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Automobile Industry

Updated March 12, 2020

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Automobile Industry essay

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Automobile Industry Industry Analysis The automobile industry began with Henry Fords production of the Model T in the early 1900s. With the creation of the assembly line, cars became cheaper and quicker to produce, thus making them affordable for many people. There were originally 500 auto manufacturers. By 1908, there were only 200; and in 1917 only 23 remained.

This vast reduction was due to large amounts of consolidation within the industry. Currently, the major competitors within the industry are Ford, DaimlerChrylser, General Motors (GM), Honda, Toyota, and Volkswagen. A few United States (US) manufacturers produce 23% of the worlds vehicles while Japan is responsible for 21%. The tendency for the industry is to be a global producer of automobiles; parts can be made throughout the world and assembled in many different places.

The trend of consolidation has continued throughout today. Presently, this is evident in the recent acquisition of Chrysler by Daimler-Benz in late 1998, thus forming DaimlerChrylser. These consolidations have proved beneficial to consumers since companies have been able to reduce costs and pass those savings on to the customers. Some of the other major examples of consolidation are Nissan selling off a controlling 37% interest to Renault; General Motors 49% ownership of Isuzu; and Fords 33% majority of Mazda.

Other efforts to become more competitive have translated into the European Union dropping trade barriers and European carmakers employing cost reducing efforts. American manufacturers have seen 2-3% growth over the last few years. Some current trends are the explosion in popularity of the Sport Utility Vehicle (SUV) and big luxury vehicles. In the future the global car market is full of potential.

There are currently 44 million vehicles and by the year 2002 experts estimate that number will grow to 64 million. That growth is not expected to be in the US, rather in countries such as: China, India, The Pacific Rim, South Africa, and South America. In America, a current trend is for the neighborhood car dealer to be purchased by a large manufacturer, such as GM, so cars can be sold through retail outlets. Other future endeavors include low emission cars, which are expected to provide expansions in sales. Some major automakers are investing in fuel cells, devices that convert liquid hydrogen into electricity, hoping to make future vehicles more environmentally friendly.

The automobile industry will see more changes in the next 10 years than it has in the last 100. Economic Climate In the past, the oversized vehicle was the body-style of choice among American consumers. In the 1970s, oil shortages led to an increase in demand for more fuel-efficient cars, thus the sub-compact car became popularized. After 1979, Japans efficiency at producing this type of car allowed them to take 30% of the U.S. automobile market away from American manufacturers.

In 1999, total industry sales have risen 8%2. Now, unprecedented competition has pressured firms to reduce costs. This competition is a result of the mass consolidations occurring among worldwide automotive manufacturers. These immense companies are able to offer many styles and options, but so many options come at a cost.

This could become a problem for them as more informed consumers insist on lower prices and more add-ons. The World Wide Web, which allows consumers to thoroughly research and purchase automobiles from home, has become an essential ingredient to any successful automakers arsenal, and will continue to play a large role in the 21st Century. The luxury vehicle segment has grown more competitive, yet maintains large profit margin potential. American buyers have been showing increased interest in European and Japanese manufacturers.

A study in 1990 revealed 11% of Americans wanted to purchase European luxury cars, a number that has increased to 23% in 1999. The Sport Utility Vehicles (SUVs) segment has emerged as one of todays hottest markets through its increased sales. North-American consumers in higher income brackets are choosing, with increasing frequency, to put SUVs in their garages. Minivans market share was 8% in 1998, which was down 12% from 1991.

This is a result of a shift in consumer demand away from these vehicles. Overall market analyst consensus is that minivans have entered the mature stage of the product life cycle. Pick-up trucks, uniquely American vehicles that span all of the consumer target markets, show good potential for domestic manufacturers. U.S. manufacturers have sustained unparalleled sales in this segment due to the popularity growth of trucks. The largest and most important product segment in the automotive industry is mid-size cars.

