The Auto Industry In The United States
In 2008, the world faced a financial epidemic. Jobs were disappearing, bank accounts shrinking and the typical American family was more than careful with their dollars. This made it especially difficult for the US auto industry as loans were being denied, production slowed down, consumers were using alternate methods of transportation as gas prices sky rotted, and those still shopping for cars turned to foreign competitors for cars that could align with their monthly budgets. Consumers turning their backs to the American auto industry not only affected dealerships and production lines, but the manufacturers of each piece and part and machines used in the production line. The ripple effect of the economic downturn in one of the United States major tent pole industries is vast and will be dissected.
U.S. Auto Industry
“Although the automobile originated in Europe in the late 19th century, the United States completely dominated the world industry for the first half of the 20th century through the invention of mass production techniques. In the second half of the century the situation altered sharply as western European countries and Japan became major producers and exporters.” Binder and Rae continue to explain that the Germans and the French pioneered the development of the gasoline engine in the 1860s and 70s, and was later joined by the British, Italians and the Americans. Most of the shops that produced automobiles were small and went out of business rather quickly. The ones that lasted sold bicycles and horse-drawn vehicles to accompany their handmade vehicles.
American company Buick, produced plumbing fixtures including bathtubs! Ford’s combination of their engineering and business skill, along with British rival Rolls-Royce, created the format and blueprint for the current car industry. Ford had each item used to build a car, designed and produced by multiple companies that allowed factory workers to simply assemble the car on the assembly line, together instead of carrying the burden of creating an actual vehicle from scratch. This worked perfectly in synch with Ford’s intention to market the vehicle to build the value of the brand. When Ford’s Model-T was mass produced in 1908, it sold over 15 million vehicles before being discontinued in 1927. Ford’s success ushered in the era of mass production with turned those tiny handmade automobile shops that could barely keep their doors open to major businesses. This piloted in the rise of General Motors and the Chrysler Corporation.
Auto evolution allows the auto industry to be spread out into multiple facets. The first are the suppliers, American’s top OEM (original equipment manufacturer) is Johnson Controls Inc., and Germany’s Robert Bosch Gmbh is the worldwide leader. Car repair and maintenance, auto insurance is also a part of the realm, the regulation boards such as the department of motor vehicles, the rubber industry, specialty vehicle events and auto marketing. As of January 2018, the US claims its place as the second largest market for automobile production and sales. Since Honda opened its first U.S. plant in 1982, almost every major European, Japanese, and Korean automaker has produced vehicles and invested more than $75 billion in the United States, directly supporting 130,000 American jobs. Additionally, many automakers have U.S.-based engine and transmission plants, and conduct research and development (R&D), design, and testing in the United States. (2018) To compare, in 2005, USA was #1 in vehicle production, producing 4,321,272 cars and 7,625,381 commercial vehicles with a total of 11,946,653 vehicles. Japan was #2 with a total of 10,799,659 vehicles, followed by Germany and China with 5,757,710 and 5,717,619 respectively. In 2008, Japan took the first place position with 11,575,644 total vehicles produced followed by China with 9,299,180 total and USA at #3 with 8,672,141. In 2009, the US, still at #3 dropped to producing 5,209,857 vehicles and China emerging to the top with a massive 13,790,994 vehicles, over 10 million of them being cars. As an extended example, in 2010, China produced an incredible 18,264,761 vehicles in comparison to the US’s 7,743,093. (2005,2008,2009,2010) 2009 was still the year of Ford as 413,625 Ford F-Series were sold, followed by 356,824 Toyota Camry’s and then 316,544 Chevrolet Silverados.
These companies have dominated the auto industry in recent years and in previous decades. Global plants have been manufactured for the most cost effective and speed accurate to supply the enormous international demand the consumers have placed before the producers. Motortrend reports that in 2009, General Motors have 19.7% of the market share, followed by Ford at 15.3%, Toyota at 17%, Chrysler at 8.8% and Honda at 11.1%.
Today, Ford is the US’s leading automaker with 17.6% of the market share, followed by Toyota with 17.3% and then Chrysler with 15.4%. Though there are quite a few types of brands in the auto industry, they are often owned by a conglomerate or parent company. This makes the auto industry oligopolistic. As we realized with the market share percentages from above, it is comprised of very few leaders and major organizations that hold a majority of the market share and it requires incredible resources and capital to join the marketplace. The future of the auto industry will be based on the advancement of technology, so long as the American economy continues to prosper from the economic downfall. Marek Reichman, the CCO of Aston Martin predicts that the auto industry will turn their sights to autonomy as a reliable economic resource for metropolitan residents.
In 2008, a strong focus on gas saving vehicles as the demand to save money was strong amongst consumers in need. Bob Lutz, General Motor’s chairman says that there is no future in the auto industry and that autonomous vehicles will take over the world. “Within five years, he expects, people will start selling their cars for scrap or trade them in for autonomous passenger modules as self-driving cars take over transportation. Within 20 years, human-driven vehicles will be legislated off highways. Companies like Lyft, Uber, Google, and other technology companies will take charge of an industry now centered in Detroit, Germany, and Japan.”
