Market Environmental Analysis for US Automotive Industry Essay
The international auto industry is a multi-billion industry with numerous big carmakers in competition to achieve the greater market share. Ever since the 19th century, this industry has progressed to become a vital part of generating revenue for any economy. The revenue and growth of such a large scale worldwide industry are dependent on several market forces owing to its nature. Statistics show that cars sold in America went down from 7.9 million to 6.3 million units from 2014 to 2017. In the US, Ford, The Detroit Three, Chrysler and General Motors are the main manufacturers. With an increasing reception of electric and battery operated vehicles, Tesla’s market share is on the rise as well (Facts, n.d.). Recently Asian markets have demonstrated themselves to be highly profitable for automotive investment. Nowadays rapid changes in technology and increasing innovative solutions, Fuel efficiency, emissions and environmental friendliness have all become an important deciding factor. (Pratap, 2016).
The automotive industry went through various stages of innovation since its inception. With shifting technologies, customers now have become more aware of many trends and increasingly look towards many modern features, accessories, and technology savvy innovations before deciding a vehicle. Environmental friendly cars with reduced CO2 emissions are preferred more instead of more torque and horsepower. The race towards achieving low carbon emissions and increasing focus on fuel efficiency has shifted the market towards higher trend for hybrid vehicles and electric vehicles. This is affecting the sales and profitability of the car manufacturers who lean towards more traditional types of vehicle production. The increasing development of electric cars and the introduction of new players in the market that are focusing solely on this variation is also becoming an essential factor. Innovations like integration with smart-devices and self-driving technology are also responsible for the market shift. (Young, 2017)
The profitability and sales of the automotive industry are profoundly impacted by several political factors. Most governments are now providing incentives for low emission cars while increasing taxation for gas guzzlers and luxury vehicles. Climate change policies have resulted in higher support for low environmental impact vehicles. Promotion of better public transport systems by governments and more traveling alternatives such as Uber also leave an impact, as traveling on public transport becomes cheaper and more convenient, while advances in communication technologies allow people to move without owning a car quickly. Thirdly aggressive tax policies by the administration reduce profits as the costs go up. Euro Standards regulations have become the norm to be adopted (Balan, 2014). Outsourcing or moving plants in the U.S. auto industry also creates a shift as it affects labor and production demographics, which lead to political disagreements on trade policies, or change in employment practices (Joel Cutcher-Gershenfeld, 2015).
Competitive factors that influence the US automotive markets include several internal and external factors. Socioeconomic factors in developing countries affect their choice of automobile. In developing markets, there is rising competition from regional and local manufacturers that are producing more market-friendly vehicles. Many manufacturers to boost deals have turned to various promotion incentives, and packages, for example offering cash rebates, A car loan period increase, dropping interest charges, sponsoring leases, vending package vehicles (Young, 2017). Other competitive factors include supply chain, parts interoperability, and availability and expansion of parts manufacturing and distribution networks, in which Japanese manufacturers have taken the lead, by introducing similar parts for different lineups of their vehicles. (Cusumano, 1988)
The market environmental analysis shows the importance of reforms in US automotive Industry’s growth and expansion strategies. Rapid growth rates of developing countries as well as well as several external factors present an excellent opportunity for US carmakers to sustain their growth. The threats US companies face from increasing regulations and increasing consumer awareness regarding emissions calls for evolving tactics. Recommendations to maintain the industry include generic recommendations that apply to most of all US-based car makers to compete efficiently and gain market share in the next five years.
- Channel more investments in R&D for development and enhancement according to latest technological requirements, especially in the production of electric, battery-operated or hybrid fuel vehicles, and reducing emissions. The Electric Vehicle market worldwide has a forecasted growth rate of 18.96% from 2017-2023. In 2016, for example, China sold 507,000 more electric vehicles and plug-in hybrid electric vehicles, a 53% rise from 2015. (WiseGuyReports, 2018)
- US carmakers need to grow their dealership and parts distribution networks especially in developing countries such as China, Indonesia, India or Pakistan to make use of their rapid growths. They also need to introduce vehicles that are more in demand, according to their socio-economic conditions. Investing in the development of smaller vehicles will help as 30% of global sales are for smaller cars that could go up to 30 million vehicles in 2020. 60% of the market is in these emerging economies where the industry is expected to grow 6% per annum as forecasted for 2020. (Detlev Mohr, 2013)
Balan, V. (2014, March 18). PEST Analysis on the Automobile Industry. Retrieved from Academia Edu: https://www.academia.edu/7033015/PEST_Analysis_on_the_automobile_industry
Cusumano, M. A. (1988, October 15). Manufacturing Innovation: Lessons from the Japanese Auto Industry. Retrieved from MIT Sloan Management Review: https://sloanreview.mit.edu/article/manufacturing-innovation-lessons-from-the-japanese-auto-industry/
Detlev Mohr, N. M. (2013, August). The road to 2020 and beyond: Whats Driving the Automotive Industry. Advanced Industries: Mickensey & Company.
Facts, U. (n.d.). US Automotive Industry. Retrieved from Statistica: https://www.statista.com/topics/1721/us-automotive-industry/
Joel Cutcher-Gershenfeld, D. B. (2015, May 6). The decline and Resurgence of the US Auto Industry. Retrieved from Economic Policy Institute: http://www.epi.org/publication/the-decline-and-resurgence-of-the-u-s-auto-industry/
Pratap, A. (2016, september 1). Automotive Industry PESTEL. Retrieved from cheshnotes: https://www.cheshnotes.com/2016/09/automotive-industry-pestel/
WiseGuyReports. (2018, February 5). Electric Vehicle Global Market 2018. Retrieved from Digital Journal: http://www.digitaljournal.com/pr/3645835
Young, J. (2017, June 1). General Motors PESTEL Analysis and Recommendations. Retrieved from PAnmore Institute: http://panmore.com/general-motors-pestel-pestle-analysis-recommendations