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Automobile Industry

Automobile Industry

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Automobile Industry

Question 1

The selected company for evaluation in this study is Ford Motors Company. It is located in Dearborn, in Wayne County (Ford Motor Co, 2017). It is a leader in the automotive industry that has global influence given its operations in the Asia Pacific, North America, Europe and South Africa, as well as Africa and the Middle East.

Question 2

The company’s technical name is Ford International Capital Corp. the business type it engages is manufacturing (Ford Motor Co, 2017). The primary SIC code is 3711 involving motor vehicles and passenger car bodies manufacturing. The primary NAICS Code is 336111 categorized by automobile manufacturing.

Question 3

In providing its services and products to its esteemed client, Ford prioritizes customer satisfaction and product quality, which are fundamental aspects in facilitating the continued proliferation of the company (Wells, 2015, p. 210). The products availed have been described as high quality that ensures the customers ‘experiences are exceptional hence bettering their lives. With a culture founded on continuity in improvement and collaboration, the company has been able to achieve a broad customer base as it assures delivery of amazing experiences while maintaining quality. By developing a keen interest in the clientele, Ford is empowered to avail right products to meet the varying needs.

Dependency on International Customers

The company relies heavily on its international customers as it has expanded its operations in different localities in the world. In assuring a highly successful future growth, Ford has focused on the leveraging of international growth opportunities (Panda, Jurko, & Pandová, 2016). According to the reports on the global automotive industry, the company has observed some positive and promising result facilitating its establishment of branches in areas such as Africa, Pacific East, Europe, Australia, South Africa and the Middle East. For instance, in 2016, this automotive giant experienced an increment in its market shares as well as excellent performance as indicated by the pretax results derived in the Asia Pacific region. It is evident the future is optimistic in the infiltration of many other global markers dealing with automobiles manufacturing.

Question 4

A primary determinant of demand for the primary product

Product life cycle is considered in determining the need for the core product. Large carmakers heighten their advent in the production of automobiles with the application of economies of scale that ensure they realize a higher product lifecycle (Wells, 2015, p. 211). For its primary product, the company determines its demand through apply differentiated lines in various brands to extend its life in the market and maintain its sales. With the incorporation of different brands and models in the core product, Ford has been able to assure the demand for its products. An exemplary case is the Ranger Platform, which was incorporated in the developing, designing and production of Mazda B2300 Truck (Panda, Jurko, & Pandová, 2016). The primary products developed and manufactured by Ford is the Ford F Series. The series includes different duty trucks that have been a staple product since 1948. In its own right, it has been categorized as the best-selling pickup truck as well as U.S bets selling vehicle since its inception. With an income generation of $4.10 billion ever since the launch of the 2018 model, this core product has been ranked as being more valuable that Nike and Coca-Cola.

Question 5

The pricing elasticity dependability by the company is affected by the income elasticity whereby demand and its related changes are correlated depending on the consumer income (Wells, 2015, p. 212). In this case, a rise in demand for vehicles manufactured by Ford indicates a consumer income increment which can influence the prices of the demanded product. The reverse is correct in that a decrease in income implicates a low demand for vehicles, therefore, affecting the costs allocated for each product manufactured by Ford. In this regard, it is evident that consumer income and its influence on product demand change the price elasticity significantly. The company is in the processes of streamlining its resources to ensure that reduction observed in-line production and sales, as well as losses and discounts incurred, are addressed through the re-strategization of its policies and their subsequent implementation.

            Within the US domestic market, Ford Company faces competition especially with the availability of substitute automotive providers (Panda, Jurko, & Pandová, 2016). There are widespread manufacturers and enablers of the automobile in the country, therefore, giving customers a range of selection to choose from depending on their prices, quality, services, brand, and technology in use. Some of the renowned substitutes are in the form of Tesla Company, Chevrolet, General Motors, and Fiat Chrysler. The additional alternatives are also made available by foreign companies primarily due to affordability they offer their customers as well as preferential choices according to availability. The industry is also faced with competition along technology-based uses in the automobiles, therefore, giving Ford Company a strategic positioning when manufacturing and delivering its products (Ford Motor Co, 2017). The embrace of green technology is an instrumental force when determining the accountability of substitutes in the market, especially on profitability and productivity.

