The twentieth century was the period in US history when Americans discovered their passion for cars. In the words of a historian, “The development of the motor vehicle revolutionized American systems of production and patterns of consumption … in 2000 the nation had more motor vehicles than licensed drivers” (Rubenstein, 2001, p.1).
It was Henry Ford and his Ford Model T that initiated the revolution. Afterwards two other major companies created an oligopoly within the US automotive industry.
General Motors and Chrysler were the other giants in the field of car manufacturing. This trio came to be known as the Big Three. However, in the decade of the 1980s, car manufacturers from Japan began to capture a significant slice of the market and this process dismantled the oligopoly. In the present time the US auto industry can no longer be considered an oligopoly but a highly competitive industry.
In the short run this particular industry will experience stagnant growth based on two factors. First, the United States is currently in an economic slump.
Secondly, there are many players in the auto industry so that the steep competition makes it difficult for all the players to increase their profit margin. However, in the long run, some of the companies will have to merge in order to strengthen their dominance on a particular market and to slash cars they are selling.
Transaction Costs
It has been said in the past that the United States is a melting pot of cultures. The migration of people from all over the world has created multicultural communities in various cities and suburbs in America. As a result auto dealers can no longer afford to establish a business that caters only to Caucasians.
They need to make adjustments to cater to Hispanics, Asians and even those who came from the Middle East. The transaction cost also involves the need for interpreters and consultants who understand the culture of the target market.
There are two strategies that must be developed to deal with this issue. First, auto dealers must maintain a multicultural workforce. The purpose is to lessen the transaction cost in paying for interpreters.
Secondly, auto dealers must create a corporate culture wherein employees are eager to learn about the culture of other people. Thus, an employee with an Indian heritage will go out of his way to learn more about Chinese culture so that when a Chinese customer comes in, then he knows how to deal with this particular person.
In the 21st century another major transaction cost is linked to Information Technology. Automakers must develop websites that are not only user-friendly but also multi-lingual. In addition, automakers and auto dealers must invest in mobile commerce or the use of mobile devices to browse the Web and interact with merchants. Information Technology is seen as a cost-efficient way to do business.
There are two strategies that must be developed with regards to the issue of Information Technology. First, the respective companies must hire consultants to help them develop the appropriate website that can be accessible to both personal computers and mobile devices.
Secondly, the respective companies must engage their employees and clients in the development process so that the final output is a website that is highly-functional for employees and customers alike.
In the coming years a major transaction cost will be linked to research and development, specially, the technology required for cars to run on alternative sources of energy. Due to the high prices of crude oil, automakers will be forced to develop cars that run on hydrogen, solar power or biodiesel synthesized from plants which are considered a renewable energy source.
There are two strategies that must be developed to deal with the issue of renewable energy. First, automakers must invest in research and development, especially when it comes to the creation of cars that run on renewable energy.
Secondly, automakers must decide on a particular technology that will be the focus the research. Auto manufacturers must realize that although the ultimate goal is to design a car that runs on water, it is perhaps more practical to design electric cars. An electric car can be powered by electricity coming from hydrothermal, wind and solar energy.
Productivity, Performance and Innovation
In the attempt to help managers make the correct decision in relation to the changing market, it is prudent to collect information regarding productivity, performance, and innovation.
For example, it was reported that “The Big Three have shed about 600,000 U.S. jobs since 1980, while about one quarter of Americans employed in automotive manufacturing (nearly 300,000) work for foreign-owned companies – and that excludes Chrysler, which was acquired by Daimler Benz of Germany in 1998” (Cooney & Yacobucci, year, p.1). This data sheds light on the productivity issue of the auto industry.
In addition, it was also reported that General Motors, a US automaker was close to filing bankruptcy (York, 2010). Another relevant piece of information is the disclosure that since 1979, the U.S. auto industry was saddled with a crippling trade deficit.
In the beginning the deficit was pegged at $9 billion but two decades later the deficit became $100 billion (Cooney & Yacobucci, 2007, p.1). The conclusion made was that most of the cars in the US were manufactured by foreign-base producers.
There is also the information regarding the clamor for energy efficient cars to solve the problem of rising fuel costs. This information can be manipulated to solve a manager’s problem related to productivity, performance, and innovation measures. The need to downsize the workforce, as well as the re-absorption of some workers into foreign-based companies falls under the category of productivity.
This data can be interpreted to mean that certain US automakers are no longer efficient. At the same time it can be interpreted to mean that when there is increase in demand the same manufacturers may be hard pressed to fill in vacancies.
The data concerning trade deficits fall under the category of performance. This data can be interpreted to mean that customers are no longer satisfied with the performance of US-based automakers so that they are willing to buy cars manufactured by foreign-based manufacturers.
This data can also be interpreted to mean that customers view cars made by Honda and Toyota to be more cost-efficient and provide more value for their money.
The information regarding the need for energy efficient cars falls under the category of innovation. In the 21st century managers must focus on innovation because globalization made it easier for consumers to look for substitutes.
There is a global market out there and the companies that refuse to innovate will soon find themselves obsolete. It is important to convince managers that innovative strategies must become a part of the corporate culture.
Conclusion
It has been pointed out that the US auto industry is evolving. It used to be an oligopoly but with the entry of foreign-based manufacturers the industry has become competitive. Several indicators such as the number of unemployed workers, the profitability of US automakers and the clamor for innovation can support this conclusion.
A competitive market is beneficial to the consumers. In the long run companies will find a way to streamline their operations. One option is to merge with other companies. However, globalization will ensure that tough competition in the marketplace will likely continue in the foreseeable future.
References
Cooney,S.,&Yacobucci, B. (2007). U.S. automotive industry: policy overview and recent history. New York: Nova Science Publishers.
Rubenstein, J. (2001). Making and selling cars: innovation and change in the U.S. automotive industry. MD: John Hopkins University Press.
York, M. (2010). Henry Ford: manufacturing mogul. MN: ABDO Publishing.