The Industry's Dominant Economic by liwenting

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Automobile Manufacturing Industry

                               Table of Contents

Introduction…………………………………………………………………………….………… 3

The Industry‟s Dominant Economic
Features……………………………………………………………..……………………….…… 3

Porters 5
Forces…………...……………………………………………………..…………………………. 6

      Power of Buyers…………………………………….……….…………………………….6

      Power of Suppliers……………………………………….………………………………. 6

      Barriers to Entry…………………………………..……………………………………… 6

      Threat of Substitutes……………………………...…………...…………………………. 7

      Competitive Rivalry………………………………………….……………………………7

The Drivers of

Companies in the Strongest/Weakest Positions………………………...………………………..11

Industry‟s Attractiveness and Prospects for Long-Term Profitability……………...……………13


             Industry Analysis: Automobile Manufacturing Industry

        The auto manufacturing industry is responsible for a great percentage of the global
economy. Products in the industry consist of complete automobile and light duty motor vehicles.
The industry consists of six segments: three mature markets (North America, Japan and Western
Europe) and three emerging markets (Asia-Pacific, Eastern Europe and Latin America). The
leading competitors in the industry are the Big Three (GM, DaimenChysler and Ford) and the
Japanese Manufacturers (Toyota, Honda, and Nissan) (Business & Company).
        In recent years, the industry has seen a decline in sales. There has been an upward
pressure in vehicle and manufacturing price, as a result of the rise in oil and steel prices.
Companies in the industry such as Ford and General Motors have had to restructure their strategy
in order to regain profitability. To gain market shares companies are concentrating towards
continuous improvement, innovation and cost control.
        In the first part of the analysis, it will focus on the dominant economic features, the
Porter‟s Five Forces and the drivers of change in the industry. Then it will identify the three
companies who hold a significant number of market shares in the industry. Lastly, the industry‟s
attractiveness and long-term profitability will be analyzed with regard to its mature life cycle.

1. The Industry’s Dominant Economic Features
    Market Size:
          o In 2005, the industry‟s revenue was estimated to be $88.805 billion (IBISworld,
             “Market characteristics”).
          o The industry is a significant employer in the U.S. In 2005, they employed 70,690
             people from the 152 enterprises, which operated in 169 establishments
             (IBISworld, “Market characteristics”).
          o A 2.4% increase in car production in the first half of 2006 resulted from the rising
             fuel. There has been a high demand for fuel-efficient vehicles (IBISworld,
             “Industry performance”).
          o In 2005, total imports amounted to $68.0 billion and occupied 47.0% of domestic
             demand. For the same period, exports amounted to $12.2 billion and accounted
             for 13.7% of industry revenue. Major trading partners for exports were Canada
             and Germany, while imports were mainly sourced from Japan, Canada and
             Germany (IBISworld, “Industry performance”).
    Scope of Rivalry:
          o “Leading players in the global automobile manufacturing sector include: General
             Motors Corporation, Ford Motor Company, General Electric Company, Toyota
             Motor Company and Motorola Inc” (Datamontior, p.14).
          o “In order to boost sales the major US players are executing a campaign of heavy
             discounting in the form of zero percent financing and huge cash back incentive
             schemes. However, having previously reduced production levels, companies are
             struggling to pay for these deals with increased volumes in sales” (Datamonitor,
          o Adversely, Japanese and Korean companies are continually gaining market share
             in the US, while offering no incentives or price cuts, this proves that US