            The pricing level by Ford Company according to relativity to customer budget is dependent on the economic status and profits of margins expected at the time of manufacturing (Ford Motor Co, 2017, p. 34). The company is responsible for calculating and enabling pricing model that seeks to convey affordability to all customers despite the income generation levels and expenditure habits. In turn, the company takes into account cost of production and the level of obtaining raw materials in the process of manufacturing. It then calculates profitability per unit sale and overall expectation on the holistic delivery of automobiles to the customers. Provided there is the continuous demand for the vehicles as per customer preference, the prices keep on shifting according to bundling, discount, and a convoluted mechanism to show a shift in strategic positioning by the company.

            By using the latest technology available and machinery in the industry, Ford Company delivers automobiles that are durable and efficient according to market standards. Due to the high demand by customers on machinery and technological aspect, several companies can be tempted to provide products that are not long lasting especially with readily available and renewable material sources (Ford Motor Co, 2017, p. 45). A personal approach lowers the brand’s image especially on errors and susceptibility to accidents or putting travelers’ life in danger when associated with their company. It is believed that Ford Company undertakes several measures when instituting the material used to achieve automobiles that are dependable over an extended period without breaking down or having deformities in the process of usage.

Since the primary product by Ford Company is they automobiles, different factors are constituted when it comes to manufacturing and making them available to customers as efficiently as possible (“Topic: Ford,” n.d.). Some of the main factors include material use, technical aspect, expected customer turnout, economic environment, financial stability, and dependable labor in the process. The material used when manufacturing the automobiles provide the most significant issue to the organization as it determines their preferential customer habits and the return of sales investment once they are made accessible (“Topic: Ford,” n.d.). If the costs of production are higher, it prompts Ford Company to lower expected returns since higher prices force customers to look for alternatives while reducing the projected revenues. Another significant factor that the management determines is machine use in labor and manufacturing process.

            When it comes to demanding habits on the automobile products of Ford Company, the returns are inelastic as opposed to elastic (“Topic: Ford,” n.d.). Once the process of manufacturing has been enabled, the company targets a pricing model that will attract customers of all income generation abilities and possible markets due to profitability causes. If the customers prefer the prices, the same demand grows without affecting their determined rate mainly due to the equation balance of availability. It is not elastic since the product is a luxurious item that does not change essential needs as per customer consideration when faced with priority concerns. The consumers will still be available to purchase the automobiles without being affected by a predetermined price rather than fluctuations in the market.

Question 6

Within any given market, an organization is affected by the forces and actors in this setting hence influencing its effectiveness in conducting its operations and provides services and products to its clientele. The real rivals are presenting competition to a new or existing organization compound the structure itself. The market structure can be either monopolistic or oligopolistic. This is dependent on the business and its nature. In the automobile industry, monopoly is ruled out as it is dominated by various firms from different parts of the globe hence comprising of different leaders dividing the market share. Therefore, in this regard, this industry has an oligopolistic structure where competition and market profits are shared between the involved players.

The profile of this industry is based on its involvement with development, designing, manufacturing, sales, and marketing of automobiles. As depicted by Datamotor (2009), an estimated 41 million vehicles were purchased in 207 on a global scale. The primary consumer of automobile products is Europe clientele.  It’s account for 42% of the total revenue generated in this industry regarding sales due to a substantively large client base in this region. The Asia Pacific and America occupy the second and third position accounting for 32% and 26% sales of cars globally (Ford Motor Co, 2017). Some of the issues affecting the demand for vehicles as observed by economists are a global recession, the rise in raw material and fuel prices costs, which create a turbulent economic atmosphere for manufacturers.

Concerning competition, the automobile industry is dominated by Asian, American and European vehicle manufacturers. The topic five companies are Toyota, General Motors, Ford, Volkswagen and Hyundai (Ford Motor Co, 2017, p. 56). The market, as mentioned previously, is oligopolistic implying that several organizations or establishments control it. According to OICA, an association established by automobile manufacturers and related organizations, 70% of the global automobile industry was controlled by only 10 of the total carmakers. Owing to this, the fiscal operations conducted within this industry necessitates multi-reliant system between the member companies. The importance of this strategy was exemplified in 2009, whereby due to increased interdependence, automobile manufacturers in the United States suffered significant difficulties during the economic downturn. In heightening the competitive streak in this industry, most of the member companies apply variation in products and prices, which are crucial mechanisms. Depending on the overall demand elasticity of each company, the companies divide their markets and place varying prices to match customer needs.

