4 Wheeler Consumer Auto Industry in US

ByRajat Bhatia

Sean AlexSunny Srivastava

Suyash RajVamsi Krishna

Political Factors

• Oil Politics• Kyoto Protocol• Legislation– National Traffic and Motor Vehicle Safety Act, 1966– Vehicle Air Pollution and Control Act, 1965– Clean Air Act, 1970’s– Energy Policy and Conservation Act, 1975– Intermodal Surface Transportation Act, 1992– North American Free Trade Agreement (NAFTA), 1993

• Taxes, Duty and Subsidies– U.S.A

• Protectionism vs Free Market

Economic Factors

• Effect on GDP and its constituents• Excess Capacity• Economies Of Scale• Diversification• Import and Export• Development of Economy• Proliferation of Resources

Social Factors

• Changing Demographics• Social Awareness of Pollution• Consumer Behavior• Leading Employment Generator• Fashion and Taste

Technological Factors

• Innovation• Plant• Peak Oil• Alternate fuel vehicles• Mergers and Acquisitions– DaimlerChryler A.G, Ford with Volvo, General Motors

and Saab

Legal Factors

• Alliance of Automobile Manufacturers replacing American Automobile Manufactures Association – Mar - Massachusetts v. EPA – Sep - California v. General Motors– Sep - Green Mountain Chrysler Plymouth Dodge v.

Crombie– Nov - Center For Biological Diversity v. National

Highway Traffic Safety Administration– Dec - Central Valley Chrysler-Jeep v. Goldstone– Dec - California’s Clean Air Act Waiver

Environmental Factors

• Pollution• Exploitation of resources

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HHI INDEX

Tool that is widely used to measure the relative degree of industry concentration.

• A small index indicates a competitive industry with no dominant players. • A high index indicates , high concentration with only few players controlling the majority of

market share.• Increases in the Herfindahl index generally indicate a decrease in competition and an

increase of market power, whereas decreases indicate the opposite.

A HHI index below 0.01 (or 100) indicates a highly competitive index.A HHI index below 0.1 (or 1,000) indicates an unconcentrated index.A HHI index between 0.1 to 0.18 (or 1,000 to 1,800) indicates moderate concentration.A HHI index above 0.18 (above 1,800) indicates high concentration.

HHI INDEX of US AUTO INDUSTRY

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HHI INDEX

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Threat of new entrants (Moderate)

• Require significant economies of scale.• Need substantial market share to reach minimum

efficient scale.• large capital investment required.

Bargaining power of buyer(Low)

• Customers can easily, and with little cost, switch to other auto dealers.

• But many individual customers, each representing a small proportion of total sales, they will have little bargaining power

Threat of substitutes (High)

• lack of credit, heightened environmental awareness, and fears of increasing oil prices People could use public transportation

Rivalry among existing competitors (High)

• more intense • compete on both price and non-price dimensions

Power of suppliers(Moderate)

• large supplier networks ,The suppliers and the

manufacturers need each other. •most suppliers are not reliant on just one automaker

• United Auto Workers (UAW), the only supplier of labor enjoys dominance.

A strategic group is a group of firms in an industry following the same or similar strategy.

Two unassailable assumptions in industry analysisNo two firms are totally differentNo two firms are exactly the same

Identifying strategic groups:• Identify principal strategic variables which distinguish

firms.• Position each firm in relation to these variables.• Identify clusters.

Strategic Group Analysis

Strategic Groups within IndustriesStrategic groupsCluster of firms that share similar strategies

• Breadth of product and geographic scope• Price/quality• Degree of vertical integration• Type of distribution system

Value of strategic groups as an analytical tool• Identify barriers to mobility that protect a group

from attacks by other groups• Identify groups whose competitive position may be

marginal or tenuous• Chart the future direction of firms’ strategies• Thinking through the implications of each industry

trend for the strategic group as a whole

Strategic Groups and their Mobility Barriers

Capital Req, Supply side scale, Service network , Logistics , Innovation

Technology, Brand Image, Innovation

Brand Image, Marketing

Unattractive market, Poor Brand Image(in the U.S)

Product Positioning Diagram based on Customer Perception

• To gain competitive advantage, a firm must correctly position its products against competitive offerings.

