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AUTOMOBILE INDUSTRY ANALYSIS

BUSINESS POLICY
GROUP ASSIGNMENT, MARCH 2012







BUSINESS POLICY (BSC 14)
UCD ID NAME
10297294 Abeysinghe T P Y N
10297308 Gunarathna I A E L W
10297341 Kariyapperuma N V
10297316 Maduranga M M K S
10298002 Anderson W M
10298070 Samarawickrama H C


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From its humble beginnings from in 1885 today the automotive industry is one of the biggest
industries today and is one of the worlds most important economic sectors by revenue. Not only
does this industry develops and manufacture but it also markets and sells motor vehicles
globally.
STEEP Analysis on
Socio-cultural
Socio-cultural variables such as population, social responsibility, cultural differences, and the
influence of consumer movement affects directly to the automobile industry.
Most of the people concerns the price, mileage, brand of the car, design and style, after sales
service when purchasing a vehicle and depends on what other people think about their vehicle.
Age distribution is a factor that directly influence when focusing on sales among population,
And should be able to develop segments that able to satisfy different needs of age groups.
When purchase vehicles the families are more sensible factor which influence car purchase
decision. Space, safety and budget play a major role.
Need to focus on corporate customers since they buy the largest amount of vehicles.
Technological
Technological factors and innovations, Research & development plays a most important role as
they improve standards of driving.
Fuel consumption is one of a major problem at the moment, hybrid engines has developed to
reduce fuel consumption. Ex: Honda, Toyota
One of a major requirement of the customer is safety. Seat belts, air bags which protect
passengers at a collision, ABS brakes to stop the vehicle in short distance even in icy surfaces.
By investing for Research and development and innovating new technologies can gain patented
and boost sales.
Technological development is support the driver to control the vehicle more comfortable and
easier. Ex: Auto gear, auto parking, Navigation system.
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Economic
Over the years prices of automobiles have increased due to the rise of the inflation. In terms of
infrastructural developments the automobile industry is one of most demanding. One of the
major external factors that affect the price elasticity comes from the oil dependency. Some other
factors that cause shifts in supply & price elasticity;
Government taxes on manufacturers.
Prices of external resources (Ex: price of Steel will increase the price of vehicle)
Population figures
Buying capacity of people
Level of economical activities.
Commercial use of automobiles
To lower costs outsourcing of materials, components and some services were increased and
technology advancement leads to drop the prices. This industry brings substantial economic
benefits to mother countries.
Some of negative affects and factors of externalities
Inadequate infrastructure for transport operations
Cost of running a vehicle
The automobile industry is largely responsible for traffic congestion.
Dependent on fuel economy
High petrol prices do not always bring about a fall in demand for vehicles since a new car is
often more fuel efficient than an older offering the buyer the chance to save money.
New cars are coming with more fuel efficiently than older, its offers buyer a chance to save
money.
Ecological
Environment factors such as fuel economy, pollution, emission etc are the industrys biggest
challenges. Environmental considerations lead manufactures for innovations. More environment
friendly vehicles like hybrid cars were introduced and demand for such products are increasing.
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Issue Cause Solution
Ozone layer destruction Emission of CFC Use systems that eradicate
CFC
Global warming Emission of Carbon Dioxide Alternative energy
Space Population/Consumer growth Compact cars, minivans
Noise & air pollution Emissions Dust collectors, electronic
injections etc.

Political and legal forces:
Political forces, both at home and abroad, are significantly influence to automobile industry.
Hybrid vehicles have more demand and more government support due to environmental
friendliness.
All new cars must comply with strict EU vehicle emission standards, known as Euro standards.
UK Government has introduced financial measures to favor cars with lower CO2 emissions.
Increases and decrease of taxes can be effect to automobile industry sales and usage.
Import laws are vary from country to country, but still its a crucial factor to automobile industry,
In China, Importers need importing license.
In Colombia Importing used vehicles is not allowed.

