotive industry, along Ford, General Motors, Toyota, Honda, and Volkswagen. Over the past decades, the global automotive industry has reported significant growth. This expansion process is considered to have been influenced by the following aspects:

Global market dynamics

Establishment of Global Alliances

Industry consolidation

Regarding the global market dynamics, the most important car manufacturers have directed their production facilities to regions like Latin America, China, Malaysia, and Southeast Asia in order to diminish production costs. Regarding the establishment of global alliances, it is worth mentioning that General Motors, Ford, and Daimler Chrysler have merged or formed commercial strategic partnership with smaller, but more strategically placed automakers in Europe and Japan. Industry consolidation consists in the increased global competition that can be observed between the world's greatest car manufacturers (BERA, 2004).

The automotive industry is influenced by a series of macroeconomic variables. The most significant impact is given by variables like: inflation, interest rates, productivity, employment and unemployment, consumer expenditures, public debt, personal disposable income, medium wages. In 2007, the following values were reported for most important macroeconomic variables: GDP - $13.84 trillion, GDP real growth rate - 2.2%, labor force - 153.1 million, unemployment rate - 4.6%, inflation rate - 2.9%, public debt - 60.8% of GDP (CIA, 2008).

The macroeconomic variables selected for the analysis are inflation and unemployment. The corresponding industry variable for inflation is represented by sales. The corresponding industry variable for unemployment is represented by wages.

Table 1 - Inflation rate and motor vehicle sales

Inflation rate

Motor vehicle sales (annual percentage change)

Source: Index Mundi, 2008, and the Journal of Commerce, 2008.

Table 2 - Unemployment and wages

Unemployment rate

Automotive industry wages (mean annual wage)

Source: Bureau of Labor Statistics, 2008.

In order to identify and analyze the opportunities and threats of Daimler Chrysler, one must determine the company's strengths and weaknesses, since the opportunities and threats derive from them, mixed with the influence of the external environment of the company.

One of Daimler Chrysler's strong points resides in the fact that the company is one of the industry leaders and the number two car manufacturers regarding total sales. Also, the company provides well-known, strong brands that are quite famous across the world, which makes it easier for Daimler Chrysler to promote its products worldwide and to build a strong and resistant image in the mind of p existing customers and of potential customers.

Another strong point for Daimler Chrysler consists in the variety of price ranges and model types, ranging from economy cars to luxury models. This creates great opportunities for the company, because this way it is better represented, and recognized. Customers cannot buy something that does not stand out. From this point-of-view, Daimler Chrysler receives plenty of attention, which leads to increased sales.

The worldwide automotive industry is characterized by an environment that is in continuous change and development process. Such changes that influence the automotive industry bring a series of opportunities that the company could exploit. Therefore, the company should focus on Asian markets, where Daimler Chrysler's position on the market can be improved. China is one of the growing markets that the company should address in a more aggressive manner. Certain Chinese polls and surveys place Jeep in the top 5 most preferred American brands (Highfill et al., 2004).

One of the threats that are likely to affect Daimler Chrysler is represented by the instable alliance between the company and Mitsubishi. This situation and Mitsubishi's current evolution have damaged Daimler Chrysler's condition, revealing the company's vulnerability. If this situation persists, the company could be severely affected in the future, and it is quite likely to be outrun by lower positioned companies in terms of sales.

Another threat consists in Daimler Chrysler's decision to invest in the hydrogen fuel technology. If most recent trends regarding customers' increased preferences hybrid vehicles will continue to develop, the company's choice for hydrogen fuel might also cause some significant drops in terms of sales. If such a situation should happen, it will be extremely difficult for Daimler Chrysler to recover from such a situation. Replacing a technology with another is a long-term process, which basically means that the company will have to struggle for a medium or long period of time to recover and to change the hydrogen fuel technology with the hybrid technology.

The current situation of the automotive industry environment presents more threats than opportunities. The ascending direction taken by motor vehicles sales registered in the past few years has tempered, and signs are that this situation will continue in the next period of time.

Regarding the inflation rate, if consumer prices keep rising, such a situation will not be beneficial for any car manufacturer. The majority of customers will focus on other goods rather than cars. Therefore, motor vehicles sales might decrease over the next period of time. In order to avoid any financial problems, the company will have to decrease its production costs. In order to achieve such an objective, any car manufacturer should locate its production to cheaper destinations, like Asia.