- Industry Profile:
Given below is the industry profile of automotive sector in America. The profile constitutes of industry’s current employment, skill sets borne by its employees, government support and its environmental impact.
2.1 Employment:
Figures of current employment in US automotive sector as of Jan 2012 are given in figure 3, Appendix A. As mentioned in Occupational Outlook Handbook of Bureau of Labor Statistics,
“Employment of automotive service technicians and mechanics is expected to increase as fast as the average through the year 2014. Between 2004-2014, demand for technicians will grow as the number of vehicles in operation increases, reflecting continued growth in the number of multi-car families. Growth in demand will be offset somewhat by slowing population growth and the continuing increase in the quality and durability of automobiles, which will require less frequent service. Additional job openings will be due to the need to replace a growing number of retiring technicians, who tend to be the most experienced workers. (para 1)
Most persons entering seeking employment in the automotive industry can expect steady work, even through downturns in the economy. While car owners may postpone maintenance and repair on their vehicles when their budgets become strained, and employers of automotive technicians may cutback hiring new workers, changes in economic conditions generally have minor effects on the automotive service and repair business. (para 2)
Opportunities in the automotive industry should be plentiful in vehicle maintenance and repair occupations, especially for employees with formal automotive service technician training.(para3)”
2.2 Government Support:
The US Government has been an unquestionable and unprecedented savior of American automotive industry, especially Detroit based companies. Providing loans to different manufacturers in the market; the acquisition of 61% share of GM Motors (retrieved from 2012, Plunkett Research, para.1) by federal government is also a glaring proof that the government itself wants to rejuvenate the industry within America and bring it to par with other competitors globally. “Cash for Clunkers”, an initiative for uplifting the industry offers up to USD 4500 (White Paper, Grant thornton, p.3, 2009) for older vehicles. This initiative is greatly welcomed by manufacturers and consumers equally as it is decreasing the number of used vehicles, paving the way for new car models being sold or mortgaged and providing consumers with enough cash in return of their old vehicles.
Approximation table of federal funding of automotive sectors is given in Appendix A in figure 4. Furthermore, as shared by Kilkenny (2010), “Department of Energy funds are helping to develop eight of the 20-or-so electric-drive models that automakers plan to introduce over the next two years. There’s a $1.6 billion loan to Nissan to build its 100-percent electric Leaf in Tennessee; a $528 million loan to Fisker Automotive to buy and reopen a General Motors plant in Delaware to build plug-in hybrids; a $465 million loan to Tesla Motors to buy and reopen a New United Motor Manufacturing Inc. plant in Fremont, Calif., to build all-electric sedans; a $16 million tax credit to THINK an electric-car startup, to set up shop in Indiana; and a $5.9 billion loan to Ford Motor Co. to re-equip factories in Illinois, Kentucky, Missouri, Michigan and Ohio to produce more fuel-efficient cars.” (para.4)
2.3 Skill Set:
Vehicles come with in-build functions as never seen before. The technology used in automotives has sophisticated to a great detail. Incumbents seeking employment with vehicle manufacturers service be it
Getting themselves acquainted with the right human resources and ensuring readiness for future challenges, some manufacturers now provide 2-year associate degree programs; where incumbents spend a considerable amount of time in the service department and take full-time classes. Updating students with modern technology trends in the industry, the American automotive industry is well-prepared for the future (para.4).
2.4 Effects of Environment:
Concerns related to carbon emission were heightened in mid-2000s and in 2007 Al-Gore in his book ‘An inconvenient Truth’ condemned the big three saying “They keep trying to sell large, inefficient gas-guzzlers even though fewer and fewer people are buying them” . In comparison to other developed countries in Europe and Asia, American standard for distance covered in one US gallon was only 25 mpg (miles per gallon). We see a sharp contrast here as Japan has a standard of 45 miles per US gallon followed by 35 miles per US gallon in China and 47 miles per US gallon in European Union. Having least concerns for environment when the state of California raised its standards the big three went to courts. An amount of USD 25 billion was provided to the big three in October 2008 to upgrade themselves and produce vehicles with a standard of at least 35 miles per US gallon.
In order to be respected as a good corporate citizen with a priority on lessening carbon emissions, these companies started their research and development efforts and emphasized on introducing fuel efficient (hybrid and electronic) cars to the market. This initiative was welcomed by both environment enthusiasts and general public; although it should be noted here that majority of the vehicles produced by all the players in this industry are still oil based.
