Social Business Analysis — the Automobile Industry
The modern day automobile industry is extremely complex and subjected to the influence of a series of factors from the economic, social, political, technological or otherwise fields. At the level of the economic state — both nationally as well as internationally — the trend up to the end of 2007 was that of increasing consumer purchasing power and as such the growing demand for the industry’s products and services. Nevertheless, as the American real estate crisis quickly spread throughout the rest of the American industries, as well as the rest of the global countries, this purchasing power decreased. “The down-trend exhibited by the U.S. economy is hemorrhaging at a rate that is alien to the previous five decades” (Buzzle.com).
The economic crisis generated a social impact — unemployment. In a context in which more and more firms were downsizing or even filing for bankruptcy, the American citizens were left without jobs. Families had to live by on lowered incomes and the direct consequence was that of decreasing the household spending.
This impact can be analyzed from two different angles — the spending allocated to necessary commodities and the spending allocated to large household purchases. While the necessary commodities are imperative, they have been maintained, but the budget allocated has generically been decreased. On the other hand, the large household purchases were cut to a minimum and families only engaged in such purchases when these were absolutely compulsory. In terms of daily commodities, the most relevant example is offered by one stop commodity stores such as Wal-Mart, which have been registering steady or even increasing revenues, indicating that commodities are still needed and purchased.
Automobiles however belong to the second category and a massive reduction in purchases has been observed, as the American automobile industry entered a depression (Global Economic Forum, 2009). In 2006 for instance, cars totaled over 53 per cent of all transactions in the U.S. By 2009, they represented less than 45 per cent. The graph below reveals:
Source: The Oildrum
In the simplest formulation, the socio-economic problem of unemployment materialized in decreased demands for automobiles. The situation reveals a series of threats for the players within the industry. The three most important such threats refer to the following:
1. The necessity to reduce organizational costs. This virtually implies the necessity to rethink the entire organizational budgets in order to register savings. Examples as to how this could be achieved include the reduction of marketing budgets, the replacement of the current technologies with more cost efficient ones, the reduction of personnel expenditures and so on.
2. The necessity to implement various processes of organizational change in order to increase operational efficiency and as such reduce operational costs. This is the sole mechanisms of improving the organizational position within the industry and consolidating a solid competitive strength.
3. The need to develop and implement stronger and more efficient marketing campaigns which appeal and attract more consumers. This is directly linked to the overall organizational necessity to increase the market penetration and the market share. The approach to this implication would be that of selling the company vehicles in other foreign regions. Through the lenses of the Ansoff matrix, this indicates the necessity to develop and implement a strategy of market development through which the existing products are sold onto new markets.
Another force which is impacting the automobile industry has a technological nature, but also a social manifestation. Throughout the past years, technology has evolved dramatically and it has come to impact virtually all life activities. Within the automobile industry, it has translated in the development of more powerful and hi-tech automobiles. The customers grew accustomed to technological evolution and the integration of the technologies within their vehicles. The direct implication of this situation is that of increased consumer demands for the automobiles to be highly technological, well developed and to serve a wide array of complementary functions. Modern day customers for instance expect their vehicles to be more personalized, to be safer or to be more comfortable — all requirements which are created with the aid of technology. In other words, the advent of technology has materialized in the social impact of more demanding and pretentious customers. The industry implication is revealed by the necessity to integrate technological developments at higher degrees and as such satisfy the growing demands of the consumers.
Another social issue impacting the automobile industry is given by the population’s pressure towards environmental stability. The United States of America generates one third of the entire global consumption and pollution levels. And the finite nature of the resources means that this life style is unsustainable. As the populations accept this fact, they strive to become more environmentally responsible. Aside personal changes such as recycling or lowering the levels of consumption, individuals also pressure the economic agents to become more environmentally responsible.
