Auto manufacturers are among the most far-reaching companies because the majority are large multinational corporations. Therefore, this industry is more impacted by major forces than most others. Elements such as politics, technology, society, and the global economy are complex when an organization is working in a single location. However, these forces are magnified when various forms of these elements have to be taken into account. It is also difficult to determine what is the largest factor affecting a company. This paper looks at all of the forces affecting a large, multinational automobile manufacturer, and attempts to conclude whether the global economy is the greatest factor affecting success at a company such as Jaguar Land Rover (JLR), or if there is some other factor that plays a more significant role.
Whether company managers like it or not, politics plays a very large role in how a business is run. The unfortunate part of this, from a business standpoint, is that politics are rarely stable (because they are also affected by many different factors), and each business must adjust to this change. For example, one administration may be very environmentally friendly and enact legislation that drastically changes the amount of greenhouse gasses that individual cars can emit. When the administration changes, the new leaders may be more focused on taxation. In this example are the two largest factors that an automotive company must concern itself with when faced with different governments; how the administration deals with regulation and taxation. Coupled with this is the stability of the government in question.
Most governments are not limited to a single executive brain (such as a strong dictatorship), but have many branches that can submit regulations that will affect the automotive industry. Environmental agencies are concerned with sustainable products which include how much fossil fuel a car needs to operate to the formulation of steel or composites that make up the body and components of a car. Governmental safety agencies are always determined that auto manufacturers reduce the possibility that vehicles will crash and that fatalities will occur. Other agencies propose different regulations to the legislative body, and these can have a major impact on the profitability of a company. In this calculation is also the fact that cars which are found to be unsafe can be recalled which can cost a company many millions of dollars (AFP, 2010).
The second affect, taxation, will usually be relatively minor. However, this changes greatly depending on the countries in which the company operates. Some countries, and administrations are very business friendly and provide large tax breaks as long as citizens are employed. Other countries impose taxes on every aspect of the company's business operations, and create a hostile business environment. For example, in Japan the automotive industry is worried that the burden of taxation (which includes an "acquisition tax and a consumption tax…motor vehicle tonnage tax and the automobile tax" (Nikkei, 2011)), will cripple the industry. They have joined forces with other industries to urge the government to decrease the amount the automotive industry and consumers are forced to pay.
In the automotive industry, technology and technology change is a factor that is constantly affecting how a company does business. Technology allows a car company to produce new products that the public will want, but, if an automotive company lags behind the rest of its industry, then this factor can cause substantial losses. The changes occur over a wide range of elements within a vehicle also. Presently most companies are attempting to quickly develop cars that use sustainable fuels or at least use a mixture of fuel types. Safety concerns will often change how a car is designed and what features it must contain to remain competitive. Another issue is that over time consumers want automobiles that mirror the times. Therefore, designers have to change the look of a vehicle to be more aesthetically pleasing. All of these changes require a research and development team that is constantly trying to be at the forefront of emerging technologies. Now this means integrating new electronic components so that drivers can take advantage of all of the newest computer and audio-visual technologies. These changes can cost the company a lot of money. If the company does not guess right as to what changes will be accepted by the fickle buying public, it can be a financial disaster.
All of the various factors affecting the automotive industry blend together, but everything is driven, one way or another, by what the consumer wants. This is true especially when a company operates in many different international locations because then different cultures must be understood. The major automotive companies will often have different lines of vehicles that they operate in different areas of the world because of the different needs of their customers.
This social factor can be divides into three different areas: behavior, tastes and lifestyle. Behavior refers to the overall buying psychology of the public. In recent years, buying behavior has been greatly influenced by environmental concerns. Automotive companies have attempted to make sure that they have products available that will appeal to a new class of consumers who want to have as little impact on the environment as possible. Behavior then is a mixture of many factors that must all be weighed by the auto industry to determine their relative importance. Taste is concerned with how people view a car, and what they want for their personal vehicle. Consumer lifestyle influences the automotive industry because that has to do with what type of car the consumer will buy. Some people are able to purchase a luxury vehicle, others need to buy a truck for personal or professional reasons, and other consumers will buy an economy car for economic or personal reasons. The varying tastes and lifestyles that makeup a particular car buying nation also dictates how a car company will conduct basis in different international locales.
Another social factor that has become prominent in recent years is social media. Customers are able to connect with other people in an unprecedented way. A recent report written by Razorfish publications reveals how the conversation about the automotive industry had changed. The company found that "the auto industry has a far greater presence in conversations online than any other industry" (Razorfish, 2009, 32). This means that people are more concerned with what they drive and how that makes them look than with any other product.
Ford Motor Company is one of the largest automobile manufacturers in the world, and with a recent 10K filing they listed the greatest economic factors that affect the industry. The filing stated that among other factors pricing pressures from other manufacturers, consumer spending trends, commodity price increases, and currency exchange rate volatility were the greatest factors (Ford, 2005, 32-33). The automotive industry is truly a global concern in today's world. Because of that, what other manufacturers are able to do with pricing greatly affects the profit margin that a company will see with its own vehicles. How consumers behave definitely affects how a company can operate. If a certain model that the company spent millions of dollars producing is rejected, that action could set the company back for years. Commodities like steel, oil and glass are needed in the construction of the composites that make up a car. Also, finished commodities that auto makers outsource will have a great effect on an automotive manufacturer. The global nature of the industry also means that the company also has to concern itself with fluctuations that occur in currency markets. If a currency's value increases significantly over that of what the parent company uses, then a car company could see its profits evaporate. All of these trends are important, but there has been one that far outweighs any others in the past three years.
The global economy has been in a slight to moderate recession in most areas of the world, and in some places a serious recession has developed. In the United States, two of the world's largest automakers (General Motors and Chrysler) had to be propped up with government funds so that they would not have to declare bankruptcy (Tucker, 2009). Other auto manufacturers around the globe were in serious trouble because of the financial crisis also to varying degrees. Anytime a global economic event such as this makes consumers more conservative, it affects large purchases such a vehicles to a greater extent.
The primary thrust of this paper has been to show what factors effect large auto manufacturers, but this was done so that a single manufacturer, JLR, could be examined. In light of the factors that can be said to have a major impact in auto manufacturers, it is the economy which has the most to do with whether an automotive company can continue to operate or not. The above evidence…