Market Environment and Structure of Automobile Industry

Market Environment and complex body part of Automobile Industry1.1. Market EnvironmentThe market environment is the combination of actors and forces that strike an organisations capability to operate its operations effectively in ordain to provide its products and services to its customers. (Jobber 2004)According to Jobber (2004) these forces can be classified into internal or external environment and these will act in accordance with the comp whatevers position in the market as shown in appendix A.As this analysis is well-nigh the automobile industry and companies operating within this industry are also facing these forces. Some of these fixingss are explored later on in this report.1.2. Market StructureChris Britton (2003) defines market structure as the amount of competition that exists between the rivalry organisations. According to him the market structure can be perfection competition monopolistic competition oligopoly or monopoly depending on the nature of problem.As the automobile industry in not mainly dominated by one single profligate and in different parts of world there are different market leaders. So, in bigger picture the global automobile industry is having an oligopolistic structure where many another(prenominal) player are there to share profit and for competition.1.3. Brief Profile of Automobile IndustryThe automotive industry is the industry involved in the design, development, manufacture, marketing, and sale of repulse vehicles. According to Datamonitor (2009), more than 40 million cars were sold across the globe which means the market shrunk by 5.3% as compared to 2007.As atomic number 63 is biggest consumer of new cars with 42% while Asia-Pacific and America accounts for 32% and 26% respectively (Datamonitor 2009). The plunge in the consumption of new cars is caused by the recent time out and the motor crises which are widely affecting the auto industry. Meanwhile the rising fuel prices and increasing approachs of keen m aterial are another great match for the manufacturer in order to survive in this turbulent atmosphere.Before the global crises the US market which was the biggest consumer of light vehicles was dominated by the big leash GM, Chrysler and cross, while in Europe equal competition was seen among few companies ( traverse, Volkswagen, and BMW) and Asian market was mainly dominated by the Toyota.In recent years the Toyota emerged as a big threat for US companies in the international market through its hybrid technology and is giving tough competition. The Tata has launched the world cheapest car Nano in 2009, India is the focus of all major car manufacturers due to its consumption of small cars and it is also described as For small car, India is the centre of the Universe by Alan Mulally, Ford President and CEO (Business straight off Sep 2009).2.0 Looking at Company (Ford)2.1. Company (Ford Motor ) ProfileFord Motor Company is a globally recognized company based in United States and it operates across the globe in six continents with its four stigmatises (Ford, Mercury, Lincoln and Volvo). It operates primarily through its automotive business and secondarily through its financial services. Its automotive sector consists of manufacture, design, sale service of small vehicles and large trucks, development and spare parts. The financial services are cut back to insurance and vehicle related finance and leasing.According to auto evolution (Dec 2009) ford was the only one to survive among the three US car manufacturers without any aid or g everyplacenment help and not only survived notwithstanding also pocketed the $1 billion net income in the third quarter of 2009.Ford is known for its innovative design and technology which is gained through its reverse engine room methodology. The chairman of Ford, Bill Ford is following a simple strategy which is, Our great deal for the future is simple We want to build great products, a strong business, and a better world. (Ford.com)2.2. History of Company (Ford)Ford Motor Company was founded in US state Michigan in 1903 by an automotive pioneer Henry Ford which was first of its kind in the auto industry. The Model T developed in 1908 and resulted in the sales of over 15 million units. By the 1920s it has captured the 50% of the market share. After going into public in 1956, the company has reached the global market with satisfying succeeder.3.0 Macroeconomic Analysis of Ford (Pest Analysis)According to Ian Worthington (2003) organisations operates their operations in an economic environment which is shaped by these operable activities. There are number of factors that influence the decisions of a business organisation although these are not under the control of that particular organisation. These factors can be political, social, economical or technological.These factors have the wider influence on the Fords decision making as Ford is also a business organisation which operates through its auto manufacturing operations and financial operations.How these factors influence Fords strategies is discussed belowPolitical AspectsFord Motor Company operates in 50 different countries so it has to fulfil the legal and safety requirements in accordance with their rules and regulations.Economic AspectsSocial AspectsTechnological Aspects4.0 Micro-Environment Analysis of Ford (Swot Analysis)4.1. Strengths to Build UponStrong Engineering and Design CapabilityThe one of the reason behind the success of Ford is its strong design and engineering capabilities. Ford every new depend on the success of its RD projects which are run through 50 engineering and design centre which are located in many countries across the globe.According to Datamonitor (2008) Ford launched Blind Spot Mirror in its cars in order to remove hazards and build the more traffic views for drivers. Ford also introduced the accident-assistance feature in coordination with the National Emergency Number Association (NENA) in order to purify the emergency service in the same year. This shows how technology and innovation matters at Fords in order to remain competitive in the marketHigh Employee productivenessFord has employed a strong work force that contributes towards the company operations in order to achieve its goals. It has recorded higher gross per employer ($1.8m) in 2008 as compared to its rivals (GM, Toyota, Honda, and Chrysler) its 3 times more and this simply because of the training and efficiency achieved by its employees.Fords Extensive DealersThe dealer network acquired by Ford is wide strewing in all parts of world especially in rural areas represents Ford through its range of products that included Ford, Mercury, Lincoln and Volvo.4.2. Weaknesses to OvercomePoor financial PerformanceFord didnt perform very well in FY2008 as compared to 2007 and its income statement seen a decline of 15.3% (Table 4 Appendix D) which was widely due to the nook and land revenues of Jaguar and Land Rove r. The Jaguar and Land Rover was sold later that year in order to control companys financial situation and to find out the investors trust.Sluggish Performance of CompanyThe best performing markets of the world for Ford saw a steep decline in 2008. North-America that accounts for almost half of the companys revenue saw downfall of nearly 24% according to Datamonitor (2009), other parts of world saw the same picture.Poor Cash FlowsAccording to Datamonitor (2009) Fords cash hightail it declined badly endangering companys position at one stage. Although it came out of recession without the US Governments help but it shows ineffective cash management by the company. So, Ford bland need to do a lot in order to gain its pre 2007 state.4.3. Opportunities to ExploitPotential Asian MarketEverybody is aware of India and Chinas importance as a developing market for small sized vehicle and it is also mentioned by Fords CEO Alan Mulally in one his interview as For small car, India is the cent re of the Universe.