           consumers are prepared to pay more for these foreign models, with consideration
           on the current climate of high and rising fuel prices (Datamonitor, p.14).
   Growth Rate and Life Cycle Stage:
       o The slowing growth in industry demand, increasing competition, and refinement
           of current product and service are characteristics of the mature industry stage of
           the automotive industry.
       o Over the past five years, industry value has grown at an average annualized rate
           of rate of 3.5 percent, around the same average annualized rate of GDP growth of
           3.6 percent over this time (IBISworld, “Market characteristics”).
       o The industry's strong consolidation trend is best exemplified by Ford's take over
           of Volvo and the merger of Daimler and Chrysler (IBISworld, “Industry
       o “The average age of automobiles in the U.S has increased over the past decade.
           This indicates that the frequency of vehicle replacement is declining as a result of
           better quality vehicles and the higher average cost of new vehicles” (IBISworld,
           “Industry Performance”).
   Number of Rivals and their relative size:
       o Competition and rivalry is high in the automotive industry, in return there is a
           constant focus on the introduction of new models and technology.
       o General Motors is the leading competitor in the industry. They are the world‟s
           largest automaker employing 324,000 people around the world and have
           manufacturing operations in 32 countries and vehicles sold in 200 countries
           (Datamonitor, p.16).
       o The key competitors in the industry are: General Motors Corporation, Ford Motor
           Company, DaimlerChysler AG, Toyota Motor Corporation ADS, Honda Motor
           Company, and Nissan Motor Ltd. Each company‟s market share range are 29%,
           23%, 19.5%, 7.2%, 5.9%, 4.1%, and 11.30% respectively (IBISworld, Key
   Prevalence of Forward/Backwards Integration, Channels of Distribution, Pace of
    Process and Product Technology Change:
       o Forward and backward integration is prevalent in the industry. GM is known for
           backward integration by using subsidiaries such as steel and glass to efficiently
           produce their vehicles.
       o Forward integration is utilized by sending the vehicles to dealerships where they
           are sold to customers.
   Whether Products are highly differentiated or very similar:
       o The perceived status or image is a key factor in the differentiation of the vehicles
           since the main function and structure of the basic product are very similar in the
       o Advertisements are the main driving force to the product differentiation; they
           create a sense of value for the vehicles whether it‟s genuine or perceived.
   To what extent are economies of scale in purchasing, distribution, advertising, etc.
       o “The cost of developing high volume production facilities, in order to benefit
           from economies of scale” creates a barrier to entry for new entrants (IBISworld,
           “Industry conditions”).

       o The need to comply with stringent environmental regulations in the future would
           require substantial research and development investments for an entrant.
       o “The ability to gain access to technology of major global operators is a barrier
           since the present incumbents include some of the largest carmakers in the world
           who have considerable claims to new technology” (IBISworld, “Industry
       o “Large scale production requires significant capital for automated processes to be
           installed. Economies of scale prevail for successful entry into the market
           (IBISworld, “Industry conditions”).”
   To what extent do learning curves exist
       o There is a significant learning curve in the auto manufacturing industry. For
           instance, it will be difficult for an unestablished company to enter the industry
           because a massive amount of capital is necessary in order to be successful and
           competitive with the incumbent firms.
       o Investment in the work force is substantial in the industry. By doing so they are
           able to keep their cost advantage with their high skilled workers.
   Are high rates of capacity utilization important for profitability
       o According to IBISworld, one of the key success factors in the industry is to have
           optimal capacity utilization. In turn, efficient plant utilization results in cost
           advantage and profitability in the industry (IBISworld, Key factors).
   What are the historical levels of profitability
       o “In the late 1980s, manufacturers introduced sports utility vehicles (SUVs) to the
           market, which in years to come would increase wholesalers' revenues
           significantly (IBISworld, “Industry performance”).”
       o “Between 1992 and 1996, the automobile wholesaling industry experienced an
           average rate of revenue growth of 7.1 percent per annum. The solid revenue
           growth reflected a 4.1 percent increase in retail sales of automobiles” (IBISworld,
           “Industry performance”).
       o “Throughout 1998 and 1999 the industry continued to experience strong revenue
           growth as the United States economy experienced its greatest post WWII boom.
           Over this period, new automobile sales grew at an average annualized rate of 6.3
           percent, while private fixed investment in autos and light trucks grew at an
           average annualized rate of 7.2 percent “(IBISworld, “Industry performance”).
       o “Rising interest rates will effect consumer expenditure on "big-ticket" items such
           as autos will decline, as a result, slowing the growth rate of industry revenue. But
           growing employment and continued economic growth in the future will bolster
           consumer confidence, an important determinant of auto expenditure, ensuring that
           industry revenue growth will remain positive in the absence of extraordinary
           occurrences” (IBISworld, “Industry performance”).
   Are there segments within the industry
       o The industry is divided amongst six segments: three mature markets (North
           America, Japan and Western Europe) and three emerging markets (Asia-Pacific,
           Eastern Europe and Latin America) (Business & Company).
       o “The three mature markets dominate the world‟s vehicle production and sales by
           85%” (Business & Company).