On evaluating product similarity as observed when comparing different competitors such as Chrysler, Dodge, Pontiac, Ford and Chevrolet in the local US market, the noticeable aspect the companies share the same brand products (Ford Motor Co, 2017, p. 67). This translates to the reality that these entities focus on manufacturing cars whereas the customer does not focus on the differences despite the brands being different. In the current day setting, the rules of automobile manufacturing are reliant on the convoluted brand management as opposed to brand definition observed in earlier decades. Therefore, this implies that customers have focused more on the characteristics of the product rather than the brand (Panda, Jurko, & Pandová, 2016). With this in mind, product similarity has been challenged with the necessity of each brand developing automobiles, which are better concerning features and specifics to outshine their rivals seeing that devaluation of a brand name as a determinant of purchase.

It is imperative to note in the automobile industry; product similarity is reduced through the betterment of car models by each competing brand. With the infiltration of second market cars presenting mileage of over 80, 000 miles, the top manufacturers are profoundly challenged and motivated to better their models to retain their market position (Panda, Jurko, & Pandová, 2016). Another aspect considered in reducing the similarity of products and gain a competitive advantage is maintenance costs. With the advancement in technology, many of the top automobile companies have sought innovative mechanisms in producing machines and vehicles, which require less maintenance, therefore, reducing the costs incurred during repair and garage check-ins.

Regarding product similarity, it has led to the reduced loyalty demonstrated by customers. According to research conducted by various economists, little loyalty is depicted in selecting brands for automobiles (Ford Motor Co, 2017). The outcome of this issue is the rise and falling of various models into the automobile market. For instance, Honda Accord was considered a favorite vehicle being purchased by many Americans. However, it has dropped from being accessible to the ninth position. This effect was also observed in the introduction of Skoda Octavia. Additionally, when considering trucks, the Ford Explorer and Chevrolet Silverado, despite being known as gas-guzzlers, they companies manufacturing these vehicles have experienced high sales.

  1. Threat of Entry

As reiterated by Porter (2008), entry threats are key determinant factors in the success of industry infiltration by new entrants. In the automobile industry, risks are low. However, it is not natural to infiltrate the market (Ford Motor Co, 2017). This claim is validated by the fact that most new car manufacturers have to develop a product which exquisite and unique features to draw the attention of the clientele. The process of fulfilling this requirement demands a high capital investment to facilitate development and designing cars offering, safety features, unique designs, sophisticated electronic functions and comfort (Panda, Jurko, & Pandová, 2016). Another issue considered during this car manufacturing process is fuel consumption of the product, which is challenging for the automobile industry as a whole. There incorporate of modern technology in complete this feat is highly involving but allows cars to become more fuel-efficient.

The second challenge to a new entrant is brand loyalty, which is prominent in the automobile industry (GM Authority, n.d.). The primary and dominant car manufacturers in the industry often focus on expanding their brand to increase customer loyalty despite the knowledge that brand does not necessarily promote sales as it used to in former years. However, this aspect still plays a vital role in sales generation for new entrants. The main issue is convincing existent and new customer to purchase their products. Some of the significant players that leverage on brand loyalty include BMW, Ford, Volkswagen, Mercedes, and General Motors. Competing with these automobile powerhouses’ poses a significant impediment to new entrant as a substantive global customer base supports these brands. The central advantage of establishing a strong brand loyalty unlike new entrants, established brands often enjoy lower marketing expenses in comparison to their novice counterparts (GM Authority, n.d.). Additionally, they can control prices based on significant market shares they have acquired. Thus, it is challenging newcomers to woo any clientele or become shareholders instantly.

The leading players in the automobile manufacturing industry have to compete with new entrants, therefore, contribute to increasing barriers of entry by leveraging on their positions and creating challenges that cripple newcomers and reduces their numbers (Panda, Jurko, & Pandová, 2016). Through consolidation and reduction of capacity concerning distribution firms, the incumbents assure realization of the economies of scale in areas such as marketing, product lifecycle extension, manufacturing and distribution (GM Authority, n.d.).  Hence, with their stabilization regarding these economies, costs are increased relating to industry, which poses a challenge to newcomers but a cost advantage for established brands. Another problem represented by incumbents it the learning curve barrier that implies raised costs in R &D. these additional costs are too high for many novice companies which are further worsened by supplier integration that presents obstacles in obtaining primary suppliers.

