Salle Daniel Industry Analysis Paper

Submitted By dsalle
Words: 3171
Pages: 13

Daniel Salle MGT 4800 J 10/16/14
The automotive industry in the United States is dominated by five firms, being General Motors, Ford, Honda, Hyundai, and Toyota. These companies assemble automobiles and manufacture chassis, and together these companies make up 70% of the total market share of a $102 billion industry that has 202 companies (refer to figure 1). The types of vehicles the car and automotive industry produce are cars which include mid and full size sedans, sports cars, luxury cars, compact cars, and electric cars. I will not be including any trucks, SUVs, or motorcycles in this report (IBISWorld- Automotive Industry, 2014).
Economic. The automobile industry was hit hard as an effect of the recession. It is an industry that relies on a strong economy in order to be profitable and grow. During the recession, profits fell a drastic 36.4%. The recession revealed how vulnerable the industry is to economic problems. However the recession had a benefit on the industry because interest rates decreased which increased consumer spending. This helped boost profits 40%, which offset the recession. As a result of the recession the government bailed out General Motors and Chrysler in 2008. The government assisted both companies by approving a $34 billion loan after they claimed to file impeding bankruptcy. Even with the help from the government, both companies filed for bankruptcy, but both have been able to pay back the government loan (IBISWorld- Automotive Industry, 2014). The bailout shows the importance of the automobile industry because they were able to persuade the government to loan them billions of dollars. Other economic factors that influence the industry are the price of raw materials that go into manufacturing the cars. The price of steel has been increasing, directly influencing the cost of manufacturing cars which increases the price these companies sell their cars to the public. Other materials may not directly affect the cost to manufacture cars but affects how cars are being built today compared to cars built in the past (IBISWorld- Automotive Industry, 2014). Fuel cost have increased in the past ten years, from being under two dollars a gallon to over three or even four dollars a gallon (refer to figure 2). As a result consumers are demanding vehicles that get better fuel mileage and are smaller, but car companies have historically made larger vehicles that are not great on fuel. I will go into more details about gas prices when I discuss socio-culture, but it has forced companies to change how they build cars (Gas Buddy, 2014).
Political. There is a strong government regulation on the automobile industry that affects how companies operate. The National Highway Traffic and Safety Administration (NHTSA) orders recalls on vehicles that are deemed unsafe. Some manufactures can act on their own and recall vehicles on their own judgment, but more often the government will order the recall. Just recently General Motors recalled 379,000 vehicles ranging from Chevrolets to Cadillac’s (Automotive News, 2014). Recalls can be costly on companies, and that’s not just in the form of tangible cost. Obviously, it will cost the manufacturers to fix the cars and buy the parts, but the biggest hit is the legal cost and their reputation. If there was brake failure and drivers have died as a result of their brakes going out, then they can sue the companies. The biggest cost a company faces is if there are multiple recalls a company experiences. Toyota has