• “Mental Map” of how our product is perceived by consumers relative to the different competing products in the marketplace – Positioning Perceptual Map

• Techniques to construct Perceptual Maps– Multidimensional Scaling– Factor Analysis

What is a Perceptual Map

• A perceptual map is a visual representation of how target customers view the competing alternatives in a Euclidean space which represents the market

• The map has the following characteristics:

– Pair-wise distances between product alternatives directly indicate how close or far apart the products are in the minds of customers

– A vector on the map indicates both magnitude and direction in the Euclidean space.

– The axes of the map are a special set of vectors suggesting the underlying dimensions that best characterize how customers differentiate between alternatives

Perceptual Mapping Process

Step 1: Select the relevant products (Relevance means that the set of products chosen must be the set of competitive products that are relevant for managerial decision-making)– General Motors and Toyota

Step 2: Decide on the set of relevant attributes on which to capture consumer perceptions– Prior quantitative or qualitative research– High prestige, sporty, affordable, economical, quiet etc.

Step 3: Decide on the variables suggesting the underlying dimensions – Dependable, Performance– Practical, Classy

Dependable, Reliable

Practical, Affordable

High Prestige

Innovation

Unreliable

Value

Performance

Environment Friendly

Safety

Toyota

GMC

Classy, Distinctive

Sporty

Chevy

Buick

Lexus Cadillac

Scion

Hummer Pontiac

Value Chain Analysis

• Procurement– Integration: from 27 purchasing orgs to 1 (i) – Highest industry-wide annual productivity improvement over past six

years. (ii)• Inbound logistics

– Vector SCM: estd. 2000 (iii)• Marketing and Sales

– Plans to wind down four of its eight vehicle brands– Saturn, Hummer, Saab, Potiac up for sale/ under review – 4 "core" brands - Chevy, Cadillac, Buick, GMC – 83% of sales (iv)– Repositioning key brands: dropping prices to Toyota levels.– Increased spending: 2008(Q1,2,3), spent $484 mn to Toyota‘s $386 mn -

$170 mn on Chevy alone, sales up 50%. (v)

• Technology– GM R&D: world’s first automotive research center– New systems – The OnStar feature (vi) – Advanced propulsion technology (vii)– Lithium ion battery tech for new electric vehicle– In 2003, Global network for R&D

• Operations– Regions: Asia / Pacific, Europe, North America and Latin America– Brands: Buick, Cadillac, GMC, Chevrolet, Vauxhall, Opel, Holden,

Daewoo• Service

– 2006 campaign to increase dealer customer service satisfaction. – J.D. Power survey on customer satisfaction- 2/3 spots (viii)

Value Chain Analysis

• HR– Huge financial losses: HR policies termed one of the reasons– Cost of healthcare per vehicle > $1,500 in U.S.- 3 X (Toyota) (ix)– Different HR policies in different facilitiesSince 2000: HR restructuring: Tactical to a strategic role– "3Ts," or technology, talent, transformation (x)– GoFast Campaign:‖ 7,000 workshops, $500+ Mn Saved (xi)– GM wins Workforce Management Optimus Award– Centralization across GM - toward globally standard training

programs.

• Outbound Logistics– BTO/BTS model: distribution channel ἠ reduces $3,600

cost/vehicle (xii) – Centralization of distribution (Buick, Pontiac, GMC)– Retail Inventory Management (RIM) system (xiii)

References(i): GM Case p.5(ii): GM Case p.6(iii): “GM: Building a Digital Loyalty Network” p.14-15(iv): “GM Plays Brand Favorites”(v): “GM Plays Brand Favorites”(vi): “Demand innovation: GM's OnStar case.”(vii): Datamonitor Report: General Motors Corporation p.42(viii): “Customers Are Happier with Dealerships’ Service Work”(ix): “GM Case p.12”(x): “HR Magazine, March, 2002 by Bill Leonard”(xi): “GM Goes Fast” (xii): “GM: Building a Digital Loyalty Network” p.11(xiii): “Inventory Management Evolves at Dealerships”

Thank You.