- Industry Structure:
Considering the period 2008 – 2009 only Ford has a positive differential with a tiny of 0.6%; (White paper, Grant Thornton, p.4, 2009) while GM and Chrysler have both lost market share to other competitors; losing their chunk of market share to manufacturers from Asian continent. The industry structure of 2008 – 2009 is given in Figure 5 in Appendix A.
- Future Outlook as of 2012:
As American auto industry is going through drastic changes, therefore as per forecasting performed by CSM worldwide (White paper, Grant thornton,p.6, 2009) , The local manufacturers are anticipated to reduce combined congregation capacity in North America by more than 11.5 million units, to 7.5 million units. Capacity of other auto manufacturers will increase by 20% showing an increase of 1.5 million. Volkswagen will increase their capacity by 100% reaching 1million units approx. same will be done by BMW. Whereas combined capacity of Toyota, Hyundai, Nissan and Honda will nearly reach 1.3 million units. The American automotive industry can only reclaim its former pride by adopting the same market strategy and offer fuel efficient / environment friendly vehicles to buyers that are affordable and durable. The emphasis on muscle (powerful engines) is a failed strategy and can only be offered to niche demography in these hard economic times. There is a great possibility that established brands can save the American industry if the inevitable change is adopted by the “big three.” Current state of American industry can be analyzed by the words of John Humphrey, senior vice president and general manager for J.D. Power and Associates’ Global Automotive Division.”
“While we are still early in the recovery we are somewhat optimistic about both the future rate of growth as well as the overall health of the industry,” (Prial, Fox Business, February 03, 2012)
American Auto Industry as Porter’s Model:
As mentioned in Samuelson’s Managerial Economics; Michael Porter identified five forces that drive an industry. These forces are: (1) degree of rivalry; (2) threat of substitutes; (3) barriers to entry; (4) buyer power; and (5) supplier power. Analyzing the dynamics of automotive industry in US using this frame will help us understand its dynamics.
- Degree of Rivalry
Globally, the American automotive industry has already left its mark but strong competitors such as Toyota and Honda cannot be ignored. There are a variety of players mostly belonging to Asia and Europe, trying to capture the market share and are to a great extent successful in nearly wiping out American automotive brands from their own regions and especially third world countries.
In the American local market, rivalry is intense between American manufacturers and foreigners and total market share of the big three American manufacturers (GM, Ford and Chrysler) accumulates up to 55.5% in 2009 suffering an accumulated loss of 3.1% (White Paper, Grant Thornton, p.4, 2009 ).
What’s lost has been gained by overseas manufacturers with Hyundai gaining a 2.0% share in 2009 (White Paper, Grant Thornton, p.4, 2009).
- Threat of Substitutes
Automotive industry itself doesn’t face a fierce threat of substitutes. Where there are other modes of transportation available, majority of consumers prefer an option offering convenience, utility and independence. However different patterns of behavior can be observed dependent on difference of rural and urban culture in America. However, one must not ignore that American consumer has been observed to have a desire of owning a personal vehicle which makes this market quite fertile.
It would not be unrealistic to predict that the American manufactures can lose further market share to their competitors but a complete wipe out is not realistic as the niche of an American Car would always have a prestige for an American citizen.
- Barriers to Entry
One must not ignore the significant barriers which can be faced by new entrants in American market. For a new player, even a startup fixed cost high-priced. Furthermore the specialization of industry makes the chances of failure quite inevitable.
However, it is comparatively easy for established players such as GM, Ford, Chrysler and Honda to venture into new markets and explore them. But having in hand local knowledge gives the upcoming domestic companies an edge over other established brands who are still struggling hard on American ground.
- Buyer and Supplier Power
As far as the relationship between automotive industry and its suppliers goes; the power tilt is towards the automotive industry (buyer). The automotive industry is easily in a commanding position and is able to enforce their own set of terms on their suppliers.
Automotive industry (buyer) is in a power situation due to following reasons;
(1) Since the American automotive industry is dominated by four large companies; major share of supplies and shipment value goes to them.
(2) Automotive parts (e.g., oil / air filters, bumpers, mufflers and belts, etc.) can only be used in vehicles hence the element of supplier preference is left to a minimum.
