United States Automotive Industry
The industry I decided to write about has been fresh in my mind lately; the Automotive Industry. I’ve recently spent three weeks of extensive research on automobiles, as well as countless telephone and in-person conversations with many automotive dealers. Ultimately, my research and conversations landed me a new-to-me, fully-loaded, 2006 Ford FiveHundred. When given the task to perform an Industry Analysis; the automotive industry was fresh in my mind. Today, there is no industry more present in the world than the automotive industry.
The automobile has changed the lives, culture, and economy of the people and nations that manufacture and demand them. Frenchman Jean Joseph Etienne developed the first practical internal-combustion engine in 1860, and later in the decade Karl Benz and Gottlieb Daimler produced gas-powered vehicles that ultimately dominated the industry (Wikipedia, 2010). Ever since then, the automobile industry has grown into a billion dollar enterprise affecting so many aspects of our lives.
During the early part of the twentieth century, the United States was home to more than 90 percent of the world’s automotive industry, but has shrunk to about 20 percent in today’s world. This drastic change has occurred by the booming economies in such nations as China, Japan, Germany, France, and Italy. The “Big Three” Automakers, GM, Ford, and Chrysler, are the largest automakers in the United States. GM held the distinction of being the top in automotive sales for 77 consecutive calendar years until 2008, when Toyota outsold GM in the North American Market (Bunkley, 2008).
The big three automakers are not the only manufacturers affected by the recent economic changes; other companies in this industry manufacture everything from steel, aluminum, dashboards, seats, door handles, and tires to name a few. In the auto industry, a large proportion of revenue comes from selling automobiles. The parts market, however, is even more lucrative. For example, a new car might cost $18,000 to buy, but if you bought, from the automaker, all the parts needed to construct that car, it would cost 300-400% more. The automobile supply business is quite fragmented.
Many suppliers rely on the big three automakers to buy a majority of their products. If an automaker decided to switch suppliers, or as in recent situations, slow production or shut down production plants, it could be devastating to the supplier’s business. Suppliers are extremely susceptible to the demands and requirements of the automobile manufacturer and hold very little power (Wikipedia, 2010). In addition to the labor and material costs mentioned above, there are other developments in the automobile industry that must be considered. Globalization is a huge factor affecting the auto market.
More than ever, it is becoming easier for foreign automakers to enter the North American market (Wikipedia, 2010). Two of the largest foreign automobile manufactures are the Toyota and Honda Motor Companies. Other factors for automakers to consider are consumer trends. Consumer sales remain the largest source of revenue for Automakers. For this reason, taking consumer and business confidence into account should be a high on the list of priorities for automakers (Wikipedia, 2010). The general environment of the automotive industry spans across many areas.
The automotive industry not only manufactures automobiles, but financing automobiles is a major factor as well. Car companies can increase profits by offering lower financial rates than financial institutions. Extended warranties and greater emphasis on leasing can also bring in additional revenue for Automakers (Wikipedia, 2010). Facing wrenching challenges during the past several years, U. S. automakers have been forced to upgrade to newer ‘green’ automotive technologies to keep up with the wave of the future for the industry (Liu, M.
2009). A strong future for our country and the U. S. Automotive industry will produce more electric vehicles, which will reduce our addiction to foreign oil. American automakers know they have to either lead this historic transformation to electric vehicles, or they stand to become a page in automotive history.
“Big Three (Automobile Manufacturers ” Wikipedia, The Free Encyclopedia. 2010. Retrieved July 12, 2010 from Wikipedia. com: http://en. wikipedia. org/wiki/Big_Three_(automobile_manufacturers) Bunkley, Nick (2008-04-24). “G. M. Says Toyota Has Lead in Global Sales Race”. The New York Times: http://www. nytimes. com/2008/04/24/business/worldbusiness/24auto. html? _r=3&ref=business&oref=slogin&oref=slogin&oref=slogin. Retrieved 2008-10-26. Liu, M. (2009, May 4). A Lean, Green Detroit – China is now the world’s largest market for cars; Chinese leaders aim to own the biggest piece of it.. Newsweek International (International Edition ed. ), 0. Retrieved July 12, 2010, from NewsBank on-line database (Access World News)