Assignment 1: A Case Study On The Global Auto Industry

One of the many reasons why Japanese cars are better than American cars is because of their reliability. According

The bargaining power of suppliers is low because of the presence of powerful buyers who are able to direct terms to the suppliers who are generally small firms. Besides these suppliers of tires, parts, electronic, mechanical equipment are small players and may have only one or two clients (ancillaries).

Looking into the competitive threat more closely, the auto industry in the United States is rather sensitive to price, with a price elasticity of 2, or a 5% increase in price contributing to a subsequent 10% fall in demand. Thus, based upon the sticker price decreases potentially implemented by Japanese automakers, Japanese companies’ combined market share (roughly 4.1m units in 2000) stands to increase substantially, and could eat into General Motors’ overall market share. To highlight the sensitivity to the USD-JPY spot exchange rate, GM’s VP of Finance, Eric Feldstein, suggests that just a one-yen depreciation increases competitors’ operating profit by $400m. With $900m in net yen receivables, $500m in outstanding yen-denominated bonds, and more

Bargaining power of supplier: High levels of competition among suppliers act to reduce prices to producers. This is a positive for Ford Motor Company. Standardization of parts allowed Ford to reduce dependency on fixed supplier/vendor which goes into producer’s favor.

Over the past decade foreign car makers have outsold American car makes at an enormous rate. Heading this field of foreign makers is the Toyota car of japan and more specifically their most popular selling car the Camry.

Several factors have affected how the American auto industry now positions itself on the world market, and big changes have been made to reflect this new direction. The introduction of new technologies in vehicles, the growing market for cars in new developing markets, the impact of the industry on the environment, legislative responses and demands, as well as the increased expectations from consumers, are some of the factors. More international cars are being designed, manufactured and bought by American consumers and exported to foreign markets today than those exclusively manufactured by American companies, redefining the American auto industry, while having a positive impact on its economy. International brands accounted for 45% of total sales in the U.S. in 2013 and have now risen to 59% of the market, and continue to grow. While the amount of American cars has decreased in the local U.S. market share to international ones, the increase of foreign car production on U.S. soil has had the effect of creating new jobs for Americans both in the auto industry as well as in related new industries. The industry has seen huge growth numbers in the last few years with more growth expected.

While car manufacturing is a global industry, automotive companies such as JLR operate in broader regions such as Europe and Asia. Three major trends were identified affecting car production in mature markets, the first was the fragmentation of mature markets, customers were demanding more choice, and this has made it difficult for manufacturers to obtain economies of scale, so cost had to be reduced and with the general

Ford’s F-Series experienced a 46% drop in sales for 2006 compared to 2007, making a once most wanted truck in the United States almost abandoned by the consumers. The second and the current recession that began in 2007 brought a new wave of impact on the auto industry. At the time banks were more flexible with approving loans and the interest rates were low which attracted a lot of consumers into the housing market. Since many of them were not able to afford it, eventually they turned to foreclosure leaving them with debt and no credit worthiness; thus, banks started raising the interest rates on auto loans. But foreign competition, higher oil prices, and higher interest rates were not enough to destabilize the auto industry on such a scale; it was the recession that shocked it the most.

The automotive industry designs, develops, manufactures, markets and sells motor vehicles, and is one of the world’s most important economic divisions by profits. This analysis focuses on the industry, specifically, manufacturers of automobiles. There are five competitors in the StratSim environment: Firm A, B, C, D, and E. Industry sales in the most recent year were 4.3 million units, with expected growth in the next year. Within this industry, there are seven-vehicle classes: Economy, Family, Luxury, Sports, Minivan, Truck, and Utility. There are two new classes with potential – if properly marketed.

The automotive industry as one of the world 's most vital economic sectors by revenue covers a wide range of businesses involved in the design, development, marketing, production, and selling of motor vehicles. A large proportion of this industry is focused on agriculture, especially farm machinery. Although quite often people consider farming as an old fashioned, hardworking profession, owing to the technologically advanced practices farmers invest much less effort and produce much more in the 21st Century (Wang, 2010).

Ever since the 2008 recession US automobile companies have been on a steady downhill slide, but actually you can trace this downward trend even further back than 2008. US car companies have been feeling the heat since as early as the late 1980s when Japanese car companies laid claim to American manufacturing plants . Despite a shot in the arm in sales over the past five years, American firms are still on the decline. This case analysis aims to diagnosis the problem, provide analysis of the problem, and propose a viable solution to the problem from the perspective of the US automobile market share leader, General Motors.

The automobile industry in the United States is staying competitive. The United States automobile market has done its best to compete with their foreign competitors. However, the foreign automobiles are loved by the US people. On the streets, many foreign automobiles are out there and many people enjoy these foreign vehicles. I personally love Toyota and have owned more foreign vehicles in my life time than I have owned US vehicles. According to the article, “More Americans Buy Foreign Cars”, General Motors stays competitive by offering incentives and competing with foreign automobile incentive. However, despite GM offering incentives, their GM sales were down. Chrysler has also remained competitive by offering zero-percent financing

Just like the other industries such as apparel, electronics, and consumer goods, the automobile industry has accelerated its foreign direct investment, cross border trade and global production. The automobile industry has increased outsourcing and bundled value chain activities in major supplier chains. As a result, more developed countries that serve as suppliers have increased their involvement in trade and FDI. With these increased supplier capabilities, large national suppliers have become global suppliers and are now controlling multinational operations. This is because of their increased capability of providing good and services to various lead firms all over the world. The automotive industry has a distinct firm structure. This

The average general supply and average population of supplier’s gives suppliers’ substantial but finite bargaining power on companies like Ford. Plus, many of the suppliers have low forward vertical integration, meaning that they have no stake or controlling power on the dispersion and selling of their products to Ford. The suppliers bargaining ability becomes even weaker due to Fords backward vertical integration by the Ford River Rough Complex. Through the Complex, Ford makes several materials it uses to make cars and colligated completed products. This suggests that Ford needs to understand the substantial but finite outside factors connected with its supplier’s effect on the company.

As it relates to the competitive structure, or the number and size distribution of companies within an industry, the automobile industry is considered a consolidated industry, where a small number of large companies dominate and are able to set prices. Traditionally, in America, these companies were called “The Big Three,” Chrysler, Ford, and GM, but Toyota, was also a major rival during the recession. “In consolidated industries, companies are interdependent, because one company’s competitive actions or moves (with regard to price, quality, and so on) directly affect the market share of its rivals, and thus their profitability” (Hill & Jones, 2012, p. 62). The relative power of consolidation on the automobile industry was high.