 

  1. Supplier Bargaining Power

This concept presents a barrier for new entrants and small firms in the automobile industry. Depending on the corporate power and size of the company, suppliers can possess a higher bargaining power hence the demand for high prices when sourcing for raw materials (Ford Motor Co, 2017). The scale of economies is significantly considered in this regard, therefore, benefitting large firms as opposed to their smaller counterparts and newcomers that have low bargaining power. In reducing supply costs, incumbent companies combine their orders as exemplified by GM, Ford, and Chrysler, which combined $240 billion as one entity to purchase materials (Hener, 2005, p. 7). From this example, it is evident that the more prominent an organization through combined resources, the higher bargaining power it posses in accessing supplies at low costs. Through vertical integration of supply and production, consolidation of large firms is leveraged on to further solidify their bargaining power. The principal advantage of these efforts is ensuring suppliers are unable to bottleneck the overall production cycle and assure locking up of resources (Hener, 2005, p. 15). A company, which captures the functionality of these strategies, is GM, which has integrated its suppliers vertically in its manufacturing processes varying from electrical manufacturing companies providing component s to glassmakers availing windows and related materials.

  1. Buyer Bargaining Power

About the bargaining power of the automobile industry, it can be described as small. The incumbents often collude and determine the prices of incentives and similar models. With this in mind, this notion coupled with the influence of established firms, newcomers and foreign companies’ entry into the automobile industry is hindered by price collusion that worsened by lowered product prices by the domestic car producers, therefore, increasing competition with the new threats (Hener, 2005, p. 17). By reducing costs and increment of incentives, new entrants not only face geographical issues but also further crippled by the aggressive efforts and their outcomes by incumbent firms.

Given the reality that buyers possess the bargaining power, it is possible to change products depending on the demand and the preferred features. Therefore, small entrants might face difficulties in competing with established brands (Panda, Jurko, & Pandová, 2016). The same is also applicable to the incumbents in the event of existing consolidations with other manufacturers. This translates to a customer switching from the primary product presented by an established company and opting for a hybrid, which is developed through consolidation of two manufacturers or subsidiaries. For instance, is switching a Firebird to a Camaro.

  1. Substitutes

Substitutes in the automobile industry pose threats in the business given factors such as fuel prices. With the fluctuation of fuel prices, most urban drivers opt for public means for their transportation needs (Hener, 2005, p. 89). In consideration of the comfort offered by personal vehicle, it is also imperative to acknowledge that with the continuous trends in hiking of fuel prices, automobile manufacturers are threatened as they seek to present a more cost-effective solution. Ford Motor Company has invested in various solutions in addressing the pressure on customers to report to public transport (Luft, 2017). Through developing, fuel-efficient powertrains, the company increases its competitive advantage for both incumbent companies and new entrants. Other plans to further solve the issue of fuel efficiency include developing speed transmission engines for the company’s brand vehicles.

 

 

  1. Importance of non-price competition

In the automobile industry, non-price competition implies a marketing strategy whereby one company differentiates its services and products from the existing products in the market through artistry and design. Other segments of differentiation might include strong distribution quality of service, sustainability in competitive advantage and customer focus with directing more attention to the price (Luft, 2017). One of the main benefits presented by this strategy the economic returns stemming from sales as opposed to imposing low rates on the products. This strategy is profitable, especially in the oligopolistic automobile industry. It also reduced the occurrence of price wars, which is synonymous with this industry. With the high competition in this business, incorporating a non-price marketing strategy is crucial in establishing a higher competitive advantage and avoiding running losses from low pricing.  It is also imperative to note that product differentiation is a facet of this strategy (Luft, 2017).  As previously stated, brand loyalty in the automobile manufacturing is reducing as more companies enter the market and present unique machines and vehicles, however, with product differentiation; many of these incumbent companies can remain afloat.

            Ford Company has pricing power that is immense primarily depending on the customer reactions to product selection and availability in the market (Panda, Jurko, & Pandová, 2016). The company can reduce or increase the prices for its products thereby having a positive or negative influence on the returns of sales and overall revenues achieved after supply and demand is met. In the historical basing, the company changed the market landscape as it provided easily affordable automobiles while their rivals were adamant about the higher prices (Luft, 2017). Therefore, it shows an extent of evening out and achieving a more significant market share of customers if the prizes are pocket-friendly and effective. The company can also exercise its power primarily by the investment of selected product ranges as opposed to the traditional priority given to customer preferences. It can achieve this by changing tact to electric cars and financing of trucks.

