The IndustryOne of the most interesting and complex industries today is the automotive industry. Companies in this industry face significant competition. They also face many external issues, including taxes, tariffs, substitutes, and the need to compete on sustainability. With so many companies from all over the globe competing for business with a variety of approaches, it can be hard to know where to turn first when doing an analysis. With this in mind, the industry sells roughly 80 million cars each year. The US is the leader in both production of cars and in consumption. Close behind it is China. China has begun making and buying more cars now that its economy is getting stronger for people in the middle class.
The rate of cars being purchased has not gone down. Even though the industry faces some challenges, it is apparent that people still have an appetite for cars (McKinsey & Company 1). They are much more willing to purchase them, as rates are going up by around five percent each year. This is in part because of the massive marketing machines being built by the big companies. Ford and GM, the two big American players, have built a reputation for rugged and dependable vehicles. German companies like BMW and Mercedes Benz have been able to show off their brands. Many cars coming out of Asia, including Toyota, have also been popular among individuals. Ultimately between Ford and GM, there is around one-third of the American market share taken up (Wall Street Journal 1). On a global stage, it is hard to deny that Volkswagen, even with some of its problems, has been able to take the lead.
One particular trend in the industry is the movement toward greener initiatives. Car companies have been responsive to the needs of individuals and countries on the issue of climate change. This has brought on new standards on emissions of late. With this happening, more electric cars have been selling, both from specialized electric car companies and from regular companies developing these products.
Despite its size and relative growth rates, the automotive industry has not been without its problems. In fact, two issues in particular have been quite important. One is the changing nature of American policy on taxes and tariffs. Donald Trump has bleated loudly about how thinks that the US is getting ripped off abroad with its trade policies. This has led to a new trade agreement with Mexico and Canada that has been the subject of some controversy. One of the provisions of this agreement is that if vehicles have 75 percent or more of their parts made in the US, Canada, or Mexico, then they will not face tariffs. This incentivizes companies to make cars at home and it makes it much more difficult for foreign companies to compete in the US. Of course, one of the main issues with this is that it can spark a trade war. American companies are not just selling at home, but they are also selling abroad. A trade war with China, for instance, can drain the US car companies of some opportunities for exports.
Another problem is with self-driving vehicles (Greenblat & Shaheen 74). It would not be a problem if every person was going to own a self-driving vehicle. This is not how the technology is intended, though. Instead, the self-driving car revolution is designed so that vehicles can be more efficient, taking people where they need to go and picking up another person. By design, this technology means that people will no longer have their own cars. This has created a dual challenge for car companies. For one, it presents the potential to eat into the market and demand for the product. On top of that, these companies have to keep up with the arms race of trying to produce the technology for these cars so that they can be the ones to do the rollout whenever it happens. As more people worry about wasting time on their commute, and as they want to be able to ride in a car without having to fight traffic, they may be more apt to adopt this technology. Companies currently in the car industry are in the best position to add the technology and begin to take advantage of this. Still, it requires tremendous strategic vision for a company to figure out where it stands in the world and where it should position itself in the years to come. The existence of companies like Uber and Lyft, which are looking to license this technology but are not car companies, also complicates matters, as it adds to the competition if the world of automobiles is actually changing.
Solutions and Recommendations
In looking at the problems facing these companies, there are some solutions they may undertake. To deal with the issues related to trade, the solution is to make sure that the cars are made in the US. The US market is too big a market to run away from, especially for American consumers. It is a reliable market in part because it is impervious to some of the constraints of foreign markets. Importantly, if companies can shift some of their operations to the United States, then they will be able to trade without worry of a large tariff. In addition, these companies could become more active politically, seeking to influence legislation in ways that are legitimate and under the table.
In dealing with the rise of self-driving cars, companies need to be on the cutting edge in terms of the development of technology. They can develop their own self-driving technology, even coming up with an app-type of system that makes the ride more comfortable. Right now, there is some evidence that many consumers are not going to like the self-driving cars because they are scary and take away from the experience (Nees 60). It is important then for companies to be smart and roll out the tech in a way that people will adopt it. Companies in the car industry know what their customers want, and they have experience in developing new technology that is able to make the ride better and safer. The option of both adopting this technology and trying to add the touches available to car companies because of their market experience and knowledge is quite important.
The solution that these companies should adopt is a dual one. First, the companies should make sure that they have their operations in Mexico, where it is cheap but they are able to secure the best possible benefits from the law. This is a way to work around the law, ensuring that they are able to trade in America without a problem. In addition, companies have to get to work to ensure that they are the ones who are introducing new driver-less car technology to consumers. It makes little sense for the car companies, who are on top of the needs of customers, to cede control of this important duty to those other companies around them. The better move would be to get out in front of it. In this way, the companies could actually license out the technology at a later date as well, making some money off of it if the car industry begins to struggle as a result of the imposed issues.
- Greenblatt, Jeffery B., and Susan Shaheen. “Automated vehicles, on-demand mobility, and environmental impacts.” Current sustainable/renewable energy reports 2.3 (2015): 74-81.
- McKinsey and Company. “The road to 2020 and beyond: What’s driving the global automotive industry?” 2018. Retrieved from https://www.mckinsey.com/
- Nees, Michael A. “Acceptance of self-driving cars: an examination of idealized versus realistic portrayals with a self-driving car acceptance scale.” Proceedings of the Human Factors and Ergonomics Society Annual Meeting. Vol. 60. No. 1. Sage CA: Los Angeles, CA: SAGE Publications, 2016.
- The Wall Street Journal. “Market Data Center: What’s Moving US Auto Sales.” 2018. Retrieved from http://www.wsj.com/mdc/public/page/2_3022-autosales.html