This industry is considered the most mature in the world; however, it is faced with several changes both in the internal and the external factors. The policies advanced by the US government in this sector has fueled an increase in the manufacturing operations and resulting products, cost competition increasing. This sector is said to the most beneficial in the US in terms of revenue and employment opportunities and thus one the economy drivers.
This essay basically discusses the U.S. automotive manufacturing industry in the US. The first section discusses the history of the industry in general. Then it covers the challenges facing this sector in an in-depth manner. The competitiveness and product strategy is analyzed, particularly in the areas of automotive manufacturing and product innovations and development. The production methods and mechanisms, human resource allocations, technological changes, regulatory environment, ethical issues and financing challenges are also discussed. The final part of the essay covers the trends in the industry and the policies and strategies the US economy is establishing to position it a global leader in the automobile industry.
Definition and History of the Industry
Richard and Sidney observed several changes in the automobile sector and the indicated that;
“The historical developments and innovations in fuels, automobile components, infrastructure, and manufacturing and production practices, as well as changes in markets dynamics, suppliers and business structures have led to the evolution of the automotive industry” (p. 43).
The history of automobile dates back in the 1600 century when there were sail-mounted carriages which were driven by some machine. It is believed that the innovation of the engine was the beginning of the automobile industry. In the 1700 steam engines were used and later in the 1800 century there were the use of gasoline and gas. In 1876 a 4 stroke engine was developed in an internal combustion engine which used gasoline to propel the vehicle, this innovation spurred the development of the first automotive firm in the US (Klepper, p. 48).
In the 1890s and the early 1900s there were numerous developments in the automobile sector with innovations in the steering wheel, floor mounted accelerator etc. these developments made the use of these automobiles easier. At this period there were developments in the financial and the legal sectors to facilitate the adoption of this new innovation e.g. the issue of licenses, gas stations began to be opened and the financial market began to package the services to facilitate clients to own these automobiles. The common model at this period was the ford’s model T but after 1906 there was the design of the vehicles in such a way that they possessed the motorage shape or appearance (Klepper, p. 49).
In the early 1910 there were a shift and the introduction of the production practices and the establishment of new business strategies. Rules like the traffic rules were accompanied by traffic lights and road signs. In 1913 the assembly line of Henry ford was launches and that market the full adoption of this new innovations in the US way of life. In this period there were a lot of business strategies evident in the existing firms in that they started mass production to meet the increasing demand at the time. Mergers and expansive strategies were observed in the market and thus the government started the road building projects in various parts of the US (Jovanovic, p. 649). The economies of large scale way achieved by may firms at the time and the competitive strategy that was used by the firms was to increase the product variety in the market. In the 1930s the market was better placed to the increasing number of the automobile in the market and there was emergence of new brands, this increase in the brands saw the General motor gain a competitive advantage over Ford (Utterback and Fernando, p. 3).
Challenges Facing the Automobile Industry
The automobile industry in the US is faced with many challenges ranging from the internal and the external forces. The automotive business is played out on a worldwide stage. Supply chains are long and complex, and there are many important players both upstream and downstream of the major manufacturers. Although private sector companies dominate many aspects of the industry in the developed world, governments have historically played, and will likely continue to play, major roles in shaping the industry (Klepper and John, p. 567).
Sales volume is likely to continue its exponential growth in developing countries, and comparatively flat demand will continue in the developed world. Severe competition is likely in every segment of the supply chain, driving innovation in business models and causing continued turbulence in the standings of different players. The industry will continue as a knowledge-intensive industry, as opposed to just cutting, forming, and joining metal. Consequently, intellectual asset development will increase as a key competence for all firms. As in many other industries, electronics will continue its inexorable march into the product. Designers have myriad ideas for increased electronic control of the vehicle, and consumers seem to like such features.
Some of the challenges in this sector include (Klepper and John, p. 568);
Competiveness in the automobile industry is usually in form of cost, quality and product offering. It is the most critical issue in the sector due to the sensitivity of the products they deal with and not a single company can survive today when their competitive strategy is neglected. Competiveness can be analyzed in the following areas (Klepper and Kenneth, 2000a, p. 379);
Due to the complexity of the production process the firms need to efficiently utilize the available resources as possible. The design, development, supply chain and the production process determines the success of the products. Since it is composed of different parts the production mechanism should be as accurate as possible to ensure that the parts fit together well and if not the problem or error is tracked down to the source and eliminated to eliminate any chance the product will be faulty.