For now, the US produced 17,241,707 vehicles, a strong recuperation from the devastating economic downfall years.Porter’s Five ForcesPorter’s Five Forces is a model that looks into the five competitive points that allow business owners the opportunity to create a strategy to build a well performing business within their marketplace. These five points are the dynamic of each and every business and how they will emerge successful amongst their competitors. These points are: The supplier’s power in terms of bargaining (the firms that create the pieces needed to build the product), competitive analysis, (what competitors are doing will directly affect what each business does), threat of new competitors, the bargaining power of the consumers, and the effect of new substitute products that may catch the eye of the consumer for various reasons.
Supplier’s Power
Oligopolistic industries hold power because there are few options for consumers to reach out to once they are no longer satisfied with the producer of the product. This gives the producers so much power as the consumer can’t go anywhere for options. This is not the case for auto parts suppliers. Suppliers have relatively no power at all since there are way more suppliers than there are auto firms. Many suppliers rely on the contracts that they have with one major firm to stay in business. Should the major firm decide that they no longer want to renew or maintain the contract with the suppliers, this could devastate the suppliers. This gives the major firms the power to stay with the supplier or make the executive choice to go elsewhere. This seesaw of power on the buyer’s end, the major firms, allows prices to be bullied to what makes the most sense for the buyers. This tactic could mean sever slashes on pay and profit on the end of the suppliers as the major companies producing the vehicles turn a major profit by saving dollars from these bulk purchases.
Power of Buyers
The power of the buyer can be fluctuating depending on how you see it. Buyers are typically purchasing one vehicle at a time. In a scenario where a buyer has a less than spectacular experience at their local Ford dealership and decide to go to the Ford dealership in the next city over, they are still purchasing a Ford vehicle which in turn ends up as profit for Ford the parent company. However, if the consumer could not secure the price in which they desire form Ford and they walk across the street to the Hyundai dealership and purchase an Elantra, this gives the buyer a certain amount of power over the dealership. Unfortunately the power isn’t excessively strong since the auto industry isn’t necessarily riddled with options as one of the primary options will be a Ford, a General Motors vehicle or a Chrysler, followed by the foreign options in Toyota, Honda and Nissan. Because the options are limited, as we are excluding luxury vehicles, the power is neither great and mighty nor miniscule and small. The buyer’s power is essentially somewhere in the middle as they can dictate price changes, but only so much.
New Entrants in the Marketplace
The auto industry is of course lucrative, but it only so because of both extremely high demand and difficulty of entry for new business owners. Production lines and facilities require extreme starting capital, and man power, along with relationships with suppliers that can fulfill orders. On the other hand, order must be coming in so building a brand from the ground up costs an astronomical amount in marketing dollars and the list continues. This is why mergers and acquisitions in the automotive industry are far more popular than new entries. This doesn’t mean that new entries do not exist. In crisis year, 2008, Ford let go of its luxury brands Jaguar and Land Rover to Tata Motors for a desperate $2.8 billion. In addition to that, as further crisis management, Chrysler, one of the US’s big three auto brands was taken over by Italian holding company: Fiat. As it proves that companies would rather engulf other companies rather than start from scratch. This hasn’t stopped major brands such as Tesla to make an appearance on the marketplace, though the Tesla is not marketed for or aiming to please the family shopper of the conservative shopper either as its luxurious futuristic theme is aiming for the those with a few more dollars to invest into a vehicle. Thought Toyota dominates 14.2% of the market share as of 2017, General Motors and Ford continue to remain at the top as they have cemented their places in the auto industry since the early 1900s.
New entries do make attempts but the possibilities of a new car company excelling in this immovable marketplace are not impossible as Hyundai/Kia are emerging and excelling in the US, however, they were founded in 1947 and have steadily worked towards success over many years. A brand new brand with quick found success doesn’t seem to be a part of the auto marketplace.
Competitive Analysis
In an oligopolistic marketplace, each firm strives off of competition. How one brand can provide something new and also necessary for their consumers. For example, in 2008, buyers were throwing away their gas guzzlers and opting out for the 4 cylinder vehicles that got them to and from work. Manufactures capitalized on this in order to provide the people with what they demanded. Once one company does something, to make sure the funds spill into every firm’s cup, all the companies are in need of providing the same or better. This means that the competition of the marketplace is extraordinarily high. As technology advances so quickly, ideas will be depleted and the manufactures will be forced to return to the people to understand their demand. Since the acceleration of the US economy, people want safety features, high tech and sleek vehicles that can represent where consumers are at financially now that pockets are not being pinched so tightly.
Manufactures are forced to deliver. As noticed above, more people are buying cars meaning there is now a traffic issue. The thought of autonomous cars is now a reality more than a thought. Without a doubt, when Ford, Chrysler or GMC decides to release their autonomous vehicle, the rest will simply be forced to fall in line.
Substitutes
Metropolis residents may be the only consumers who may be in the realm of substituting their vehicles with the train or bus, however, this limits people as they are now working on the schedule of the train or bus. The threat of substitutes is rather low at the moment as companies such as Uber and Lyft rise for those who do not own, and those who live in rural cities or towns owe their travels to the next town or city to their vehicles. Vehicles have been a travel necessity since they were brought to the marketplace. Buying a car has been a rite of passage for many Americans, brings a certain level of pride and maturity to specific age groups or people in impoverished situations and until vehicles are completely autonomous like trains on a track, or flying cars, a substitute threat is a very, very weak one.
