Summary
The motor vehicle industry mainly concerns itself with manufacturing and selling of motor vehicles and all the related parts to users. Motor vehicles have gradually continued to grow in their usefulness, influencing demand from the markets as users seek to gain from the additional features and technology that manufacturers introduce in their numerous designs and models.
At present, motor vehicles come with many added features that seek to address different areas of concern, including safety, security, and efficiency. The trend, however, has been reduced costs for acquisition of such improved vehicles as the industry targets to improve profits while maintaining lean costs. However, the industry experiences numerous challenges that threaten to derail the gains that have been achieved over the years.
Motor vehicles mainly depend on oil for their running, which is a challenge for the industry because global crude oil prices have been increasing almost on a daily basis (TheCapitol.Net 183). This makes it expensive to own and run a vehicle.
The global financial crisis has further reduced the demand levels as more potential buyers and users have been electing to invest their money on other assets rather than buying vehicles. Changing customer tastes and preferences have equally been putting manufacturers on continuous strategy development and improvisation as efforts are pursued to beat competition and maintain profit levels.
This case write-up seeks to illustrate some solutions that manufacturers have adopted in addressing the problems that afflict the industry. Firstly, the paper will explore on the changes in manufacturing strategy currently being witnessed, which includes the shift towards the developing economies in as far as locating manufacturing plants is located.
Secondly, the paper will explore on the new changes in production systems that mainly aim at achieving efficiency and eliminating over dependence on oil. Lastly, the paper provides recommendations that vehicle manufacturer can adopt as a perfect way of tackling the challenges that they encounter in their activities.
Strategic Analysis
SWOT Analysis of the Industry
Strengths
The industry boasts of an expansive product line. Different manufacturers are dealing in varied brands, which enable the companies to spread their risks. Thus, poor performance affecting a particular brand may not necessarily affect an entire company (U.S. International Trade Commission xxxi).
With increased competition among the various manufactures, the industry has generally developed manufacturing competence to sustain the competition. This has increased the quality of the manufactured vehicles and, thus, acted as a surety to the buyers that the products they buy are worth the value of their money.
To further sustain the intense competition, players have improved on their research and development skills, as well as leadership. This has seen quality products being released to the market, and which match the expectations and needs of the customers accurately. The motor vehicle industry enjoys reputable brand names that have been in existence for many years.
Such brand names are interpreted to mean high skills, long-term expertise, and reliable experience, which cannot be affected easily by changing market trends and patterns. Thus, more customers continue to have trust in the companies (U.S. International Trade Commission xxxii).
Weaknesses
Fast changing customer tastes have effectively made products to be obsolete and have narrow product lines. This makes it costly for the companies as they continuously engage in strategy formulation to achieve a perfect match between the products they manufacture and the market expectations.
Costs of manufacturing have been increasing with expanded production owing to the rising cost of the raw materials. The industry relies on different raw materials for the production of motor vehicles, including aluminum, glass, and rubber. The prices of these materials have been increasing over time, thus equally increasing the cost of production for the industries that rely on such materials, like the motor vehicle manufacturing industry.
Customer goodwill has been declining for industry players who fail to maintain positive performance. GM and Chrysler, for instance, are likely to have lost some level of customer goodwill in the wake of their bankruptcies following the biting global financial crisis. This has also contributed to their struggling performance even after the economy is on its recovery path.
With the industry pursuing portfolio management as a strategy of keeping pace with the market and competition pressures, there is the danger of poor performance as a result of bad portfolio management. Companies are focusing on pursuing too many portfolios, which in turn posses the danger of losing focus and encountering losses.
Opportunities
Motor vehicle manufacturers have the potential of expanding their core businesses to include other areas, such as motorcycle or ship engine manufacturing. This could help in increasing demand especially at a time when their core business demands are low. The industry has the potential of widening the product range as research and development activities lead to new products. This helps in spreading risk over a wider selection of products.
Industry players have the potential of vertically integrating forward and backward, thus eliminating challenges and limitations of relying on suppliers and distributors. This increases efficiency and also lowers chances of experiencing unwarranted delays. The trend in the industry has been that of making acquisitions, particularly with the best performing companies buying out those facing difficulties. This helps the companies in achieving additional markets and thus increasing their chances of making huge profits.
Threats
There is growing competition, especially within the domestic market, as foreign manufacturers establish their operations in different countries. The foreign market is also experiencing high competition as manufacturers from different countries target the international market for their operations.
Consumer tastes are gradually changing over very short periods. This is forcing manufacturers to endlessly engage in strategy planning and development, which is costly and time consuming. It also leads to losses due to delayed sales that occur as a result of the market not wishing to acquire vehicles they consider outdated.
Barriers to market entry are also being lessened throughout the world as most countries enter into international market treaties. This forces them to lessen the entry protection mechanisms, thus providing foreign companies with an opportunity to exploit the markets. Changes in economic factors are affecting the industry’s demand, with the global recessions lowering market demands for motor vehicles. Such recessionary patterns push manufacturers into debts and also limit their production capacities.
