Often, a company’s survival is dependent on the creation of a competitive advantage, which is designed and implemented by management. Creative ideas and technological innovations are essential from any automobile player challenging for the status of innovation and technology leader. The global automobile industry has become very saturated. With industry overcapacity, many automobile manufacturers will either merge with other automobile companies, become acquired, or go out of business.
Automobile companies still strive to minimize costs by pursuing economies of scale, with long term goals of maximizing efficiency while maintaining their product quality. Successful companies will survive by being innovative in the way they design, develop, and deliver their products and services to the end user. It is up to the management of the firm to develop innovation, and provide strategies in order to reach its customers. In order to understand the opportunities and challenges that an individual company’s management may face, this analysis will first examine current trends of the industry, common business strategies, sources of competitive advantage, and other trends significant to individual competitors. This paper will then provide an analysis in depth analysis of Daimler-Chrysler
Current Industry Trends Mergers, acquisitions, and integrations have transformed the landscape of the global automobile industry. Examples include: · The merger of Chrysler and Daimler-Benz
· Volkswagen acquiring Bentley and Lamborghini.
· Toyota’s growing control over Daihatsu.
· Ford acquiring Volvo’s car business.
· BMW acquiring Rolls Royce
Also Listed above are Daimler Chrysler-Benz's main competitors.
The 1998 PricewaterhouseCoopers Global Automotive Deal Survey cites overcapacity, the pressure to increase economic profit, and the drive by Vehicle Manufactures to respond to the power shift towards consumers as all contributing to the rapid structural change in the industry. The report says that 6 to 8 global manufacturers might control the industry in the near future as small manufacturers continue to be acquired. This consolidation is the most noticeable trend in the automotive industry.
There is also a trend towards the integration of suppliers in product development systems, and the outsourcing of modular assembly to suppliers located near the vehicle manufacturers assembly operations. These changes have produced large decreases in unit cost for the global industry.
One problem burdening the industry is the excess capacity that many companies face. Worldwide excess capacity is estimated at 20 million vehicles, or 45% of current capacity. This inefficiency has cost the automobile industry billions of dollars and will continue to burden the sector over the coming years.
Another negative trend in the global automotive market is declining sales in the European sector. After years of positive growth, the European Automotive Industry is now experiencing a phase of stagnation. It is still unclear how Europe’s integration will affect this trend. . This lethargic growth has created increased competition among European Automakers. It is now more important than ever for carmakers to innovate, in order to increase quality and/or reduce cost. In addition, it has increased the need to reach out to foreign markets particularly the United States. However, for Volkswagen and BMW, exports to the United States already account for such a large part of their business they have not been as severely affected by the downturn as many of their European counterparts.
Industry Strategies Economies of scale strategies are widely used in the highly competitive automobile industry. Recall, Profit = Revenues - Costs. Therefore, these strategies reduce costs to increase their company’s profit. The three primary cost reduction strategies are
· Globalization – to gain incremental volume leveraging “know-how” from other parts of the world
· Consolidation – to decrease the cost base supporting relatively stable volume, usually attained through the elimination of duplication in assets, such as the number of production facilities and suppliers. Note: In the second automotive century it is believed that this strategy will dominate.
· Platform deproliferation – to provide a broad end product range across a smaller number of design structures and as a result leveraging development and other costs for a greater volume opportunity.
Although these strategies are implemented in hope of lowered cost it is incorrect to assume that all automobile manufactures are competing solely on a low cost strategy.
Competitive Advantage - Often, a company’s survival is dependent on their creation of a competitive advantage. There are many sources of competitive advantages in the automobile industry. One such advantage is the relationship between the automobile company and the end customer. The automotive business differs from other industries in that there is a continued relationship between the buyer and the seller. Often, service conducted after the initial purchase is the deciding factor for future repurchase with the same vehicle manufacturer. (Hodgetts, Richard. and Luthans, 2006)
Low cost and product differentiation is also a source of competitive advantage used in the global automotive industry. For example, Ford Motor Company produces the Focus that competes on low price. Therefore, Ford must find the most efficient, cost-effective way of producing this automobile while still providing value to their customers. Ford’s ability to mix these factors is the key to holding a competitive advantage on competitors. Ford also produces Jaguar automobiles that compete on prestige and unsurpassed quality. To create a competitive advantage Ford must be able to differentiate their product from other high-end producers. These competitive battles based on cost and on differentiation are commonplace in the automobile industry.
Globalization - The 1998 PricewaterhouseCoopers Global Automotive Deal Survey states that “Nearly 70 percent of anticipated growth in light vehicle output between 1999 and 2006 is expected to come from outside of North America and Western Europe. The trend towards Globalization has changed the landscape of the global business environment. Automobile companies cannot ignore emerging markets, such as Russia and China. These new markets provide large, untapped customer bases allowing producers to gain further economies of scale. On the other hand, globalization will mean new entrants to compete with in their current markets. The trend of globalization has created greater competitive pressures from foreign producers, but also many new opportunities for all automotive companies.
Premium - Vehicles The automotive industry can be further broken down into car classes. These two classes are:
· Premium, sport or luxury vehicles
· Cheaper, mass produced automobiles.
The importance of premium markets is increasing substantially in the automotive industry. One reason for this growing importance of the luxury sector is their ability to withstand growing pressures on prices. One of the key differences that separate the luxury market is the relatively low price elasticities found in the luxury sector. For this reason, many new companies have entered this market. The continued entrance of new competitors has transformed a relatively small market niche into a saturated market that will weed out its weakest parts. (Hodgetts, Richard. and Luthans, 2006)
GENERAL EXTERNAL ENVIRONMENT
Creative ideas and technological innovations are essential from any automobile player challenging for the status of innovation and technology leader. In addition, the automobile industry may be strongly impacted by the Internet as much as any other industry. Consumers are increasingly using information from the Internet to determine such things as features, specifications, styles, and designs of different makes and models. One day, the industry may be able to circumvent the middleman and deal directly with the purchaser, as consumers may be able to place orders directly over the Internet.(Hodgetts, Richard. and Luthans, 2006)
The global automobile industry has become very saturated. With industry overcapacity, many automobile manufacturers will either merge with other automobile companies, become acquired, or go out of business. More and more automakers from around the world will need to address global overcapacity within the automobile industry and make strategic partnerships or mergers with other industry players.
The merger between Daimler Chrysler-Benz resulted in fairly disappointing profits.The costs of manufacturing were too high to profit after the sales in a very competitive U.S vehicle manufacturer’s environment. By the mid-1990s Chrysler had survived near bankruptcy experiencing deep and reverse fluctuations in folowing years. The merger with Daimler-Benz has not tempered these fluctuations even though they have used strategic planning and technical resources to improve the situation. (The DaimlerChrysler Emulsion, 2007)
The turmoil that followed did not help either. The cultural problems faced by DaimlerChrysler have been numerous and caused considerable problems and delayed the integration of both organizations. Evidence of the lack of true sharing and cooperation was soon to emerge. For the first two years, Chrysler's executives were not ready to work with their German colleagues. The two proud management teams resisted working together, were wary of change, and weren't willing to compromise. In some sense for Americans it was a mental problem, difficult to skip that now they were working together with German company.