           o The United States is the worldwide leader in the industry followed along by Japan
               (second) and Germany (third) (Business & Company).
      If so, what are they, and how do their presence effects firms, strategies, competition,
       and levels of profitability within each segment:
           o The Big Three (GM, Ford Motor Company and DaimlerChysler) are facing fierce
               competition with the foreign manufactures. In 2004, the United States and
               Canada sold the majority of their vehicles in the domestic market; in contrast,
               Japan exported more than 40 percent of their production (Business & Company).
           o In Western Europe several manufacturing companies “established joint ventures
               with or acquired controlling interest in other companies to obtain broader market”
               (Business & Company).
           o Despite the strong growth in the Asia-Pacific market of 22.6 percent of the global
               market‟s value (2005), the United States has retained “the highest proportion of
               the global sector‟s value at 37 percent, with revenues of $423 billion in 2005”
               (Datamonitor, p.8).

2. Porter’s Five Forces
    Power of Buyers
          o The treat of buyers is very strong in the industry due to the high competition and
              the threat of rivalry.
          o Despite the perceived value that is embedded in some products, the lack of
              differentiation in the basic car structure gives the buyer the option to choose from
              a variety of automotive manufacturers.
          o The apparent power of the buyers is noticeable in their ability to negotiate during
              the purchasing process with the dealerships. In addition, strong incentives from
              manufacturers such as GM‟s zero percent finance and employee discount offers
              increases buying power.
          o Due to the technological advancements of the internet, consumers are more
              informed about costs and less susceptible to accept significant price hikes
              (IBISworld, “Industry conditions”).
    Power of Suppliers
          o The lack of product differentiation allows the manufactures flexibility in
              purchasing products from several different suppliers.
          o “Material costs are expected to increase in the short term, as tier 2 suppliers
              succeed in obtaining price increases to parts and components that have substantial
              steel in them. This is due to accelerating steel prices brought about by increased
              demand from China and India” (IBISworld, “Outlook”).
    Barriers to Entry
          o The automobile manufacturing industry is a mature industry that will not attract
              too many new entrants because of the “high and steady barriers to entry”
              (IBISworld, “Industry conditions”).
          o New entrants will be face the barrier to economies of scale due to the large capital
              required to generate the high production volume facilities of automobile
              manufactures such as GM (IBISworld, “Industry conditions”).