Nature of Problems
Changing customer tastes
Buyers of motor vehicles often base their purchase decisions on various aspects, which make up their tastes. These purchase decisions are not permanent and keep on changing with time (U.S. Bureau of Labor Statistics 65).
Because manufacturers have to make quick sales in order to achieve their desired profits, it is important that they study the market trends carefully and design vehicles that will accurately reflect on the customer demands and wishes. This entails a lot of activity, including conducting market research and designing strategies to enable their products attract higher demands.
However, with the short-lived customer tastes, it becomes difficult for the manufacturers to fully address them. Once the companies clear their research and design the vehicles to specifications, they realize the tastes have shifted. In essence, this causes their vehicles to stay for long as finished stock in the warehouses and on the floor shops without being purchased. In other instances, the prices are forced to be lowered in order to raise demand for such products.
American motor vehicles manufacturers, mainly GM, Chrysler, and Ford, concentrated on the manufacture of sports utility vehicles, SUV, and light trucks because the local market preferred this type of vehicles. With the growth for these companies mainly relying on the sale of SUVs and light trucks, the market changed its taste and preferences as most buyers opted for the small passenger vehicles that were mainly manufactured by foreign companies.
This decision was mainly informed by the fact that the SUVs consume a lot of fuel, which is not economically viable at a time when oil prices are increasing at alarming rates. This change of market preferences and consumer tastes has in particular been responsible for the slow recovery of the American leading manufacturers, especially GM and Chrysler (U.S. Bureau of Labor Statistics 65).
Global economic patterns
Global economic patterns are highly fluctuating and are very difficult to be predicted accurately. This subjects the car manufacturing companies to highly risky business environment because any abrupt changes could affect their production and profit levels.
Economic recessions, in particular, have negative effects to the operations of car manufacturers as they diminish the buying capability of users, thereby reducing on the market demand levels. As the overall market demand declines, companies are also forced to cut down on their production capacities in order to control the likelihood of running at losses. This involves cutting down jobs, closing down on a number of manufacturing units, and borrowing funds from governments to assist in mitigating the crisis.
With production having been at normal prior to the onset of such recessionary patterns, it means the finished vehicles already released to distributors and showrooms will take longer before being purchased. The longer these products remain at the shops the more the costs also increase. Eventually, this pushes the manufacturers into losses and makes it difficult for them to recover even after the recessionary periods recede and markets demands increase to normal.
Rising cost of oil
Global prices have a huge bearing on the purchase decisions that customers make in as far as their acquisition of motor vehicles is concerned. Thus, the ever rising global prices for the commodity has posed a challenge to the motor vehicle industry, especially given that many vehicle engines rely on oil to run.
As a remedy to the challenge, industry players have constantly been engaging in research to find alternative energy sources that can be able to power their vehicles. Such research findings have determined other viable alternatives, including the manufacture of hybrid vehicles that are set to lower the overdependence on oil as the main energy source.
However, these researches are expensive for the car manufacturers as they require a lot of time and expertise. Equally challenging is the fact that vehicles running on a fuel cell require hydrogen that combines with oxygen in order to run. However, there are very few hydrogen stations, which make the alternative less viable. Liquid hydrogen can only be stored in very low temperatures, thus making this option further less attractive for the industry.
A different alternative has been developed in which lithium ion batteries that are rechargeable are used to power vehicles. This alternative, too, faces its own drawbacks as the batteries can hardly retain their charge for significant durations. With these ventures being comparatively expensive, these types of vehicles are expensive to acquire and would still discourage the buyers from purchasing them.
Rising competition
The motor vehicle industry and market has been experiencing increased competition from the varied players as the scramble for purchasers continue. In particular, most countries have reduced the entry barriers that previously locked out foreign companies from competing with their local manufacturers. In essence, more foreign companies have gained access to other national markets, including establishing manufacturing in such markets to maintain their production costs at minimum levels.
Japan’s Toyota motor manufacturing company, for instance, has gained a foothold of the American domestic market following the company’s entry into the market. This has seen the company establish several manufacturing units within the USA to make their operations easier.
The market share for the American companies, GM, Ford, and Chrysler, has particularly waned with the introduction of mainly Japanese and European manufacturing plants. Subsequently, the foreign manufacturers now enjoy a bigger market USA auto mobile market share, thus piling more challenges to the home companies.
Control Systems
Extending activities into the developing world
Vehicle manufacturers have particularly embraced the idea of extending their operations into the developing world to address some of the challenges that continue to afflict the industry. The main reasoning behind such a move is to target the huge market in such countries, including China, India, Brazil, and Russia, which have high populations.
The developing world, despite the fact that it also registered a decline in demand levels for motor vehicles during the global financial crisis, was not as worse of as the developed markets. Thus, the slight drop in demand levels has given hope to the manufacturers from the developed world that the markets can offer substantial ground for growth.
In addition, the cost of operation in the developing world is also comparatively low. The huge population makes it easy to acquire labor at very cheap rates. This translates to high efficiency for the companies as they are able to save significant costs and thus improve on their profitability.