(Business Today Sep. 2009)According to Market Watch (2009) in 2008 the Chinese new car market reached $98 billion which grew by 14% which is expected to grow to $one hundred fifty-five billion by 2013. On the other hand India is also rising as a strong economy which means consumption of more vehicles. This is a potential opportunity for Fords to capture this part of world through its strong presence in the market and through its high class manufacturing capabilities.Hybrid, Electric and hydrogen VehiclesThe high fuel price increased the demand for fuel efficient vehicles and as everybody is switching to hybrid cars which means next few years are vital for Ford in order to cope the demands of hybrid vehicles.The worldwide demand for hybrid vehicle is 800,000 units in 2009 and is estimated to grow at 4.5 million units by 2013 (Market Watch 2009)In 2012 Ford is expecting to launch in third generation of hybrid vehicles including a plug in version (Ford.com). Also th ere is significant opportunity to invest in electric and hydrogen vehicles which seems to be next car after the hybrid cars.4.4. terrors to OvercomeIntense CompetitionFord is having violent competition from its rivals especially Toyota which is trying to demoralise a grip on US market. Another factor behind this competition is increasing fuel and raw material prices which are giving hard time to keep the production cost low and prices competitiveRecessionAlthough economists are saying that the recession is over but actually not for the auto industry as more people are losing jobs, revenues are getting lower and more companies look towards presidency help in order to survive.Ford was the only company among the big three in US that survived without the bailout but recession did affect its cash flows.5.0 Porters tail fin Forces Model for Ford5.1. Bargaining Power of SuppliersThe automobile industry has a huge supply market which relies on few car makers to sell their products in or der to survive in the competitive market. The key inputs required by the manufacturer are not much differentiated by the other provider and it shows the little switching costs and wider choice of supply. This shows a little power in the hands of supplier but the only thing strengths the power of supplier is the quality of their products which give them a little edge on car manufacturers but overall, supplier holds moderate powers over their buyers.5.2. Bargaining Power of CustomersBefore the recession auto crises the market was dominated by the few players and people were mainly relying on local firms mainly in the US with the choice of few, but as the international firms made their way into the global market (Toyota Honda in US) the customers start getting more choices.People dont often buy a car uncomplete buy them in bulk which shows a little or no power in terms of bargaining and on top the strong brand names in the market even further weakens their power. There is huge pote ntial market for new cars, although there is a little switching cost but consumers are price sensitive and brand conscious too, therefore, this results in reducing their bargaining power. There is another factor affecting their power is polypsony nature of market which means large number of buyers with little power to influence the price. All these factors show a moderate power in hand of customer.5.3. Threat of New EntrantsNorth-American seems to be the heaven for the big three until the arrival of Honda into US market and saw a plunge into the share of US manufacturers. Although it is still believed that to get entrance into the auto industry needs not only the large amount of capital but also the innovative engineering and technology. Due to this factor it is hard seen that a new player emerged into the market.Recent recession also gives the assurance of no more new arrival in the auto industry for a while. Even it has forced few companies to leave the business and many others to tumble. Therefore, it clearly shows the little or no threat to the existing market.5.4. Threat of SubstitutesAlthough there is no alternative of having your own ride but due to increasing fuel prices, job losses, and increasing car prices are forcing people to move towards the cheaper persuade alternatives.Mainly used cars, public transport and somehow cycles are appearing as potential threat for the auto industry. Although these methods are less convenient but due to the recession customer are getting more and more conscious towards money saving and cutting costs. Overall, it shows the strong threat of substitute at least for time being.5.5. Competitive Rivalry between Existing PlayersThe auto industry is highly competitive in terms of return on investments and it is considered as an oligopoly market. In the past this competition wasnt exactly about the prices of cars but only to capture more market share through the innovative design and technology. close to of the firms tried t o avoid price based competition but now its comes to the survival of business which lead towards the price war between rivals and it also resulted towards the lower profit margins. Even this competition has intensified firms now offer longer warranties, lower interest rates and better after sale support in order to attract more customers. So, this results as the strong market competition.According to Ebsco (2009) the auto industry is occupied by small number of companies who having a combat of survival. Although there is a little threat of new entrants in the market but the competition among the existing firms is quite intensive. All the other forces are each week or moderate apart from the one (Threat of Substitutes) which can impose danger for a time being.The market has changed its shape due to the recession and many firms including GM is having a tough time and others are having a loss or less profit but there are still opportunities in the market to grow and bounce back.6.0 S trategies7.0 ConclusionReferenceshttp//www.autoevolution.com/news/2009-auto-industry-wrap-up-14948.htmlFordhttp//www.ford .combusiness today 6 sep 2009 N Madhavan (Alan Mulally Interview)Auto Sales Sales and shell out of Total Market by Manufacturer, Wall Street Journal Markets Data Center, Nov. 3, 2008http//bigthreeauto.procon.org/Chart