Automotive: U.S. Companies Flounder as Asia Flourishes
AUTOMOTIVE INDUSTRY ABSTRACT
2008 Edition
The primary trends in the automotive industry over the past two decades have been centered on two related developments: intensifying competition and globalization. Globalization and increased competition are interrelated trends, where globalization brings greater competition to a market, which in turn compels domestic automakers to seek out new markets, stirring greater competition in the new markets. In response to pressures to control costs, sell vehicles globally, and keep in touch with local consumer tastes, non-U.S. automakers have opened assembly plants in the U.S. Furthermore, global automakers are investing heavily in the rapidly growing markets of China and India. This will allow them to sell to future car owners in these countries and to set up a manufacturing platform for export to global markets.
Global competition and superior product quality of non-U.S. brands has led to a deterioration of U.S. market share for U.S. automakers. This has prompted U.S. automakers to rely on deep discounts to shore-up market share somewhat, but the discounts have eroded profits. The higher level of competition, in conjunction with recent drop in overall units auto sales in the U.S. due to the falloff in consumer spending, has also spurred U.S. automakers to reorganize, causing The Big-Three to implement sizable restructuring plans. But much more dynamic restructuring is needed, including controlling spiraling benefit obligation costs and broader brand marketing strokes.
Swirling above this storm is the inevitability of further environmental and safety regulations. The Clean Air Act of 1990 mandated new emission levels for the industry. Future legislation for emission standard cuts is expected. Automakers with advanced technology for alternative fuels and hybrids, such as Toyota and Honda, will have a competitive advantage.
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