Porter's Five Forces On Automobile Industry
Threats of new entrants:
Automobile industry is very specific industry, thus it has higher level of entry barriers. For an
example Factory facilities, machinery, labor, technology are heavily involved. So following
factors are determine the barriers of entry to the industry:
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For a new company, needs to look for mass production to achieve economy of scale in this
mature automotive industry. Eg: Kia
An automotive manufacturing facility is quite specialized, has enormous capital investment and
event of failure could not be easily retooled. Eg: Hyundai Sonata
Established companies are entering to new market through strategic partnership or merging with
other companies. Eg: TATA buys Jaguar Company
A new company has to find dealership to sell their automobiles so access to distribution channels
builds a more pressure.
Bargaining Power of Buyers
Bargaining Power of buyers affects industry profitability by their ability to hold out for
lower price, higher quality, and better service. In automobile industry the bargaining power of
the buyers is moderately high. The factors that affect consumer to make a buying decision are the
appearance, quality, price, and environmental effect. Based on a variety of the lifestyles; people
choose to purchase a vehicle in a different way. There are various brands and models of the cars
to choose from nowadays and the buyers have low switching cost due to the various brands with
similar specs and price with competitive marketing. The reasons why the power is not
completely high is that the buyers are not large and few in number. The buyers do not have the
ability to integrate backwards into the industry.
Bargaining Power of Suppliers
Suppliers can exert a competitive force in an industry by raising prices or reducing the quality of
the goods they sell. The bargaining power of suppliers is very low in the automobile industry.
There are so many parts that are used to produce an automobile, that it takes many suppliers to
accomplish this. When there are many suppliers in an industry, they do not have much power due
to that industry manufactures can easily switch to another supplier if it is necessary.For example,
Toyota has more than 10 different suppliers in US. The main qualifications of the suppliers are
the quality, cost, and delivery of the products. If suppliers cant meet those basic considerations,
it is hard for them to survive.
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Rivalry among Existing Firms
New entrants to automobile industry bring new capacity a desire to gain market share and
substantial resources. Rivalry between firms automobile industry get customers several
advantages changing prices, improving product differentiation, creatively using channels of
distribution, exploiting relationship with suppliers, for example of competition between BMW
and Benz car market.
The intensity of rivalry is influenced by the automobile Industry:
Lager number of firms:-increases rivalry because more firms must compete for the same
customers and resources.
Rate of market growth:-causes firms to fight for market share in a growing market.
Amount fixed costs:-result in an economy of scale effect that increases rivalry. When
total costs are mostly fixed costs.
Height exit barriers:-a common exit barrier is asset specificity. Some automobile
production plant and equipment cant easily sell to other buyers in another industry.
Diversity of rivals:-with different cultures, histories, and philosophies make an industry
unstable.
Threats of Substitute Product or Services
Products are appear different but can satisfy the same need as another product. Product
differentiation is more important. In the car industry typically there are many cars that are similar
just look at any mid-range Toyota and you can easily find a very similar Nissan, Honda, or
Mazda.
High functional similarity.
Product image associated with many important factors.
Mostly high product switching costs.


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Opportunities and Threats of Automobile Industry

As part of this project this area looks into identifying the key point concerning the external
threats and opportunities fact within the automobile industry with present external environment.
This is an important part of the overall process as it helps understand the current status of the
industry. The data gather from the process will provide valuable information for evaluation and
strategic choice for planning and decision making.
The external environment analysis is also useful to find new opportunities for both profit and
growth especially within the automobile industry this is curial to gain a competitive advantage.
Rocketing oil prices
Demand for luxury
Electronics technology
Access to new market
Demand for environmentally friendly vehicles
Consumer confidence


However likewise any changes in external environment also may present threats to the industry,
some explains of such threats include.
New regulations on fuel emission cuts will have deep impact on further sales growth rate.
Competitive rivalry with the emergence of substitute products from Asian markets
Increased trade barrier & Political instability
Product recalls are always a problem for vehicle manufacturers.
Fuel efficiency and poor customer care
Low market share and poor alliances


The above points briefly highlight the areas of concern and what forces that could affect outside
the factory. Therefore industries such the automobile industry should keep watch if either to
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react or lose the customer as the outside the organization and can potentially affect the
organizations performance and brand image in the long term.

Conclusion
This study looked into a detailed aspect of the automobile industry in terms of external forces
that the industry has to withstand to remain competitively. With the help of tools such as Steep
analysis, Porters five force model and external environmental analysis made it possible to better
understand and evaluate various external factors impacting a automobile industry using Steep
analysis in terms of the impact from Social, Technological, Economic, Environmental, Political
forces. Additionally a framework for the industry analysis as build on using Porters five force
model that help identify and determine the competitive force and the attractiveness of the
industry market. Lastly we examined the opportunities and threats that exist in the environment.
As identifying the opportunities and threat will always favor the business in terms of better
preparing to reach their final goals and strive towards the most utilization of available skills,
resources and currently market constraint while minimizing the threats presented.











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