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Sharon Garcia International Business management 4/13/11 The Global Automobile Industry in 2009 1To have a thriving and growing economy you have to have a strong manufacturing base that is outputting quality goods in large quantities. In the case of the United States much of the economy in the past has been built on housing sales and the automotive industry. America’s modern automotive industry is being hurt by two things: Unionized labor and cheaper imports from Asia.
Why build cars in North America where unionized automotive wages are $20+/hour when you can build them in Asia for less than $4/hour and still get the same quality? And in some cases more quality, if you want to consider the amazing durability and reliability of cars and trucks built by Toyota and Honda.
There is another factor too: Changing market interests. For years now Americans have been obsessed with buying SUVs and suddenly their interests have changed. They’re now buying small, more affordable cars with good gas mileages, mostly built in Asia.
Ford, GMC and other North American manufacturers are posting huge losses because they built all these SUVs that they can’t sell unless they give out huge discounts. 2Global Market Dynamics – The world’s leading automobile manufacturers continue to invest into production facilities in emerging markets in order to reduce production costs and therefore rise in profits. These emerging markets include Latin America, China, Malaysia and other markets in Southeast Asia. Today’s global automotive industry is full of opportunities and risks which are everywhere — in emerging and mature markets alike.
However, profitable growth is becoming more difficult to achieve due to challenges prevailed from the supply chain to the retail environment. Currently, the automotive industry has too much of everything — too much capacity, too many competitors and too much redundancy and overlap. The industry is in the grips of a global price-war. China today, is one of the most important automobile markets in Asia. From the beginning, China’s automobile industry continues to grow rapidly.
The automobile industry in China is composed of 120 vehicle manufacturers 9currently getting consolidated), employing nearly 2 million workers. Despite China’s growing auto industry, productivity lags behind the other Asian competitors, and industry lacks the ability to conduct research and development, relying on its foreign partners to develop new vehicles. Although Chinese automakers are presently creating new and more trade friendly policies and methods through foreign joint-ventures, but China’s automotive industry still remains underdeveloped both technically and managerially.
India is also an emerging market for worldwide auto-giants. Due to low cost of labor many multinational companies are investing in India. Its automotive industry has grown very rapidly from the middle of 1990’s. Recently, there are two big investments expected to boost the sector further, one is from Maruti and the other is from Honda Siel. Tata’s proposed investment to manufacture cheap car is also expected to boost the industry. Indian automobile sector has huge demands from its own country.
This demand also attracts the giant automobile suppliers throughout the world to come and invest in the Indian automotive industry. 3Today, the modern global automotive industry encompasses the principal manufacturers, General Motors, Ford, Toyota, Honda, Volkswagen, and Daimler Chrylser, all of which operate in a global competitive marketplace. It is suggested that the globalization of the automotive industry, has greatly accelerated during the last half of the 1990’s due to the construction of important overseas facilities and establishment of mergers between giant multinational automakers.
Increasing global trade has enabled the growth in world commercial distribution systems, which has also expanded global competition amongst the automobile manufacturers. Japanese automakers in particular, have instituted innovative production methods by modifying the U. S. manufacturing model, as well as adapting and utilizing technology to enhance production and increase product competition. Establishment of Global Alliances – U. S. automakers, “The Big Three” (GM, Ford and Chrysler) have merged with, and in some cases established commercial strategic partnerships with other European and Japanese automobile manufacturers.
Some mergers, such as the Chrysler Daimler-Benz merger, was initiated by the European automaker in a strategy to strengthen its position in the U. S. market. Overall, there has been a trend by the world automakers to expand in overseas markets. 4. Although we’ve long known that domestic automakers were losing ground to foreign companies, the Plain Dealer found that the decline was quicker and more widespread than many people think. The Big Three’s market share dropped from 74 percent in 1997 to 57 percent just 10 years later.
The slump has many causes, industry experts say. • Cars from Ford, Chrysler and GM weren’t as good as their competitors’. • New rivals like Kia entered the market. • Import-friendly areas added population, and sales grew faster than in domestic strongholds. • The market for sport utility vehicles collapsed, hammering a profitable market the U. S. companies had counted on. Analysts say the companies need to do two major things to win back customers – build great cars and patiently wait for customers to notice.
The falling value of the dollar makes exporting cars to the United States more expensive. Toyota and Honda avoid some of those costs by building here, but they still import thousands of vehicles. GM’s new labor contract with the United Auto Workers also should help by lowering costs, freeing up the money needed to improve products. Domestic producers have closed the quality gap that drove many buyers to competitors over the past several decades. To win new customers, companies need to grab buyers’ attentions with dramatically different products. The bailouts of GM and Chrysler gave an unfair advantage to those two (more so GM than Chrysler) over Ford who actually was making an honest attempt at rebuilding. To me, giving 50 billion to G M was a reward for failure. Additionally the market capitalization of the big 3 is not more than $6 billion. It would be cheaper for the US government to buy it outright than to keep pouring money in to insolvent companies, the cars of which Americans are not buying for decades of shoddy quality. It is time to let the market sort this out. Honda or Toyota could buy up the plants and bring the work ethics to the 21st century.
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