The manufacturing process should be designed in a way that it does not have any errors and is as efficient as possible. In the recent past the differences in the quality, productivity and diversity are basically declining and thus in the right track for development. This has enabled the firms locate some of the firms in the regions where the raw materials are found and some are manufactured in foreign countries and brought in as finished parts for assembly. This is basically because of the cost reduction mechanism and the exploitation of cheap labor and materials especially in developing countries. The firms which produce the products in the lowest prices are basically the cheapest and thus they use the price as a competitive strategy (Carroll et al, p. 117-137).
The product performance normalization mechanism was introduced in the 1980s to reduce the differences in the vehicle designs and the plant manufacturing methods. The firms which adopt and use this mechanism effectively can use it as a completive strategy in the market. The productivity level also influenced the firms overall cost and thus will influence the cost of the final products (Utterback and Fernando, p. 13).
The firms with produces the products of the highest quality and best design are usually preferred i.e. The brand which has a history of few or no complications in its operations or design gains a competitive edge. In the current market the firms are basically using this mechanism to influence the products and to increase its public image and thus the products are thoroughly tested before they can be used by the consumers.
Product Development Performance
Automakers frequently face the biggest challenge to create high quality vehicles and maintain a corporate environment which is respected in all areas of the economy. To achieve this status, they must be adapting to a favorable management design which is corroborative in nature. The consumer needs and preferences should be incorporated to the product design, this would be an advantage to the firm which looks into the consumer needs and thus it should incorporate brands that suite its different consumers to make sure that it captures all the consumers in their scope (Brittain and John, p. 66).
Marketing and Consumer Demand
The world’s automotive manufacturing and production sector consists of about 20 firms which operate in different parts of the world as FDI or in joint ventures. The automotive supply sector is however composed of the largest majority of dealers with more than 10,000 players in the market. In such a sector it is extremely difficult to make inferences without a comprehensive study of the players. This restructuring process has attracted less attention than the production sector’s changes since it does not directly affect the human resources in the sector of the economics dynamics. The trend in the sector is shifting from the earlier stand of capital and labor intensive to being more of information technology intensive. This has been necessitated by the increase in the flexibility and mobility of both labor and capital as factors of production. The firms which take advantage of this information resource will have the highest number of sales and thus a competitive advantage (Franco and Darren, p. 78). Preliminary research reveals early development of a number of new business structures and methods. Following are brief discussions of key trends emerging in this diverse industrial segment.
Key Issues in Distribution, Retailing, and Post manufacturing
This sector has basically faced numerous changes in the past, it is characterized by a relatively tightly and organized supply and value chains. Most of these firms’ policies and strategies in the sector are basically influenced by the consumer behaviors their actions are basically ever-changing due to the fact that the consumer needs change with time and thus the prediction of the market trends has basically had a lot of impact in the firm’s operations mechanisms (Epstein, p. 90).
A set of loose linkages, constantly negotiated among a wide variety of independent companies determine the Industrial performance in the post manufacturing sector, this may include automakers, parts suppliers, dealers, transportation companies, information services companies, advertising and marketing organizations, consumer groups, fleet owners, vehicle auctions, financial providers, and independent service and repair organizations.
Since much of the control of this portion of the value chain occurs within the jurisdiction of state laws, local policy issues are often far more important at this end. If an automaker wants to improve its pre-manufacturing efficiency, it can focus suppliers on relatively homogenous performance measures throughout the linked production chain, such as manufacturing hours per vehicle or quality targets.
If an automaker wants to improve its post manufacturing inventory management, however, it faces a much more complex array of players and relatively few homogenous measures of performance. IMVP site interviews show that interdealer transfers (cars shipped between dealers to match local demand patterns) can range from as low as 5 percent to as high as 50 percent of sales within a single brand, depending on the dealer and the region. This finding indicates that both dealer and region can represent significant factors for profitable and efficient distribution (Holbrook et al, p.123).