It is an area of intense competition for car sales in the United States. Popularity for mid-size vehicles is due to consumers preference for luxury cars they cannot afford and compacts that they do not like. All of these vehicle segments combine to form an industry in which consumers have continuously changing tastes. Recent years show that, for those manufacturers who can compete worldwide, profit and growth potential will be ever present.

The company who is able to produce vehicles incorporating the most recent technologies at the lowest cost will find themselves with the competitive advantage. Firm Analysis General History of Ford: Ford Motor Companys first car was sold on July 23, 1903. In 1906, the first Model T was made available and the millionth car was produced on December 10, 1915. Production of trucks and tractors began in 1917. Ford became the first international company when they started exporting cars to Europe. Within 10 years Ford had plants in 5 countries.

In 1956, Ford went public with the largest stock issue of all time; 10.2 million shares. The Ford family still retains 34% of the firms voting stock. Fords finance subsidiary, Ford Motor Credit, was formed in 1959 and is the number one auto finance company worldwide. The Thunderbird, a two-seater sports car, was produced in 1954.

A revolution was started in 1964 when Ford unveiled the Ford Mustang. It was the first time the world had seen a sporty car with a youthful touch. The 70s were a time for quality reflection, assessment, and improvement. In 1980, Ford introduced the Escort, which was their first attempt at a car that could be globally marketed. The 80s were also the decade in which the Taurus made its first appearance. Ford then developed the global car referred to as CDW27.

It was a highly sophisticated car that sent all over the world with only slight modifications for various regions. In 1987, Ford earned record profits of $4.63 Billion and three years later they suffered their largest one-year loss of $2.3 Billion. Ford makes vehicles under the following names: Volvo, which was bought in 1999; Aston Martin, acquired fully by 1994; Jaguar, which was bought in 1990; Mercury, production began in 1938; and Lincoln, which was purchased in 1922. In addition, Ford owns a controlling 33% stake in Mazda; 81% of Hertz, which is the number one rental car company in the US; and Ford Motor Company of Canada, Ltd. Currently, Ford is the #2 maker of cars and trucks worldwide.

They are also the worlds largest truck manufacturer and are ranked by Fortune 500 as the second largest industrial corporation. Fords three major subsidiaries are Hertz, Ford Credit, and Visteon. Hertz is the U.S.s largest rental car company. They have seen five years of record profits and seven straight years of increased earnings.

Ford Credit is the worlds largest automotive finance company. In 1998 its earnings were $1.1 billion, an increase from last year. Visteon is a component manufacturing operation with annual sales of nearly $18 billion. Future Plans: According to the company, Fords prime focus in the 21st Century will be on the consumer. Fords management stated, Our vision is to be the worlds leading consumer company that provides automotive products and services. In addition, Ford has made a deal with Microsoft in an effort to take advantage of the MSN CarPoint service.

In addition, Ford recently announced an agreement with Yahoo! which will allow car owners to register their cars online. Their plans project that cars will be able to connect within 3 years. That online service is known as 24-7. With this service car owners will see such benefits as: being able to get service reminders, information on credit accounts; and real-time traffic reports. Voice-activated Internet access is also projected to be available within 3 years. With that service, things like email capabilities and direction retrieval will be possible in a hands-free atmosphere.

Ford is also trying to expand in the area of e-commerce. Their focus is on five areas: Telematics, Business to Consumer, Customer acquisition, Customer retention, and Business to Business. Ford is striving to make advances that will keep it competitive in a global market during the information revolution. Financial Analysis: General Ford has shown a steady pattern of sales growth from 1994 to 1997, growing at 5-7% each year. However, in 1998 sales were down 6%. In 1999, sales were up 14% from the previous year, giving them an average over the 94-99 period of 5.4% growth.

Profit margin has remained steady, always ranging between 7% and 9%, slightly above the industry average. Cost of goods sold has remained around 72%, which shows con …

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Automobile Industry. (2019, May 04). Retrieved from