Name of Industry: The U.S. Automobile Industry (a) Industry Profile Size- The automobile industry consists of many sections, from production of automobiles to production of parts and components to even the retail aspect of automobiles. Given the nature of the products and the quantity and quality demanded, it should come as no surprise that this industry is one of the largest in the U.S. and world economies. The large number of people the industry employs has made it a key determinant of economic growth (Encarta. com). This industry has a spiral effect on the economy as the finished products are often used as factors of production in other industries. At the same time, in order to produce these vast amounts of automobiles, there is a heavy investment in the steel industry and other industrial products (Klepper, 11).
In recent years (1995-2001) the number of companies in the industry, including all sections, has reduced from about 4100 to around 3100 but yet sales have risen from B$33121 to B$41716 over the same time period (table 1). Post World War II, the Big 3: General Motors (GM), Ford and Chrysler have been near the top of the list of industrial firms with the most sales revenue. Given that these three giants account for 66% of the production of cars sold in America, the size of the entire industry is immense (auto industry. com). At the beginning of the 20th century there were more than 200 producers but shortly after 1909, the number of firms in the industry fell considerably and by 1919 the industry was clearly showing signs of its present state with the three dominant firms being GM, Ford and Chrysler (Klepper, 4). The concentration of prosperous firms around the same region, Detroit, Michigan was unusual and quite fascinating.
Initially, because of the region's location, flocks of new firms entered the industry through the eastern seaboard and the Midwest. However, the forces of the market pushed the smaller, weaker firms out as the larger firms with great amounts of Research & Development (R&D) productivity returned higher profits and expanded (Klepper, 14). Table 2: TOTAL 33121 36806 41987 43056 43382 42434 41716 Office of National Statistics: Annual Business Inquiry, published December, Dominant Companies within the Industry The three major companies in the industry from 1920 to present are Chrysler, Ford and GM. While Chrysler may not have the portfolio of vehicles that GM and Ford possess and is the smallest of the three in terms of market share.
GM seems to have mastered the production process while Ford is not far behind. The other firms in the market are mostly foreign based, located in Asia and Europe. Financial Performance of the Industry over time The outlook for the future seems fuzzy despite the zero-percent interest financing launched by GM in an attempt to boost sales post September 11, 2001. Consumers seem uncertain and under confident about making any investments.
This coupled by the ever increasing erosion of market share by the Asian and European brands, who seem to be more quickly responsive to changes in demand, seem to indicate that profits may have to come from another venture. According to national industry director of KPMG, Brian Ambrose, "Right now North American manufacturers are in a transition phase and, over the next few years; plan to roll out dozens of models with exciting styling and new technology. They are banking that these new vehicles will recapture the eye of the consumer, returning them to profitability and making zero-percent financing a thing of the past". (The Washington Times).
Starting from 1900 with sales of 4100 sales grew to 895,900 in 1915. Over the next 10 years it grew to 3.7 million, but it dropped to 1.1 million in 1932 and after which the occurrence of World War II forced saw factories convert to wartime production (Nelson & Winter, 67). The post-war industry has been profitable ever since an experienced fastest growth with the advancement of technology, but suffered a setback when 9/11 occurred. (b) Representative Competitive Strategies within the Industry One of the most crucial issues of the auto industry most recently is competitiveness in cost, quality, and product offering. Companies cannot exist in the present market without paying close attention to these factors. The emergence of highly efficient foreign firms has forced the Big 3 to respond with strategies to counter their competitors and maintain their share of the market. Other considerations for the main representatives of the industry are the changing tastes of consumers, and the move from capital-intensive operations to information-intensive operations to effectively meet demands.
Since the publication of the Machine That Changed the World, in 1990 by the International Motor Vehicle Program (I MVP), which documented significant differences in efficiency and quality between U.S. operations and Japanese operations, the gap between the two has shrunk considerably (Fine & Clair, 26-28). They were able to bridge the gap via manufacturing plant performance adjustments and product development performance enhancements. The most critical adjustment made was employing manufacturing flexibility, i.e. the ability to assemble multiple product lines in a single plant. Looking more specifically, Chrysler emphasizes lean domestic product development with high integration with suppliers and an increasing focus on exports to address its limited foreign production.