       o The need to comply with stringent environmental regulations in the future would
          require substantial research and development investments for an entrant
          (IBISworld, “Industry conditions”).
       o “The ability to gain access to technology of major global operators will be a
          barrier, as the present incumbents include some of the largest carmakers in the
          world that have considerable claims to new technology” (IBISworld, “Industry
       o Quality is holds a strong competitive advantage in regards to purchasing vehicles,
          hence, consumers are hesitant to choose new automobile manufacturers over an
          established company.
       o Another barrier, new entrants must face when entering a mature industry is the
          customer loyalty to certain auto manufacturers.
   Threat of Substitutes
       o Public transportation is a significant threat to the automobile industry.
       o Due the rising cost of fuel, population growth, and environmental issues during
          the recent years more people are choosing alternate modes of transportation from
          subways, taxi, monorails, and busses.
       o Long distance travels are offered through air travel, busses, and trains.
       o According to American Public Transportation Association, “in 2004, Americans
          took 9.6 billion trips using public transportation,” (APTA) this has drastically
          increase by 23 percent since 1995.
       o New technological features are used to encourage public transportation such as
          “onboard wireless internet on commuter busses, smart cards and electronic
          signage, all designed to improve passenger convenience, safety and comfort”
       o “Congestion is rising, gas prices are sky-rocketing, and people in record numbers
          are choosing to use public transit instead of driving (APTA)”.
   Competitive Rivalry
       o “Competition based on rebates intensified with U.S. manufacturers providing cash
          rebates to shift 2004 models as inventory build-ups” (IBISworld, “Industry
       o “In November 2004, GM offered those who buy 2005-model vehicles using loans
          from its financing arm, the same interest rate on their next vehicle. To get the
          same interest rates on a subsequent vehicle, a buyer would have to buy it before
          the first loan expires” (IBISworld, “Industry performance”).
       o “Facing strong competition from imports, GM led the introduction of employee
          discount scheme to all consumers in June 2005. By selling all cars and trucks at 5
          percent below the list price to the dealer, GM managed a 41 percent sales increase
          for the moth of June, 2005, compared with June 2004” (IBISworld, “Key
       o “The most significant competitive basis is price, quality and product innovation
          such as the introduction of Sport Utility Vehicles (SUVs) and cross-over models”
          (IBISworld, “Industry performance”).
   Summary of the analysis and what it means for the industry.
       o The automobile manufacturing industry is an attractive industry because there are
          opportunities for profitability. Competitive forces are very strong as a result of

              the dependency for automobiles. Since this is a mature industry, a company who
              will try to break through will have to face many barriers to entry such as
              economies of scale in order to have the same production volume as the
              established firms. According to Porter‟s Five Forces focal firms must strive for
              continuous improvement, innovation, and cost leadership for the reason that
              buyers have a significant power in the industry. In addition, the uncertainty of
              fuel prices will plague the industry and demand for fuel-efficient vehicles will
              continue to rise. Competitive rivalry will climax as companies such as Ford and
              GM restructure their organization and aggressively compete against the foreign
              auto manufacturers for market shares.

3. The Drivers of Change in the Industry and Impact They Will Have
    Long Term Growth Rate
          o “Growth in domestic demand is expected to be 3.3 percent in 2006 period before
             experiencing a cyclical decline in the next two years of the forecast period to
             2010. Industry revenue is expected to fluctuate between 3.1 percent and minus
             1.8 percent per annum over the forecast period of 2010” (IBISworld, “Outlook”).
          o “Industry profitability is expected to improve considerably from 2009 onwards as
             General Motors and Ford restructure themselves” (IBISworld, “Outlook”).
          o “Sources indicate that the U.S. market for hybrid vehicles or clean diesels engines
             are forecast to exceed 11 percent of the total vehicle market by 2012. Sales of
             hybrid light vehicles will rise from 83l, 000 units in 2004 to three million by
             2015, equivalent to 17.7 percent of the total U.SL light vehicle market”
             (IBISworld, “Outlook”).
    Who Buys the Product and How They Use It
          o “The major purchasers of automobiles and light trucks are households, corporate
             and government fleet buyers” (IBISworld, “Segmentation”).
          o The function of the industry is segmented as cars and commercial vehicles. Car
             has the significant share in the market by 66.50 percent, while commercial vehicle
             falls short at 33.50 percent (Datamonitor, p.11)
          o The passenger cars, light trucks, ad light commercial vehicles are used for
             personal, business, and governmental functions.
    Significance of Product Innovation & Technological Change
          o The industry is working towards the improvement of gas usage. As a result, “in
             2001, GM unveiled what it claims is the world‟s first gasoline fuel processor for
             fuel cell propulsion” (IBISworld, “Outlook”).
          o “General Motors has developed „Displacement on Demand‟ technology that will
             help fuel consumption levels in sport utility vehicles. The DOD technology will
             automatically shut off half of a V8 engines cylinders, effectively turning the
             engines into a more effective four-cylinder engines” (IBISworld, “Key
          o “In January 2006, Ford unveiled the Escape Hybrid E85, which is the world‟s first
             hybrid vehicle capable of operating on blends of fuel containing as much as 85
             percent ethanol, a renewable fuel that can be produced from American-grown
             corn or sugar beets (IBISworld, “Key competitors”).”