(3) As a result of hard economic time, acquisition of supplier companies by these large automotive companies can and will occur, as seen in summer 2005 when Ford purchased struggling parts maker Visteon. A possibility of in-sourcing the supply function completely by the automotive manufacturer themselves is also not a distinct possibility.
- Analysis of American Manufacturers:
1) Daimler Chrysler
DaimlerChrysler (DCX) was a result of a merger between Benz and Chrysler Corporation
in 1998 and is the fourth largest vehicle producer in the world in terms of units sold behind GM, Ford, and Toyota. Chrysler has been substantially successful in US as it has been offering broad range of product addressing different sects of consumers. Due to its substantial size and prestigious history, Chrysler enjoys dominance over new comers. However, like every other enterprise, Chrysler is governed by its consumers, therefore during a recent hit of recession where millions of American consumers suffered; Chrysler equally felt the burn and filed for bankruptcy.
However, improving situation of American market has also resulted in increased demand of Chrysler products and has made its future more promising, comparatively.
2) General Motors
Born in 1908, General motors’ was once the highest producer and highest seller of US market. However, this huge empire has failed in combating the ever increasing competition in US as well as global market. Till 2005, GM had shown highest sales but later on it couldn’t address the issues of low costs, changing consumer behavior, highly volatile fuel prices and strong rivalry. In fact US federal government had to save this organization by owning it up to 61% (retrieved from Plunkett Research, 2012, para.1), after recession.
After the decline of sales in late-2000s, GM has been doing well in reaching out global markets and capturing a significant market share in China, Canada, Middle East and some regions in South America. In 2010, GM was the second on the list of number of units produced globally. Its brand Chevrolet has attracted the masses and has done very well in Asian Continent and third world countries. With future in sight GM has invested huge amounts in its research and development wing manufacturing environment friendly vehicles (Hybrid and all electric vehicles).
With a mere 19.7% (see Appendix A figure 5) home ground market share, an ambition of recapturing the automotive market is obvious.
3) Ford
Incorporated in 1903, Ford is the second largest vehicle producer in America and fifth largest globally. Initiated by Henry Ford and having survived the great depression, Ford had to rely on heavy borrowing to continue its operations during the economic downturn having being declined a financial assistance from congressional legislation. Like other key players of American market, Ford has been struggling with increasing production costs, labor costs and substantial decrease in sales. In fact in 2005, Ford balance sheet showed heavy losses for the first time.
The present and future outlook is encouraging with launch of fuel efficient hybrid and electric cars.
- Conclusion:
Collective review of individual companies leads us to several general conclusions about the automotive industry. A certain success formula in relation to strategy and vision is common amongst the flourishing automotive companies. The attributes of mastering the production efficiency, discrete planning of cost structures, managing size and distributed management of brands, giving attention to underserved markets, having focused strategy, brands value and products, Understanding the environment and going Greener and having a well allocated budget for research and development, can not only guide the American Automotive manufacturers but also evolve the automotive industry of the whole world.
Considering the trends shown by auto manufacturers of American industry and characteristics, the key players of this industry have a lot to do for the preparation of coming times. A distinct but yet a possibility that economic recession in America may come to an end although it could be too late for this specific American industry to gain back the market share they have steadily lost to its competitors.
In market share comparison it would be fair to say that automotive industry has yet to command the global and American market in comparison to products / brands belonging to other American industries.
Appendix A
Figure 1: Global Production of Vehicles
Reference: . . Retrieved 2011-04-07.
Figure 2 : Motor vehicle production (units) – 2010
Figure 3: Employment statistics
Reference: Bureau of Labor Statistics (2012), Automotive Industry: Employment, Earnings, and Hours
Figure 4: Automotive government funding
$ billions Purpose
IATVM Note: $8B of available $25B (32%) ATVM loan committed to three automakers (as of June 23, 2009).
Figure 5: U.S. market share by OEM
Source: JD Power and Associates, YTD through June 2009
D3 = GM, Ford and Chrysler
E3 = BMW, Daimler and VW (includes Porsche)
A4 = Toyota, Honda, Renault/Nissan and Hyundai-Kia
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Samuelson, William (2005). Managerial Economics, 6th Edition, Publisher: W. W. Norton & Company; Sixth Edition
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