They operate via five platforms teams that cover all U.S. sourced products and utilize its Mitsubishi alliance to fill the gaps of its limited portfolio. They rely very heavily on outsourcing components (70%) and attempt to cut costs by reusing components (Fine & Clair, 31). Ford is very proficient at low-cost, high-quality manufacturing and they have a more globally integrated strategy. This is so because they are capitalizing on their strength in alliances, of which they have a wide variety. They also use segment management dividing each market by vehicle size and drive type (four-wheel drive, rear-wheel drive). Ford is hoping to capitalize from economies of scale by uniting North American Automotive Operations and Ford of Europe (Fine & Clair, 36).
GM has a multifold strategy which entails maintaining a coherent product portfolio, "Voice of the Customer" research, a standardized four-phase development process, strategic links between its North American and international operations, and organizational revitalization (GM. com). Their main focus and effort has been made in an attempt to move to an information-intensive operation, so that they could satisfy consumers. (c) Porter Model of Industry Forces The most influential force of the Porter's model as concerns the automobile industry is the Degree of rivalry. The machinery used in production of automobiles is very expensive and would imply high switching costs if the venture does not work. Competitors are constantly trying to differentiate their products as the industry growth slows. Barriers to entry serve as the next most influential force in the industry.
There is a high start up cost associated with manufacturing. The firms in the industry have already developed their brand and gained customer loyalty. The government protection or backing of the existing firms serves as an effective barrier as well. Last, but not least the existing firms would most likely individually retaliate to new entrants. Supplier power is also important in the auto industry as a lot of merging and joint ventures are resulting due to the tense conditions. Suppliers are relatively concentrated due to this fact and high volumes are of utmost importance to suppliers.
There are not really any threats of integration as most suppliers have long standing relationships with manufacturers. Buyer power is more prevalent in business to business transaction. Buyer information is readily available with the use of Information Technology. Buyers are price sensitive, but also have a level of brand identity. Porter's Five Forces Threats of substitutes are the least influential on the industry. There is the use automobile industry which provides a lower cost, but there is less warranty if any at all.
Buyers are more likely to rely on the dependable models they know. If prices of mass transit relative to automobiles reduce then there may be some substitution, but this does not apply nationwide. (d) Importance of Information Technology within the Industry Given the complexity and sophistication of the automobile, technology is a major influence on the industry. As previously mentioned, the drive towards information-intensive operations makes Information Technology (IT) a priceless component of manufacturing automobiles. It all starts with heavy investments in R & D as firms try to stay abreast with the advances in Computer-Aided Design (CAD) and Computer-Aided Engineering (CAE) tools (MIT. edu). Last August GM announced the selection of IBM UNIX servers for vehicle design applications.
It was projected to increase GM's supercomputing muscle by a factor of four, helping them to further improve vehicle development processes (IBM. com). Another reason why IT is essential to the industry is due to the constant effort to develop environmentally friendly vehicles that can achieve a high level of fuel efficiency. The use of electronic components is inevitably increasing and this implies an increase in electronic technology development and more use of computer based monitoring of products performance. It is of utmost importance when it comes to linking the entire industry, i.e. the whole supply chain (Naples Daily News). They all have to be on the same page technologically so that information could be made readily available in a timely manner so that the best decisions and strategies could be chosen. Product development will become more efficient and reliable if the internet is used in collaboration with the software packages that exist (MIT. edu).
In terms of logistics, as companies seek more outsourcing, IT is critical in the co-ordination of production as in-sequence delivery of parts and just-in-time inventory systems by suppliers helps reduce complication and confusion at assembly plants. Although the automobile industry is an old industry it has evolved over the years and it has a close co-relation with changes in technology. However, it is up to the company's top management to determine the degree of technology it's willing to incorporate. Some are more receptive than others to technological advancements and IT is no different, so therefore on a firm to firm basis the importance may vary but it is essential for all firms to survive.