        o “The use of computer-aided design ultimately should lead to more uniform
           product cycles because key design questions can be answered in days rather than
           months. Similarly, a part can be modeled and prototyped in hours rather than
           days. These technological innovations save time and also reduce development
           costs.” (IBISworld, “Industry conditions”).”
   Marketing Innovation
        o Automakers have incorporated the multi-media to gain additional revenue. For
           instance, “Honda‟s Fit and Element, and Toyota‟s Yaris TV ads are drawing
           inspiration from websites such as YouTube, and iFilms” (Boston Globe).
        o According to the Boston Globe, the industry focuses more on the “personality” of
           the customers who purchase the vehicles as opposed to “bells and whistles” of
           vehicles (Boston Globe).
        o Toyota‟s Scion brand, which targets the Gen Y-ers, allows the customers to
           individually customize or “trick out” their vehicles on-line (Boston Globe).
        o Many companies have offered incentives for employees who purchase hybrid
           vehicles. In example, Bank of America will contribute $3,000 toward the
           purchase of a hybrid vehicle (Boston Globe).
   Entry/Exits of Major Firms
        o This section of the analysis does not need to be addressed for the reason that new
           entrants will not enter the market and the incumbent firms are not planning to
           leave the industry. New firms will face a high barrier to entry for the reason that
           the industry requires a large capital to reach the economies of scale. Also, “there
           is no untapped portion of the population that is about to enter the market”
           (IBISworld, “Market characteristics”). The only strategy to for new entrants to
           enter the market is to fall under the umbrella of the established firms such as
           Toyota introducing Scion.
   Diffusion of Technological Know-How
        o The lack of product differentiation allows for the diffusion of technological know-
           how in the industry.
        o Technology in the industry is easily duplicated. Hence, perceived quality is one
           of the only source of differentiation in the auto manufacturing industry.
   Extent of Globalization
        o The big three manufactures: General Motors, Ford and DaimlerChysler have
           gradually acquired control of international car manufacturers. In example, “in
           1999, Ford which effectively controls Mazda and owns the British makes Jaguar
           and Aston Martin, acquired Volvo‟s car operations” (IBISworld, “Key
        o Joint ventures have also emerged in the industry. For instance, “General Motors
           has a joint venture $1.5 billion motor vehicle plant in Shanghai, China which
           currently produces luxury Buick sedans and the family-style model, the Sail”
           (IBISworld, “Key competitors”).
        o General Motors have invested a significant amount of money in China to “double
           production capacity in a bid to reign-in the market leader- Volkswagen”
           (IBISworld, “Key competitors”). As a result, General Motors relocated their
           Asia-Pacific headquarters from Singapore to Shanghai.

