Automotive Industry Is Shaping Into

¶ … automotive industry is shaping into one of the most controversial and dynamic industries in the current world market. The current financial troubles of Ford and General Motors, the two most dominant American automobile brands, have many experts in the field confused by the general direction that the global market will move towards. The heart of the transformation within the global industry is focused not exclusively on how automobiles work and perform, but rather how companies define themselves in the modern era of vertical and horizontal supply chains. The American reliance on Fords original "product-push" model of assembly line production has prevailed for decades, but is no longer a valid model in an era where production plants in Asia are both cheaper and more efficient. In the United States, the strategy of Ford transformed the automotive industry in the past century into three or four central manufacturers. However, the changes to the automotive industry and the way companies define themselves have shifted largely due to rising competitive forces such as the continuing surge of Japanese automobile companies. It can be accurately stated that the traditional model of the automobile company is under direct assault. The new model of automobile manufacturing is about managing relationships and creating a web of interconnected supply chains that runs efficiently to produce the best vehicles. Unlike traditional approaches to automobile conception and manufacturing, each aspect of the new automotive industry is a separate but cohesive unit within the supply chain. Some industry commentators of the modern era have even speculated at creating a "virtual" automotive company based upon the premises of Dell and Gateway. In the 21st century, the most important lesson is that information technology and the ability to rely on supply chain management has allowed small, nimble and decisive companies to outpace the titans within the automotive industry.

The strategic management of the car industry has evolved as well, because the primary focused has shifted from managing internal revenue production and consolidation of business operations and centered on the forces of globalization. The majority of companies within the industry have attempted to downsize its existing production capability to create more agile businesses that can operate on an independent level while staying true to a unique centralized corporate strategy. Another important aspect of current strategic management decisions making is how to create dramatic product differentiation. As the competition for sophisticated customers increase, the need to create unique products that enjoy popular brand recognition becomes a crucial aspect of developing a profitable company. The combination of product development and syncing with existing supply chains and the formation of new alliances is another critical step towards developing a more cohesive strategic plan. The major advantages of developing more decentralized companies are that they can act in a nimble way to respond to the constantly shifting demands of the new global industry. Simultaneously it has changed how we view the social and political implications of the global supply chain and caste off our traditional reliance on physical plants and locales within the marketplace. At the same time however, it has in part created a loss in identity with many companies, as the decentralization and push towards globalizing supply chains have caused many corporate giants to forget their product branding and unique corporate visions.

The competition within the automotive industry has intensified in the past few years because more brands and major corporations are rising from previously undeveloped nations. The rise of India and China into the world economic scene has dramatically shifted and widened the competitive landscape. Several issues have changed within the competitive environment. The critical consideration in today's competitive landscape is not production and manufacturing, but quality design and brand recognition. Supply chain management has largely made the question of "not enough production" a null factor in the competitive landscape; rather the most important question is whether brands can have an enduring customer base. The greater competition has made companies realize that they must not only place much greater emphasis on quality but also on branding. The competitive force of the Japanese automotive companies and the rising stars of Chinese and Indian automakers means that traditional powerhouses need to stop relying on their formidable brand recognition and turn to creating unique and technologically superior products. Overall the industry is in a transformative period where we will see a much greater change in the current industrial standings among automotive giants.

Macro:

macroeconomic perspective of the automotive industry entails conducting a PESTLE analysis of the competitive landscape and industry itself. The below will closely examine the factors within PESTLE analysis. From a political perspective, several frontiers have changed that influence the current automotive industry. Within the American market, former restrictions placed upon Japanese automotive companies in order to protect U.S. interests have been reduced or simply done away with. As a result, Japanese companies Toyota and Honda are set to become the largest producers and sellers of automobiles within the United States. Political protection between the U.S. And Japanese automotive giants have been an extremely complicated issue. The central policy of the U.S. government has been to attempt to restrict the inflow of Japanese automobiles until U.S. companies can gain a foothold within the Japanese market. However, the inability of U.S. corporations to capitalize on such opportunities within Japan has meant an even wider trade deficit than previous decades. With the lifting of such political restrictions, U.S. companies now have no protection against the better quality, and more efficient Japanese competitors and this has greatly decreased the sales and mobility of U.S. automakers. On a worldwide scale, greater participation within the World Trade Organization and cooperative unions such as the EU has transformed import/export policies that dramatically affect the automotive industry. The ability of many previously inaccessible markets such as China, has allowed automobile makers to change their approach to international sales. At the same time, developing nations are beginning to use their fundamental resources of limitless manpower and production efficiency to attempt an entrance of larger domestic markets such as the U.S. And Europe.

