Ford and the World Auto

Ford and the World Auto Industry

During 1965-72 the average return on equity of the world's 12 biggest auto manufacturers was about 10%; during 1993-2003 it was about 4.5%. What changes in the structure of the world auto industry have caused profitability to decline?

The structure of the world auto industry after 1993, which produced the significant decline in profitability of the U.S. industry, is globalization, in that the U.S. auto industry up to this point had enjoyed a relatively limited number of competitors in the domestic and international markets. In the early 1990s all this changed as more foreign competitors emerged and more longstanding foreign makers became stronger, selling more units nationally (imported in the to the U.S.) and internationally (in traditional U.S. export strongholds). Not only did these new competitors begin to aggressively import their smaller more efficient models to the U.S. But they also began to manufacture in the U.S., starting in the 1980s and began to actively take over the traditional geographic split between the big 3 U.S. makers, a trend of geographic change that has and will likely continue to seriously alter the market.

Klier 2)

Rubenstein 1) All this caught up with the U.S. market in profitability by the early 1990s.

Rubenstein 1) Additionally, the consumer, having now been exposed to the more efficient and smaller vehicles produced by foreign competitors for about 20 years began to demand lower priced smaller and more efficient vehicles, from the U.S. manufactures, who in turn began to produce them. These cars have an inherently lower profit margin, but respond to a new environmentally responsible demand in the U.S. As well as world, markets that was reflected in legislation as well as popular opinion.

Rubenstein 230)

2. How is structure of the world automobile industry likely to change over the next 5 years?

The structure of the world auto industry is likely to continue the trend of change and profitably may change substantially as all manufacturers seek to implement developments of new technologies that are more environmentally friendly. The technologies used to make and manufacture eco friendly cars are exceedingly research intensive and therefore expensive, yet the consumer demands prices equal to or lesser than older less efficient models. The auto industry all over the world is responding to these demands and the U.S. has to compete, despite cost to retain any dominance it once had on the market. A new development in India, the Nano, a bear bones five passenger car, toted as the world's cheapest car priced at $2,500 U.S., and produced and marketed by Tatas (an Indian auto giant) will also likely change the shape of the industry which has demanded quality and safety over cost for many years. The new car will likely seriously challenge the world auto market as consumers opt for lower price over all other issues. It is unlikely that exports of this car will occur in the very near future, as it does not meet safety and environmental standards in most nations, but the industry will be poised to watch the sales success of this vehicle to see if quantity and price will continue to be the leading market indicators over quality, luxury and safety (at a higher price). (Bidwai NP) There is a clear sense that the global auto industry, as with so many other markets will continue to seriously change as a result of globalization and ensuing market changes.

Klier 2)

3. As a result of these changes, is the industry likely to be more or less profitable over the next 5 years as compared with the last 5?

The changes in consumer demand, the global auto structure and continued global market demands will likely result in continued deterioration of profitability for the auto industry over the next five years as compared with the last five. ("Japan's Car Giants Escape" NA) the international market will continue to dominate the U.S. In sales and innovation and quantity will likely continue to dominate sales as consumers seek cheaper alternatives, either in fuel economy or sticker price, especially in the wake of a downturn of the U.S. economy. It is clear that in the wake of change, and especially growth of competitive systems profitably tends to decrease in all traditional markets. ("Japan's Car Giants Escape" NA)

4.Which companies are likely to be most successful over the next 5 years?

Emerging markets, i.e. foreign competitors are likely to be most profitable over the next five years and in second any existing corporation who has foreseen the massive changes in auto manufacturing and implemented effective and economical models. When discussing emerging markets one must also consider the fact that the traditional auto industry (mainly in the U.S.) has been historically resistant to the development of ecofriendly autos, short of developing a scrap/recycling industry that has made the raw materials that have gone into cars in the past fodder for huge industry growth.

Ealey, and Troyano-Bermudez 72) for this reason and many others eco-friendly manufacturers have emerged, marketing alternative fuel, all electric and other vehicles in a side market that will likely continue to eat away at traditional sales in the traditional auto industry for many years. These companies, though they have existed for a long time have always been a very low profit eating niche market industry and yet with economic decline and increased demand for alternative fuel vehicles they now have showrooms in major urban areas and are "off the internet" per say, and seeking to become non-direct marketers as they have always been. Traditional market players must respond, basically by demanding the development of such autos, to retain a competitive edge over this niche market and to keep the sales that would have gone to the eco-friendly sellers by offering comparable offerings.