In a context of environmental instability and decreased purchasing powers, a trend has been observed in an incremental demand for small size, fuel efficient engine vehicles. These automobiles consume less combustible and generate benefits such as decreased levels of eliminated waste, lower levels of carbon dioxide emissions, as well as reduced gas budgets. The American industry was initially unable to understand this trend and it continued to manufacture large size and luxurious vehicles. This decision was in fact supported by the American history and life style, but it soon proved unsustainable and environmentally and financially unsound.
As the American automobile manufacturers continued with their initial production models, the Asian manufacturers capitalized on the new social demand for small size and fuel efficient engines. It has even come to a situation in which the domestic consumers were no longer purchasing U.S. made automobiles, but were waiting for Japanese vehicles to be manufactured and delivered. The direct result was the demise of American automobiles not only in the international arena, but also within the United States. The increasing popularity of Asian automobiles in the U.S. was named a “critical cause of Detroit’s affliction” (Ingrassia, 2010). The table below reveals the increases in imported cars sales in the United States.
Source: The Oildrum
As the economic crisis hit, national manufacturers proved unable to independently resist the pressures. The firms have received funds under the Troubled Asset Relief Program (TARP) and still have a long way to recovery. In light of this situation, the implication for the automobile manufacturers is that of correlating the need for more affordable automobiles with that for more environmentally friendly vehicles. This could be achieved through internal efforts such as:
Enhanced processes of automobile design
The use of organizational efficiency to reduce costs which can be reflected in reductions of the retail prices to consumers
The development and implementation of internal programs of social and environmental responsibility. Not only will these programs help the company become a more valuable member of the society, they will also improve the organizational reputation and as such support an increasing demand for the company’s products and services.
The integration of more environmentally friendly techniques and procedures within the manufacturing processes
The support for recycling of materials, including the provision of an environmentally safe manner of disposing of the used vehicles.
In a different formulation, the automobile industry is presented with the following threats:
Decreasing demands for its products and services
Increasing organizational costs
Intensifying environmental pressures
At the level of the opportunities, these refer to the following:
The ability to expand the operations and the products to new regions
The technological support to develop better products
The customer pressure to develop newer, better and more competitive automobiles.
At the broadest level, the implication most important to be remembered is that of always remaining alert to modifications in the social community, but also in the economic, political, technological, environmental or otherwise fields. As the situations previously discussed have shown, most of the social changes have their roots in other fields, which means that automobile manufacturers have to constantly assess and review the totality of the modifications which reveal an ability to impact the industry, as well as its consumers. The targeted situation is that of being able to identify and serve customer needs even before the clients become aware of the existence of these needs.
Additionally, there is a vicious circle in the meaning that the society generates impacts upon the automobile industry, but then, the change sin the industry generate changes in the society. For instance, as the automobile industry responds to customer demands, these demands increase and change. They for instance request higher levels of social responsibility at all global, national and social level, which include elements such as: environmental responsibility through the reduction of industrial pollution, as well as automobile emissions; community support or employee respect.
Ingrassia, P., 2010, Crash course: the American automobile industry’s road from glory to disaster, the Washington Post, http://www.washingtonpost.com/wp-srv/style/longterm/books/chap1/crashcourse.htm last accessed on October 4, 2010
Nascimento, L.F., Technological innovation and ecological concern in the automobile industry: case studies in Brazil, Portal Gestao Ambiental, http://www.portalga.ea.ufrgs.br/acervo/ga_art_22.pdf last accessed on October 4, 2010
Orsato, R.J., Wells, P., 2007, the automobile industry and sustainability, Journal of Cleaner Production, Vol. 15, No. 11-12
2009, Auto industry in global depression, Global Economic Crisis, http://www.globaleconomiccrisis.com/blog/archives/190 last accessed on October 4, 2010
US economic crisis: impact on automobile industry, Buzzle, http://www.buzzle.com/articles/us-economic-crisis-impact-on-automobile-industry.html last accessed on October 4, 2010
2009, Clucker Flunker? An Observation in Hindsight, the Oildrum, http://www.theoildrum.com/node/5872 last accessed on October 6, 2010
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