Automotive Industry Assessing the Social,

Automotive Industry

Assessing the Social, Political and Economic Factors

Impacting the Auto Industry

auto industry today is going through a disruptive, turbulent transition away from build-to-inventory manufacturing practices to more demand-driven and build-to-order manufacturing and selling strategies. This transition is being driven by economic factors including consumers not replacing their autos as much as in the past, and being much more focused on the environmental impact and carbon footprint of their cars. The political factors of dependence on foreign oil which is seen by many as a threat to national security and the high dependence the U.S. has on many nations they don't have diplomatic ties with including Venezuela are all combining to change the structure of this industry (Gaylord, 2010). These broader, more global trends are having a direct impact on how manufacturers globally are competing today as well. The most significantly impacted area of their operations are their supply chains as noted by Dr. Bilek (2010) in his studies of supply chain performance in the auto industry. Time-to-market and the ability to move from concept to prototype and on to product launch are compressed, with knowledge transfer and supplier coordination more critical than ever. The need for better management of the knowledge transfer process within the supplier base of manufacturers has never been greater, as is the need for more efficient tacit knowledge transfer between suppliers and manufacturers as was found by Dyer and Nobeoka in their studies of the Toyota Production System (2000). All of these trends are making the auto industry go through a very disruptive time in 2010.

Auto Industry Trend Analysis

The most important trends affecting the auto industry in rank order of importance are presented in this section of the report. They are organized into the areas of economic, social and political trends, with a discussion of how each is affecting the industry. Opportunity and threat analysis follows in the next section of this report. Starting with the economic trends, consumer sentiment and confidence in the economy is the most dominant. As a result of the continued recession and perceptually low consumer confidence over the last two years of the downturn, many consumers are delaying purchasing a new car, often opting to fix their older, often paid-for ones . While auto manufacturers diligently work to attract new customers through aggressive price discounting and extensive branding campaigns both on -- and offline, new sales continued to be below pre-recession levels (Herrmann, Henneberg, Landwehr, 2010). A second critical economic factor is the cost of steel and the stabilization of the supplier base, which had been quickly consolidating due to slower sales of new cars. A third economic factor is increasing the speed and time-to-market of new car designs. The industry had been lulled into updating models on a 36 to 72-month cycle, which led to consumers who wanted sportier designs migrating to Audi, BMW, Mercedes and other brands with industry-leading designs. Today there is much greater focus on creating highly customized, build-to-order cars, which is the strategy BMW, Ford, Lexus and other auto manufacturers are increasingly relying on to gain new sales (Bilek, 2010). This is in turn forcing a much greater level of supply chain synchronization throughout the industry, making tacit knowledge transfer critically important to the success of product lines (Dyer, Hatch, 2004). Studies of the Toyota Production System (TPS) and its practices of knowledge sharing have become best practices in enabling tacit knowledge sharing throughout organizations. With the growth of social networks, tacit knowledge sharing through supply chains has become even more pervasive, a point made by Bernoff and Li in their studies of social networking (2008).

The social factors trends affecting the auto industry include a much greater concern over carbon emissions and the environmental impacts of gas-burning engines, much greater concern and interest in how the auto company is managing its Corporate Social Responsibility (CSR) initiatives including transparency over its supply chains (Oh, Rhee, 2010). Within the industry there is more focus on how to increase the speed of product development and ensure more effective product introductions using open innovation including more efficient green or eco-friendly cars. The influence of social networks on open innovation, including the collaborative platforms used for new product development that borrow concepts from Facebook, are increasingly commonplace (Bernoff, Li, 2008).

The political factors include the dependence on foreign oil that cars represent in the minds of many consumers, including the very volatile issue of gasoline prices. These political factors have as their catalyst the lack of consumer confidence many have in their governments to effectively turn economies around. While the political climate is not nearly as turbulent and disruptive as the auto industry, the fact remains that this industry that thrives on disposable income and the availability of easy credit, both of which are constrained by current economic conditions.

Opportunity and Threat Analysis

The greatest opportunity for the industry today is in creating more energy-efficient, highly customizable cars that also meet the needs of car buyers who want eco-friendly engines that have very small carbon footprints (Oliver, Lee, 2010). The broader trend of mass customization, where consumers are dictating their own brands or personas by their purchases, has invaded auto marketing and car buying. To make this selling strategy effective however, the supply chains of auto manufacturers must be synchronized to build-to-order requirements. The entire value chain of the industry is going through a shift due to this requirement today.

The greatest threat to the industry is consumer confidence coupled with too much dependence on foreign oil by westernized nations. The lack of consumer confidence is hurting sales today and has begun to change long-term behavior with regard to auto purchases. The threat of oil prices however is a much longer-term threat that is estimated to reach its apex in another 70 -- 80 years. Forward-thinking auto companies are using these facts as a catalyst for innovation and the creation of entirely new vehicle and engine designs. The threats of gasoline prices over the long-term are real, and it is very fortuitous for the industry that consumers are now more focused on the environment than on driving a huge vehicle that guzzles gas for the sake of status.