   Changes in Costs and Efficiencies
       o “Labor costs declined over the last two years as DaimlerChysler shed 26,000
          positions. In addition, General Motors shed 15,000 positions as it discontinued its
          Oldsmobile division” (IBISworld, “Industry performance”)
       o “Material costs are expected to increase in the short term, as tier 2 suppliers
          succeed in obtaining price increase to parts and components that have substantial
          steel in them. This is due to accelerating steel prices brought about by increase
          demand from china since 2002” (IBISworld, “Industry performance”).
       o “Purchase as a percentage of revenue (70 percent) is the largest cost item of the
          industry. Any gains from cost reduction has to be from purchases by streamlining
          its procurement process” (IBISworld, “Industry conditions”).
   Emerging Buyer Preferences
       o Due to the gas hike in the past couple of years, buyers have shifted to
          economically gas efficient vehicles. As a result, automakers started to
          concentrate its manufacturing to hybrid technology in 2004. (IBISworld,
          “Industry conditions”)
       o Street racing has had a significant impact on the industry. This has shifted the
          automakers to manufacture vehicles that are suited to street racing such as the
          Acura RSX, Nissan Sentra, and Honda Civic.
       o Hyundai has captured the two advantages of low-cost and product differentiation.
          To achieve this strategy, they are competing as one of the lowest priced autos in
          the market and they have “10 years, 100,000 mile warranty” (Hyundai).
   Regulatory Influences
       o “Federal law requires that a manufacturer recall a vehicle if it finds a defect that
          poses an unreasonable risk to safety. The Government complies complaints from
          consumers and will prod a manufacturer to recall a vehicle if warranted”
          (IBISworld, “Industry conditions”).
       o “The clean air acts amendments of 1990 mandated that automakers reduce
          emissions from their manufacturing plants and contain several new vehicle
          regulations. Additionally, automobiles sold in the United States must be equipped
          with fuel recovery canisters to prevent gasoline fumes from being released when
          the tank is filled” (IBISworld, “Industry conditions”).
       o “American Honda Motor Co. is to engage in a new voluntary program to provide
          safety information to consumers by placing US government crash test rating in the
          window stickers of all 2006 model year Honda and Acura cars and light duty
          trucks. All vehicle window sticks will display the star ratings under the National
          and Highway Transportation Safety Administration‟s, New Car Assessment
          Program for frontal, side and rollover crash safety test ratings” (IBISworld,
          Industry conditions”).
   Changes in Societal Concerns, Attitudes, Lifestyles
       o The decline in economic conditions as well as the rising fuel prices has caused
          society to decrease their spending on expensive, gas guzzling vehicles.
       o Also, environmental concerns have forced the auto manufacturers to shift their
          focus on hybrid and fuel cell vehicles.

      Reductions in Uncertainty and Risk in the Industry Over Time
          o A significant amount of uncertainty will cause problems in regards to the
             automotive industry. A major factor is the correlation between the dependency of
             automobiles to the unpredictable fluctuations in gas prices.
          o Currently, the government and automakers have invested in fuel cell technology
             research to decrease the plague of uncertainty in the industry.

4. Companies in the Strongest/Weakest Positions
    Firm One: General Motors Corporation
        o General Motors is the world‟s largest manufacturer in the auto industry. This is
            accounted by revenue and unit production.
        o They are the leading manufacturers in trucks and SUV‟s in the industry.
        o “GM spends $2500 more than Toyota to build each car and truck in the U.S.
            Around half of the difference comes from inefficient factories and the remainder
            from the fact that GM has about 2.5 retirees getting pensions and health benefits
            for every active worker” (IBISworld, “Outlook”).
        o „In the 1990s, GM was criticized for having an enormous payroll and not utilizing
            low-cost contractors by outsourcing” (Business & Company).
        o The firm has pursued effective marketing strategies. In 2002, GM offered zero
            interest for 60 months offers.
        o “To bolster its declining market share, General Motors spent $2 billion
            overhauling its small car offerings. GM utilized models from its Daewoo Motor
            (GMDAT) operation to strengthen its small car offering, with GMDAT cars being
            sold under the Chevrolet and Suzuki brands” (IBISworld, “Key competitors”).
    Identify characteristics that differentiate this firm from the other two firms:
        o Quality/Price: Although there have been many recalls, General Motors have
            sustained their dependable product quality. The rising health care cost for
            General Motors employees have resulted the company to spend $2500 more per
            vehicle than Toyota (IBISworld, “Industry performance”). Hence, the vehicle
            price is reasonable but not cheap.
        o Geographic coverage: General Motors operate world wide from manufacturing
            to sales in areas such as Asian Pacific and South America.
        o Vertical integration: Backward integration apparent when using their
            subsidiaries for their steel, glass, and rubber to manufacture vehicles.
        o Product Line breadth: The company has 13 selected brands (GM). This
            includes products such as trucks, sedans, vans, and sport utility vehicles.
        o Distribution or Service: They offer one of the best warranties, 100,000 miles or
            five years power train warranty (GM).
    Firm Two: Ford Motor Company
        o “Ford is the third largest automotive manufacturer in the world” (Business &
        o “The company has a line of nameplates such as Ashton Martin, Jaguar, Lincoln,
            and Mercury” (IBISworld, “Key competitors”).