            Economies of scale are the most significant barriers to entry of the automobile industry, especially when considering the amount of capital needed (Ford Motor Co, 2017). According to investigations and analysis, automobile industry needs exceptionally high investment on the purchase of manufacturing plants, raw materials, machinery, and their technological delivery required for the successful establishment of a company (Panda, Jurko, & Pandová, 2016). It is also necessary to have the right experts and engineers who will transfer the knowledge while training employees on hire to avail the selected designs and differentiation criteria when it comes to manufacturing of products. It is not comparable to any other industry as the extent cannot be small scale if indeed an impact is needed on the market characteristics. The economies of scale require mass-production and translated prices that will only be affordable to customers if indeed profitability is to be achieved by evening out on the costs needed.

Question 7

Company Sales 2015 Sales 2016 Sales 2017 Profits 2015 Profits 2016 Profits 2017
Ford 239,242

 

239,854 250,456 7,236 m 1.9 bn 2.3 bn
General Motors 263,335 267,341 302,826 135.73 bn 149.18 bn 145.59 bn
Volkswagen 213, 292 217,267 230,262 12.3 bn 15.2 bn 10.45 bn

In comparison to other automotive companies, Ford has demonstrated high competition regarding producing machines and vehicles whose designing stems from the prioritization of design and uniqueness. However, in 2017, It was observed that its revenue decreased in the half quarterly dropping to -44.6% (“Volkswagen AG – Sales Revenue 2017 | Statistic,” n.d.). This observed was faster than the reduction of the existing competitors recorded the same year.  Regarding net margin, the company gained higher returns as indicated by the profit margins. The F series has performed quite well in the past three years. Being the core product of the company, these series have attained high ranking regarding offering comfortability and convenience for global and local companies. It is imperative to note that these characteristics have ensured Ford outclasses other companies within the automotive industry. They also provide long-lasting reliability which is preferred by most clients (Statista, n.d.). Ford has performed comparatively well. Firstly, it has attained its electrification plans with a future prediction of launching 13 electric vehicles to assist in the efforts of environmental conservation. Recycling has also been prioritized. According to its report, the company has recycled an estimated 5 million aluminum scrap within recycling systems using a closed loop process on a weekly basis.

 

 

 

 

 

 

 

 

References

CSIMarket Company. (2017). Ford Motor Co Comparisons to Its Competitors, Market Share, and Competitiveness by Segment – CSIMarket. Retrieved from https://csimarket.com/stocks/compet_glance.php?code=F

Ford Motor Co. (2017). FORD MOTOR COMPANY 2017 ANNUAL REPORT. Retrieved from http://q4live.s22.clientfiles.s3-website-us-east-1.amazonaws.com/857684434/files/doc_financials/2017/annual/03/Final-Annual-Report-2017.pdf

GM Authority. (n.d.). General Motors Sales Numbers. Retrieved April 8, 2018, from http://gmauthority.com/blog/gm/general-motors-sales-numbers/

Hener, A. (2005, June). The Automotive Industry. Credit Risk Management in the Automotive Industry2(32), 7-22.

Luft, A. (2017, February 1). Ford Motor Company December 2016 Sales Numbers USA. Retrieved from http://fordauthority.com/2017/01/ford-motor-company-sales-numbers-figures-results-december-2016/

Panda, A., Jurko, J., & Pandová, I. (2016). Monitoring and Evaluation of Production Processes: An Analysis of the Automotive Industry.

Statista. (n.d.). Fiat Chrysler Automobiles – Net Revenue 2017 | Statistic. Retrieved April 8, 2018, from https://www.statista.com/statistics/267284/global-revenue-of-fiat/

Topic: Ford. (n.d.). Retrieved from https://www.statista.com/topics/1886/ford/

Volkswagen AG – Sales Revenue 2017 | Statistic. (n.d.). Retrieved April 8, 2018, from https://www.statista.com/statistics/264349/sales-revenue-of-volkswagen-ag-since-2006/

Wells, P. (2015). New Business Models and the Automotive Industry. The Global Automotive Industry, 209-217.

 

 

 

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