Integrating advanced technology in manufacturing
The industry is adopting the use of advanced technology in order to address the problem of overreliance on oil for running vehicle engines. The new technologies have seen the introduction and release of hybrid type of vehicles that use alternative sources of energy. The vehicles use batteries and hydrogen as an alternative to oil and can be recharged as the vehicles run on oil.
New technologies have also seen companies achieve fast and reliable production capacities that do not delay the production cycle. This is significant for the companies because the finished vehicles take only few days between the start of manufacturing and the market release date. The technological advancements also aid the production of different product models using the same production plants and materials.
Restructuring supply functions
Most industry players are restructuring their supply departments to achieve high efficiency. Such restructure programs include spurning off the supply department such that it operates independently. This program achieves efficiency because the restructured supply organization cleanly understands the internal operations and production patterns of the main company.
Production by order
Motor vehicle manufacturers are attempting to tie their production to specific orders by the market rather that mass production of their products. This seeks to gain the automatic market demands while eliminating cases where vehicle products stay for long at the distributor and shop locations without being purchased.
External Industry Environment
Porter’s Five Forces Analysis
Buyers’ bargaining power
Buyers have a moderate bargaining power. This is because the global population, which forms the industry’s market, is huge and provides a wider alternative for the manufacturers. There are also varied manufacturers who target the same global market with their varied products (Grant 112).
Suppliers’ bargaining power
The supplier bargaining power in the motor vehicle industry is also moderate. Most of the manufacturing companies are huge and have capacity to achieve forward integration. However, suppliers of other important material parts still enjoy some level of monopoly over the manufacturers.
Barriers to market entry
The level of market entry barriers is high. The motor vehicle industry relies on high capital amounts to set up operations. Equally, the market has more trust on brand names and customer loyalty, which a new company may find difficult to acquire and build over a short term.
Rivalry and competition
There level of rivalry and competition is intense. Different manufacturers are competing with each other in order to acquire significant market shares. This has seen manufacturers establish operation units in different regions of the world in order to achieve low production costs and market customization.
Threat of substitute products
The threat of substitute products in the industry is high. Many manufacturers are increasingly relying on market tastes and preferences to manufacture their products. Thus, different products from varying manufacturers resemble each other and could easily be picked by customers as a perfect substitute for their brands (Grant 115).
Solutions and Recommendations
The industry needs to spend more in the area of research and development. Although companies are sending more in this area, additional spending should be encouraged as a way of creating competitive advantages over competitors.
As competition increases, companies can only develop their competitive edge by undertaking continuous research and development activities in order to keep up to date with the market expectations and preferences. Equally, technology is constantly changing and without maintaining pace with it, the companies may not be able to achieve the advantage of efficiency and high quality that comes with it.
Having an elaborate research and development strategy will enable manufacturing companies to work on alternatives that may address effectively the challenges of over relying on oil fuel as the main source of power for motor vehicles. It will also come in handy in addressing the challenge of changing market preferences by exploring on other viable alternatives, such as pursuing special manufacture by market order.
Production in some countries is too expensive and is not viable at all. Manufacturers, therefore, need to consider the cheap production countries in the world and relocate their production there to maintain minimal production costs. Production of motor vehicles in the USA, for example, is not viable because of the added costs that are involved. Companies need to pay high costs in maintaining their pension workers, which eventually increases the cost of production.
Companies, such as the GM, Chrysler, or Ford, may consider transferring their labor intensive processes to such developing countries as China or India, which have considerably low labor rates. Other processes that require a lot of mechanization, such as vehicle assembly can remain in the USA owing to the country’s extensive industrialization. This will reduce the production costs significantly for the companies, and enable them sell their finished products at highly competitive prices.
Companies should consider expanding their product portfolios in order to spread their risks and thus cushion themselves from such threats as bankruptcy. Even though the core business for a vehicle manufacturer involves designing and producing vehicles, relying too much on this one business can prove to be dangerous.
Apart from introducing several motor vehicle brands under one manufacturer, players can consider exploring the manufacture of other closely related products, like motorcycles, power generators, or mechanized sawing machines.
The market demand for such products is independent of each other and thus a manufacturer can be assured of a different market in case one product type struggles with poor market demands. The variety of products should be different but employ similar technology in order to make it easy for the company to enhance its performance in the other product areas.
Works Cited
Grant, Robert. Contemporary Strategy Analysis: Text Only. Hoboken, NJ: John Wiley, 2010. Print.
TheCapitol.Net, Inc. Recession, Depression, Insolvency, Bankruptcy, and Federal Bailouts. Alexandria, VA: TheCapitol.Net, 2009. Print.
U.S. Bureau of Labor Statistics. Career Guide to Industries, 2006-07. Washington, D.C.: U.S. Department of Labour, 2006. Print.
U.S. International Trade Commission. Foundry Products: Competitive Conditions in the U.S. Market, Inv. 332-460. Washington, D.C.: U.S. International Trade Commission, 2005. Print.