       o Like General Motor, the company faced a rise in health care costs for their
           employees. As a result, “it raised the cost of vehicles by $1000 more in 2004”
           (IBISworld, “Industry performance”).
       o “In 2005, Ford also finalized an agreement with Visteon Corporation, in which
           it assumed control of 17 plants and six other facilities in the US and Mexico.
           The assets were transferred to Automotive Components Holdings, LLC, a
           temporary business controlled and managed by Ford, to protect the flow of
           critical parts and components in the near-term, and over time, to improve
           sourcing flexibility and cost competitiveness” (IBISworld, “Key competitors”).
       o “In 2008, Ford plans to restructure its company by cutting down jobs, closing
           plants, and reinvesting its significant savings into product development”
           (IBISworld, “Key competitors”).
   Identify characteristics that differentiate this firm from the other two firms:
       o Quality/Price: Similar to General Motors, Ford costs to produce vehicles are
           $1000 more than Toyota due to the health care costs. Recalls for the company is
           common such as the incidence of the Firestone Tires and the Escape model.
       o Geographic coverage: Ford is a global industry leader that manufactures
       o Vertical integration: “Motorcraft® parts are designed, engineered, and
           recommended by Ford Motor Company for installation on Ford, Lincoln, and
           Mercury vehicles. From motor oils to transmission assemblies and everything in
           between, Motorcraft® parts provide exceptional quality and fit” (Ford).
       o Product Line breadth: Main features for the company is their leading position in
       o Distribution or Service: Quality/care and Genuine Parts Service brand in
           dealerships contribute to the customer loyalty and owners satisfaction for the

   Firm Three: Toyota Motor Corporation
       o “Toyota is Japan‟s largest and the world‟s fourth largest automaker. It is one of
           the strongest performers in the automotive industry” (Business & company).
       o “Toyota has been able to bolster its market share in the U.S. by offering fuel-
           efficient vehicles in an environment of high fuel costs. Global sales of Toyota's
           hybrid vehicles have increased to over 500,000 units by the end of October
           2005” (IBISworld, “Key competitors”).
       o “To reduce lead times and foster greater cooperation between North American
           R&D and manufacturing operations, early in 2006 Toyota merged Toyota
           Technical Center USA and Toyota Motor Manufacturing North America”
       o “Toyota has committed itself to leading the charge toward the development of
           more efficient, environmentally friendly vehicles, primarily powered by hybrid
           gasoline-electric technology” (Hoovers).
   Identify characteristics that differentiate this firm from the other two firms:
       o Quality/Price: Toyota offers high quality products at an affordable price. The
           Toyota Camry is one of the largest selling vehicles in the market.

          o Geographic coverage: They offer their products all over the world. As for the
            manufacturing side, Toyota Engineering and Manufacturing in North America,
            Inc. (TEMA) is “responsible for Toyota‟s North American engineering design and
            development, R&D and growing manufacturing activities in the U.S., Canada and
            Mexico” (Toyota).
          o Vertical integration: Forward integration is used in the company by utilizing its
            automotive dealers to distribute the products.
          o Product Line breadth: Toyota is concentrating heavily in their hybrid sector of
            vehicle production.
          o Distribution or Service: The distributors for Toyota are the dealerships. Toyota
            also gives their customers incentives through “my Toyota” which allows them to
            have certain perks and discounts such as savings on oil changes (Toyota).

