Automobile Market at a Glance
In any automotive company, every model of the vehicle they manufacture has an impact on both the profit margins and the popularity of the company. Hence, each department within the structure of the company plays an imperative role in the survival and success of the company. For example, according to Chris Woodyard (2009), Ford Motors showed the worst outcome rates in 2008 which made the company face “an extraordinary slowdown in all major global markets”. However, a company that manufactures SUVs is likely to get popularity among the economically affluent persons who do not mind so much on fuel consumption and have been found to generate a profit margin of up to $ 10 000 to $180 000 for Ford (White, 2000). Evidently, the people who are targeted by the SUV manufacturers are the unionized workers who enjoy relatively higher salaries and have access to funding by financial institutions. On the other hand, the department dealing with small fuel-efficient cars is capable of attracting young customers who may not have the capacity to buy an SUV and meet its running costs. These buyers are conscious of the average fuel consumption while at the same time t wanting to drive to work or school.
The Financial, Social, and Environmental Implications
The recent economic recession has witnessed the automotive industry in peril (Deloitte, 2009). This has been reflected through declining sales of SUVs in the United States. Although companies are trying to woo the consumers to buy them through discounts and other forms of incentive, they are yet to register the previous sales as a result of dented consumer confidence in the economic future. Thus the period of conscious spending has already emerged and consumers globally are in pursuit of car models that favor their pockets and at the same time enjoy maximum utility (Deloitte, 2009). This has seen Asian companies such as Toyota register tremendous sales in America and Europe when compared to Chrysler and Ford.
A recent Deloitte Consulting LLP study has revealed that automotive consumers are changing their taste from SUVs to smaller low-consumption models due to economic hardships (Deloitte, 2009). These consumers have diverted their interest to smaller cars. This interest has prompted the manufacturers to concentrate on enhancing the safety and value as imperative features in small cars. In addition, it has been found that the majority of players in America’s ‘cash for clunkers’ plans have resulted in exchanging their SUVs and small trucks for small fuel-efficient models (Simon, 2009).
Various studies show that there is an increase in car ownership among the first buyers in the developing countries, with small cars continuing to gain popularity due to the cost consciousness of the customers (“Automotive Industry Briefing & Forecast. World Outlook”, 2009).
According to Matt O’Leary (Deloitte, 2009), a large population in China has been found to shift from the use of motorcycles to small cars in search of identity and the feeling to be part of the global society. In the environmental aspect, the usage of SUVs which are referred to as fuel guzzlers has been associated with a contribution to high levels of carbon monoxide gas in the environment as compared to the small cars. This is forcing manufacturers to design low-fuel-consuming cars and hybrids in an attempt to honor environmental regulations.
Conclusion
The company’s decision to shift its production from large SUV vehicles is both timely and safe. This is because the recent recession has shaped the trends of buyers in making decisions regarding their expenditure. The unpredictability of the economic future has not discouraged the consumers to refrain from the use of cars; rather it has influenced their decision to cut costs by spending on smaller fuel-efficient cars. Hence, the company will be in a position to sell high volumes of small cars as compared to large SUVs especially in the developing countries where the middle class is rising tremendously.
References
Automotive Industry Briefing & Forecast. World Outlook. (2009) Economist Intelligence Unit. Web.
Deloitte. (2009). A new era: Accelerating towards 2020 – An automotive industry transformed. Web.
Simon, B. (2009). U.S. car buyers prefer smaller vehicles. Financial Times. Web.
White J. (2000). GM, Ford idle 1,365 workers-auto industry layoffs signal coming downturn in US economy. International Committee of the Fourth International.
Woodyard, C. (2009). With a staggering $14.6B loss, 2008 was Ford’s worst year ever. USA Today.