Economic factors that change the global industry have had both national and international implications. Within the United States, an economy ravaged by ever increasing gas prices as well as greater shifts within GDP growth and decline has had a profound effect on the automotive industry. Americans, who helped GM increase their SUV sales by more the 25% from 1999 to 2002, are now realizing the need to buy more gas efficient vehicles. The severe economic fluctuations of the last five years make consumers wary of spending significant money on luxury brands and SUVs. As a result, companies such as Honda and Toyota have reaped the benefits of technology investments in hybrid and electronic cars. Both companies have seen a combined sales increase of their hybrid brands by 54% in the last year. Toyota will become the official leader in automobile manufacturing in the United States by the end of this fiscal quarter. Economic trends have moved towards competition over economy class cars and focused within energy conserving and fuel efficient brands. On an international level however, the competitive landscape is much different than the United States. The general increase in developing nation's economies has meant that more countries and more consumers demand automobiles than ever before. China has increased its automobile to population percentage by nearly 24% in the past three years. Other rising nations in Eastern Europe and India have made a greater global push for international divisions of industry giants. Companies that can take advantage of the general upswing in the world economy are the ones who have nimble and decentralized infrastructures that can quickly develop organically within their host country.

Sociological factors have also been profound within this market, primarily the new focus on energy conservation and environmentalism. The prospect of global warming and the role that automobile population has played in global warming has changed both American and worldwide perspectives. A new social movement towards more environmentally friendly vehicles and transportation mechanisms has profoundly changed the corporate goals and identities. Primarily beneficiaries of the social trend are the companies that have been working on alternative energy sources such as electric power vehicles and hybrids. While other major manufacturers such as Ford has placed their bets on ethanol powered vehicles. Companies that previously relied on large trucks and SUVs for their sales have seen a rapid decline in those product lines largely because people are more focused on environmentally safe vehicles rather than the flash and glamour of larger vehicles.

Technology plays a crucial role within the developments of the industry. Japanese automakers Honda and Toyota have been developing hybrid technology and exploring other alternative fuel sources since the late 1980s, and as a result, they have created the new class of efficient hybrids that runs as well if not better than gasoline powered cars but are both environmentally friendly and extremely fuel efficient. At the same time, automotive design and new technology increases have created greater sophistication in new vehicles. Consumers at the same time are much more knowledgeable of technology factors within the industry and thus demand much more from their cars than in previous generations. Which means that automobile companies must simultaneously focus on producing efficient vehicles, but also provide all the new commodities that make the driving experience safer and more entertaining at the same time?

Finally, legal aspects of the worldwide landscape have molded the automotive industry primarily through the breakdown of barriers. The greater globalization seen in contemporary world politics means that standards across countries are becoming the same, which makes it much easier for competitors to enter foreign markets. Emission standards, gasoline standards, and general safety standards have all become much more uniform from country to country, and this helps automobile companies to manveur on the global stage. Traditional methods of import/export laws to protect domestic corporations are much a thing of the past and the inter-dependence between nations is largely why current develops still work within the established legal framework.

Marketplace:

Current strategic management of the automotive industry focuses on how to breakdown a company's core strengths to focus on specific target markets. Traditional strategic management decisions have focused on diversifying portfolios so that a company is entrenched in as many markets as possible and thus reaping revenue in every target market. However, this has changed in the current landscape, primarily because small and nimble companies that target specific segments of the industry are outclassing the giants of the industry. GM is an excellent example in this case, a corporate giant who has vehicles from high end luxury brands such as Cadillac and Buick as well as very low end economy cars such as Pontiac and Saab. Since its past strategic management decision was to diversify it has lost its brand integrity in many of these markets. Sales of Cadillac's have decreased almost 65% since 1990, largely because the brand has been associated with old-school redesigns rather than new innovations. Smaller brands within the market such as BMW, Ferrari and other high end luxury car companies have largely stolen this market share. The new era of strategic management entails that companies decentralize each division within their company into independent and largely autonomous units that can be agile within their particular market. Honda for instance, complete separates its Skyline and RSX division from its Accord brands in order to allow them to market, produce and develop their own innovations to stay competitive with top tier specialty companies.

Branding within this market is extremely difficult, because product differentiation becomes harder and harder with the number of new offerings in the market today. However, brand recognition and association has become the number one indicator of consumer purchases, outpacing quality and cost significantly. Today automobile companies brand themselves through a two tier system of both general corporate recognition and specific car recognition. The general branding of a company such as Toyota is a focus in innovation and efficiency, with a reputation for providing reliable long-term usage cars. Within this corporate branding however, there is a sub-layer of specific car branding such as the new Yaris chain, which has branded itself as fun and sporty cars that are both cheap, energy efficient and fun. The diversified approach to branding is a general practice within the industry; however it has often backfired on many companies. The association of luxury brands within Korean manufacturer Hondai, and its branding as a generally breakdown prone vehicles have caused their luxury brands to falter. The need to delicately balance the corporate brand and specific car brands is one of the strategic challenges of the new era.