5. Industry’s Attractiveness and Prospects for Long-Term Profitability
     Growth potential.
          o There is growth potential for the automobile manufacturing industry.
              Innovation, continuous improvement, and the introduction of new models
              will entice consumers spend their disposable income on vehicles.
              Especially with the “sales of hybrid light vehicles which is expected to
              rise from 83,000 units in 2004 to three million by 2015” (IBISworld,
     Will competitive forces strengthen?
          o Competitive forces will continue to strengthen over time. Each firm in the
              industry will continue operations and the barriers to entry from Porter‟s Five
              Forces will make it challenge for new entrants to survive in the market due to
              economies of scale. As more companies continue to innovate and focus on
              continuous improvement, future competitive forces will be strong in the industry.
     Will driving forces increase/decrease profitability.
          o Innovative technology, effective cost control, and optimum capacity utilization
              will increase profits for focal firms who incorporate these key success factors.
              This will create a sustainable competitive advantage and create above average
     Which company strategic position will improve or decline.
          o Toyota has done exceptionally well with their strategic position to focus on hybrid
              vehicles. The investment on fuel cell technology will lead to an improvement for
              companies that are proactive. Ford and General Motors strategic position should
              improve by 2009 as a result of restructuring their companies.
     How can firms insulate themselves from the unattractive forces in the
          o According to Porter‟s Five Forces the industry will encounter a many
              unattractive variables such as power of buyers, substitution, and
              competitive rivalry. In order to insulate themselves and maintain
              competitive advantage the companies will have to prepare for the future
              evolution in the industry and be the first to develop new innovative

   Degree of uncertainty and severity of problems confronting industry.
        o It is uncertain whether fuel prices will rise in the future. This will severely
            impact the industry due to the dependency it has on fuel. In addition, steel prices
            are expected to rise short-term but this will have a rippling effect in regards to the
            manufacturing and price of the vehicles.
   Which types of firms/strategies seem to be most lucrative?
        o The Japanese manufactures (Honda, Toyota, and Nissan) have focused their
            firms‟ strategy towards quality and technology. Similar to the Big Three (GM,
            Ford, and DaimlerChysler) they also strive towards low cost. But unlike the Big
            Three, the “Japanese value and safeguard suppliers‟ new ideas.” (IBISworld,
            “Industry performance”)
   Is this an attractive industry in which to participate.
        o The industry is attractive with regards to the potential profits the industry can
            generate, but “the most important trends in the automotive industry generally
            pertain to two related developments: intensifying competition and increasing
            globalization. Increased domestic competition leads manufacturers to leverage
            their brands and engineering, development, and production costs deter [new
            entrants] from entering and competing in [the industry].” (IBISworld, “Industry

                                       Works Cited

American Public Transportation Association (APTA). 2 Oct. 2006 <>.

Boston Globe. “Automotive Advertising in Greater Boston”. 2006. 2 Oct. 2006

Business and Company Research Center. “Automobile Manufacturing”. 2006. 3 Oct. 2006

Datamonitor. “Global Automobile Manufacturers”. April 2006. 2 Oct. 2006

Ford. 4 Oct. 2006 <>.

Hoovers. “Auto Manufacturing”. 2006. 2 Oct. 2006 <>.

Hyundai. 4 Oct. 2006 <>.

IBISworld. “Automobile and Light Duty Motor Vehicle Mfg”. 2006. 3 Oct. 2006

General Motors (GM). 4 Oct. 2006 <>.

Standard & Poor‟s (S&P). “Auto & Auto Parts”. 29 June 2006. 2 Oct. 2006

Toyota. 4 Oct. 2006 <>.

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