Dealers within a single brand may create dramatically different positions with their customers. Some may adopt a Saturn-like “no haggle” posture; others may openly publicize the fact that they negotiate prices. There are high performers and low performers in all of these categories. Early research shows that diversity proliferates in this system that many have considered to be uniform. Thus, improving the distribution system will be quite different from improving the factories in the supply chain. Inventory control requires orchestrating the behavior of car salespeople, dealer-owners, market data companies, transport companies, national and local advertising and promotion channels (television, radio, print, online), capital suppliers, and others. None of these players are owned by the automaker, and many are not contracted directly to the auto company (Horvath et al, p. 1017).
Financing is probably the most challenging factor in the sector; the existence of a developed financial has greatly assisted in the financing of the sector. Most of the firms are public companies with some from foreign countries e.g. Toyota and Mitsubishi from Japan. The financial muscle of the sector is of little help if technological and efficient productions mechanisms are not in place and thus most of the financing apart from the operation costs are channeled to the research and development purposes.
The research and development sector has become one of the most beneficial sectors since the sector is greatly influenced by the consumer behaviors and trends. Since the entrance of the foreign competitors in the US market there has been some restructuring processes to facilitate the development of the financial sector. There have been some reforms in the auto financing sectors as evident in the Wall Street reform bill which addressed the consumer financial woes in the sector; they are designed to effectively protect the consumers and their interests.
The investment sector in the US is the best source of financing by these companies which might need additional financing in the future. During the 2009 recession some of these companies were adversely affected and thus the government had to bail them out, which it did. This shows the importance of this sector in the economy and thus there have been numerous changes in the regulatory framework in all the aspects of the business in the recent past. We expect that the automotive industry will continue to be thought of around the world as “the industry of industries,” due not only to its sheer size in the economy of nations, but also to the high-dimensional complexity it exhibits.
Human resource management practices and trends and plays a vital role in the economic performance and competitiveness of the American auto industry and serve as the determining factor on the survival of the sector. These human resource practices are interlinked with technology and production strategies and practices. The fact is that the combinations of human and technical resource injected in the sector have become the major determinants of manufacturing performance levels.
Automotive human resource sector particularly in the US automobile industry has been hit by three major determining forces (Klepper and Kenneth, 2000c, p. 79):
- The industry has reduced its capacity by the adoption of the information technology and the automation production mechanism.
- The industry has improved its productivity and manufacturing trends, requiring fewer workers to make the vehicles demanded
- The level of unionization in the sector has declined tremendously.
There is a higher wage differential between employees of the US automobile industry and employees of the supplier sector who in this case are disadvantaged due to these factors. This has made the United Auto Workers (UAW) membership reduce its cooperation with the other national unions. This trend is expected to increase the outsourcing trends in the US and thus influencing the internal dynamics in a negative way, this will basically be caused by the high cost of the human resource in the US automobile production sectors
Human resources Management Innovations in the U.S. Auto Industry
There is a high wage rate in the auto production jobs in the United States as compared to the other sectors of the economy, human resource management cooperation and workplace innovation should be the new developments in the sector to ensure that it has an upper hand to reduce the costs and to increase the productivity in the sector. Previous research in the sector has recommended the following aspects to try and make the sector’s human resources reliable;
- Limits on human resource management teams. The law restricts any forms of human resources participation in non-union relationships and places limits on their unions and any form of collective bargaining relationships against the firm.
- Union recognition. There is minimal and reducing willingness of the firms to recognize the unions since there are commissions which regulate the wage rates in all the sectors of the economy. This negative attributes in the entrance of the unions in the firms operations faced a lot of restrictions and minimum cooperation from the management thus further straining the human resources innovative strategies. These tensions make it difficult for union leaders to be unwavering champions of cooperation and innovation in relations with management. The cooperative relations and trust required to sustain workplace innovations within and across companies are not likely unless there is a de-escalation of labor management conflict in new plants and new union organizations. The full benefits of these workplace innovations will not be realized until these larger conflicts are reduced.
- Economic pressures. Economic pressures for downsizing, outsourcing, cost controls, and short-term performance to compete in the market also act as a hindrance to the human resource innovation strategies.