In general an analysis of the marketplace shows that it is becoming more and more overcrowded with many different product lines and companies vying for an established client base. However on a global level the shift from emphasizing developed nations to developing nations has made the possibility towards increasing market share a reality for many struggling companies. The greatest challenge of the current marketplace is how to balance branding within established markets and create new branding techniques within developing markets.

Specific Companies analysis: General Motors and Toyota

The goal of all corporations is to understand its unique place within the Value system and its specific place within the value chain. In the case of GM, the automobile giant has gained dominance within the value chain system by taking on all aspects of design, production, and sales. The value chain within GM focuses on a central approach towards developing a cohesive and formidable value system. GM's chief strategy within the past five years has been consolidation. Its need is to focus on how to decrease inefficiency within their value system by looking at each value chain and create an easy and efficient supply chain management system. Their primary problem however is the inflexibility of each value chain component. All of their design phase components are centralized in three locations in the United States, manufacturing and executive offices are still primarily focused in the U.S., and each brand does not have its own executives, but are all part of a cohesive corporate strategy. As a result, value chains cannot operate efficiently because they are bogged down by the delay in central decision making. As a result the entire value system's effectiveness is eroded because response time is extremely slow. The value system of GM in fact is its greatest weakness, while other companies are becoming more flexible GM is attempting to consolidate and become more centralized in order to eliminate waste and inefficiency. Although this is a short-term solution in the long-term, they erode the ability of each value chain to manveur independently of each other.

In contrast, Toyota has taken a different approach to their value chain and general value system. They wanted to create a global value system where each individual value chain component are flexible enough to innovation and reflexively and adapt to their circumstances. They have in effect decentralized and focused on the specific value chains that are their core competencies. Development of technology for Toyota occurs all over the world, with laboratories and testing facilities on every single continent. They have diversified their value system to be spread across the entire breath of the world, but at the same time everyone maintains a unified vision of the overall corporate strategy of creating efficient, cheap and attractive vehicles. As a result, Toyota is much better positioned in the current market to accept the changes of the global industry than GM.

From a core competency perspective, GM's primary competency is in the sophisticated offerings of its heavy duty, truck, and SUV divisions. When the economy was thriving these three segments were outpacing other sectors significantly and thus GM sales were extremely profitable. However, recent draughts and a focus on economy and energy conservation segments have dried up GM's productivity. However, GM's core capacity and branding within the United States means that it can still command a significant market share. Therefore their current focus should be to maintain its brand and increase innovation and focus within the current sectors that are popular. Another important capability is their bet on ethanol fuel, which they believe is a better alternative fuel source than hybrid technology. If they can focus on this technological development use it to leverage the current market they have a chance of changing their current woes.

For Toyota, their core competency has always centered on creating relatively cheap, efficient and well engineered cars. This continues to be their primary focus, as seen in the release of the Prius and Yaris lines. Their current focus on hybrid technology as the bet for next generation energy source has turned into the right bet and since they as well as Honda have placed an investment of 10 years into this current technology they should continue to focus in on this factor in the years to come. Developing even better operating hybrid vehicles and injecting them into more luxury brands such as the Camry, Avalon and luxury brands will be one of the challenges and most profitable future prospects for Toyota.

Projections and Future emphasis:

In the short-term (next three years), GM's prospects for profitability are slim. They need to take several steps towards the right direction through a variety of factors. First they must decrease their reliance on local production and manufacturing supply chains, by outsourcing and off shoring their production plants to arenas where labor is cheaper and quality is increased. This is a step that GM has long attempted to avoid but as competition continues to take this path they need to do the same. Second, they need to make their corporate framework much more flexible by creating a better managed infrastructure. That means allowing greater independence for individual aspects within its values system such as design, manufacturing and sales. Third, it needs to realize the need to tap into the international market rather than attempting to maintain its place within the domestic market. Developing markets in Africa, Europe and Asia are ripe for profitability and although investing in both the personnel as well as the infrastructure to truly create market specific cars and sales techniques will take time and many resources, it is ultimately necessary. In the next three years, GM needs to continue to cut needless production facilities throughout the United States and move those operations overseas. It also needs to focus on their alternative fuel technology and place greater emphasis on economy lines. Allowing each product line to differentiate itself on the market and establish an active presence rather than relying on complete control. In the next five years it must focus on developing the infrastructure to launch a much more cohesive and focused penetration into developing markets and to establish themselves into a truly transnational corporation.