The automobile is a highly engineered, sophisticated product that meets stringent reliability, durability, and social requirements. Its design, manufacture, and operation call more and more for cutting edge technology. The US automobile industry companies have a long history of aggressively pursuing research and development (R&D) to stay competitive, to meet the changing needs of the consumer, and to meet federal requirements. The diverse ways in which the companies meet these technologies needs reflect their diverse corporate competitive strategies. General Motors Research has historically emphasized internal corporate research and is currently the top corporate investor in R&D in the United States.,
GM is placing much greater stress on the integration of its research efforts with the product planning of its car and truck divisions. The GM tech center in Warren, Michigan, reflects this change. The center’s R&D plans are more focused on the needs of its operating divisions and its customers; more speculative R&D has been reduced. The center is now organized as a business unit, with its research portfolio fully open to GM’s product development community. The center’s director has set a goal of placing 50 percent of projects into production in two to three years. Consideration is also being given to licensing GM inventions throughout the industry.
To meet its R&D needs, Ford relies on the Ford Research laboratory, which employs over 650 full-time scientists and engineers. In general, the objective of the research staff is to provide long-range technical leadership to the corporation worldwide. This means the lab is involved in a spectrum of activities ranging from the development of advanced product and manufacturing technologies to long-range, relevant research in key scientific and engineering disciplines. The research staff maintains a mix of long-, medium-, and short-range programs. Short-range efforts generally have a goal of solving immediate or pressing production problems and account for about 10 percent of Ford’s efforts. Medium range projects are directed toward specific goals to meet longer-term company needs and generally make up about 80 percent of Ford’s efforts.
Safety Concerns and the Automobile
The level of safety achieved by today’s vehicles far exceeds what was available several decades ago. While government regulation has played an important role, changes in consumer preferences and in public attitudes have also been important factors. The cumulative impact of government regulations requiring seat belts, padding, reinforcements, and a myriad of other features has made vehicles much safer in the event of a crash. In addition, our transportation infrastructure, particularly the interstate system, incorporates more safety features.
Auto safety has also improved as a result of consumer demand for safety features that go beyond current regulations, such as air bags and antilock braking. In other words, safety sells. Finally, society’s attitudes toward intoxicated drivers, a major cause of traffic accidents, have hardened quite dramatically over the past few decades; a drunk driver is more likely to be viewed today as a callous criminal than a wayward reveler.
The automobile industry advertises vehicles in ways that glorify and encourage behavior that increases risk to all road users, including other drivers uninterested in the advertised product. The ethical issues can be viewed in the aspect of labor relations, social responsibility, and equality in employment opportunities. This sector of the US economy has however faced a lot of ethical challenges which are basically based of the product defects and the ease at which they respond to them.
It can be however noted that the sector is highly regulated and its contribution to the economy basically brings with it a lot of social responsibility and thus increasing their operating costs in that they are faced with a lot of problems which are sometimes associated with the high number of dealers in the sector. In the internal operations of the firms they have an ethical standard which is basically maintained to ensure that the products they produce are of the required quality and thus there will be no complaints in the market, this is basically evident in the engineering designs mechanisms and the testing mechanisms.
Environmental Concerns and the Automobile
The automobile industry epitomizes the environmental challenge of today. It is a large consumer of a critical and limited fossil energy resource; in many countries it is the largest contributor to man-made greenhouse gas emissions and brings large amounts of lead into contact with people; it is the prime cause of urban smog; it is noisy and contributes to congested cities; and its manufacture produces an array of emissions, including those from the mining and production of steel and the painting of auto bodies. In spite of great strides in the technical performance of individual vehicles, many problems remain (Carroll et al, p. 117-137).
The environmental challenges the automobile industry faces today are radically different from those it has confronted over the past three decades. These differences arise from major changes in their technological, economic, and political context, and their resolution will require a serious reexamination of the corporate and governmental institutions with which the automobile industry must interact.
Automobile Technology and Environmental Initiatives
Automobile technology has followed a trajectory of ever-increasing utility and complexity, both in general and with regard to the environment. Today’s automobiles are vastly cleaner, more efficient, and less harmful to the environment than their 1970s counterparts. A whole series of environmental issues (such as the automobile recycling crisis of the 1960s; the need to reduce airborne emissions of lead, hydrocarbons, carbon monoxide, and nitrogen oxides; the need to increase fuel economy; and more recently the global banning of chlorofluorocarbons) have been largely resolved through technologies that enable automakers to provide an economical product with equivalent (if not better) performance while meeting environmental objectives ( Utterback and Fernando, p.24).
Today the industry faces environmental challenges that raise complex and controversial issues and which can best be resolved with the full involvement of both government and industry. Today, the industry faces environment challenges that raise complex and controversial issues and that can best be resolved with full involvement of both government and industry.
Although there is no such thing as a zero-emission vehicle (pollution will be created somewhere by the construction, use, and disposal of the vehicle), a number of initiatives bear this rubric. Spurred by the California clean air standards, the zero-emission car initiatives exemplify technology-forcing regulation. In spite of researchers’ best efforts; electric battery technology critically limits even the most advanced electric car to roughly 100 miles between charges. With advanced battery technologies still years away from production, automakers must rely on lead-acid batteries, with the concomitant introduction of more lead, rather than less, into the automobile materials cycle (Klepper, p. 50). Furthermore, the influence of such vehicles on net air quality is increasingly in question, particularly in light of the continuing, documented air quality improvements arising from the replacement of old vehicles with newer ones.
Reducing the weight of the automobile has been a design strategy since the onset of the Corporate Average Fuel Economy standards, both by reducing vehicle size and by reducing weight through material substitution. However, material substitution is not a simple process. Changes in materials require changes in manufacturing technology, which is constrained by the economics of large-volume production.
Henry Ford’s assembly line would have been infeasible had he chosen to employ the traditional automobile material of his era, wood. It was his choice of steel, which could be formed and joined in seconds that made his assembly line feasible and cost-effective. Many advanced materials are available and are used in applications ranging from sporting goods to advanced aerospace vehicles. However, none of them are fabricated in ways even remotely compatible with the rates of automobile manufacture (Kimes, p. 90)
Recycling in the United States is entirely a private industry undertaking, composed of a large and profitable infrastructure of dismantlers, shredders, and nonferrous metal processors supplying used parts and secondary metals. Recycling has emerged as an environmental issue for the automobile over the past five years; primarily in response to European initiatives, but it is actually a relatively old issue i.e. one that has already been resolved once.
The Industry Responses, Strategies and Solutions
Globalization in the automotive industry was seen at its peak when the Japanese auto giant makers Toyota and Mitsubishi invested and opened production lines in the US in the 1980s. In the recent past the speed of globalization in this sector has dramatically intensified and thus global sourcing is becoming a competitive advantage mechanism.
Squeezed by intense competition as well as industry overcapacity, high labor costs in mature markets and customer resistance to price increases, automotive companies must establish sustainable and flexible cost structures, driving them to relocate global sourcing to “low-cost” regions, Asia, in particular. The global sourcing is basically a cost cutting measure for US makers to reduce the production costs and this is outsourced in places like China, India, and Brazil etc. In addition, as they establish optimal global manufacturing capabilities, automotive companies also must refine their product development strategies to respond to the demands of these emerging markets (Jovanovic and Glen, p. 322).
In situations where there are tight financing mechanisms the firms are basically in dilemma as to which amounts to invest in the research and development mechanisms. The need to develop new technologies and innovative products able to lure consumers and provide a competitive edge has never been more important for maintaining profitability over the long term. Car buyers are looking for new features such as navigation tools, in-car telematics, entertainment options and safety improvements, but resist paying premiums for these advancements. The internal financing of the research and development programs is becoming increasingly difficult and this is basically caused by the increasing costs and pricing pressure in the sector. The industry has become less attractive in the recent past and thus they cannot be able to effectively acquire the financed they require in the innovative projects especially in the short run.
The greatest challenge in the sector can be said to be the need to innovate with the limited financial resources in the sector, this is the sector which is basically concerned with the designing the products to fit the needs of the consumers and thus should not be ignored in any way. With this kind of situation, they need to optimally exploit the internal strengths to achieve the maximum benefits. They can also form joint ventures with companies which will enable them expand their product offering and thus expanding the products in more units (Carroll et al, p. 133).
Cost and production structure
Competition and cost constraints are basically one of the greatest challenges facing the industry in recent times and this is forcing most of the firms to establish and maintain a variable cost structure in their organizational structure. This is basically to enable them manage their cash and to adjust promptly to any volatility in demand which might arise and also enable them respond to new business opportunities to boost their market share. They do this through outsourcing, partnerships, technology innovation and new production methods. The variability of costs and expenses may have some implications to the partners in the firms. The joint ventures and the technology agreements in this case should be adjusted to conform to the initial intended relationship and thus some cases like taking equity stakes in each other and forging these relationships have been evident. In the current situation suppliers are aligning themselves in a way that they remain competitive amidst the emergence of new players in the market (Carroll et al, p. 117-137).
Recommendations and Conclusions
This study synthesizes our understanding of a complex global industry. It seeks to identify important trends, competitiveness issues, and topics relevant to public policy. The most important points are these (Klepper and Kenneth, 2000c, p. 378):
The automotive business is played out on a worldwide stage. Supply chains are long and complex, and there are many important players both upstream and downstream of the major manufacturers. Furthermore, long supply chains exist within the major manufacturers as well. Consequently, competition can be thought of as occurring between supply chains with the added complexity that these chains may share common elements. Competition may also occur within supply chains. Speed and flexibility in detecting shifts in market opportunities and reconfiguring the supply chains to respond to the opportunities will be the important rent-earning assets.
Although private sector companies dominate many aspects of the industry in the developed world, governments have historically played, and will likely continue to play, major roles in shaping the industry. The U.S. government has significantly influenced the emissions, economy, and safety features of cars. The government of China will likely decide which companies will be allowed to participate in the development of China’s automotive industry as well as the rules of that development.
Sales volume is likely to continue its exponential growth in developing countries, and comparatively flat demand will continue in the developed world. As a result, much of the new investment and perhaps many product innovations will occur in the developing world. Therefore, production volumes, real wages, and working conditions are likely to improve significantly in the developing world. Developing countries such as Korea hope to become significant exporters, above and beyond satisfying their burgeoning domestic markets.
Severe competition is likely in every segment of the supply chain, driving innovation in business models and causing continued turbulence in the standings of different players. Global sourcing is not likely to disappear; however, it will be tested as to when it is optimal for the entire manufacturing-to delivery process. In some cases, tight links with longtime partners may give better overall performance than use of lowest cost global suppliers. Especially in the developed world, public sector pressures to make vehicles safer and more environment-friendly are unlikely to abate. These pressures will drive research and innovation in power trains, fuels, electric vehicles, and lightweight materials. Given the twin pressures of government regulation and product competition, car companies that can develop and implement innovations in their supply chains are likely to benefit significantly in finding low-cost ways to meet requirements and put customer-desired features on the vehicles (Hyde, p. 45).
Cost competition will continue to encourage World Car concepts that amortize development efforts over more production units. Government regulations that are not harmonized across borders will continue to limit (at least to some degree) the attainable gains from this strategy, giving companies ample reason to lobby for improved regulatory coordination.
Predicting industry concentration trends is very difficult. For every argument for consolidation, there is another to support the contention that new competitors will surface. The economics of development and manufacturing support concentration, but the splintering of the distribution chain, the geographic dispersion of market demand, and the possible radical shifts in technology (e.g., nonferrous electric vehicles) may encourage disaggregation (Klepper and Kenneth, 2000a, p. 379).
The industry will continue as a knowledge-intensive industry, as opposed to just cutting, forming, and joining metal. Consequently, intellectual asset development will increase as a key competence for all firms. Strategies that jettison intellectual capital in response to cost pressures are likely to lead to ruin in the longer term. Firms should continue to experience significant returns on improved human relations throughout the organization and into the supply chain.
As in many other industries, electronics will continue its inexorable march into the product. Designers have myriad ideas for increased electronic control of the vehicle, and consumers seem to like such features. The continued shrinkage in cost and size of electronic components also makes them attractive. More broadly, the use of electronics will increase for control of the entire transit system, as well as on board the vehicle. These trends are likely to shift more economic power to the suppliers and integrators of automotive electronics technology (Klepper and Kenneth, 1997, p. 36).
Finally, we expect that the automotive industry will continue to be thought of around the world as “the industry of industries,” due not only to its sheer size in the economy of nations, but also to the high-dimensional complexity it exhibits. On so many dimensions’ product complexity in design and manufacture, number of product attributes important to customers, process technology variety, supply chain size and complexity, rate of globalization, intensity of government involvement, complexity of labor relations, and impact on the landscape of human lives the automobile industry presents a scope of management challenges whose complexity dwarfs that of most other industries.
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